A surprise credit hit from three stressed business borrowers has forced Judo Bank to lift credit provisions.
SME lender Judo Bank has shocked investors with a $20 million increase in credit provisions after three sizable business loans soured unexpectedly, forcing a downgrade to its 2026‑27 earnings guidance.
In an ASX update on Thursday (25 June), Judo revealed that its cost of risk had been pushed higher by provisions against three separate exposures that had recently deteriorated.
The loans, with combined balances of roughly $75 million, were extended to a blinds and curtains manufacturer, a financial planning group and a construction services company, each operating in a different state and with no direct links between them.
Speaking on a call with analysts on Thursday morning, Judo Bank’s chief executive Chris Bayliss laid out how quickly the situation had changed – noting that standard arrears indicators did not flag any major concerns.
“We didn’t have line of sight on these three. They weren’t [sitting] in the over 90 [days late] bucket, and we were just looking at them with a glass half full lens. They deteriorated very rapidly. These things happen,” Bayliss said - adding that one of the borrowers had already entered administration.
Bayliss separated the credit shock from questions about Judo’s underwriting discipline or competitive pressures in the SME lending market.
“In the past couple of weeks, we’ve experienced some asset quality issues that we’re actively managing,” he said.
“I do want to reiterate that these are very different issues with these customers, and not a system, not a symptom of anything more systemic.”
Higher bad‑debt charge and trimmed profit
The bank now expects its total cost of risk for FY26 to land between $116 million and $122 million on a loan book of about $15 billion.
At the same time, the bank is preparing for more loans to fall into serious arrears or be classified as impaired, with that portion of the book forecast to reach around 3 per cent by 30 June, up from 2.65 per cent at the end of March.
Chief financial officer Andrew Leslie told analysts the development had prompted a rethink of the bank’s guidance for 2026‑27.
He said the company was “being conservative with the 2026‑27 guidance given the experience we’ve had for this financial year”.
Profit expectations have fallen in line with the more cautious stance, with Judo now projecting pre‑tax earnings of between $163 million and $169 million for the full year, down from the earlier range of $180 million to $190 million.
Bayliss said that given the way the three loans had collapsed the bank would approach the coming year “a little bit more conservative and prudent.”
Yet Judo highlighted that its core banking metrics remained solid despite the jump in credit costs.
Net interest margins are expected to exceed 3.2 per cent in the second half of FY26, and the bank said that capital ratios were strong.
On the day of the announcement, Judo’s share price fell by about 40 per cent, wiping around $400 million off the company’s market value.
[Related: Judo loan book climbs as broker flows drive growth]
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