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Westpac Banking Corp (ASX: WBC)'s reputation in the mortgage market is improving rapidly, but Macquarie Group Ltd (ASX: MQG) believes strong competition means there's still downside risk to earnings, with Westpac most exposed.
Macquarie's survey of mortgage brokers for 2025 indicates that while pricing and time to approval remain critical for brokers and customers, there are other considerations influencing who people trust with their loans.
As prices converged and approval times are well within customer expectations, bank reputation and technology have also become important factors. Indeed, our medium-term analysis shows that technology has seen the biggest increase in consideration for customers.
Macquarie says after years of hard-fought competition, "front-book pricing and retention offers/policies have stabilised''.
Westpac is the most competitive among the major banks, while Commonwealth Bank of Australia (ASX: CBA) and ANZ Group Holdings (ASX: ANZ) are the least competitive. Interestingly, brokers indicate that National Australian Bank Limited (ASX: NAB) and (Commonwealth subsidiary) Bankwest are less competitive on front-book rates but very competitive on retention.
Macquarie said Westpac had also improved markedly in terms of its reputation in systems and turnaround times, up 15 points year on year by its measure, but still lagging CBA and NAB.
Our aggregate performance scores suggest that Westpac has materially caught up to its peers and is now well ahead of ANZ.
Perceptions of subsidiary Suncorp Bank had worsened significantly also.
ANZ and Suncorp now rank low in perceptions based on our aggregated broker scores, suggesting integration-related revenue attrition risks remain.
On the outlook, Macquarie said mortgage competition was expected to remain relatively stable.
We expect rate cuts, fading replicating portfolio benefits, and continued deposit competition to see margins fall 5-7 basis points in FY26. We continue to see downside risk to earnings in FY26 and are 2-3% below consensus on an underlying basis. While we see downside to all banks, we see the most downside to Westpac and the least for NAB. NAB and ANZ remain our preferred exposures within the bank sector.
Macquarie's price target for Commonwealth Bank shares is $105, $30 for ANZ shares, $35.50 for NAB shares, and $30 for Westpac shares.
