Judo Bank Accelerates Profit Growth with 70% NPAT Surge in HY25

Strong Financial Momentum

Judo Capital Holdings Limited (ASX:JDO) has delivered a compelling half-year result for the six months ending December 31, 2024, showcasing a 70% surge in statutory net profit after tax (NPAT) to $40.9 million. Underlying profit before tax (PBT) also climbed 33% to $56.7 million, underpinned by disciplined cost management, a growing loan book, and a lower cost of risk. This performance signals Judo’s effective execution of its strategy to scale its SME banking operations.

The bank’s gross loans and advances (GLA) expanded by 9% to $11.6 billion, notably outpacing the broader sector’s growth rate by a factor of two. This robust lending momentum is complemented by a stable net interest margin (NIM) of 2.81%, which remains within guidance and has been upgraded for the second half and full year to the upper end of the previously forecast range.

Expanding Regional Footprint and Customer Engagement

Judo’s regional expansion strategy is gaining traction, with the bank now operating in 26 locations nationwide after opening five new branches during the half. The team of relationship bankers has grown to 159, reflecting a deliberate focus on personalized service and deep customer engagement. This approach is resonating strongly with SMEs, particularly in regional and agricultural sectors, as evidenced by Judo’s market-leading Net Promoter Score (NPS).

CEO Chris Bayliss highlighted the bank’s record $2.3 billion in new lending during the half, attributing this success to the unique customer value proposition and the relationship-led business model. The low customer-to-banker ratio enables proactive support, which has helped maintain credit quality metrics stable despite a challenging economic environment.

Funding and Operating Leverage

On the funding side, Judo’s term deposit franchise grew 9% to $9 billion, driven by a $1 billion increase in direct retail term deposits. The proportion of funding from term deposits rose to 66%, moving closer to the bank’s target of 75% deposit funding. This shift supports a more stable and cost-effective funding base for future loan growth.

With the completion of the Term Funding Facility refinancing, Judo anticipates further NIM improvement through higher lending margins and enhanced liquidity management. The bank’s upfront investments in recruitment and technology are largely behind it, allowing cost growth to slow significantly. This sets the stage for improved operating leverage and profitability in the second half of FY25 and beyond.

Outlook and Guidance

Looking ahead, Judo remains confident in its FY25 targets, reaffirming guidance for 15% growth in underlying PBT. The bank expects GLA to reach between $12.7 billion and $13.0 billion by year-end, with a net interest margin climbing to the upper end of 2.90% to 3.00%. Cost-to-income ratios are forecast to improve as cost growth slows, while credit quality is expected to remain broadly stable.

Bayliss noted that despite varied business conditions and some sectoral challenges, SMEs continue to demonstrate resilience and a willingness to invest. A potential easing in the Reserve Bank of Australia’s cash rate could further support SME cash flows and funding costs, benefiting Judo’s core customer base.

With a strengthened balance sheet, diverse funding sources, and robust capital ratios, Judo is well positioned to scale its SME banking franchise and deliver sustainable returns, targeting a low- to mid-teens return on equity.