SYDNEY, Nov 13 (Reuters) - Westpac Banking Corp lags rivals as its dated systems is forcing it to spend, rather than save, while profit margins are eroded by record-low interest rates, investors said after Australia's biggest banks issued earnings and trading updates.

A sprawling organisation, aging software and convoluted procedures have been Westpac's main enemy, investors said, leading to record fines due to breaches of anti-money laundering law and market-share losses in mortgages, its main product.

That has left the 203-year old lender prioritising costly restructuring and system upgrades over lending growth.

Westpac's cheap stock makes it attractive to investors. Still, few are convinced of a quick price rise considering the central bank has cut interest rates three times to aid post-pandemic economic recovery, squeezing banks' interest margins.

"The question the market is asking itself is: is it cheap enough yet?" said portfolio manager Matthew Ryland at Greencape Capital, an investor in all of Australia's "Big Four" banks.

Westpac has over A$900 billion ($650 billion) in assets and for years was the second-largest bank by market value. Having seen its share price fall 28% since the breaches surfaced a year ago, it was passed last month by National Australia Bank Ltd (NAB).

The bank's stock is now worth 0.89 times its book value, the second-lowest of the Big Four, showed data from Refinitiv Eikon. By comparison, the multiple for leader Commonwealth Bank of Australia (CBA) is 1.7.

"Westpac had a terrible year but there's maybe some upside relative to the other banks," said Hugh Dive, chief investment officer at Atlas Funds Management, which also owns Westpac stock.

At its annual earnings briefing, Westpac said it was working to recover market share in mortgages after a cautious attitude combined with inefficiency sent prospective borrowers elsewhere.

New management since and a cost-focused strategy scheduled for next May has also given hope of revival, albeit gradual.

"Westpac is 12 to 18 months behind peers in terms of getting a grip on its cost-out program," said Greencape's Ryland.

Westpac declined to comment.

UBS, which has a "buy" recommendation on Westpac stock, in a client note said all banks have to spend on IT, compliance and other business upgrades because of COVID-19, but Westpac's cost challenge was bigger.

The average recommendation on Westpac stock of 14 analysts is 2.5, where 2 is "buy", 3 is "hold" and 4 is "sell".

Their top pick is NAB at 2 followed by Australia and New Zealand Banking Group Ltd at 2.1, Refinitiv Eikon data showed.

CBA, widely regarded as having better cost control and IT infrastructure, is rated 3.4, reflecting its more expensive price. ($1 = 1.3845 Australian dollars) (Reporting by Paulina Duran in Sydney; Editing by Christopher Cushing)