3 Australian Financial Stocks That Could Benefit From Higher For Longer Interest Rates

Sticky 4.0% inflation, a 15 year high cash rate of 4.6% and growing talk of another Reserve Bank move in November have put interest costs back at the centre of every money conversation. Higher rates punish some corners of the market, but they can improve earnings power for others. This article walks through three Australian financial stocks exposed to this higher for longer backdrop and explains why they may deserve a closer look now.

The three stocks below offer a flavour of how Australian banks and financials can respond to a higher for longer cash rate, but the full screen surfaced 10 more listed companies with equally considered stories that are not covered here.

If you want to move beyond a small sample and start sorting for your own higher conviction ideas, head straight into the Australian Banks and Financials Benefiting from Higher-for-Longer Interest Rates screener.

Judo Capital Holdings (ASX:JDO)

Overview: Judo Capital Holdings is an Australian bank focused on relationship-based lending to small and medium businesses, funded by deposits and specialised financing.

Operations: The bank generates A$404.7 million of revenue from lending to Australian small and medium enterprises, with all activity concentrated domestically.

Market Cap: A$1.0b

Judo Capital matters for this higher-for-longer rates screener because it earns its living directly from lending to Australian SMEs. Every move in the cash rate feeds into margins, credit quality and investor perceptions of risk.

"The trigger for the market’s caution was the emergence of large-exposure provisions that raised concerns about credit quality."

What happens to Judo Capital’s margins and earnings will largely hinge on how one unresolved pocket of risk in its loan book ultimately plays out.

To see how that unresolved pocket of risk could either stall or accelerate Judo Capital’s higher rate earnings story, read the full narrative for Judo Capital Holdings and see what the market may be missing.

Zip Co (ASX:ZIP)

Overview: Zip Co offers digital retail finance, personal loans and Buy Now Pay Later services, giving consumers flexible payment options on everyday and larger purchases.

Operations: Zip Co generates about A$903 million of revenue in the United States and A$433 million in Australia and New Zealand from digital finance products.

Market Cap: A$2.5b

Zip Co fits this higher for longer rates screen as a pure-play digital lender that relies on funding costs and pricing power rather than customer deposits. As a result, any shift in the RBA’s stance can flow quickly through to its margins.

"Zip Co is positioned within the accelerating shift toward digital payments and increasing e-commerce penetration, as reflected in its reported transaction volumes (up 30%) and targeted partnerships with platforms such as Google and Stripe."

Changes in a single pressure point in its funding mix or credit settings could influence how much of that potential flows through to earnings.

That funding pressure point is exactly where the story gets interesting. Read the full narrative for Zip Co to see whether Zip Co’s momentum is accelerating or masking key risks.

Plenti Group (ASX:PLT)

Overview: Plenti Group is an Australian digital lender offering a wide mix of personal, auto, commercial and green finance loans to local borrowers.

Operations: Plenti Group generates A$123.9 million of revenue from the provision of financial services, with all income sourced from Australian customers.

Market Cap: A$136 million

Plenti Group is closely linked to the higher-for-longer interest rate environment, as its lending margins and credit outcomes are tightly tied to domestic borrowing costs and borrower resilience.

"Strategic partnership with NAB offers access to a vast customer base and the ability to drive material origination volumes in coming quarters, expanding addressable market and boosting future revenue and earnings."

How a single funding pressure point shifts will influence how much of that potential is reflected in margins and profit.

That funding hinge is where Plenti Group’s story could really accelerate. Read the full narrative for Plenti Group to see how the risk reward trade off truly stacks up.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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