Highlights

  • Westpac shares declined 8.1% over the past month to $35.81.
  • Macquarie Research maintained an Underperform recommendation.
  • First-half statutory net profit reached $3.4 billion.
  • Credit Impairment provisions increased amid global uncertainty.
  • Interim Dividend of 77 cents per share was declared fully franked.

Shares in Westpac Banking Corp (ASX:WBC) remained under pressure on May 27, with the stock trading at $35.81 after declining more than 8% over the past month and nearly 5.5% over the past six months. The weakness in the share price comes as investors assess slowing profit momentum, rising credit provisions and broader economic uncertainty linked to global geopolitical tensions.

Adding to the cautious market sentiment, Macquarie Research maintained an Underperform recommendation on the banking group, reflecting concerns around Earnings growth, competitive pressures and the broader outlook for the banking sector.

The stock also traded well below its 52-week high of $43.32, suggesting investors have become increasingly selective toward major Australian banks as Interest Rate expectations, funding conditions and economic risks evolve.

Profitability Holds Steady but Growth Moderates

Westpac reported statutory net profit of $3.4 billion for the first half of FY26, representing a 5% decline from the previous half but a modest increase compared with the same period last year.

Net profit excluding notable items reached $3.5 billion, while the bank declared a fully franked interim dividend of 77 cents per share.

Management pointed to continued momentum across lending and deposit growth, with total loans and customer deposits both increasing 7% over the year. Mortgage growth outpaced system levels excluding RAMS, while Business lending rose 16%, supported by activity across agriculture, health and professional services.

Despite these operational gains, investors appeared focused on the bank’s cautious economic outlook and the impact of higher provisioning levels linked to geopolitical instability and energy market disruption.

Macquarie Maintains Underperform Recommendation

Macquarie Research maintained its Underperform rating on Westpac following the half-year result, highlighting growing investor caution toward the banking sector.

The recommendation reflects concerns that Revenue growth across Australian banks may become harder to sustain if economic conditions soften or competition intensifies further in mortgage and deposit markets.

Westpac’s declining share price over recent months also suggests the market is reassessing valuation levels across major banks after a prolonged period of relative outperformance.

Analysts remain focused on whether earnings growth can continue in an environment where Margin pressure, regulatory costs and provisioning requirements may remain elevated.

Rising Provisions Reflect Global Economic Uncertainty

One of the key themes emerging from Westpac’s update was management’s increasingly cautious approach toward credit quality and macroeconomic risks.

The bank said it increased provisions during the half in response to uncertainty linked to ongoing conflict in the Middle East and associated impacts on energy Supply chains. Higher fuel and energy costs are continuing to affect businesses and households, particularly across energy-intensive sectors.

Westpac added a new portfolio overlay for sectors exposed to elevated energy costs, contributing to a rise in total credit impairment provisions to $5.2 billion.

While customer stress levels were described as relatively stable and resilient overall, the increase in provisions signalled management expects uncertainty to remain elevated through the remainder of the financial year.

Lending and Deposit Growth Continue

Despite the cautious economic backdrop, Westpac continued to report growth across core lending and deposit categories.

Australian housing Loan growth reached 7% over the year, while customer deposits rose to $745.2 billion by March 2026. Business and Wealth deposits also increased as the bank expanded transactional and Savings Account activity.

Management highlighted particular growth across agribusiness lending, which increased 15% during the year as Westpac continued investing in regional Australia.

The bank also opened additional regional service centres and maintained its moratorium on regional branch closures through 2030, positioning itself as a long-term participant in regional banking markets.

However, investors remain aware that loan growth alone may not be sufficient to offset margin pressure and higher operating costs if economic activity slows further.

UNITE Transformation Program Remains in Focus

Westpac also continued executing its UNITE transformation program, which aims to simplify operations and consolidate banking platforms across the organisation.

Management said the bank completed a large-scale migration during March involving BT Panorama and continued progress toward creating a unified commercial banking structure.

Transformation programs of this scale are closely monitored by investors given the operational complexity, execution risks and long-term cost implications often associated with large banking technology projects.

While successful implementation could improve efficiency and customer experience over time, markets generally remain cautious until financial benefits become more visible in earnings performance.

Strong Capital Position Provides Stability

Westpac’s CET1 capital ratio stood at 12.4% at the end of the half, remaining above the bank’s target operating range.

The result reinforced the group’s capital strength and Balance Sheet flexibility despite elevated economic uncertainty. The bank also maintained Liquidity coverage and funding ratios comfortably above regulatory minimums.

During the financial year to date, Westpac raised $24 billion in long-term wholesale funding, supporting balance sheet stability amid changing market conditions.

For investors focused on dividend income and capital preservation, the bank’s capital position may continue to provide some support even as broader sector sentiment weakens.

Industry Trends and Market Context

Australia’s banking sector is navigating a more complex operating environment shaped by global economic uncertainty, shifting interest rate expectations and competitive lending conditions. While higher interest rates previously supported bank profitability through improved margins, competition for deposits and slower economic growth are beginning to affect earnings momentum.

Geopolitical tensions and energy market Volatility are also influencing credit conditions and provisioning practices across global banking systems. At the same time, banks continue investing heavily in digital transformation, Cybersecurity and artificial intelligence capabilities to improve operational efficiency and customer engagement.

Australian regulators also remain focused on capital resilience, consumer protection and operational risk management following several years of heightened scrutiny across the financial sector.

Bullish Perspective

Supporters of Westpac may argue the bank remains well positioned due to its large customer base, diversified lending operations and strong capital position. Continued growth in mortgages, deposits and business lending indicates underlying customer activity remains relatively stable despite economic uncertainty.

The bank’s Dividend Yield may also continue attracting income-focused investors, while Long-Term Investments in technology and operational simplification could improve efficiency over time.

Westpac’s regional expansion and agribusiness growth strategy may also provide opportunities if Australia’s regional economy remains resilient.

Bearish Perspective

More cautious investors may focus on slowing profit growth, rising provisioning levels and broader concerns surrounding the outlook for Australian banks. Margin compression, competitive lending conditions and economic uncertainty may continue affecting earnings performance across the sector.

The Underperform recommendation from Macquarie Research reflects concerns that the current valuation may not fully account for downside risks linked to slower economic activity and elevated operational costs.

Investors may also remain cautious about execution risks tied to the UNITE transformation program and the possibility of further provisioning increases if economic conditions deteriorate.

Investment Risks and Challenges

Westpac faces risks linked to economic slowdowns, rising credit defaults and continued geopolitical instability affecting customer confidence and business activity. Higher energy prices and inflationary pressures may also affect borrower repayment capacity across some sectors.

The bank is also exposed to competitive pressure in mortgage and deposit markets, which could affect margins and profitability. Regulatory compliance costs, technology transformation risks and changing interest rate conditions remain additional challenges.

Any material deterioration in housing markets or business lending conditions could also weigh on future earnings performance.

About the Company

Westpac Banking Corp is one of Australia’s largest banking and financial services groups, providing retail, business and institutional banking services across Australia and New Zealand. The company operates across mortgages, deposits, Wealth Management and business lending.

Westpac also continues to invest in digital banking, operational simplification and regional banking initiatives as part of its long-term transformation strategy.