Judo Bank poised for growth over next two years

Strong margins, rising lending assets will push it to expand.

Judo Bank is on track to scale up, if its strong margins and rising lending assets are any indication.

The Australia-based bank reported a 9% increase in its lending assets for the six months that ended on 31 December 2023. Term deposit base rose by 16% over the same period.

“We believe the bank will continue to grow above the system over the next two years. In addition, its ability to charge higher margins than peers on the back of responsiveness, service quality, and deeper customer relationships will remain a key credit strength.” S&P Global Ratings said in a report.

The ratings agency expects Judo Bank to continue increasing customer deposits and diversifying its funding base.

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Asset quality is forecasted to remain sound. Loan loss provisions rose by 21% to A$130.5m over the period, partly reflecting an increase in the economic overlay for vulnerable sectors.

Not all are sunshines and roses, however. Bad and doubtful debt expenses for the six months were 57 basis points of gross loans and advances. This is higher than that for most other Australian banks, which are predominantly residential mortgage lenders, S&P noted.

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“Nevertheless, we expect Judo Bank's credit losses to remain broadly consistent with that of average sector credit losses for nonfinancial corporate lending. Ongoing rapid loan growth could expose the bank to hidden credit risks due to limited seasoning,” the ratings agency wrote.