Westpac Banking Corporation

The Piotroski F-Score is built for industrial firms — gross margin, the current ratio and asset turnover are meaningless for a bank whose balance sheet is itself a book of financial assets. In its place we use a nine-point, CAMELS-inspired check spanning capital, asset quality and earnings/funding.

It deliberately captures asset quality (credit risk) — historically the dominant driver of bank failure and otherwise absent from the five scoring pillars. A 6/9 result places Westpac in the "Sound" band: capital, liquidity and headline asset quality are strong, but returns sit at the cost-of-equity line and the loan book runs above the deposit base (normal for an Australian major that uses wholesale funding).

Measures how fast the bank's income and balance sheet are expanding — operating income, customer deposits and gross loans, year-on-year. Westpac scores well: deposits and loans both grew 7%, and business lending jumped 16%. The drag is income growth (≈2.9%), held back by volatile treasury and markets income.

Captures how efficiently the bank turns its franchise into profit — return on equity, the cost-to-income ratio, and net interest margin. This is Westpac's weakest pillar: ROE of 10% sits at the cost-of-equity line, the cost-to-income ratio (51.7%) trails peers, and the margin is compressing under mortgage competition.

The regulator-facing safety metrics — CET1 capital, the Liquidity Coverage Ratio and the Net Stable Funding Ratio. Westpac is fortress-like here: CET1 of 12.4% leaves A$2.7b of surplus capital, and both liquidity ratios sit well above their 100% floors. The only soft spot is NSFR at 112%, just inside the green threshold.

The income case — cash yield plus the franking credits that matter so much to Australian residents and SMSFs. The cash yield is ≈4.3%, grossing up to ≈6.2% fully franked. The caveat: the payout ratio (75.6%) is at the very top of the bank's 65–75% target, and dividends have drifted lower over the decade as special dividends ceased.

Whether the shares are cheap or expensive — price against book value, tangible book, earnings, deposits and a dividend-discount model. After a ≈19% run, Westpac trades at 1.67× book and 16.9× cash earnings — full versus its own history. The Gordon-growth DDM implies an intrinsic value well below the market price, the main reason this pillar lands in Caution.

A separate nine-point health check covering capital, asset quality and earnings/funding — the bank-specific replacement for the Piotroski F-Score. It is shown alongside the composite, not blended into it, and it surfaces credit-risk signals the five pillars do not.

Normalisation. Higher-better: score = clamp((v − red_floor)/(green_ceiling − red_floor),0,1)×100. Lower-better: score = clamp((red_ceiling − v)/(red_ceiling − green_floor),0,1)×100. Band metrics (loan growth, payout): full score inside the green band, declining to the red boundaries. DDM: clamp((upside + 0.30)/0.60,0,1)×100.

Growth (74.2). G1 Op-income +2.9% → 22.5 (AMBER). G2 Deposits +7% → 100. G3 Loans +7% inside the 4–9% green band → 100. Loan growth ≈1.2× system credit (~5–6%); below the 1.5× over-extension trigger, so no asset-quality flag, though business-segment lending (+16%) is elevated.

Profitability (30.4). P1 ROE 10.0% → 25.0. P2 CTI 51.7% → 33.0. P3 NIM 1.80% → 33.3. Reported on a cash / ex-notables basis; statutory 1H26 NPAT A$3.4b vs cash A$3.5b (notables: treasury volatility, restructuring).

Capital & Liquidity (90.0). C1 CET1 12.4% → 100 (major-bank thresholds: red 10.25 / green 11.5). C2 LCR 132% → 100. C3 NSFR 112% → 70. Calibrated to APRA major-bank category.

Dividends (67.5). Cash yield 4.34% → 67.0; gross (franked) yield = 4.34% × (1 + 1.00 × 0.30/0.70) = 6.20% → 68.0. Payout 75.6% sits in the 75–85% amber band (top of the 65–75% target) → sustainability caveat noted; no binding cap applied as the pillar (67.5) is below the 70 cap. No ordinary-dividend cut within 3 years; special dividends ceased and total DPS has drifted lower over the decade; the 2020 COVID cut (A$1.74→A$0.31) pre-dates the 3-year window.

Valuation (43.4). P/B 1.67× → 47.4; P/TBV 1.94× → 55.6; P/E(cash) 16.90× → 22.1; P/D 0.168× → 100 and P/A 0.108× → 84.2 (V4 avg 92.1; P/A band custom-calibrated: green <0.10, amber 0.10–0.15, red >0.15). DDM (V5 = 0): r = rf + β·ERP = 4.75% + 1.05×5.75% = 10.79%; g = ROE×(1−payout) = 10.0%×0.244 = 2.44% (below the ~4–5% GDP cap); D₁ = 1.54×(1+g) = A$1.578; V = D₁/(r−g) = 1.578/0.0835 = A$18.90; upside = (18.90−35.48)/35.48 = −46.7% → 0. Sensitivity: the value is acutely sensitive to (r−g); a ±50bps move in g shifts intrinsic value by roughly ±A$1.4, and narrowing (r−g) toward 6% would lift V above A$26. The model directionally confirms full valuation rather than precise fair value.

Composite. 0.20×(74.2 + 30.4 + 90.0 + 67.5 + 43.4) = 14.84 + 6.08 + 18.00 + 13.50 + 8.68 = 61.1 → MODERATE. No pillar excluded; no weight redistribution required.

Peer set. Australian major banks — CBA, NAB, ANZ. CET1 median ≈12.3% (CBA 12.3, NAB 12.39, ANZ 12.2); ROE median ≈11.5% (CBA 13.8, ANZ ~9.3, NAB indicative); P/B median ≈2.0× (CBA 3.7 inflates); P/E median ≈19× (CBA ~27, NAB 19, ANZ ~13). A generic GICS-sector median is inappropriate for banks because business mix changes benchmark values.

Cash vs statutory. ROE, EPS and CTI scored on a cash / ex-notables basis per Australian broker convention; statutory disclosed alongside (1H26 statutory NPAT A$3.4b vs cash A$3.5b). 3σ outlier capping: no metric required capping in this report.

Banks publish capital and liquidity metrics only at half-year and full-year results, so the latest CET1/LCR/NSFR (31 Mar 2026) are legitimately the most current available and are not stale. Book-value and per-share balance-sheet items are sourced from the FY25 workbook (Sep-2025 reporting date) pending the FY26 result (due 2 Nov 2026); flagged amber for the half-yearly cadence rather than as an error. Market price, bond yield and dividend data are current to late June 2026.