Smaller banks are manoeuvring to take back some profit as well as market share as big banks raise rates to satisfy new capital needs Photo: Warren Hackshall

Small banks had already begun to hike investor interest rates for new home loans when two of the big four banks made their move last week, but they will probably take a different approach to repricing existing loans to claw back profits as well as market share.

The country's two biggest mutual lenders, CUA and Heritage Bank, have increased the interest rate on investor loans by 0.3 per cent, about the same as moves by ANZ Bank and Commonwealth Bank on Thursday and Friday.

Heritage Bank did this first, with rates effective from July 16. CUA made its move on Thursday.

"We are under similar prudential guidelines as all the other institutions," CUA chief executive Rob Goudeswaard said. "We have reduced loan-to-valuation ratios from 90 to 70 per cent for investor loans and our new investor loan rates have increased by 30 basis points."

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The moves are aimed at meeting the banking regulators' 10 per cent growth limit for investor loans. Many of the smaller banks' growth rates are well above that. 

Regional listed banks Bendigo and Adelaide Bank, Bank of Queensland and Suncorp Bank have yet to declare their hand but most expect they will make similar moves soon.

"We're very mindful of responsible lending and doing the right thing by our customers, which is reflected by the serviceability measures we have in place," a Suncorp Bank spokeswoman said.  "Like everyone across the industry, we will continue to monitor the rate of [borrower] growth and changing market conditions."

According to APRA figures, Suncorp has the fastest growth in investor loans among the regionals at 11.6 per cent. Bank of Queensland has the lowest at 1.7 per cent but the biggest proportion at  almost 45 per cent of its loan book.

None of the smaller lenders have yet applied the increase in rates for investors to their existing borrowers, or "back book", as ANZ and CBA did last week. Analysts say the majors' back-book repricing is to meet their new risk weighted capital requirements being imposed by APRA. Any move by the smaller banks on this front is targeted at the bottom line or improved returns to shareholders.

Privately, banks agree. Smaller banks' profits have been hit harder by fierce mortgage competition because they have higher costs and fewer sources of non-mortgage income, and they are expected to reclaim some of this via interest rate rises during the next month.

One lender said they will be repricing 20 per cent of their existing investor home loans by the end of August.