Judo Bank has reaffirmed its FY27 profit guidance after reporting stronger lending and deposits in the first quarter, but asset-quality pressure is building. The bank’s 90-plus-days past-due and impaired loans rose to 3.16% at 30 September, keeping credit risk at the centre of its growth story.
- FY26 underlying profit before tax rose 34% to $168 million
- FY27 profit before tax guidance reaffirmed at $210 million to $220 million
- Gross loans reached $15.1 billion and deposits $12.5 billion in September
- 90-plus-days past-due and impaired loans increased to 3.16%
- CET1 ratio stood at 12.0%, at the upper end of management’s normal range
FY27 Guidance Holds Despite Rising Impairments
Judo Capital Holdings Limited (ASX:JDO) has kept its FY27 profit target at $210 million to $220 million, even as a key measure of credit stress worsened during the first quarter. Gross loans and advances reached almost $15.1 billion at 30 September, but 90-plus-days past-due and impaired loans rose to 3.16%, from 2.90% in June.
Chief executive and managing director Chris Bayliss said the ratio remained below Judo’s through-the-cycle assumption and that first-quarter performance was broadly tracking the assumptions behind its outlook. Still, the movement gives investors a fresh measure of the task facing the specialist lender after higher provisions for a small number of customer exposures weighed on its FY26 result.
Profit Growth Meets Shareholder Disappointment
Chair David Hornery acknowledged that the bank’s financial progress was overshadowed by a sharp share-price decline after its June update on cost of risk. Management subsequently disclosed that the increased provisions related to a small number of exposures and undertook reviews of its portfolio, governance and risk-management processes.
The underlying numbers remained strong: FY26 profit before tax rose 34% to $168 million, following increases from $16 million in FY22 to $126 million in FY25. That measure excludes specified non-recurring costs and the estimated contribution of the Term Funding Facility. The result was previously accompanied by higher impairment expenses, while the June update had linked the increased cost-of-risk guidance to three specific customer exposures. To acknowledge the market reaction, the chief executive and executive key management personnel proposed receiving no FY26 short-term incentives, a decision supported by the board.
Loans and Deposits Continue to Scale
Judo’s balance sheet continued to expand in the opening quarter of FY27. Deposits increased to $12.5 billion, while the lending pipeline of applications, approved and accepted loans stood at $1.9 billion in September. Management said the pipeline was softer than normal seasonal patterns, with SMEs showing caution around the economy, interest rates and Budget changes.
First-quarter blended lending margins were 4.1% over one-month BBSW, while front-book margins remained at 4.2% over BBSW. Blended deposit margins were 73 basis points over BBSW, slightly better than expected and helping offset softer lending margins. The cost-to-income ratio remained in line with expectations after improving to 45% in FY26, which Judo described as the lowest among its selected banking peers.
Capital Buffer and Funding Diversification
The bank’s CET1 ratio was 12.0% at 30 September, down from 12.4% in June but still at the upper end of its stated 11% to 12% normal operating range. Judo also pointed to the expansion of its deposit franchise and a $750 million term securitisation completed in June after a transaction initially sized at $500 million. The deal formed part of a broader effort to diversify funding and strengthen balance-sheet resilience.
Against that backdrop, management said it remained comfortable with FY27 guidance: disciplined above-system lending growth, broadly stable net interest margin, further cost-to-income improvement and a cost of risk broadly consistent with FY26 as a percentage of average gross loans. The target implies profit-before-tax growth of 25% to 31% and a return on equity of about 8%.
Credit Quality Is the Next Test
Judo’s proposition depends on relationship banking and experienced credit judgement, but the latest figures show why portfolio oversight will matter as much as loan growth. Management said it was focusing on disciplined portfolio management and proactive engagement with customers facing pressure, while maintaining confidence in the overall quality of the book.
The next quarterly disclosures will show whether the September deterioration is contained or the early sign of a wider migration in arrears and impairments. For now, Judo has preserved its earnings target and capital buffer, leaving the market to weigh an expanding franchise against a credit-risk indicator moving in the wrong direction.
Bottom Line?
Judo has retained its FY27 earnings target, but delivery will increasingly depend on keeping the 3.16% impaired and past-due ratio from climbing further.
Questions in the middle?
- Will the rise in 90-plus-days past-due and impaired loans stabilise below Judo’s through-the-cycle assumption?
- Can lending growth remain above system while SME borrowers face higher rates and more cautious investment decisions?
- How much of the projected FY27 profit growth will translate into improved return on equity if provisions remain elevated?