Full Year 2026 Judo Capital Holdings Ltd Earnings Call

August 18, 2026

Speaker #1: Good morning, and welcome to the Judo Bank FY26 results webcast. We appreciate everybody accommodating the slightly delayed start time this morning; it has turned out to be a busy day on the market.

Andrew Dempster: Good morning, and welcome to the Judo Bank FY26 results webcast. We appreciate everybody accommodating the slightly delayed start time this morning. It has turned out to be a busy day on the market. My name's Andrew Dempster. I'm the GM of Strategy and Investor Relations at Judo Bank. I'd like to begin by acknowledging the traditional owners of the land from which we are all joining today. For our agenda this morning, we're first going to hear from CEO Chris Bayliss with an overview of our performance and some discussion on our portfolio. Our CFO, Andrew Leslie, will then run through detailed financials. Chris will then return to discuss our strategy and outlook. We will then open the lines for Q&A. On that note, I'll now hand to Chris.

Speaker #1: My name is Andrew Demster. I'm the GM of Strategy and Investor Relations at Judo Bank. I'd like to begin by acknowledging the traditional owners of the land from which we are all joining today.

Speaker #1: For our agenda this morning, we're first going to hear from CEO Chris with some discussion on our portfolio. Our CFO, Andrew Leslie, will then run through the detailed financials, and then Chris will return to discuss our strategy and outlook.

Speaker #1: We will then open the lines for Q&A. On that note, I'll now hand over to Chris.

Speaker #2: Thank you, Andrew. And good morning, everyone. Now, look, it won't be a surprise that, following our June announcement, we've spent considerable time engaging with the market.

Chris Bayliss: Thank you, Andrew, and good morning, everyone. Look, it won't be a surprise that following our June announcement, we've spent considerable time engaging with the market. I think it's fair to say we've received numerous questions about the composition of our portfolio, whether the June event was isolated or evidence of broader deterioration, and ultimately, whether we remain confident in our through-the-cycle cost of risk assumption of 50 basis points. Our goal is to answer these questions today, and to that end, we have included some additional slides in the presentation. We will, of course, also provide the usual detailed update on our financial performance and discuss the outlook. I'd like to begin with some reflections on FY26. It's of course important to acknowledge the increase in provisions we announced in June.

Speaker #2: I think it's fair to say we've received numerous questions about the composition of our portfolio, whether the June event was isolated or evidence of broader deterioration, and ultimately, whether we remain confident in our through-the-cycle cost of risk assumption of 50 basis points.

Speaker #2: Our goal is to answer these questions today and, to that end, we have included some additional slides in the presentation. We will, of course, also provide the usual detailed update on our financial performance and discuss the outlook.

Speaker #2: I'd like to begin with some reflections on FY26. It's, of course, important to acknowledge the increase in provisions we announced in June. This related to three exposures: one large customer group and two smaller customers, and resulted in higher earnings volatility than we expect from the business.

Chris Bayliss: This related to three exposures, one large customer group and two smaller customers, and resulted in higher earnings volatility than we expect from the business. The two smaller customers are typical losses for an SME bank, but were non-performing at the end of the year, which just didn't give us enough time to resolve them before the end of our balance date. Since then, we've undertaken a review of the exposures and incorporated learnings into our settings and processes. We've taken targeted action in the areas such as the detection of connected borrowers, valuation practices, and credit assurance, and the business is much stronger as a result. However, look, it's important to keep FY26 in perspective.

Speaker #2: The two smaller customers are typical losses for an SME bank, but when non-performing at the end of the year, it just didn't give us enough time to resolve them before the end of our balance date.

Speaker #2: Since then, we've undertaken a review of the exposures and incorporated learnings into our settings and processes. We've taken targeted actions in areas such as the detection of connected borrowers, valuation practices, and credit assurance.

Speaker #2: And the business is much stronger as a result. However, look, it's important to keep FY26 in perspective. Two specific provisions, only one of which was discussed in our June update, accounted for 25% of the year's impairment expense, and they are not representative of the portfolio, which continues to perform in line with our expectations.

Chris Bayliss: Two specific provisions, only one of which was discussed in our June update, accounted for 25% of the year's impairment expense, and they are not representative of the portfolio, which continues to perform in line with our expectations. I want to stress also provisions are not losses. Both of these businesses are trading and the resolution process is ongoing, and in particular, the larger customer group we referred to in our June update is starting to clear their arrears and we have a good relationship with them. Notwithstanding these provisions, as we go through our results today, you'll see we've continued to execute against our strategic priorities and deliver a step change in ROE. The fundamentals of our company remain strong. SME credit demand is robust, and we have a healthy pipeline and a strong competitive edge. Our bank is increasingly diversified and delivering significant operating leverage.

Speaker #2: I want to stress also: provisions are not losses. Both of these businesses are trading, and the resolution process is ongoing. In particular, the larger customer group we referred to in our June update is starting to clear their arrears, and we have a good relationship with them.

Speaker #2: Notwithstanding these provisions, as we go through our results today, you'll see we've continued to execute against our strategic priorities and deliver a step change in ROE.

Speaker #2: The fundamentals of our company remain strong. SME credit demand is robust, and we have a healthy pipeline and a strong competitive edge. Our bank is increasingly diversified and delivering significant operating leverage.

Chris Bayliss: Our bank is increasingly diversified and delivering significant operating leverage. We continue to execute our strategy and have a clear pathway to delivering ROE in the low to mid-teens. Now to our financials. We have had another year of above-system growth in lending, with growth in the regions and agri outperforming the rest of the book, driven by the investments we have made over the last few years. Pleasingly, deposits have funded all lending growth, supported by our competitive pricing and the launch of our new at-call products, which have exceeded our expectations. NIM has improved 20 basis points and is now above 3%, consistent with our long-run assumptions and expectations. CTI has improved substantially, and it still has a long way to fall, despite us already having the lowest CTI in the sector now.

Speaker #2: We continue to execute our strategy and have a clear pathway to delivering ROE in the low to mid-teens. Now, to our financials. We've had another year of above-system growth in lending, with growth in the regions in aggregate outperforming the rest of the book, driven by the investments we've made over the last few years.

Chris Bayliss: We continue to execute our strategy and have a clear pathway to delivering ROE in the low to mid-teens. Now to our financials. We have had another year of above-system growth in lending, with growth in the regions and agri outperforming the rest of the book, driven by the investments we have made over the last few years. Pleasingly, deposits have funded all lending growth, supported by our competitive pricing and the launch of our new at-call products, which have exceeded our expectations. NIM has improved 20 basis points and is now above 3%, consistent with our long-run assumptions and expectations. CTI has improved substantially, and it still has a long way to fall, despite us already having the lowest CTI in the sector now. Cost of risk was higher, as I have already discussed, but ultimately came out at the low end of the range we gave in June.

Speaker #2: Pleasingly, deposits have funded all lending growth, supported by our competitive pricing and the launch of our new outcall products, which have exceeded our expectations.

Speaker #2: NIM has improved to 20 basis points, and it is now above 3%, consistent with our long-run assumptions and expectations. CTI has improved substantially, and it still has a long way to fall, despite us already having the lowest CTI in the sector now.

Speaker #2: Cost of risk was higher, as I've already discussed, but ultimately it came out at the low end of the range we gave in June.

Chris Bayliss: Cost of risk was higher, as I have already discussed, but ultimately came out at the low end of the range we gave in June. As I just said, a disproportionate amount of the charge was consumed by two customers' files, which we believe have characteristics not generally present in the rest of the portfolio. PBT, notwithstanding the higher cost of risk, was still up 34%. Similarly, our ROE of 6.4% has again improved and will now continue to do so by about 100 to 200 basis points per annum. Moving now to portfolio composition. We continue to run our own race with a CVP of smarter judgment, faster decisions, and stronger relationships. While the major banks are undeniably more competitive in SME, we continue to have a strong competitive edge.

Speaker #2: And, as I just said, a disproportionate amount of the charge was consumed by two customers' files, which we believe have characteristics not generally present in the rest of the portfolio.

Chris Bayliss: As I just said, a disproportionate amount of the charge was consumed by two customers' files, which we believe have characteristics not generally present in the rest of the portfolio. PBT, notwithstanding the higher cost of risk, was still up 34%. Similarly, our ROE of 6.4% has again improved and will now continue to do so by about 100 to 200 basis points per annum. Moving now to portfolio composition. We continue to run our own race with a CVP of smarter judgment, faster decisions, and stronger relationships. While the major banks are undeniably more competitive in SME, we continue to have a strong competitive edge. We exist to serve customers that do not fit through industrialized one-size-fits-all credit assessment processes.

Speaker #2: And PBT, notwithstanding the higher cost of risk, was still up 34%. Similarly, our ROE of 6.4% has again improved, and will now continue to do so by about 100 to 200 basis points per annum.

Speaker #2: Moving now to portfolio composition. We continue to run our own race, with a CVP of smarter judgment, faster decisions, and stronger relationships. While the major banks are undeniably more competitive in SME, we continue to have a strong competitive edge.

Speaker #2: We exist to serve customers that do not fit through industrialized, one-size-fits-all credit assessment processes. That said, there is very little lending we do that the major banks would say no to, and around 70% of our customers come to us from the major banks.

Chris Bayliss: We exist to serve customers that do not fit through industrialized one-size-fits-all credit assessment processes. That said, there is very little lending we do that the major banks would say no to, and around 70% of our customers come to us from the major banks. Our model means we are faster and provide more tailored structures. We price for this service. We also price for differentiated risk. The chart on the top right demonstrates this. Our margins increase with risk measured as PD. Importantly, our portfolio metrics remain aligned to our through-the-cycle assumption of 50 basis points of cost of risk based on a portfolio PD of 2 and an LGD of 25%. The bottom right chart shows average portfolio PD over time. Despite strong GLA growth, average portfolio risk has actually been stable to lower, not higher.

Chris Bayliss: That said, there is very little lending we do that the major banks would say no to, and around 70% of our customers come to us from the major banks. Our model means we are faster and provide more tailored structures. We price for this service. We also price for differentiated risk. The chart on the top right demonstrates this. Our margins increase with risk measured as PD. Importantly, our portfolio metrics remain aligned to our through-the-cycle assumption of 50 basis points of cost of risk based on a portfolio PD of 2 and an LGD of 25%. The bottom right chart shows average portfolio PD over time. Despite strong GLA growth, average portfolio risk has actually been stable to lower, not higher.

Speaker #2: Our model means we are faster and provide more tailored structures. We price for this service; we also price for differentiated risk. The chart on the top right demonstrates this—our margins increased with risk, measured as PD.

Speaker #2: Importantly, our portfolio metrics remain aligned to our through-the-cycle assumption of 50 basis points of cost of risk, based on a portfolio PD of 2% and an LGD of 25%.

Speaker #2: And the bottom right chart shows average portfolio PD over time. Despite strong GLA growth, average portfolio risk has actually been stable to lower, not higher.

Speaker #2: So the key message is that we are generating growth by applying our credit capabilities in underserved segments of the market, and generating margin with our service proposition.

Chris Bayliss: The key message is that we are generating growth by applying our credit capabilities in underserved segments of the market and generating margin with our service proposition. In addition to managing risk at a transaction level, we also think about risk at a portfolio level. Since day one, we have consistently said that we are building a portfolio that mirrors the economy, with two exceptions. Firstly, agri. We had a risk setting that the loan book had to reach a reasonable size before we could take on the additional risk from weather and commodity prices. Agri is, however, a large part of the economy, and so over the last three years, we have grown in a measured way. We have opened nearly all of our locations in areas where we are comfortable with the risk dynamics.

Speaker #2: In addition to managing risk at a transaction level, we also think about risk at a portfolio level. Since day one, we've consistently said that we are building a portfolio that mirrors the economy, with two exceptions.

Speaker #2: Firstly, Agri. We had a risk setting that the loan book had to reach a reasonable size before we could take on the additional risk from weather and commodity prices.

Speaker #2: Agri is, however, a large part of the economy, and so over the last three years we've grown in a measured way. We've opened nearly all of our locations in areas where we are comfortable with the risk dynamics.

Speaker #2: We still remain underweight to this segment at about 8% of our total portfolio, versus 19% for the sector. The second key exception is lending for construction purposes.

Chris Bayliss: We still remain underway to this segment at about 8% of our total portfolio versus 19% for the sector. The second key exception is lending for construction purposes. While this is, of course, a major part of the economy, our exposure to this sector is largely services to construction, supporting existing customers who are building their own premises or some pre-development sites. We also have some exposures via our warehouse business, noting this is structurally more diversified and has a lower leverage point. The other sector to call out is commercial property investment, distinct from construction. Our exposure has reduced from 20% to 17% over the last four years as we have maintained a conservative stance towards property valuations. Since the IPO, we have actually grown from approximately AUD 4 billion to a lending book of AUD 15 billion now, while expanding across industries, geographies, and customer segments.

Speaker #2: While this is, of course, a major part of the economy, our exposure to this sector is largely services to construction, supporting existing customers or building their own premises, or some pre-development sites.

Speaker #2: We also have some exposures via our warehouse business, noting this is structurally more diversified and has a lower leverage point. The other sector to call out is commercial property investment, distinct from construction.

Speaker #2: Our exposure has reduced from 20% to 17% over the last four years, as we've maintained a conservative stance towards property valuations. So, since the IPO, we've actually grown from approximately $4 billion to a lending book of $15 billion now, while expanding across industries, geographies, and customer segments.

Chris Bayliss: Since the IPO, we have actually grown from approximately AUD 4 billion to a lending book of AUD 15 billion now, while expanding across industries, geographies, and customer segments. The key message is that the portfolio today is significantly more diversified than at the time of our IPO. As we have diversified and grown, we have remained an SME lender. 98% of our customers have facilities below AUD 20 million. The growth in our balance sheet has, however, given us some optionality, and we do have a handful of larger groups, all family-owned, and most of whom we have banked for many years. We know them well, we understand their businesses well, and we have been willing to grow with them.

