Meet the banker who is bearish on house prices

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He also doesn’t despise technology and fintech – indeed, he thinks there will be a lot more disruption in the banking sector.

Even so, the banking veteran’s candid comments reflect how Judo is trying to take a different path from its rivals, including other start-up banks.

Judo is considered the most successful of the many new banks launched in Australia in recent years. Other start-up banks include forfeited Xinja, which pulled the pin in 2020 and surrendered its license, 86,400, which was acquired by National Australia Bank, and Volt Bank.

Judo was founded in 2015 by Hornery and Healy, having first had the idea over a Friday night drink at the Greengate Hotel in Killara on Sydney’s north coast. Healy, who grew up in Scotland and played international football for the country as a youngster, previously worked at banks such as Citi, ANZ and NAB, and now splits his time between Sydney and Melbourne.

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

After floating at $2.10 last year, Judo’s share price is lower today at $1.98. But the company still has a market capitalization of around $2.2 billion, about 40% of Bendigo and Adelaide Bank, although Judo’s loan portfolio is only a fraction of Bendigo’s.

To justify the valuation, investors are betting that judo can grow quickly. Last week’s results showed the bank posted a statutory loss of $16.1 million due to float-related costs, but brokers are more interested in its gross loans and advances, which rose 37 .8% to $4.85 billion.

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

Yet Australia’s banking sector is notoriously concentrated, and even global players such as Citi have failed to make a significant impression on the mortgage market after operating here for decades. Why should Judo be any different?

Healy replies that his strategy targets only one market: small and medium-sized businesses. “If you’re trying to enter a market dominated by giants, you really have to focus on what makes you unique in order to be competitive,” Healy says.

Healy has worked for some of these giants before, running National Australia Bank’s flagship corporate banking arm between 2008 and 2014. But in a 2018 book Break the banks, Healy argued that the industry had not only lost its way in how it treated customers, but had also neglected banking relationships with small businesses.

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Former NAB executive Gavin Slater says it makes sense for Judo’s strategy to focus exclusively on SMEs, as Healy has always been “committed” to corporate banking at NAB. “Even back in the days of NAB he was talking a lot about the importance of relationship banking, and really the SME sector to the Australian economy,” Slater said.

In recent years, some of these big banks – including NAB and Commonwealth Bank, the SME lending powerhouse – have sought to win back lucrative small businesses, as they chase credit growth out of the housing market.

But despite this heightened competition, which Healy said has squeezed margins in some segments, the banker remains optimistic about a showdown with the majors and about the resilience of his loan portfolio if interest rates rise, such as the provides the bank. He says the lender’s customers have all been tested on how they would cope with a 2 percentage point rate hike, and the bulk of his loans have been underwritten amid the tough economic backdrop of the pandemic.

“$4 billion of our loan book was made in a COVID world where we had our eyes wide open to the realities and uncertainties of COVID,” Healy says.

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