Business
Judo Capital Cuts FY26 Profit Outlook on Rising Credit Risks
Rising credit risks have prompted Judo Capital to downgrade its FY26 earnings outlook, as the bank grapples with higher provisioning charges even as lending and margins continue to improve.
Judo Capital slashed revenue outlook on improved loan loss provisions for selected customer accounts.
The lender's new profit before tax forecast for FY26 is A$105 million to A$115 million, a fall from A$180 million to A$190 million, according to a trading update submitted to the ASX on Tuesday, sparking almost A$800 million wiped from its market value.
A review of three customer exposures in the latter half of the FY had been responsible for a severe deterioration in their credit quality, Judo explained. Those exposures have the effect of taking its cost of risk for the FY26 year into the 68bps range, considerably more than the entire year previously suggested.
Loan growth despite increases in provisions
For all its reduced earnings guidance, other operating targets remain. For example, Judo has kept to its target for gross loans and advances to be between A$14.6 billion and A$14.7 billion for June 30. The net interest margin for the second half also remains in excess of 3.2%, because lending margins and funding conditions are stable.
The bank attributed the downgrading in earnings to the credit quality issues and the sluggish pace of loan demand, not a dip in lending margins.
The news comes in sharp contrast to the lender's results for the first half of FY26, where profit before tax rose 53% year-on-year to A$86.5 million and statutory net profit after tax was up 46% to A$59.9 million. During its update on the first-half results, management reaffirmed its profit target for the full financial year.
SMEs are also facing credit conditions that are proving to be more and more challenging. Judo Capital was founded by the relationship-banking pioneers, CEO Chris Bayliss, who left Commonwealth Bank in 2016 to build what will now likely be a significant player in SME banking – especially in the SME lending space.
SME Lender Faces Tougher Credit Conditions
Judo Capital's New Year outlook On December 13th it told investors its profit would exceed market expectations. “These results for the December half have been particularly disappointing due to increased provisioning against a very small number of exposures,” Judo said.
The provision costs will be higher but Judo noted that lending growth, customer activity and operating underlying banking margins would not be significantly changed in terms of year-end position compared to before this challenging period had begun.
The bank continues to hold its common equity tier 1 ratio at approx. 13.2% following the recent securitisation transaction which released capital.
Source: Capital Brief
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