Judo Bank has been awarded an investment-grade credit rating.
S&P Global Ratings has issued Judo Bank with a BBB- rating, a move that surprised Australia’s first challenger bank for small and medium-sized businesses given its relatively short life cycle.
In issuing its rating on Thursday, S&P explained its methodology, underlining that Judo Bank is well capitalised, allowing for continued growth despite its limited profitability to date.
Responding to the news, Judo Bank’s deputy chief executive and CFO, Chris Bayliss, said that receiving an investment-grade rating from S&P is a significant achievement for a bank that had only received its authorised deposit-taking institution (ADI) licence less than three years ago.
“Receiving the BBB- issuer credit rating from S&P is another notch in Judo’s belt and a major achievement for any bank, let alone one that has held a banking licence for less than three years,” Mr Bayliss said.
Despite being unexpected, the rating is said to provide further impetus for expansion of Judo Bank’s already growing $2.8 billion deposits portfolio, with the rating facilitating access to a wider investor audience.
“The investment grade rating from S&P recognises the quality of our business and management team; our strong focus on risk management and growth; and the fact that our unique position in the market as a relationship-focused SME lender will be hard to replicate,” Mr Bayliss said.
“Critically, our high capital levels and legacy-free technology that delivers a lower underlying cost base to other banks, are seen as key strengths and enablers for Judo to continue growing sustainably well into the future.”
But S&P did flag some misgivings, noting that despite initial success in establishing its business, Judo Bank has yet to prove it will be able to sustain its business growth and retain its clients through a full economic cycle or periods of more aggressive competitive pressures.
Touching on its choice not to award the bank a higher rating, S&P said it applied a one-notch negative adjustment to reflect risks from the bank’s short track record in terms of both lending and profitability.
As such, in order for a positive rating revision, S&P wants to see Judo strengthen elements of its credit profile relative to higher-rated peers. Conversely, if the prospect of the bank improving elements of its credit profile were to diminish materially, the bank’s current positive rating could be revised to stable.