Bendigo Raises Rates To High Of 9.65%

Sydney Morning Herald

Saturday May 3, 2008

Danny John

THE financial pressures on heavily indebted home-owners continue to build after one of the leading regional banks yesterday lifted its mortgage interest rate to a high of 9.65 per cent - well ahead of the domestic banking pack.

Bendigo Bank customers will pay the new top charge from Monday, when payments on its standard variable mortgages rise by a further 10 basis points (0.1 per cent) from their already high levels.

The institution, which recently merged with Adelaide Bank, announced its latest rise on the same day that Westpac's most recent increase took effect on its customers.

Yesterday's moves came as the chief executive of HSBC Australia, Stuart Davis, warned there would be more rises to come, given the longer term funding pressures faced by the banks.

Speaking at a business lunch in Melbourne, Mr Davis said: "There's no doubt ... there's going to be a least another one, if not another two, of those over the next few months."

Westpac narrowed the difference between the big five banks to just 3 basis points with its rise that leaves it, ANZ and St George at 9.47 per cent, the National Australia Bank at 9.46 per cent and the biggest lender, Commonwealth Bank, at 9.44 per cent. Suncorp lifted its rate on Tuesday and is now sitting at 9.47 per cent.

Increases in lending rates are coming thick and fast after the banks decoupled their home loan rises from the Reserve Bank's monthly cycle of interest rate decisions in January as the global credit crisis ate into their mortgage funding options.

Banks and other lenders are now paying significantly more in interest charges for the amount of money they borrow from international credit markets - a cost they have been passing on to customers without waiting for the Reserve to move.

Lenders like Bendigo have smaller deposit bases, which make them more dependent on raising funds from wider wholesale funding sources. They have been forced to go higher than the larger banks to try to recover their steadily rising costs. And there is no sign of relief for mortgage holders, even though the Reserve is likely to keep the official rate on hold when it meets early next week.

Bendigo's announcement yesterday followed the comments on Thursday by Gail Kelly, chief executive of Westpac, that her bank was continuing to absorb part of the overall increase in financing fees, which for competitive and political reasons the banks have chosen not to pass on, even though they continue to eat into profits.

A Bendigo spokesman, Owen Davies, said: "We recognise that the rate rises are starting to squeeze household budgets and are therefore sharing the impact of the difficult funding environment." He did not rule out the prospect of further increases.

© 2008 Sydney Morning Herald

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