St George Building Society, one of Australia's largest providers of housing finance and already a familiar name in Asian and European capital markets, has moved to convert to bank status.
The announced move will take Australia's largest building society out of the ranks of nonbank financial institutions and into the growing domestic banking sector. For St George, the new status will bring the credit and pricing advantages associated with being a bank and a member of the financial-markets sector directly supervised by Australia's central bank, the Reserve Bank.
A.J. "Jim" Sweeney, managing director of St George, says: "We've been running the place like a bank for years, so the move is a natural evolution."
The change does not signal a new direction or strategy for St George, which will continue its focus on financing home purchases. "Our mandate is to supply funds for housing," Mr. Sweeney said. "It's a matter of deciding what is the best vehicle from which to do this, given the times."
St George has capitalized on the strength of its assets to tap offshore markets for funds. As one of Australia's 10 largest financial institutions, it has a continuing appetite for medium-term funds, which cannot readily be satisfied within the domestic market.
Since the mid-1980s, St George has raised funds in Asian and European markets as a way of diversifying its funding base and raising three-year and five-year money. About 20% of the society's liabilities are raised from the wholesale sector, equally from domestic and offshore sources, with the remainder raised from the retial markets.
St George has more than $750 million in drawn offshore facilities. Euronotes, commercial paper, and floating-rate notes, as well as a yen-denominated term loan, have been used. Its $350 million transferable loan certificate with Euronote options, issued in 1989, was the first Australian borrowing to use TLCs.
Following British Exemplar
The society completed a third series of TLCs with Euronote options late last year, for $350 million. Bankers Trust Australia, and arms of the BT group in Asia, have been involved as advisers and arrangers of these financings.
In spreading its wings offshore and applying to become a bank, St George has followed the example of Britain's Abbey National Building Society, which similarly converted to bank status and has a track record as a successful and active user of U.S. financial markets.
Mr. Sweeney described the British building societies, such as Abbey National and Halifax, as "having trail-blazed" in the U.S. markets, enabling them to differentiate between their own troubled savings and loan associations and the asset quality of British building societies.
Eighty-four percent of St. George's lending is in the form of home loans. Mr. Sweeney pointed out. "And about 85% of our loan book is in the form of variable-rate, rather than fixed-rated, lending," he said.
Clearing the Shoals
St George's continued emphasis on its core business enabled it to steer clear of problems associated with downturns in the Australian economy and in the commercial property sector.
Its low level of nonperforming loans, about $47 million, is restricted to the commercial lending portfolio, which equals just 6.9% of the asset total of $6.8 billion. Within the commercial portfolio, 93% of loans are fully secured by mortgage over real estate.
During 1990-91, when most banks were bruised by problem loans, St George bucked the trend and increased its after-tax operating profit to $34.2 million, a direction that was continued in the six months ended last November.
Home-loan approvals rose by 25.3% during those six months, despite the continuing effects of the recession, and St George's lending totaled $772 million for the period, a new record.
Strong Capital Ratios
Total assets rose 11.3% in the six months through the end of November. St George's capital adequacy ratios of 7.8% for Tier 1 and 10.4% for Tier 1 and 2 capital mean that the society is comfortably above the Reserve Bank's minimum standards of 4% and 8%, respectively.
Having signaled its intent to become a bank, St George is moving through the necessary steps, which include making formal application to the central bank. If all goes according to plan, St George Bank Ltd. could be operating by July 1 - a swift conversion.