are they in some trouble, page-4

SMALL companies will be the next group of borrowers to feel the heat of the liquidity crisis, with National Australia Bank set to hike rates on all variable business loans from Monday.

NAB this morning raised rates on its range of standard variable mortgages by 0.12 per cent in a move to recoup higher wholesale funding costs triggered by the global liquidity squeeze.

But local business borrowers will cop bigger increases next week, with variable rate loans set to rise by 0.15 per cent.

According to Cannex market research, the hike will push indicator rates on NAB's variable business and agribusiness loans to 7.7 per cent.

While that will add to the financial pain of rural borrowers exposed to the drought, NAB will still be among the price leaders in the business market.

ANZ and Westpac, which are also considering hikes to its variable rate loans, are also among the cheapest agribusiness lenders, according to Cannex.

Westpac is believed to have come under intense funding pressure after losing ground to its major banking rivals in the retail deposits market in the 11 months to the end of November.

According to data published by the Australian Prudential Regulation Authority on Monday, Westpac grew its retail deposit base by only 7 per cent in the period, while NAB, Commonwealth Bank and ANZ all grew by 10 per cent or more.

This may mean that Westpac will take a bigger hit on its margins because retail deposits are traditionally the cheapest way of funding loans.

While the banks run the risk of losing borrowers as they try to boost variable rates outside of official moves by the Reserve Bank, the new Federal Labor Government appears to have left the door open for them to do so.

In a stark contrast to the heavy jaw-boning demonstrated by the former treasurer Peter Costello, Labor's Wayne Swan last night offered a tempered response to NAB's controversial announcement.

"While this rise in variable mortgage rates is a direct result of the US sub-prime crisis, I would urge Australian banks and other financial institutions to be very mindful of the significant financial pressures on families when making decisions on these matters," the Treasurer said.

NAB's group chief executive John Stewart first flagged in the prospect of rate hikes in September. At the time he said the bank was carrying higher funding costs from a blowout in benchmark money market rates.

In the past month, rates on 90-day bank bills - a leading money market indicator - have ranged as high as 0.4 per cent above the RBA's official cash rate.