Speaker #2: And so, as a result, the key message is that the portfolio today is significantly more diversified than at the time of our IPO. As we have diversified and grown, we have remained an SME lender.

Chris Bayliss: The key message is that the portfolio today is significantly more diversified than at the time of our IPO. As we have diversified and grown, we have remained an SME lender. 98% of our customers have facilities below AUD 20 million. The growth in our balance sheet has, however, given us some optionality, and we do have a handful of larger groups, all family-owned, and most of whom we have banked for many years. We know them well, we understand their businesses well, and we have been willing to grow with them. This is exactly what we mean by relationship banking. I will discuss our larger customers in more detail on the next slide, but in summary, they are lower risk and have more property security. This naturally implies that the smaller customers are the more cash flow orientated.

Speaker #2: Ninety-eight percent of our customers have facilities below $20 million. The growth in our balance sheet has, however, given us some optionality, and we do have a handful of larger groups— all family-owned, and most of whom we have banked for many years.

Speaker #2: We know them well, we understand their businesses well, and we've been willing to grow with them. And this is exactly what we mean by relationship banking.

Chris Bayliss: This is exactly what we mean by relationship banking. I will discuss our larger customers in more detail on the next slide, but in summary, they are lower risk and have more property security. This naturally implies that the smaller customers are the more cash flow orientated. This part of the portfolio is incredibly well diversified. I mean, this really is our absolute bread and butter as a specialist SME lender. While our four Cs approach to credit means we do not start with how much is your house worth, it is important to note that none of our lending is unsecured. We always have alternative security, such as a fixed and floating charge and directors' guarantees. Our specialist model, with experienced, empowered relationship bankers who have small portfolios, means we continue to excel in this part of the market.

Speaker #2: I will discuss our larger customers in more detail on the next slide, but in summary, they are lower risk and have more property security.

Speaker #2: This naturally implies that the smaller customers are more cash flow-oriented. And this part of the portfolio is incredibly well diversified. I mean, this really is our absolute bread and butter as a specialist SME lender. While our 4Cs approach to credit means we do not start with, "How much is your house worth?" it is important to note that none of our lending is unsecured.

Chris Bayliss: This part of the portfolio is incredibly well diversified. I mean, this really is our absolute bread and butter as a specialist SME lender. While our four Cs approach to credit means we do not start with how much is your house worth, it is important to note that none of our lending is unsecured. We always have alternative security, such as a fixed and floating charge and directors' guarantees. Our specialist model, with experienced, empowered relationship bankers who have small portfolios, means we continue to excel in this part of the market. Now moving to our largest customers. Whilst we must respect client confidentiality, it is important to provide some context behind them. First, these are overwhelmingly long-standing relationships. Around 80% of the growth in our customers above 50 million has come from businesses we have supported over several years. As they have grown, we have continued to support them.

Speaker #2: We always have alternative security, such as a fixed and floating charge and directors' guarantees. Our specialist model, with experienced and empowered relationship bankers who have small portfolios, means we continue to excel in this part of the market.

Speaker #2: Now, moving to our largest customers. Whilst we must respect client confidentiality, it's important to provide some context behind them. First, these are overwhelmingly long-standing relationships.

Chris Bayliss: Now moving to our largest customers. Whilst we must respect client confidentiality, it is important to provide some context behind them. First, these are overwhelmingly long-standing relationships. Around 80% of the growth in our customers above 50 million has come from businesses we have supported over several years. As they have grown, we have continued to support them.

Speaker #2: Around 80% of the growth in our customers above $50 million has come from businesses we've supported over several years. As they've grown, we've continued to support them.

Speaker #2: This means we have a deep understanding of their operations, their management teams, and their trading performance. Secondly, these customer groups are typically diversified businesses rather than single operating entities.

Chris Bayliss: This means we have a deep understanding of their operations, their management teams, and their trading performance. Secondly, these customer groups are typically diversified businesses rather than single operating entities. Our largest customer group, for example, comprises six different trading businesses and nine different freehold properties. Across the six customer groups above 100 million, there are 22 trading businesses and 33 properties. Three of these groups operate in the hospitality industry, where they generally have multiple freehold assets and are managed by highly experienced operators. In several cases, these customers have banked for Judo for many years, including relationships that actually predate our IPO. Third, our governance framework becomes increasingly rigorous as exposures grow. New to bank lending above 50 million is generally restricted, reflecting our preference to support and grow with existing customers, as I said earlier. Any exceptions require senior executive approval and board oversight.

Speaker #2: Our largest customer group, for example, comprises six different trading businesses and nine different freehold properties. Across the six customer groups above $100 million, there are 22 trading businesses and 33 properties.

Speaker #2: Three of these groups operate in the hospitality industry, where they generally have multiple freehold assets and are managed by highly experienced operators. In several cases, these customers have banked with Judo for many years, including relationships that actually predate our IPO.

Speaker #2: Third, our governance framework becomes increasingly rigorous as exposures grow. New-to-bank lending above $50 million is generally restricted, reflecting our preference to support and grow with existing customers, as I said earlier.

Speaker #2: Any exceptions require senior executive approval and board oversight. From time to time, we also see opportunities through our established banker relationships with larger businesses.

Chris Bayliss: Any exceptions require senior executive approval and board oversight. Look, from time to time, we also see opportunities through our established banker relationships with larger businesses. These are subject to extremely rigorous credit assessments, and we completed only one such transaction during the year. Fourthly, we believe our relationship-led model is particularly valuable in this segment. Our specialist bankers manage relatively smaller portfolios and work alongside experienced senior credit execs. In sectors such as hospitality, we have built up significant expertise and have long-standing industry relationships and believe we have one of the most experienced business banking teams in the country. Finally, it is worth noting that our approach to concentration has remained consistent as the balance sheet has grown. The largest single exposure has only occasionally exceeded 1% of our gross loans and advances.

Chris Bayliss: Look, from time to time, we also see opportunities through our established banker relationships with larger businesses. These are subject to extremely rigorous credit assessments, and we completed only one such transaction during the year. Fourthly, we believe our relationship-led model is particularly valuable in this segment. Our specialist bankers manage relatively smaller portfolios and work alongside experienced senior credit execs. In sectors such as hospitality, we have built up significant expertise and have long-standing industry relationships and believe we have one of the most experienced business banking teams in the country. Finally, it is worth noting that our approach to concentration has remained consistent as the balance sheet has grown. The largest single exposure has only occasionally exceeded 1% of our gross loans and advances.

Speaker #2: And these are subject to extremely rigorous credit assessments, and we completed only just one such transaction during the year. Fourthly, we believe our relationship-led model is particularly valuable in this segment.

Speaker #2: Our specialist bankers manage relatively smaller portfolios and work alongside experienced, senior credit executives. In sectors such as hospitality, we've built up significant expertise and have long-standing industry relationships, and believe we have one of the most experienced business banking teams in the country.

Speaker #2: Finally, it's worth noting that our approach to concentration has remained consistent as the balance sheet has grown. The largest single exposure has only occasionally exceeded 1% of our gross loans and advances, and as the balance sheet has continued to expand, we expect our largest exposures—and the proportion of those exposures above $50 million—to remain stable or trend lower as a percentage of the portfolio.

Chris Bayliss: As the balance sheet has continued to expand, we expect our largest exposures and the proportion of those exposures above AUD 50 million to remain stable or trend lower as a percentage of the portfolio. The key takeaway is that these exposures are generally long-tenured relationships supported by diversified underlying businesses, strong governance, and very experienced sector specialists. They remain an attractive part of the portfolio. They generate strong returns whilst maintaining conservative structures and security. I also want to make a comment on our relationship with brokers. In a market of over 22,000 brokers, we deal with less than 10%. These are dedicated commercial brokers who are largely ex-business bankers of the Big Four. We have a rigorous accreditation and ongoing monitoring process. On top of that, as we have talked about before, we launched our Broker Black Belt program last year, and it has been an absolute roaring success.

Speaker #2: The key takeaway is that these exposures are generally long-tenured relationships, supported by diversified underlying businesses, strong governance, and very experienced sector specialists. They remain an attractive part of the portfolio.

Speaker #2: They generate strong returns whilst maintaining conservative structures and security. I also want to make a comment on our relationship with brokers. In a market of over 22,000 brokers, we deal with less than 10%.

Speaker #2: These are dedicated commercial brokers who are largely ex-business bankers from the Big Four. We have a rigorous accreditation and ongoing monitoring process. On top of that, as we've talked about before, we launched our Black Belt program last year, and it's been an absolute roaring success.

Chris Bayliss: On top of that, as we have talked about before, we launched our Broker Black Belt program last year, and it has been an absolute roaring success. These brokers represent the top 0.1% of brokers in the country, and our proposition with them is unique in the industry. These brokers are business banking veterans with an average of 22 years experience. So where 99.9% of brokers in Australia are paid commissions solely on volume, these brokers have to hit portfolio customer satisfaction metrics and risk metrics also. This group of brokers has generated growth above 2 times system, and throughout 2026, we did not have a single bad debt or single specific provision associated with any of these Broker Black Belt brokers.

Speaker #2: These brokers represent the top 0.1% of brokers in the country, and our proposition with them is unique in the industry. These brokers are business banking veterans, with an average of 22 years' experience.

Chris Bayliss: These brokers represent the top 0.1% of brokers in the country, and our proposition with them is unique in the industry. These brokers are business banking veterans with an average of 22 years experience. So where 99.9% of brokers in Australia are paid commissions solely on volume, these brokers have to hit portfolio customer satisfaction metrics and risk metrics also. This group of brokers has generated growth above 2 times system, and throughout 2026, we did not have a single bad debt or single specific provision associated with any of these Broker Black Belt brokers. Now, before handing to Andrew, I would like to reinforce that we have multiple levers available to continue driving our ROE. Ten years into our journey, compared to other listed ADI peers, we have the industry-leading NPS, the highest PBT growth, the highest NIM, and the lowest CTI.

Speaker #2: So, where 99.9% of brokers in Australia are paid commissions solely on volume, these brokers also have to meet portfolio customer satisfaction metrics and risk metrics.

Speaker #2: And this group of brokers has generated growth above two times system, and throughout 2026, we did not have a single bad debt or a single specific provision associated with any of these Black Belt brokers.

Speaker #2: Now, before handing back—before handing to Andrew—I'd like to reinforce that we have multiple levers available to continue driving our ROE. Ten years into our journey, compared to other listed ADI peers, we have the industry-leading NPS, the highest PBT growth, the highest NIM, and the lowest CTI.

Chris Bayliss: Now, before handing to Andrew, I would like to reinforce that we have multiple levers available to continue driving our ROE. Ten years into our journey, compared to other listed ADI peers, we have the industry-leading NPS, the highest PBT growth, the highest NIM, and the lowest CTI. We also have the highest level of capital and the highest level of collective provisioning on a like-to-like standardized basis compared to the other listed banks. We have come a long way, and yet we just remain still only 2% of the market.

Speaker #2: We also have the highest level of capital and the highest level of collective provisioning on a like-for-like, standardised basis compared to the other listed banks.

Chris Bayliss: We also have the highest level of capital and the highest level of collective provisioning on a like-to-like standardized basis compared to the other listed banks. We have come a long way, and yet we just remain still only 2% of the market. So we still have significant runway ahead of us to manage growth, margins, cost, capital, and deliver strong operating leverage, and ultimately improve ROE, as I said earlier, by about 100 to 200 basis points per annum. I will now hand over to Andrew, who will take us through the financials.

Speaker #2: We've come a long way, and yet we still remain at only 2% of the market. So we still have significant runway ahead of us to manage growth, margins, cost, capital, and deliver strong operating leverage and ultimately improve ROE by, as I said earlier, about 100 to 200 basis points per annum.

Chris Bayliss: So we still have significant runway ahead of us to manage growth, margins, cost, capital, and deliver strong operating leverage, and ultimately improve ROE, as I said earlier, by about 100 to 200 basis points per annum. I will now hand over to Andrew, who will take us through the financials.

Speaker #2: I'll now hand over to Andrew, who will take us through the financials.

Speaker #1: Thank you, Chris, and good morning, everyone. This financial year, Judo delivered a pre-provision profit of $286 million. This result represents 42% growth versus last year, well ahead of our original expectations and guidance.

Andrew Leslie: Thanks. Thank you, Chris, and good morning, everyone. This financial year, Judo delivered pre-provision profit of AUD 286 million. This result represents 42% growth versus last year, well ahead of our original expectations and guidance. Growth, NIM, and operating leverage were all better than forecast. Earnings were also impacted by higher impairment charges. However, despite this, net profit before tax was up 34% year-on-year. Net profit after tax increased 29% to AUD 111 million, and EPS also increased 29% to 9.9 cents per share. Overall, return on equity increased 110 basis points to 6.4%. Over the next few slides, I will walk through the key drivers of the result in more detail, starting first with NIM. This slide sets out the key drivers of net interest margin from December 2025 to June 2026. NIM improved from 3.03% in the H1 to 3.23% in the H2, a better than expected result.

Speaker #1: Growth, NIM, and operating leverage were all better than forecast. Earnings were also impacted by higher impairment charges. However, despite this, net profit before tax was up 34% year-on-year.

Speaker #1: Net profit after tax increased 29% to $111 million, and EPS also increased 29% to $9.90 per share. Overall, return on equity increased 110 basis points to 6.4%.

Speaker #1: Over the next few slides, I'll walk through the key drivers of the result in more detail, starting first with NIM. This slide sets out the key drivers of net interest margin from December '25 to June '26.

