Westpac head Gail Kelly told a Senate committee on Friday that while banking reforms proposed by the federal government is welcome, the industry as it is already rolls on stable wheels and further strength could only be attained through active client participation.

Even before the senate probe and the controversies that hounded the sector last year, Kelly insisted that banking in Australia is solid and sufficient competition has been around for some time.

She said that giving more muscle on mortgage-backed securities could indeed open more financing for small lenders and boost their ability to compete with the industry's major league players.

However, the Westpac executive urged the government that by encouraging more savings from Australians, much more would be realised and people can mostly set aside their extra cash though deposit accounts and tax concessions.

Kelly characterised the government's reform package as generally positive though banks are uncertain if its provisions on enhancing the sector's present state of competition would actually serve the industry well.

She noted that tighter competition among banks actually drives up funding costs as banks utilise the funds to finance their mortgage services, which she said is more practical than tapping offshore funds that only pushes up interest rates. Major banks mostly depend on overseas funding for their annual funding, which experts said forced them to impose rates that higher than those announced by the Reserve Bank of Australia (RBA).

Kelly admitted that funding costs are rising but on a moderate level and should reach their peak by the second half of 2012.

Also, the Westpac chief executive branded the moves to prohibit mortgage exit fees and to suppress price signalling among banks as wholly unnecessary measures since the former would only affect small players while the latter, she stressed, is not at all happening.

Kelly testified last in the line of major bank executives that the Senate committee had summoned for its investigation, which was launched amidst the public rage on Australian banks soaring profits and increasing bank transactions and services charges.

The panel is expected to issue its report by the end of March, exactly some full three months following the release of Federal Treasurer Wayne Swan's banking reform proposals, which centred mostly on creating more competition in the industry and allowing easier ways for clients to switch banking service providers.