St George Bank's Profit Up, Lowers Year Target

St George Bank, Australia's fifth-biggest lender by assets, reported a weaker-than-expected 6.2 percent rise in first-half profit amid tough market conditions, and trimmed its year growth
target.

St George cut its full-year earnings per share (EPS) growth target to 8-10 percent from an earlier 10 percent. In the first half EPS grew 2.1 percent, although it saw a stronger second half.

"St George is confident in its growth prospects despite the challenging environment," Chief Executive Paul Fegan said in a statement.

The lower earnings target comes amid tight credit conditions globally and volatile investment markets. While Australian banks have largely avoided the subprime crisis roiling global banks, they have not dodged higher funding costs.

With Australia's economic growth slowing and inflation and interest rates rising, more loans are starting to sour.

St George said volatility in equity markets had lowered earnings in its mortgage insurance investment portfolio by A$55 million ($53 million). EPS growth would have been 8.8 percent and profit growth 13.2 percent if not for that impact, it said.

Cash profit rose to A$603 million ($569 million) in the six months to March from A$568 million a year earlier. Four analysts on average had forecast cash earnings of A$623.5 million, with the forecasts ranging from A$610 million to A$633 million.

Westpac Banking, Australia's fourth-biggest lender, warned last week it expected lending growth to slow and would face higher charges for bad loans, as well as further rises in funding costs as Australian economic growth slowed.

St George, which has played down its exposure to Australian firms that have fallen victim to the global credit crunch, made a A$20 million pre-tax provision against a margin loan secured by Octaviar Ltd, formerly MFS Ltd, but said other exposures did not require specific provisions.

The bank also made a A$30 million after tax provision to fund a restructuring program over the next few years that it said will see substantial improvement in efficiencies.

Shares in St George have fallen 12.2 percent so far this year, beating a 18.1 percent fall in the financials index.

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