WBC Earnings Climb Today as Net Profit Rises 6% on Balance Sheet Growth
"We are optimistic on the outlook for the economy and expect demand for both business and household credit to remain resilient. Our strong financial foundations provide us with the stability and capacity to support our people, customers, shareholders and the broader economy." —…
Westpac Earnings Lift on Balance Sheet Growth and Cost Discipline Westpac Banking Corporation (ASX: WBC) kicked off first quarter FY26 with a solid result, posting an unaudited statutory net profit of $1.9 billion — up 5% on the 2H25 quarterly average. Excluding Notable Items such as hedging adjustments, net profit rose 6% to the same figure. Pre-provision profit climbed 7% to $2.8 billion, underpinned by a 1% rise in net operating income to $5.8 billion and a 5% decline in reported operating expenses. The result was driven primarily by broad-based lending and deposit growth, a stronger Treasury contribution, and ongoing productivity gains — though net interest margin remained under modest pressure from competition and a lower rate environment. Lending and Deposit Momentum Drives Top-Line Growth Loans grew $22 billion (up 3%) during the quarter, with institutional lending leading the charge at 7% growth. Australian housing lending (excluding the RAMS portfolio flagged for sale) expanded 3%, as did business lending. Deposits matched that momentum, growing $12 billion or 2%, with household deposits up 3% and business transactional deposits up 4% — signalling strong franchise engagement across both retail and commercial channels. Non-interest income fell 4% on softer Markets revenue, partially offsetting the 2% lift in net interest income. Operating expenses were stable on an underlying basis, with management targeting more than $500 million in productivity savings through FY26 as part of its broader transformation agenda. NIM Slips as Competition and Rate Dynamics Weigh Group net interest margin dipped 1 basis point to 1.94%, while core NIM fell a sharper 3 basis points to 1.79%, reflecting competitive mortgage and deposit pricing alongside the impact of a lower interest rate environment. Treasury and Markets contributed 15 basis points to the group NIM — up from 13 basis points in the prior period — offering a partial offset, though this component is less recurring than core franchise margins. To provide greater earnings stability, Westpac increased its domestic deposit hedge by $15 billion to $92 billion. Return on tangible equity (ROTE) improved 69 basis points to 11.6%, reflecting the benefit of modest earnings growth and disciplined capital management. Capital and Liquidity Remain Well Above Minimums Westpac's CET1 capital ratio stood at 12.3% (Level 2) as at 31 December 2025, comfortably above the bank's 11.25% target. Liquidity metrics were similarly robust, with an average Liquidity Coverage Ratio of 133% and a Net Stable Funding Ratio of 112%, both above regulatory requirements. The bank issued $18 billion in long-term wholesale funding year-to-date, reinforcing its funding resilience. Post-quarter, management flagged an estimated 22 basis point CET1 benefit from the agreed sale of the $19.6 billion RAMS mortgage portfolio, partially offset by approximately 23 basis points from ongoing share buybacks. Asset quality remained sound, with impairment charges at just 6 basis points of average gross loans and stressed exposures falling 11 basis points to 1.17% of total committed exposures. What's Next... Westpac enters the remainder of FY26 with improving profitability and sound credit fundamentals, but with limited room for error at current valuations. The stock closed at $41.00 on 12 February — near its 52-week high of $41.70 — implying a trailing PE of approximately 20x and a dividend yield of around 3.7–3.9%. Broker sentiment remains cautious, with the FNArena consensus pointing to an average target price of $35.28 across six brokers, implying roughly 14% downside. No broker holds a Buy recommendation. Near-term attention will focus on the trajectory of core NIM amid ongoing rate competition and the RBA's February 2026 rate adjustment, the pace of cost-out delivery against the $500 million FY26 productivity target, completion of the RAMS sale, and early outcomes from transformation programs including UNITE, BizEdge, and the Westpac One institutional platform. A sustained re-rating looks unlikely without clear evidence of margin stabilisation and efficiency gains beyond what the market currently prices in. "We are optimistic on the outlook for the economy and expect demand for both business and household credit to remain resilient. Our strong financial foundations provide us with the stability and capacity to support our people, customers, shareholders and the broader economy." — CEO Anthony Miller
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