Judo Bank CEO Joseph Healy
Judo Bank is forecasting a soft landing for the Australian economy in the year ahead, leaving the bank with plenty of scope to continue its strong growth, but it expects the impact of higher rates to be uneven and has tightened its credit policies in a number of areas.
From day one in 2018, Judo has had no exposure to the resources sector and very low exposure to construction risk.
Two years ago, it started reducing its lending to the commercial real estate sector. It took the view that very low interest rates were leading to over-stretched valuations and that this was bound to reverse at some point. The exposure has been cut from 29 per cent of its loan portfolio in June 2020 to 21.6 per cent now.
Its construction industry exposure, which makes up 7 per cent of its book, is mainly equipment finance. It has very little exposure to development projects.
It has also become more cautious about the credit risk of sectors that rely on discretionary consumer spending.
Judo chief executive Joseph Healy said the 2023/24 financial year would be a continuation of the 2022/23 year for Judo, in terms of asset growth, but the bank would be disciplined in its pursuit of growth.
Over the year to June 2023, Judo increased its loan book by 46 per cent to A$8.9 billion. Net interest income increased from $169.8 million in 2021/22 to $347.6 million in the year to June.
Funding continues to come predominantly from term deposits. Deposits grew from $5.3 billion to $6 billion over the year.
It also has $3 billion of warehouse funding, with $2.1 billion undrawn at June 30, and $2.3 billion drawn on the RBA’s Term Funding Facility.
Operating expenses increased by 45 per cent to $190.6 million. The cost-to-income ratio fell from 76 per cent to 54 per cent year-on-year.
The impairment charge increased from $25.4 million to $54.6 million. The increase was mostly due to higher provisioning. One customer account, worth $300,000, was written off. The impairment expense as a proportion of gross loans and acceptances rose from 53 basis points to 74 bps.
Arrears (loan repayments overdue by 90 days or more) were 1.09 per cent of gross loans and acceptances.
The net profit for the year was $73.4 million, compared with a profit of $9.1 million the previous year.
The bank’s net interest margin rose from 2.08 per cent in 2021/22 to 3.29 per cent in the year to June. Underlying NIM (which adjusts for the impact of the TFF) rose from 2.79 per cent to 3.53 per cent.
Healy said he was confident that bank could maintain a NIM above 3 per cent as it continued to grow.
Judo added eight new relationship bankers, taking the number of 123. It has 3758 customers on the asset side.