Andrew Leslie: This slide sets out the key drivers of net interest margin from December 2025 to June 2026. NIM improved from 3.03% in the H1 to 3.23% in the H2, a better than expected result. There were two material positive drivers denoted by the green bars. First, deposit margins, which contributed 16 basis points to NIM, with blended deposit costs improving as cheaper deposits written in the H1 washed through the book. Deposit margins also benefited from the introduction of our at-call savings products, which allowed us to optimize our use of TDs during the period. Second, the treasury portfolio contributed seven basis points to NIM due to tighter liquidity management and improved treasury yields.

Speaker #1: NIM improved from 3.03% in the first half to 3.23% in the second half, a better-than-expected result. There were two material positive drivers denoted by the green bars.

Andrew Leslie: There were two material positive drivers denoted by the green bars. First, deposit margins, which contributed 16 basis points to NIM, with blended deposit costs improving as cheaper deposits written in the H1 washed through the book. Deposit margins also benefited from the introduction of our at-call savings products, which allowed us to optimize our use of TDs during the period. Second, the treasury portfolio contributed seven basis points to NIM due to tighter liquidity management and improved treasury yields. These large positive benefits were only slightly offset by two other factors. Lending margins saw a two bps reduction to NIM. Average lending margins declined from 4.3% to 4.2% over BBSW, reflecting some competitive pressures and changes in the lending mix, with a greater contribution from warehouse lending, which carries lower margins but higher ROE. Front book lending margins were 4.2%, compared with 4.3% in the H1.

Speaker #1: First, deposit margins, which contributed 16 basis points to NIM, with blended deposit costs improving as cheaper deposits written in the first half washed through the book.

Speaker #1: Deposit margins also benefited from the introduction of our at-call savings products, which allowed us to optimize our use of TDs during the period. Second, the Treasury portfolio contributed 7 basis points to NIM due to tighter liquidity management and improved Treasury yields.

Speaker #1: These large positive benefits were only slightly offset by two other factors. Lending margins saw a 2 basis points reduction to NIM. Average lending margins declined from 4.3% to 4.2% over BBSW, reflecting some competitive pressures and changes in the lending mix, with a greater contribution from warehouse lending, which carries lower margins but higher ROE.

Andrew Leslie: These large positive benefits were only slightly offset by two other factors. Lending margins saw a two bps reduction to NIM. Average lending margins declined from 4.3% to 4.2% over BBSW, reflecting some competitive pressures and changes in the lending mix, with a greater contribution from warehouse lending, which carries lower margins but higher ROE. Front book lending margins were 4.2%, compared with 4.3% in the H1.

Speaker #1: Front book lending margins were 4.2%, compared with 4.3% in the first half. Other costs of funding, including funding mix and the cost of wholesale funding, were a 1 basis point drag to NIM.

Andrew Leslie: Other cost of funding, including funding mix and the cost of wholesale funding, was a one basis point drag to NIM. While we benefited from favorable warehouse renewals and a higher proportion of deposit funding, this was largely offset by the full period impact of the Tier 2 issue completed in the H1, and the AUD 750 million term securitisation, which settled in June. Lastly, the equity component of funding. This had a neutral impact on NIM as the rising RBA cash rate was offset by our investment term of capital. I will now touch on our NIM expectations for FY27. We expect NIM to be broadly stable relative to FY26 of 3.13%. Term deposit margins are expected to normalize back towards our through the cycle range of 80 to 90 basis points over one month BBSW.

Speaker #1: While we benefited from favorable warehouse renewals and a higher proportion of deposit funding, this was largely offset by the full-period impact of the Tier 2 issue completed in the first half, and the $750 million term securitization, which settled in June.

Speaker #1: Lastly, the equity component of funding had a neutral impact on NIM, as the rising RBA cash rate was offset by our investment term of capital.

Speaker #1: I'll now touch on our NIM expectations for FY27. We expect NIM to be broadly stable relative to FY26, at 3.13%. Term deposit margins are expected to normalize back towards our through-the-cycle range of 80 to 90 basis points over 1-month BBSW.

Speaker #1: At the same time, we expect lending margins to be moderately lower, reflecting both lending mix and ongoing competition. We assume continued benefits from tighter liquidity management, with liquid assets as a proportion of GLA continuing to trend lower.

Andrew Leslie: At the same time, we expect lending margins to be moderately lower, reflecting both lending mix and ongoing competition. We assume continued benefits from tighter liquidity management, with liquid assets as a proportion of GLA continuing to trend lower, and we continue to expect a higher portion of deposits in the overall funding stack. Taken together, these factors are expected to broadly offset each other, supporting a broadly stable NIM outlook for FY27. Next to deposits and deposit margins. We continue to grow and diversify our deposit franchise, supporting ongoing momentum in lending. The deposit book continues to perform strongly, with retail TD rollover rates increasing to 73%. As touched on earlier, blended deposit margins improved by 23 basis points in the H2 to 69 basis points over one month BBSW.

Speaker #1: And we continue to expect a higher portion of deposits in the overall funding stack. Taken together, these factors are expected to broadly offset each other, supporting a broadly stable NIM outlook for FY27.

Speaker #1: Next, to deposits and deposit margins. We continue to grow and diversify our deposit franchise, supporting ongoing momentum in lending. The deposit book continues to perform strongly, with retail TD rollover rates increasing to 73%.

Speaker #1: As touched on earlier, blended deposit margins improved by 23 basis points in the second half to 69 basis points over 1-month BBSW. This was driven by favorable swap rate movements, which lowered the cost of term deposits originated earlier in the year, as well as the successful rollout of our at-call savings products.

Andrew Leslie: This was driven by favorable swap rate movements, which lowered the cost of term deposits originated earlier in the year, as well as the successful rollout of our at-call savings products. Looking at new term deposit pricing, the average margin on TDs originated in the H2 was 71 basis points over one month BBSW, benefiting from favorable swap curve conditions for most of the period. As expected, term deposit pricing moved back to our through-the-cycle range of 80 to 90 basis points over one month BBSW towards the end of the H2, with margins at this level embedded in our FY27 guidance. I will now spend some time on our at-call savings offering, including the two new products that we launched in FY2026. This is a great example of how the investments made in our technology platform directly support our long-term funding strategy.

Speaker #1: Looking at new term deposit pricing, the average margin on TDs originated in the second half was 71 basis points over 1 month, from the favorable swap curve conditions period.

Speaker #1: As expected, term deposit pricing moved back to our through-the-cycle range of 80 to 90 basis points over 1-month BBSW towards the end of the second half, with margins at this level embedded in our FY27 guidance.

Speaker #1: I'll now spend some time on our at-call savings offering, including the two new products that we launched in FY26. This is a great example of how the investments made in our technology platform directly support our long-term funding strategy.

Andrew Leslie: This is a great example of how the investments made in our technology platform directly support our long-term funding strategy. We successfully launched two new savings products during the year, the intermediated savings account in October, and the direct online savings account in February. These products were launched as part of a deliberate strategy to diversify our funding base, doubling our addressable deposit market beyond term deposits. Importantly, they give us greater flexibility in how we manage term deposit flows and pricing, optimizing overall funding costs. While still early in the life cycle of these products, we are pleased with the initial results. Customer adoption has been strong, with the majority of balances coming from new to bank customers. We expect benefits to continue to build as balances grow and customer cohorts mature over time.

Speaker #1: We successfully launched two new savings products during the year: the intermediated savings account in October and the direct online savings account in February. These products were launched as part of a deliberate strategy to diversify our funding base, doubling our addressable deposit market beyond term deposits.

Andrew Leslie: We successfully launched two new savings products during the year, the intermediated savings account in October, and the direct online savings account in February. These products were launched as part of a deliberate strategy to diversify our funding base, doubling our addressable deposit market beyond term deposits. Importantly, they give us greater flexibility in how we manage term deposit flows and pricing, optimizing overall funding costs. While still early in the life cycle of these products, we are pleased with the initial results. Customer adoption has been strong, with the majority of balances coming from new to bank customers. We expect benefits to continue to build as balances grow and customer cohorts mature over time. Looking ahead, we continue to see significant opportunities, including product enhancements and channel expansion.

Speaker #1: Importantly, they give us greater flexibility in how we manage term deposit flows and pricing, optimizing overall funding costs. While still early in the life cycle of these products, we're pleased with the initial results.

Speaker #1: Customer adoption has been strong, with the majority of balances coming from new-to-bank customers. We expect benefits to continue to build as balances grow and customer cohorts mature over time.

Speaker #1: Looking ahead, we continue to see significant opportunities, including product enhancements and channel expansion. Our overall objectives remain unchanged: to diversify our funding base, increase funding optionality, and improve funding efficiency as we continue to grow our balance sheet.

Andrew Leslie: Looking ahead, we continue to see significant opportunities, including product enhancements and channel expansion. Our overall objectives remain unchanged: to diversify our funding base, increase funding optionality, and improve funding efficiency as we continue to grow our balance sheet. Let us now look at the overall funding stack. We continue to progress towards our at scale funding mix, with deposits now representing 71% of total funding. Just as importantly, we continue to strengthen and optimize our wholesale funding. During the year, we completed a AUD 150 million Tier 2 issue, which priced 120 basis points tighter than our previous transaction. In addition, we successfully completed a AUD 750 million capital relief term securitisation, which priced 102 basis points tighter than our inaugural transaction in 2023. We are very pleased with this result.

Andrew Leslie: Our overall objectives remain unchanged: to diversify our funding base, increase funding optionality, and improve funding efficiency as we continue to grow our balance sheet. Let us now look at the overall funding stack. We continue to progress towards our at scale funding mix, with deposits now representing 71% of total funding. Just as importantly, we continue to strengthen and optimize our wholesale funding. During the year, we completed a AUD 150 million Tier 2 issue, which priced 120 basis points tighter than our previous transaction. In addition, we successfully completed a AUD 750 million capital relief term securitisation, which priced 102 basis points tighter than our inaugural transaction in 2023. We are very pleased with this result. Beyond the pricing outcome, the strategic significance of this transaction is that it provides capital relief and is highly accretive to ROE.

Speaker #1: So let's now look at the overall funding stack. We continue to progress towards our at-scale funding mix, with deposits now representing 71% of total funding.

Speaker #1: Just as importantly, we continue to strengthen and optimize our wholesale funding. During the year, we completed a $150 million Tier 2 issue, which priced 120 basis points tighter than our previous transaction.

Speaker #1: In addition, we successfully completed a $750 million capital relief term securitization, which priced 102 basis points tighter than our inaugural transaction in 2023.

Speaker #1: We're very pleased with this result. Now, beyond the pricing outcome, the strategic significance of this transaction is that it provides capital relief and is highly accretive to ROE.

Andrew Leslie: Beyond the pricing outcome, the strategic significance of this transaction is that it provides capital relief and is highly accretive to ROE. We would like to complete these types of transactions annually as we continue to scale and optimize the balance sheet. Turning now to operating expenses. We delivered material improvement in our cost to income ratio during the year, which reduced from 52.4% in FY25 to 45.3% in FY26. This is a very strong result and demonstrates the operating leverage inherent in the business as we continue to scale. Total operating expenses in FY26 was AUD 237 million. The largest contributor was employee-related costs, reflecting continued investment in customer-facing roles and some insourcing of IT roles, normal wage inflation, and growth in the business.

Speaker #1: We would like to complete these types of transactions annually as we continue to scale and optimize the balance sheet. Turning now to operating expenses.

Andrew Leslie: We would like to complete these types of transactions annually as we continue to scale and optimize the balance sheet. Turning now to operating expenses. We delivered material improvement in our cost to income ratio during the year, which reduced from 52.4% in FY25 to 45.3% in FY26. This is a very strong result and demonstrates the operating leverage inherent in the business as we continue to scale. Total operating expenses in FY26 was AUD 237 million. The largest contributor was employee-related costs, reflecting continued investment in customer-facing roles and some insourcing of IT roles, normal wage inflation, and growth in the business. FY26 saw higher amortization expense, reflecting the full run rate of prior investments, which was largely offset by lower IT costs. Other operating expenses increased, driven by growth-related activity and inflation.

Speaker #1: We delivered material improvement in our cost-to-income ratio during the year, which reduced from 52.4% in FY25 to 45.3% in FY26. This is a very strong result and demonstrates the operating leverage inherent in the business as we continue to scale.

Speaker #1: Total operating expenses in FY26 were $237 million. The largest contributor was employee-related costs, reflecting continued investment in customer-facing roles and some insourcing of IT roles, normal wage inflation, and growth in the business.

Speaker #1: FY26 saw higher amortization expense, reflecting the full run-rate of prior investments, which was largely offset by lower IT costs. Other operating expenses increased, driven by growth-related activity and inflation.

Andrew Leslie: FY26 saw higher amortization expense, reflecting the full run rate of prior investments, which was largely offset by lower IT costs. Other operating expenses increased, driven by growth-related activity and inflation.

Speaker #1: Looking ahead to FY27, we expect positive jaws to drive ongoing improvements in the cost-to-income ratio. We plan to invest in customer-facing capability, new products, and productivity initiatives, with other costs growing largely in line with inflation.

Andrew Leslie: Looking ahead to FY27, we expect positive jaws to drive ongoing improvements in the cost to income ratio. We plan to invest in customer-facing capability, new products, and productivity initiatives, with other costs growing largely in line with inflation. Turning now to asset quality. 90-plus days past due in impaired assets increased to 2.9% of GLA at year-end, which includes the two large impairments previously discussed. There are several key trends beneath the headline numbers worth highlighting. First, early stage arrears improved significantly during the year, with 30 to 89 days past due loans reducing to 0.39% of GLA, down from 1.04% a year ago. This improvement was driven by customer cures, repayments, and refinancings. However, this metric can be volatile, and we are not declaring victory. Secondly, trends in asset quality are mixed across different sectors.

Speaker #1: Turning now to asset quality. Ninety-plus days past due and impaired assets increased to 2.9% of GLA at year-end, which includes the two larger impairments previously discussed.

Speaker #1: There are several key trends beneath the headline numbers worth highlighting. First, early-stage arrears improved significantly during the year, with 30 to 89 days past due loans reducing to 0.39% of GLA, down from 1.04% a year ago.

