Westpac is tapping investors for another $3.5 billion and hiking home loan rates to help bolster its balance sheet in the event of future financial shocks.
It is the third capital raising by Westpac this year in response to the banking regulator's push for banks to strengthen their capital reserves.
The news came as Westpac released its unaudited full year financial results showing a three per cent increase in cash earnings to $7.8 billion.
Westpac will raise the $3.5 billion through an entitlement offer, the latest in a series of share offers by Australian banks after the Australian Prudential Regulation Authority in July lifted the capital reserve requirements of the country's top banks.
So far in 2015, the big four banks have raised more than $20 billion.
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"All four major banks are likely to raise even more equity over the next three years to bring their capital ratios in line with international requirements," Morningstar analyst David Ellis said.
Westpac said its rights offer will add roughly 100 basis points to its common equity Tier 1 capital ratio, putting it within the top quartile of banks globally.
The bank set the price for new shares being issued in the rights offer at $25.50 each, implying a 16.1 per cent discount to Tuesday's close of $30.44. Westpac shares are in a trading halt pending the institutional part of the offer.
To help pay for the new equity, Australia's second largest lender surprised the market by saying it would lift variable home loan rates for owner occupiers and investors by 0.20 percentage points in November.
Chief executive Brian Hartzer justified the rate hikes by saying they would help cover the cost of the 50 per cent rise in the amount of capital Westpac needs to hold against mortgages under the new regulatory requirements.
"The regulators decided they want us to be unquestionably strong, and ultimately that comes at a cost," he told analysts.
He said Westpac decided to announce the capital raising amid increasing speculation in the lead up to its full year results announcement in November.
"This creates volatility for investors, so we decided to bring forward the announcement," he said.
Westpac raised $2 billion through a dividend reinvestment program announced in May, followed by $1.32 billion through a hybrid notes offering in August.
Ratings agency Fitch said it believed Westpac's capital raising initiatives have largely addressed the bank's capital shortfall related to the increased mortgage risk weights.
Meanwhile, rival National Australia Bank's boss Andrew Thorburn indicated at a business lunch in Sydney that he was happy with the lender's capital reserves ratio at the moment.
Westpac's unaudited earnings results that were released alongside the capital raising and rate hike announcement, were largely in line with analysts' expectations.
Statutory net profit for the year rose six per cent to $8 billion, while the final dividend was lifted by two cents to 94 cents per share.
CMC Markets chief market strategist Michael McCarthy called the result "lacklustre", saying it underlined the key issue for Australian banks, about where their future growth would come from.
EQUITY RAISINGS BY AUSTRALIAN BIG FOUR BANKS IN 2015
* Oct: Westpac, $3.5b rights share offer
* Aug: CBA, $5.1b rights share offer
* Aug: Westpac, $1.25b hybrid securities
* Aug: ANZ, $3b rights share offer
* May: Westpac, $2b dividend reinvestment plan
* May: ANZ, $500m, dividend reinvestment plan
* May: NAB, $5.5b rights share offer
