Australian banks are heading into 2026 with solid profits, high valuations and a very different backdrop to the “easy money” years. Rate cuts are coming, but analysts argue most of the good news is already in the share prices.[1][2]
Morgan Stanley has a 2026 ASX 200 target around 9,250 points, but expects banks to underperform the broader market from here. Their view is simple: 2025’s strong run in the majors reflected earnings upgrades, fat net‑interest margins and investors hiding in “safe” names during global volatility. By late 2025, the sector had rerated more than in past cycles, which means a lot of the rate‑cut tailwind is already priced.[1]
Under the bonnet, the story is still decent rather than dire. Mortgage and business lending are growing again, bad debts remain low, and management teams have kept balance sheets conservative. Morgan Stanley even sees revenue growth of roughly 6 per cent across the majors in 2026, but flags costs and competition as ongoing drags on returns. The key call is that not all banks will win equally: CBA is still expected to defend its premium franchise, but the gap to ANZ, NAB and Westpac could narrow as they lift their game.[1]
Layer AI on top and the picture gets more nuanced. Automation, better credit analytics and digital servicing all help the cost base, which matters when revenue growth is capped by a slow economy and regulatory scrutiny. At the same time, tech spending itself is a line item: shareholders will want evidence that AI projects reduce headcount, errors and fraud, not just produce glossy strategy slides.
So do banks justify the risk? For yield‑hunters and those wanting something steadier than resources or tech, probably yes, but more as an income anchor than a growth engine. On a one‑ to three‑year view, the bigger risk is not a collapse in the system, but a “derating” if markets decide the sector’s 2025 rerating went too far ahead of the fundamentals.[2][1]
Sources
https://www.livewiremarkets.com/wires/morgan-stanley-s-2026-outlook-on-the-asx-200-aussie-banks-and-rate-cuts[1]
https://www.ig.com/au/news-and-trade-ideas/asx-200-market-outlook-2026-251209[2]
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified financial advisor before making investment decisions.