Challenger bank Judo poised to guide SMEs through Covid-19 crisis

Challenger bank Judo poised to guide SMEs through Covid-19 crisis

A well-timed investment from the Federal Government is good news for small and medium-sized businesses (SMEs).

Judo Bank, an Australian challenger bank dedicated to supporting SMEs, announced last week that it will be receiving a $500 million investment from the Australian Office of Financial Management (AOFM).

The funds will be used to provide credit to SMEs nationally, and represent a big tick of approval from the Federal Government and its confidence in Judo's banking model.

Founded in 2016, Judo Bank is best known for its $400 million funding round the largest in Australian history.

That injection of capital has allowed Judo to become a major player in the world of neobanks, especially when it comes to SME banking.

The company was established to fill a $90 billion funding gap and lends to SMEs that require cash to grow.

Business News Australia spoke with co-founder of Judo Bank David Hornery (pictured) about how the bank is well-capitalised and prepared to assist SMEs through this confusing period.

Congratulations on the funding from the AOFM. What sort of message from the Government do you think that sends to you as a challenger bank?

David Hornery: The Government has been really decisive, really substantial and really targeted in the way that it has sought to provide support to the small and medium-sized enterprise market.

There's been a range of different programs; there's the $90 billion program overseen by the Reserve Bank, there's the $15 billion program overseen by the AOFM, and there's the $2.5 billion securitisation fund.

We had been working on our proposal for a good 12 months and I think we won it on the merit of the proposal. Alongside all of the other government initiatives it speaks volumes about the government's substantial and targeted desire to support small to medium sized enterprise through this time.

What will the injection of cash from the Government allow Judo to do?

We've got a book today of about $1.4 billion of lending and $1.4 billion or thereabouts of deposits and this $500 million warehouse facility allows us to continue to build on that lending book.

Then we've got a pipeline of roughly a billion dollars' worth of activity from SMEs that want to borrow from us. [The investment] adds another dimension in our capacity to be able to deal to and speak to that pipeline.

There's never been a time that's more important for liquidity to be there for small business.

Where do you see Judo and other challenger banks fitting into the national response to Covid-19?

We are growing apace in our portfolio, as have we as a company. Really from the outset we've been defined by the relationship centric approach to banking of SMEs. That is, you know, a bank that sits across the table from the customer and builds a real depth of understanding of that customer or relationship with that customer and ultimately builds trust.

That model has never been more valuable and more important than it is today.

We've got 600 clients and 55 bankers. That means each banker at this point is only covering a dozen customers. It means that they are on the phone proactively available all the time to their customers trying to help support and provide advice to structured funding for them through this period.

The feedback we've had from customers about the availability and the relationship depth they have with us has been outstanding. The way we're approaching relationship banking has never been more important than it is today.

Have you seen an increase in SMEs approaching Judo for assistance since the Covid-19 crisis began?

The pipeline is reasonably steady at about $1 billion. We had a strong lending month in March - there is absolutely a continued growth in the number of customers that are coming to Judo.

What do you think of the assistance being handed out to SMEs so far? It's been quite substantial so far, but do you think there is more the Government could be doing for SMEs?

I think they've done an enormous amount and they done it, to their credit, quickly. And they've done it in a targeted and well-structured way. There is still a lot of the execution to go but they've been genuinely well set up.

Obviously, there are many SME founders and owners that are struggling quite a bit at the moment. What would be your message to those out there that are worried about their business going under or worried about cash flow?

Well I think it's the plan. I think it's about actually planning your cash flow and planning your expenditure. It's about having a view as to how this period is going to be, not being overly pessimistic but not being overly optimistic either. Build a plan about how you're going to manage through this. What are the assumptions? What are the mitigants? What are the government programs you can access and plan?

Just really step by step build yourself a roadmap as to how you will manage your business through this.

What about Judo itself? Is the bank itself in a solid position at the moment to ride out a crisis like this?

We're very, very well placed. We're very well capitalised. We've got $1.4 billion of deposits and we've grown our business to 170 people and that continues to grow. We just announced about two weeks ago a $350 million debt facility from Citi Bank on top of the $350 million facility we have in place from Credit Suisse. There's now the $500 million facility that we've just talked about. So from a capital liquidity perspective and from a client relationship perspective we are really, really, really well positioned for the period coming up.

But there's no complacency. This is a difficult time and you know we absolutely have to think about the operation, about how we manage our people and how we run the business in the environment that we face.

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