St George Bank has followed its larger rival, ANZ, in reporting better than expected first half earnings.
But unlike the ANZ, which was gloomy about the outlook and didn’t up its low guidance for the rest of the year, St George has lifted its forecast for the full year to arise of around 12 per cent.
St George is the country’s fifth biggest bank and it said first half earnings rose 13.9 per cent to $572 million after preference dividends, from the $502 million earned in the first six months of 2006 financial year.
But normalised cash net profit, which is before hedging and significant items and after deducting preference dividends, was $568 million, up a very solid 14.7 per cent.
The bank said that as a result of this better than expected performance, full year earnings per share (EPS) would grow by between 11 and 12 per cent, compared to the initial forecast of 10 per cent.
That saw the bank’s shares close 64c higher at $36.65 on moderate volume.
The onus will now be on Westpac to match the St George and ANZ figures when it reports tomorrow.
St George was effective in driving revenue faster than costs, which resulted in a sharp fall in its cost to income ratio to just over 42c in the dollar.
St George said first half performance on a cash basis represented EPS growth of 13.6 per cent.
Managing director Gail Kelly said in a statement the result reflected an excellent contribution from all of the bank’s divisions.
“Our strong revenue momentum has underpinned a significant decline in the expense to income ratio to an industry leading 42.6 per cent,” she said.
“We have strong momentum going into the second half and have confidence in achieving our upgraded 2007 EPS growth target.”
Assuming a reasonably robust economic environment, the previously given 10 per cent target for 2008 financial year was reaffirmed: the ANZ did not go that far
St George’s home market, NSW continued to lag, which makes the result that much better.
The bank told the market that growth in the state “is expected to continue to be below the national average and St George anticipates that the NSW economy will remain subdued throughout 2007,” it said.
“The group expects to continue to achieve excellent lending growth in Victoria, Queensland and Western Australia.
“There will be additional investment in Queensland and Western Australia in the second half.”
The bank said that compared to March 2006, its lending receivables were up 14.0 per cent, retail deposits were 8.5 per cent higher and managed funds jumped 19.2 per cent to $44.3 billion, thanks to the continued strength of the stockmarket and the huge superannuation inflows, especially around the June 30 changes this year.
Total income rose 12.3 per cent in the six months to $1.61 billion.
The bank’s comments on the most worrying area for analysts, credit quality, were similar to that of ANZ
“Credit quality remains strong, with impaired assets and loan arrears at low absolute levels,” St George said.
“Consistent with industry experience, there has been an increase in 90 day past due residential arrears.
“The arrears percentage, however, remains very low and these loans are well secured, with minimal losses expected.”
But the ANZ CEO went further, warning that the second half would see another rise but without the first half recoveries which trimmed the impact of the arrears and loan losses. That’s why the ANZ has kept its full year forecast around seven to nine per cent, against the 12 per cent rise in first half cash earnings.
St George declared an interim dividend of 82 cents, up from 74 cents in the same period last year.
