Judo’s staff has grown to more than 250 and it only considers hiring the top 10 per cent of performing bankers among the majors. Mr Healy said it will seek to lift headcount to meet rising demand from disenfranchised customers of the big four.

After COVID-19, lending decisions will involve “a lot more emphasis on forward projections and a lot less weight on the past”, he said. “The banks have industrialised their operating model and largely lent money based on property. They might check property values are OK but there is not a lot of [assessment] on other aspects of the business.”

About a third of Judo’s loans are not backed with property security as it attempts to make a call on the quality of the business owner. In almost three years, it has still not recorded a bad debt.

Mr Healy acknowledged this is only a matter of time, given the economic challenges, and problem loans are expected to materialise in the next three to six months.

CBA more active in business banking

“Any portfolio will have sleepers,” he said. The roll-off of rental assistance from landlords could have a bigger impact for some SMEs than losing JobKeeper, he added.

Judo’s growth mindset comes as Commonwealth Bank used half-yearly results last month to launch more aggressively into business banking and tackle National Australia Bank in its stronghold head-on.

Mr Healy confirmed CBA is more active in the market and is pricing aggressively, which has more recently been met by NAB, as its CEO, Ross McEwan, attempts to fend off the attack by CBA boss Matt Comyn.

“CBA have been hiring and aggressively pursuing market share,” Mr Healy said at a media briefing on Wednesday. But he questioned whether efforts to provide more discretion to bankers and put risk management into the frontline will be successful at either bank, given their size and bureaucracy.

“The challenge will be translating that at scale, given the deeply ingrained immune systems and cultures in those organisations that makes that kind of change difficult to pull off and sustain,” he said.

Judo this week released its third SME Banking Insights report, which found the “funding gap” – a shortfall between what SMEs with turnover between $1 million and $20 million can borrow and what they want to borrow – had increased by almost $5 billion to $94 billion over the past year, despite COVID-19 assistance.

Disenfranchised customers

The survey, conducted by East & Partners, was based on interviews with 1750 SMEs, three-quarters of which were customers of the major banks.

The report finds trust among SMEs had fallen from 2.4 points to 2.26, while one in five customers said they had no interaction with their bank in the past year, 54 per cent said conversations were infrequent and 62 per cent wanted more interaction.

Mr Healy said Judo is picking up many disenfranchised customers.

With a net interest margin of 3.5 per cent, reflecting higher rates charged to business loans compared to mortgages, Judo has been able to pay up for deposits – its rates for longer than 12 months are the best in market. This has helped it lure in $2 billion of deposits, with half from the retail market. It has also got $1.2 billion of wholesale, senior debt.

Its fourth round $284 million equity capital raising, which saw UniSuper come on board as an investor, was completed at a premium to prior rounds despite the pandemic – which put massive pressure on the other neobanks licensed by APRA from 2018.

These include Xinja, which APRA forced to return its deposits; 86400, which has been bought by NAB; and Volt Bank, which is yet to get off the ground and trying to pivot to a white-label platform.

Judo’s post-money valuation of about $1.6 billion is up 60 per cent in the seven months from May until December last year, as its lending book grew by 80 per cent compared to system SME loan growth, which contracted by around 2 per cent.