Judo Bank's rapid growth to continue despite inflation, competition

Competition and higher cost of funding are likely to curtail some margin benefit, says S&P.

Australia’s Judo Bank’s rapid growth is expected to continue over the next two years, benefiting from rising interest rates, says S&P Global Ratings.

Judo Bank announced a 23% increase in lending assets from July to December 2022. It also reported a 72-basis point (bp) improvement in its underlying net interest margin for the same period.

However, competition and higher cost of funding are likely to curtail some margin benefit for the bank over the next two years, the rating agency said.

“We expect ongoing growth in term deposits will help Judo Bank's transition away from the Reserve Bank of Australia's Term Funding Facility (TFF), which is scheduled to mature by June 30, 2024. In addition, Judo Bank continues to diversify its funding base, supporting its ability to meet future repayments of the TFF,” S&P said in a report.

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Despite increased pressure on borrowers from high inflation and rising interest rates, Judo Bank’s credit losses will remain under control over the period.

“We forecast credit losses for Judo Bank to be about 50 bps of loans. However, its rapid loan growth could expose it to hidden credit risks due to limited seasoning or scaling risks,” S&P said.