Judo Bank boss Joseph Healy has never seen a boom quite like this one
Judo chief Joseph Healy is ready to help fund the expansion but he warns there is one thing that stands in the way of the nation’s recovery.
This veteran banker hasn’t seen anything like it.
Surging confidence in the economy has businesses – both big and small – rushing to banks for loans.
Joseph Healy, who as chief executive of ASX-listed Judo Bank oversees a $4.6bn lending book, is seeing demand from all types of business – ranging from retail, manufacturing and construction services to transport. Even tourism is getting in on the act.
Encouragingly, the bulk of new loans have been earmarked for building out capacity as businesses put Covid lockdowns behind them.
Helped by cheap credit, loans are being put to work buying new machines, upgrading facilities or shifting into new product lines.
With spending by business next year tipped to reach some of the highest levels seen, it’s going to come down to banks – including Judo – to fund this growth.
“When we look at the pipeline of work that we’ve got, which is as strong as it has ever been, businesses are looking to make capital investment decisions and this momentum is continuing into 2022,” Healy says.
As business optimism surges, he warns there is one thing that stands in the way of the nation’s recovery. And it’s not the rise of Covid case numbers in the past two weeks through the fast-spreading Omicron variant.
“The single biggest issue that businesses faces – and this is almost without exception – is access to labour and skilled labour,” Healy says.
“It’s a real problem. Restaurants, cafes and bars are looking for staff, resulting in many places not opening up as many hours as they normally do so and sometimes closing on Mondays because of shortages.
“This is a chronic problem. And it’s one that concerns me because it’s going to hold back the growth potential in the economy.”
While he urges state governments to hold their nerve over lockdowns and border closures in combating Omicron, he says business is planning for life after Covid.
With official figures last week showing the single largest monthly jump in jobs growth during November and the nation’s jobless rate crashing to just 4.6 per cent, Healy says his business customers are now facing something that is new to many: a wages breakout that is fast translating into inflation
“I don’t view these pressures as transitory … I think we’re at the beginning of a period of prolonged inflation.
“We’ve not had to deal with rising costs for decades.
“This is a new paradigm that a lot of businesses are having to grapple with.”
Behind all this is an economy that has moved into the fast lane after last year’s Covid collapse.
The mid-year budget update last week unveiled forecasts that were set at maximum bullish. Treasury expects real GDP to remain at a strong 3.75 per cent in the current financial year, and has revised up next year’s growth outlook substantially to 3.5 per cent from 2.5 per cent previously.
The Treasury update also revised up non-mining investment spending growth from just 1.5 per cent this financial year to a record 8.5 per cent before easing off to 8 per cent in financial 2023.
All this heat in the economy could put pressure on the Reserve Bank to hike rates from their current ultra-low settings, even though the RBA has ruled out such a move in the coming year based on current estimates.
But the way Healy sees it, if the RBA had to hike rates to curb inflation business would be able to take it in its stride given the low level of debt sitting across many balance sheets going into the Covid crisis. Indeed he thinks business could easily adapt to rates moving up 200 basis points “without causing any major stress”.
Building a bank
Healy, a former top executive with ANZ and National Australia Bank, knows a thing or two about the hurdles faced by business customers.
He and former NAB corporate banking executive David Hornery essentially built a bank from scratch.
From a few ideas put down on a PowerPoint presentation, Judo became a $2.5bn challenger bank in just five years.
The small to mid-sized business (SME) bank secured a full banking licence from regulator APRA two years ago, which opened the door to deposits and changing its funding mix overnight.
It secured its own credit rating to help also source funds on global bond markets and then became the first fully-licensed bank to debut on the ASX in more than 25 years.
In the past 12 months Judo has enjoyed breakneck growth, adding to more than $1bn in new loans and doubling staff numbers to more than 320 and expanding its national footprint from its Melbourne base.
All this happened during the Covid lockdowns.
The stockmarket listing that raised more than $650m came about two years earlier than expected, given the need to fund growth.
Healy recalls the frustration of fund managers in the lead-up to the IPO because they did not have any other company to compare Judo to. This, he says, is a source of pride because it shows the strategic gap in the market for a pure-play business bank.
Judo is targeting a $6bn lending book by the end of June and the lender is already on track with a $4.6bn book in November.
A move into agribusiness lending in the coming year is on the cards, as well as beefing up presence in the suburbs and regional areas from Toowoomba to Geelong.
Brokerage Citi recently tipped Judo could hit a $20bn lending book towards the end of this decade. This could see it challenging the business books of regional specialists Bank of Queensland, Bendigo Bank or Suncorp at current growth rates.
While the sheer size of big four banks means they are always going to dominate the business lending landscape, Healy says Judo can make inroads with an edge in technology.
He has first-hand experience in this as some of the banks he has worked with are still making decisions using systems that are more than 40 years old.
Citi analyst Brendan Sproules, who has a ‘‘neutral’’ rating on Judo with a $2.60 price target, says the junior bank’s SME focus gives it a “compelling growth story, underpinned by a competitive customer proposition”.
Judo shares last traded on Friday at $2.20 each, a slight premium to its November IPO price of $2.10.
Healy says the period leading up to the listing is the hardest he has ever worked in his near four decades in banking. But also the most rewarding.
The foundations put in place over five years mean the bank is going to be a very strong, he adds.
“It’s never going to be the biggest SME bank in the country. But we certainly believe it can be the best.”
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