Westpac Banking (ASX:WBC) opened FY2026 with a first-quarter update that management said was aimed at improving transparency, marking what the company described as its inaugural quarterly call format. Chief Financial Officer Nathan Goonan said the bank’s quarterly performance reflected “disciplined execution” against its five strategic priorities, with higher earnings and continued balance sheet growth across customer segments.
Quarterly earnings and revenue mix
Goonan said net profit (excluding notable items) increased 5% versus the second-half FY2025 average. Revenue rose 1%, including a 2% lift in net interest income that he attributed to higher average interest earning assets and a stronger treasury performance. Non-interest income declined 4%, which management linked to lower markets revenue driven by unfavorable DVA.
Deposit and lending growth; funding position
Westpac reported AUD 12 billion of deposit growth in the quarter, which management said supported its ambition to be customers’ primary financial institution. Household deposits grew 3% and business transactional deposits rose 4%. Goonan said the bank expects deposit growth to “remain strong through FY2026.”
Loans increased AUD 22 billion, with growth reported across all customer segments. Institutional lending grew 7% and was described as well diversified, though Westpac expects the pace of growth to moderate across the remainder of FY2026. Australian mortgages (excluding RAMS) rose 3%, which management said reflected progress in its mortgage strategy. Westpac noted the proportion of proprietary mortgage flow rose to 35% during the quarter, placing the bank “above system” for the period, and management said it is targeting performance broadly in line with system from here.
Australian business lending increased 3%, with Goonan pointing to “more bankers on the ground” improving proprietary flow. Stronger lending growth than deposits widened the funding gap modestly, with the deposit-to-loan ratio down one percentage point to 84%.
Management reiterated it remains on track to settle the RAMS transaction by mid-year and said it has intentionally positioned the balance sheet to accommodate the expected AUD 16 billion reduction in mortgages. Westpac also said it has issued AUD 18 billion in long-term wholesale funding since October 2025.
Margin trends, hedge positioning, and treasury contribution
Net interest margin (NIM) decreased one basis point to 1.94%. Core NIM of 1.79% fell 3 basis points versus second-half FY2025, though Goonan said the decline moderated to 1 basis point on a quarterly basis. Lending margins edged lower amid continued competitive pressures, with compression described as stable in mortgages, moderating in business, and more pronounced in institutional this quarter.
Westpac said a “non-repeat benefit” tied to prior period interest rate reductions was a net drag in the quarter, as the lending reduction more than offset a deposit benefit. Management noted prior period rate lag impacts have now flowed through results.
On deposits, management characterized overall performance as stable, while noting a headwind from continued growth in higher-rate savings balances. Liquid assets provided a slight benefit. Treasury and markets contributed 15 basis points to NIM, up from 13 basis points, which management attributed to favorable interest-rate positioning by treasury in more volatile markets. In Q&A, Goonan cautioned this was “a bit of an outlier” and said he would expect the contribution to moderate and not remain at 15 basis points at the half-year.
To support earnings stability, Westpac increased its deposit hedge by AUD 15 billion to AUD 92 billion, including AUD 7 billion previously flagged at full-year results. Goonan said the change had no material impact on NIM in the quarter and reiterated an expectation for the net replicating portfolio benefit of approximately 1 basis point in the first half. He also said the sensitivity to a 25 basis point rate rise would be a benefit of about 1 basis point over 12 months, although the recent RBA rate rise is expected to be a slight headwind in Q2 due to pass-through timing.
Expenses, credit quality, and provisioning
Operating expenses (excluding the second-half FY2025 restructuring charge) were stable at AUD 3.0 billion, with Westpac noting it reports to the nearest AUD 100 million and expenses were rounded up in the quarter. Goonan said the bank remains confident FY2026 expense growth will be “largely offset” by productivity savings, including ongoing benefits from the prior restructuring charge, and said considerations previously provided on investment spend and expenses remain current.
Credit quality metrics improved during the quarter. Stressed exposures as a proportion of total committed exposures decreased 11 basis points, reflecting lower Australian mortgage arrears and reduced stress rates across most industry sectors. Total credit provisions rose marginally to AUD 5.0 billion, which Westpac said was AUD 2.1 billion above its base case. Coverage was stable at 125 basis points, and credit impairment charges remained low at 6 basis points of average gross loans. Westpac said reductions from improved underlying credit metrics were offset by model adjustments related to downside scenario severity.
Capital position and balance sheet items
Westpac reported a CET1 capital ratio of 12.3%. Management said the decline in CET1 reflected payment of the full-year FY2025 dividend, which more than offset quarterly earnings. Goonan outlined several offsetting one-off items, including a benefit from removing the operational risk overlay, higher lending balances partly offset by credit quality improvements and data refinements, and modest drags from IRRBB, embedded losses, increased hedge deposits, and the capital floor.
In Q&A, management said it expects a 22 basis point CET1 benefit in the second half of FY2026 from completion of the RAMS portfolio sale. Goonan also discussed risk-weight optimization, noting AUD 2.3 billion of RWA optimization in the quarter but said the historical run rate is “unlikely to repeat” for the full year, with a lower figure (in the 7–8 range) described as a good outcome based on the pipeline. He added that improved credit quality provided an approximately AUD 3 billion RWA benefit in the quarter, consistent with the prior quarter.
Addressing New Zealand regulatory developments, Goonan said changes proposed by the RBNZ were “early days” and not finalized, but appeared positive and could create some opportunity, though he said it was “not particularly material” for Westpac.
Management concluded that the quarter demonstrated solid progress and said it remains optimistic on the economic outlook, expecting demand for household and business credit to remain resilient. The bank also flagged a further update on its Unite program on March 26, with executives saying recent technology leadership departures would have “no material impact” on the program.
About Westpac Banking (ASX:WBC)
Westpac Banking Corporation provides various banking and financial services in Australia, New Zealand, and internationally. The company operates through Consumer, Business, Consumer and Business Banking, Westpac Institutional Bank, Specialist Businesses, and Westpac New Zealand segments. It offers savings, term deposit, business transaction, not-for-profit transaction, foreign currency, farm management deposit, project and retention trust, and statutory trust accounts; home, personal, business, and commercial loans; car and equipment finance; business overdrafts and bank guarantees; debit and credit cards; international and travel services; share trading services; investment products; and home, car, travel, life, caravan and trailer, credit card and loan repayment, boat, and business insurance products.
