Big Four Banks Under Rising Interest Rates: How Do CBA, WBC, NAB and ANZ Fare?

Rising rates help banks when they can lift loan rates faster than deposit rates. But once customers move money into higher-paying savings accounts and term deposits, the margin benefit gets squeezed. At the same time, higher mortgage repayments can slow loan growth and increase credit stress.

That is exactly the current setup. The RBA lifted the cash rate by 0.25 percentage points to 4.35% in May 2026, its third straight increase. CBA also noted that higher rates and cost-of-living pressures were expected to weigh on growth through 2026.

For many economic forecasters, market experts, and professional and retail investors, the wait is over. The “other shoe” has dropped.

Markets came down with a severe case of the jitters when it became obvious rising inflation around the world would not ease without central bank intervention with rising interest rates.

Why are Australian interest rates rising again?

The interest rate at the centre of Australian monetary policy is the RBA cash rate.

It is the target rate for unsecured overnight borrowing between banks, but its influence spreads far beyond the interbank market. Changes in the cash rate affect mortgage rates, business loans, savings accounts, term deposits, wholesale funding costs and ultimately spending and investment throughout the economy. Yet the current cycle is unusual because it follows a period of monetary easing.

Inflation picked up materially during the second half of 2025, prompting the RBA to tighten monetary policy again in 2026 as oil prices rose on the Middle East conflict. After three increases, the cash rate reached 4.35% in May. At its June meeting, the RBA held the rate steady, saying financial conditions had tightened but inflation remained too high.

As of July 2026, the RBA reported the cash rate at 4.35% and annual CPI inflation at 4.0% for May.

The impact of these rates extends far beyond the most obvious, that is increasing mortgage rates on home loans. Virtually all businesses, large and small, borrow money at various times and rises in the RBA cash rate means higher loan repayments.

That also means Australia’s Big Four banks are once again operating in a rising interest-rate environment.

For Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corporation and ANZ Group Holdings, higher rates create both opportunity and risk.

Banks can potentially earn more from lending when interest rates rise. But higher borrowing costs can also slow credit growth, squeeze households and businesses, increase mortgage stress and eventually lead to higher bad debts.

So, how are the Big Four faring as Australia moves through another period of restrictive monetary policy?

CBA, WBC, NAB, and ANZ Compared Under a Raised Interest Rate Environment

Most market analysts and commentators tell us financial stocks can benefit from higher interest rates, from banks to brokerage houses to insurance companies, yet that is not always the case.

Rising interest rates are usually good for banks at first because loan yields tend to reprice faster than deposit costs. But the benefit does not last forever. As rates stay high, banks face deposit competition, mortgage competition, slower credit growth, higher arrears risk and higher bad-debt provisions.

How rising interest rates affect bank profits

Once upon a time, the core business of banking was relatively simple: banks accepted deposits and lent the money to households and businesses. The Big Four now offer a much broader range of financial services, but lending and deposits remain central to profitability. For us (and you), two of the most useful measures are net interest income and net interest margin.

What is net interest income?

Banks earn interest on assets including:

• home loans;
• business loans;
• personal loans;
• credit cards;
• and certain financial securities.

They also incur interest costs on:

• savings accounts;
• term deposits;
• wholesale funding;
• and other borrowings.

The difference contributes to net interest income (NII).

What is net interest margin?

Net interest margin, or NIM, broadly measures net interest income relative to the bank’s interest-earning assets.

A rising cash rate can improve margins if banks increase lending rates faster than their funding costs rise.

But the relationship is not automatic.

Banks compete aggressively for mortgages and deposits. When customers demand higher savings rates or lenders discount home loans to win market share, the benefit of higher official rates can disappear surprisingly quickly.

The latest results demonstrate this.

CBA’s group NIM declined four basis points year-on-year to 2.04% in the December 2025 half, despite net interest income increasing 6%. Strong growth in lending assets compensated for the lower margin. CBA specifically pointed to home-loan competition and deposit pricing as pressures on margins.

NAB’s NIM, by comparison, increased three basis points to 1.81% during the March 2026 half, although much of the underlying margin was stable once other factors were excluded.

Westpac’s NIM fell six basis points from the previous half to 1.89%.

