Top 3 ASX Bank Stocks to Watch in 2026 and How to Invest

ASX bank stocks are popular with Australian investors seeking exposure to established businesses, potential dividend income and long-term growth. Major Australian banks benefit from large customer bases, diversified lending operations and deposit funding, although their performance remains sensitive to interest rates, competition and the economy.

This guide examines three major ASX bank shares — Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation — using their reported financial results, capital positions and dividend yields.

1. Commonwealth Bank of Australia (ASX: CBA)

Commonwealth Bank of Australia (CBA) is one of Australia's largest banking institutions. It has a market capitalisation of approximately $255.27 billion and an annual fully franked dividend yield of 3.34%.

FY2026 financial performance:

CBA announced its FY2026 results on 12 August 2026 for the year ended June 2026.

• Operating income: Increased 6.2% year-on-year to approximately $30.2 billion.
• Cash net profit after tax (NPAT): Rose 7% to approximately $10.9 billion.
• Statutory NPAT: Increased 8% to approximately $10.9 billion.
• Net interest margin (NIM): 2.05%.
• Return on equity: 14%.
• Dividend per share: $5.05.

CBA reported a deposit funding ratio of 79%, a liquidity coverage ratio of 132%, a net stable funding ratio of 115% and a common equity tier 1 (CET1) capital ratio of 12%.

Why watch CBA shares? CBA enters FY2027 with a broad customer franchise, established banking operations and a substantial earnings base. Its profitability and customer relationships may support future performance, although its share price and valuation remain important considerations.

Key risk: Investors should consider valuation, housing-market conditions, loan defaults, competition and changes in interest rates.

2. National Australia Bank (ASX: NAB)

National Australia Bank (NAB) is a major Australian lender with substantial business and personal banking operations. It has a market capitalisation of approximately $120.11 billion and an annual fully franked dividend yield of 4.41%.

2026 third-quarter trading update:

NAB announced its third-quarter trading update on 17 August 2026 for the period ended June 2026.

• Net operating income: Increased 5% year-on-year to $5.5 billion.
• Net interest margin: 1.79%.
• Customer deposits: Rose 7% to $685.4 billion.
• Unaudited cash earnings: Increased 4% to $1.83 billion.
• Unaudited statutory net profit: Reached $1.81 billion, up 32% compared with the 1H26 quarterly average.
• Non-performing exposures: 1.5%.

NAB reported a Level 2 CET1 capital ratio of 11.93%, a quarterly average liquidity coverage ratio of 134% and a net stable funding ratio of 115%.

Why watch NAB shares? NAB's business banking exposure, deposit growth and reported earnings provide investors with several indicators to monitor. Its fully franked dividend yield may also appeal to investors seeking income from Australian bank shares.

Key risk: Business lending conditions, bad debts, funding costs and weaker economic activity could affect earnings and dividends.

Explore More: Best Dividend Stocks on the ASX

3. Westpac Banking Corporation (ASX: WBC)

Westpac Banking Corporation (Westpac) is one of Australia's major banks, serving retail, business and institutional customers. It has a market capitalisation of approximately $118.44 billion and an annual fully franked dividend yield of 4.44%.

2026 third-quarter performance:

Westpac announced its 3Q26 update on 10 August 2026 for the period ended June 2026.

• Net operating income: $5.7 billion.
• Core net interest margin: 1.78%.
• Gross loans: Increased 7% year-on-year to $908 billion.
• Customer deposits: Rose 7% to $759 billion.
• Pre-provision profit: $2.8 billion.
• Unaudited statutory net profit: Approximately $1.8 billion.
• Net profit excluding notable items: Approximately $1.8 billion.

Westpac reported a Level 2 CET1 capital ratio of 12.06%, risk-weighted assets of $464.5 billion, a liquidity coverage ratio of 134% and a net stable funding ratio of 111%. Its customer deposits-to-net-loans ratio stood at 84.1%, while stressed exposures represented 1.19% of total credit exposures (TCE).

Why watch Westpac shares? Westpac's loan and deposit growth, capital position and dividend yield are useful indicators for investors assessing its financial performance. However, investors should also examine its valuation, credit quality and ability to sustain earnings through changing economic conditions.

