Australia’s big banks are already pricing in another RBA hike — what does it mean for CBA, NAB, Westpac and ANZ?

Australia’s banks are heading into another potential rate rise with a less straightforward earnings setup than the usual “higher rates help banks” argument suggests.

Financial markets are pricing in about a 95% probability that the Reserve Bank of Australia will lift the cash rate by 25 basis points to 4.60% at its September 29 meeting. The RBA has already raised rates by 75 basis points since February, while Governor Michele Bullock says inflation risks may now be materialising as high energy prices combine with persistent domestic demand.

Higher rates can lift the return banks earn on deposits, capital and lending portfolios. But another increase would also raise mortgage repayments, weaken housing turnover and make households and businesses more cautious about taking on new debt.

That creates different pressures across Commonwealth Bank, NAB, Westpac and ANZ. Margin trends have recently improved at some banks, yet mortgage competition remains intense and early signs of repayment stress are starting to edge higher.

Bank profitability is heavily influenced by net interest margin, the difference between what banks earn on loans and other interest-bearing assets and what they pay for deposits and funding.

Higher rates can support margins because parts of a bank’s deposit base and hedging portfolio reprice more slowly than lending assets. ANZ has already said higher term rates and further RBA increases should support its margin, with its replicating portfolio expected to provide another seven basis points of benefit over the next 12–18 months.

Recent results show those benefits appearing unevenly.

NAB’s first-half net interest margin rose three basis points to 1.81%, although much of the improvement came from markets, treasury and liquid assets rather than stronger lending spreads. ANZ’s third-quarter group margin increased one basis point to 1.54%, while its margin excluding Markets improved four basis points.

CBA moved in the opposite direction in its latest half, with net interest margin slipping one basis point as deposit competition and tighter home-loan pricing offset higher returns from its investment portfolio.

For Australian traders, the banks therefore offer different exposures to the same RBA decision. CFDs can provide long or short exposure to individual bank shares rather than relying on the entire financial sector moving in the same direction.

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SELL BUY

CBA continues to grow home lending faster than the system.

Its latest half-year results showed home loans increasing by A$37 billion, or 7%, slightly ahead of market growth. That gives CBA substantial exposure to any improvement in lending margins after another RBA increase.

The constraint is competition. CBA said lower home-lending margins were one reason its overall net interest margin slipped during the half, while competition for higher-yielding savings deposits also increased funding costs.

Another rate rise could improve earnings on capital and deposits, but passing higher rates through to mortgage customers does not automatically translate into wider margins if banks continue discounting aggressively to win new borrowers.

CBA’s scale also makes housing activity particularly relevant. Higher mortgage rates can reduce refinancing, new borrowing and property turnover, slowing the volume growth that helped offset margin pressure in its latest result.

Credit quality remains relatively strong. CBA’s 90-day-plus home-loan arrears were stable at 0.64% in its first half, although consumer-finance arrears increased to 0.98%.

SELL BUY

NAB enters another potential tightening cycle with a somewhat different lending mix.

Gross loans and advances rose 2.9% in its latest half, while deposits increased 2.3%. Its net interest margin rose to 1.81%, although underlying margins were broadly stable once markets, treasury and liquid-asset effects were stripped out.

NAB’s large business-banking operation reduces its dependence on residential mortgages relative to CBA and Westpac.

That creates both an opportunity and a risk.

Higher lending rates can support returns on business loans, but companies facing rising energy, wage and financing costs may delay investment or reduce demand for new credit. Continued tightening can also increase stress among smaller businesses carrying floating-rate debt.

NAB therefore has more scope to benefit from business lending spreads, but a prolonged hiking cycle could eventually weaken the volumes generating those earnings.

SELL BUY

ANZ’s latest numbers show the clearest evidence of higher rates feeding through to earnings.

Third-quarter net interest income excluding Markets rose 2%, while group net interest margin increased one basis point to 1.54%. Excluding Markets, margin improved four basis points. Net loans and advances rose 3%, including 4% quarterly growth in Business & Private Bank lending.