Speaker #1: This improvement was driven by customer cures, repayments, and refinancings. However, this metric can be volatile, and we're not declaring victory. Secondly, trends in asset quality are mixed across different sectors.

Speaker #1: As shown on the bottom chart, elevated impairment levels continue to be focused in a handful of industries, rather than being evident across the broader portfolio.

Andrew Leslie: As shown on the bottom chart, elevated impairment levels continue to be focused in a handful of industries rather than being evident across the broader portfolio. We applied targeted management overlays to the more challenged sectors. Finally, during FY26, resolutions were higher, partly offsetting new impaired asset formation. Next, impairment expense and provisioning. FY26 impairment expense increased to AUD 118 million or 88 basis points of average GLA. This primarily reflected higher specific provisions on new impairments, together with a more cautious outlook for certain sectors facing continued challenges. Our provisioning approach remains prudent. Collective provision coverage increased to 0.93% of GLA, up from 0.89% in December, whilst the average PD of the performing portfolio remained broadly stable. Collective provision coverage reflects five key factors. Firstly, portfolio growth and changes in mix, with new originations representing a material portion of existing of current exposures.

Speaker #1: And we applied targeted management overlays to the more challenged sectors. Finally, during FY26, resolutions were higher, partly offsetting new impaired asset formation. Next, impairment expense and provisioning.

Speaker #1: FY26 impairment expense increased to $118 million, or 88 basis points of average GLA. This primarily reflected higher specific provisions on new impairments, together with a more cautious outlook for certain sectors facing continued challenges.

Speaker #1: Our provisioning approach remains prudent. Collective provision coverage increased to 0.93% of GLA, up from 0.89% in December, while the average PD of the performing portfolio remained broadly stable.

Speaker #1: Collective provision coverage reflects five key factors. Firstly, portfolio growth and changes in mix, with new originations representing a material portion of current exposures. Secondly, customer attrition, disproportionately in high-risk categories.

Andrew Leslie: Firstly, portfolio growth and changes in mix, with new originations representing a material portion of existing of current exposures. Secondly, customer attrition, disproportionately in high risk categories. Thirdly, general seasoning of the loan book, including customers migrating from the collective to specific provision buckets. Fourthly, updates to forward-looking macroeconomic scenarios, including incorporation of an oil shock in the downside scenario. Finally, a vulnerable industry overlay reflecting heightened risk for sectors experiencing challenging operating conditions. Stepping back, at 1.11% of standardized credit risk weighted assets, Judo continues to hold appropriate levels of provisioning for our loan book. Finally, to capital. We continued to maintain a strong capital position with a CET1 ratio of 12.4% at June 2026, above our target management operating range of 11% to 12%.

Andrew Leslie: Secondly, customer attrition, disproportionately in high risk categories. Thirdly, general seasoning of the loan book, including customers migrating from the collective to specific provision buckets. Fourthly, updates to forward-looking macroeconomic scenarios, including incorporation of an oil shock in the downside scenario. Finally, a vulnerable industry overlay reflecting heightened risk for sectors experiencing challenging operating conditions. Stepping back, at 1.11% of standardized credit risk weighted assets, Judo continues to hold appropriate levels of provisioning for our loan book. Finally, to capital. We continued to maintain a strong capital position with a CET1 ratio of 12.4% at June 2026, above our target management operating range of 11% to 12%. During the second half, the movement in the CET1 ratio was impacted by three main drivers. Firstly, lending growth, which was the primary consumer of capital at 110 basis points.

Speaker #1: Thirdly, general seasoning of the loan book, including customers migrating from the collective to specific provision buckets. Fourthly, updates to forward-looking macroeconomic scenarios, including incorporation of an oil shock in the downside. Finally, a vulnerable industry overlay reflecting heightened risk for sectors experiencing challenging operating conditions.

Speaker #1: Stepping back, at 1.11% of standardized credit risk-weighted assets, Judo continues to hold appropriate levels of provisioning for our loan book. Finally, to capital. We continued to maintain a strong capital position, with a CET1 ratio of 12.4% at June 2026, above our target management operating range of 11% to 12%.

Speaker #1: During the second half, the movement in the CET1 ratio was impacted by three main drivers. Firstly, lending growth, which was the primary consumer of capital at 110 basis points.

Andrew Leslie: During the second half, the movement in the CET1 ratio was impacted by three main drivers. Firstly, lending growth, which was the primary consumer of capital at 110 basis points. Secondly, organic capital generation, which continued to grow and contributed 40 basis points of capital in the half, supported by rising profitability. We expect this trend to continue as operating leverage builds. Thirdly, the capital relief term securitisation transaction, which contributed 60 basis points of capital. These transactions are highly accretive to ROE, demonstrating our ability to drive both capital efficiency and balance sheet scale.

Speaker #1: Secondly, organic capital generation continued to grow and contributed 40 basis points of capital in the half, supported by rising profitability. We expect this trend to continue as operating leverage builds.

Andrew Leslie: Secondly, organic capital generation, which continued to grow and contributed 40 basis points of capital in the half, supported by rising profitability. We expect this trend to continue as operating leverage builds. Thirdly, the capital relief term securitisation transaction, which contributed 60 basis points of capital. These transactions are highly accretive to ROE, demonstrating our ability to drive both capital efficiency and balance sheet scale. We have multiple levers to support growth while maintaining strong capital levels. With a CET1 target range of 11% to 12%, we now have the flexibility to consider a range of capital management initiatives in due course. Thanks again, folks, and I will now hand back to Chris.

Speaker #1: And thirdly, the capital relief term securitization transaction, which contributed 60 basis points of capital. These transactions are highly accretive to ROE, demonstrating our ability to drive both capital efficiency and balance sheet scale.

Speaker #1: We have multiple levers to support growth while maintaining strong capital levels. With a CET1 target range of 11% to 12%, we now have the flexibility to consider a range of capital management initiatives in due course.

Andrew Leslie: We have multiple levers to support growth while maintaining strong capital levels. With a CET1 target range of 11% to 12%, we now have the flexibility to consider a range of capital management initiatives in due course. Thanks again, folks, and I will now hand back to Chris.

Speaker #1: Thanks again, folks, and I'll now hand back to Chris.

Speaker #2: Thanks, Andrew. I want to start my wrap-up with the service-profit chain, which remains core to how we operate the bank. Engaged employees will deliver very satisfied customers; these build your brand, and in turn deliver great results for shareholders.

Chris Bayliss: Thanks, Andrew. I want to start my wrap-up with the service profit chain, which remains core of how we operate the bank. Engaged employees will deliver very satisfied customers. These build your brand and in turn, deliver great results for shareholders. Our employee engagement remains strong and has improved over the year, which is pleasing when scale often does the opposite. This has actually translated into even happier customers with our lending and deposit NPS remaining sector leading. For me personally, I am delighted we have been able to improve all these metrics as we have scaled, reflecting that this philosophy is well and truly now embedded into our DNA. The resulting ROE and EPS improvements show the model is working. ROE has improved 110 basis points year on year, and our EPS is up 29% year on year. This is our strategy that we continue to execute.

Speaker #2: Our employee engagement remains strong and has improved over the year, which is pleasing when scale often does the opposite. This has actually translated into even happier customers, with our lending and deposit NPS remaining sector-leading.

Speaker #2: And for me personally, I'm delighted we've been able to improve all these metrics as we've scaled, reflecting that this philosophy is now well and truly embedded into our DNA.

Speaker #2: And the resulting ROE and EPS improvements show the model is working. ROE has improved 110 basis points year on year, and our EPS is up 29% year on year.

Speaker #2: Now, this is our strategy that we continue to execute. We are growing and scaling our business, leveraging the strong foundations we have built. Growing our total addressable market remains a personal priority for me, as CEO, as we build out more and more diversification.

Chris Bayliss: This is our strategy that we continue to execute. We are growing and scaling our business, leveraging the strong foundations we have built. Growing our total addressable market remains the personal priority for me as CEO as we build out more and more diversification. Looking forward, we want to increase other operating income, reduce our cost of deposits, and enable our employees to innovate and drive more productivity. There are huge opportunities for us to consider how we support much smaller micro businesses with a better lending proposition for those customers that want to borrow below AUD 1 million. This is still a gap for us. In addition, there are opportunities to improve our working capital facility, our receivables finance proposition, and whether we want to enter trade finance.

Chris Bayliss: We are growing and scaling our business, leveraging the strong foundations we have built. Growing our total addressable market remains the personal priority for me as CEO as we build out more and more diversification. Looking forward, we want to increase other operating income, reduce our cost of deposits, and enable our employees to innovate and drive more productivity. There are huge opportunities for us to consider how we support much smaller micro businesses with a better lending proposition for those customers that want to borrow below AUD 1 million. This is still a gap for us. In addition, there are opportunities to improve our working capital facility, our receivables finance proposition, and whether we want to enter trade finance. Collectively, these segments are accretive to ROE through higher margins and higher fees.

Speaker #2: Looking forward, we want to increase other operating income, reduce our cost of deposits, and enable our employees to innovate and drive more productivity. There are huge opportunities for us to consider how we support much smaller micro businesses with a better lending proposition for those customers that want to borrow below $1 million.

Speaker #2: This is still a gap for us. In addition, there are opportunities to improve our working capital facility, our receivables finance proposition, and to consider whether we want to enter trade finance.

Speaker #2: Collectively, these segments are accretive to ROE through higher margins and higher fees. We remain confident in our thesis of building a bank that can generate an ROE in the low- to mid-teens at scale, and we have lots of opportunities ahead of us.

Chris Bayliss: Collectively, these segments are accretive to ROE through higher margins and higher fees. We remain confident in our thesis of building a bank that can generate an ROE in the low to mid-teens at scale, and we have lots of opportunities ahead of us. In the near term, we have several strategic priorities aligned to growth, margins, operating leverage, risk management, and capital efficiency. On growth, we are making ongoing investments in banker enablement, consolidating our position in the regions, and having a truly sector leading broker value proposition with our Broker Black Belt brokers. To drive margins, we will continue to invest and enhance our deposit offerings. Combined with growth and margins, investment in productivity will continue to underpin the delivery of operating leverage.

Chris Bayliss: We remain confident in our thesis of building a bank that can generate an ROE in the low to mid-teens at scale, and we have lots of opportunities ahead of us. In the near term, we have several strategic priorities aligned to growth, margins, operating leverage, risk management, and capital efficiency. On growth, we are making ongoing investments in banker enablement, consolidating our position in the regions, and having a truly sector leading broker value proposition with our Broker Black Belt brokers. To drive margins, we will continue to invest and enhance our deposit offerings. Combined with growth and margins, investment in productivity will continue to underpin the delivery of operating leverage. This work capitalizes on our strategic flexible technology platforms with AI solutions having an increasingly important role to play.

Speaker #2: In the near term, we have several strategic priorities aligned to growth, margins, operating leverage, risk management, and capital efficiency. On growth, we're making ongoing investments in banker enablement, consolidating our position in the regions, and having a truly sector-leading broker value proposition with our Black Belt brokers.

Speaker #2: To drive margins, we will continue to invest in and enhance our deposit offerings. Combined with growth and margins, investment in productivity will continue to underpin the delivery of operating leverage.

Speaker #2: This work capitalizes on our strategic, flexible technology platforms, with AI solutions having an increasingly important role to play. In terms of risk management, in FY27 we are deploying new monitoring and early warning alert technology that will complement our existing detective controls.

Chris Bayliss: This work capitalizes on our strategic flexible technology platforms with AI solutions having an increasingly important role to play. In terms of risk management, in FY27, we are deploying new monitoring and early warning alert technology that will complement our existing detective controls. Lastly, we will continue to actively manage capital with all our available levers to support growth and ROE. Turning to the economy. We understand the broader economic outlook and trading conditions for SMEs are mixed and businesses are operating with uncertainty about the future. Businesses also continue to be constrained by capacity shortfalls across the economy, in particular, skilled labor. This is an incentive for SMEs to invest in productivity enhancing initiatives, including automation, technology, and operational efficiency, which is supporting the ongoing demand for business lending.

Chris Bayliss: In terms of risk management, in FY27, we are deploying new monitoring and early warning alert technology that will complement our existing detective controls. Lastly, we will continue to actively manage capital with all our available levers to support growth and ROE. Turning to the economy. We understand the broader economic outlook and trading conditions for SMEs are mixed and businesses are operating with uncertainty about the future. Businesses also continue to be constrained by capacity shortfalls across the economy, in particular, skilled labor. This is an incentive for SMEs to invest in productivity enhancing initiatives, including automation, technology, and operational efficiency, which is supporting the ongoing demand for business lending. We have a clear role to play in this productivity agenda, providing the capital SMEs customers require to invest and grow.

Speaker #2: Lastly, we will continue to actively manage capital, using all our available levers to support growth and ROE. Now, turning to the economy, we understand the broader economic outlook and trading conditions for SMEs are mixed, and businesses are operating with uncertainty about the future.

Speaker #2: Businesses also continue to be constrained by capacity shortfalls across the economy, in particular, skilled labor. This is an incentive for SMEs to invest in productivity-enhancing initiatives, including automation, technology, and operational efficiency, which is supporting the ongoing demand for business lending.

Speaker #2: And we have a clear role to play in this productivity agenda, providing the capital SMEs require to invest and grow. There are also much longer structural shifts occurring, as baby boomers enter the retirement phase and succession planning becomes a priority for many businesses.

Chris Bayliss: We have a clear role to play in this productivity agenda, providing the capital SMEs customers require to invest and grow. There are also much longer structural shifts occurring as baby boomers enter the retirement phase and succession planning becomes a priority for many businesses. Now to our metrics at scale. We have spoken about these metrics for almost five years since the IPO, and they have been a very useful framework for demonstrating the economics of a specialist SME business bank. Today, we are either at or approaching many of these metrics, and we have always been transparent that we would achieve the metrics at different times. We are now effectively at the low end of the GLA metric, and we have achieved the NIM metric.

