St. George Bank, Australia's fifth-biggest lender, met expectations with a record first-half profit on Tuesday on strong loan growth and a booming wealth management business, and
upgraded its full-year forecasts.
Australian banks have benefited from 15 straight years of economic growth and three-decade low unemployment, while a mandatory pension scheme and a four-year rally in stock market have lifted the performance of their wealth management divisions.
But analysts expect bad loans to creep up after the central bank raised interest rate three times last year to curb inflation.
Cash profit in the six months ended March rose 14.7% to A$568 million (US$473 million), compared with A$495 million reported a year ago. Ten analysts on average had forecast cash earnings of A$566 million. Cash profit is before one-off items and accounting treatment of derivatives.
"Our strong revenue momentum has underpinned a significant decline in expense to income ratio to an industry leading 42.6%," Managing Director Gail Kelly said in a statement.
St George raised its full-year 2007 earnings per share (EPS) growth target to between 11% - 12% from 10% and reiterated its fiscal 2008 EPS growth target of 10%.
St George is highly exposed to the subdued New South Wales (NSW) state economy. More than half of its retail branches are in NSW, a state where it also sold about 60% of its home loans last fiscal year.
The Bank said the home loan growth of 10.2% in the first-half was impacted NSW's sluggish economy. But the demand from small and medium business segment grew by about 25%.
Shares in St George have risen 9.1% so far in 2007, compared with a 8.7% gain in the benchmark S&P/ASX 200 Index in the same period.
Last week, Australia and New Zealand Banking Group -- Australia's third-biggest lender -- reported a 12% rise in its first-half cash profits. Westpac Banking, the fourth-biggest bank, is scheduled to report is first-half earnings on Thursday.