ANZ has also explicitly identified higher rates as a future margin tailwind.

Its deposit and hedging portfolios should continue benefiting as older, lower-yielding assets reset at higher rates, providing earnings support even if lending competition remains intense.

There are early signs of household strain. Australian housing loans more than 90 days past due increased to 0.86% in June from 0.83% in March. Overall non-performing exposures remained unchanged at 0.55%.

Those numbers remain low, but further mortgage increases would push repayments higher for borrowers already absorbing three RBA hikes this year.

SELL BUY

Westpac combines a large mortgage franchise with a relatively high sensitivity to changes in funding and deposit margins. Earlier in 2026, the bank said lower interest rates had compressed margins as deposit spreads narrowed and wholesale funding costs rose. Its first-quarter net interest margin fell one basis point to 1.94%, even as Australian housing lending grew 3%.

Another RBA increase reverses part of that margin pressure. Westpac passed May’s 25-basis-point RBA increase through to variable home-loan customers while also raising selected savings rates by the same amount. How much of another hike ultimately reaches depositors would influence the net benefit to margins.

Westpac is also the outlier among the big four on the rate outlook. CBA, NAB and ANZ have forecast another increase this year, while Westpac has maintained a more cautious view that rates could remain unchanged. A September hike would therefore force another reassessment of both household borrowing conditions and Westpac’s margin assumptions.

Australian banks benefited for years from rising house prices, population growth and expanding mortgage balances. Higher rates can slow that down. Each additional 25-basis-point increase raises repayments for variable-rate borrowers and reduces the amount prospective buyers can borrow under bank serviceability tests. That can weaken mortgage approvals even before house prices fall materially.

Housing activity has already softened more than the RBA expected, according to Governor Bullock, although household savings remain relatively strong.

The banks therefore face a trade-off between price and volume. They may earn more on each dollar of lending, but weaker refinancing activity, lower housing turnover and slower credit growth can reduce the number of new dollars being lent.

Competition can intensify at the same time. Banks chasing fewer high-quality borrowers may offer sharper mortgage rates, giving back some of the margin benefit from the higher cash rate.

Bad debts remain low across the major banks, but another hiking cycle increases repayment pressure.

ANZ’s housing arrears have already edged higher, while CBA has reported increased arrears in consumer finance. Westpac raised provisions in its first half despite saying customer stress had declined overall.

The RBA is also tightening from an already restrictive starting point. The cash rate is 4.35%, unemployment is 4.5%, and underlying inflation remains 3.6%, above the central bank’s 2–3% target.

One more increase would not automatically trigger a sharp deterioration in mortgage performance. Australian borrowers have generally entered the cycle with strong employment and substantial equity in their homes.

A longer sequence of hikes would put more pressure on highly leveraged households and small businesses, increasing the risk that margin gains are eventually offset by higher impairment charges.

The first few rate rises can improve bank profitability when loan yields adjust faster than funding costs.

The later stages become more complicated.

CBA is still producing strong mortgage growth, but lending competition has already compressed margins. NAB has greater exposure to business credit. ANZ is seeing margin improvement while housing arrears edge higher. Westpac could benefit from higher rates after earlier margin compression, but remains heavily exposed to housing conditions.

The September RBA meeting will therefore influence more than headline lending rates.

Investors will be watching whether margins expand, whether loan growth slows and whether arrears begin rising faster across the sector.

• RBA guidance: Markets have largely priced a September hike, so the outlook for further tightening could produce the larger reaction.

• Mortgage growth: Slower system credit growth would increase competition between the major banks and put pressure on lending spreads.

• Net interest margins: Another hike should provide support through deposits and replicating portfolios, but mortgage pricing will determine how much reaches earnings.

• Arrears and impairments: A gradual rise can be absorbed from current levels. A faster deterioration would change the earnings outlook.

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