News: WBC UPDATE 1-Australia's Westpac hikes mortgage rates as funding costs jump; shares climb

• To raise rates by 14 basis points, from Sept. 19
• Decision out of lockstep with the central bank
• Westpac shares up 2.8 pct at $28.9

(Updates with comments from Westpac, shares, dollar reaction)

Australia's Westpac Banking Corp (WBC) said on Wednesday it will raise variable home loan rates by 14 basis points to preserve its profit margins amid higher wholesale funding costs, sending its shares sharply higher.

The decision by Australia's No.2 lender is out of lockstep with the country's central bank which has kept the official cash rate at a record low 1.50 percent since 2016 and signalled a steady path for some time.

The move knocked the Australian dollar AUD=D3 lower on speculation that other lenders will follow Westpac and that might ultimately force the Reserve Bank of Australia (RBA) to ease policy to offset the rate rises in the market.

"This is a tough decision," George Frazis, Westpac's head of consumer bank, said in a statement.

The Bank Bill Swap Rate, a key wholesale funding rate used to price mortgages and other products, jumped about 25 basis points between February and March and has since remained elevated, Frazis said.

The spike in the funding costs had prompted several analysts to predict mortgage rate hikes by banks earlier this year. But faced with public anger over a series of malpractices, the country's major banks had refrained from passing on the cost.

"We initially hoped that this increase would be temporary, and therefore we have incurred these costs over the last six months," Frazis said.

"The rate changes announced today will not recover these costs."

The bank's variable mortgage rate for owner-occupier properties will increase to 5.38 percent per annum for customers with principal and interest repayments, from Sept. 19

The rate for residential investment properties will go up to 5.93 percent, the bank said.

The 14 basis-point increase will add A$35 ($25.6) to the monthly interest cost of an average mortgage of A$300,000, Westpac said while noting about 68 percent of its home loan customers were ahead of their repayments.

Just last week, Westpac reported a steep drop in its net interest margins, the difference between interest paid and earned, at 2.06 percent for the quarter ended June, compared with 2.17 percent at the end of March.

Westpac's shares jumped to the day's high of A$29.015. They were last up 2.81 percent at A$28.90. ($1 = 1.3669 Australian dollars)