Key risk: Rising loan arrears, higher funding costs, weaker credit demand and increased competition could put pressure on profitability.

(Source: Company Announcements)

How to Compare ASX Bank Stocks

When comparing Australian bank stocks, investors should look beyond market capitalisation and dividend yield.

• Earnings growth: Check whether profits are growing consistently over time.
• Net interest margin (NIM): Look at how effectively the bank earns income from lending relative to its deposits.
• Dividend yield: Evaluate potential income returns relative to the bank's current share price.
• CET1 capital ratio: Measure the bank's core capital buffer to assess its strength against potential financial losses.
• Credit quality: Review non-performing loans, stressed exposures, and bad-debt charges to gauge loan risk.
• Valuation: Compare the price-to-earnings (P/E) ratio and price-to-book (P/B) ratio against industry peers.
• Funding and liquidity: Verify whether the bank maintains a stable funding base and sufficient liquidity to cover operational needs.

A bank with a higher dividend yield is not automatically the better investment. The yield may rise because its share price has fallen, potentially reflecting concerns about future earnings or dividends.

Research Further: Best ASX Stocks to Buy Now

Benefits of Investing in ASX Bank Shares

• Potential dividend income: Established Australian banks have historically paid dividends, and some distributions may be fully franked. However, future dividends are not guaranteed.
• Established businesses: Major banks have large customer bases and provide essential services such as deposits, mortgages, business loans and payments.
• Exposure to the Australian economy: Bank shares provide exposure to household spending, housing activity, business investment and credit demand.
• Potential long-term returns: Investors may benefit from a combination of dividends and share-price appreciation if earnings and valuations develop favourably.

Dig Deeper: Best ASX Growth Stocks for Long-Term Holding

Risks of Investing in Australian Bank Stocks

• Interest-rate changes: Rate movements can affect lending demand, funding costs and net interest margins.
• Credit losses: Higher unemployment or financial stress among borrowers may increase bad debts.
• High valuations: Even profitable banks can deliver disappointing returns if purchased at excessive prices.
• Dividend uncertainty: Banks may reduce distributions if earnings weaken or capital requirements change.
• Concentration risk: Holding several Australian banks does not necessarily provide broad diversification because they share exposure to the domestic economy and housing market.

How to Buy ASX Bank Shares

Investors can generally buy ASX-listed bank shares through an Australian brokerage account.

• Choose a broker: Compare brokerage fees, account requirements and available investment tools.
• Open and fund your account: Complete identity checks and deposit funds.
• Research the bank: Review its latest financial results, valuation, dividend history and key risks.
• Find the ASX ticker: CBA for Commonwealth Bank, NAB for National Australia Bank or WBC for Westpac.
• Place an order: Select the number of shares and order type, then review the estimated cost before submitting.
• Monitor the investment: Review company results, dividends, capital ratios and changes in your investment goals.

Investors should consider their time horizon, risk tolerance, brokerage costs and diversification before buying individual bank shares.

What to Consider Before Investing in Bank Stocks

Before deciding which bank shares to buy, consider these questions:

• Are the shares reasonably valued? Compare earnings multiples, price-to-book ratios and expected growth.
• Is the dividend sustainable? Examine earnings, payout ratios, capital strength and the bank's distribution history.
• Is credit quality deteriorating? Monitor arrears, impaired loans and provisions for expected credit losses.
• How could interest rates affect earnings? Consider both lending margins and the cost of deposits and wholesale funding.
• Does the investment fit your portfolio? Avoid excessive exposure to one sector, particularly if you already hold Australian financial stocks.

The best bank share for one investor may not be suitable for another. Income-focused investors and long-term growth investors may prioritise different measures.

Final Thoughts

CBA, NAB, ANZ and Westpac are four major Australian bank stocks worth researching. CBA reported strong FY2026 earnings growth, while NAB and Westpac reported growth in customer deposits and lending in their June 2026 updates. Their dividend yields and financial indicators provide useful starting points for comparison.

However, none should be selected solely because of its size or dividend yield. Investors should compare current valuations, earnings prospects, credit quality and dividend sustainability before making a decision.