The neo-bank, led by Joseph Healy, has upgraded its annual margin guidance, even as its ‘market-leading’ deposit rates are now pushing funding costs higher.
The Reserve Bank is set to keep interest rates on hold at 3.6 per cent amid signs consumer spending is slowing before the board meets tomorrow. 21 of the 30 market economists surveyed by Bloomberg predict the cash rate will remain steady as Commonwealth Bank predicts a rise by 25 basis points. Despite the forecasts, RBA Governor Philip Lowe has not ruled out further increases.
Judo chief executive Joseph Healy on Monday said the bank’s margins – what it earns on loans after costs – would rise to between 3.3 to 3.5 per cent in fiscal 2023, up from a previously expected 3.1 to 3.3 per cent.
The upgrade was driven by better than expected deposit costs and treasury movements. This was even as its “market leading” deposit rates had pushed funding costs higher in the past month.
Mr Healy’s confidence in Judo’s high margins comes as the big four have been vocal about their focus on capturing the higher margins available in the business lending market.
Challenged on his plans to hold on to high margins, Mr Healy said even though “a loan from Judo, once banked, is no different from a loan from any other bank” businesses were willing to pay half a percentage point more for Judo loans to secure the certainty the bigger banks do not provide.
“The experience on how you get that loan, and the experience that you have once the relationship is established, is where our point of difference is. And we believe, and I know this from deep experience, that customers generally are happy to pay up – our assumptions is up to 50 basis points – for that experience.”
With business customers valuing timely responses to credit applications, and given Judo is aiming to capture only a fraction of the $470bn small and medium- sized lending market in Australia, Mr Healy believed “that we can select the credit and customers that fit our profile”.
In the past month, the cost of new deposits was “at the top end of our through-the-cycle expectation of 80-90 basis points” over benchmark rates.
The neobank – which has no physical branches – expected solid business lending growth in the last quarter of the year.
It was on track to meet the rest of its fiscal 2023 guidance metrics, with unaudited profit before tax for the nine months to March 31 now at $86.7m.
Goldman Sachs said the update implied the business was running up to 25 per cent ahead of its fiscal 2023 forecasts, but would be immaterial to expectations in the 2024 financial year.
Judo shares rose as much as 6.85 per cent before closing 1.21 per cent higher at $1.26.
Sources said Barrenjoey sold a large stake of Judo shares on behalf of UniSuper, one of three substantial shareholders, at about $1.25 per share.