$6.813 billion FY26 profit and 77-cent final dividend at Westpac

Profit holds near record levels, but credit costs take a larger bite

Westpac Banking Corporation (ASX:WBC) delivered a $6.813 billion statutory profit for FY26, down 1% from the previous year, as stronger balance-sheet growth and operating income were offset by higher credit impairment charges. Net operating income rose 1% to $22.602 billion, while the bank’s management measure of net profit excluding Notable Items was broadly unchanged at $6.992 billion.

The pressure was clearest below the revenue line. Credit impairment charges doubled to $864 million, or 10 basis points of average loans, from 5 basis points a year earlier. Westpac said the increase reflected a more severe downside economic scenario, higher portfolio overlays and more individually assessed provisions, although total stressed exposures fell to 1.17% of total committed exposures from 1.28%.

Lending growth offsets margin compression

Westpac grew gross loans 5% to $901.3 billion and customer deposits 6% to $766.2 billion. Australian housing loans excluding RAMS rose 7%, while Business and Institutional lending increased 12% and 18% respectively. The balance-sheet expansion helped lift net interest income 1%, but the net interest margin fell seven basis points to 1.87%, with competition in mortgages and business lending, deposit mix and lower Treasury income weighing on returns.

The completed RAMS mortgage portfolio sale removed $15.4 billion of loans and reduced operational complexity, but it also contributed to the reshaping of reported comparisons and left Group Businesses with a $221 million net loss for the year. Consumer profit rose 4% to $2.301 billion, Business & Wealth profit increased 8% to $2.367 billion and Institutional profit rose 3% to $1.630 billion. Westpac New Zealand was the weak spot, with profit down 9% to NZ$1.087 billion as margins narrowed and costs rose.

Dividend steady as capital remains above target

The board declared a final fully franked dividend of 77 cents per share, matching the previous final payment and taking FY26 ordinary dividends to 154 cents per share. The payout ratio was 77% on a statutory basis and 75% excluding Notable Items. The result extends a run of broadly stable distributions, following the 77-cent interim dividend declared earlier in the year.

Westpac’s Level 2 CET1 capital ratio stood at 12.5%, above its 11.25% normal-conditions target, leaving $2.9 billion above that target after the final dividend. Liquidity also remained comfortably above regulatory minimums, with a quarterly average liquidity coverage ratio of 137% and a net stable funding ratio of 113%. The board said surplus capital would be retained while it continued investing in transformation and considered future capital returns.

UNITE enters a more expensive phase

Transformation spending increased 11% to $2.135 billion, including $937 million on UNITE. Nine of the program’s 56 initiatives are complete, while major milestones included migrating about 60,000 BT customers from Asgard to Panorama and beginning the migration of St.George commercial customers to Westpac. Catalyst, a new operating model designed to speed up delivery, commenced on 1 October.

Westpac also reported that 95% of employees use AI tools monthly and 77% have integrated them into daily workflows. The bank says these systems are improving productivity and fraud prevention, but the financial test is less abstract: management is targeting more than $600 million in productivity benefits in FY27 while continuing to invest heavily in technology, cyber security and regulatory controls.

Regulatory exposures remain part of the investment case

“Our transformation agenda and continued investment in data, digital and AI capabilities are helping us improve customer experiences and simplify how we work.”

The annual report records ongoing AML/CTF implementation work, regulatory reviews and legal matters, including a Federal Court hearing scheduled for April 2027 over a long-running investor class action linked to Westpac’s historical financial-crime monitoring disclosures. Westpac continues to deny the allegations, and the filing says the eventual outcome and any damages remain uncertain. The bank also paid a $26 million ASIC penalty during FY26 in a separate civil penalty matter.

For shareholders, the next test is whether business and institutional lending can continue to expand without further eroding margins or pushing impairment charges higher. The dividend is stable for now; the harder question is whether transformation benefits arrive quickly enough to offset the cost of building the simpler bank Westpac is promising.