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"There is no conspiracy between the major banks, smaller banks, building societies and the RBA" ... Steven Munchenberg. Photo: Justin McManus

The Australian banking sector has hit back after an offshore analyst cast doubts on the arguments used by the local sector for justifying lifting mortgage rates independently of the Reserve Bank this month.

The Australian Bankers' Association chief Steven Munchenberg disputed the basis of the analysis that concluded the big four banks enjoyed an oligopoly in the local market, saying there was "no conspiracy" between major banks and lenders in Australia to unfairly lift mortgage costs for Australians.

"There is no conspiracy between the major banks, smaller banks, building societies and the RBA, all of whom say the cost of funding has risen,’’ said Mr Munchenberg.

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Mr Munchenberg's comments follow a scathing analysis from Tokyo-based Societe Generale Asia Pacific head of interest rate strategy Christian Carrillo, who yesterday said it was "almost mathematically impossible" that total funding costs for Australian banks were rising, giving the sector a motive to lift mortgage rates independently of a Reserve Bank this month.

"The claim that the recent increase in mortgage rates is due to higher funding costs is very dubious," said Mr Carillo in a research note. "The mortgage hikes seem aimed at protecting their high profit margins."

Mr Munchenberg also said that Mr Carrillo’s analysis also didn’t take into account moves by smaller banks to lift interest rates this month, despite the RBA keeping rates on hold.

‘‘This doesn't explain why Bendigo and Adelaide Bank, Suncorp and even Greater Heritage Building Society all raised rates independently, citing funding cost issues,’’ he said. Banks also had to offer more competitive rates to attract depositors,  he said.

Mr Munchenberg pointed to Commonwealth Bank’s decision last week to lift interest rates on mortgages by 10 basis points while increasing deposit rates by 20 basis points on six-month term deposits. "Pressure on deposits eased in the first half of last year then grew again as EU crisis deepened and the costs of overseas money went back to GFC levels," he said.

Bendigo and Adelaide Bank raised their standard variable mortgage rate by 15 basis points this month, while Suncorp increased their standard variable rate by 10 basis points.

Australia's major banks - ANZ Bank, Commonwealth Bank, NAB and Westpac - have lifted mortgage customers by between 6 and 10 basis point after the RBA shocked the market earlier this month by keeping the cash rate at 4.25 per cent. The banks have insisted that the cost of funds needed to keep lending into the economy were rising, driven in part by the volatility associated with the European debt crisis. The unpopular out-of-cycle rate rises followed announcements of job cuts by ANZ Bank and Westpac, further inflaming opinion about the banks.

In a speech delivered on February 14, RBA assistant governor Guy Debelle said the rising cost of covered bonds by Australian banks is "is broadly comparable to that of recent covered issuance by banks in other jurisdictions where there has been a similar step up in cost."

"In the past few days, there has been a sizeable narrowing of spreads in the secondary market on the domestically issued covered bonds, to around 140 points over swap." 

Despite the variations in funding costs, a number of credit unions have kept mortgage rates steady since the RBA’s decision this month, including Credit Union of Australia, which held the standard variable mortgage rate at 6.72 per cent this month.

The average standard variable mortgage rate by the major banks was 7.3 per cent last week, compared to 7.04 per cent for 56 credit unions analysed by Canstar Cannex.  

czappone@fairfax.com.au

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Banking sector hits back at critic