THE Bendigo Bank has increased its residential variable home loan by 15 basis points to 7.45 per cent.

Bendigo and Adelaide Bank Managing Director Mike Hirst said the current banking margins are not sustainable and adjustments to interest rates had to be made.

“This is not a popular move, we know that, but it is the right thing to do to restore a proper balance between depositors, borrowers, the bank’s shareholders and our community partners,” he said.

“At current funding cost levels that balance is out.”

The new rates will apply from February 21.

Customers with an average variable home loan of $250,000 will see their repayments increase by approximately $24 per month (principal and interest loan).

This follows the 0.50% reduction in the variable home loan rate ($81 per month for a $250,000 mortgage) through rate decreases in November and December last year.

“Banks are currently subsidising mortgages and if you look at the traditional role of a bank this makes no sense and is unsustainable,” Mr Hirst said.

“Banks were formed as a means to share wealth.

“Banks accept cash from people with surplus money (depositors) and lend to people who lack cash (borrowers), but who can add value to it once obtained by building a house or investing in a business and generating growth in the economy.

“It is critical that this flow of credit continues.”

Mr Hirst said banks had a fundamental choice to make – adjust the pricing on loans or restrict lending.

“Our bank must return to a pricing position which is sustainable,” he said.

“This approach has always seen us win new business and meet the needs of customers in the communities in which we operate.”

Mr Hirst said finding the right rates balance meant all of the bank’s stakeholders would continue to benefit from the flow of funds in their communities.

“Our staff are playing their part. Many have taken unpaid leave to help reduce costs, the bank is not hiring new back office staff and we are only supporting initiatives which generate significant benefits for our customers,” he said.