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St. George Bank, which is being bought by bigger rival Westpac Banking Corp for A$15.6 billion ($10.1 billion), posted a 26.7 percent rise in second-half cash profit, as it grew revenues and business volume.
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Australia's fifth-largest bank said bad and doubtful debt expenses rose 63.5 percent to A$291 million in the year to end-September, but its credit quality remained strong.
"Frankly we've got a conservative balance sheet, but have we planned for potential further deterioration? Yes, we have," said Chief Executive Paul Fegan.
He said private house lending had slowed considerably and business credit lending had started to slow too, and would continue to slow in the period ahead. Investment markets and funding costs would be volatile next year, he added.
April-September cash profit -- effectively core profit, excluding one-offs and non-cash accounting items -- rose to A$718 million ($466 million) from A$566.8 million a year ago.
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Analysts had on average expected cash profit of A$601.7 million, according to Reuters Estimates, but forecasts excluded three non-recurring items, including a A$25 million profit on the sale of Visa shares.
Westpac is expected to report a small rise in second-half cash profit to nearly A$1.9 billion on Thursday.
Top lender National Australia Bank earlier this month reported a quadrupling in bad debt charges and a 28 percent drop in second-half cash profits, while third-ranked Australia and New Zealand Banking Group reported a 32 percent drop in second-half cash profit due to higher bad debt charges.
St George Bank's shares have fallen 12.5 percent this year, outperforming a 37.9 percent drop in the broader market. The stock rose 1.5 percent on Wednesday.
St. George shareholders vote on the Westpac deal on Nov. 13.
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Data is a real-time snapshot *Data is delayed at least 15 minutes