ASX Bank Stocks in 2026: Buy, Sell, or Hold as RBA Rate Hikes Loom?

ASX bank stocks: what to watch next

The RBA cut rates three times in 2025, bringing the cash rate down to 3.6%. But the December board minutes surprised investors: policymakers are now discussing rate hikes for 2026. Inflation sits at 3.8%, with core inflation at 3.3%, both above the RBA’s 2-3% target. CBA and NAB economists expect a hike as early as February, and markets are pricing in around 50 basis points of increases by year-end. For bank stock investors, this changes everything.

What are the Best ASX Bank stocks to invest in right now?

Check our buy/sell tips

Why Higher Rates Could Help Bank Profits

When rates rise, banks typically make more money because they can lift loan rates faster than deposit rates. According to Macquarie’s research, the shift in rate expectations could add 2-4 basis points to bank margins across the Big Four.

CBA and Westpac benefit most because they hold more low-cost transaction deposits. Banks are already preparing, fixed mortgage rates have climbed, and term deposits are paying more.

Here’s the catch: competition could eat into those gains. If banks fight for customers through deposit wars, much of the benefit disappears. We expect a more realistic 3-5 basis points of improvement once competition is factored in.

The Risks Investors Should Watch

Higher rates aren’t all good news. A 25-basis-point hike adds roughly A$90-100 per month to an average A$600,000 mortgage. With households already stretched by living costs, some borrowers may fall behind on payments. Rising bad debts could quickly wipe out margin gains.
Valuations are another concern. CBA trades at around 25 times earnings, roughly 2.5 times what global banks trade at. After a strong 2025, the price assumes perfect execution. There’s little room for disappointment.

Our Verdict on Each Big Four Bank

Westpac (ASX: WBC) – BUY

We believe Westpac offers the best value right now. It has a similar rate of exposure to CBA but trades cheaper. New CEO Anthony Miller, who started in December 2024, is pushing the UNITE technology program to cut costs. The bank also reported a CET1 capital ratio of 12.2% in its latest results, giving it plenty of financial strength. For investors wanting rate-sensitive exposure without paying top dollar, Westpac looks attractive.

CBA (ASX: CBA) – HOLD

CBA gains most from rate hikes given its deposit mix. But at 25 times earnings, it’s priced for perfection. The stock hit all-time highs earlier in 2025 before pulling back around 20% from its peak. Current shareholders can stay put, but new buyers might wait for a pullback below A$150 for a better entry point.

NAB (ASX: NAB) – HOLD

NAB offers moderate upside and trades at a fair valuation, but its credit quality is increasingly under the microscope. While it has maintained its lead in business lending volumes, its non-performing exposures climbed to 1.55% in late 2025, the highest of the Big Four, driven by significant stress in the small-to-medium enterprise (SME) sector. Until we see these business arrears stabilise and prove that the bank can manage the “2026 hike cycle” without a surge in bad debts, we remain neutral.

ANZ (ASX: ANZ) – SELL

ANZ faces the toughest road. APRA increased the bank’s capital add-on to A$1 billion over risk management and governance concerns. This limits shareholder returns and signals deeper problems. The bank also faces a record A$250 million ASIC penalty, adding to investor uncertainty. Until ANZ proves it has fixed these issues, we suggest looking elsewhere.

What to Watch Next

The Q4 inflation data drops on 28 January. If numbers come in hot, a February hike becomes likely. Pay close attention to the trimmed mean figure; if it exceeds 0.8% for the quarter, the RBA will have little choice but to act. For bank investors, Westpac offers the best mix of rate leverage and value; CBA’s quality is priced in, and ANZ’s regulatory troubles make it one to avoid.