Australia's third largest bank Westpac refused Sunday to rule out increasing its merger offer for St George Bank Ltd as it moves to create the country's largest financial services group.

St George, the nation's fifth largest bank, last week agreed to the 18.6 billion dollar (17.7 billion US) merger with Westpac Banking Corp Ltd. to create a domestic banking giant worth some 66 billion dollars.

But the offer is conditional on an independent expert's report that the deal is in the best interests of St George shareholders and on the absence of a superior offer.

Westpac chairman Ted Evans said that his bank's friendly all-paper offer of 1.31 of its shares for each share in St George was compelling.

But asked whether Westpac's offer would be increased, Evans told the Australian Broadcasting Corporation that one could "never say never."

Westpac later issued a statement to the broadcaster, saying it "considers that it has made a full and fair offer which is compelling both in terms of its price and terms."

"However, Westpac reserves the right to review its offer if it considers that circumstances warrant this," it added.

The proposed merger, which will require clearance from Australia's competition regulators, has led to speculation that the country's other major banks could make a counter play for St George.

The head of the NAB (National Australia Bank), the country's second-largest bank by market capitalisation worth about 55.9 billion dollars, has refused to rule out making such an offer.

Evans, who admitted that the current offer for St George was not the first proposed, said the bank was prepared for counter bids but that he felt these were unlikely.

"We made a compelling bid that would see us right through this, not just on price... it's even more compelling on the operating model we are offering," he said.

"I'd be very surprised if anyone can or would match that."

He said Westpac's proposed merger would not have been possible without the recent turmoil in global financial markets.

"We've always been interested in St George but we couldn't afford it before," he said.

"The world has changed. St George couldn't afford to continue the way they had been operating in a changed world with the cost of funds for them compared with us."

Evans said St George's survival was not at risk from the credit crunch fallout, but simply that as a smaller bank with a single A rating, compared to Westpac's AA rating, it was at a disadvantage to the bigger banks.

The chairman said it was "purely coincidental" that Westpac's current chief executive, Gail Kelly, was formerly the chief executive of St George.

"We hired her to do with us what she had done with St George, in a nutshell," he said, saying that this was to improve customer service.

But he acknowledged that her presence, "gives us a lot of confidence in executing the takeover".

"The integration of the two (banks) will go on for a couple of years," he said. "It will help so much that she will be leading."