Judo Bank FY26 Profit Rises 34% on 18% Loan Growth and 24% Deposit Increase

Strong underlying performance despite rising impairments

Judo Capital Holdings Limited (ASX:JDO) has delivered a solid financial performance for the year ended 30 June 2026, with profit before tax (PBT) climbing 34% to $168.1 million. This growth was underpinned by an 18% expansion in its loan book to $14.7 billion and a 24% increase in deposits to $12.2 billion. The bank’s net interest margin (NIM) improved by 20 basis points to 3.13%, reflecting favourable deposit pricing and tighter liquidity management, while the cost-to-income (CTI) ratio fell sharply by 710 basis points to 45.3%, signalling effective operating leverage as revenue growth outpaced expense increases.

However, the year was not without challenges. Impairment expenses surged 56% to $117.7 million, driven by higher individually assessed provisions and an increased collective provision influenced by macroeconomic uncertainties and overlays for vulnerable sectors. The 90+ days past due (DPD) and impaired assets ratio rose to 2.90% of gross loans and advances (GLA), indicating some stress in the portfolio but remaining within manageable levels. Despite this, Judo maintained a strong capital position with a Common Equity Tier 1 (CET1) ratio of 12.4%, slightly down from 13.1% a year earlier but comfortably within its management target range of 11.0% to 12.0%.

Expanding product suite and funding diversification

Judo broadened its deposit offerings during FY26 with the launch of two at-call savings products: the Intermediated Savings Account (ISA) and the Direct Online Savings Account (DOSA). These products have quickly gained traction, with at-call savings balances reaching $1.4 billion by year-end, helping diversify the bank’s funding base and reduce reliance on term deposits. Wholesale funding also matured, highlighted by a $150 million Tier 2 subordinated notes issuance with a 120 basis points pricing improvement over the prior issuance, and a $750 million capital-relief securitisation transaction priced at 171 basis points over the 1-month Bank Bill Swap Rate (BBSW), significantly tighter than its inaugural deal in 2023. These funding initiatives support Judo’s strategy to maintain deposits as the cornerstone of funding, targeting 75% of total funding from deposits in the long term.

Judgement-based lending and strong customer relationships

Judo continues to differentiate itself through a relationship-led lending model focused on SMEs, with an average loan size of approximately $3 million and 94% of customers having exposures below $10 million. The bank’s lending Net Promoter Score (NPS) remained strong at +58, well above industry averages, reflecting customer satisfaction with its smarter judgement, faster decisions, and stronger relationships approach. Productivity gains were evident, with gross originations per banker increasing marginally, supported by investments in technology, data, and early AI applications to streamline workflows.

Experienced bankers, empowered to apply commercial judgement within a disciplined risk framework, remain central to Judo’s model. The bank has also strengthened its broker partnerships through the Broker Black Belt program, which supports top-performing commercial brokers and has delivered robust outcomes.

Governance enhancements and climate risk integration

Governance remains a priority for Judo, with the board welcoming David Stephen, a seasoned risk management professional, to strengthen oversight. The bank has embedded climate-related risk considerations into its governance and risk management frameworks, releasing its inaugural Sustainability Report aligned with Australian Sustainability Reporting Standard AASB S2. While no material financial impacts from climate risks were identified for FY26, Judo continues to refine its approach to managing these risks, including scenario analysis and targeted training for bankers.

Outlook and FY27 guidance

Looking ahead, Judo is targeting disciplined above-system loan growth, broadly stable net interest margin, and continued improvement in cost-to-income ratio. The bank has set profit before tax guidance of $210 to $220 million for FY27, representing 25% to 31% growth, and expects return on equity (ROE) to reach circa 8%, on track towards its long-term goal of low to mid-teens ROE. Judo plans to continue investing in productivity and innovation, including AI-led solutions, while maintaining disciplined risk and capital management to support sustainable growth.

Despite a challenging macroeconomic environment marked by higher energy prices and geopolitical uncertainty, Judo remains confident in its specialist SME lending model and its ability to deliver value for shareholders and customers alike.

Investors can note that Judo’s recent capital-relief securitisation upsizing and pricing improvements have enhanced its capital efficiency and funding cost profile, providing additional optionality for growth and capital management in the coming years. The bank’s focus on relationship banking, technology enablement, and disciplined risk management positions it well to navigate the evolving financial landscape.

These developments come amid a broader sector trend of challenger banks leveraging technology and niche focus to carve out market share from incumbents, with Judo’s FY26 results underscoring its growing footprint and operational maturity in the SME banking space.

Overall, Judo’s FY26 results reflect a mix of strong operational execution and the realities of heightened credit risk in an uncertain economy, setting the stage for a year of disciplined growth and margin management in FY27.

Cross-linking with recent coverage: The bank’s elevated cost of risk guidance in June 2026 due to three specific customer exposures aligns with the impairment expense increase reported here, while the upsizing of the $750 million capital-relief securitisation earlier in the year supports the capital and ROE improvements noted.