ANZ’s headline NIM fell one basis point during its latest half, but management said NIM excluding Markets improved two basis points as deposit pricing and funding management helped offset competitive lending conditions.

The lesson is important: higher RBA rates do not translate directly into higher bank margins.

The other side of higher rates: mortgage and credit risk

Higher rates can eventually become a negative for the banks.

Australian households with variable-rate home loans see repayments rise as banks pass through RBA increases. Businesses also face higher borrowing costs.

If rates remain high for long enough, several things can happen:

• customers borrow less;
• housing turnover slows;
• businesses delay investment;
• household spending weakens;
• mortgage arrears rise;
• and credit losses increase.

The Big Four remain well capitalised, and credit quality has generally remained resilient so far. But there are signs that banks are preparing for a more difficult environment.

Westpac said it increased provisions during the March 2026 half because of heightened economic uncertainty, despite customer stress indicators improving.

ANZ reported that portfolio losses remained low but added a collective provision charge partly to account for greater economic uncertainty.

CBA’s March-quarter update also showed loan impairment expense increasing significantly relative to the quarterly average of its first-half result, although losses remain low by historical standards.

That is the key risk for bank shareholders in the second half of 2026.

The initial benefit from higher rates can eventually be overwhelmed if economic weakness causes credit losses to rise materially.

How do rising interest rates affect CBA?

For the half year ended 31 December 2025, CBA reported cash net profit after tax of approximately $5.45 billion, an increase of 6% on the previous comparable period. Net interest income increased 6% to approximately $12.7 billion, driven largely by growth in interest-earning assets. CBA’s group NIM, however, fell four basis points to 2.04%.

This illustrates the complexity of the rising-rate environment. CBA grew:

• home-loan balances;
• business lending;
• deposits;
• and other interest-earning assets;

but fierce competition for mortgages and deposits limited margin expansion.

The bank entered 2026 with a CET1 capital ratio of 12.3%, well above APRA’s regulatory minimum but by 31 March the CET1 ratio had fallen to 11.6%, primarily reflecting the interim dividend, growing risk-weighted assets and the capital impact of managing interest-rate risk. It nevertheless remained comfortably above regulatory requirements.

CBA has several advantages:

• a very large deposit base;
• dominant mortgage market exposure;
• strong business lending growth;
• high digital engagement;
• and significant pricing data.

That scale should help CBA manage interest-rate changes.

However, its large mortgage portfolio also means it is heavily exposed to Australian household financial stress if interest rates remain elevated.

After the May RBA increase, CBA raised eligible variable mortgage rates by the full 0.25 percentage points, effective 15 May.

Why higher rates could favour NAB

NAB has traditionally differentiated itself from the other major Australian banks through its substantial exposure to business banking.

Higher rates can be favourable for NAB if the bank can preserve spreads across its business-lending portfolio. The latest result offers some evidence of that, with NIM increasing rather than contracting.

NAB reported cash earnings of $2.639 billion for the six months to 31 March 2026. A change to the treatment of capitalised software materially affected reported cash earnings, so investors should take care when making simple year-on-year comparisons. Excluding large notable items, NAB said cash earnings were up 2.3% against the previous half and broadly flat against the prior comparable period.

NAB’s NIM increased three basis points to 1.81%. Gross loans and advances rose 2.9%, while deposits increased 2.3%. Adjusting for currency movements, lending increased 3.7% and deposits increased 3%.

Business and Private Banking remained particularly important. NAB reported business lending growth of 5.6%, alongside continued market share gains.

The likely impact of rates on WBC

WBC has spent recent years simplifying its operations, investing in technology and attempting to improve returns from its core consumer, business and institutional banking franchises.

Westpac’s CET1 capital ratio of 12.4% is a significant strength, with the bank explicitly increasing provisions during the latest half in response to economic and geopolitical uncertainty.

Management said customer stress levels had declined, but prudently increased protection against a deterioration in economic conditions.

For the six months to 31 March 2026, Westpac reported $3.4 billion statutory net profit, up 3% on the prior comparable period, $3.5 billion net profit excluding notable items, up 1%, with a 12.4% CET1 capital ratio, and an interim dividend of 77 cents per share, fully franked.

