Westpac, one of Australia's largest banks, delivered a full-year profit that was essentially unchanged from the previous year, but the numbers behind the headline reveal a notable shift in where the bank's growth is coming from. For the year ended September 30, the lender posted A$6.99 billion in profit, up only slightly from A$6.97 billion a year earlier and in line with what analysts had expected.
The steady result masks a more telling development: demand for home loans is cooling. Westpac said average monthly mortgage applications fell 15% in the fourth quarter compared with the same period a year earlier. That drop comes as the Australian government scrapped certain tax concessions for property investors earlier in the year, a move that appears to have dampened both housing and investor credit demand.
Growth is shifting, not stopping
While mortgage applications slowed, Westpac's existing loan book continued to expand. Deposits rose 6% and loans increased 5% over the full year. Housing loans grew 7% when excluding its RAMS portfolio, and business lending climbed 12%, including an 18% jump in institutional lending tied to energy, infrastructure, and resources.
This mix shift is important. Mortgages have traditionally been a low-risk, capital-efficient way for banks to grow. Because home loans typically carry lower regulatory risk weights, lenders can expand their mortgage books without using up as much of their capital buffers. When that pipeline slows, banks often pivot toward business and institutional lending, which can be more profitable but also more capital-intensive.
That dynamic is visible in Westpac's key capital metric. The bank's common equity tier 1 (CET1) ratio — a measure of its financial strength and a key safety buffer — eased seven basis points to 12.46%. Its net interest margin, the difference between what it earns on loans and what it pays on deposits, also slipped five basis points to 1.76%. Even so, Westpac held its final dividend at 77 Australian cents per share.
What it means for investors
For investors, the CET1 ratio is the number to watch. When mortgage demand weakens, banks often lean more on business lending to keep loan growth alive. But those loans generally carry higher risk weights, meaning they consume more capital per dollar lent. That can put downward pressure on capital ratios, even if profits look steady.
A lower CET1 ratio leaves less headroom for banks to increase dividends or buy back shares. With the big four Australian banks controlling more than 70% of the mortgage market, a broad slowdown in housing credit could keep dividend growth constrained across the sector. Westpac's decision to hold its dividend flat, rather than raise it, may be a sign that management is being cautious about preserving capital.
For everyday investors, the takeaway is that a stable profit number doesn't always tell the full story. The quality of growth matters. A bank that is growing its business loan book while mortgage demand fades may be taking on more risk per dollar of lending, which could show up in future capital levels or dividend decisions.
Westpac's results also highlight a broader trend in Australian banking: the era of easy mortgage growth may be giving way to a more competitive and capital-conscious environment. As the property investor tax changes continue to work through the system, banks may need to find growth in other areas, and investors will be watching to see how that affects profitability and shareholder returns.
For now, Westpac's balance sheet remains solid, and its dividend is intact. But the softening in mortgage applications is a signal worth noting, especially for those who hold bank stocks or are considering them. The next few quarters will show whether the slowdown is a temporary blip or the start of a longer-term shift in how Australia's biggest banks generate growth.
