The RBA has already hiked the cash rate three times in 2026, pushing it to 4.35% in its latest move.
With the RBA back in hiking mode, the financial services sector should stand to benefit.
However, not all banks are created equal.
For investors, this raises an obvious question: which ASX banks are best positioned to profit?
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Judo Capital Holdings Limited (ASX: JDO): The Standout Beneficiary
Judo is uniquely positioned to thrive in an interest-heavy environment.
Unlike the mortgage-heavy big four banks, Judo lends almost exclusively to SMEs on floating-rate terms, meaning its income rises almost immediately after an RBA hike.
The latest numbers show this.
In Q3 FY26, Judo's net interest margin improved to approximately 3.15%, up from 3.03% in the first half, while most Australian banks saw their margins shrink due to fierce competition.
To back this up, analysts are very optimistic about Judo's outlook across any ASX bank stock, with an average target price of $2.25.
Bendigo & Adelaide Bank Ltd (ASX: BEN): Quietly Gaining Ground
Bendigo Bank is the regional bank that rarely gets attention, but it has been delivering.
In Q3 FY26, net interest income grew 4.1% year on year, operating profit before credit charges surged 10.9%, and net interest margin rose 6 basis points to 1.98%.
With a pledge to keep expenses no higher than inflation throughout the cycle, meaning real-term costs may reduce in the current environment, Bendigo is well positioned to deliver on margin expansion.
Westpac Banking Corporation (ASX: WBC): Scale With Some Strings Attached
As one of Australia's major banks, Westpac benefits from rising rates through improved spreads between deposit costs and lending rates, as deposit pricing typically adjusts more slowly than lending rates.
In H1 FY26, statutory net profit grew 3% to $3.4 billion, driven by balance sheet growth and stronger Treasury performance.
Importantly, total lending and deposits growth were both up 7% YoY, meaning Westpac has an even larger lending base which may benefit from higher interest rates.
To note, however, with 69% of its loan book in residential mortgages, Westpac's earnings are heavily dependent on Australian property prices remaining stable.
The Foolish Takeaway
In the current environment, Judo Capital offers the most direct exposure to rising rates, with a fast-growing SME loan book that is expected to generate higher levels of revenue.
All three stocks, however, can be expected to deliver higher net interest income in the short-term.
