SME lender passes profitability milestone
Judo Bank has reported 73% growth in its lending portfolio over the 2022 financial year, with gross loans and advancements totalling $6.1bn.
Having obtained its banking licence in April 2019, Judo Bank provides a range of business lending products to the SME market and aims to be the most trusted SME business bank in Australia.
Releasing its FY22 results (the bank’s first full year results as a listed company), which cover the year to June 30 , Judo Bank said it had made “strong progress” towards its metrics and had exceeded all FY22 prospectus forecasts.
The bank has declared a pro forma profit before tax of $15.6m. Ahead of its prospectus FY22 forecast of -$10.2m, the bank has reported a statutory net loss after tax of -$7.7m, which the bank said included one-off costs from the IPO.
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Other highlights include:
- FY22 pro forma profit (before tax): $15.6m
- Statutory net loss after tax: -$7.7m
- Net interest income: $169.8m, up 101% from FY21
- Underlying net interest margin (NIM): 2.79%, up 20-basis points from FY21
- Cost to income ratio (pro-forma): 76.3%, down 21% from FY21
- Relationship bankers: 115, up 32% from FY21
Judo Bank co-founder and CEO Joseph Healy (pictured above left) said the 2022 financial year was “transformational” for the bank. The company was pleased to have exceeded the targets set out in its IPO prospectus, he said.
“Over this period, we passed the critical milestone of reaching profitability – making Judo one of the first banks anywhere in the world to achieve this within five years of launch,” Healy said.
Since Judo Bank listed on the Australian Stock Exchange (ASX) on Nov. 1, 2021 – the first commercial bank to do so in over 30 years – Healy said the bank continued to “rapidly scale” its operations, enabling more small to medium-sized businesses to access its relationship-led model.
“As part of this process, this year we established specialist segments to service SME customers in the areas of agribusiness and health, recruiting the right bankers to establish and build our offering in FY23,” Healy said.
The bank remained focused on achieving its key business metrics at scale, he said.
“To build a scaled, sustainable bank, we are targeting a lending portfolio of between $15 billion and $20 billion, with a net interest margin that exceeds 3%, a cost-to-income ratio approaching 30%, and ROE in the low-to-mid-teens. We are well positioned to keep progressing towards and achieving these targets,” he said.
In the context of the current macroeconomic environment, Judo’s outlook was positive, Healy said. Judo Bank was founded on traditional values of being close to the customer and applying sound credit judgement, which have never been more important, he said.
Although Judo Bank is a relatively young company, the management team and bankers have built Judo on a foundation of risk management, Healy said. Through the COVID-19 pandemic, the bank demonstrated that economic disruption and uncertainty played to its strengths and reinforced the value of its model, he said.
“Australian SMEs are a highly profitable yet underserved sector, and we are confident in our ability to meet our ambitious targets,” Healy said.
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A Judo Bank spokesperson told MPA that the bank would continue to invest in and build out its broker value proposition, to support broker partners’ growth.
“We continue to focus on partnering with experienced commercial and asset finance brokers in the market who demonstrate an expertise and an ability to support the SME lending market,” the spokesperson said.
S&P Global Ratings analyst Mark Symes (pictured above right) said he expected Judo Bank’s focus on lending to small and midsize borrowers across multiple business segments to continue to support growth.
“We forecast the bank's loan book to expand by more than 30% in each of the next two years, following growth of 73% in the past 12 months,” Symes said. “We forecast earnings at Judo Bank (BBB-/Positive/A-3) to improve over the next two years supported by the bank's expanding balance sheet and improvements in net interest margin (NIM).”
The ratings, analytics and data provider anticipated Judo Bank’s net interest margin (2.79% over FY22) to be about 3% over the next two years, he said. Despite rapid loan growth, S&P Global Ratings’ risk-adjusted capital ratio for Judo Bank would remain “very strong” at above 15%.
“We expect Judo Bank's credit losses to remain under control at about 50 basis points of loans over the next two years, which is broadly similar to those for other Australian banks' business loans,” Symes said. “Nevertheless, rising interest rates as well as falling consumer and business confidence could trigger a steeper fall in house prices and heighten economic risks for banks. In our view, this could expose Judo Bank to hidden credit risks due to limited seasoning or scaling risks given the bank's rapid growth.”
