Judo bumps up profit outlook as margin lifts on new loans

Judo Bank has lifted pre-tax profits 24 per cent to $67m for the first half, thanks to low losses and higher lending margins.

Shares in Judo Bank have jumped on the back of a bumper first half profit preview, with the pureplay business lender revealing a 24 per cent lift to $67m in unaudited accounts.

Judo said its results were ahead of consensus and a result of lending growth running above system growth coupled with strong margins and minimal write-offs.

Judo said its lending grew by almost $800m in the first six months of the financial year to December, almost three times as fast as overall business credit expanded in the half.

It comes as several other lenders piled into business lending, citing higher margins.

Judo said it was continuing to grow its lending book “prudently in an uncertain and uneven economic environment”.

But the bank said this came as overall lending growth was moderating in “sectors susceptible to the changes in discretionary consumer expenditure and to weakening asset values, as the economy adjusts to higher interest rate settings and inflationary pressures”.

Judo said it would book a $94m profit before impairments in the period.

Judo said it will book a $94m profit before impairments. Picture: John Feder

But a $27m cost of risk would slice unaudited returns to $67m.

Judo said it was engaging in “proactive risk management” across its existing lending book,

with several customers de-gearing debts, partly funded by asset sales.

But the bank noted the $27m impairment reflected lower than expected write-offs.

Margins on Judo’s new loans lifted in the six months to December, up 66 basis points to 464 basis points.

However, the overall net interest margin moderated to 3.02 per cent from 3.34 per cent in June 2023.

Judo said it passed through increased lending margins to new loans thanks to its “disciplined approach to pricing risk and sustainable growth”.

The Joseph Healy-led bank has been stashing cash ahead of the roll-off of the Term Funding Facility, credit extended by the Reserve Bank of Australia during the Covid-19 pandemic.

Judo said it lifted the lid on its warehouse facility by $500m in the first half, as well as raising a further $500m via “its upsized inaugural capital relief securitisation transaction”.

The bank also lifted term deposits by $1bn in the period.

Judo said $2.44bn of the Term Funding Facility was drawn at December 2023, with $1.2bn used to fund loans and the remainder invested in treasury securities.

But Judo assured investors a further $1.6bn of un-drawn warehouse capacity was available.

Judo said it was on track to repay all Term Funding loans by June 2024, noting its costs would “normalise” and margins “moderate”.

The bank said margins would fall to between 2.85 and 2.9 per cent.

Lending is expected to grow to as much as $10.7bn by June.

But the bank is targeting profit growth of 15 per cent or higher by 2025.

ECP Asset Management portfolio manager Andrew Dale said Judo had shown it can restore its lending margins in a “competitive environment”.

“The focus from here is on the company’s ability to execute on improving their funding mix and net interest margins while also growing the lending book,” he said.

“Judo is a differentiated, growing bank with a service valued by its client base.”

Shares in Judo closed up 17.11 per cent to $1.10.