The Bank dedicated to Aussie businesses has arrived

There’s no time like now for Jos­eph Healy and David Hornery’s capital-munching SME lender Judo Bank to put out its hand out for an extra $400m, putting the start-up close to unicorn status.

The liquidity pool is deep, and Judo has established a track rec­ord of meeting and beating (with apologies to Scott Morrison) its targets. With Judo established on the eastern seaboard and pumping out at least $50m in new lending a week, the co-founders have switched their thinking to the longer term.

The five-year plan, developed 18 months ago, budgets for a near-tenfold expansion in the loan book from $1.1bn to $10bn-$11bn. Momentum is building, and the pipeline boasts well over $1bn in lending opportunities.

The major banks are mostly dismissive of Judo’s ambitions, saying its growth has mainly come from their workout areas where they try with varying ­degrees of success to nurse comatosed customers back to sound ­financial health.

Hornery’s response is: “Well, they would say that, wouldn’t they?”

The reason the two ex-National Australia Bank business bankers brought Judo to life was to bring back the lost art of relationship banking. They espouse the “four Cs” of SME banking — the character of management, the cashflow of the business, the capital in the business in all its forms, and the collateral available to ­secure a loan.

“For the majors, it’s mostly about collateral; they’re very thin on the relationship side,” Hornery says dismissively.

While a ten-fold increase in the loan book by 2023 looks daunting, the pathway is clear.

By mid-2020, internal numbers forecast $2bn in loans, rising to $4bn by the end of 2020.

There is a long list of challengers taking on Australian banks, but none is as dangerous or as unique as Judo Bank.

Judo is reviving a branch of the human species that I thought had become extinct decades ago— bankers who are trained to personally assess the character of the small businessperson they are lending to.

And that assessment involves regular visits to the business to “kick the tyres”. It’s old-style, traditional business banking.

As a child I still remember that when the bank manager came to visit my father’s business it was a big event. And the bank manager visits were regular because he had put his reputation on the line, as he had done with many other businesses in the district. The ANZ bank manager was a powerful person in the community.

In today’s world small and medium business banking relies on computer analysis and all too often security over the family home. While it still happens, regular “kicking the tyres” of a small business has become a lost banking art.

As the Westpac board prepares to decide on its next chairman, upstart bank Judo has hit the ground running with $1bn in deposits after just nine months of operation.

Judo Bank co-chief Joseph Healy is confident of raking in at least $3bn by this time next year, which would be a good base to grow the business. The bank, which is devoted to small business loans, already has more than $1bn in loans outstanding.

Judo’s deposit take is tiny compared to the majors, with National Australia Bank, for example, having $424bn in customer deposits. ANZ has about $64bn in commercial deposits, with roughly $43bn classed as small business. Its small business loan book is $15bn.

Judo has raised the money by paying above market with its six-month deposit rate at 1.95 per cent, compared with the big banks at 1.25 per cent.

Healy said the big banks have had 150 years to build their bases and Judo just nine months. So its rate of growth, which is important, and Tuesday’s figures, show it is getting traction. About 40 per cent of the deposit base is retail.

Importantly, the milestones show the bank has gained market credibility at a time when the big banks are suffering.

The Melbourne-based Judo has about 165 staff, with offices in Sydney and Brisbane, and plans to open in Perth in coming months.

Meanwhile, Westpac’s board is still in the early days of its hunt for a chairman to replace Lindsay Maxsted, with his former KPMG colleague, Peter Nash, the obvious internal candidate given his background covering the ­industry.

The board will also look externally and the process is said to be a matter of weeks away.

The chairman will be settled before a new chief executive is ­selected to replace Brian Hartzer.

Former CFO Peter King has agreed to stay until a successor is found and is also the key internal candidate for the job.