Sharper focus, steady performance
Banking Matters
Major Banks Analysis | Full Year | November 2025
Executive summary
Sharper focus, steady performance
Amid leadership changes, refreshed strategies, and continued competition, headline results as reported (excluding acquisitions) has cash earnings falling 4.5% year-on-year to $29.4bn and return on equity dropping to 10.5%. Substantial one-off charges weighed on results, particularly in the second half, as banks accelerated restructuring and invested in transformation.
However, adjusting for acquisitions and one-offs showed that the underlying cash earnings remained flat, increasing 1.0%.
Strategic priorities across the banks have converged on three key areas: proprietary home lending channels, deposit growth, and business lending expansion. Each of the banks is pursuing significant technology investments, spanning from AI-driven innovation to legacy system consolidation. These initiatives carry near-term cost implications, with investment spend increasing by around $750m to $7.7bn, but represent essential investments in operational resilience, customer experience and future competitive positioning.
Strong underlying fundamentals driving growth
Underlying performance remained robust. Net interest income (NII) reached $77.1bn, up 4.0% year-on-year, supported by strong lending growth. Net interest margin (NIM) improved modestly, up 2bps to 1.8%. The improvement in NIM reflects growth in higher-yielding assets and replicating portfolio performance (+4bps) partially offsetting deposit pricing competition (-2bps).
Lending mix reflected strategic priorities, with gross loans and advances growing 5.5% year-on-year – the strongest growth in recent years. However, this growth remained marginally below broader system expansion, highlighting the competitive dynamics across the lending market. Home loans remained the largest piece of the lending pie, with a noted uptick in proprietary lending and business lending continues to gain prominence. Major banks’ deposits reached $3tr for the first time growing 6.4% for the year. Australian deposits for the system have grown at a compounded 6.8% annually over the past five years. This stable funding base supports lending expansion while preserving margin discipline.
Yet market share for major banks continued to fall - though at a slower pace - as non-banks and smaller institutions remain competitive.
The results indicate that investments in Australian businesses and households are sustainable for the banks and competitively priced for customers.
PwC Major Banks Analysis | Full Year | November 2025
Explore the analysis in numbers
Earnings and returns
Cash earnings (excl. acquisitions)Cash earnings decreased by 4.5% yoy. While interest income and lending balances grew, this was more than offset by higher operating expenses and one-off charges that were included in cash profit as reported. However, excluding these one-off charges, cash profit increased 1.0%.
Return on equity (ROE) Return on average equity (%)
Return on equity decreased 58bps to 10.5%, its lowest level since 2021. This is a continuation of the recent declining trend from the recent peak of 12.6% in 2023. However, excluding the impact of one-off charges, return on equity was 1bp higher than the prior year at 11.1%.
Revenues
Net interest income (excl. acquisitions)Net interest income increased by 4.0% yoy, driven by volume growth in lending activities and supported by a stable net interest margin.
Other operating income declined 4.5% from FY24. Fees and commission income remained the largest component at 59%, while market trading activities contributed 34%.
Lending
Net interest margin (NIM) (%)Net interest margin (NIM) remained broadly flat, edging up by 2 bps over the year. This modest increase was primarily driven by a shift toward higher-yielding liquid asset holdings, replicating portfolios and partially offset by intensified competition impacting deposit pricing.
Aggregate lending across the major banks continued to grow at 5.5%. Home loans remained the largest component of the lending mix, however business and institutional lending share of growth has started to increase consistent with the strategic goals of the major banks. Consumer finance remained flat to modestly positive, with low single-digit growth across all banks.
Expenses
Operating expenses (excl. acquisitions)Total expenses excluding acquisitions reached $47.2bn, growing by 9.0%, the strongest rate in recent history. Excluding a number of one-off items such as restructuring and remediations, expenses grew by 6.0%. This represents a number of key trends such as higher inflation, increasing salary and FTE (growing 3.4% to 171k people, an all-time high), and investment in technology (increasing by $0.9bn this year).
The expense-to-income (ETI) surpassed 51.6% for the first time. Excluding the one-off charges recognised in the current year, the ETI was 49.7%, reflecting ongoing investment technology initiatives that have not yet resulted in reduced expenses or income uplift.
Asset quality
Credit impairment expensesCredit impairment expense was flat for the year, representing 7bps of gross loans and driven mainly by higher individually impaired loans. This was offset by reductions in collective provisions, reflecting some improvement in credit metrics.