The dividend increased from 76 cents in the prior comparable half and represented an ordinary payout ratio of approximately 77%. The weakness in the result was margin.

Westpac’s NIM declined six basis points to 1.89% from the September 2025 half and was three basis points below the March 2025 half.

That shows why we should not automatically assume that rising official rates automatically expand bank margins.

How ANZ stacks up under transformation

ANZ entered 2026 in the middle of a significant transformation under Chief Executive Nuno Matos.

The bank’s strategy includes improving its Australian retail and business operations, simplifying the organisation, improving returns and extracting greater value from the expanded business following the acquisition of Suncorp Bank.

ANZ reported statutory profit of $3.65 billion and cash profit of $3.78 billion for the six months to 31 March 2026. Cash profit increased 14% against the previous half when significant items were excluded. Return on tangible equity increased substantially to 11.6%, while the cost-to-income ratio improved to 49.4%.

Credit quality also remained strong. ANZ reported individual provision losses equivalent to an annualised four basis points, with non-performing exposures representing 0.55% of total credit exposure.

Do rising interest rates actually help Australian bank shares?

There is generally a sweet spot for banks, where moderately higher rates can improve earnings from deposits and lending, particularly when economic growth remains healthy and credit losses stay low. But rates can become too high and hurt banks.

At that point:

• credit demand slows;
• borrowers refinance or seek cheaper competitors;
• depositors demand higher returns;
• mortgage stress increases;
• arrears rise;
• and bad debts consume more of the additional interest income.

The Big Four appear to remain on relatively solid footing in mid-2026. Capital ratios are strong and credit losses remain low, however all four are signalling some degree of caution about economic conditions, while several have increased provisions. That makes credit quality one of the most important metrics for bank investors to monitor during the remainder of 2026.

What should Big Four bank investors watch next?

1. The RBA cash rate

The cash rate currently stands at 4.35%, with the RBA’s next monetary-policy decision is scheduled for 11 August 2026.

Further tightening could initially support some bank income streams but would increase pressure on borrowers.

2. Net interest margins

Watch whether NIM expands or contracts. Current headline levels sit at:

• CBA: 2.04%
• Westpac: 1.89%
• NAB: 1.81%
• ANZ: approximately mid-1.5% range

The direction may be more important than the absolute number because differences in each bank’s business mix make direct comparison imperfect.

3. Mortgage arrears

Higher rates typically affect households with a lag. We would watch:

• 30-day arrears;
• 90-day arrears;
• hardship applications;
• and mortgage impairment charges.

4. Bad debts and provisions

Credit losses remain relatively benign, but banks are building additional protection against an uncertain environment.

A sustained increase would be an early sign that high rates are moving from an earnings benefit to a balance-sheet problem.

5. Deposit competition

Deposits are a critical source of bank funding, and higher savings rates benefit customers but increase bank costs.

Banks with large volumes of low-cost transaction deposits can have an important advantage.

Big Four bank FAQs

Why do banks benefit from higher interest rates?

Banks may benefit when the interest earned on loans and other assets rises faster than the interest they pay on deposits and other funding. However, the relationship is complicated by competition, funding costs and the bank’s mix of loans and deposits.

What is net interest margin?

Net interest margin measures net interest income relative to a bank’s average interest-earning assets. It is an important indicator of how effectively the bank is earning a spread between its assets and funding.

Which Big Four bank has the highest net interest margin?

Based on the latest reported half-year group figures, Commonwealth Bank has the highest headline NIM at approximately 2.04%, followed by Westpac at 1.89% and NAB at 1.81%. ANZ’s business mix and reporting presentation differ somewhat, with headline margin around the mid-1.5% range.

Are Big Four bank dividends fully franked?

CBA, NAB and Westpac’s latest interim dividends were fully franked. ANZ’s latest 83-cent interim dividend was 75% franked, an increase from 70% previously.

What happens to bank shares if interest rates keep rising?

Initially, rising rates can support bank earnings but if rates rise too far, weaker loan demand, higher funding costs and increasing borrower stress can negatively affect profits and bank valuations. The effect depends heavily on how long rates remain high and whether Australia avoids a significant economic downturn.