Q1 2024 Earnings Summary
- Strong growth in personal loans, especially secured loans, with personal loan originations nearly doubling over the past four quarters to BRL 12.3 billion in Q1 2024. Secured personal loans, including public payroll loans and FGTS anticipation, now represent 14% of total originations, up from 10% in the previous quarter. This diversification enhances NU's loan portfolio and taps into significant market opportunities.
- Significant market share gains in the credit card segment, with NU's estimated market share reaching around 15% in cards by the end of Q1 2024, potentially making it the second-largest credit card issuer in Brazil. The credit card portfolio grew 42% year-over-year to $15.1 billion, driven by new customers and increased wallet share among existing customers.
- Expansion into the SME segment presents substantial growth opportunity, leveraging NU's existing customer base that includes 8 to 9 million small business owners. Cross-selling SME accounts can increase ARPAC, engagement, and activation rates. Initial SME offerings, such as accounts, debit cards, and credit cards, are performing extremely well, and the company plans to gradually expand into working capital loans.
- Renegotiated loans account for about 10% of Nubank's portfolio, similar to the 9.6% reported in Q4, and the company has stopped providing quarterly disclosures on this metric, shifting to annual reporting. This may raise concerns about asset quality and transparency.
- Share-based compensation increased significantly due to headcount growth, more aggressive performance recognition, and share price appreciation impacting social tax contributions, which can account for up to 36% of the grants. This could lead to higher expenses and potential shareholder dilution.
- Nubank is rapidly expanding its unsecured personal loan portfolio, with originations almost doubling from BRL 6 billion to over BRL 12 billion in the past four quarters. The primary driver of this growth is unsecured personal loans, which may increase credit risk and potential future loan losses.
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Asset Quality Concerns
Q: Why are NPLs increasing while others see improvements?
A: Nubank's NPLs rose mainly due to seasonal factors and credit expansion. The bank focuses on maximizing net present value through resilient underwriting practices, ensuring every credit grant is NPV positive even under stress scenarios. They remain comfortable with asset quality and see continued opportunities to expand credit profitably. -
Personal Loans Growth
Q: What's driving the strong growth in personal loans?
A: Personal loans grew by 25% FX-neutral, outpacing credit cards, which grew by 8%. Growth is driven largely by unsecured personal loans, with secured loans like payroll and FGTS loans also contributing. Nubank expects secured loan originations to outpace unsecured as they expand collateral agreements, reaching 75% of the target market by the end of 2024. -
NIM Expansion and Loan-to-Deposit Ratio
Q: How is NIM impacted by cost of funding and loan mix?
A: Net interest margin expanded to 19.5%, up from 15% over the past four quarters, driven by balance sheet optimization in Brazil and increasing the loan-to-deposit ratio from 30% to 40%. This expansion is partially offset by higher deposit rates in Mexico and Colombia. Nubank expects the loan-to-deposit ratio to rise materially above current levels, though not reaching the 100%-110% seen at large banks. -
Mexico Deposit Strategy
Q: What's the goal with high deposit rates in Mexico?
A: Nubank offers competitive deposit rates in Mexico to disrupt incumbents who pay low rates despite high sovereign yields. This strategy attracts customers rapidly, contributing to significant growth and second-order benefits like increased brand awareness and credit card applications, which have more than doubled. They plan to rationalize costs over time by enhancing product features and leveraging their strong brand. -
Mexico Credit Growth
Q: How is credit growth progressing in Mexico?
A: After a conservative start, Nubank is accelerating credit growth in Mexico with improved funding and underwriting models based on proprietary data. Delinquency levels have decreased significantly, and they're now growing the loan book at about 7-8% quarter-over-quarter. They expect this growth rate to pick up in the coming quarters. -
Share-Based Compensation Increase
Q: Why did share-based compensation rise this quarter?
A: The increase resulted from headcount growth, more aggressive performance recognition, and share price appreciation impacting social tax contributions, which can account for up to 36% of grants. Nubank carefully monitors dilution, operating below a 100 basis points net burn rate, and expects this number to decrease over time. -
Risk-Adjusted NIM Outlook
Q: Will risk-adjusted NIM remain stable this year?
A: Risk-adjusted NIM is expected to reflect portfolio dynamics and remain stable, adjusting for previous anomalies due to Desenrola. While Nubank doesn't provide specific guidance, they anticipate the full-year gross profit margin to be in line with the 42-43% seen in the third quarter of 2023. -
Credit Card Customer Growth Slowing
Q: Why is credit card customer growth slowing?
A: As Nubank reaches 60-65% of the Brazilian adult population, marginal growth in customers and credit cards is naturally flattening. Despite this, average revenue per active customer (ARPAC) and purchase volumes continue to grow significantly as customers mature and increase engagement. -
Banking License in Mexico
Q: Is the banking license critical for Mexico growth?
A: While not critical for current growth, obtaining a banking license in Mexico is important for the long term. It will provide higher deposit insurance limits and expand product capabilities, essential for attracting higher-income customers. The licensing process is progressing well with regulators. -
SME Business Potential
Q: What's Nubank's strategy for the SME segment?
A: Nubank sees significant opportunity in the SME segment by cross-selling to existing customers who own small businesses. With over 4 million SME clients and 2.4 million active, they offer basic products like accounts and debit cards, and have started providing credit cards and testing working capital loans. They aim to expand credit penetration without relying on incumbents losing market share.