Good morning from a rather wintry Melbourne, Australia. My
name is Joseph Healy and I want to talk to you this morning
about the following themes. First of all, I want to talk
about some of the challenges facing the banking industry.
And then the important role of leadership in navigating those
challenges. Thirdly, I want to talk about the importance of
leadership in building the Bank of the future. And finally talk
about the critical importance of culture as a foundation in any
successful organisation, not not just in the banking industry.
I want to use judo bank as a case study to illustrate some of
these themes. First I should introduce myself and then a
brief overview of who judo bank is. To do this, I pull together
a number of slides to help bring my remarks to life. Copies of
these slides are available from the conference organisers.
Let me introduce myself.
A career banker who founded and is now the CEO of a bank called
Judo Bank. I'll introduce judo bank shortly. Um you can see
from the slide that I had extensive background in the
industry. Over 35 years of experience started life off at
Lloyds Bank in London and an extensive international career
with Citibank. Spent a couple of years at CIC world Markets which
is a Canadian bank. And then.
Moved to Australia, New Zealand, Australia joining ANZ Bank and
then before setting up judo bank I was the.
A group executive at National Australia Bank are responsible
for its business banking, which was everything from small
businesses right through to large.
Large corporations. I'm also a passionate writer and reader,
and I've authored 3 three books, the most recent of which was a
book called Breaking The Banks. What went wrong with the
Australian banking industry? Which was published in 2019?
That book looked at some of the major problems that the banking
industry had found itself engulfed in, which were largely
reputational but fundamentally cultural in nature. The UK, the
Australian banking system did not face the challenges.
That we saw in many other Western banking systems that
required government support. The Australian banking system was
actually very strong and robust through the GF, the global
financial crisis and beyond. But it had developed some practises
and behaviours that were seen as being not in keeping with
societal expectations of banks, and in fact some of those
practises and behaviours and bordered on breaking, breaking
numerous laws. And there was a detailed government inquiry.
Into the conduct of the banking system that did not shine a
particularly nice light on some of the behaviour and practises
that had governed the banks up until recent times. In addition
to writing about the banking industry, I'm a lifelong
learner. You can see from that slide that I have a number of
masters degrees.
Covering a range of topics of one of the highlights is the MBA
Chartered Banker, MBA which I did at Bangor which is a lot and
enormous amount from which was very helpful to me as I was
building judo bank but my interest cover finance,
neuroscience, psychology and China. I've been a very
passionate student and observer of the the emergence of China
and business practises in China and spent a couple of years
there.
About 10 years ago.
I I I could also say I should also say that I'm very
passionate about banking and the role that banks play in society,
notwithstanding some of the criticisms that I just touched
on. But banks fundamentally are critical to the functioning of
most economies and particularly my deep passion lies in small to
midsize businesses and making sure that the banking system
serves their needs well, but to underline the passion and
commitment to banking.
I'm also very strong advocate of the professionalism of banking,
and as a fellow of the Chartered Institute of Bankers in Scotland
and a Senior Fellow of the Financial Services Institute in
Australia, I I I believe that leaders should lead by example.
And I do encourage, in fact insist that all of the bankers
at judo undertake the professional qualifications that
administered by the Chartered Bankers Institute so that they
have a foundation in the.
Craft science of and skills required and understanding of
context required to be an effective banker and to make
sure that the representing the bank in a very professional way.
Let me just turn for a second to talk about Dualband because I'm
sure that virtually no one in the audience will be familiar
with judo bank. It was established in 2016 from a
PowerPoint.
It was an idea crafted under a strong belief that the SME
economy was being poorly served by the major banks that
dominated the landscape in Australia.
Um, with the the bill in building judo bank, we want it
to be a pure specialist bank and I'll talk in a second about the
the importance of specialisation. But it was, it
was built to address what I described as the triple U virus
that SMEs faced. That is that they were unloved, undervalued
and underserved by by the banking system.
Judal Bank has been based on traditional values of
relationship banking, that is, bankers sitting across the
table.
From SME customers, but it's a bank that's been built on a more
than cloud based technology platform. So by starting from
scratch and avoiding some of the challenges of dealing with
legacy, we were able to build a bank which is as I say is truly
unique both domestically and globally. A bank that I
characterise as high touch in terms of human engagement with
small to midsize businesses, but high tech making it really easy
for our bankers to look after our customers.
And for our customers to do business with the bank, we've
also assembled the management team, a very strong management
team here with over 200 years of commercial banking experience.
