National Australia Bank (NAB) announced on Tuesday that it will increase on July 30 its interest rates on business loans by 20 basis points. The bank explained it had to hike rates because of strong competition for deposits and higher funding costs.

"Strong competition for deposits has put the interest rate paid to term deposit customers at an all time high relative to the RBA cash rate, and wholesale funding costs remain elevated," NAB said in a statement.

The bank said the higher rates would affect mostly market-linked products accessed mostly by mid- to large-sized businesses that borrow the money for short periods of time. However, NAB said that the bulk of small business clients would not be affected because they use variable rate lending products.

"NAB is committed to being transparent about our funding costs and explaining the portion of our customers total rate that is attributed to costs of funds," NAB group executive for business banking Joseph Healy said in a statement.

NAB reduced its mortgage rates when the Reserve Bank of Australia (RBA) cut the overnight cash rate twice it May and June, but kept part of the rate cut. Among the big four, it was only ANZ Bank which passed in full the 25 basis points rate cut made by RBA in its June 8 monetary board meeting.

Economists believe the RBA would still make one more interest rate cut before the end of 2012.

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