‘Achilles heel’: Meet the banker who’s bearish on house prices

Nor is he dismissive of technology and fintech – indeed he thinks there will be far more disruption in banking.

Even so, the frank comments from the banking veteran are a reflection of how Judo is trying to take a different path to rivals, including other start-up banks.

Judo is regarded as the most successful of the several new banks to launch in Australia in recent years. Other start-up banks include the fallen Xinja, which pulled the pin in 2020 and returned its licence, 86 400, which was bought by National Australia Bank, and Volt Bank.

Judo was founded in 2015 by Hornery and Healy, after they first got the idea over Friday evening drinks at the Greengate Hotel at Killara on Sydney’s upper north shore. Healy, who grew up in Scotland and played international soccer for the country as a youth, has previously worked at banks including Citi, ANZ and NAB, and now splits his time between Sydney and Melbourne.

He owns 3.2 per cent of Judo’s shares, and says moving from executive to co-founder was a “huge change, but the most exciting and most rewarding thing I’ve ever done.”

After floating last year at $2.10, Judo’s share price is lower today at $1.98. But the company still has a market capitalisation of about $2.2 billion, which is about a 40 per cent of Bendigo and Adelaide Bank, despite Judo’s loan book being a fraction of the size of Bendigo’s.

To justify the valuation, investors are betting Judo can grow rapidly. Last week’s results showed the bank made a statutory loss of $16.1 million due to float-related costs, but brokers are more interested in its gross loans and advances, which were up 37.8 per cent to $4.85 billion.

Speaking after the results, Healy says he’s confident that in the “medium term” Judo can expand the loan portfolio to be around $15 to $20 billion, which would make it fifth largest SME lender behind the big four.

Yet Australian banking is notoriously concentrated, and even global players such as Citi failed to make a meaningful impression in the mortgage market after operating here for decades. Why would Judo be different?

Healy responds that its strategy only targets one market: small and medium business. “If you try to come into a market that’s dominated by giants, you’ve got to really focus in on what makes you unique in order to compete,” Healy says.

Healy has previously worked for some of those giants, running National Australia Bank’s flagship business banking arm between 2008 and 2014. But in a 2018 book Breaking the Banks, Healy argued the industry had not only lost its way in how it treated customers, but also neglected small business relationship banking.

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Former NAB executive Gavin Slater says it makes sense that Judo’s strategy has focused exclusively on SMEs, because Healy was always “single-minded” about business banking at NAB. “Even back in the NAB days he was very vocal about the importance of relationship banking, and really of the SME sector to the Australian economy,” Slater says.

In recent years some of those big banks – most notably SME-lending powerhouse NAB and Commonwealth Bank – are seeking to win back lucrative small business customers, as they chase credit growth outside the housing market.

But despite this added competition, which Healy admits has squeezed margins in some segments, the banker remains upbeat about going head to head with the majors, and about how its loan book will hold up if interest rates rise, as the bank expects. He says the lender’s customers have all been tested for how they would cope with a 2 percentage point rate hike, and the bulk of its loans were written against tough economic backdrop of the pandemic.

“$4 billion of our lending book has been done in a COVID world where we’ve had our eyes wide open to the realities and the uncertainties of COVID,” Healy says.