Judo Bank says Australia will avoid major economic correction, as shares surge on profit beat

The business bank doesn’t expect a ‘major correction’ in the economy as rate hikes kick in, but wants immigration processes fast tracked to ease labour supply issues.

Judo doesn’t expect a “major correction” in the economy as rate hikes kick in, but the business bank wants immigration processes fast tracked to ease labour supply issues that companies are grappling with.

Chief executive Joseph Healy on Thursday said despite economic volatility and aggressive rate rises, he was optimistic on the operating outlook.

“As we look through 2023 we don’t anticipate a major correction in the economy and we believe that … businesses will look through short, medium-term challenges. So we anticipate a continuation in (annual) business credit growth around about 10 per cent,” he added.

Mr Healey’s comments came as the bank reported a proforma pre-tax profit for the 12 months ended June 30 of $15.6m, well ahead of a prospectus forecast of $7.4m, and flagged it was on track to scale its business. The annual statutory result swung to a loss of $7.7m, as transaction and other costs related to a November sharemarket listing were booked.

Judo’s shares surged 6.6 per cent to $1.39 on Thursday, as investors cheered the result and shrugged off higher operating expenses and loan impairment costs.

On next week’s Jobs Summit, Mr Healy stressed outcomes were important as many businesses were struggling to meet their potential due to lack of skilled and unskilled labour.

“The single biggest opportunity, and I hope the outcome of the Jobs Summit, is that there is a renewed vigour to opening the borders to skilled immigration, because it is holding back the capacity of so many businesses, small and large,” he said.

“I can’t think of any business that I know that is not suffering from this problem of accessing skilled labour and so the big opportunity is to open up the borders to immigration and to fast track that immigration … the process today is overly bureaucratic and causing all sorts of bottlenecks.”

Gary Waterson presents Joseph Healy with a Judo Bank surfboard to mark the business bank’s first permanent regional branch being located on the Sunshine Coast.

JPMorgan analysts labelled Judo’s earnings a solid result.

“We expect upgrades to consensus estimates on the back of Judo earnings guidance, given a higher NIM (net interest margin), with some offset from higher costs and higher impairments,” they said.

S&P Global Ratings analysts said: “We forecast earnings at Judo Bank to improve over the next two years supported by the bank‘s expanding balance sheet and improvements in net interest margin … We expect Judo Bank‘s credit losses to remain under control at about 50 basis points of loans over the next two years.”

Judo’s gross loans and advances printed at $6.1bn as at June 30, up from $3.5bn a year earlier. The bank is targeting gross loans and advances of more than $9bn in this fiscal year and $15bn to $20bn when it reaches its scale target.

But Judo curtailed lending to the commercial real estate sector as the economy slows and will be positioning to ride out pressures in other industries such as retail as rate hikes filter through the economy. Commercial real estate accounted for 21 per cent of Judo’s loans, down from 29 per cent in 2020.

The bank’s loan impairment expense rose to $25.4m, from $10m the prior year, but remained lower than signalled in Judo’s prospectus.

The bank’s net interest income soared 101 per cent to $169.8m last fiscal year. The underlying net interest margin – what it earns on loans less funding and other costs – rose 20 basis points to 2.79 per cent. That beat a prospectus forecast for 2.69 per cent and the margin finished at 2.84 per cent as at June 30.

Judo has guided for the margin to rise to 3.3 per cent to 3.5 per cent by the year’s end, as it continues on an anticipated growth trajectory.

Rising interest rates typically benefit banks’ net interest margin, although loan volumes may slow as businesses navigate higher borrowing costs and tempering consumer demand.

Judo’s shares are, however, still well below an initial public offering price of $2.10 from November 2021 when it started life as a listed company.

Thursday marks the release from escrow of about 3.8m Judo shares, or 6.7 per cent of the bank’s issued capital.

Originally published as Judo Bank says Australia will avoid major economic correction, as shares surge on profit beat