Inflation fight not over, says Judo Bank

Business bank Judo has warned the fight against inflation is not over, as the ASX-listed lender posted a 70 per cent profit jump to $40.9m.

Judo Bank CEO Chris Bayliss has revealed his first set of bank results

Business bank Judo has warned the fight against inflation is not over and the Reserve Bank won’t rush to slash rates further, as the ASX-listed lender posted a 70 per cent profit jump to $40.9m.

Ruling off its half-year earnings, Judo Bank, a pureplay business lender, revealed its lending growth had continued climbing over the six months to December.

New lending was up 9 per cent, hitting $11.6bn, growing at almost twice the speed of other business lenders.

Judo chief executive Chris Bayliss said the lender’s customers were continuing to add to their credit piles, despite tough economic conditions, noting many were coping with higher rates. “SME’s, they’ve adjusted to this new level of rates,” he said. “I don’t think anyone is expecting rates to drop below 3.5 per cent in this cycle.”

Mr Bayliss said he was “relatively agnostic” on the likelihood of further rates cuts, noting interest costs for businesses were manageable as many could offset it through their tax bills.

Judo’s net interest margin, or the core measure of lending profitability, fell four basis points over the half to 2.81 per cent.

Judo said it expected to lift its net interest margin to 2.9-3 per cent over the second half, hitting 3 per cent by June. Mr Bayliss said he didn’t expect business lenders to pass on the RBA’s rate cuts, after the central bank slashed the cash rate by 25 basis points on Tuesday.

He said retail banking in home loans, personal savings accounts, and credit were too commoditised to not pass on the rate cuts.

But Mr Bayliss said in small business banking rates were far more opaque. “No customer knows what anyone else is paying,” he said. “Structurally, we don’t see any scenario where falling rates are a problem for us.”

Judo, which launched in 2016, is aimed at offering lending to small businesses which struggle to access cash on similar terms from the major banks.

The bank has expanded to 26 locations nationally, with 159 bankers. Mr Bayliss said the bank’s margins reflected that, noting many customers acknowledged they may pay a higher rate of interest.

Despite this arrears remained low at Judo, with impaired assets stable and only $18.3m in write-offs in the first half covering 14 bad customers.

Only five customers make up 40 per cent of Judo’s total bad debts. In total, only 2.3 per cent of gross assets were impaired, down from 2.34 per cent in September last year.

Mr Bayliss said Judo was too small for its arrears figures to be read as a “macro” view of the economy’s health. But he noted the bank’s five problematic borrowers were a construction services operator, a pharmacy, a pub, a styling business, and a beanbag wholesaler.

Judo also announced chair Peter Hodgson would step down on February 28, with board member David Hornery to replace him. Shares in Judo lifted 8.53 per cent to $2.10.