The banking industry has admitted it is struggling to gain the public's trust in explaining why mortgage rates need to rise independently of the Reserve Bank.
The main banks have come under ferocious attack for opting to lift their home loan rates despite the Reserve Bank keeping the cash rate steady.
But the banks say political pressure on them to follow the RBA is not helping, and could perversely result in higher borrowing costs for consumers.
"It is highly ironic that attacks on the industry from politicians could actually increase the cost of money to Australian banks," Australian Bankers' Association chief executive Steven Munchenberg told a mortgage conference in Sydney yesterday.
However, Mr Munchenberg said, the banks had to do more to explain how home loan rates are affected by what the banks have to pay to borrow money to fund mortgages.
He admitted customers and the broader community didn't trust banks enough to accept their explanations.
"We have to do a lot more work to explain why we need the levels of profitability that we do," he said.
"For most in the community, banks are seen as powerful and greedy."
Mr Munchenberg said that while banks prompted huge community anger when they adjusted rates independently of the RBA, keeping mortgage rates steady risked adding to their funding cost pressures.
"Somehow, we have to work with the community to resolve this dilemma to their satisfaction and ours," he said.
"I'll be frank, at this stage I don't know how we do this. But I do believe we have to find a way to be able to rebuild trust while safeguarding the stability of our banking system."
Australia's big four banks - Commonwealth, ANZ, National Australia Bank and Westpac - all raised their mortgage standard variable rates last month, citing the higher cost of sourcing the money they need to provide home loans.
Their decisions drew public criticism and raised the ire of federal Treasurer Wayne Swan, who urged borrowers to shop around for a better deal.
Mr Munchenberg added that there was a risk that political pressure could affect investor sentiment.
There was also a danger that international investors could become concerned that Australian banks were becoming "politically constrained" from managing their higher costs.
- AAPBy Kim Christian