St George mulls 40bp interest rate hike

ST GEORGE Bank has sent a strong signal it is considering jacking up its lending rates, including home loans, by as much as 40 basis points.

ST GEORGE Bank has sent a strong signal it is considering jacking up its lending rates, including home loans, by as much as 40 basis points.

Chief executive Paul Fegan made the admission during a briefing on the bank's business and institutional division to analysts today.

Mr Fegan was asked by an analyst how much above the latest 25 basis point official rate rise St George would need to reprice its products to fully cover higher funding costs.

"Broadly, when we look at it, the number is around 15. So 25 plus 15 ... so 40,'' Mr Fegan said.

The St George boss referred back to rate rises in January when the major banks hiked their rates independently of any increases in the official cash rate to cover the cost of the global credit crunch.

"Our propensity to act and how we think about these things was demonstrated in January,'' Mr Fegan said.

"We didn't go 18, 12, 15 or we'd go twice ... we went 20.''

The Reserve Bank of Australia lifted the cash rate 25 basis points to 7.25 per cent on Tuesday.

Mr Fegan said comments made by the RBA showed an "implicit, if not explicit, expectation that some of the slowing of consumer demand will be taken by banks acting outside of the 25 (basis point rise)."

"We'll make our decisions when we make them.''

But Mr Fegan did not address another part of the analyst's question on whether there was a risk the bank's guidance statement may need to be lowered if it did not raise rates by a quantity required to fully cover its higher borrowing costs.

The bank today reaffirmed its guidance for earnings per share to grow by 10 per cent this year.
But St George also noted its reported margin would be impacted by the higher levels of liquidity it needed to maintain.

It forecast underlying margin contraction of around 10 basis points, including the impact of higher funding costs.

St George said the credit quality in its business banking operations remained robust, and that it was closely monitoring its exposures to individual entities.

The bank said it "remains appropriately provisioned with for existing market conditions''.

It repeated that it had no exposures to US or domestic sub-prime lending, collateralised debt obligations or hedge funds.

"Credit quality in retail division remains excellent, with the arrears performance strong,'' it said.

At 1.05pm St George shares were up 66 cents, or 3.06 per cent, to $22.21.