Australia's Big 4 stockpiles $22.8b amidst Middle East war fears

Business lending tops 34% whilst homebuyers still prefer brokers.

Australia’s four biggest banks set aside $22.8b in the first six months of 2026 as the Middle East war persists.

"Banks are provisioning for deterioration they expect but cannot yet see in their portfolios," said Noel Williams, PwC Australia's banking and capital markets leader.

The Middle East supply-side shock will transmit into inflation, living costs and eventually loan performance, Williams said in PwC’s “Banking Matters” report published on 19 May.

The banks delivered their strongest cost discipline in several years, with the expense-to-income ratio improving 350 basis points, PwC said.

All four major banks—ANZ, Commonwealth Bank of Australia, National Australia Bank, and Westpac—have pursued a similar strategic shift toward business lending, which now exceeds 34% of Australian loan books, PwC said.

Mortgage brokers continue to deliver the majority of volume, hitting an all-time high for the December quarter.

When four banks converge on a segment simultaneously, the competitive benefit erodes quickly, Williams said.

Brokers are still preferred by mortgage borrowers despite banks' preference otherwise. These dynamics have shifted at the big four, but are not changing at an overall industry level,” she said.

The recent rate hikes may slow lending demand and weigh on major bank earnings, however, analysts told Asian Banking & Finance.

The Reserve Bank of Australia (RBA) raised its cash rate to 4.35% after delivering three straight hikes this year, fully reversing the easing cycle in 2025 when rates fell to 3.6%.

“While higher interest rates are generally positive for Australian bank net interest income, we believe these will be largely offset by competition, keeping net interest margins relatively flat,” Lisa Barrett, a director at S&P Global Ratings Singapore Pte. Ltd., told Asian Banking & Finance in an email.

On the other hand, refinancing activity may increase as borrowers search for lower mortgage rates, said Erin Kitson, a director at S&P.

“While unemployment remains low, we expect most borrowers to remain current on their mortgages and arrears to remain low,” Kitson had told ABF in an emailed reply to questions.