Credit provisions were up by 2.9% from FY24, driven by portfolio growth, as well as some specific sectors experiencing stress. Individual provisions as a proportion of the total provision has continued its recent trend, now making up 13% of total provisions and consistent with increases impaired assets.
Balance sheet
Credit provision cover Total provisions for credit impairment as a % of GLAAThe provision coverage ratio decreased by 2 basis point over the year to its lowest point since 2019. The ratio has consistently declined since 2022, however remains above the observed pre-COVID values.
Core equity T1 Common equity tier 1 ratio (%)
CET1 capital ratio was 12.1% which is well above the minimum regulatory requirement of 10.25%, a consistent trend seen over the past decade. A year-on-year decline of 20 basis points this year was driven primarily by higher risk weighted assets. Credit RWA increased in line with lending growth, partly offset by a decrease in non-credit RWA.
Balancing transformation with performance
Earnings income
Sharper focus, steady performance
Amid leadership changes, refreshed strategies, and continued competition, headline results as reported (excluding acquisitions) has cash earnings falling 4.5% year-on-year to $29.4bn, down from $30.8bn in FY24.
Other operating income was also lower, falling 4.5% year to $7bn. The fall was mainly driven by lower market trading activities that reduced by 7.4%.
Operating expenses continued to rise (9.0% yoy), and credit impairment expenses had a marginal 2% decrease. Return on equity (ROE) fell to 10.5%, a 58 bps decrease from FY24. This decrease is attributable to the 4.5% decrease in cash earnings and modest 2.6% rise in average equity levels. Over the past three years, ROE has consistently hovered between 10.5% and 12.0%, reflecting the banks’ ability to maintain consistent returns while navigating leadership changes, implementing refreshed strategies and continued competitive and cost pressures.
The year was marked by substantial one-off charges, particularly in the second half, reflecting restructuring initiatives, fines and remediations. These charges, while weighing on headline results, in-part represent a shift in focus from regulatory change to investments for the future. When adjusting for acquisitions and one-offs, the cash earnings picture changes to increase by 1% for the year.
Underlying profitability remained robust. Net interest income (NII) reached $77.1bn, up 4.0% year-on-year, supported by strong lending growth and a modestly improved net interest margin (NIM) of 1.8%.
When analysing the change in NII, Figure 2 provides a useful way of assessing the intersection of the two major drivers – NIM and Average Interest Earning Assets (lending volume). The solid dots graph the majors over time and moves from 1H10 (top left) to 2H25 (bottom right) – with each dot showing the NIM for the half (y‑axis) and the corresponding Average Interest Earning Assets (x ‑axis). This intersection on the x‑ and y‑ axis is the resulting NII for the half (denoted by the grey curves).
If we follow the points from top left to bottom right, we see the familiar picture of a consistent decrease in NIM (y‑axis), however this has been more than offset by the increases in lending volumes (x ‑axis). The net result is a steady increase in NII despite a structural decline in NIM. The Reserve Bank of Australia's most recent rate increase cycle from 2022 to 2024 boosted the NIM, which peaked in the first half of 2023. However, a steady decline followed, correlating with the intense competition experienced in recent years. Over the most recent half the 2bps improvement in NIM reflects growth in higher-yielding assets and replicating portfolios (+ 4bps) partially offsetting deposit pricing competition (- 2bps).
Lending momentum continued to build, with gross loans and advances growing 5.5% year-on-year - the strongest growth in recent years. While home loans remained the largest component of the lending mix, business lending continued to gain prominence, reflecting banks' strategic focus in this segment.
Looking only at Australian loans, Figure 3 highlights the notable ongoing divergence between business and residential loan book growth for the majors (based on data from Australian Prudential Regulation Authority (APRA) monthly statistics). Business lending continues to be the major driver of growth, as mortgage growth remains relatively stable.
Despite strong lending growth, the increasingly competitive landscape has continued to see non-banks and smaller institutions gain ground on the majors, with the majors market share declining, though at a more moderate pace than in previous periods. Total system loan growth averaged 7.9% annually, while the majors recorded 7.2%. As shown in Figure 24, this market share trend may be starting to plateau at 66%.
APRA data highlights that non-major banks and non-bank financial institutions (NBFIs) are capturing this share, growing at 8.6% and 11.5% respectively on an annualised basis. Notably, NBFI lenders (including private credit funds managing investor capital) are emerging as a significant source of financing for borrowers unable to access traditional bank funding.
