Judo Bank, a feisty challenger in the small to medium business banking sector, gained momentum in the first half of FY25 as a record $2.3 billion in new loans helped its parent company deliver a 70 per cent increase in net profit to $40.9 million.

Judo Capital Holdings (ASX: JDO), which grew its national footprint to 26 locations and an additional 15 bankers during the period, has boosted underlying profit before tax by 33 per cent to $56.7 million as its surging loan book was accompanied by “prudent cost management and a lower cost of risk”.

The company also says growth has been supported by the tenacity of smaller businesses to confront economic challenges head on.

“Throughout the past few years, despite all the challenges, SMEs have shown resilience and a willingness to invest in growth and efficiency,” says Judo CEO Chris Bayliss, who has forecast another solid performance ahead in the current half.

“The recovery in household finances and consumption is expected to drive improved trading conditions for SMEs. A falling interest rate environment will also be positive for the SME economy.

“With a larger balance sheet, diverse funding and robust capital levels, Judo is well positioned to continue supporting Australian SMEs, whilst scaling to become a world-class SME business bank which delivers a low-to-mid teens ROE (return on investment).”

Among the highlights for the first half of FY25 has been stability in the level of loan arrears and impairments over the past six months, which remains at 2.3 per cent of gross loan advances.

This is despite a 9 per cent increase in gross loans and advances to $11.6 billion, reflecting twice the pace of growth in the sector.

“This result demonstrates that we continue to execute our clear and simple strategy to scale our bank and meet the needs of more Australian SMEs,” says Bayliss.

“Our business has strong momentum which positions us well to deliver a significant uplift in earnings in 2H25, through improved NIM (net interest margin) and growth in our loan book.”

Net interest margin of 2.81 per cent was in line with guidance, with Judo Bank anticipating margins of between 2.9 and 3 per cent in the second half of FY25.

Bayliss says a record $2.3 billion in new lending for the period reflects Judo’s “unique customer value proposition” resonating with SMEs as the company makes “great progress” with its regional expansion strategy.

“This has underpinned our net lending growth of 2x the sector, at very strong margins,” says Bayliss.

Judo Bank currently supports 159 bankers from 26 locations in all states and the ACT nationally.

“Our relationship-led approach is resonating with regional customers and translating to strong growth in our agri business portfolio,” says Bayliss.

“This momentum is set to continue in the second half of the financial year, with a further five new locations expected by the end of FY25.”

Judo Bank has also revealed its term deposit franchise grew 9 per cent to $9 billion in balances at the end of December, driven by a $1 billion increase in direct retail term deposit balances.

The bank says its proportion of funding from term deposits was 66 per cent at the end of the half year, up from 64 per cent at the end of June 2024.

Judo Bank is targeting 75 per cent of funding from deposits as most of its lending growth is expected to be funded from term deposits going forward.

The company has described business conditions as “varied, with some sectors facing continued challenges”.

“Overall, however, businesses are adjusting to higher rates and credit demand is strong,” the company says.

Judo Capital shares were trading almost 10 per cent higher at $2.12 at 12.55pm (AEDT).

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