NAB CEO Cameron Clyne.

NAB CEO Cameron Clyne. Photo: Ben Rushton

THE European debt crisis is no longer to blame for higher Australian mortgage rates, according to National Australia Bank chief executive Cameron Clyne.

The man who developed the ''break-up'' marketing strategy says that what is pushing up funding costs is ''hot'' competition between the banks for deposits.

''What is happening in Europe is not having an impact on our cost of funding today because we can always sit out of the [wholesale debt] market for a period,'' he said.

NAB last month stood back a little from the battle, lowering its deposit rates by 50 basis points, matching the cut by the Reserve Bank.

Others kept their deposit rates higher with the aim of capturing a greater proportion of the savings market.

''Westpac has declared deposits as the new black - it is going out there aggressively competing for deposits,'' Mr Clyne said.

But he recognises his bank may have to get into the fray if there is any sign it might start to lose market share.

Mr Clyne also defended his decision to avoid billions of dollars in write-downs when he joined the troubled bank almost four years ago. He closed down the risky NAB Capital and traded out of collateralised debt obligations (CDOs) instead of taking a $4 billion hit to the balance sheet.

He also chose not to take a big write-down on NAB's British operations.

Referring to the behaviour of many new chief executives to immediately take big write-offs when they are appointed, Mr Clyne said: ''There is always this testosterone [fuelled] view that they should clear the decks. The shareholders never get that money back.

''The only person that benefits from writing off the UK is me. If you took a $3-$4 billion loss, that is a real loss of wealth to shareholders, and people tend to forget it is a genuine hit.''

But he recognises that balancing the interest of customers, investors and the government won't please all. ''As I said to investors, I am just determining what I want to be hit around the head for. I can get hit around for net-interest-margin contraction because I am competing for deposits. [Or I can] stand out of the deposit war and increase my reliance on wholesale funding. I am going to get whacked for either.''

He does not think there is much to be gained from having a public debate with the government over interest rates, nor (as Westpac's Gail Kelly did a few weeks ago) go into bat for Prime Minister Julia Gillard.

''I am not defending bank profits. If society thinks our profits should be half [of what they are] I don't have a problem, as long as we also debate what the implications would be in terms of ratings and dividends and access to overseas money.''

Although the banking industry is generally disliked by the community, NAB's decision to stand apart from the pack has paid off in attracting greater market share. It was the first to attack fees. It has also committed to the lowest standard variable mortgage rate in the market.