Banks Outperformed In February. What’s Next?

Feature Stories | Mar 09 2026

Australia’s major banks solidly outperformed the index during February following surprisingly positive trading updates. Can the trend continue?

• Solid outperformance from the major banks in February
• Credit growth slower in recent data
• Deposit rates vary significantly
• Will AI prove a hindrance or a help?

By Greg Peel

The 2026 February corporate result season was another in which analysts suggested beforehand that bank results had better be impressive in order to justify elevated valuations, particularly that of Commonwealth Bank ((CBA)).

This was the case throughout 2025, but in each case the majors improved their valuations in due course.

Among the majors, only CBA delivered a first half result, while the others provided quarterly updates.

Morgan Stanley reports the average major bank total shareholder return (capital gain plus dividends) of 12.5% in the month of February was significantly better than the ASX200’s 4.1%.

Among the majors, CBA was the best performer (18.5%), followed by National Australia Bank ((NAB)) on 13.0%, Westpac ((WBC)) on 9.6%, and ANZ Bank ((ANZ)) on 9.1%.

In contrast, the smaller banks underperformed the market. Bank of Queensland ((BOQ)) delivered 3.1% and Bendigo & Adelaide Bank ((BEN)) only 0.4%, while Judo Capital ((JDO)) lost -5.0%.

Are Australian banks thus overvalued?

Morgan Stanley notes the average major bank one-year forward PE multiple rose by 1.7 points to 20.8x, with the increase led by CBA (2.7points).

The majors are now trading at a premium of 6% to the All Industrials ex Banks, marking the first time they have traded at a premium since late 2009 (when recovering from the GFC).

The average major bank one-year forward dividend yield is 3.6%, the lowest level in the past thirty years, Morgan Stanley notes, and the first time it has fallen below the RBA cash rate since mid-2008 (when the GFC was in full swing).

Lending

Bank business loan growth slowed to 5.5% annualised in January following growth in excess of 10% in the December quarter. This compares to 9% in January 2025 and 8.5% in January 2024.

Mortgage growth eased to 7% in January from 8% in December, but was still well above previous January prints, Morgan Stanley notes, of 5.5% in 2025 and 4.5% in 2024. Mortgage growth in January was again led by CBA (5.4%) and Westpac (5.0%), followed by NAB (3.7%). ANZ improved, but still lagged (2.8%).

Morgan Stanley believes the February RBA rate hike (and possibly another one in May) will likely lead to some softening in housing credit momentum.

The majors, other than ANZ, are tracking about in line with consensus loan growth, UBS notes, with Westpac and Macquarie Group ((MQG)) ahead of expectations. Regionals continue to sit below consensus estimates.

Housing lending was softer in January versus December, as noted, with CBA, Macquarie and Westpac capturing 24%, 24% and 19% of the month's net new business respectively. Regionals were losers, UBS notes, with Bank of Queensland losing -3% and Bendigo & Adelaide Bank flat.

Investor mortgages are currently around a third of mortgage loans and growing at 7.7% annualised versus owner-occupied at 6.2%. CBA and Dutch challenger ING are aggressively taking investor mortgage market share, UBS points out, taking business predominantly from the regionals. Macquarie is growing its owner-occupied book, with NAB growing at 1.5x system growth.

Softer business lending in January saw the majors capturing a super majority of net lending flow, UBS notes, other than ANZ.

Bank of Queensland had a strong month capturing 7% of monthly flow. ANZ has performed poorly in business lending over the past six months with net outflows month on month.

Judo Capital saw net outflows, likely from book run off, but is still growing strongly.

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