National Australia Bank logo is pictured on an automated teller machine in central Sydney
A National Australia Bank (NAB) logo is pictured on an automated teller machine (ATM) in central Sydney September 12, 2014. National Australia Bank, the country's No.4 lender by market value, said contingency plans for its Scottish-based subsidiary included moving to England if Scotland votes to end its 307-year union with the rest of the United Kingdom. Reuters/David Gray

Announcing a hike in variable home loan interest rates by 17 basis points, National Australia Bank has joined the league of other commercial banks with costly home loans, including Westpac and Commonwealth Bank. NAB blamed tougher regulations on banks as the reason for its decision.

NAB's standard variable home loan interest rate of 5.6 percent will take effect from November 12. This means a customer with a $300,000 mortgage will see an increase of monthly repayments by $30.48, according to figures from Canstar. Similarly, repayments on a $500,000 loan will shoot up by $50.80 a month.

Hard market conditions

Calling the decision a response to "market conditions," the NAB said policy changes were forcing many big banks to hold larger capital buffers to withstand mortgage losses, reports The Sydney Morning Herald.

However, NAB will not be increasing its deposit interest rates or changing fixed mortgage rates. The bank now follows the footsteps of Commonwealth Bank and Westpac, which raised interest rates by 0.15 of a percentage point and 20-basis-points respectively.

“There are a range of factors that come into consideration in interest rate decisions. The home loan market is dynamic, with multiple changes being seen across the industry," NAB's executive in charge of personal banking, Gavin Slater said.

“Regulatory changes on capital requirements also increase the costs associated with providing home loans,” he noted.

Treasurer’s defence

While Treasurer Scott Morrison previously said banks' interest rate movements were commercial decisions, he has since highlighted the fact that they would be making "handsome" returns.

"Banks will make their own commercial decisions about how they charge customers in relation to shifts in their cost base," Morrison said.

Speculation is also rife about the Reserve Bank of Australia cutting official interest rates to offset the rate hikes by commercial banks. But many experts in the financial markets think the central bank may leave the cash rate unchanged when it meets on November 3.

Bulging profit

For NAB, which is expected to announce a cash profit of $7.6 billion in the coming weeks, the hiked rates may mean a boost for its earnings by $270 million. ANZ, which has not yet announced a hike in rates, may increase its earnings by $229 million, if it joins its banking peers with a possible hike.

Publisher of “Banking Day,” Ian Rogers said the banks are like any other big business and will maximise profits, reports ABC News.

"In the case of Australia's large banks, they are a well established oligopoly and all four members of the oligopoly know how the mechanics of pricing work,” Rogers said.

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