Earlier this week, Australian regional banks Bendigo and Adelaide Bank and the customer-owned Teachers Mutual Bank increased their home loan rates, maintaining their net interest margins at a time when short terms funding costs have spiked. As explained elsewhere in this bulletin, Macquarie Group has also been outperforming the market, in part due to moving early and increasing rates for all its products. "This follows a number of other small and midsize banks that have recently raised their home loan rates, taking the total to 16," noted Moody's Investor Service in a recent report. "The increase in rates is credit positive for these banks because it will help preserve their net interest margins amid higher wholesale funding costs and slower loan growth." In contrast, Australia's four-largest banks have yet to raise their lending rates amid intense political scrutiny and against the backdrop of a probe by Australia's royal commission into misconduct in the banking, superannuation and financial services industry. "Given that the four major banks have traditionally been the first-movers on headline home loan rates, we see smaller lenders' willingness and ability to increase rates as credit-positive evidence that they retain pricing power independent of the current challenges confronting the major banks," Moody's said. And the very high level of household leverage in Australia has not given Moody's cause to fear a sharp increase in loan delinquencies or credit costs as the increases in home loan rates are small compared with the buffer built into home loan serviceability assessments, among other factors. "Australian lenders commonly assess borrowers' repayment ability based on an interest rate floor of 7.25 per cent, well above the average home loan rate of around 5.25 per cent posted by Australian banks over the past three years," Moody's noted.