Tight offshore credit markets combined with the two-tier cost of the government’s wholesale funding guarantee is seeing Australia’s banking landscape morph into a two-horse race.

Analysts and industry players say competition over funding and its impact on the mortgage market is eroding the clout of Suncorp Metway, Bendigo and Adelaide Bank and Bank of Queensland, leaving Commonwealth Bank of Australia (CBA) and Westpac Banking Corporation the clear front runners in the sector.

Wilson HTM’s banking analyst Brett Le Mesurier said regional banks not only had to pay more than the major banks to access the federal government’s wholesale funding guarantee, but were now charged an additional margin by professional investors.

“They are effectively paying in the wholesale markets for term funding a 100 basis points or more than the major banks, which is a tremendous disadvantage,” he told ABC Television on Sunday.

Regional banks pay 150 basis points to rent the federal government’s triple A credit rating in order to compete against foreign banks for access to offshore wholesale debt markets from which Australian banks now raise around 40 per cent of their total funding requirements.

The guarantee was introduced last October following a credit market freeze triggered by Lehman Brothers’ collapse, and costs the double A-rated big four banks 70 basis points to access.

The triple B-rated regional banks are considered riskier and therefore, pay 150 basis points.

Global credit markets have eased dramatically over the last six weeks as the Libor (London inter-bank offered rate) and credit spreads narrowed, allowing National Australia Bank (NAB) to complete a $1 billion non-guaranteed offshore term debt issue earlier in May – a first among the local banks.

But access to these markets still favours the government and the double A-rated big four banks, leading chiefs of the regional banks, including Bank of Queensland’s David Liddy, to lobby the government and Treasury for a uniform fee for the guarantee.

“Investors are looking beyond the government guarantee without looking at the individual issuer so we get double-dipped and that needs to change,” Mr Liddy told the Sky Business Network on Sunday.

Higher costs of wholesale funding – used to fund mortgages – have seen regional lenders elbowed to the edges of the home loan market, with recent credit growth figures from the Australian Prudential Regulation Authority (APRA) showing CBA has maintained its mortgage market dominance.

During March, CBA took its market share to 23.5 per cent, with Westpac in second place with a 16.5 per cent share even without subsidiary St George Bank’s 8.7 per cent share.

All of the big four grew their home loan books at the expense of the regional players, with Suncorp losing 5.9 per cent of its loan volumes, and Bendigo losing 2.3 per cent.

“Clearly when elephants dance, ants tend to die,” Mr Liddy told ABC Television on Sunday.

CBA and Westpac’s industry dominance has been boosted by their acquisitions of BankWest and St George, respectively, which led ANZ Banking Group’s chief executive Mike Smith on Thursday to describe an evolution in Australia’s banking sector.

“We all talk about four pillars. Well we’ve now got two pillars and two stumps.”

Competition concerns recently prompted chairman of the Australian Competition and Consumer Commission (ACCC), Graeme Samuel, to warn the regulator would run a fine tooth comb over any more mergers or acquisitions before giving approval.

But Mr Smith remains unfazed, telling reporters on Thursday ANZ would consider domestic and Asia acquisitions.

“I think this issue of: `Are banks being competitive?’ is crazy. People have a choice.

“We don’t have three or four big retailers, and there isn’t a limit on the number of oil companies or mining companies. Why should there be a limit on banks?”