"Businesses small and large" cope with interest rates, the energy transition and other factors, chief exec says
Australian businesses are currently operating in one of the most complex environments they have ever faced, according to Joseph Healy (pictured above), CEO of Judo Capital, a bank focused exclusively on small and medium-sized businesses.
This complexity stems from several factors, including a sharp increase in interest rates and the highest inflation in decades, Healy told The Australian. Additionally, businesses are grappling with challenges posed by the energy transition, staff shortages, remote working, and the implications of a slowing Chinese economy.
“You could argue that the environment has never been as complex as it is today for businesses small and large,” Healy told The Australian. “The economy is adapting to higher interest rates that we‘ve seen in a number of years and higher inflation than we’ve seen in decades.”
These alone present significant challenges for businesses, Healy told the publication. However, he emphasised that businesses are also facing a range of other pressures, such as the energy transition, climate change, and the need to adapt to environmental, social, and governance principles. These factors further contribute to the complexity of the business environment beyond the next 12 months.
Judo Capital, which obtained its banking licence in 2019, has capitalised on the mistakes and scandals of the big four banks to build its business, The Australian reported. It currently lends to nearly one out of every hundred small businesses in Australia.
Despite the positive trajectory, the start-up recently faced a market sell-off, with shares losing a fifth of their value due to higher funding costs. However, Healy said the market reaction was “perplexing.”
”We have been really clear right from November 2021 that we are managing this company to our at scale metrics,” he told The Australian. “Every forecast that we have made as a company, we have met or exceeded.”
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Judo reported an eightfold increase in net profit for the financial year ending June 30, reaching $73 million. The net interest margins also exceeded expectations. However, the challenging outlook for businesses, combined with expectations of higher funding costs and expenses, may lead to profit downgrades of over 10%, The Australian reported.
Judo has increased provisions for bad loans, anticipating an uneven soft landing of the economy in the coming months. Industries dependent on discretionary spending and the construction sector are expected to be particularly impacted.
Looking ahead, Healy acknowledged the emerging concern of the recent slowdown in China's economy and its implications for Australia, given the economic links between the two countries. He emphasised the need for careful credit assessment and awareness of potential soft pockets in the Australian economy as the journey into 2024 presents ongoing challenges.
Judo's shares closed at a record low of $1.02, less than half of its IPO price of $2.10 per share, reflecting the market's response to the challenging economic conditions, The Australian reported. Despite the hurdles, Judo's financial performance has been exceptional, demonstrating high growth and stable margins compared to peer banks that are struggling with substantial margin declines.
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