Judo Bank Holds FY26 Profit Guidance After Boosting Rainy Day Reserves by 5bps
Judo Bank has reaffirmed its FY26 profit before tax guidance of $180 million to $190 million (towards the lower end) despite increasing collective provisions in response to economic uncertainty. In its third-quarter trading update, the challenger bank reported gross loans and advances of $13.8 billion at 31 March 2026, up from $13.4 billion in December 2025, while attrition improved to 15% annualised in Q3 from 33% in the prior quarter.
Judo Bank reaffirms FY26 profit guidance amid strong Q3 lending momentum
The SME-focused lender confirmed that lending growth, net interest margins and operating expenses all remain on track with existing guidance for the financial year ending 30 June 2026. The update demonstrates resilient underlying earnings power despite a top-up to collective provisions implemented as a precautionary measure against potential macroeconomic headwinds.
Chief Executive Chris Bayliss stated the bank continues to support small and medium-sized enterprises navigating market volatility. “Our unique relationship-led approach and low ratio of customers to bankers means we are close to our customers, and we are well positioned to understand and support their individual lending needs,” he said.
The $400 million increase in gross loans and advances over the quarter reflects both strong originations and materially lower customer attrition. The annualised attrition rate of 15% in Q3 represents a substantial improvement from 33% in Q2, driven by reduced external refinances and discretionary paydowns.
Judo’s AAA lending pipeline (applications, approved and accepted) increased to $2.2 billion with an average margin of 4.3% over 1-month BBSW, indicating continued demand for the bank’s relationship-based lending model.
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Net interest margins expand as funding costs fall below long-run range
Judo’s Q3 net interest margin expanded to approximately 3.15%, up from 3.03% in the first half of FY26, positioning the bank at the upper end of its full-year NIM guidance of 3.00% to 3.10%. The improvement was driven by favourable deposit funding conditions that fell below the bank’s expected through-the-cycle cost of funds range.
Blended lending margins held at 4.2% for the quarter, with new lending also originated at 4.2% margins, reflecting the composition of new business written during the period.
The blended cost of deposits in Q3 was 74 basis points over 1-month BBSW, below Judo’s expected through-the-cycle range of 80 to 90 basis points. This benefited from the flow-through of lower-cost term deposits originated in the first half. New term deposit pricing in Q3 remained at 64 basis points over 1-month BBSW, reflecting swap rate movements and greater pricing flexibility from the introduction of new at-call savings products.
Management expects the pricing of new term deposits to normalise back to within the 80 to 90 basis point range over 1-month BBSW by the end of FY26 as interest rate conditions evolve.
| Metric | Q3 FY26 | 1H26/Prior | Change |
|---|---|---|---|
| NIM | ~3.15% | 3.03% | +12bps |
| Lending margins (blended) | 4.2% | – | – |
| Cost of deposits | 74bps | 80-90bps range | Below range |
| New term deposit pricing | 64bps | – | Below range |
At-call savings franchise building scale
The combined balance of Judo’s Direct Online Savings Account (DOSA) and Intermediated Savings Account (ISA) now exceeds $1.1 billion as at 23 April 2026. DOSA launched in February 2026 following the October 2025 launch of ISA, providing the bank with alternative funding sources and greater pricing flexibility on term deposits.
Total deposits reached $11.5 billion at 31 March 2026. The new at-call savings products provide structural benefits to the funding mix by reducing reliance on term deposits during periods of volatile wholesale funding markets.
Asset quality stable despite prudent provision increase
Judo’s 90-days-past-due and impaired loans stood at 2.65% of gross loans and advances at 31 March 2026, a slight improvement from 2.66% in December 2025. Asset quality trends have remained stable despite heightened macroeconomic uncertainty.
In response to ongoing geopolitical uncertainty and increased market volatility, Judo completed a detailed customer-by-customer review of its lending portfolio. Management reported that the vast majority of customers remain in good financial health with no observable change in risk profile.
Notwithstanding the overall strong financial health of its customer base, Judo has increased its provision for expected credit losses through a top-up of its economic overlay. This overlay relates to sectors identified as more sensitive to fuel prices and broader economic deterioration, specifically:
- Agriculture
- Construction
- Retail trade
- Manufacturing
- Transport
As a result of the increased management overlay, Judo’s collective provisions coverage will be 94 basis points of gross loans and advances as of 31 March 2026, a 5 basis point increase compared to 31 December 2025. Collective provision coverage as a proportion of standardised credit risk-weighted assets will be 1.09% at 31 March 2026, an increase of 6 basis points versus 31 December 2025.
