Westpac Banking Corp (WEBNF)

Price$22.75Cached quoteAs of 2026-10-03 12:09 UTC

AI: Overvalued

Price checkThe shares demand stronger long-term returns than Westpac currently earns on shareholder money.

The observed OTC price corresponds to roughly 17 times FY2025 earnings and about 1.6 times accounting book value using the economically equivalent Australian ordinary share. FY2025 basic earnings were A$2.019 per share, while shareholder equity was A$72.8 billion. Recent return on ordinary equity has been around 10%, with first-half 2026 statutory return at 9.6%. Paying well above book value for that return leaves limited value-investor margin of safety unless profitability rises materially and stays there.

Big pictureProfits are durable, but cash movements and future loan growth remain meaningfully cyclical.

Net income has stayed between A$5.5 billion and A$7.2 billion in each year since FY2021, including A$6.9 billion in FY2025. Operating cash flow swung from negative A$19.8 billion in FY2024 to positive A$9.5 billion in FY2025; for banks this measure is distorted by movements in deposits and loans, so earnings and regulatory capital are better durability measures. The main cycle risk is housing: Westpac now expects Australian housing credit growth to slow from 6.8% in FY2026 to 4.7% in FY2027.

Business strengthStrong capital and low stressed loans provide substantial protection against a normal downturn.

Westpac reported a 12.1% core regulatory capital ratio at June 2026, above its 11.25% operating target. Its average liquidity coverage ratio was 134%, while stressed exposures were only 1.19% of total committed exposure. Credit-loss provisions totaled A$5.3 billion, including A$2.0 billion above losses expected in management's base economic case. Capital returns are meaningful: FY2025 dividends consumed about 75% of net income, while A$2.5 billion of a A$3.5 billion buyback had been completed by March 2026, reducing rather than expanding the share count.

What could change the storyHigher profitability could justify today’s valuation, while weaker mortgages would expose its premium quickly.

The bull case requires Westpac to lift returns while protecting credit quality. Third-quarter profit excluding unusual items reached A$1.8 billion, revenue rose 1%, and the lending margin held at 1.89%; planned FY2026 productivity savings exceed A$550 million. The bear case is slower mortgage demand combined with limited margin improvement: applications fell sharply after policy changes, while stressed exposures edged higher. A sustained return on equity comfortably above roughly 11% would improve valuation support; returns near 10% with housing growth around 5% make the current premium difficult to justify.

AI: News

Mortgage outlook resetWestpac cut its housing-growth outlook as mortgage applications weakened, challenging expectations built into bank valuations.

On August 10, Westpac said mortgage applications had fallen about 20% following recent property-policy changes and forecast total housing credit growth slowing from 6.8% in FY2026 to 4.7% in FY2027. Quarterly underlying profit remained A$1.8 billion and the lending margin was stable, so the concern centered more on future growth than current earnings. Reuters reported Westpac's Australian shares fell nearly 6%; that reaction is consistent with the outlook change, though price timing alone cannot prove causation.

First-half profit missHigher loan-loss charges outweighed healthy lending growth and kept first-half earnings slightly below expectations.

Westpac reported first-half statutory profit of A$3.4 billion on May 5, down 5% from the prior half but up 3% from a year earlier. Credit impairment charges rose to A$443 million as the bank increased protection against energy-price and economic risks. Australian housing loans excluding RAMS grew 7%, and business lending grew 16%. The bank declared a 77-cent interim dividend. Reuters reported shares fell about 1.1% amid broader market weakness, making company-specific attribution uncertain.

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Financial statements

	2025	2024	2023	2022	2021	2020	2019	2018	2017	2016
Revenue	$58.05B	$57.18B	$47.08B	$25.70B	$26.64B	$30.53B	$36.96B	$38.07B	$37.37B	$37.66B
Operating expenses	$11.92B	$10.94B	$10.69B	$10.80B	$13.31B	$12.74B	$10.11B	$9.57B	$9.28B	$9.22B
Net income	$6.93B	$6.99B	$7.20B	$5.70B	$5.46B	$2.29B	$6.79B	$8.10B	$8.00B	$7.46B
Net profit margin	11.94%	12.22%	15.30%	22.18%	20.51%	7.51%	18.37%	21.27%	21.40%	19.81%
Basic EPSper basic share	A$2.02	A$2.01	A$2.05	A$1.60	A$1.49	A$0.64	A$1.97	A$2.38	A$2.38	A$2.25
Diluted EPSper diluted share	A$1.99	A$1.92	A$1.95	A$1.52	A$1.38	A$0.64	A$1.90	A$2.30	A$2.29	A$2.18