Westpac Banking Corp (ASX: WBC) shares are rising over 1% today after the bank released its FY26 results to the ASX.
The update revealed some encouraging developments, although there were also a few disappointments.
So, were the results good enough to make Westpac shares a buy?
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How did Westpac perform?
Westpac reported a statutory net profit of $6.8 billion for FY26, down 1% from the previous year. Excluding notable items, net profit was broadly flat at $7 billion.
However, there was stronger growth in the bank's lending operations, with total loans increasing 5% over the year and customer deposits growing 6%.
The bank performed particularly well in business and institutional lending, where balances increased 12% and 18%, respectively.
I think this is encouraging because Westpac has been working to strengthen its position in these markets, and the latest figures suggest those efforts are delivering results.
There was also progress on costs, with the bank's cost-to-income ratio improving as its transformation program continued.
Westpac is investing heavily in technology and simplifying its operations, which I believe could support stronger profitability over time.
Another positive was its balance sheet. The bank finished the year with a common equity tier 1 capital ratio of 12.5%, comfortably above its target.
This financial strength helped support a fully-franked final dividend of 77 cents per share, bringing total dividends for FY26 to $1.54 per share.
Were there any disappointments?
Despite the positives, I wouldn't describe the results as outstanding. Westpac's net interest margin declined from 1.94% to 1.87%, reflecting continued pressure on the profitability of its lending activities.
Credit impairment charges also increased considerably, rising from $424 million to $864 million.
Although the bank's overall credit quality remains relatively healthy, I would keep an eye on this trend, particularly with interest rates expected to remain elevated into 2027.
And while lending growth was good, it hasn't yet translated into meaningful growth in group profits.
I think this is something Westpac needs to improve if it wants to deliver stronger shareholder returns.
Would I buy Westpac shares?
At around $37.44, I'm not convinced Westpac shares offer particularly good value.
Before today's results, CommSec consensus earnings per share forecasts implied a price-to-earnings (P/E) ratio of approximately 17.7 times FY26 earnings and 17.1 times FY27 earnings.
Those estimates could change following today's announcement, either positively or negatively, as analysts reassess the bank's outlook.
However, I think the valuation is relatively demanding for a business that has just reported another year of largely flat profits.
While there is an attractive dividend to consider, with Westpac's FY26 dividend representing a yield of approximately 4.1%, I would prefer to see stronger earnings growth or a more attractive valuation before buying.
Foolish takeaway
I think Westpac has delivered a respectable result, with its lending growth and strong capital position providing reasons for optimism.
And if management can build on its progress with costs and operational efficiency, I believe earnings growth could improve over the coming years.
However, at $37.44, I think investors are already paying a reasonable premium for that potential.
For me, Westpac shares are a hold at current levels. I would be more interested in buying if the valuation became more attractive or the bank demonstrated stronger profit growth.
