Q3 2023 Nu Holdings Ltd Earnings Call
Good afternoon, ladies and gentlemen, welcome to New Holdings conference call to discuss the results for the third quarter of 2023.
Slide presentation is accompanying today's webcast, which is available in news Investor Relations website, Www dot investors dot new in English and Www come to English would do respond to no in Portuguese.
This conference is being recorded and the replay can also be accessed on the company's IR website.
This call is also available in Portuguese.
Axis you can press the globe icon on the lower right side of your screen and then choose to enter the Portuguese room after that select niche original audio.
But it's a sign of our confidence in Portuguese.
We need the global all like you said you did you say to the sweat that lets them easily Sonya So Portuguese room I was just sad another salad Fitch fixes you moved Tidewater Judy as you know.
Please be advised that all participants will be in listen only mode. You may submit online questions at any time to date using the Q&A box on the webcast.
I would now like to turn the call over to Mr York Friedman Investor Relations Officer at New Holdings. Mr. Freedman you May proceed.
Thank you very much operator, and thank you all for joining our earnings call today.
<unk> have not seen our earnings release, our corpus bolstered in the resolve center section of our Investor Relations website.
With me on today's call are Dr. Lisa Ellis, our founder and Chief Executive Officer and Chairman.
You said Flores, our Brazos bent and Chief operating officer.
Reliable, our chief financial Officer, and Jagged Dugo, our chief product Officer.
Throughout this conference call, we will be presenting no I F. R S financial information, including adjusted net income.
<unk> are important financial measures for new holdings, but are not financial measures as defined by I F. R. S and may not be comparable to similar measures from other companies.
<unk> of our null Ifr is finishing formation to the I F. R. As financial information are available in our earnings press release.
Unless noted otherwise all growth rates are on year over year FX neutral basis.
I would also like to remind everyone that today's discussion might include forward looking statements, which are not guarantees of future performance and therefore, you should not put undue reliance on them.
These statements are subject to numerous risks and uncertainties and could cause actual results to differ materially from our expectations.
Please refer to the forward looking statements disclosure in our earnings release.
Today, our founder Chairman and CEO, David Wallace will discuss the main highlights of our third quarter 2023 results and provide an overview of our company flywheel.
So sequence the army Lago, our CFO and use it Flores, our president and CFO will take you through our financial and operating performance for the quarter after which time, we will be happy to take your questions now.
Now I'd like to turn the call over to Ravi does he please go ahead.
Thank you George Good evening, everyone and thank you for being with us today.
Once again in Q3 23.
<unk> continued its remarkable upward trajectory demonstrating strong operating performance fast growth and increasingly robust profitability.
We remain focused on executing our business plan without distractions, while keeping an eye on the significant growth opportunities we have as a company in the long run.
Reflecting on one of the key milestones of the third quarter or based customer growth exceeded our expectations, culminating in over 89 million customers at the end of the quarter.
Once again, we witness robust customer acquisition in Brazil, Mexico, and Colombia, with slightly more than 1.5 million new customers per month.
Over the past 12 months or customer base growth in Brazil has outpaced that of the five largest incumbent banks combined.
Additionally, we welcomed over 700000, new customers from Mexico during the quarter driven by the rollout and continued expansion of <unk> and do locking of our member can member referral programs potential.
Our business model continues to demonstrate its ability to drive both growth and profitability.
In the third quarter or revenue surged to $2.1 billion, marking a 53% year over year increase.
Our gross profit reached $915 million doubling year over year, while our gross margin expanded once more reaching 43% this quarter solely defying the upward trajectory initiated last year.
Sequential gross margin expansion, coupled with further efficiency improvements significantly boosted our net income which reached $303 million and adjusted net income stood at $356 million, reflecting a 34% quarter over quarter increase on an FX neutral basis for both.
This slide provides a high level overview of our financial performance trends over the past two years it underscores our ability to consistently expand our customer base and increase revenues, while driving profitability, notably in October we reached a significant milestone by.
Passing 90 million customers firmly establishing us as the fourth largest financial institution in Brazil in terms of the number of customers, whereas the second largest measured by the number of customers with access to a credit product.
The robust growth of our customer base, driven by the growing cross selling and up selling opportunities facilitated by our highly engaged platform.
Resulted in a more than four fold increase in quarterly revenues in just two years when an FX neutral basis. This translates to a triple digit revenue annual compounded growth rate over this period.
The third chart of this slide effectively illustrates our prudent pricing strategy and robust underwriting capabilities.
Quarterly gross profit calculated as total revenues minus funding costs transactional expenses and credit loss allowances also increased by more than four fold in the same period.
This growth was achieved while maintaining healthy gross profit margins. Despite increased credit delinquency observed in the market over the past 12 months.
Lastly, we believe the synergistic impact of dimension factors combined with the boat into operating leverage of our platform and the maturation vote early products in Brazil has led to a significant acceleration in net income growth.