Judo’s FY26 cost of risk is now expected to be between 70 to 75 basis points of average gross loans and advances, up from the bank’s at-scale target of 50 basis points.
What is a collective provision overlay?
Collective provisions are reserves banks set aside for potential future loan losses across their entire lending portfolio, rather than being tied to specific problem loans that have already been identified. An economic overlay is an additional buffer management applies when it believes macroeconomic conditions could worsen, even if current loan performance remains stable.
This matters to investors because it reduces near-term profits but strengthens the balance sheet against potential future losses. The provision is a forward-looking estimate based on management’s assessment of economic scenarios and their potential impact on borrowers’ ability to repay.
In Judo’s case, the overlay targets sectors with higher sensitivity to economic volatility, particularly those exposed to fuel price fluctuations and broader economic deterioration. This proactive approach demonstrates conservative risk management rather than evidence of deteriorating loan quality in the current portfolio.
FY26 guidance maintained with clear path to at-scale targets
Despite the provision increase, Judo maintained its full-year guidance across key operating metrics, demonstrating underlying earnings momentum. The bank expects to deliver profit before tax towards the lower end of its $180 million to $190 million guidance range.
Operating leverage will improve in the second half of FY26 compared to the first half, with the cost-to-income ratio expected to decline to below 50% for the full year. This reflects the scalability of Judo’s operating platform as lending volumes grow.
The CET1 capital ratio was maintained at 12.6% at 31 March 2026, unchanged from December 2025, with profit generation offsetting capital consumed by lending growth during the quarter.
| Metric | FY26 Guidance | At-Scale Target |
|---|---|---|
| GLA | $14.4bn – $14.7bn | $15bn – $20bn |
| NIM | Upper end of 3.00% – 3.10% | >3% |
| CTI | <50% | Approaching 30% |
| COR | 70bps – 75bps | 50bps |
| PBT/ROE | Lower end of $180m – $190m | Low-to-mid teens ROE |
Management emphasised that FY26 performance represents significant progress towards at-scale profitability targets:
Chris Bayliss, Chief Executive Officer
“This continues to represent significant operating leverage, underpinned by strong lending, favourable funding conditions and disciplined cost management, and demonstrates strong progress towards our at-scale target of low-to-mid teens ROE.”
The at-scale targets assume gross loans and advances of $15 billion to $20 billion, a net interest margin above 3%, cost-to-income ratio approaching 30%, and cost of risk normalising to 50 basis points of average gross loans and advances once the portfolio reaches steady-state maturity.
Customer relationships underpin portfolio resilience
Judo’s relationship-led banking model, characterised by a low ratio of customers to bankers, enabled the detailed portfolio review completed during the quarter. Experienced relationship bankers conducted customer-by-customer assessments to validate the ongoing financial health of borrowers amid heightened economic uncertainty.
This hands-on approach contrasts with automated credit surveillance systems and allows Judo to understand individual customer circumstances in real time.
Chris Bayliss, Chief Executive Officer
“Judo continues to give its full support to Australian small and medium-sized enterprises as they navigate heightened volatility in the operating environment. Our unique relationship-led approach and low ratio of customers to bankers means we are close to our customers, and we are well positioned to understand and support their individual lending needs.”
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Investment outlook for Judo Bank
The Q3 FY26 trading update reinforces several key investment thesis points for the challenger bank:
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Lending growth on track with improving attrition: Gross loans and advances increased $400 million during the quarter while attrition more than halved to 15% annualised, demonstrating competitive positioning and customer retention.
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NIM expansion providing earnings support: The 12 basis point improvement in net interest margin to ~3.15% in Q3, driven by below-range deposit funding costs, provides material earnings tailwind for the second half.
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Conservative provisioning approach ahead of potential economic headwinds: The proactive top-up to collective provisions for sectors sensitive to fuel prices and economic deterioration demonstrates prudent risk management, even as underlying asset quality metrics remain stable.
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Clear progression toward at-scale profitability targets: Despite the provision increase, Judo is positioned to deliver profit before tax within its original guidance range while improving cost-to-income ratios and building towards low-to-mid teens return on equity.
The next major catalyst will be Judo’s FY26 full-year results, expected in August 2026. Investors will focus on the trajectory towards at-scale metrics, particularly whether cost-to-income improvement continues and whether cost of risk begins normalising as the portfolio matures.
Judo’s Q3 performance demonstrates the operating leverage inherent in its SME-focused challenger bank model as it scales towards $15 billion to $20 billion in gross loans and advances.
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