Highlights

• Judo cut its FY26 profit guidance in June after three exposures in different sectors deteriorated.

• FY26 profit before tax rose 34 per cent to A$168.1 million, inside the revised range.

• FY27 guidance is for profit before tax of A$210 million to A$220 million, with Return on Equity of about 8 per cent.

• Loans 90 or more days past due and impaired assets were 2.90 per cent of gross loans at FY26.

For Judo Capital Holdings (ASX:JDO), the answer so far has been to keep growing profit, hold its FY27 targets and let the Credit book prove itself over time.

That task is not finished.

The June shock that reset expectations

The turning point came on 25 June 2026. Judo told the ASX that three exposures in different sectors had deteriorated, lifting specific provisions and pushing its expected FY26 cost of risk to A$116–122 million.

Chief executive Chris Bayliss called the update disappointing and attributed the problems to a small number of customers. Management also said loans 90 or more days past due, plus impaired loans, would be about 3 per cent of gross loans at 30 June.

What Judo does and how it earns money

Judo is a specialist lender to small and medium-sized enterprises, a segment it argues the major banks have underserved. It relies on relationship bankers who assess businesses directly rather than on heavily automated credit scoring.

Almost all of its Revenue comes from net interest income, the gap between what it charges borrowers and what it pays for funding. In the June update, Judo said front-book and blended lending margins were about 4.2 percentage points over the one-month bank bill rate.

Funding is increasingly drawn from term deposits rather than wholesale markets. Deposits reached A$12.2 billion at 30 June 2026, or 71 per cent of total funding.

Inside the FY26 result

Judo reported its FY26 result on 18 August 2026. Profit before tax rose 34 per cent to A$168.1 million, inside the revised range, and statutory net profit after tax rose 29 per cent to A$111.1 million.

Gross loans and advances grew 18 per cent to A$14.7 billion, deposits rose 24 per cent and the net interest Margin widened 20 basis points to 3.13 per cent, reaching 3.23 per cent in the second half. The cost-to-income ratio improved by 7.1 percentage points to 45.3 per cent.

The weak points were credit and returns. Impairment expense was A$117.7 million, 90-plus days past due and impaired assets were 2.90 per cent of loans, and return on equity was just 6.4 per cent. The common equity tier 1 ratio was 12.4 per cent.

The FY27 plan and the AGM update

For FY27, Judo has guided to profit before tax of A$210–220 million, or 25–31 per cent growth, and return on equity of about 8 per cent. It expects above-system Loan growth, a broadly stable margin, a lower cost-to-income ratio and a cost of risk broadly consistent with FY26 as a share of average loans.

Its longer-term goal remains a return on equity in the "low-to-mid teens". In June the bank also set a management CET1 target range of 11–12 per cent in normal conditions and said it may consider capital management "in due course", without announcing anything specific.

Competition and the SME credit cycle

Judo's model depends on above-system loan growth. That growth is harder when Business owners are cautious about investing, which appears to be the message from the October update.

It also competes with the major banks and with non-bank lenders for the same customers. Judo's pitch is service and speed rather than price, but its relatively high funding costs mean it cannot easily win on rate alone.

The macro environment adds pressure. Earlier in 2026 Judo increased provisions for fuel-sensitive industries such as agriculture, construction and manufacturing, and management has cited wider economic and geopolitical uncertainty.

Risks

Credit quality is the dominant risk.

Other risks include slower loan growth, deposit competition squeezing margins, and capital consumption if growth resumes faster than profits accumulate. Judo pays no dividend, so returns depend entirely on Earnings growth and any future capital management.

Those multiples reflect a market sceptical of the FY27 guidance rather than a verdict on it.

What to watch next

The half-year result, expected in February 2027, is the next major test. Investors will be looking at whether past-due and impaired loans stabilise, whether loan growth stays above system and whether the bank remains on track for its FY27 profit range.