Judo inks new $350m facility with Citi to lift lending to SMEs

via The Australian Financial Review

Judo Bank has signed a three-year, $350 million committed facility with global bank Citi which will allow the challenger bank to lift funding to small businesses struggling with coronavirus, despite the inevitability of bad debts rising as customer cash flows come under pressure.

Amid widespread market volatility and growing concerns about SME credit quality in the face of COVID-19, Judo’s co-chief executive David Hornery said the fund raising is “a sign of our commitment to remaining open to funding SMEs in the current environment, and to Citi who are committed to providing funding lines to us in support of SMEs”.

But Mr Hornery would not discuss details of pricing for loans, nor how the new facility compared to a similar $100 million deal with Goldman Sachs last April and a $350 million Credit Suisse facility, signed in November 2018.

“Overall terms, conditions and pricing reflect that we have built a bank of real substance. For us, this is a hugely usable facility and we are really happy with the terms and conditions of it,” he said.

Judo has committed funding lines of $1 billion and received a licence from APRA 11 months ago. Since then, it has lent $1.3 billion to SMEs and raised $1.3 billion in deposits, which are protected by the government guarantee. Last week, it had its best week in terms of deposit inflows, Mr Hornery said.

As in the global financial crisis, “deposits are flowing to the banking sector, including us”. Judo has not changed deposit pricing, remaining in the top quartile of deposit rates.

The investment bank facilities provide diversification, which has become more important given the bad debt cycle is turning up. But Mr Hornery said it is early days in terms of dealing with the coronavirus crisis.

“We have a diversified portfolio, there are a number of inquiries coming through working capital lines, but they are reasonably broad-based at this point. But there is no question there will be losses – it is inevitable.”

Mr Hornery said the coming government stimulus needs to be targeted to particular industries doing it tough in order of their stresses.

“There is no doubt there will be a level of stress that comes through the small business economy and while it is early days that stress is beginning to emerge and without doubt will continue,” he said.

“It will hit certain operators and industries harder initially, like tourism and hospitality, but then you can’t underestimate the secondary flow through to the service providers to them.”

Judo has 60 bankers serving 600 customers and Mr Hornery said “the way you manage circumstances and mitigate loss is you get on the phone to the customer early, begin having conversations, provide advice, counsel, support, and work with them”.

by James Eyers