Chris Bayliss: There are also much longer structural shifts occurring as baby boomers enter the retirement phase and succession planning becomes a priority for many businesses. Now to our metrics at scale. We have spoken about these metrics for almost five years since the IPO, and they have been a very useful framework for demonstrating the economics of a specialist SME business bank. Today, we are either at or approaching many of these metrics, and we have always been transparent that we would achieve the metrics at different times. We are now effectively at the low end of the GLA metric, and we have achieved the NIM metric. Our focus from here is clearly on achieving the CTI, which will largely be a story of revenue outpacing costs. As Andrew said earlier, positive jaws.

Speaker #2: Now to our metrics at scale. We've spoken about these metrics for almost five years since the IPO, and they've been a very useful framework for demonstrating the economics of a specialist SME business bank.

Speaker #2: Today we’re either at, or approaching, many of these metrics. We’ve always been transparent that we would achieve the metrics at different times. We are now effectively at the low end of the GLA metric, and we have achieved the NIM metric.

Speaker #2: Our focus from here is clearly on achieving the CTI, which will largely be a story of revenue outpacing costs. As Andrew said earlier, positive duals.

Chris Bayliss: Our focus from here is clearly on achieving the CTI, which will largely be a story of revenue outpacing costs. As Andrew said earlier, positive jaws. On cost of risk, we remain confident in our through the cycle assumption of 50 basis points as we continue to scale and as our loan book seasons. Notwithstanding the potential for volatility, 50 basis points is supported by the current portfolio PD and LGD that I referenced earlier. Our ultimate goal, of course, is to deliver sustainable ROE in the low to mid-teens. These metrics are the key levers we have as a bank. We will dynamically manage them to deliver strong growth and economics. Going forward, our guidance will consequently focus on ROE. Now to specific FY27 guidance.

Speaker #2: And on cost of risk, we remain confident in our through-the-cycle assumption of 50 basis points as we continue to scale and as our loan book seasons.

Chris Bayliss: On cost of risk, we remain confident in our through the cycle assumption of 50 basis points as we continue to scale and as our loan book seasons. Notwithstanding the potential for volatility, 50 basis points is supported by the current portfolio PD and LGD that I referenced earlier. Our ultimate goal, of course, is to deliver sustainable ROE in the low to mid-teens. These metrics are the key levers we have as a bank. We will dynamically manage them to deliver strong growth and economics. Going forward, our guidance will consequently focus on ROE. Now to specific FY27 guidance. With respect to growth, we are continuing to scale and will deliver disciplined above-system growth.

Speaker #2: Notwithstanding the potential for volatility, 50 basis points is supported by the current portfolio PD and LGD that I referenced earlier. Our ultimate goal, of course, is to deliver sustainable ROE in the low to mid-teens.

Speaker #2: And these metrics are the key levers we have as a bank. We will dynamically manage them to deliver strong growth and economics, and going forward, our guidance will consequently focus on ROE.

Speaker #2: So now to specific FY27 guidance. With respect to growth, we are continuing to scale, and we'll deliver disciplined, above-system growth. As I said on my previous slide, trading conditions for SMEs are mixed, so we remain eyes wide open to the risks in the environment that we're certainly not underestimating.

Chris Bayliss: With respect to growth, we are continuing to scale and will deliver disciplined above-system growth. As I said on my previous slide, trading conditions for SMEs are mixed, so we remain eyes wide open to the risks in the environment that we are certainly not underestimating. Our NIM is now above 3%, and as Andrew said, we expect NIM to remain broadly stable. On costs, operating leverage really is now our best friend. As I said earlier, we already have the lowest CTI in the sector at 45%. The nature of our cost structure means that this will continue to fall. We have already discussed cost of risk in some detail, and our guidance for next year is to be broadly consistent with FY26 in percentage terms.

Chris Bayliss: As I said on my previous slide, trading conditions for SMEs are mixed, so we remain eyes wide open to the risks in the environment that we are certainly not underestimating. Our NIM is now above 3%, and as Andrew said, we expect NIM to remain broadly stable. On costs, operating leverage really is now our best friend. As I said earlier, we already have the lowest CTI in the sector at 45%. The nature of our cost structure means that this will continue to fall. We have already discussed cost of risk in some detail, and our guidance for next year is to be broadly consistent with FY26 in percentage terms. All of this confirms the guidance that we gave in June for strong PBT growth to AUD 210 to AUD 220 million next year.

Speaker #2: And NIM is now above 3%, and as Andrew said, we expect NIM to remain broadly stable. On costs, operating leverage really is now our best friend. Whilst we continue to have—whilst, as I said earlier, we already have the lowest CTI in the sector at 45%, the nature of our cost structure means that this will continue to fall.

Speaker #2: We've already discussed cost of risk in some detail, and our guidance for next year is to be broadly consistent with FY26 in percentage terms.

Speaker #2: So all of this confirms the guidance that we gave in June, for strong PBT growth to $210 to $220 million next year. And most importantly, ROE will be circa 8% next year, another significant step closer to our at-scale target.

Chris Bayliss: All of this confirms the guidance that we gave in June for strong PBT growth to AUD 210 to AUD 220 million next year. Most importantly, ROE will be circa 8% next year, another significant step closer to our at scale target. In closing, I want to acknowledge again that the provisions we announced in June were disappointing and unacceptable volatility. We have undertaken a number of reviews and have embedded the learnings. However, I hope our presentation today has demonstrated that we have strong underlying momentum in the business. We remain agile, and we are adapting to the operating environment. As discussed earlier, we already have the highest NIM in the sector with the lowest CTI in the sector. We are very well capitalized with strong provision coverage versus our peers on a like-to-like basis.

Chris Bayliss: Most importantly, ROE will be circa 8% next year, another significant step closer to our at scale target. In closing, I want to acknowledge again that the provisions we announced in June were disappointing and unacceptable volatility. We have undertaken a number of reviews and have embedded the learnings. However, I hope our presentation today has demonstrated that we have strong underlying momentum in the business. We remain agile, and we are adapting to the operating environment. As discussed earlier, we already have the highest NIM in the sector with the lowest CTI in the sector. We are very well capitalized with strong provision coverage versus our peers on a like-to-like basis.

Speaker #2: In closing, I want to acknowledge again that the provisions we announced in June were disappointing and led to unacceptable volatility. We've undertaken a number of reviews and have embedded the learnings.

Speaker #2: However, I hope our presentation today has demonstrated that we have strong underlying momentum in the business. We remain agile and we're adapting to the operating environment.

Speaker #2: As discussed earlier, we already have the highest NIM in the sector, with the lowest CTI in the sector. We are very well capitalized, with strong provision coverage versus our peers on a like-for-like basis.

Speaker #2: This means we have all the foundations to keep increasing scale, maintain strong margins, and continue our operating leverage to remain firmly on track to deliver sustained ROE expansion, with PBT growth of 34% this year and a further 25% to 31% next year.

Chris Bayliss: This means we have all the foundations to keep increasing scale, maintain strong margins, and continuing our operating leverage to remain firmly on track to deliver sustained ROE expansion with PBT growth of 34% this year and a further 25% to 31% next year. Thank you for your time. That concludes the presentation, and we now look forward to your questions.

Speaker #2: Thank you for your time. That concludes the presentation, and we now look forward to your questions.

Speaker #1: Thank you. To ask a question, please press star-11 on your telephone and wait for your name to be announced. To withdraw your question, press star-11 again.

Operator: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, press star 11 again. In the interest of time, please have two questions per person. If you have more questions, you can press star 11 to re-queue. We will come back for more follow-up questions as time permits. Please stand by as we compile the Q&A roster. First question comes from Matthew Wilson from Jarden.

Speaker #1: In the interest of time, please have two questions per person. If you have more questions, you can press star 11 to re-queue. We'll come back for more follow-up questions if time permits.

Speaker #1: Please stand by as we compile the Q&A roster. The first question comes from Matthew Wilson from Jordan.

Speaker #3: Yeah, good morning to you, Matt Wilson. Jordan, I hope you can hear me okay.

Matthew Wilson: Yeah, good morning, team. Matt Wilson, Jarden. I hope you can hear me okay.

Speaker #2: Thanks, Matt.

Chris Bayliss: Thanks, Matt.

Speaker #3: It's great to be able to grow with your customers, but we thought that was sort of $3 million to $35 million in credit loans.

Matthew Wilson: It's great to be able to grow with your customers, but we thought that was sort of AUD 3 million to AUD 35 million in credit lend. Looking forward, where should we now draw the line? It does appear that SME is evolving at the margin to corporate, and whilst the averages look manageable, it's the fat tails that are getting larger that may trip you up. Can you sort of comment on that?

Speaker #3: Looking forward, where should we now draw the line? It does appear that SME is evolving at the margin to corporate. And whilst the averages look manageable, it's the fat tails that are getting larger that may trip you up.

Speaker #3: Can you comment on that?

Speaker #2: Yeah, absolutely, I can. I think, as I said, at the scale that we're at now, the tail will start to reduce. As we said in the presentation, our over $50 million loans, which are only 19 customers, are 10% of the book, and that will start to reduce now.

Chris Bayliss: Yeah, absolutely, I can. I think, as I said, at the scale that we're at now, the tail will start to reduce. As we said in the presentation, our over AUD 50 million loans, which are only 19 customers, are 10% of the book, and that will start to reduce now. Scale really becomes our best friend. But I think the point to make, Matt, is 98% of our customers are borrowing less than AUD 50 million or less than AUD 20 million, which is exactly in line with the guidance we gave at the time of the IPO. Of course, the IPO was five years ago now. We had a book of AUD 4 billion now, we have a book of AUD 15 billion now.

Speaker #2: Scale really becomes our best friend. But I think the point to make, Matt, is 98% of our customers are borrowing less than $50 million, or less than $20 million.

Speaker #2: And that is exactly in line with the guidance we gave at the time of the IPO. Of course, the IPO was five years ago now.

Speaker #2: We had a book of 4 billion dollars now. We have a book of 15 billion dollars now. But we very, very seldom do we onboard a brand new customer above 50 million.

Chris Bayliss: But very, very seldom do we onboard a brand new customer above AUD 50 million. The customers start below that figure, but we want to support them as they grow. We don't want to be a lender that says, "I'm sorry, we can't support your growth, and you now need to go to one of the major banks." 80% of all of the growth in those larger customers has come from existing relationships, and most of those customers we've had as customers for many, many years. In fact, one of our largest customers has actually banked with us for nearly seven years now, since before the IPO.

Speaker #2: The customers start below that figure, but we want to support them as they grow. We don't want to be a lender that says, "I'm sorry, we can't support your growth, and you now need to go to one of the major banks."

Speaker #2: And so, 80% of all of the growth in those larger customers has come from existing relationships, and most of those customers we've had as customers for many, many years.

Speaker #2: In fact, one of our largest customers has actually banked with us for nearly seven years now, since before the IPO.

Speaker #3: And then secondly, thanks for that clarity. Has EPRA's attention been raised by the impairments that took place in June in particular? Sort of — we call it loan number three, if you like. It might be 10% of the book, but one bad loan is 30 to 40% of your core profit.

Matthew Wilson: Secondly, thanks for that clarity. Has APRA's attention been raised by the impairments that took place in June, in particular, sort of we'll call it loan number 3, if you like?

Chris Bayliss: No.

Matthew Wilson: It might be 10% of the book, but one bad loan is 30% to 40% of your core profit.

Chris Bayliss: Yeah. That loan had particular circumstances to it. I don't want to go into too much detail on that, Matt. It was not originated as a large loan, as I said. It was originated as a AUD 15 million loan initially. And we had some aggregation issues there, which we've talked to before. The nature of that risk is not prevalent in the rest of the portfolio. And I would stress again that provisions are not losses, and these provisions were raised right at the end of the year when we did not have enough time to work with the customer in terms of a resolution. That particular customer, we do have a constructive relationship with. It is just a provision. And in point of fact, they are making progress to clear the arrears. So I think they're separate issues, Matt.

Speaker #2: Yeah, I mean, that loan had particular circumstances to it. I don't want to go into too much detail on that, Matt. It was not originated as a large loan, as I said.

Speaker #2: It was originated as a $15 million loan initially, and we had some aggregation issues there, which we've talked about before. The nature of that risk is not prevalent in the rest of the portfolio.

Speaker #2: And I would stress again that provisions are not losses. These provisions were raised right at the end of the year, when we did not have enough time to work with the customer in terms of a resolution.

Speaker #2: That particular customer—we do have a constructive relationship with them. It is just a provision, and in point of fact, they are making progress to clear the arrears.

Speaker #2: So, I think they're separate issues, Matt. Our large loans are the most well-secured loans in the portfolio. They're the best understood. They have the highest level of property security coverage.

Chris Bayliss: So I think they're separate issues, Matt. Our large loans are the most well-secured loans in the portfolio. They're the best

Chris Bayliss: Our large loans are the most well-secured loans in the portfolio. They're the best understood.

Matthew Wilson: understood.

Chris Bayliss: They have the highest level of property security coverage. The entire portfolio is no more than 70% to 75% of the property value associated with that entire portfolio.

Speaker #2: The entire portfolio is no more than 70 to 75 percent of the property value associated with that entire portfolio.

Speaker #3: No worries. Thanks, Tim.

Matthew Wilson: No worries. Thanks, team.

Speaker #1: Thank you. Due to the number of questions we have, please ask one question only. Next, we have Tom Strong from City.

Operator: Thank you. Due to the amount of questions we have, please have one question only. Next, we have Thomas Strong from Citi.

Speaker #2: Hi, Tom.

Chris Bayliss: Hi, Tom.

Speaker #4: Oh, good morning, and thanks for taking my question. Good morning. I typically look at the two problematic loans that popped up in the June half.

