In an analyst note about Westpac, Morningstar said Australia's "rational and highly profitable major bank oligopoly is alive and well".
The dominant position of the major banks will be further fueled by the ‘wealth effect’ from strong asset values, the expected rise in household spending, ongoing contributions from exports, the east coast residential construction boom and continuing government investment in infrastructure, said the research house.
Westpac remains Morningstar's preferred major Australian bank, with its home-loan growth strategy viewed as a core strength rather than a key weakness.
"Investor concerns, centred on [Westpac's] large exposure to residential mortgages, are overdone ... We see solid earnings upside potential, with international investors continuing to focus too much attention on negative short-term issues," said Morningstar.
The pressure on the banks to raise capital in order to satisfy the prudential regulator is likely to ease in coming months, said the note.
"We expect APRA will allow the major banks to raise the expected higher minimum capital requirements organically over a three-to-four year period," said Morningstar.
"Despite regulator and media noise, it is becoming increasingly clear the capital raising scenario has been delayed for Westpac and major Australian bank peers.
"This is a positive outcome and one we have been pushing for several months at least."
[Related: Govt urged to tackle banking 'oligopoly']