Australia Banks: The Game Has Changed

Research evidence excerpt

Australia Banks: The Game Has Changed

tock Performance Current Stock Price Price Target View descriptions of Risk Rewards Themes here

Source: Refinitiv, Morgan Stanley Research, Morgan Stanley Institutional Equities Division. The probabilities of our Bull,

Base, and Bear case scenarios playing out were estimated with implied volatility data from the options market as of 21

May 2026. All figures are approximate risk-neutral probabilities of the stock reaching beyond the scenario price in either

three-months’ or one-years’ time. View explanation of Options Probabilities methodology here

BULL CASE A$49.67 BASE CASE A$35.60 BEAR CASE A$29.61

~19x bull case FY25E EPS ~16.5x base case FY26E EPS 1.5x reported book value

In a scenario where an economic upswing Mid-single-digit loan growth underpinned by In a scenario where downside risks are

skews risks to the upside, we think investors business banking, stable margins, ~4% p.a. higher, we think investors place less

place less emphasis on cross-cycle ROE and cost growth, higher loan losses, and modest emphasis on cross-cycle ROE and more

more on near-term earnings and dividend dividend growth. In our base case RIVM, we emphasis on near-term balance sheet and

trends. Our bull case is designed to capture assume a cross-cycle ROE of ~11.5% and a capital risks. Our bear case is designed to

the search for growth in a better operating cost of equity of 8.25%. We then apply a 5% focus on book value as the anchor for

environment. To do this, we apply a P/E of premium for low execution risk. valuation when there is uncertainty in

~19x to our one-year forward bull case EPS relation to near-term earnings and dividends.

forecast - below CBA, above ANZ, and To do this, we assume a 1.5x P/BV multiple

similar to WBC.