Thomas Strong: Good morning, and thanks for taking my question. Good morning. If we look at the two problematic loans that popped up in the June H1 that were quite, I guess, idiosyncratic risks around customer concentration or what questions were being at the time of origination. Can you just tell us what kind of broader review you have done around your origination practices to make sure you are capturing all of these risks appropriately, given they are quite specific and hard to extrapolate across the book?

Tom Strong: Good morning, and thanks for taking my question. Good morning. If we look at the two problematic loans that popped up in the June H1 that were quite, I guess, idiosyncratic risks around customer concentration or what questions were being at the time of origination. Can you just tell us what kind of broader review you have done around your origination practices to make sure you are capturing all of these risks appropriately, given they are quite specific and hard to extrapolate across the book?

Speaker #4: There were quite, I guess, idiosyncratic risks around customer concentration or what questions are being asked at the time of origination. Can you just tell us what kind of broader review you've done around your origination practices to make sure you're capturing all of these risks appropriately?

Speaker #4: They are quite specific and hard to extrapolate across the book.

Speaker #2: Yeah, as I said, the three loans that we talked about in June—two of them were relatively small customers. Their loss is in the ordinary course of business.

Chris Bayliss: Yeah. As I said, the three loans that we talked about in June, two of them with relatively small customers, their loss is in the ordinary course of business. It is just that they happened very late in the year, and we did not have time to resolve them before the balance date. There was one big one, which was the one I have just addressed with Matt, and that really was an issue with aggregation. Since then, we have tightened up all of our controls around that, and we are comfortable that we have no other exposures of that nature in the book. When we referenced the two large loans this year represented 25% of our provision coverage, there was an earlier loan, a large loan, that we have tightened up.

Speaker #2: It's just that they happened very late in the year, and we didn't have time to resolve them before the balance date. There was one big one, which was the one I've just addressed with Matt.

Speaker #2: And that really was an issue with aggregation. Since then, we have tightened up all of our controls around that, and we're comfortable that we have no other exposures of that nature in the book.

Speaker #2: When we referenced the two large loans this year, which represented 25% of our provision coverage, there was an earlier loan—a large loan—that we've tightened up.

Chris Bayliss: That was a specialist asset in a scale-up type of business, and we have changed our valuation practices with regards to those types of deals. Again, we are comfortable that there are no other deals in the portfolio that have those characteristics.

Speaker #2: That was especially an asset in a scale-up type of business, and we've changed our valuation practices with regard to those types of deals. And again, we're comfortable that there were no other deals in the portfolio that have those characteristics.

Speaker #4: Great, thanks for that. I mean, I guess they're two specific examples around customer-related customers and valuation practices. Are you confident, I guess, on the settings across origination outside of those two that are quite specific risks?

Thomas Strong: Great. Thanks. I guess there are two specific examples around related customers and valuation practices. Are you confident, I guess, on the settings across origination outside of those two very quite specific risks?

Tom Strong: Great. Thanks. I guess there are two specific examples around related customers and valuation practices. Are you confident, I guess, on the settings across origination outside of those two very quite specific risks?

Speaker #2: Yes.

Chris Bayliss: Yes.

Speaker #1: Thank you. Just one moment for our next question, please. As a reminder, please have one question per person. Next, we have Andrew Lyons from Jefferies.

Operator: Thank you. Just a moment for our next question, please. As a reminder, please have one question per person. Next, we have Andrew Lyons from Jefferies.

Speaker #4: Yeah, thanks and good morning. I'll just ask a question that relates to Andrew Leslie's last one on capital. You speak in the final bullet point just around being in a position to—or you sort of speak to—the potential to consider capital management initiatives in due course.

Andrew Lyons: Yeah, thanks, and good morning. I'll just ask a question that relates to Andrew Leslie just on capital. You speak in the final bullet point just around, you're now in a position to, or you sort of speak to potential to consider capital management initiatives in due course. Can you maybe just talk in a little more detail about what that might look like, but particularly what are the yardsticks that you'd need to sort of reach in relation to your capital generation, to actually start considering those capital management initiatives?

Speaker #4: Can you maybe just talk in a little bit more detail about what that might look like, but particularly, what are the yardsticks that you'd need to sort of reach in relation to your capital generation to actually start considering those capital management initiatives?

Speaker #2: Yeah, thanks, Andy. I mean, the first and most important one is that we've now put out a target operating range for the CT1. So, this is something that we announced back at the end of June.

Andrew Leslie: Yeah. Thanks, Andy. The first and most important one is, we've now put out a target operating range for the CET1. This is something that we announced back at the end of June. But that's an important first milestone for us, and that's 11% to 12%. So we've kind of put that on the table now as a formal range. Where we landed for the full year, 12.4%, that's clearly above that range, and that's really why we've made that comment around the ability now to start thinking about capital management initiatives. That could be a range of things. First and foremost for us, we're a growth business, 42% PPOP growth. So growth is always going to be a top of list in terms of how we think about management of the overall capital.

Speaker #2: But that's an important first milestone for us, and that's 11 to 12 percent. So we've kind of put that on the table now as a formal range.

Speaker #2: Where we landed for the full year, 12.4 percent, that's clearly above that range. And that's really why we've made that comment around the ability now to start thinking about capital management initiatives.

Speaker #2: That could be a range of things. I mean, first and foremost for us, we're a growth business—42% PPOP growth. And so growth is always going to be top of the list in terms of how we think about management of the overall capital.

Speaker #2: But clearly, also for us, as the operating leverage comes through and as the ROE increases, there's an ability for us to start thinking about other capital options, such as dividends and the like.

Andrew Leslie: But clearly also for us, as the operating leverage comes through, as the ROE increases, there's an ability for us to start thinking about other capital options such as dividends and the like. But for us, the most important milestone was the 11% to 12% operating range. I think with where we landed for the year, and the levers that we demonstrated during the year, in particular the term securitisation, which is an important part of that annual plan. We'd like to make that an annual part of our plan for us. That just gives us a lot more flexibility now in terms of management of the capital stack.

Speaker #2: But for us, the most important milestone was the 11% to 12% operating range. And I think with where we landed for the year, and the levers that we demonstrated during the year—in particular, the Term Set, which is an important part of that annual plan—we'd like to make that an annual part of the plan for us.

Speaker #2: That just gives us a lot more flexibility now, in terms of management of the capital stack.

Speaker #1: Thank you. Just a moment for our next question. Next, we have Andrew Triggs from JPMorgan.

Operator: Thank you. Just a moment for our next question. Next, we have Andrew Triggs from JP Morgan.

Speaker #5: Oh, thank you. Good morning, everyone. Could you please elaborate on the comment that the FY27 outlook for discipline is above system loan growth? Given that the pipeline still looks quite robust, is the comment about better managing risk, capital, or margin?

Andrew Triggs: Thank you. Good morning, everyone. Could you elaborate, please, on the comment for the FY27 outlook for discipline above system loan growth? Given the pipeline looks quite robust still. Is the comment about better managing risk, capital, or margin? Noting that in the past, I don't think Judo's always sort of known or been certain on what the best mix of those three things are.

Speaker #5: Noting that in the past, I don't think Judo has always sort of known or been certain about what the best mix of those three things is.

Speaker #2: Yeah, Andrew, I'll take that. Thanks for the question. Look, it reflects risk, if we're honest. As I said earlier, the economy has taken some big hits recently.

Chris Bayliss: Yeah, Andrew, I'll take that. Thanks. Thanks for the question. Look, it reflects risk, if we're honest. As I said earlier, the economy has taken some big hits recently. We think businesses are still very resilient. Personally, I think system growth is going to drop from, I think in many respects the data is showing it's about 10% at the moment. But I think it'll probably drop to more like 7% or 8% growth. We're a high growth bank. We're certainly not going to grow below system. But we're just going to keep our powder dry for exactly how much growth we do next year. It's certainly not capital constrained. It's certainly not constrained in terms about where we play in the market.

Speaker #2: We think businesses are still very resilient. I think, personally, system growth is going to drop from—I think in many respects, the data shows it's about 10 percent at the moment.

Speaker #2: But I think it will probably drop to more like 7 or 8 percent growth. We're a high-growth bank—we're certainly not going to grow below system.

Speaker #2: But we're just going to keep our powder dry for exactly how much growth we do next year. It's certainly not capital-constrained. It's certainly not constrained in terms of where we play in the market.

Speaker #2: But we just felt that it was inappropriate to box ourselves into very specific guidance on that, other than making it clear that we intend to grow above system.

Chris Bayliss: But we just felt that it was inappropriate to box ourselves into very specific guidance on that, other than making it clear that we intend to grow above system.

Speaker #5: Thank you.

Andrew Triggs: Thank you.

Speaker #1: Thank you. Next, we have Jonathan Mote from Baron Joy.

Operator: Thank you. Next, we have Jonathan Mott from Barrenjoey.

Speaker #6: Hi, a question on page 19, our presentation slide 19, where you give us the new additions and resolutions that have come through. If you look at the last quarter at 183 million dollars, annualized out, it's about two and a half percent of gross loans.

Jonathan Mott: A question on page 19 of our presentation, slide 19, where you give us the new additions and resolutions just come through. If you look at the last quarter at AUD 183 million, annualize that. It is about 2.5% of gross loans. It is not actually that unusual. You have been there on a couple of other quarters in the past, Q2 2026, Q1 2024. So it is just a bit of natural volatility that you are seeing in the book, a few more large non-performing loans coming through, and it was just more of an unusual timing. Or are you actually calling out that you are getting more worried about the quality of the book as a whole given the economic outlook? If you can also comment on how you are seeing it play out for the first six to seven weeks of this year.

Speaker #6: It's not actually that unusual. You've been there on the cover of the quarters in the past: second quarter '26, first quarter '24. So is this just a bit of natural volatility that you're seeing in the book—a few more large and non-performing loans coming through—and it was just more of an unusual timing?

Speaker #6: Or are you actually calling out that you're getting more worried about the quality of the book as a whole, given the economic outlook? And if you can also comment on how you're seeing it play out for the first sort of six to seven weeks of this year.

Jonathan Mott: Or are you actually calling out that you are getting more worried about the quality of the book as a whole given the economic outlook? If you can also comment on how you are seeing it play out for the first six to seven weeks of this year.

Andrew Leslie: Yeah, I will start, John. Yeah, look, I do not think there is anything particular to call out there. On slide 19, obviously, those numbers are and have been, as I called out, we have seen more of those cures, repayments, things. I think that is really just a reflection of where we are. But there is nothing particular to call out there apart from just noting that the volumes were a bit higher during the year. I mean, we do actively manage the book. As I noted, a lot of the stock, if you like, has come from new originations. We did manage some customers out of the book that were in disproportionately higher risk categories. But that is something that we have always done as we have needed to.

Speaker #3: I'll start, John. Yeah, look, it is, honestly, if there's anything particular to call out there. We've—I mean, on slide 19, obviously, those numbers are—and have been, as I called out.

Speaker #3: We've seen more of those fuels, repayments, and things. I think that's really...

Speaker #5: Just a reflection of where we are, but there's nothing particular to call out there, apart from just noting that the volumes were a bit higher during the year.

Speaker #5: I mean, we do actively manage the book. As I noted, a lot of the stock, if you like, has come from new originations. We did manage some customers out of the book that were in disproportionately higher-risk categories.

Speaker #5: But that’s something that we’ve always kind of done as we’ve needed to.

Speaker #4: And as for lead indicators, John, our watch loans are down, our close monitoring is down. As Andrew put a data point in the slides that our 30 to 90s are down quite considerably.

Chris Bayliss: As for lead indicators, John, our watch loans are down, our close monitoring are down. As Andrew put a data point in the slides that our 30 to 90s are down quite considerably. But look, we are plagued by the law of small numbers. We are still subscale in that regard, so we are certainly not declaring any victory. That said, I think SME balance sheets are in good shape. There are definitely some significant headwinds. It is going to impact system growth next year. But we are 2% of the market. We get to pick where we play and how we win. But we are going to be very eyes wide open, but there are no lead indicators at the moment that are causing us any material concerns.

Speaker #4: But look, we're plagued by the law of small numbers. We're still subscale in that regard, so we're certainly not declaring any victory. That said, I think SME balance sheets are in good shape.

Speaker #4: There are definitely some significant headwinds. It's going to impact system growth next year. But we're 2% of the market. We get to pick where we play.

Speaker #4: And how we win. But we're going to be very eyes wide open. There are no lead indicators at the moment that are causing us any material concerns.

Speaker #1: Thank you. Next, we have Jason Shell from Macquarie.

Operator: Thank you. Next, we have Jason Zhou from Macquarie.

Speaker #7: Hi, guys. Thanks for taking my question. Just a question on margins: are you talking about margins being broad and flat in FY27 on FY26?

Jason Zhou: Hi, guys. Thanks for taking my question. Just a question on margins. You are talking about margins to be broad and flat in FY27 on FY26, and depending where you exit this half, it probably suggests that your exit run rate in H2 2027 is probably close to around 3.05% or maybe just a bit above that, which is obviously quite a bit of a slowdown from where it was this half. Could you just comment a bit about your expectations for that decline between deposits and lending, please?

Jason Shao: Hi, guys. Thanks for taking my question. Just a question on margins. You are talking about margins to be broad and flat in FY27 on FY26, and depending where you exit this half, it probably suggests that your exit run rate in H2 2027 is probably close to around 3.05% or maybe just a bit above that, which is obviously quite a bit of a slowdown from where it was this half. Could you just comment a bit about your expectations for that decline between deposits and lending, please?

Speaker #7: And depending on where you exit this half, it probably suggests that your exit run rate in the second half of '27 is probably close to around three or five, or maybe just a bit above that, which is obviously quite a bit of a slowdown from where it was this half.

Speaker #7: Could you just comment a bit about your expectations for that decline between deposits and lending, please?

