Westpac Vs NAB Shares: Which Looks The Better Option?

Australia’s third and fourth most valuable listed companies look close together on many metrics, but there is one point where the two are rotating. National Australia Bank (NAB) have edged ahead of Westpac (WBC) in market cap this year, while both banks fight against compressed margins, cooling mortgage volumes, and an analyst community that has been looking elsewhere.

It has been a bruising year so far for both NAB and Westpac shareholders, after what had looked to be a strong start to calendar 2026. After adding 15.61% through the first two months of the year, NAB shares have fallen back, down 8.73% year-to-date, while Westpac has fared slightly worse, down 11.01% YTD . The moves have left both stocks sitting well off their respective 52-week highs, with NAB trading 21.7% below its peak and Westpac 19.99% lower than its own high.

Despite the pullback, NAB has managed to nudge ahead for bronze medal in the ASX market cap race, now sitting at A$120.65 billion compared to Westpac’s A$118.55 billion, behind only CBA and BHP. Both stocks have underperformed a flat ASX 200 this year, yet there is plenty of the bear case built in here.

NAB vs WBC: What Separates Them?

At the heart of the gap between the two is how each bank earns its money. NAB has built a formidable position in commercial and small-to-medium enterprise banking, a segment that has demonstrated greater resilience to interest rate headwinds than the residential mortgage market. Business credit demand has held up more firmly through the rate cycle, giving NAB a degree of earnings insulation that its peer cannot fully replicate.

Westpac, by contrast, remains more heavily anchored to the consumer lending and residential mortgage segment, which generated approximately A$8.4 billion in revenue. That exposure has become a double-edged sword, as while the Australian housing market retains structural undersupply dynamics that support long-term loan book growth, the near-term reality is one of fierce price competition, with banks discounting mortgage rates aggressively to defend or grow market share. The result has been meaningful compression in net interest margins across the sector, and Westpac’s retail-heavy mix leaves it more exposed to that dynamic than NAB.

It is on the valuation front where further gaps emerge, with Westpac’s trailing P/E ratio of 17.08 times comfortably below NAB’s 19.31 times. This makes WBC the cheaper stock on a historical earnings basis, yet when you shift the picture to future earnings, everything changes. Current estimates point to NAB trading on a forward P/E of 15.5 times, compared to around 16.3 times for Westpac, as markets price in stronger earnings growth from NAB over the next one to two financial years.

Dividend yields on both names remain closely matched and continue to provide a meaningful income argument for holding either stock. NAB is currently offering a trailing yield of approximately 4.39%, while Westpac sits marginally higher at 4.44%. Both dividends are fully franked, adding further after-tax appeal for income-seekers.

Analysts Mixed

The broker community remains sharply split on both stocks. Jarden maintains cautious price targets, with a A$29 target on NAB and A$31 on Westpac, both sitting well below current trading levels, reflecting concerns that earnings multiples remain elevated relative to underlying growth prospects. Macquarie and Morgan Stanley have similarly maintained underweight or sell-equivalent ratings on the sector, pointing to NIM pressure and slowing credit growth as key headwinds.

On the other side of the ledger, UBS has taken a more constructive view on Westpac specifically, maintaining a buy rating with a A$45 price target. The UBS thesis centres on the argument that the market is overestimating potential credit losses and underappreciating the earnings uplift that could come from Westpac’s ongoing cost reduction program. Analysts in that camp also point to the possibility of provision releases as a positive earnings catalyst, should arrears remain contained.

What Next?

Broader macro conditions continue to set the tone for the entire sector. Persistent inflation, the Reserve Bank of Australia’s interest rates, and evolving policy discussions around negative gearing and capital gains tax treatment of property have all introduced uncertainty into the long-term mortgage growth equation. Labour market resilience has provided a partial offset, keeping loan default rates in check and supporting the case that dividend payout ratios remain sustainable at current levels.

From a purely technical perspective, the distance from 52-week highs in both cases suggests the sector has already taken a big hit after a few strong years. Whether that represents an opportunity or a warning sign depends largely on where Australian interest rates and credit growth are headed over the next 12 to 24 months.

With the two companies separated by less than 2% in value, there is very little to separate them apart from the P/E ratios, which give contrasting view of the ‘cheaper’ stock, depending on whether you rely on the banked earnings or those yet to come. The final quarter of the year leaves plenty to play for, but for those struggling to separate the two, there is always the BANK ETF, or the MVB.