As the Reserve Bank of Australia prepares to meet on Tuesday, 20 May, markets are bracing for what could be the beginning of a new interest rate cutting cycle. But while falling rates are generally seen as good news for borrowers and tough on bank margins, the story isn’t quite so clear-cut for Australia’s banks.

The real story when it comes to rates? No matter which direction they're headed, the banks are still winning.

Shaw and Partners Senior Investment Adviser Adam Dawes said on this week's Switzer Investing TV that the major banks have historically been able to generate strong profits in both rising and falling rate environments.

“Banks make money on both the way up and down,” Dawes said in his chat with Paul Rickard.

“Lower rates help drive mortgage demand, which is still the banks’ bread and butter. So net-net, they’d be fine.”

“Rates coming down allow the housing market to start to move again,” Dawes said. “And that’s what the big banks make their money on these days: mortgages.”

CBA and NAB already driving strong lending growth

CBA’s third-quarter results, released on 13 May, underline this clearly.

The bank posted a cash profit of $2.6 billion, a 6% increase compared to the same quarter last year. Home lending rose 4.1% since December 2024, and business lending rose 9.1% over the same period. That's two clear signs that lower rate expectations are already prompting borrowers to re-enter the market.

The bank noted stable net interest margins but improving volume, particularly in its housing and business loan books. While margin compression is a concern in a lower-rate environment, the volume effect appears to be more than offsetting it for now.

NAB, meanwhile, posted $3.58 billion in first-half cash earnings to 31 March 2025—up 1% from the prior period. While its net interest margin remained stable at 1.70%, it was the continued expansion of its mortgage book that helped drive results.

According to NAB’s economics team, the cash rate is expected to fall to 2.6% by February 2026, with a 50 basis point cut forecast for Tuesday 20 May, followed by further 25 basis point cuts later this year and into next.

NAB CEO Ross McEwan said in a recent media appearance that rate cuts would offer important relief for households and could help turn sentiment in the lending market.

“That helps people with mortgages, and that’s good,” McEwan said. “It brings the confidence back into consumers.”

That renewed confidence matters, especially with many Australians still rolling off low fixed-rate loans onto higher variable rates. If cuts do come through as forecast, refinancing activity could accelerate—boosting banks’ acquisition opportunities and non-interest income.

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