Westpac Reports Modest Growth Amid Mortgage Market Headwinds
Australia's banking giant posts 2% profit increase in Q3 as mortgage applications slide 20% following budget changes and rate uncertainty.
Steady Profit Growth Despite Competitive Pressures
Westpac Banking Corporation reported a 2% increase in net profit excluding notable items for the third quarter of fiscal 2026, compared to the first half average, CFO Nathan Goonan disclosed during the bank's earnings call. Revenue rose 1%, with Australian divisions posting growth between 2% and 4%, though this was partially offset by a 7% decline in New Zealand operations (earnings call, 2026-08-10).
Net interest income increased 2%, more than compensating for a 3% decline in noninterest income attributed to timing and one-off items. The bank maintained its net interest margin at 1.89%, with core NIM at 1.78% remaining flat compared to the first half.
Mortgage Applications Drop Sharply
The bank faces significant headwinds in its mortgage business following recent federal government policy changes. Mortgage applications declined 11% in the third quarter and have fallen 20% since the May budget announcement. "Based on our analysis of credit checks, system-wide applications have fallen by slightly less than these amounts," Goonan noted (earnings call, 2026-08-10).
Breaking down the impact, owner-occupier applications declined 18% while investor applications dropped 26% since the budget. Goonan attributed the decline to both policy changes and rate uncertainty, suggesting "the rate impact is probably equal or potentially a bigger impact than anything that happened in the budget" (earnings call, 2026-08-10).
Despite these challenges, Australian mortgages grew 2% in the quarter, slightly above system growth, with proprietary flow rising to 36% of total originations.
Balance Sheet Momentum Continues
Customer deposits grew 2% in the quarter, with business and institutional segments increasing 4% and 10% respectively. Total loans increased 2% across all customer segments, with Australian business lending up 4% and institutional lending rising 3% as the bank continues to gain market share.
The bank completed the sale of its RAMS portfolio on August 1, resulting in a A$15.4 billion reduction in mortgages but providing a 23 basis point benefit to its CET1 capital ratio, which stood at 12.1% at quarter end.
Credit Quality Remains Sound
Credit metrics remained broadly stable, with mortgage delinquencies edging up just 1 basis point to 58 basis points. Credit impairment charges held steady at 10 basis points of average gross loans. "Businesses continued to show resilience," Goonan said, noting that "while consumer spend has slowed marginally, it remains at reasonable rate of growth by historical standards" (earnings call, 2026-08-10).
Outlook and Efficiency Initiatives
Operating expenses increased 1%, with the bank on track to deliver structural productivity savings exceeding A$550 million in fiscal 2026. The UNITE transformation program is progressing, though investment spending is now expected to be "modestly above the top end of the previously guided range of $850 million to $900 million" (earnings call, 2026-08-10).
For the remainder of fiscal 2026, Westpac expects mortgage system growth to moderate in response to higher rates and policy changes, with near-term growth likely below system levels given the bank's "cautious response to heightened competition" (earnings call, 2026-08-10).
This article was generated by MarginX from the earnings call on 2026-08-10. It is not investment advice.