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BANKS will have no choice but to pass on rising costs to customers or accept lower profits in the next decade as funding becomes a "scarce commodity", a leading finance group says.
GE Capital Australia chief executive Skander Malcolm says the growing cost of capital will fundamentally change the game in the finance sector for years to come.
While costs were low when "liquidity was everywhere" before the global financial crisis, intense competition for wholesale funding - cash borrowed from other institutions - meant prices were now highly volatile, he said.
"We think frankly for the next 10 years that capital is going to be a very scarce commodity," Mr Malcolm said. "Availability of funding is going to be - for everyone - around, but a lot more expensive.
"Certainly if the cost of capital goes up and the cost of funding goes up, then the people who are selling mortgages have to figure out a way to either reduce their profitability and suck that up, or pass it on in price."
Australian banks are widely expected to lift interest rates out of step with the Reserve Bank within weeks to address sliding profit margins.
GE Capital - a subsidiary of America's General Electric Company and one of the biggest non-bank players in Australia's finance sector - pulled out of the mortgage and car loan markets at the height of the GFC late in 2008.
Speaking to BusinessDaily to mark GE Capital's 15th anniversary in Australia, Mr Malcolm said the company had no regrets the "painful" decision.
"We took our medicine. It certainly wasn't an easy decision but as we look forward to today, and we look at the profitability of the continuing businesses and even the way that we're managing the discontinued businesses, it's in really good shape," he said.
The group offloaded some home loans to the Commonwealth Bank and sold out of what was then Wizard Home Loans. With $9 billion in assets, the remaining mortgage book is about a third its original size and is being run down.
Mr Malcolm said he was approached regularly "by all sorts" of potential buyers for book, but would only sell at the right price.
Pulling out of the market had freed it to focus on its better-established and more profitable businesses, he said, and the company would "absolutely not" move back into housing finance.
GE Capital Australia chief executive Skander Malcolm says the growing cost of capital will fundamentally change the game in the finance sector for years to come.
While costs were low when "liquidity was everywhere" before the global financial crisis, intense competition for wholesale funding - cash borrowed from other institutions - meant prices were now highly volatile, he said.
"We think frankly for the next 10 years that capital is going to be a very scarce commodity," Mr Malcolm said. "Availability of funding is going to be - for everyone - around, but a lot more expensive.
"Certainly if the cost of capital goes up and the cost of funding goes up, then the people who are selling mortgages have to figure out a way to either reduce their profitability and suck that up, or pass it on in price."
Australian banks are widely expected to lift interest rates out of step with the Reserve Bank within weeks to address sliding profit margins.
GE Capital - a subsidiary of America's General Electric Company and one of the biggest non-bank players in Australia's finance sector - pulled out of the mortgage and car loan markets at the height of the GFC late in 2008.
Speaking to BusinessDaily to mark GE Capital's 15th anniversary in Australia, Mr Malcolm said the company had no regrets the "painful" decision.
"We took our medicine. It certainly wasn't an easy decision but as we look forward to today, and we look at the profitability of the continuing businesses and even the way that we're managing the discontinued businesses, it's in really good shape," he said.
The group offloaded some home loans to the Commonwealth Bank and sold out of what was then Wizard Home Loans. With $9 billion in assets, the remaining mortgage book is about a third its original size and is being run down.
Mr Malcolm said he was approached regularly "by all sorts" of potential buyers for book, but would only sell at the right price.
Pulling out of the market had freed it to focus on its better-established and more profitable businesses, he said, and the company would "absolutely not" move back into housing finance.
