Australia's NAB to Raise Variable Home Loan Rate

National Australia Bank, Australia's top lender by assets, has taken the unusual decision to raise home loan rates out of step with a central bank rate move, in response to higher borrowing costs.

The move may reduce the risk of a further rise in official interest rates as the Reserve Bank of Australia (RBA) has said increases in market rates could lessen the need for it to hike again, after twice lifting rates last year to curb inflation.

NAB would increase its standard variable home loan rate by 0.12 percent points, a NAB spokeswoman said on Friday.

Australian bond futures extended gains on Friday, in part on the NAB move, though analysts noted that the increase was only about half of what many had expected, so it was unclear whether it would be enough to satisfy the central bank.

The move by NAB, which some analysts estimate to be the first out-of-turn rate increase by a major bank since the early 1990s, could trigger similar increases by other lenders.

NAB's decision comes in the wake of sharply higher funding costs for banks due to a global credit crunch triggered by the U.S. subprime mortgage crisis.

The spread between 90-day bank bill swaps and the cash rate widening to 44 basis points as of Thursday's close, more than twice the normal spread.

"We have been absorbing the sustained increase in global funding costs for about five months now. This change is passing on less than half of that cost to customers," the spokeswoman said.

The credit crisis has also claimed two high-profile Australian victims in non-bank lender RAMS Homes Group and property investor Centro Properties Group.

While analysts expect all major banks to follow NAB's lead, there was no immediate response. Commonwealth Bank of Australia, the second-biggest lender, Australia and New Zealand Banking Group, the third-biggest, and Westpac Banking Corp, the fourth-biggest, all said their rates were under review but no decision had been made yet.

The increase would take NAB's standard variable home loan rate to 8.69 percent. The new rates takes effect from Friday.

"This rate rise announced by the NAB is a direct consequence of the subprime mortgage crisis in the United States. They are simply passing on rate rises which are a consequence of increases in the cost of borrowing," Treasurer Wayne Swan told local radio.

Among the major Australian banks, CBA is relatively less reliant on wholesale funding as it derives about 55 percent of its funds from retail deposits.