Figure 1: Earnings and ROE see a slight dip, due to a number of one-off items
Figure 2: Record NII in 2H25 – driven by volume growth and an improved NIM
Figure 3: Business lending growth for the major banks continues to outperform residential, a trend since 1H23
Figure 4: Majors' market share reached a plateau
Funding
Consistent deposit growth reinforces funding strength
Over the last five years APRA data highlights that total Australian deposits have grown by 6.8% compounded annually. Major banks Australian deposits have achieved growth in line with system over the same period (around 6.4% compounded annually).
Major banks’ total deposits have now reached $3tr for the first time, representing a 6.43% increase for the year, deposit funding now makes up 70% of the banks' total funding mix, the highest proportion seen in the past 8 years. This growth in deposit funding is largely driven by a combination of population growth from migration, households returning to pre-covid saving habits, superannuation and wage growth which are characterised by a heightened focus on financial planning and stability.
This deposit strength has enabled banks to maintain favourable funding positions, supporting their ability to grow lending while preserving margin discipline.
Figure 5: Deposits as a proportion of funding is at its highest point in nearly a decade
Expenses
Investment in transformation reaches new heights, but control remains the goal
The expense-to-income ratio (excluding notables) reached 49.7%, its highest point in 15 years. Significant items (largely due to restructuring charges and remediation costs) added 1.9% to this figure, taking the expense to income ratio as reported to just above 51.6%. Operating expenses increased 9.0% year-on-year, to $47.2bn (including notables).
This increase was driven by three primary factors:
Workforce expansion to historic highs as banks invested in strategic capabilities,
Accelerated technology spending and
Significant restructuring charges at a number of banks concentrated in the second half.
Payroll expenses have been on a steady upward trend since 2022 (increasing by 6.8%, compounded annually), reflecting inflation and superannuation rate adjustments as well as employment reconfiguration to support strategic initiatives. Full-time equivalent employees hit its lowest point in FY20, then rebounded from FY21, increasing steadily to a new peak in FY25 of over 171,000, surpassing the previous high recorded in FY15 as the reconfiguration of the workforce plays out.
Total investment spend increased by approximately $750m to $7.7bn, though it remained stable as a proportion of total costs. Notably, investment spend shifted toward growth and transformation, at the expense of risk and regulation projects. However, these initiatives are yet to deliver a favourable shift in the expense to income ratio, with operational risk typically rising during large-scale transformations, compounded by the financial burden of maintaining parallel legacy and new systems until programs are fully implemented.
Figure 6: Operating Expense hit a record high, with continued increases in seen in all facets
Credit and Capital
Credit quality remains stable with emerging nuances
Overall credit quality is stable. Lower inflation and declining cash rates eased cash flow pressures over the past year, and strength in the labour market and a recent increase in real household disposable income helped reduce financial stress, and has been partially reflected in lower collective provisions and coverage ratios. As a result, loan impairment expenses of $2.4bn declined 2.0% year-on-year as customer resilience was supported by these more favourable economic conditions.
Even in the most vulnerable sectors like retail, hospitality, construction and agriculture (where operating conditions have been particularly challenging for smaller firms) losses remained manageable. However, the credit landscape showed increasing complexity, with some segments demonstrating more stress than others. The outlook from the majors is mixed, with some banks updating forward-looking assumptions to reflect uncertainty in the economic outlook, driven by rising global trade tensions and geopolitical challenges, as well as overlays anticipating certain areas of stress, while others released overlays.
Impaired assets as a proportion of gross loans have continued to increase (see Figure 7), reflecting banks' proactive approach to emerging risks.
Total provisions stood at $22.1bn, with provision coverage at 63 bps, continuing the gradual trend down towards pre-covid levels. The shift in provision composition (with collective provisions reducing while individual provisions increased) signals banks' careful monitoring of specific exposures, and crystallisation of credit issues in certain pockets.
Healthy capital supports banking stability
Total capital rose by 4.5% to $388.5bn (including acquisitions) this year, with increases in common equity (from earnings) and Tier 2 capital issuances. The CET1 ratio remains well above the regulatory minimum of 10.25% at 12.14%, reducing marginally by 21bps from last year.
A number of the majors have reached or are approaching the output floor introduced by the capital reforms in January 2023. This floor restricts the benefit to RWA for the majors to 72.5% of the standardised equivalent measure.
Figure 7: Credit Provisioning remaining stable, with slight increases in individually assessed provisions
Figure 8: Capital levels are in line with 1H25, with a decrease in CET1 capital ratio
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