INTERVIEW-ME Bank sees retail business solving funding woes

* ME Bank to expand retail business

* Plans to reduce reliance on securitisation funding

SYDNEY, Oct 14 - Australian lender ME Bank is looking to expand its retail customer base as a way of growing its business and overcoming the funding problems it has struggled with due to the global financial crisis.

Acting Chief Executive Nick Vamvakas told Reuters in an interview that the bank, owned by 35 superannuation pension fund providers, will be offering retail banking services to the funds' 5 million members.

"We want to establish a niche by providing low cost banking services to our member industry superfunds," Vamvakas said. "We have 250,000 customers, so we've got a little bit of a way to go."

With A$19 billion ($17.5 billion) in assets, the bank has started to expand deposits, credit cards and business lending but it is still largely a home lender with 84 percent of its portfolio in mortgages and a A$3.5 billion balance sheet.

It was one of many Australian mortgage lenders to suffer after the U.S. subprime mortgage crisis froze their main funding sources.

ME Bank relied almost entirely on the sale of residential mortgage-backed securities (RMBS) to investors to fund its lending, but Vamvakas' objective is for a more diversified funding base.

He sees securitisation significantly reduced to about half of wholesale funding, from 95 percent currently, with retail funding making up the rest from just 13 percent now.

Vamvakas hopes to increase ME Bank's 2 percent market share in home lending, but said it would not be easy to break the dominance of Australia's top four banks, who control some 90 percent of the mortgage market.

"There is less choice around and people still like to have more choices," said Vamvakas.

Westpac Banking Group <WBC.AX>, Commonwealth Bank <CBA.AX> (CBA), National Australia Bank <NAB.AX> and Australia and New Zealand Banking Group <ANZ.AX> dominate the mortgage business, and some have moved to snap up smaller rivals, further concentrating the market.

Last year, CBA acquired regional lender BankWest from British bank HBOS <LLOY.L> and Westpac bought Australia's fifth-largest bank, St George Bank.

Westpac also took over the loan book of mortgage firm Rams, while NAB bought the mortgage unit of Challenger Financial Services <CGF.AX>.