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Challenger lender Judo Bank's owner Judo Capital Holdings (ASX: JDO) has reaffirmed its full-year profit before tax guidance of $180 million to $190 million but flagged the result will land at the lower end of that range after it topped up its collective provision overlay in response to mounting geopolitical uncertainty and macroeconomic volatility.
Judo has completed a detailed customer-by-customer review of its lending portfolio and determined that the "vast majority" of its customers remain in good financial health, "with no observable change in risk profile".
"Notwithstanding the overall strong financial health of its customers, Judo has increased its provision for expected credit losses, with a top-up of its economic overlay," says the company.
"This overlay relates to sectors that are more sensitive to fuel prices and broader economic deterioration, including agriculture, construction, retail trade, manufacturing and transport."
The third-quarter trading update released today shows the SME-focused bank's underlying business tracking to plan across lending growth, margins and costs, with gross loans and advances (GLA) reaching $13.8 billion at 31 March - up from $13.4 billion at the end of December.
The provision top-up pushed Judo's collective provision coverage up five basis points to 94 basis points of gross loans and advances, while full-year cost of risk guidance was lifted to 70–75 basis points of average GLA, up from the 60–65 basis point range flagged at the half-year result in February.
Net interest margin expanded to 3.15 per cent in the quarter, up from 3.03 per cent in the first half, supported by favourable deposit repricing and a growing pipeline of higher-margin loans.
Loan attrition fell sharply to 15 per cent on an annualised basis, down from 33 per cent in the second quarter, a metric the bank attributed to its relationship-led model and deeper engagement with existing borrowers.
“Judo continues to give its full support to Australian small and medium-sized enterprises as they navigate heightened volatility in the operating environment," says Judo's CEO Chris Bayliss.
"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.
“Our customers continue to demonstrate resilience, and our asset quality remains stable."
Bayliss says while Judo's customer base remains in solid financial health, the company has "prudently chosen to strengthen our forward-looking collective provision in recognition of ongoing uncertainty for the outlook".
“Notwithstanding the provision increase, we are still on track to deliver FY26 profit before tax within our original guidance range, albeit towards the lower end," he says.
"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 (return on equity).”
On the funding side, Judo Bank's at-call savings balances exceeded $1.1 billion and total deposits grew to $11.5 billion.
The bank's Common Equity Tier 1 ratio held steady at 12.6 per cent, comfortably above regulatory minimums and ahead of the broader banking system's 12.3 per cent CET1 ratio recorded by the Reserve Bank of Australia in its March 2026 Financial Stability Review.
Asset quality remained broadly stable.
Loans 90 days past due and impaired represented 2.65 per cent of GLA at 31 March, a marginal improvement from 2.66 per cent at the half-year, even as the RBA's Financial Stability Review notes that business non-performing loans across the banking system have edged higher - particularly in the hospitality and construction sectors.
The lower-end guidance by Judo still represents a significant step up from the first half, in which Judo posted statutory net profit after tax of $59.9 million, a 46 per cent increase on the prior corresponding period, and profit before tax of $86.5 million, up 53 per cent.
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