Westpac has revealed it will suffer a $1.4 billion hit to its first-half earnings.

In a statement, Australia’s second-largest bank said the bulk of these writedowns were related to the AUSTRAC money laundering scandal.

The bank estimated that it might receive a $900 million fine for failing to prevent up to 23 million breaches of money laundering laws via its Litepay system.

If that proves accurate, it will be less than the $1 billion penalty that many banking analysts had forecast.

Westpac’s system was also used by paedophiles to send money to the Philippines to pay for child abuse material without raising any red flags.

This scandal brought down Westpac’s leadership, forcing the resignation of chief executive Brian Hartzer and the early retirement of chairman Lindsay Maxsted.

Westpac said there was “considerable uncertainty” about what the Federal Court would decide.

There was also a chance the bank might agree on an “appropriate penalty” with the regulator AUSTRAC, which the court “would have regard to but [is] not be obliged to accept”.

“The actual penalty paid by Westpac following either a settlement and joint submission on a penalty, or a hearing, and in each case as determined by the [Federal] Court, may be materially higher or lower than the [$900m] provision,” the statement said.

Westpac announced it would also take a $130 million hit to its cash earnings from improving its compliance with financial crime legislation, “support[ing] industry initiatives to enhance financial crime monitoring” and “provid[ing] additional support and resources to organisations working to eradicate child exploitation”.

Its earnings will also be impacted by $260 million due to “customer remediation activities” and “litigation matters”.

Essentially, the bank will refund business customers who were lent money in breach of the National Consumer Credit Protection Act, or responsible lending laws.