NAB, CBA join rivals with rate hike

UPDATE 3.10pm: Commonwealth Bank and National Australia Bank have joined their rivals ANZ and Westpac in hiking their standard variable interest rates on home loans.

CBA said it would increase its standard variable rate on mortgages by 0.1 per cent on February 20, taking it to 7.41 per cent while NAB would lift its rate by 0.09 per cent to 7.31 per cent.

NAB personal banking executive Lisa Gray said the bank knew the current economic uncertainty was impacting its customers and it hadn’t taken its decision lightly.

However she said the state of the European and UK economies was having a serious impact on the bank's funding costs.

NAB also announced it would increase its rate on standard variable rate on business loans by 0.09 per cent from February 20.

CBA followed the other banks' lines on funding costs, saying the rate rise for home borrowers reflected a "sustained increase" in both wholesale and deposit funding costs.

It pointed to the Reserve Bank's February statement on monetary policy which said bank funding costs had increased relative to the cash rate over the past six months.

Further increases in the spreads of term deposits, prices demanded by global bond investors in banks, and the costs of foreign exchange hedging were likely to be exacerbated given the increased uncertainty driven by Europe's debt crisis, CBA said.

The RBA's cash rate was only one factor driving the bank's total funding costs, and CBA believes local banks should continue to price their products sensibly, CBA's group executive of retail banking services Ross McEwan said.

"We need to balance the needs of all of our customers by providing competitive pricing across all products,” he said.

"Whilst we understand that any increase in interest rates is not favourable to borrowers, our millions of deposit customers are favoured and since the commencement of the GFC (global financial crisis) we have seen significant competition in retail deposits pricing."

The needs of shareholders must also be balanced with those of other stakeholders, he said.

About 800,000 Australians own CBA shares, and millions more hold them through their superannuation funds, with both direct and indirect shareholders relying on CBA's returns, he added.

For customers with savings, the news was more positive with CBA saying it would increase interest rates on six-month term deposit accounts by 20 basis points.

CBA's shares closed up 41 cents at $50.29 while NAB, which announced its rate hike after the market closed, was up 32 cents, or 1.4 per cent, to $23.26.