St George moves into institutional banking

St George Bank will persist with its plans to move up from middle market commercial banking into the lower reaches of the institutional market.

The determination to do so will upset some investors in the bank who have been surprised at some of the bank's loans exposed over the course of the current credit crunch, not that many are obviously in any trouble (with margin loans over MFS shares the main example).

Middle market commercial banking has been one of the bank's most successful businesses in recent years. With 16,000 customers, the average deal size in the bank's institutional and business banking division is $6 million.

Commercial assets grew by 25 per cent in 2007. Customer numbers have grown by an average of 23 per cent a year over the past four years and the number of products per customer has increased from 3.5 to 5 over the same period.

Institutional and business banking group executive Greg Bartlett told an analyst briefing  yesterday that a lot of the growth in the business came from existing customers expanding  their  businesses.

In 2004 only five per cent of IBB loans were over $50 million. Today 13 per cent of loans are bigger than $50 million. Forty-one per cent of loans are more than $20 million. Only a handful of loan limits are for more than $200 million.

Bartlett said: "We have grown with our customers."

To meet the needs of those customers as they grow, the bank has put together an institutional property team and an acquisition finance team. It has a working capital services team that offers equipment finance, cashflow services, trade finance and transaction services.

Bartlett said: "As our customers grow they need more sophisticated solutions."

On funding, the bank said it incurred $30 million of increased funding costs in the first half of the 2007/08 financial year. Some of this was mitigated by bill funding for commercial customers and repricing in areas like credit cards.

The bank's head of treasury Jeff Sheehan said that despite the higher costs in the wholesale market the bank was ahead of schedule with its term funding requirements. It has $4.1 billion of term funding committed so far this year, more than half way to its target of $8 billion.