Judo Capital (ASX:JDO) cuts FY26 profit guidance after three loans go bad

FY27 still pencils in 30% PBT growth, and that gap is the whole debate

Judo Capital Holdings (ASX:JDO) has stepped down its FY26 profit guidance after three customer-specific exposures blew out the cost of risk line. FY26 PBT now lands between A$163m and A$169m, well short of the A$180m to A$190m the bank reaffirmed only a quarter ago.

The cause is narrow but the impact is real. Cost of risk for FY26 is now expected at A$116m to A$122m, driven almost entirely by specific provisions on three loans across different sectors. Management says these are borrower-specific deteriorations that emerged after the Q3 review, not a broad portfolio crack.

The harder question for investors is whether to trust that framing. We flagged in our Q3 piece that Judo was provisioning early for trouble it could see coming. Today’s downgrade suggests the trouble arrived faster than the buffer could absorb, even with the management overlay still sitting at 94 basis points of gross loans.

Yet the operating engine is still firing. Loan book at over A$14.4bn, net interest margin tracking above 3.2% in the second half, cost-to-income improving again. And FY27 guidance of A$210m to A$220m PBT keeps the 30% growth story intact. That tension is the whole article.

Three loans, one downgrade, and the limits of early provisioning

The downgrade is roughly A$20m of PBT, and almost all of it sits in specific provisions on three exposures. That is a tiny fraction of a A$14.4bn book, but SME lending is lumpy by design. A handful of loans can move the dial in either direction.

Judo also now expects 90-days-past-due and impaired loans at around 3% of gross loans by 30 June, including these three names. That is a step up from the Q3 trajectory and worth watching, even though the collective provision overlay has not been changed.

Our concern is straightforward. Management built a sector overlay in Q3 specifically because the macro looked uncertain, and three loans still managed to surprise them within a single quarter. The overlay is doing some work, but clearly not enough to absorb concentrated borrower stress.

The operating story underneath is actually getting better

Strip out the credit line and the rest of the result reads well. NIM at over 3.2% in 2H26 beats the 3.15% Judo guided to last quarter, helped by deposit costs that have moved in the bank’s favour. New term deposits in Q4 came on at 76bps over BBSW.

Front book margins were stable at 4.2% over BBSW through April and May, with the AAA pipeline at A$2.4bn carrying a 4.3% margin. That is pricing power, not desperate growth. Cost-to-income for 2H26 will print below the 48.5% from 1H26.

This is the operating leverage thesis we wrote about after the half-year. The credit line is the swing variable, but the spread machine underneath is genuinely working harder each quarter.

Why FY27 guidance is the number that actually matters

FY27 PBT of A$210m to A$220m implies roughly 30% growth off the new FY26 base. That is the same growth rate Judo just delivered into FY26, and management is signing up to it while still flagging an uncertain macro and geopolitical backdrop.

The bank is also moving its CET1 management range down to 11.0% to 12.0% from a current ~12.4%, after a capital relief securitisation. That signals confidence in the loss profile and opens the door to capital management later, potentially a buyback if the share price stays soft.

Through-the-cycle cost of risk is still pitched at 50bps of average GLA. FY26 will print above that. FY27 needs to print closer to it for the guidance to land.

The Investors Takeaway for Judo Capital Holdings

Judo has handed investors a clean test. The operating leverage story is intact and arguably accelerating, with NIM, cost ratios and lending momentum all moving the right way. The credit line is the swing factor, and three loans have just shown how quickly it can swing.

We think the FY27 guidance is the line that matters. If management delivers A$210m to A$220m of PBT after this credit reset, the through-the-cycle thesis survives and the lower CET1 range opens up real capital return optionality. If credit keeps surprising, the market will keep discounting the growth.

The 18 August result is the next checkpoint, particularly the commentary on whether the impaired loan ratio has stabilised at 3%. Investors can read our prior coverage of this name at stocksdownunder.