Since May, the Reserve Bank of Australia (RBA) has increased its key cash rate by 175 basis points which the country's "Big Four" lenders have passed on to their customers in full.
Australia's third largest lender said CET1 capital ratio, a measure of spare cash, fell to 10.75% at the end of June from 11.3% at end of March.
Westpac said its total assets with exposure of default at the end of the quarter were A$1.213 trillion, compared to A$1.184 trillion at the end of March.
The lender did not disclose a profit figure for the quarter, but said that cash earnings were partly offset by higher deductions for capitalized software and other regulatory deductions.
Last week, larger rival Commonwealth Bank of Australia warned that spiralling cost-of-living pressures had begun to hit consumer confidence, while National Australia Bank issued yet another warning on increasing costs.
(Reporting by Harish Sridharan in Bengaluru; editing by Diane Craft)