Judo Capital's Growth Story Hits a Sudden Bad Debt Scare
Fund managers disagree on whether a sharp sell-off after three problem loans is overdone or a sign of bigger credit risks ahead
30 Jun 2026 · 4 min read
In short
Judo Capital scaled its lending book to around A$13.4 billion, targeting A$20 billion, with first-half FY26 profit up 47%, ECP says.
Judo completed an upsized A$750 million capital-relief securitisation in May 2026 amid strong investor demand.
Three problem loans of $70-80 million each triggered a 9% FY26 guidance downgrade and a roughly 40% share price fall in June 2026.
SME-focused lender Judo Capital delivered consistent loan and deposit growth through most of 2025 and early 2026, before a handful of problem loans triggered a profit warning that wiped around 40 per cent off its share price in a single month.
A relationship banking model finds its niche
ECP Asset Management's January 2026 case described Judo as a purpose-built bank reviving relationship banking, an area largely vacated by Australia's major banks, scaling its lending book to around A$13.4 billion with a target of A$20 billion over the coming years. Judo aims to fund close to 75 per cent of loans through deposits, and ECP saw scope for its net interest margin of over 3 per cent to expand further as loan book growth continued alongside disciplined credit assessment.
Judo has demonstrated exceptional execution, scaling its lending book to approximately A$13.4bn, targeting further growth towards A$20bn over the next few years. Judo generates a healthy Interest Margin (NIM) of +3%, which we see further upside to. When coupled with disciplined loan book expansion, this trajectory is expected to drive significant profit growth and a strengthening Return on Equity (ROE) profile.
— ECP Asset Management, Monthly Report, January 2026
Strong first-half growth meets a cautious market
Pendal Group's February 2026 update reported first-half net profit up 47 per cent year on year, yet the market focused instead on a lack of upside to guidance, even amid a boom in SME credit and reduced lending competition. Pendal noted a tight 12.6 per cent core tier one capital ratio meant Judo would need to carefully balance growth against returns, even as the stock traded on just 11.5 times FY27 earnings, a valuation Pendal argued didn't reflect successful execution of the strategy.
A capital-relief securitisation lands amid rising caution
ECP Asset Management's May 2026 update reported a positive milestone even as broader sentiment wavered: Judo completed an A$750 million capital-relief securitisation programme, upsized from an initial A$500 million plan due to strong demand, continuing to take market share in a competitive lending environment. That positive news arrived even as LSN Capital Partners had exited its position in March on expectations of an SME activity slowdown and a rising bad debt cycle, and Ten Cap trimmed its long position over risks specifically in the agriculture and transport sectors.
A surprise profit warning triggers a sharp fall
The risk both funds had flagged materialised in June 2026. Pendal Group reported Judo issued a surprise profit warning, cutting FY26 guidance by 9 per cent due to three problem loans, with exposures of $70 million to $80 million each, far larger than the company's previously stated average loan size of $2 million to $3 million. New FY27 guidance came in 15 per cent below consensus, and the shares fell around 40 per cent to trade at just 7 times downgraded earnings and 0.6 times net tangible assets.
Judo issued a surprise profit warning with FY26 guidance downgraded 9% due to three problem loans. The market did not like the size of exposures at $70-80 million, given prior comments of $2-3 million average loan size. The share price reaction was fairly extreme, falling ~40% to trade at 7x downgraded earnings and 0.6x NTA.
— Pendal Group, Newsletter, June 2026
A split verdict on whether the reaction was overdone
Blackwattle Investment Partners argued the market's reaction was excessive at just around 7 times earnings, noting Judo's underlying operating performance had met or exceeded every other FY26 guidance metric aside from the provisioning impact, and remained positive on the bank's long-term growth trajectory. Perennial Partners was more circumspect, warning the surprise downgrade raised the prospect of a broader pick-up in credit costs across the sector, and that with banking valuations already elevated, there was not much room for further error.
Questions
How large is Judo Capital's SME lending book?
ECP Asset Management reported Judo Capital had scaled its lending book to approximately A$13.4 billion, targeting further growth toward A$20 billion over the following few years, funded largely through a growing deposit base.
Why did Judo Capital's share price fall sharply in June 2026?
Pendal Group said Judo issued a surprise profit warning, cutting FY26 guidance by 9% due to three problem loans of $70-80 million each, far larger than its typical $2-3 million average loan size, sending shares down around 40%.
Do fund managers think Judo Capital's sell-off was overdone?
Blackwattle Investment Partners said the market's reaction was excessive given the stock traded at just 7 times downgraded earnings, while Perennial Partners was more cautious, warning the downgrade could signal a broader pick-up in sector-wide credit costs.
16 managers, 31 comments, with each manager's latest recorded position.
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