And I very much think of judo as a bank built by bankers to serve
the needs of the SME economy. And it's a bank that's truly
committed to banking as a profession and making sure that
we we set very high standards in the way that bank bankers and
all of our staff for that matter.
Engaged with our customers and our various stakeholders. Let me
spend a second on specialisation because it's really important to
the story of judo bank. We believe that as banks grew to
try to serve the needs of everybody in the economy and had
multi product dimensions to them were in very in serving a number
of different industries investment banking and wealth
management, commercial banking etc that the.
The expertise and the professionalism of the industry
had been diluted overtime. So in building a specialist bank we
believe that specialisation achieves superior customer
service and superior economics. And they used the example here
of the Olympics. And you can go back over 40 odd years and look
at gold medal winners in the decathlon compared to gold medal
winners in specialists like the 100 metres. And you can see in
each case, which is no surprise that the specialist the pure 100
metres.
Printer outperforms the decathlon 100 metre sprinter and
that performance is in a range of five to 33%, average 17%. But
the key message here is by specialising in something that
you're passionate about, that you can achieve superior
performance. Let me turn for a second then to the challenges
that the banking industry faces, at least through through my
eyes, and I think these challenges are universal in
nature, not unique just to the Australian.
Market the first big challenge of course is that we're living
in very difficult macroeconomic environment with high higher
increasing interest rates and inflation, supply chain problems
and of course.
In certain parts of the world, particularly in Europe, the the
dark shadow of the war in the Ukraine, but in other parts of
the world such as where I am, the great uncertainty about
future direction of China and the geopolitical implications of
that do affect the way that businesses engage with foreign
markets. So these are challenges that are not new if you look
back through the history of banking, but they are new in a
contemporary sense we've not really.
To face such a cocktail of challenges for well over, and
certainly in the Australian context, well over 20 to 30
years, the other big challenge which COVID is really
exacerbated has been the tight labour market and particularly a
tight labour market for specialist skills. I mean the
shortage of skills in technology are well documented, but also
specialist skills in banking and other fields and also of course
because of COVID.
Our significant acceleration in people choosing to work from
home remote working and and I know from my contacts in various
markets around the world that this is a common theme. The idea
of flexible working conditions of course is something to be
welcomed, but it does present challenges in particularly in
industries that run what I would describe as apprenticeship
models were young.
Bankers, for example, are learning on the job from more
experienced bankers. We are learning a lot of information
simply by being in the room, watching and listening,
interacting real time rather than the more planned and the
more sterile type of interaction that comes from zoom or or teams
meeting. So that that's a reality. It is celebrated as
providing much greater freedom for people, but there are, I
think, potential long term.
Costs.
Health being one course of people working remotely and not
being part of a team environment. So I consider that
as something that all industries certainly or banking industry
companies are having to face into the third big challenge.
It's around the increasing role of regulation in the industry.
It is a heavily regulated industry, of course, but there
is a sense of creeping regulation and a significant
shift in societal expectations. Some of these new requirements
placed on banks can be loosely and broadly captured by ESG, but
it goes beyond ESG expectations and banks are grappling with how
best to accommodate that.
And for example, lending to certain industries that are no
longer seen as ESG compliant and no longer seen as societally
acceptable as an ongoing challenge that our industry
faces. And it's a challenge that is only going to intensify into
the future and the 4th challenge that I see.
It's affecting all all banks is the rapid.
Growth of the technology, the digitalization of lots of things
that were once done by human beings.
That in many ways it's welcome. In another ways, it creates set,
it can create service challenges, and it can, and it
can dehumanise the relationship between customers and banks. So
it's not something that we should simply sleepwalk into and
take for granted. Technology in the digitalization of lots of
what has happened inside banks is to be welcome. But the shadow
side of the dark side of that is also to be understood and linked
to technology, of course, is the emergence of disruptors.
And fintech morals and Neil bank morals that are attacking
certain parts of the value chain where they see profitable
economics and this impacts the way the traditional banks
operate. So I've called out four major.
What I call challenges that the banking industry is facing that
that list could be added to of course, but I see these as four
universal challenges that all banks are grappling with. If I
can kind of turn back to how judo is dealing with some of
these challenges and linking it back to banker.
Professionalism and banker, the engagement in application of
technology. We we've had a very strong commitment from the very
outset to making sure that our bankers are properly qualified
to look after our customers. I mean part of the entrance test
coming into the company beyond interviews is that all of our
bankers go through, go through three hour closed book, closed
door credit tests, part of that's financial.
Technical financial ratio analysis, but a big part of it
is judgement based and.
