Key Highlights

• For the year ended 30 June 2026, Judo reported profit before tax of $168.1 million, up 34% from $125.6 million.

• Profit after tax was $111.1 million, up 29% from $86.4 million.

• The chair acknowledged that the bank did not deliver its original FY26 commitments to the market, largely because specific provisions for troubled loans increased late in the year.

• Return on Equity was 6.4%, well short of the low-to-mid teens that management describes as its long-term target "at scale".

Can a specialist small Business lender keep growing quickly while bad loans remain a worry? Judo Capital Holdings (ASX:JDO) is trying to show that it can. Its FY26 result, released on 18 August 2026, paired a clear lift in profit with a candid admission that Credit costs rose faster than management had expected.

The central development: profit up, promises missed

For the year ended 30 June 2026, Judo reported profit before tax of $168.1 million, up 34% from $125.6 million. Profit after tax was $111.1 million, up 29% from $86.4 million. The company's review labels the pre-tax figure pro forma.

The headline improvement masks a more mixed story. The chair acknowledged that the bank did not deliver its original FY26 commitments to the market, largely because specific provisions for troubled loans increased late in the year. Return on equity was 6.4%, well short of the low-to-mid teens that management describes as its long-term target "at scale".

That gap is the main thing investors are weighing.

What Judo does and how it earns money

Judo is an Australian bank focused almost entirely on small and medium-sized enterprises (SMEs). It lends to businesses that often find larger banks' processes rigid, relying on relationship bankers who make credit decisions with more local judgement. Its board describes the purpose as being the most trusted SME business bank in Australia, adding, "Not the biggest, but the best."

Revenue is mainly net interest income: the gap between what it earns on loans and what it pays for funding. Three levers matter most:

• Loan growth, which reached $14.7 billion of gross loans and advances, up 18% from $12.5 billion;

• net interest margin, which rose 20 basis points to 3.13%;

• funding costs, helped by customer deposits of $12.2 billion, up 24% and equal to 71.3% of total funding and capital.

Deposit-led funding matters because it is generally cheaper and steadier than wholesale borrowing.

Operating performance and efficiency

The cost-to-income ratio improved to 45.3% from 52.4%, showing that Revenue grew faster than expenses as the platform scaled. This Operating Leverage is central to the Investment case, because a bank with a largely fixed technology and people base should earn more from each additional dollar lent.

Capital remained encouraging. The common equity tier 1 (CET1) ratio was 12.4%, down from 13.1% as the loan book grew. Judo has said it will move to a management target range of 11.0% to 12.0% in normal conditions, and that a recent term securitisation gives it extra levers to manage capital. It may consider capital management initiatives "in due course", though none was announced.

Credit quality: the key uncertainty

Impairment expense rose to $117.7 million, equal to 0.88% of average gross loans, from $75.5 million the year before. Total provisions were $216.2 million, or 1.47% of gross loans, with $136.0 million held as a collective provision and $80.2 million assessed individually. Loans that were 90 or more days past due or impaired made up 2.90% of the book.

Management said the charge landed at the lower end of its revised guidance. Even so, the chief executive described the late-year rise in specific provisions as disappointing. For a lender growing faster than the system, the quality of recent lending will be tested as economic growth slows.

Guidance and recent announcements

Judo's FY27 outlook includes profit before tax of $210 million to $220 million, a rise of roughly 25% to 31%. It also points to return on equity of about 8%, assuming a 31% effective tax rate. Other expectations are above-system loan growth, a broadly stable margin, further improvement in cost-to-income and a cost of risk broadly consistent with FY26. These are management expectations, not outcomes.

The 2026 notice of meeting was lodged on 18 September 2026, with the Annual General Meeting scheduled for 20 October 2026. The agenda covered director elections, an advisory vote on remuneration and long-term incentive grants for chief executive Christopher Bayliss, including Options with an exercise price of $1.53 tied to return on equity.

Sector conditions and competition

Management expects Australian economic growth to moderate in FY27 as higher interest rates weigh on activity, with geopolitical risk, particularly around energy prices, still present. It says Demand for SME credit remains healthy.

Judo competes with the major banks, which hold most business lending, as well as regional lenders, non-bank providers and Fintech platforms. Its pitch is speed, expertise and service rather than price alone. Larger rivals have lower funding costs and broader customer bases. Higher interest rates also pressure small business borrowers, which feeds back into credit quality.

Risks and what to watch

Several uncertainties stand out:

• Credit losses: further increases in specific provisions would erode profit and could delay the path to higher returns.

• Execution against guidance: the bank missed its original FY26 commitments, so delivery on FY27 targets carries extra scrutiny.

• Return gap: moving from about 8% to a low-to-mid teens return depends on sustained scale, Margin discipline and lower credit costs.

• Funding and capital: deposit competition could lift costs, while lower capital targets leave less buffer if losses rise.

• Economic conditions: a weaker small business sector would test loan quality.

The takeaway

Judo's FY26 showed a lender that is growing, funding itself increasingly from deposits and becoming more efficient. It also showed that rapid SME lending carries credit risk that can surprise. The next few reporting periods should reveal whether provisions stabilise and operating leverage translates into higher returns.