market update, page-7

$24 BY END OF DAY? $30 BY XMASS ?



Westpac Banking Corporation says its earnings growth would slow but remain solid in the second half of fiscal 2008, as the local economy continues to go off the boil.

Australia's third biggest bank also said on Friday that it still was well positioned to pursue its bid for St George Bank Ltd.

In a rare specific profit forecast, Westpac said it expected its cash earnings to grow by between six and eight per cent in the 12 months to September 30.

At 1015 AEST, Westpac shares had fallen 32 cents, or 1.38 per cent, to $22.83 against a 1.42 per cent fall in the benchmark S&P/ASX200 index.

Last year, Westpac's cash earnings grew by 14 per cent to $3.5 billion.

The bank's 2008 first half earnings grew by 10 per cent.

Westpac is considered by analysts to have the best prospects of the big four banks because it has a clean balance sheet free of heavy bad loan exposures.

In recent weeks, National Australia Bank Ltd and ANZ Banking Group Ltd reported massive write-downs linked to bad investments in US real estate or impaired loans to local corporate clients.

Commonwealth Bank of Australia Ltd is expected next week to announce cash earnings growth of around two per cent for the 12 months to June 30.

Westpac said on Friday that its asset quality remained "good" with total impaired assets at similar levels to the first half.

It added, however, that stressed loans had increased, consistent with the economic cycle.

"Westpac's conservative risk profile has meant it is not at risk from the types of significant write-downs in securities portfolios that have impacted some other financial institutions," it said.

The bank said it expected higher collectively assessed provisions in the second half, given challenging economic conditions, growth in lending, a "modest" rise in delinquencies and an expected further increase in its economic overlay provision.

Chief executive Gail Kelly said Westpac continued to perform well despite slowing economic growth.

"Managing risk remains a priority for us and we are maintaining our strong lending and credit risk disciplines," Mrs Kelly said.

"Importantly, Westpac also has a strong capital and funding position, allowing us to effectively respond to the more difficult operating environment.

"We are not distracted by problems in our credit portfolio, enabling us to focus on our strategic agenda.

"Putting customers at the centre of our business is at the heart of this agenda."

During the third quarter, loan volumes continued to slow at both Westpac's institutional and retail banks.

But Westpac said it had grown faster than its competitors with housing lending particularly strong, growing at 1.5 times over system.

In its bid for Australia's fifth largest bank, Westpac is offering 1.31 of its shares for each St George share.

Westpac said it was "well positioned to pursue its strategic agenda, including completing the proposed merger with St George".

While forecasts look positive for Westpac it would not guarantee that any cut in official interest rates would be passed onto its customers in full.

"Obviously there are a number of factors that we have to consider at the time of making a rate move," Mrs Kelly told investors.

Mrs Kelly said the bank would have to consider its cost of funding, the competitive environment and the effect on its customers.

"Clearly , we would love to pass through the full 25 basis points drop if that were to occur ... but we'll need to factor in all of those issues at that time," Mrs Kelly said.