This growth is evident in the chart on the right covering the past three quarters.
We anticipate this compounding effect to continue in the coming periods, resulting from the combination of sustained growth and enhanced profitability within our platform.
As evident from this slide our platform continues to showcase its cross selling potential offering where customers comprehensive solutions as we continued to expand the scope and diversity of our product offerings.
While our initial focus was primarily oriented towards unbundling financial services as our platform has evolved today, we expect our most significant opportunities to lie in the re bundling of financial services by creating a diversified multi product multi segment multi country portfolio of businesses.
Illustrated on this slide.
Even our complementary businesses have successfully attracted millions of customers highlighting our impressive cross selling capabilities.
As we will delve into later in this presentation, we believe that critical product launches announced this year and is slated for 2024 will help further solidify our position as the preferred banking partner for an increasing number of customers. We expect this in turn will drive the expansion of our growth and profitability.
Hendrix.
I'd like to take a moment to delve into a company's flywheel.
People are all driver of our past growth and an essential foundation for future success.
The core element of our strategy is very simple.
We work extremely hard to make customers love Us fanatically.
We built what we think are the very best products and services in the markets we operate.
This obsession for customers experience enables our customer base to expand both in terms of size and engagement by the end of Q3 'twenty. Three we had achieved an impressive milestone with over 50% of Brazil's adult population as part of our customer base and steadily increasing market share in Mexico and Colombia.
This level of scale allows us to aggregate both structure and in structured data, which becomes a valuable competitive asset is currently accumulate over 30000 data points on each active customer annually and this is growing exponentially over time.
Through harnessing cutting edge technology, we've transformed these data into actionable intelligence continually enhancing our trading underwriting and customer insights months.
These model refinements in turn embarrassed to broaden the scope of our product offerings, reaching even larger segments of the populations. We serve the scale also allows us to reduce operational cost efficiency, which we then decided to pass to our customers via lower prices, helping us to provide better products and service.
There's a competitive rates and thus starting to virtuous cycle again.
The momentum we're seeing over the past two months you said direct result of this flywheel accelerating.
And in Q3, we had to procure to throw fuel to the flywheel with the introduction of new lending products, such as payroll lending, where we decided to price at a very competitive price points.
The efficiency of our model also enables us to make these pricing decisions, while maintaining healthy unit economics, we're seeing meaningful price elasticity in these products and they are excited about the opportunity to use our efficient cost structure and data sophistication on our customers' behalf.
Now I'd like to highlight how our flywheel isn't just driving customer acquisition data growth, but also sustaining strong momentum in our key financial metrics.
A sort of three geographic regions continues to expand benefiting from the interim operating leverage of our model, we're holding companies effectively converting its potential into products in the third quarter. Noah holdings achieved an impressive adjusted net income of $356 million, reflecting an adjusted annualized return on equity.
<unk> of 25%.
We believe our current level of profitability already positioned US ahead of most traditional incumbent banks in the Latin American region.
Worth, noting that we achieved these remarkable result, even us Mexico and Colombia continued to be in the early stages of investments and we believe new maintains a considerably larger capital base compared to our peers.
As a reminder, we're holding company holds $2 $3 billion in excess capital, which can be strategically allocated to our operating subsidiaries as we continue to grow.
As a reference if we take or Brazilian operation considering this excess cash we could cover 3.1 ex the required capital for Brazil.
It is important to underscore that we're achieving these strong levels of profitability, while making substantial investments in future products and geographic expansion.
Simultaneously, we're delivering a robust 53% year over year revenue growth rate.
Feat that we believe few financial institutions at our scale can match.
As you can see we're once again thrilled with the momentum of our business and now I'd like to pass the floor to our CFO Gilead Managua, who will guide you through our financial numbers over to you.
Thank you David and good evening, everyone as David mentioned, we have once again achieved a strong quarter in terms of our operating and financial key performance indicators visit accomplishment is a result of our commitment to a simple yet powerful value generating.
Strategy, which can be summarized into three guiding principles.
First we continued to expand our customer base in the markets, where we operate weekly transforming new customers into active ones.
Second we are focused on increasing the average revenue per active customer or our pack through effective cross selling and upselling initiatives and third we are dedicated to achieving growth while maintaining one of the industry's lowest operating cost structures.
Let's delve deeper into our third quarter results to understand how these three principles continue driving value for our company.
During the third quarter, our customer base continued to display impressive growth.
Spending by 27% year on year, as we welcomed $5 4 million new customers, bringing our total to $89 1 million customer at quarter's close.
Notably in Brazil, our monthly net additions remain steady with is likely over one 5 million customers a significant portion of whom were acquired through cost effective organic channels.
In Mexico, our customer count crossed the $4 3 million Mark and in Colombia, We are now serving nearly 800000 customers.
We are preparing to introduce our savings account in Colombia by year end anticipating further growth.
Our active customer base increased by 29% year over a year with the monthly activity rates posting another sequential quarterly increase reaching 82.8%. We believe this outcome underscores news effectiveness in engaging our customers on our <unk>.
