By Alice Uribe
SYDNEY – Judo Capital Holdings Ltd. is set to increase the service buffer it uses when evaluating new loans to small and medium-sized businesses, as it seeks to anticipate risks to the economy from rising cash rates and inflation.
Joseph Healy, chief executive of the Australian SME-only lender, said its current credit policy is to add 200 basis points when analyzing the risk of a potential loan.
“So if we lend to a company at 4.5%, our risk analysis is at 6.5%. We will increase that to 300 basis points,” he said at a media event. Friday.
The increase was approved on Thursday, Mr Healy said, with judo soon to introduce the higher pad. He said the move was part of careful preparation for how an unprecedented cocktail of circumstances could unfold, he said.
“The level of household debt is mind-boggling. I think globally the outlook for a recession is quite high,” he said.
“I’m not saying there’s going to be a correction here. We’re blessed that we have natural resources and agriculture.”
Judo’s decision to increase its service buffer could mean some borrowers are no longer eligible to take out a loan from the lender, Mr Healy said. Despite this, he said the company remains comfortable with its ability to meet its growth aspiration of having a loan portfolio of AUD 15-20 billion (AUD 10.57-14.09 billion). US dollars) on a large scale, and 6 billion Australian dollars by June. 30.
“We believe that what will happen in a rising interest rate market, with an easing of trading conditions, credit capacity will be reduced. The drawbridge will be lifted and banks will focus on managing and preserving of the exposure they got,” Mr. Healy said.
“It creates an opportunity for judo, given our size…we can grow by identifying good quality companies.”
Construction and discretionary retail are two sectors Healy sees as being under pressure.
“We need to be cautious about discretionary retailing in general. of Covid, there was an acceleration of behavioral change in the way people shopped,” he said.
The judo house’s view is that the Australian cash rate will rise to 2.5% by the end of the year and could rise to 3% next year. Mr Healy said the big unknown is how aggressive the Reserve Bank of Australia is in its efforts to bring inflation under control.
RBA Governor Philip Lowe on ABC’s 7:30 am TV show this week said he expects inflation to reach 7% by the end of the year, but he noted that Australian households had amassed a reserve of savings of 250 billion Australian dollars.
“The open question is how willing the central bank is to act aggressively on interest rates to deal with inflation and that’s the big unknown,” Mr Healy said.
“If we were to do what I see happening elsewhere, we would be in for a really tough time.”
Write to Alice Uribe at [email protected]