ASX Banks Outlook: How Higher Rates Could Impact CBA, NAB, WBC?

Commonwealth Bank of Australia economists are now expecting the Reserve Bank of Australia to hike interest rates as early as February. Australia’s economy is ending the year with more resilience than expected as household spending increased, wages continued to rise and business investment picked up across areas such as data centres and renewable energy hence inflation has been slower to fall than expected due to healthy demand. The question for investors now is how will Australia’s major banks perform in the potential rising interest rate environment?

Commonwealth Bank of Australia (ASX: CBA)

reported unaudited cash NPAT of $2.6 billion in 1Q FY26 which increased by 2% compared to the prior corresponding quarter driven by steady lending and deposit growth.

There were more than 175,000 new retail transaction accounts added in the quarter while business banking also recorded positive growth supported by higher transaction activity and lending across a broad range of industries.

CBA is well positioned for rate hike since it generally lifts net interest income through faster repricing of variable rate loans relative to deposits.

CBA’s diversified deposit base and disciplined credit underwriting have historically allowed the bank to manage periods of rate hikes more effectively than other banks.

National Australia Bank Limited (ASX: NAB)

had a steady FY25 result as stronger momentum in the second half supported earnings stability and balance sheet strength across the group.

Cash earnings reached $7.09 billion while underlying profit increased to $10.97 billion which reflects improved revenue performance in 2H FY25 driven by higher lending volumes and improved margins across business and personal banking segments.

NAB is equipped with a CET1 ratio of 11.70% which is comfortably above regulatory requirements and provides a safety against economic volatility.

NAB will do well in a rising interest rate environment as the bank benefits from its strong deposit base through higher net interest income as lending rates reprice faster than deposit costs.

Westpac Banking Corporation (ASX: WBC)

had a good FY25 as consistent lending activity supported earnings across its core banking operations.

Net interest income was flat at $2.90 billion as margin pressure from competitive deposit pricing was largely offset by disciplined balance sheet management and steady growth in lending volumes.

The balance sheet is sound with total assets of approximately $140.7 billion and deposits increased to about $82.8 billion while the loan book expanded to $107.3 billion with residential mortgages continuing to account for the largest portion.

Westpac will benefit from higher net interest income in a period of rate hike as variable rate loans reprice faster than deposits although extended rate hikes can raise funding costs and credit stress which makes its conservative underwriting standards and diversified deposit base important in managing changing interest rate cycles.

(Source: Company Reports)