ANZ, Westpac and NAB FY25 results preview: Decade high multiples vs. earnings momentum

Australia's major banks head into November's results season riding a wave of strong outperformance, but Citi says investors face a delicate balancing act between improving operating conditions and valuations at their sharpest in over a decade.

The sector has benefited from strengthening credit growth, further interest rate cuts, and ongoing productivity initiatives, particularly at ANZ and Westpac. However, with results kicking off on 3 November, the focus will shift to whether the banks can justify their elevated multiples through sustained earnings momentum.

Revenue outlook strengthens

The banks have moved into what Citi describes as a near-goldilocks revenue environment. Credit growth has accelerated to around 10% across housing, personal and business lending, offset by the recent decline in rate cut expectations (just one more 25 bp cut by year end vs. multiple cuts earlier).

This marks a notable turnaround from May, when major bank CEOs guided for more rate cuts and slowing credit growth.

The analysts believe resilience in lending volumes, combined with stable net interest margins, has created arguably the best revenue environment in some time. The June quarter saw strong benefits from deposit repricing, basis risk, New Zealand operations and markets/treasury income.

Asset quality volatility

Bad debt expectations have undergone a dramatic revision over the past two years. Consensus estimates for ANZ, NAB and Westpac combined have fallen from over $4 billion for FY25 two years ago to approximately $1.8 billion expected in the upcoming results.

Despite this improvement, consensus still expects typical mean reversion in FY26, with bad debts forecast to rise around 50%.

However, collateral values are performing better than bank base case assumptions, as house prices have grown 5% year-on-year, and banks still hold significant excess provisions. Whilst banks will likely want to retain provisions given strong business credit growth, FY26 expectations could be revised down through a combination of provision releases and lower new impaired loans.

FY25 results preview

Save these numbers and see how the actuals compare against the forecasts (especially net interest margins).

Source: Citi, October 2025

Valuations present a challenge

The self-help stories of ANZ and Westpac have seen the two stocks handsomely outperform the market, up 30% and 22% year-to-date, respectively. However, this strong run, combined with solid gains from CBA and NAB, has left the sector trading at its sharpest cost of equity in more than a decade, according to Citi.

ANZ currently trades on a one-year forward PE multiple of 15.6 times and price-to-book of 1.5 times. While Westpac trades on a forward price-to-book of 1.8 times, a 20% premium to its 10-year average. NAB commands a forward price-to-book of 2.1 times, a 38% premium to its 10-year average.

Citi's preference remains for ANZ and Westpac, which through self-help initiatives offer the best likelihood of sustainably higher returns to support current valuations.

Source: Citi, October 2025

Whilst valuations aren't cheap, this year has shown that earnings momentum can sustain the sector and override valuation concerns. The question for investors is whether the improving operating backdrop can continue to justify premium multiples, or whether the strong pre-results run has set expectations too high.