Westpac Banking Corporation (ASX:WBC) shares ended the week at A$36.63, posting a 1.05% gain over the past seven trading days. The advance came as market participants weighed the implications of potential interest rate increases by the Reserve Bank of Australia (RBA) on the bank's net interest margin (NIM).
According to preliminary estimates from Westpac's own economics team, each 25-basis-point hike in the cash rate would contribute approximately one basis point to the annualised net interest margin. Two such adjustments would therefore add roughly two basis points. However, this mechanical calculation underscores the limited upside for margins, especially given that Westpac's core NIM contracted by four basis points to 1.78% in the first half—double the market's initial expectation.
The bank also highlighted a timing drag of 0.2 basis points per rate hike, meaning the benefit from higher rates will materialise only gradually. Westpac chief economist Luci Ellis noted on July 10 that confidence in an August rate hike has strengthened, though the likelihood of a second move in September remains less certain. The RBA left its cash rate unchanged at 4.35% in June, reiterating that additional tightening could still occur if needed.
Market participants are now focused on key economic data due in the coming weeks. June employment figures are scheduled for release on July 23 at 11:30 AEST, followed by the June Consumer Price Index (CPI) on July 29. Both reports will be closely scrutinised ahead of the RBA's monetary policy meeting on August 10–11.
Westpac's first-half results revealed a statutory profit of A$3.414 billion, down 5% from the prior period. On a non-AAS basis, excluding notable items, profit slipped 1% to A$3.483 billion. Revenue declined 2%, while pre-provision profit managed a 4% increase. Credit costs rose, with the impairment charge climbing to an annualised 10 basis points of average loans, compared to four basis points previously. Stressed exposures, however, fell to 1.16% of total committed exposure, and mortgage arrears of 90 days or more stood at 0.57%.
Among the Big Four Australian banks, Westpac's weekly performance lagged behind Commonwealth Bank of Australia (ASX:CBA), which surged 2.94% to A$173.13. ANZ Group (ASX:ANZ) added 0.95% to A$36.21, while National Australia Bank (ASX:NAB) edged up 0.43% to A$39.76. The broader S&P/ASX 200 index was unchanged on Thursday at 8,840.70, but posted a 0.89% gain for the week, buoyed by financial stocks.
Analysts caution that interest rate movements alone do not fully dictate earnings outcomes. Deposit pricing dynamics and credit costs remain critical drivers. While faster deposit repricing or higher loan growth could boost margins, rising provisions due to weakening employment, heightened housing stress, or another energy shock pose downside risks.
Westpac's relative outperformance against the index was modest, at 0.16 percentage points. The bank's shares have been under pressure amid concerns about margin compression and rising credit costs, but the prospect of additional rate hikes has provided some near-term support. Investors will be watching the upcoming data releases for further clues on the RBA's policy path and its implications for the banking sector.
