Westpac shares have fallen sharply after investment bank UBS downgraded its recommendation on the bank to "sell" after documents released by the banking royal commission raised concerns over the quality of the lender's mortgage book.

Westpac shares were $1.05, or 3.6 per cent, lower at $28.13 at 1245 AEST - a two-year low.

The other big three banks - Commonwealth Bank, National Australia Bank and ANZ - were down by between 1.0 per cent and 1.7 per cent.

In a research report UBS analyst Jonathan Mott referred to documents recently released by the banking royal commission which included a review in May 2017 of the big four banks' mortgage agreements by banking regulator APRA.

APRA chairman Wayne Byres assessed that none of the banks had particularly strong results from the targeted review, but Westpac was "a significant outlier".

The royal commission also released data on 420 of Westpac mortgages that were analysed by financial advisory firm PwC.

PwC found that eight out of 10 of Westpac's mortgage "control objectives" were ineffective.

Mr Mott said a UBS analysis of the data considered by PwC suggested that minimum income checks were not completed in 29 per cent of cases, 66 per cent had no itemised living expenses collected, and in 30 per cent of cases, the borrower's financial position may have been misrepresented.

In nine per cent of cases the loan would have been blocked if the mortgage application had been based on true financial information.

Mr Mott said there were now questions over the quality of Westpac's $400 billion mortgage book, which represents 70 per cent of its loans.

"Following the royal commission's release of the APRA 'Targeted Review' of Westpac's residential mortgage serviceability, we see significantly higher risks than we had previously incorporated into our assessment of the stock," Mr Mott said in his research note.

"We believe the royal commission is a game changer for Australian financial services."

Mr Mott said evidence so far presented at the royal commission had been damning, ranging from fraud and bribery, breaches of responsible lending requirements, not reporting misconduct to the corporate regulator ASIC, and corruption in the financial planning sector.

Mr Mott said that Westpac and the other big banks are likely to sharpen their lending standards given the royal commission's concerns over compliance with responsible lending laws, which could lead to a sharp reduction in credit availability.

"Combined with a weaker asset quality and questions over the enforceability of security in the event of irresponsible lending, we have a cautious view on Westpac and the broader Australian banking industry," Mr Mott said.