Judo Bank poised to take advantage of rising interest rates, reports loss

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“We are fully confident that our clients are well positioned to manage any likely interest rate increases that will occur,” Mr. Healy said on Tuesday.

With $4 billion of Judo’s $5 billion loan portfolio accumulated throughout the COVID-19 pandemic, Healy said all loans were rated with 200 basis point buffers for loans. rate hikes and with a cautious view of the future.

However, he warned that customers were increasingly struggling with inflation.

“General inflationary pressure is very real,” he said.

“I can’t think of a sector that is free from these pressures. Certainly, in the banking sector, we see that these labor costs are now 15 to 20% higher than they were a year ago.

Mr Healy said Judo had warned customers not to rely on inflation figures released by the Reserve Bank given the pace of rising wages. And even if there was no significant distress in the system yet, “the pressures are there”.

“We are not complacent about this because this financial distress may be a lagging indicator.”

Despite the inflationary outlook, Judo predicted business credit growth would rise 8.5%, its highest level in 14 years, helping the bank meet its $6 billion lending target for 2022.

“We expect 2022 to see the strongest business credit growth in 14 years,” Healy said.

Judo’s total loan book grew 37.8% to $4.85 billion and its underlying net interest margin was 2.73%, up 8 basis points from compared to the first half and exceeding the annual objective of 2.69%.

“This [lending] that figure is now over $5 billion and the momentum continues,” Mr. Healy said.

He said Judo’s medium-to-long-term target of $15 billion to $20 billion was set on the assumption of zero growth in business credit and represented only 3% of the total market.

The lender was confident it would “slightly beat” revenue and profit forecasts, after posting a first-half loss on a one-time impairment charge related to its IPO.

Aberdeen Standard Investments’ Australian equities head Michelle Lopez said the result was “no small feat” given how the pandemic situation has evolved since Judo’s listing.

“The main driver to look for in judo … is loan growth, and that suits them very well; it is on track to be ahead of the prospectus numbers,” she said.

“It stems from a lot of concerns about the underlying health of SMEs, so the fact that they’ve been able to sustain that credit/loan growth and the pipeline within that is what’s going to set them in place for future performance.”

The big four banks reported pressure on margins as around 40% of their home loans were locked in at lower fixed margin rates and tougher competition led to price tightening.

Ms Lopez said judo would not be immune to price pressure, but credit quality remained strong.

Judo’s overall loss was $16.1 million, compared to a profit of $1.9 million in the first half of 2021.

The lender has carved out a strong niche in relationship banking and has been highly critical of incumbents for only lending against property.

Commenting on the outlook, Judo said it was maintaining a conservative approach to provisions in line with the pandemic, but had yet to see a significant increase in bad debts given the overall strength of the economy.

Judo has been assigned an investment grade rating of BBB- by rating agency S&P Global Ratings. The rating helped diversify its sources of funding and drive down costs over the half year, with Judo bucking the trend of large banks seeing their net interest margins shrink.

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