Australia's economic growth may be eroded by local banks' preference toward household lending over business loans, a National Australia Bank Ltd. executive warned.

NAB's business banking head Mr. Joseph Healy said that any bias that leans favourably on one asset class might have dire consequences for the domestic economy.

"Any bias of one asset class over another has potentially long-term harmful consequences, particularly if that means there is less credit being made available to the business sector," Mr. Healy told the finance conference.

He noted that the business and industry sectors must be aware of this imbalance and must be adjusted accordingly.

Healy said: "We should recognize that the Australian banks today are amongst the largest issuers" on international debt markets. There is a risk that the appetite from the international investors for Australian bank paper could have a natural limit, notwithstanding our very strong credit ratings."

In a related Bloomberg report, Healy's sentiments are similar to Australia & New Zealand Banking Group Ltd. Chairman John Morschel, who noted that Australia have to increase domestic borrowings to be less dependent on foreign funds.

He also added: "any economy that finds itself constrained in its capacity to lend might be storing up longer-term problems that the current headlines and strength of resources sector may be disguising."

Healy is concerned that if the housing prices in Australia change consumers might be at risk.

"It's vital that banks continue to support businesses as well as the household sector," Healy said at the Australia Banking + Finance conference today.

Data from the central bank shows that lending to businesses dropped to 4 percent for 10 months in August, while mortgage lending recorded a 0.6 percent growth in spite the 18.4 percent rise in house prices since interest rates inched up.