Australia's top four banks could lose more than a combined $500 million if they don't follow the lead of St George Bank and again raise their standard variable home loan rates, investment bank JPMorgan says.

An analysis by JP Morgan released today considered how the banks' profits would be affected if a 50 basis point spread above the 90-day bank bill swap rate (BBSW) was maintained over 12 months.

Even after taking into account the big fours' previous mortgage rate movements above changes in the official cash rate, they would still stand to lose a combined $534 million from their fiscal 2008 profits, JPMorgan found.

Since January, the average monthly spread above BBSW has hovered between 44 basis points and 66 basis points. In June, the average spread was 56 basis points.

In JPMorgan's 50 basis point spread scenario, ANZ Bank would be the hardest hit, losing $142 million, or 3.85%, from its fiscal 2008 earnings.

National Australia Bank's profits would take a 3.7% hit, Commonwealth Bank 2.8% - and Westpac 2.5%.

So far this year, CBA has raised rates 37 basis points above the cash rate, ANZ 40 basis points, NAB 39 basis points and Westpac 40 basis points.
St George broke from the pack on Friday by raising its rate by another 20 basis points, or 60 basis points for the year, putting it $7 million ahead in fiscal 2008 on JPMorgan's estimates.

While expected to follow St George, the other banks could stay put, according to JPMorgan banking analyst Brian Johnston.

"On the one hand, the rhetoric of the other major banks over recent weeks would suggest that they will follow in the not too distant future,'' Mr Johnson said.

"Conversely, the other major banks may take the view that St George has priced itself out of the market - and may look to accentuate any associated loss of market share ahead of a potentially disruptive period should the proposed merger with Westpac proceed.''

In line with JPMorgan, broker Goldman Sachs JBWere said the average cash to bill spread had increased to 57 basis points from  23 basis points in fiscal 2007.

Its analysts said that by hiking by 60 basis points, St George might be looking to offset higher long term funding costs as well.

Spreads on three-year term debt have risen even higher to about  120 basis points above BBSW. The major banks are expected to run into larger term funding requirements in 2009.

"We believe that St George's move does highlight the fact that it has a higher funding cost then peers at present, which on a longer term basis could reduce its competitiveness,'' GSJBW analyst James Freeman said.

Still, Mr Freeman believes at least some of the other bank's could follow St George's lead even though they are in a better position.

"With St George having moved now we would not be surprised to see others follow, highlighting the banks' pricing power in the market,'' he said.

At 9.67%, St George's standard variable rate home loans are now the most expensive in the market. Next are ANZ and Westpac on 9.47%, NAB on 9.46%, and CBA, on 9.44%.

The other banks have said this week that their rates were always under review.

"Higher wholesale funding costs have been prolonged due to ongoing liquidity issues in global markets,'' an ANZ spokesperson said yesterday.

AAP