Commonwealth Bank jumps on rate rort bandwagon

NAB hikes rates and takes aim at Westpac, making a direct pitch at its rival's customers.

COMMONWEALTH Bank has moved its interest rates higher than the amount lifted by the Reserve Bank on Tuesday, increasing its variable home loan rates by 37 basis points.

CBA said it would increase its standard variable home loan rate to 6.61 per cent, effective Wednesday, December 9.

Yesterday, rival bank NAB sparked a home loan price war by undermining Westpac's Tuesday cash grab and raising its variable interest rate in line with the Reserve Bank.

The Reserve Bank lifted the official cash rate by 25 basis points on Tuesday to 3.75 per cent.

NAB's announcement came after Westpac was lashed over its decision to lift its rates by .45 per cent - adding $400 million in revenue.

Direct pitch for customers

The NAB move is a direct pitch for Westpac customers and is the first real sign of price competition among the major banks since the global financial crisis hit in August 2007.

In doing so, the mortgage minnow aggressively pegged its standard variable rate at 6.49 per cent, 27 basis points lower than Westpac's 6.76 per cent.

Aussie founder John Symond said he was struggling to recall such a wide divergence in the mortgage rates of two of the nation's major banks, The Australian reported.

NAB's head of personal banking, Lisa Gray, said the bank wanted to "change the banking game" by undercutting other lenders on rates and abolishing account and transaction fees.

"We are sending a message to customers of Westpac, and the other banks, that NAB can offer them a better deal."

The NAB's decision to remain in line with the Reserve's official move means it has sacrificed $217 million in gross profit, according to leading bank analyst Craig Williams, of Citigroup Global Markets.

Consumer groups and Treasurer Wayne Swan congratulated the NAB on its leadership.

"I think the community generally will be looking to the other banks to follow this positive example set by NAB," Mr Swan said.

"The contrast with the behaviour of Westpac earlier this week could not be more stark."

A "promising sign"

Choice spokesman Christopher Zinn said the NAB move was a promising sign.

"It's encouraging that one bank is prepared to break with the pack and not move in lockstep with the other big lenders," he said.

But Mr Zinn warned that some Westpac customers may be deterred from moving to NAB because exit fees and other switching penalties would nullify the interest savings of a NAB loan.

He called on the Rudd Government to force the banks to abolish exit fees.