Australia’s Judo Bank on track for earnings growth

Its net interest margin is expected to be 3% over the next two years.

Australia’s Judo Bank is on track to improve its earnings over the next two years amidst rapid expansion of its balance sheet and improvements in its net interest margin (NIM), according to S&P Global Ratings.

The bank’s focus on lending to small and mid-size borrowers across multiple business segments should support its strong growth, the ratings agency added.

“We forecast the bank's loan book to expand by more than 30% in each of the next two years, following growth of 73% in the past 12 months,” S&P analysts said in the report.

With this, the bank’s profits should also continue to improve over the next two years, with the NIM anticipated to be about 3% over the period.

Furthermore, internal capital generation, as earnings improve, and the bank's ability to raise additional capital should support its capitalization.

As for credit losses, S&P expects the bank to retain it under control at about 50 basis points of loans over the period. 

“Nevertheless, rising interest rates as well as falling consumer and business confidence could trigger a steeper fall in house prices and heighten economic risks for banks. In our view, this could expose Judo Bank to hidden credit risks due to limited seasoning or scaling risks given the bank's rapid growth,” S&P warned.