UPDATE 2-Australia's St George H2 cash profit up 27 pct

* H2 cash profit +27 pct on revenue rise and business volume

* Bad debt costs rose 64 pct in FY, but credit quality strong

* Sees volatile investment markets and funding costs ahead

* Shares up 3 pct, in line with market (Adds CEO comment, details on analysts' forecasts)

By Mette Fraende

SYDNEY, Oct 29 (Reuters) - St. George Bank SGB.AX, which is being bought by bigger rival Westpac Banking Corp (WBC.AX) for A$15.6 billion ($10.1 billion), posted a 26.7 percent rise in second-half cash profit, as it grew revenues and business volume.

Australia's fifth-largest bank said bad and doubtful debt expenses rose 63.5 percent to A$291 million in the year to end-September, but its credit quality remained strong.

"Frankly we've got a conservative balance sheet, but have we planned for potential further deterioration? Yes, we have," said Chief Executive Paul Fegan.

He said private house lending had slowed considerably and business credit lending had started to slow too, and would continue to slow in the period ahead. Investment markets and funding costs would be volatile next year, he added.

April-September cash profit -- effectively core profit, excluding one-offs and non-cash accounting items -- rose to A$718 million ($466 million) from A$566.8 million a year ago.

Analysts had on average expected cash profit of A$601.7 million, according to Reuters Estimates, but forecasts excluded three non-recurring items, including a A$25 million profit on the sale of Visa Inc (V.N) shares.

Westpac is expected to report a small rise in second-half cash profit to nearly A$1.9 billion on Thursday.

Top lender National Australia Bank (NAB.AX) earlier this month reported a quadrupling in bad debt charges and a 28 percent drop in second-half cash profits, while third-ranked Australia and New Zealand Banking Group Ltd (ANZ.AX) reported a 32 percent drop in second-half cash profit due to higher bad debt charges.

St George Bank's shares have fallen 12.5 percent this year, outperforming a 37.9 percent drop in the broader market .AXJO. The stock rose 2.4 percent on Wednesday.

St. George shareholders vote on the Westpac deal on Nov. 13. ($1=A$1.54) (Reporting by Mette Fraende; Editing by Ian Geoghegan)