Rising Non-Performing Loans Pose Emerging Risk for Judo Capital Holdings

Capital Strength and Regulatory Compliance

Judo Capital Holdings Limited has published its latest Basel III Pillar 3 disclosure for the half year ended 31 December 2024, providing a comprehensive update on its capital adequacy and risk profile. The report underscores the bank’s commitment to transparency, going beyond the minimum Australian Prudential Regulation Authority (APRA) requirements despite its classification as a non-significant financial institution.

At the heart of the disclosure is Judo’s solid capital structure, with total capital reaching AUD 1.86 billion. The Common Equity Tier 1 (CET1) capital, a critical measure of financial strength, stands at AUD 1.46 billion, translating to a CET1 ratio of 14.5%. This ratio, while slightly down from 14.7% in June 2024, remains comfortably above APRA’s regulatory minimums, reflecting prudent capital management amid a growing balance sheet.

Growth in Risk Weighted Assets and Credit Exposure

The bank’s risk weighted assets (RWA) increased to AUD 10.64 billion, driven by expansion in corporate and residential mortgage lending. Notably, corporate exposures rose to AUD 7.69 billion, highlighting Judo’s focus on commercial lending and leasing. Residential mortgage exposures remain significant at AUD 1.72 billion, consistent with the bank’s retail lending strategy.

Credit risk metrics reveal a slight uptick in non-performing loans (NPLs), which increased to AUD 332.5 million from AUD 288.6 million six months prior. This rise, while modest, warrants attention as it may signal emerging credit pressures in certain portfolios. Specific provisions for impaired loans also increased to AUD 39.6 million, reflecting cautious provisioning practices.

Securitisation and Capital Relief

Judo’s securitisation activities remain stable, with no capital relief claimed during the period. The bank holds securitisation exposures primarily through on-balance sheet notes, amounting to AUD 2.82 billion, including self-secured notes. Liquidity support and funding facilities related to securitisation trusts total AUD 85.7 million, underscoring the bank’s ongoing engagement with structured finance mechanisms to optimize capital efficiency.

The report also details the exclusion of certain securitisation trusts from the regulatory consolidation group, maintaining clarity on the scope of capital calculations and risk exposures.

Outlook and Strategic Implications

While the report is retrospective and does not provide forward-looking guidance, the disclosed capital ratios and credit risk profiles suggest that Judo Capital Holdings is navigating a growth phase with measured risk controls. The slight increase in NPLs and provisions may prompt closer monitoring by investors and analysts, particularly in the context of broader economic conditions affecting commercial and retail borrowers.

Overall, Judo’s Basel III Pillar 3 disclosure reinforces its position as a well-capitalized institution with transparent risk management practices, setting a solid foundation for future strategic initiatives.