Commonwealth Bank to Up Variable Home Loan Rates

SYDNEY (Reuters) - Commonwealth Bank of Australia Ltd (CBA.AX), Australia's top mortgage lender, said on Monday it would raise its variable home loan rate by 35 basis points, above the increase in official interest rates by the central bank last week.

Australia banks are faced with higher funding costs, sparked by higher global credit crisis. CBA is less reliant on the wholesale market for funding as it has the biggest share of Australian retail deposits.

CBA said the rise in interest rates reflects an increase in market interest rates and wholesale funding costs.

"The Commonwealth Bank has absorbed a significant proportion of the increased funding costs that it has experienced since August 2007," said Ross McEwan, CBA's group executive retail banking services, in a statement.

"Unfortunately, the volatility in global markets remains and we have seen funding costs continue to increase, particularly since February as funding from global markets has become tighter and as a result more costly."

CBA said the new rates would come into effect from March 12.

In January, most Australian banks moved their home loan rates independent of a central bank increase for the first time in more than a decade, in response to rising funding costs.

Australian interbank rates jumped to their highest in 13 years on Monday as tight global credit markets and mounting risk aversion saw banks hoard cash, leaving borrowers scrambling for funds.

Last week, the Reserve Bank of Australia raised the official cash rate by 25 basis points to a 12-year high of 7.25 percent to keep inflation under check.

Westpac Banking Corp (WBC.AX), Australia's fourth-biggest bank, raised its variable mortgage rates by 29 basis points, while St George Bank Ltd SGB.AX, the fifth-biggest lender, flagged it would raise rates by about 40 bps.

Regional lender Adelaide Bank Ltd raised its wholesale mortgage rates by 40 bps.

Higher funding costs are also forcing many non-bank lenders to downsize their mortgage business, as reflect by Macquarie Group Ltd's (MQG.AX) decision last week to significantly scale back its domestic residential mortgages.

About 80 percent of Australia's A$916 billion ($848 billion) outstanding home loans is variable, with the remaining 20 percent on fixed rates.

CBA shares dropped 1.7 percent to A$38.69, while the broader S&P/ASX 200 index .AXJO slipped 1.6 percent.

($1=A$1.08) (Reporting by Denny Thomas;)