Judo’s Rapid Growth Tests Asset Quality and Operating Leverage

• Profit before tax up 26% half-on-half and 53% year-on-year
• Gross loans and advances reach $13.4 billion with above-system growth
• Net interest margin stable at 3.03%, 2H26 guidance upgraded to ~3.15%
• Cost-to-income ratio improves to 48.5%, targeting below 50% for FY26
• Strong capital position with CET1 ratio at 12.6%, no immediate equity raise planned

Strong Financial Momentum

Judo Capital Holdings Limited has reported a strong first half of fiscal 2026, continuing its trajectory as one of Australia’s fastest-growing SME lenders. The bank posted a 26% increase in profit before tax (PBT) compared to the previous half and a 53% rise year-on-year, reaching $86.5 million. This performance was underpinned by disciplined execution of its growth strategy, with gross loans and advances (GLA) climbing to $13.4 billion, reflecting sustained above-system lending growth.

Net interest margin (NIM) held steady at 3.03%, despite a challenging funding environment, with guidance for the second half upgraded to approximately 3.15%. This improvement is attributed to better term deposit pricing and an optimised funding mix, balancing deposits, equity, and wholesale funding sources.

Expanding SME Lending and Deposit Franchise

Judo’s SME lending franchise remains the cornerstone of its growth, supported by a national footprint of 171 bankers across 32 locations. The bank’s customer-centric value proposition continues to drive strong demand, with a net promoter score (NPS) of +52 in lending, one of the highest in the sector. Deposits grew to $10.9 billion, with term deposits nearing $11 billion and a retail rollover rate exceeding 70%, signalling strong customer loyalty and funding stability.

Warehouse lending, a newer segment for Judo, now accounts for 2% of GLA and is gaining traction with a growing pipeline of opportunities. The bank is also diversifying its funding sources with new products like the Intermediated Savings Account and plans to launch a Direct Online Savings Account, aiming to reduce funding costs further.

Operational Efficiency and Asset Quality

Operating expenses rose modestly due to wage inflation and increased recruitment to support growth, but the cost-to-income ratio improved to 48.5%, with expectations to fall below 50% by year-end. This reflects emerging operating leverage as the bank scales.

Asset quality remains sound, with 90+ days past due and impaired assets at 2.66% of GLA, slightly above previous periods but within guidance. The cost of risk is stable at 62 basis points, supported by prudent provisioning and proactive portfolio management amid improving economic conditions.

Capital Strength and Outlook

Judo’s capital position remains robust, with a Common Equity Tier 1 (CET1) ratio of 12.6%, supported by strong profitability. The bank does not currently plan to issue additional core equity, instead exploring capital-efficient growth options such as securitisation and loan sales.

Looking ahead, Judo targets continued lending growth to between $14.4 billion and $14.7 billion by June 2026, with a return on equity (ROE) aimed at the low-to-mid teens. The bank’s strategic priorities include enhancing its core SME business, expanding its total addressable market, optimising funding and costs, and leveraging technology and data analytics to drive productivity.

Bottom Line?

Judo’s strong half-year performance and upgraded guidance position it well to challenge incumbents in SME banking, but execution on growth and cost control will be key to sustaining momentum.

Questions in the middle?

• How will Judo manage potential credit risks amid slight asset quality deterioration?
• What impact will rising interest rates have on Judo’s lending margins and funding costs?
• Can Judo scale its warehouse lending and broker partnerships to materially boost growth?