A large French bank, Societe Generale, doubts the big four Australian banks' claim of rising funding costs, which they cited as a reason for hiking mortgage rates Feb. 7, while the Reserve Bank of Australia held the overnight cash rate at 4.25 per cent.

Christian Carrillo, the Asia Pacific head of interest rate strategy of Societe Generale's Tokyo office, said it is almost mathematically impossible for the big four's total funding cost to rise. Mr Carrillo said in a research note that the dubious claim was a ploy to protect their high profit margin.

He cited an analysis in the monthly report by the Australian Prudential Regulation Authority that the bulk of the bank's funding was onshore which went up to 66 per cent in January, while long-term funding sourced overseas was at its lowest level since April 2009. He pointed out that Aussie banks have reduced their reliance on overseas funding since the 2008 global financial crisis.

"Australian banks are essentially an oligopoly.... They control most of the market anyway. They can effectively set rates when they want to," The Sydney Morning Herald quoted Mr Carrillo.

"You have four big banks. They want to protect their profit margin. They can do it, so they do it," he added.

Although Australia has 128 lenders, the big four control 80 to 90 per cent of the market. Collectively, the big four made almost $25 billion profit in 2011.

Mr Carrillo also cited the speech of an RBA official last week that the bank bill swap rate, which is the standard cost of floating rate bonds, has gone down by 70 basis points from June 2011 to February 2012. That translates into Aussie banks' senior unsecured funding down 10 basis points from June, he pointed out.

However, Australian Bankers' Association Chief Executive Steven Munchenberg debunked Mr Carrillo's analysis. Mr Munchenberg said it was impossible to average out the costs of banks without accounting for the timing of the specific long-term debt of banks.

He insisted only the banks and the RBA have that information and doubted if Mr Carrillo had access to the detailed funding on a bank-by-bank basis.

Chris Richardson, director of Deloitte Access Economics, said the hiking by the big four of interest rates is not new and had been ongoing since the 2008 global financial crisis. It is only a reminder that Australian banks borrow outside the country and are very dependent on European developments.

Besides the big four, Bendigo and Adelaide Bank hiked its variable mortgage rate by 15 basis points last week. On Monday, Bendigo reported a 67 per cent decline in first half profits due to rising funding costs sourced overseas.

Mike Hirst, chief executive of Bendigo, said that while the lender has promised to pass on to borrowers any decrease in funding cost, it would not likely happen until the end of 2012 since balance needs to be restored in the banking industry. He said that the scales are too much tipped in favour of borrowers.

He said that if any of the different stakeholders in a bank - made up of shareholders, depositors and borrowers - feel that they are getting the raw end of the deal, the bank runs the risk of the stakeholders withdrawing their services.

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