Bank's lending increases by nearly $800 million in first six months of financial year
Shares in Judo Bank experienced a significant increase following the release of a robust first-half profit preview.
The pureplay business lender revealed a 24% rise to $67 million in unaudited accounts, surpassing consensus expectations, according to a report by The Australian.
Factors contributing to success
Judo Bank attributed its positive results to several factors. Firstly, the bank's lending growth outpaced overall business credit expansion in the first six months of the financial year, with lending increasing by nearly $800 million.
Additionally, Judo Bank highlighted strong margins and minimal write-offs as key contributors to its success, The Australian reported.
Prudent lending
Despite its growth, Judo Bank emphasised its commitment to prudent lending practices in an uncertain and uneven economic environment.
The bank acknowledged that overall lending growth was moderating in sectors susceptible to changes in discretionary consumer expenditure and weakening asset values, as the economy adjusts to higher interest rates and inflationary pressures.
Profit and impairments
Judo Bank expects to book a $94 million profit before impairments for the period, The Australian reported. However, a $27 million cost of risk will reduce the unaudited returns to $67 million. The bank noted that the impairment reflects lower-than-expected write-offs.
Margins and interest rates
Margins on Judo Bank's new loans experienced a significant increase in the six months leading up to December, rising by 66 basis points to 464 basis points.
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However, the overall net interest margin moderated to 3.02% from 3.34% in June 2023, according to The Australian. Judo Bank attributed the increase in lending margins to its disciplined approach to pricing risk and sustainable growth.
Funding and future growth
Judo Bank has been strategically managing its funding ahead of the roll-off of the Term Funding Facility, which was extended by the Reserve Bank of Australia during the COVID-19 pandemic. The bank increased its warehouse facility by $500 million in the first half and raised an additional $500 million through a capital relief securitization transaction, The Australian reported.
Furthermore, Judo Bank raised term deposits by $1 billion during the period. The bank assured investors that it has $1.6 billion of undrawn warehouse capacity available and is on track to repay all Term Funding loans by June 2024.
Future outlook
Judo Bank expects its lending to grow to as much as $10.7 billion by June, while targeting profit growth of 15% or higher by 2025.