Speaker #2: Yeah, thanks, Jason. I'll start with that. Yeah, look, we had a very strong print for the second half: 3.23 percent. I was going back over history and remembering that we provided guidance initially for the second half that was 3.1 percent.

Andrew Leslie: Yeah. Thanks, Jason. I will start with that. Yeah, look, we had a very strong print for the H2, 3.23%. I was going back over history and remembering that we provided guidance initially for the H2 that was 3.1%, and then we upgraded it to 3.15%, and then we upgraded it to 3.2%, and now we have printed at 3.23%. What has driven that? It has really been the very favorable deposit pricing environment, which has really been a swap rate story, and we have talked about that pretty consistently over the year as we have seen that trend come through, especially in that H2. What have we seen in terms of the exit or the run rate, I guess, coming out of the June quarter?

Speaker #2: And then we upgraded it to 3.15. And then we upgraded it to 3.2. And now we've printed at 3.23. What's driven that? It's really been the very favorable deposit pricing environment, which has really been a swap rate story.

Speaker #2: And we've talked about that pretty consistently over the year, as we've seen that trend come through, especially in that second half. What have we seen in terms of the exit, or the run rate, I guess, coming out of the June quarter?

Speaker #2: We have seen that NIM come back, and it's really just come back because of this normalization of deposit costs. We started to see that probably a bit later in the piece than we thought, which is why we were able to upgrade that NIM.

Andrew Leslie: We have seen that NIM come back, and it has really just come back because of this normalization of deposit costs. We started to see that probably a bit later in the piece than we thought, which is why we were able to upgrade that NIM. But we have seen the deposit costs kind of come back into that 80 to 90 basis point range. Now, that is all been part of our plan. It is embedded in our guidance. It is not down at the level you said. I think you said 3.05%. I think you gave me a figure. It is higher than that. And it will kind of normalize down, as we have said, to the level that we delivered across the full year. So FY26 at 3.13%, we are going to be kind of around that level for FY27.

Speaker #2: But we have seen the deposit costs kind of come back into that 80 to 90 basis point range. Now, that's all been part of our plan.

Speaker #2: It's embedded in our guidance. It's not down at the level you said. I think you said 305—I think you gave me a figure.

Speaker #2: It's higher than that, and it'll kind of normalize down, as we've said, to the level that we delivered across the full year. So, FY26 at 3.13%, we're going to be kind of around that level for FY27.

Andrew Leslie: So FY26 at 3.13%, we are going to be kind of around that level for FY27. It is really just a normalization of deposit cost story.

Speaker #2: And it's really just a normalization of deposit costs story.

Andrew Leslie: It is really just a normalization of deposit cost story.

Speaker #1: Thank you. Just a moment for our next question, please. Next, we have Brendan Sprouse from Goldman Sachs. Please go ahead.

Operator: Thank you. Just a moment for our next question, please. Next, we have Brendan Sproules from Goldman Sachs. Please go ahead.

Speaker #5: Good morning, Brendan from Goldman Sachs. Thanks for taking my questions. First question I want to ask is, you've guided next year to similar basis points of bad and doubtful debts, around 88.

Brendan Sproules: Good morning. Brendan from Goldman Sachs. Thanks for taking my questions. First question I want to ask is, you have guided next year to similar basis points of bad and doubtful debts around 88. Could you maybe give us a bit of color on, is this really driven by further increased provisioning? Or do you think next year, just given the mixed outlook, you are going to get a year where write-offs as a percentage of your average GLA are actually higher than your through-the-cycle assumptions?

Speaker #5: Could you maybe give us a bit of color on whether this is really driven by further increased provisioning, or do you think next year, given the mixed outlook, you're going to have a year where write-offs as a percentage of your average GLA are actually higher than your through-the-cycle assumptions?

Speaker #2: Yeah, I mean, a couple of things, Brendan, that are driving that guidance. Firstly, as we said when we provided it, we wanted to be conservative for FY27 given the experience in FY26.

Andrew Leslie: Yeah. I mean, a couple of things, Brendan, that are driving that guidance. Firstly, as we said when we provided it, we wanted to be conservative for FY2027 given the experience in FY2026. Also, the macro we have taken into consideration, as Chris mentioned, there are some mixed signals there. Then thirdly, I guess, the FY2026 experience being driven by these, in particular, two large loans which we think are idiosyncratic. So that is, I guess, some qualitative around the guidance for next year. We have given the guidance statement about broadly consistent in terms of percentage terms. How to think about that. We have got a CP coverage. We anticipate will be around the levels that we have ended for June.

Speaker #2: Also, the macro, we've taken into consideration, as Chris mentioned, there's some mixed signals there. And then thirdly, I guess the FY26 experience is being driven by these, in particular, two large loans, which we think are idiosyncratic.

Speaker #2: So, when we—so that's, I guess, some qualitative commentary around the guidance for next year. We've given the guidance statement about being broadly consistent, in percentage terms, in terms of how to think about that.

Speaker #2: We've got a CP cut we've got a CP coverage which we anticipate will be around the levels that we've aimed for June. And then we've got an SP rate that we've effectively carried through based on FY26 into FY27 in terms of kind of a it's a pretty crude kind of bottom-up in terms of how you can think about that number.

Andrew Leslie: We have an SP rate that we have effectively carried through, based on FY26 into FY27 in terms of a pretty crude bottom up in terms of how you can think about that number. That is really the basis for the next year's cost of risk guidance.

Speaker #2: So that's really the basis for the next year's cost of risk guidance.

Speaker #5: Points. And Chris, as you mentioned, provisioning is not the same as write-offs. What do you think is, I guess, the longer-term provisioning that you would have to add each year, that we should also incorporate when we're thinking about the longer-term returns of this business?

Brendan Sproules: Points. Chris, as you mentioned, provisioning is not the same as write-offs. What do you think is, I guess, the longer term provisioning that you would have to add each year that we should also incorporate when we are thinking about the longer term returns of this business?

Speaker #2: Well, I mean, the guidance that we've given—50 basis points—has always been at scale. So there'll be points at scale where, if we're growing literally at system and we're not growing at... we're not outperforming system.

Chris Bayliss: Well, the guidance that we have given, 50 basis points, has always been at scale. There will be a point at scale where if we are growing literally at system and we are not outperforming system, so we do not have a disproportionate impact from collective provision build on the growing book. Then specific provisions. There is always going to be some recovery. You are always going to get an element of cure. So you would expect specific provisions to be slightly higher. Ultimately the 50 basis points is pointing to an underlying loss rate. So, at scale, we would expect our specific provisions to be slightly higher than that with an assumed cure rate, leading to underlying losses of 50 basis points.

Speaker #2: And so we don't have a disproportionate impact from collective provision build on the growing book. Then, specific provisions—I mean, there's always going to be some recovery.

Speaker #2: I mean, you're always going to get an element of cure, so you'd expect specific provisions to be slightly higher. But ultimately, the 50 basis points is pointing to an underlying loss rate.

Speaker #2: So, at scale, we would expect our specific provisions to be slightly higher than that, with an assumed cure rate leading to underlying losses of 50 basis points.

Speaker #1: Thank you. Next, we have Richard Wiles from Morgan Stanley. Please go ahead.

Operator: Thank you. Next we have Richard Wiles from Morgan Stanley. Please go ahead.

Speaker #5: Good morning, Chris. A $50 million line is more than 2 percent of your ordinary equity. To put that in context, Judo having a $50 million line is like a major bank having a loan of well over a billion dollars.

Richard Wiles: Good morning, Chris. An AUD 50 million loan is more than 2% of your ordinary equity. To put that in context, Judo having an AUD 50 million loan is like a major bank having a loan of well over AUD 1 billion. Why should you have any loans of this size, irrespective of the quality of the borrower and the amount of security? Aren't they simply too big for a bank of your size? Given you've said you're 2% of the market and you get to pick where we play, why do you need so many of these loans? I'd like to understand your thoughts on that, please.

Speaker #5: So, why should you have any loans of this size, irrespective of the quality of the borrower and the amount of security? Aren't they simply too big for a bank of your size?

Speaker #5: And given you've said you're 2 percent of the market and you get to pick where we play, why do you need so many of these loans?

Speaker #5: I'd like to understand your thoughts on that, please.

Chris Bayliss: Sorry, there was a little bit of crackle there, but I think I got the question. I think we've got to keep this into context. Over AUD 50 million loans is not 19 customers out of a portfolio of 5,000 customers. 98 customers, 98% of our customers are absolutely in our sweet spot of between AUD 2 million and AUD 20 million. That's where we excel. But we're going to have customers that we've onboarded at a lower amount that are in growth mode. We get a choice, right? We get a choice. Do we just say to them, "Sorry, we're capping out at 20. If you want to buy another business, you're not for us," and lose that customer to a major bank? Or do we grow with them?

Speaker #2: Sorry, there's a little bit of crackle there, but I think I got the question. Look, I think we're good to keep this in context.

Speaker #2: Over $50 million loans is not 19 customers, out of a portfolio of 5,000 customers. It's 98 customers. Ninety-eight percent of our customers are absolutely in our sweet spot.

Speaker #2: Between $2 million and sort of $20 million—that's where we excel. But we're going to have customers that we've onboarded at a lower amount who are in growth mode.

Speaker #2: And we get a choice. We get a choice. Do we just say to them, "Sorry, we're capping out at 20. If you want to buy another business, you're not for us," and lose that customer to a major bank?

Speaker #2: Or do we grow with them? And for us, where we know the customer really well—where we've got an established track record—many of our bankers have known these customers for many, many years, well before their lives with Judo.

Chris Bayliss: For us, where we know the customer really well, where we've got an established track record, many of our bankers know these customers for many, many years, well before their lives with Judo. These are generally customers that have come to us direct, and we get a choice. Do we grow with them or do we let them become customers of the major banks? For 19 customers, we've decided to grow with them, and we understand them really well. We think it's an effective use of our balance sheet. We get good returns on them. They're very well secured. As in the slide, we show the security coverage. We don't take unsecured cash flow risk on these loans. As I said earlier, the overall portfolio is more than adequately secured by commercial property.

Speaker #2: These are generally customers that have come to us directly. And we get a choice: do we grow with them, or do we let them become customers of the major banks?

Speaker #2: And for 19 customers, we've decided to grow with them. We understand them really well, and we think it's an effective use of our balance sheet.

Speaker #2: We get good returns on them. They're very well secured, as put in the slide. We show the security coverage. We don't take unsecured cash flow risk on these loans.

Speaker #2: As I said earlier, the overall portfolio is more than adequately secured by commercial property, so it's not a big part of our business.

Chris Bayliss: It's not a big part of our business, but we believe we're comfortable with the concentration risk associated with it.

Speaker #2: But we believe we’re comfortable with the concentration risk associated with it.

Speaker #1: Thank you. Next, we have Nathan Ledd from Morgan's.

Operator: Thank you. Next, we have Nathan Lead from Morgans.

Speaker #5: Good day. My question is just around the capital release securitization. You said that added 60 basis points to your CET1, and you intend on doing these transactions annually.

Nathan Lead: Good day. My question is just around the capital release securitization. You said that that added 60 basis points to your CET1, and you intend on doing these transactions annually. Can you just talk through, they are not free, so what sort of dilution does it do to the NIM? I suppose, if you are intending on going back into that market, do you think that your profile, your reputation in the debt capital markets were damaged by the loan issues you had at the end of FY26?

Speaker #5: Can you just talk through—I mean, they're not free. So what sort of dilution does it do to the NIM? And I suppose, if you're intending on going back into that market, do you think that your profile and your reputation in the debt capital markets were damaged by the loan issues you had at the end of FY26?

Speaker #2: Yeah. Look, thanks, Nathan. This is a really important part of our capital story, and we were very pleased with that transaction, which I'll talk about.

Andrew Leslie: Yeah. Look, thanks, Nathan. This is a really important part of our capital story, and we were very pleased with that transaction, which I talked about. What is the economic impact? The first part of your question. Look, at the end of the day, the benefit of these is that whilst it is an element of a funding nature. Because we sell all of the notes of these securitizations, it means that we do not have to hold regulatory capital against them. It is effectively we are getting call it 250 basis points net. If you take our lending margin over swap and take the cost of these, in the high 100s off that, then we are getting 250 basis points of NIM, for no capital. That is the power of this from a kind of a balance sheet velocity perspective and ultimately an ROE perspective. So we think they are very attractive.

Speaker #2: What's the economic impact — the first part of your question? Look, at the end of the day, the benefit of these is that, whilst it is an element of a funding nature, because we sell all of the notes of these securitizations, it means that we don't have to hold regulatory capital against them.

Speaker #2: And so, effectively, we're getting—call it—250 basis points net. If you take our lending margin over swap and take the cost of these in the high 100s off that, then we're getting 250 basis points of NIM for no capital.

Speaker #2: And that's the power of this from a kind of balance sheet velocity perspective, and ultimately, an ROE perspective. So we think they're very attractive.

Andrew Leslie: That is the power of this from a kind of a balance sheet velocity perspective and ultimately an ROE perspective. So we think they are very attractive. Look, pricing can move. We did the last transaction in what was a very good market. Market conditions can change. But 250 basis points is still attractive when you are plus or minus on the pricing. We still think that we have good access to this. It was a big step up from the 2023 transaction, as I said, over 100 basis points tighter in terms of pricing. I think the other thing with these is this is a structured product. So investors here come in, they get a loan tape, they do the DD, they know what they are getting.

Speaker #2: And look, pricing can move. We did the last transaction in what was a very good market. Market conditions can change. But 250 basis points is still attractive when you're plus or minus on the pricing.

