Federal budget primes ‘significant bounce-back’, says Judo’s Joseph Healy

One of the nation’s top business bankers says the budget has helped to create the opportunity for an economic rebound next year.

Joseph Healy, co founder of Judo Capital. Picture: Britta Campion

One of the nation’s top business bankers has sounded an optimistic note about the economy, saying the federal budget had helped to create the opportunity for a “significant bounce-back” in the second half of next year.

Judo co-founder Joseph Healy, a former head of National Australia Bank’s business bank, said the current environment was very subdued.

However, last week’s budget could have set the scene for an improvement in business and household confidence.

“I’m highly confident given the various government packages that we can create the conditions for a bounce-back,” Mr Healy said on Monday during a Trans-Tasman Business Circle online event.

While budget measures did not specifically target the banking sector, a range of policies was unveiled that were supportive for the broader economy.

They included faster asset write-offs for small businesses, bringing forward income tax cuts for households, and the JobMaker assistance package to enhance job prospects for those seeking work.

Ord Minnett said in a note on Monday that it was now a little more positive on the major banks after share prices had been mostly flat since their surge in late May.

The broker said that the sector’s fundamental revenue outlook had not improved, but the stocks remained cheap with all but Commonwealth Bank trading below book value.

“Recent developments look supportive of asset quality, with house prices holding up better than feared, housing finance approvals continuing to improve, and the federal budget buttressing the financial positions of households and small to medium-sized enterprises,” the note said.

In contrast to their global peers, all of the majors were expected to pay dividends in the current financial year, with Westpac the most uncertain due to the impact of below-the-line charges.

The main caveat was impairment charges, although asset quality deterioration was unlikely to be evident until about March next year.

Judo launched four years as an SME challenger bank.

It now has 250 staff in four offices in Melbourne, Sydney, Brisbane and Perth, and plans to launch in Adelaide next month.

Mr Healy said SME insolvencies were currently running at about half their normal rate, which suggested the trend would increase as assistance packages and loan deferrals wound down.

The smaller end of the sector, such as those which depended on foot traffic in the central business district, would find it “very difficult” to recover.

Overall, it was likely that 7-8 per cent of small businesses would fail.

By the end of March next year, Mr Healy said that the banking sector would probably be carrying about $40bn in “unproductive liabilities”.

“Solving that problem will be so important to avoiding a big drag on the recovery,” Mr Healy said.

The Judo founder has previously called for a public policy response to the emergence of “zombie” firms unable to invest and grow after taking on billions of dollars in unproductive debt to survive the coronavirus pandemic.

Part of the solution, he said, was to allow conversion of part of the debt to some kind of equity instrument.

While some markets offshore, such as New Zealand, had similar characteristics to Australia, co-founder David Hornery said there was “a lot of runway” left for Judo in its domestic market.

The outlook for the sector, and the flow of credit into households and small businesses, had also been enhanced by the relaxation of responsible lending laws.

This was after the financial services royal commission had led to an “ultraconservative” interpretation of the legislation.

Mr Healy said lifting consumer confidence remained the key, particularly from the middle of next year.

While forecast GDP growth for 2021-22 was 4.5 per cent, a lot would depend on confidence levels.