No matter how they spun it, it was a poor result from St George Bank, the country’s smallest ‘big’ bank: its first decline in profit in six years on higher bad debts, funding costs and a tax charge.

Net profit fell 10% to $514 million ($486 million), in the six months ended March 31, from the $572 million earned in the first half of last financial year.

On a cash earnings basis, profit rose 6.2% to $603 million, a record that was overshadowed by the details in the profit announcement and the one-off items that hit earnings.

The result was better than the ANZ, which is the big loser from the banks reporting with March 31 balance dates, but there were more than enough questions over the quality of the result to make investors wary.

St George shares dropped to a low of $26.50 this morning after the opening, a fall of $1.24, before edging back to be down 74 cents at $27.74 just before 11.30 am.

To make sure shareholders remain on board and happy, interim dividend was boosted 6 cents a share to 88 cents, a payout ratio of a very high 81%. And to try and encourage shareholders into taking shares instead of all cash dividends, a discount of 2.5% will be applied to shares taken in the dividend reinvestment program, another sign of a bank looking to minimise the cash outflow (just as the ANZ has done with its DRP underwritten).

And the global credit crunch, which is not going away, and associated stockmarket turmoil, earlier in the year, has forced St George Bank to cut its earnings forecast for the rest of this financial year from 10% to a range of 8%-10%, so long as there are no “material one off” events (such as a big company collapse it may be exposed to).

The crunch and market turmoil has seen St George increase its provisions for possible bad debts following the highly public troubles of clients such as Centro and Allco Financial Group.

It also revealed that it had made a specific pre-tax provision of $20 million to cover a margin loan secured by shares in the debt-stricken and ASX-listed property company Octaviar, previously known as MFS, but didn’t make a specific provision against the struggling Centro and Allco because it said they were still performing: at the behest of banks, including St George, it may be said.

St George has previously disclosed that it has a fully-secured $458 million exposure to Centro and a $60 million loan out with Allco which is not secured. That sounds a bit like splitting hairs: Octaviar remains suspended, Allco and Centro are trading. All three are basket cases and would collapse without bank support, so why the difference?

Brokers say the house price figures showing a 1.5% drop in Sydney house prices in the March quarter and sluggish building approvals and home sales in the state, St George’s main market, mean a tougher time is ahead for the bank.