ASX banks reporting season preview – who the big brokers are backing to beat

Reporting season has started and all eyes are on the banks, where for the first time since the COVID 19 pandemic, their collective profitability is being put to the test. Last year was kind to them: rates were falling, which brought borrowers back and helped loans grow, bad debts stayed low and the banks earned a healthy margin between what they charged on loans and paid on deposits.

This year the picture has flipped. Three consecutive rate hikes, sharper competition for both loans and deposits, and a Federal Budget that pared back the tax breaks favouring property investors have all bitten. House prices are falling at the same time as mortgage applications are dropping.

That could make for a rough set of results set to start next week. But the experts see limited risk in the backward-looking numbers; it's the forward guidance that could come in soft and really move the needle. 

ASX banks had it good until now

Following on from the tailwinds of 2025, February reporting season was good for banks, with better-than-expected revenue trends. Commonwealth Bank of Australia’s (CBA) result came in ahead of consensus, with profit beating expectations and loan impairment expense better than forecast. The bank lifted its dividend and held its capital ratio steady, meeting or beating estimates across its key metrics, and its shares rallied on the result. 

Come May, however, macro events started showing up on the books. UBS stated in a July 29 note that most banks had lifted their provision overlays ahead of their first-half results. Provisions are money a bank sets aside for loans it expects might sour. The move suggested the banks were bracing for tougher conditions.

Morgan Stanley saw the same picture in a recent note, and pointed to another sign of possible strain: capital ratios coming in weaker than the market had expected. A capital ratio is the cushion of a bank’s own money held against its loans, and a bigger cushion means it can absorb more losses before running into trouble.

National Australia Bank (NAB) showed its cushion was thinning when, to protect its capital ratio, it partially underwrote its dividend reinvestment plan, which lets investors take their dividend as new shares instead of cash. NAB arranged for a third party to buy up the shares tied to investors who took the cash, letting it keep more capital on the balance sheet. The fact that it leaned on this mechanism suggested its cushion was thinner than investors would have liked. 

The strain showed up in share prices too. A year earlier ANZ Group (ANZ), NAB and Westpac Banking Corp. (WBC) had all outrun the wider ASX, but in the six months to June this year, they were trailing the market. They did, however, manage to claw back most of that ground in July.

Australian bank valuations are high

That July recovery may have left the banks looking expensive. UBS noted that the sector's price-to-earnings ratio, a measure of how much investors pay for each dollar of profit, was sitting more than two standard deviations above its historical average against the S&P/ASX 200. In plain terms, the banks are trading well above what professional investors would typically consider fair value. 

Current valuations would be easier to justify if profitability were running hot, but it is not. UBS put sector return on equity, a gauge of how much profit the banks squeeze from shareholder funds, at 11.0%, below its long-run average of 12.0%. 

The stretched valuations of local banks are likely the main reason for their share price underperformance relative to their global peers this year. As UBS pointed out, European bank shares have risen 23% and UK bank shares 24% since January 1 – more than three times the local sector’s 6.8% gain. Of the banks in Australia UBS views CBA as the most expensive of the group, but singles out NAB and WBC to outperform.

What to expect from the banks this reporting season

The question hanging over this reporting season is whether the recent strain on the sector shows up in the numbers, or only in the outlook. On both metrics, the brokers are fairly aligned. The results covering the past six months should hold up, but the guidance for the year ahead is where the softness is likely to appear.

Macquarie made this point in a July 28 note. It expects the results to land 1–2% ahead of consensus at CBA and Bendigo and Adelaide Bank (BEN), but sees forward guidance weakening as lending growth slows and mortgage competition builds. The broker kept its underweight call on the sector, naming ANZ and NAB as its preferred exposures.

The reporting itself splits two ways. CBA, Judo Bank (JDO) and BEN hand down full-year results, while ANZ, NAB and WBC deliver third-quarter trading updates.

CBA: Macquarie expects it will be the most resilient result of the majors, sitting 2% ahead of consensus on both underlying and bottom-line profit, helped by strong balance-sheet growth. The broker flags CBA's high valuation as the key risk, however, and sees the dividend rising just 5 cents to $2.65. UBS is broadly in line with consensus and points to investor mortgages and deposit flows as potential risks for the bank.

ANZ: Macquarie's warning is on bad debts. It sees ANZ beating the consensus profit forecast by 1% before bad-debt charges, but those charges could tip it to a 1% miss on the bottom line. The broker expects ANZ to grow its mortgage book roughly in line with the wider market.

NAB: Credit quality is the thing to watch for NAB. Macquarie has the major running 2% ahead of the consensus profit forecast before bad-debt charges, which could pull it down to 1% once the charges are factored in. The broker expects investors will keep a close eye on NAB's loan book given its larger exposure to business lending.

WBC: Again, bad debts are the swing factor. Macquarie has WBC about 2% ahead of the consensus profit forecast once a one-off restructuring charge is stripped out, but sees higher bad debts potentially wiping out that lead. The broker also flags Westpac's valuation as stretched against the returns it generates.

JDO: UBS downgraded JDO to Neutral on 26 June and expects no share price recovery until it rebuilds investor trust through steady growth and a proven record on loan losses. Macquarie is more upbeat with an Outperform call, arguing the recent share price fall already reflects the earnings downgrade Judo flagged in June.

BEN: UBS expects the second-half result to beat consensus earnings by around 5%, helped by a larger loan book, but notes investors will weigh that against possible anti-money-laundering fines and execution risk on its partnerships. Macquarie sees a similar underlying beat, though a $20 million restructuring charge drags its bottom-line forecast 3 to 4% below consensus.

The bottom line

What the upcoming reporting season is set to test is the gap between the two halves within each result. The backward-looking numbers are largely set, with most banks likely to land within a percent or two of consensus. This means the profit lines alone are unlikely to move stocks far.

The signal sits in guidance: lending application trends, deposit competition and any early cracks in credit quality will separate the banks from here. This puts the greatest weight on guidance.

CBA's resilience will be judged against a valuation that leaves little room for disappointment, while ANZ, NAB and WBC will be scrutinised for whether cost discipline can hold the line as margins tighten. Westpac is first to report, with a third-quarter update due on 10 August, followed by CBA's full-year result on 12 August, ANZ's third-quarter update on 13 August, and NAB's on 17 August.

For all the key reporting season dates, as well as consensus estimates for net profit after tax (NPAT), earnings per share (EPS) and dividends per share (DPS), be sure to check out our ASX Reporting Season Calendar for August 2026. Covering more than 250 ASX stocks, it should prove an invaluable investing tool this reporting season.