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.

The neo-bank – one that operates digitally without physical branches – expected solid business lending growth in the last quarter of the year.

Margins – what banks earn on loans after costs – would rise to between 3.3 to 3.5 per cent in fiscal 2023, from 3.1 to 3.3 per cent, driven by better than expected deposit costs.

Those were fading away, however. Judo Bank said that 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, it said.

It was on track to 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 FY24.

Shares rose 1.61 per cent to $1.26 in a market that was also slightly higher.

“We expect the June quarter to be a typically seasonally strong period for lending growth, which will take us through to our goal of greater than $9 billion of Gross Loans and Advances by the end of the financial year,” said chief executive and co-founder, Joseph Healy.

Judo Bank CEO Joseph Healey at their Sydney office. Picture: John Feder/The Australian

With no write-offs during the quarter, Judo Bank’s provision coverage sat at 1.11 per cent of GLA. But other metrics of financial stress were higher.

Both its impaired asset to loans ratio and its 90-plus arrears to loans ratio increased in the March quarter. It said impaired assets ratio doubled to 0.41 per cent from 0.20 per cent in December, without elaborating. The arrears metric rose 4 basis points to 0.22 per cent.

Its portfolio totalled $8bn at March 31, and had a pipeline of approved but not settled loans of $1.5bn, up from $1.3bn in December.

The bank topped its funding coffers with an extra $750m warehouse facility with two banks. That puts warehouse funding at its targeted $2.5bn, with $600m drawn.

Judo Bank plans to grow its loan book to $20bn, supported by about 200 bankers, and is spending $100m to achieve it.

“We are now well into the second horizon of our growth, which involves investing in technology, digital and data to support a continued increase in our lending as well as deliver a sector leading cost to income approaching 30 per cent at scale.” Mr Healy said.

It is forecasting CTI for fiscal 2023 will be below 60 per cent.


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