Andrew Leslie: Look, pricing can move. We did the last transaction in what was a very good market. Market conditions can change. But 250 basis points is still attractive when you are plus or minus on the pricing. We still think that we have good access to this. It was a big step up from the 2023 transaction, as I said, over 100 basis points tighter in terms of pricing. I think the other thing with these is this is a structured product. So investors here come in, they get a loan tape, they do the DD, they know what they are getting. It is a very well-informed instrument in terms of the performance and the economics. So yeah, having now done that second transaction, and really broadened the investor base of that, because it is a new asset class, SME assets in this structure for the market.

Speaker #2: We still think that we have good access to this. I mean, it was a big step up from the 2023 transaction; as I said, over 100 basis points tighter in terms of pricing.

Speaker #2: And I think the other thing with these is, these are—this is a structured product. So investors here come in, they get a loan tape, they do the DD, they know what they're getting.

Speaker #2: And so it is a very well-informed instrument in terms of the performance and the economics. And so, yeah, we've having now done that second transaction and really broadened the investor base of that because it is a new asset class, SME assets in this structure for the market.

Andrew Leslie: It is a very well-informed instrument in terms of the performance and the economics. So yeah, having now done that second transaction, and really broadened the investor base of that, because it is a new asset class, SME assets in this structure for the market. We are very happy with that, and we want to make it part of our annual plans going forward.

Speaker #2: We're very happy with that, and we want to make it part of our annual plans going forward.

Andrew Leslie: We are very happy with that, and we want to make it part of our annual plans going forward.

Speaker #1: Thank you. Next, we have Ed Hennings from CLSA.

Operator: Thank you. Next, we have Ed Henning from CLSA.

Speaker #6: Thanks for taking my question. I just want to circle back on the large exposure. You said you're working through it at the moment. Just on the preliminary findings so far, is that working towards where you've taken the collateral haircut, or working towards the actual initial collateral backing you had pre-haircut?

Ed Henning: Thanks for taking my question. I just want to circle back on the large exposure. You said you are working through it at the moment. Just on the preliminary findings so far, is that working towards where you have taken the collateral haircut or working towards the actual initial collateral backing you had pre-haircut? Then if you just go to your slide where you talk about your bigger exposures and you talk about your property collateral there, are you mark-to-marking that regularly? Obviously, with prices falling, I am just interested how you are thinking about that.

Speaker #6: And then, if you just go to your slide where you talk about your bigger exposures and you talk about your property collateral there, are you mark-to-marking that regularly?

Speaker #6: Obviously, with prices falling, I'm just interested in how you're thinking about that.

Speaker #2: Yeah, no, thanks, Ed. Look, in the confines of client confidentiality, it's difficult to get into specifics. But we are more than comfortable with the provision that we raised on that loan.

Chris Bayliss: Yeah. No, thanks, Ed. Look, in the confines of client confidentiality, it is difficult to get into specifics. But we are more than comfortable with the provision that we raised on that loan. We are in a constructive dialogue with the customer. The market value of those properties that we have as security would mean that we would not have a loss. So I think that is all I can say. But we have specific requirements under potential standards with regards to how we raise provisions and when we raise provisions, and that was all part of the disclosure that we gave in June. With regards to our large customers, absolutely. These are managed by specialist bankers with very small portfolios. We would always have line of sight with regards to what is happening to property valuations.

Speaker #2: We were in a constructive dialogue with the customer, and the market value of those properties that we have as security would mean that we would not have a loss.

Speaker #2: So I think that’s all I can say. But we have specific requirements under potential standards with regards to how we raise provisions, and when we raise provisions.

Speaker #2: And that was all part of the disclosure that we gave in June. With regards to our large customers, absolutely. These are managed by specialist bankers with very, very small portfolios.

Speaker #2: And we would always have line of sight with regards to what's happening to property valuations. For a lot of them, we said that we have a particular expertise in the hospitality business, with obviously pubs as the underlying security there.

Chris Bayliss: A lot of them, we said that we have a particular expertise in the hospitality business, with obviously pubs as the underlying security there. We are always reevaluating. Often those files would be subject to, say, quarterly review in terms of monitoring covenants, et cetera. So they are the most well understood, most well managed by the most highly skilled bankers with very small portfolios, and we know those customers intimately.

Speaker #2: And we're always re-evaluating them; they're subject to that. Often, those files would be subject to, say, quarterly review in terms of monitoring covenants, etc. So they are the most well-understood, most well-managed by the most highly skilled bankers, with very small portfolios, and we know those customers intimately.

Speaker #1: Thank you. Next, we have John Story from UBS.

Operator: Thank you. Next, we have John Storey from UBS.

Speaker #5: Hey, thanks very much. Hopefully you guys can hear me—the line's been a little bit crackly on the call. But I'd like to provide a little more detail just around the early stage areas, which have decreased significantly.

John Storey: Hey, thanks very much. Hopefully, you guys can hear me. The line has been a little bit crackly on the call. Andrew, I wonder if you could provide a little bit more detail just around the early-stage arrears, which have decreased significantly. I would be interested to understand if this is a genuine kind of underlying improvement in asset quality. If you could just provide a little bit of detail around what percentage is being refinanced, cured, and then the repayments. If there are any conditions that have changed just around the curing, that would be useful. Thank you.

Speaker #5: I'd be interested to understand if this is a genuine, underlying improvement in asset quality. If you could just provide a little detail around what percentage has been refinanced or cured, and then the repayments—also, if there are any conditions that have changed just around the curing, that would be useful.

Speaker #5: Thank you.

Speaker #2: Yeah. Look, I mean, as I said, these numbers can be volatile. But we have seen some encouraging signs in terms of some of those early warning indicators.

Andrew Leslie: Well, as I said, these numbers can be volatile, but we have seen some encouraging signs in terms of some of those early warning indicators. The 30 to 89, as I said, has improved from 1% down to just under 0.4%. Chris also talked about close monitoring, which we have seen as well trend down, as well as the level of the book that is in watch. So, these things, it can move around, and you see that in some of our metrics. It is part of, I guess, how we have thought about the provisioning for 30 June and also kind of how we have thought about guidance for next year.

Speaker #2: The 30 to 89, as I said, has improved from 1% down to just under 0.4%. I also talked about close monitoring, which we've seen trend down as well, as well as the level of the book that's in watch.

Speaker #2: So these things can move around, and you see that in some of our metrics. But it is part of, I guess, how we've thought about the provisioning for 30 June, and also kind of how we've thought about guidance for next year.

Speaker #5: And just the percentage that's been refinanced of the reduction that you've seen?

John Storey: And just the percentage that has been refinanced of the reduction that you have seen?

Speaker #2: Just say that again, John?

Chris Bayliss: Say that again, John. The percentage that has been refinanced of the reduction.

Andrew Leslie: Say that again, John. The percentage that has been refinanced of the reduction. It is a portion. As I said, if you think about kind of stock and flow, and we provide in the back of our presentation the statistics, as we always do, in terms of attrition. You can see that that does move around a little bit. But attrition for this year overall has been in the mid-20s, so just under 25% for the year. We had a bigger, which we called out in the H1, where we were seeing much higher levels of attrition. That kind of dropped right back in the Q3 and came up a little bit in the Q4. But that gives you the data behind the overall kind of movement in the book.

Speaker #3: The percentage that's been refinanced of the reduction.

Speaker #2: Oh, it's a— I mean, it's a portion of our— I mean, as I said, about— we've had a— out of the— if you think about kind of stock and flow, and we provide in the back of our presentation the statistics, as we always do, in terms of attrition.

Andrew Leslie: It is a portion. As I said, if you think about kind of stock and flow, and we provide in the back of our presentation the statistics, as we always do, in terms of attrition. You can see that that does move around a little bit. But attrition for this year overall has been in the mid-20s, so just under 25% for the year. We had a bigger, which we called out in the H1, where we were seeing much higher levels of attrition. That kind of dropped right back in the Q3 and came up a little bit in the Q4. But that gives you the data behind the overall kind of movement in the book.

Speaker #2: You can see that does move around a little bit, but attrition for this year overall has been in the mid-20s—so just under 25% for the year.

Speaker #2: We had a bigger, which we called out in the first half, where we were seeing much higher levels of attrition. That kind of dropped right back in the third quarter and came up a little bit in the fourth quarter.

Speaker #2: So, yeah, but that gives you the data behind the overall kind of movement in the book.

Speaker #1: Thank you. Last question comes from Brian Johnson from MST Alliance. Please go ahead.

Operator: Thank you. Last question comes from the lines of Brian Johnson from MST. Please go ahead.

Speaker #6: Thank you very much for the opportunity to ask a question. Chris, just looking at it and listening to what you said today, it's not apparent to me that you've really communicated as to why these big loan losses came through during the period.

Brian Johnson: Thank you very much for the opportunity to ask a question. Chris, just looking at it and listening to what you have said today, it is not apparent to me that you have really communicated as to why these big loan losses came through during the period. I still do not understand how, if you are so close to the customer, it basically suddenly went from performing to not performing. The subset of that question is, if I have a look at slide 26, I can see that we have still got quite strong credit growth. But if I have a look at input costs, particularly for small companies, which are sharply higher, does not this actually, and we know these small companies cannot pass it on, does not this actually create an increased credit risk profile going forward? So why did we not know about the large ones?

Speaker #6: I still don't understand how, if you're so close to the customer, it basically suddenly went from performing to not performing. And a subset of that question is, if I have a look at slide 26, I can see that we've still got quite strong credit growth.

Speaker #6: But if I have a look at input costs, particularly for small companies, which are sharply higher, doesn't this actually—and we know these small companies can't pass it on.

Speaker #6: Doesn't this actually create an increased credit risk profile going forward? So why did we not—why did we not know about the large ones?

Brian Johnson: So why did we not know about the large ones? If I have a look at slide 26, why is there not a problem with these input costs rising to small companies that cannot pass them on?

Speaker #6: And then, if I have a look at slide 26, why is there not a problem with these input costs rising for small companies that can't pass them on?

Brian Johnson: If I have a look at slide 26, why is there not a problem with these input costs rising to small companies that cannot pass them on?

Speaker #2: Yeah. I mean, on the large well, as I said, the three loans that we talked about in June—two of them are losses in the ordinary course of business.

Chris Bayliss: Yeah. On the large, well, as I said, the three loans that we talked about in June, two of them are losses in the ordinary course of business. We did not have line of sight because they both had circumstances associated with them where there was no line of sight. One went into voluntary administration. That would have been a buildup of overdue creditors or tax, what have you. There are lots of components to the working capital cycle of a business that as a bank you do not always have complete line of sight of. On the other one, it had personal circumstances related to it, which is completely inappropriate for me to talk further about. The larger one, as I said, we had an aggregation issue in that we were not looking at it as a group. We were looking at them as standalone businesses.

Speaker #2: And we did not have line of sight because they both had circumstances associated with them where there was no line of sight. One went into voluntary administration.

Speaker #2: That would have been a buildup of overdue creditors or tax, what have you. There are lots of components to the working capital cycle of a business that, as a bank, you don't always have complete line of sight of.

Speaker #2: And then, on the other one, it had personal circumstances related to it, which is completely inappropriate for me to talk further about. The larger one, as I said, we had an aggregation issue.

Speaker #2: In that, we were not looking at it as a group. We were looking at them as standalone businesses. And it was the nature of the group that would have given us deeper insight.

Chris Bayliss: We were looking at them as standalone businesses. It was the nature of the group that would have given us deeper insight, and would have allowed us to see potentially earlier that there was an underlying cash flow issue that was not manifesting itself in the individual companies. So that we have improved our processes around that, and we have double-checked that we do not have any other files in the portfolio where we have an aggregation issue. So I am comfortable that that was an unacceptable loss. As I said, well, sorry, an unacceptable provision, as per some of the earlier questions that I have answered on that. Provisions are not losses, and that customer is working with us to catch up on the arrears, and we hope to have a good outcome on that.

Chris Bayliss: It was the nature of the group that would have given us deeper insight, and would have allowed us to see potentially earlier that there was an underlying cash flow issue that was not manifesting itself in the individual companies. So that we have improved our processes around that, and we have double-checked that we do not have any other files in the portfolio where we have an aggregation issue. So I am comfortable that that was an unacceptable loss. As I said, well, sorry, an unacceptable provision, as per some of the earlier questions that I have answered on that. Provisions are not losses, and that customer is working with us to catch up on the arrears, and we hope to have a good outcome on that. With regards to the overall business conditions, for you to assess today. We really do appreciate you spending the time with us.

Speaker #2: And it would have allowed us to see, potentially earlier, that there was an underlying cash flow issue that wasn't manifesting itself in the individual companies.

Speaker #2: So we've improved our processes around that, and we've double-checked that we do not have any other files in the portfolio where we have an aggregation issue.

Speaker #2: So I'm comfortable that that was an unacceptable loss, as I said. Well, sorry, an unacceptable provision, as per some of the earlier questions that I've answered on that.

Speaker #2: Provisions are not losses. That customer is working with us to catch up on the outcome of that. With regard to the overall business conditions, for you to assess today….

Chris Bayliss: With regards to the overall business conditions, for you to assess today. We really do appreciate you spending the time with us. Thank you for all of your questions. As I said, we are incredibly proud of the bank that we have built. We have some of the leading metrics of any ADI in Australia now. It is the 10-year anniversary of Judo. We are still only 2% market share. We have a very bright future in front of us, and we look forward to updating you more fully on that at our AGM in October.

Speaker #2: And so we really do appreciate you spending the time with us. Thank you for all of your questions. As I said, we are incredibly proud of the bank that we have built.

Chris Bayliss: Thank you for all of your questions. As I said, we are incredibly proud of the bank that we have built. We have some of the leading metrics of any ADI in Australia now. It is the 10-year anniversary of Judo. We are still only 2% market share. We have a very bright future in front of us, and we look forward to updating you more fully on that at our AGM in October.

Speaker #2: We have some of the leading metrics of any ADI in Australia now. It's the 10-year anniversary of Judo. We're still only at 2% market share.

Speaker #2: And we have a very, very bright future in front of us, and we look forward to updating you more fully on that at our AGM in October.

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