The Westpac Banking Corp (ASX: WBC) share price is 6% lower than the November 2025 peak following the FY25 result. Is this the right time to buy?
Westpac is one of Australia’s biggest ASX bank shares, with a focus on household lending.
Struggling to generate growth
The recently released FY25 result for the 12 months to 30 September 2025 showed the bank didn’t generate profit growth for shareholders.
The net profit after tax (NPAT) fell 1% to $6.9 billion and excluding notable items, the net profit after tax dropped 2% to $7 billion.
Westpac also noted that its return on tangible equity (ROTE), excluding notable items, fell 24 basis points (0.24%) to 11%.
There were a few positives for the ASX bank share, with 6% growth of total loans to $851.9 billion and 7% growth of total customer deposits to $723 billion.
Another positive was that the credit impairment charge was 5 basis points (0.05%) of average loans, down from 7 basis points (0.07%). The bank said the cost of living pressure on households “continues to ease and levels of business stress remain low”. This is a great sign, in my view. This could be a key influence on the Westpac share price going forward.
But, profit fell largely because operating expenses rose 9% to $11.9 billion, which included restructuring costs of $273 million. Excluding restructuring, expenses rose 6% due to technology and UNITE program costs, increased software amortisation and salary and wage growth (including more bankers).
The lending profitability, measured by the net interest margin (NIM), declined 1 basis points (0.01%) because of persistent competition in lending and deposits. I don’t think that competition is going away any time soon, if ever.
Macquarie Group Ltd (ASX: MQG) is becoming increasingly competitive to the big banks as it gains market share and grows its deposits and loans faster than the big banks.
Regulator monitoring lending
Westpac’s lending growth has been solid, but the banking industry is coming under closer watch by the banking regulator Australian Prudential Regulation Authority (APRA).
It was reported today by the Australian Financial Review that APRA is going to limit banks – a maximum of 20% of new loans can be to borrowers exceeding 6x their income. The limit will apply separately to owner-occupier and investor lending.
According to the AFR‘s reporting, investing lending has increased by 6.7% to $767 billion, which comprises 38% of mortgages.
The idea is that it will help reduce the risk of deteriorating lending standards.
APRA said there has been an increase, from a low starting point, driven by high debt to income loans to investors.
The regulator believes only a few banks are thought to be near this limit of high debt-to-income investor lending. But, the change isn’t expected to have a near-term impact on access to credit for borrowers.
In the June 2025 quarter, 7% of the total new lending were loans at a debt-to-income ratio of more than 6x, which is significantly less than the 20% limit APRA is implementing.
But, from Westpac’s point of view, any noticeable reduction of lending growth could be a headwind for profit growth, particularly if expenses continue rising at a fairly fast pace.
Is the Westpac share price a buy?
How much is a business with flat profit growth worth? I wouldn’t pay for a high price/earnings ratio (p/e ratio).
The forecast on Commsec suggests Westpac’s earnings per share (EPS) could grow by around 1% in FY26, putting the current valuation at 18x FY26’s estimated earnings. EPS could then grow by 1.7% in FY27, according to the forecast on Commsec.
I believe profit (growth) should be the main driver of the Westpac share price over the longer-term – the growth seems very limited, in my opinion. It seems unappealing today. The forecast FY26 dividend represents a yield of less than 6%, including the franking credits. Not bad, but it has been higher in the past.
I’d look at other ASX dividend shares with more growth potential.
