How Are Australia's Major Banks Performing Ahead of the June RBA Meeting?

It is June 16 that everyone who invests in Australian banks has marked as the day to watch. It is on this day that the RBA will deliver its decision concerning the country's monetary policy, and given that it has announced three interest rate increases in 2026, it raises the issue of a fourth one in focus for the big four banks.

The brief summary of what bank stocks are currently experiencing – their recent performance has not been good; the earnings season has been unimpressive; and there are uncertainties ahead of the meeting with the RBA.

Where the Cash Rate Stands

The board of the RBA made a decision during their May meeting to raise the target for the cash rate by 25 basis points to 4.35%, and eight members voted for raising the target cash rate, while one member voted against the proposal, favoring the maintenance of the rate at 4.10%. 

The RBA stated that the inflation level increased significantly during the second half of 2025, while the conflict in the Middle East region has caused a significant increase in fuel and commodity prices.  

Three times the rate has been raised within this year 2026, namely in February, March and May, causing the target rate to rise from 3.60% to 4.35%. However, whether June will be the fourth month remains in question.

The Commonwealth Bank's economists forecast a RBA pause in June after the rate increase in May, while watching for signs that inflation is coming down sustainably. The Westpac economists see a chance of another rise from the RBA in June owing to continued pressure from inflation. The independent economist, Saul Eslake, sees a high chance of the RBA pausing in June since it increased its interest rate three times this year.

Eslake put it very clearly: "They've raised their rates three times; they've taken back everything they gave last year. I think they've got good reason to sit this one out and wait until they get their June quarter CPI figures. I would say the August meeting is live.

So there are two sides to the story: hold or hike, both are on the table, and with GDP figures due Wednesday, before the RBA June meeting, there is yet another element in the equation.

How the Big Four Have Been Trading

It hasn't been too good a run for bank stocks. CBA is off 9% over the last month, Westpac 9%, NAB 14%, and ANZ 7%.

This is a relatively broad sell-off, driven by a combination of factors. Firstly, three interest rate hikes dampening consumer sentiment, secondly some weakening employment statistics, and thirdly the warning from Morgan Stanley that the operating environment for the leading Australian banks has deteriorated very quickly, resulting in expectations of earnings per share being lowered following a poor results season.

In addition to this, Morgan Stanley suggests that there is an expected 5% earnings downgrade simply based on capital gains tax changes in the federal budget, which may hurt lending activity in properties.

Nevertheless, despite the weakness in the sector lately, CBA still stands out as the favorite among bank stocks in terms of fundamentals. Its stock price has dropped 6% in the last 12 months, while ANZ has appreciated 22% in the same period and yet still remains 3% lower in 2026.

ANZ — Solid Half Year, But Shares Still Under Pressure

However, the first among the Big Four to report, ANZ delivered results that were impressive on paper. Statutory earnings for the six months ending 31 March 2026 amounted to $3,650 million while the cash profit came in at $3,780 million. This represents a 70% rise from the last half of fiscal 2025 while rising by 14% without considering the impact of significant items in the preceding period.

Nevertheless, the interim dividend remained unchanged at 83 cents per share while the franking rate increased to 75% from 70% in the previous period. Cost savings are better than expected. ANZ's cost cutting program will now help it deliver an estimated $875 million worth of savings in fiscal year 2026 against the earlier forecast of $800 million.

Nonetheless, the stock is weak. Shares in ANZ have declined by 2.2% recently and are off 3.4% in the last one month. Morgans gives a sell rating on ANZ stock, with a target price of $30.72.

Westpac — Steady Profit, Mixed Reception

The Westpac earnings came out on 5th May, and the headline figure was good but nothing exceptional. Westpac made statutory net profit of AUD 3.4 billion, which fell by 5% compared to the second half of FY25 but rose 3% from the corresponding prior period.  

In terms of growth, Westpac saw its Australian mortgages rise by 7% year-on-year and reported a 16% increase in its business loans. The interim dividend stood at 77 cents per share, fully franked. Growth in lending and deposits stood at 7%. Deposits increased to AUD 745.2 billion, and the loans climbed to AUD 890.3 billion. 

NAB — Business Banking Strong, Credit Costs Rising

In the case of NAB, the performance was consistent with that of the entire industry, with business banking maintaining strong results and increasing credit costs suggesting that the management of the company is expecting difficult times ahead.

NAB's share price has fallen by 14% during the last month and thus, it is the worst performer among the big four in recent months.

The stock of NAB carries a Buy recommendation from Jefferies and has a price target of $50.64, while Morgans has Sell recommendation and price target of $37.27 for NAB.

CBA — Premium Stock, Premium Scrutiny

CBA continues to be the best benchmarking bank in the ASX and also the most expensive. The CBA continues to stand out as the best premium stock in the industry with an approximate market capitalization of $270.65 billion.

As at the time of writing, CBA stocks are selling at $162.31. Out of 16 analysts that have rated the stock, nine are of the opinion that CBA should be held as a stock while five are advising that it should be sold or strongly sold.

The latest budget announced by the government which altered the capital gains taxes is likely to affect the performance of CBA owing to its reliance on mortgage loans to property investors.

What the June RBA Decision Means for Bank Stocks

The banks are in a very interesting position in anticipation of June 16th. In a positive sense, the three rate hikes in 2026 have helped improve their net interest margins and hence increase their earnings. Rate hikes are typically beneficial to bank profits.

However, consumer sentiment is at a five-year low following the three rate hikes, with unemployment beginning to climb at 4.5%. Such conditions impact credit quality concerns on the horizon. If consumers become unable to pay off their mortgages, bad debt expenses increase, which decreases the earnings gains resulting from the margin improvement.

Bank trading updates due ahead, the upcoming RBA rate decision and any further comments from APRA will be the key catalysts in the coming period. 

The decision to hold rates on June 16 may give temporary support to banking stocks, relieving the imminent threat of a third rate rise that could squeeze borrowers. Another rate increase would put more pressure on clients and bank creditworthiness prospects.

Wednesday’s release of Q1 GDP figures on June 3rd is the primary factor in determining whether there will be a rate rise on June 16th. Anything below 0.3% would effectively rule out a third interest rate rise, while anything above 0.7% would leave the door open.