Testing how people think rather than how they memorise policies
and procedures. This is very important to us because one of
the central tenets of judo bank in terms of in terms of risk
management is what we call the four CS of credit. Some banks
talk about 5C's, but when we think about credit risk as one
of the risks that very much at the core of the bank, we think
of the four Seas framework of understanding the character's
track record and reputation of the entrepreneur.
That we'll look into the bank and then looking at the capacity
of the cash flow that would service and repay debt.
And assuming headroom for dealing with volatile times. And
then the third C is to look at the capital of the equity
capital that sits on the balance sheet to support the debt. And
then finally, what form of collateral or security is
available should there be a weakness in any of the first
three of the four seas, another approach that we've taken. So
we're very religious on this. So all, all of our credit
memorandum, all of our internal dialogue is, is shaped around
this 4C framework in the hierarchy.
That I've just been through.
Another important approach to the way that we run judo is a
team based culture, not an individual based culture we have
no tolerance for. I did this and I want that. It's all about the
team. So we don't have sales targets or short term Commission
based outcomes. We want team outcomes, we want everybody
working together, sharing work.
Engaging with colleagues that there might be able to help in
your assessment of a particular customer need and all of our
incentive arrangements are shaped around team and and
overall judo outcomes rather than individual targets. This is
an important part of our culture and it does mean we self select
because some people who like to operate as I did, I don't want,
are not really suited to the culture that we want. We have it
in empowering culture where we have.
Delegated credit authorities to bankers that based on their
experience with the second line cheques and balances, but it's
very much a judgement based approach underpinned by a strong
ownership mindset. So we want in building the bank, we wanted
everybody working in the bank to have an equity ownership in the
bank so that they thought more like owners of the company
rather than employees of the company. And underpinning that
whole approach to banker recruitment and teamwork
ownership.
Mindset and the application of judgement rather than sterile
policy procedures and algorithms is a very strong commitment to
training and development, to making sure that our bankers are
staying ahead of developments in the industry, ahead of credit
trends. And as bankers are growing, developing from being
analysts into bankers into senior bankers, that there's a
pathway supported by strong approach to credit, to risk
management, emphasising credit. But of course.
Thank you. Bikes are full of risks and we educate our bankers
on all back aspects of banking risk.
Let me turn a little bit to to culture here, because I think
this is one of the most important things in any
organisation is. And as a CEO of judo bank, it is the one thing
that I spend almost more of my time on than anything else. Some
of you might find that surprising, but for me, as Peter
Drucker once famously said.
Culture eats strategy for breakfast. In fact, I would say
that culture eats strategy for breakfast, lunch and dinner. If
the foundation, the cultural foundations of the company a
week, then the rest of the companies sustainability is
going to be put at risk. So when people join judo, we asked them
three months after they joined what really attracted them to
the company. And you can see from this slide there's a whole
range of reasons, one of them one of the obvious ones being
involved in building something, but the other many of the other.
This could be grouped together under culture, the idea being a
purpose and values driven organisation, the idea of being,
doing relationship banking the way that it used to be done
rather than the kind of industrialization that we have
seen in the industry. The calibre of people that we've
hired is attract AB's, attract C so do it. We place a lot of
emphasis on the calibre of people.
And you see from that slide that salaries and benefits, whilst
important, are not high in the hierarchy of what attracted
people to judo. So having attracted people to judo, we
then asked them, has judo lived up to its promise? And what I'll
show you next is a slide that.
When we when we said to people.
Speak with me for a second.
High Street to lift up to the promises that it it made. And
one of the things it comes out here very, very clearly is that
the big strengths of the organisation has been its its
people and its culture. And this is something that I'm absolutely
thrilled about. In other words, that we set the proposition up
to our employees as a new, distinct bank, committed to
traditional values, committed to professionalism, committed to
teamwork and committed to making sure that we're building
something.
There's a distinctive, unique and that would be a lasting
legacy. And in the survey that we recently that had done on
staff that had been in the organisation for over a year,
the culture emphasis stands out very strongly. And it's
something that I'm absolutely delighted by because as I have
mentioned several times through my remarks, the fundamental
importance of culture.
To the success of any business and to the professional ethos
and in any business, but particularly in banking, given
it's rather chequered modern history is something that we
hold in absolute higher importance in the way that we
think, the way we talk and the way that we run the bank. So I'm
gonna conclude my remarks there. I hope you find what I've had to
say of interest and of value to you. Do feel free to cheque the
Dural website if you want more information on the company.
But thank you for listening to me this morning and the best of
luck for the rest of the programme. Goodbye.