Banks 'must take blame for bad PR'

THE nation's banks have created a public relations problem for themselves after years of failing to explain to customers how they fund their lending book, says National Australia Bank chief executive Cameron Clyne.

But he challenged the Reserve Bank's recent claim that funding costs for banks had stabilised, accusing the central bank yesterday of basing its conclusion on incomplete information.

After nearly 15 years of seeing interest rates move in line with official cash rates, customers could not be blamed for being angry over out-of-cycle interest rate moves on mortgages, Mr Clyne told reporters.

''Had we begun many, many years ago to discuss how banks fund themselves, and [that] the RBA was not the setter of funds, we'd be in a better position,'' he said.

''This is basically a PR problem that by and large we've created for ourselves.

''We have got to slowly bring the debate round to how a bank funds itself. Some of these issues are big structural issues for the economy - like the reliance on offshore wholesale funding.''

While NAB has been undercutting rivals on mortgage pricing, Mr Clyne declined to speculate on whether the bank would push through additional rate rises on mortgages.

However, he warned of increasing funding and deposit costs, which could be seen as paving the way for a rate rise outside or beyond an RBA move.

He said the RBA was looking at just ''one piece of the story'' in its conclusion that funding costs for banks had stabilised - a finding seized upon by senior government figures, including Treasurer Wayne Swan, as proof that there is no justification for the banks to outpace the RBA in raising mortgage rates.

''I think we're just saying that the data they put out there is one piece of the story and there are a couple of other signals that the average cost is rising,'' Mr Clyne said.