‘Uneven’ soft landing for economy in FY24: Judo Bank

Delivering its full-year results for the financial year ended June 2023 (FY23), the SME lender outlined that while there had been strong growth in the last financial year, there was some uncertainty for the year ahead.

The five-year-old lender grew its loan book by 46 per cent to $8.9 billion as at June 2023 (and currently sitting at around $9.3 billion, according to Judo), with the third-party channel originating 76 per cent of its loans (up from 75 per cent in FY22).

Its applications, accepted, and approved pipeline totalled $1.5 billion as at June 2023.

However, Joseph Healy, the CEO of the SME bank, stated that while the bank will be targeting continued growth in FY24, this growth would be “measured”.

Mr Healy said: “Clearly when we look at the economic environment, we'’e very conscious that the journey in 2024 is going to be unsettling for the economy … It’s not going to be an even soft landing, it will be uneven. There’ll be some sectors of the economy that will find it more difficult than others.”

Indeed, the financial results for FY23 showed that the bank has already been reducing its exposure to commercial real estate (from 29 per cent to 22 per cent) and would be looking at managing down its exposure to commercial real estate through “disciplined lending” in this segment.

The bank has said it would also apply “strong due diligence” to segments that rely on discretionary spending, such as retail, given that cost-of-living pressures have resulted in consumers tightening their belts.

“I think that we are still at a very early stage of that [belt tightening] and I would expect consumer expenditure will tighten further over the course of the next 12 months,” Mr Healy said.

Given the fact that the economy is “a more challenging economy than the one that we’ve seen in recent times”, the Judo Bank CEO said that the lender would therefore “continue to be very vigilant on credit risk and monitor exposure”.

He said Judo Bank would be “growing in a very measured way” but added: “Notwithstanding what is an uncertain economic outlook, we remain very confident about our ability to navigate whatever conditions we have in front of us and deliver a continuation of the journey towards business metrics at scale.”

Brokers well-placed to support SME lending growth

Speaking to The Adviser about the SME lending landscape, the chief third party officer of Judo Bank, George Obeid​, flagged that brokers had been “critical to [Judo Bank’s] success” to date and that the lender would continue to support the channel as the environment changes.

He highlighted that the bank had been investing more in the broker channel, including through new offerings such as agri and health and hiring and training more experienced bankers to support them.

According to Mr Obeid, the bank’s network of accredited third‑party commercial brokers grew to 1,200 over the year, with more than 580 having settled more than two loans with the bank.

He said that brokers were a key part of the bank’s relationship-led customer value proposition, flagging that Judo works with experienced commercial and finance brokers to manage customers’ ongoing needs, including through annual reviews.

“In this environment, there will always be customers that are doing it tough but the other side is there are broker clients who are also leveraging this as an opportunity to grow and acquire new businesses, or invest more in their business. I think that’s where brokers can really step in and support them, with Judo” he told The Adviser.

“We’ve got a clear strategy and our relationship-led operating model is creating a sustainable and competitive advantage for Judo regardless of the challenges of the current operating environment.

“If anything, a relationship-based approach to lending becomes more relevant in times of uncertainty; enabling us to stay closer to customers and proactively mitigate any emerging risks in our portfolio. We’re working with brokers to achieve that outcome.”

Mr Obeid concluded by saying that Judo would continue to apply a “common-sense and judgement overlay” when assessing SME clients based on the 4Cs of credit.

[Related: Broker channel ‘critically important to us’: Judo Bank]