Sure.
Turning our attention to revenue expansion. The first chart highlights the new has established primary banking relationships with nearly 60% of our active customer base as we have emphasizing previous discussions the more <unk>.
<unk> choose <unk> as their primary bank the more products. They tend to utilize we see the synergy between these two factors is continuing to be the driving force behind this sustained quarter over quarter growth in they are back.
The second chart illustrates our product cross selling performance showcasing our successful strategy of introducing new products to our customers effectively cross selling and establishing ourselves as their primary banking partner.
Lastly, the third chart, the pizza or PEC performance.
This chart represents the compounding effect of our expanding customer engagement as demonstrated in the first chart combined with our growing product cross sell capabilities as shown in the second chart.
In this quarter, our monthly our packet reached the new milestone breaking into double digits at $10 fit or more are a more mature cohorts are already achieving our monthly our pack of $26 <unk>.
The increase in our pack has resulted in another quarter of solid revenue growth as depicted in the next as life.
Monthly art Peck has continue its growth trend expanding by 18% year over year for yet another quarter as we have emphasized in previous discussions our confidence remains high that there is a still untapped potential for foot.
Our pet growth moving us closer to realizing what we believe is our food our pack capacity.
This our pet growth coupled with the expansion of our customer base has led to a 53% year over year increase in revenues, reaching a new record high of $2.1 billion.
Now, let's delve into our cards business purchase volumes have surged to 29 billion, marking up 28% increase compared to a year ago. Once again. This growth has been primarily driven by our successful product upsell.
And cross sell strategies as well was stronger customer engagement.
The chart on the right illustrates the correlation between purchase volumes and the aging of customer cohorts.
Notably older cohorts continue to exhibit higher purchase volumes spending more per month compared to recent cohorts.
We believe the compounding effect of integrating medians of new customers each quarter, coupled with their gradual transition to higher spending patterns will help support the future growth of purchase volumes.
When comparing our purchase volume relative to the market this quarter our market share for credit cards stands at approximately 13, 7%.
Up from 12, 2%, one year ago with prepaid cards at 15.5% compared to 12, 8% one year ago as.
As we continue to gain ground, our confidence in our ability to capture additional market share in the future gross disc.
This confidence is grounded in the consistent pace of customer acquisition and the deepening maturity of their relationships with us.
Our credit cards and personal loans portfolio also known as the consumer finance portfolio reached a significant milestone this quarter now amounting to $15 $4 billion, and marking a 48% year over year growth.
Both segments of our portfolio maintained their growth trends.
Car loans expanded by 46% year over year, notwithstanding at $12 $3 billion. We believe this growth is a direct result of our consistent pace of customers' onboarding into our ecosystem and our low and grow credit expanding approach.
Furthermore, our personal loans per faulty growth rate accelerated sequentially, registering a 48% increase year over year and reaching $3.1 billion.
Our personal loan cohorts continue to exhibit the expected behavior, enabling us to increase originations for yet another quarter.
We see meaningful opportunities to continue to expand our credit portfolio going forward with attractive returns and robust resilience as a result, Disney intentionally leads to higher delinquency rates, but our goal is to ensure that those will be more than offset.
By additional revenues and result in higher risk adjusted net interest margins.
Now lets delve deeper into the breakdown of interest, earning loans within our credit card portfolio.
Our interest, earning installment balance continue its growth this quarter now constituting 21% of our total credit card loan portfolio.
This expansion is a direct result of our strategic commitment to bolstering our transactional financing product portfolio with a special emphasis on peaks financing.
Does this strategy is intended to capitalize on the increasing adoption of peaks in Brazil, where we remain one of the leaders among peak service providers.
Over the past year, we have is badly expanded our transactional finance portfolio and we see its performance reinforcing our belief in its ability to deliver highly attractive risk adjusted rates of return.
This approach not only allows us to monetize our credit card business and our peak market share, but also unlocks substantial value for our customers.
Our personal loan portfolio continues to demonstrate impressive resilience aligning with our expectations for asset quality, and allowing us to steadily sharpen our credit underwriting and expand our origination levels in the last quarter personal loan originations. So.
A 93% year over year increase reached an all time high of 8.9 billion Reais.
Furthermore, we have made substantial progress in broadening our lending product portfolio year to date, we have introduced payroll loans for federal public service Center retirees as well as after T. S. BEC had loans for the wiser Brazilian population.
Initially we have initiated the offering of unsecured personal loans for our Mexican customers wild.
While these new products may not have a material impact on origination volumes or on credit for fall <unk> for 2023.
We expect them to lay the groundwork for continued growth and an even more resilient credit per fall you in the coming years.
Our confidence in our ability to sustain and drive substantial growth in the personal loan segment is underpinned by several factors.
These include our substantial and expanding customer base, our strong underwriting platform, our robust capital base and our ample liquidity position.
Moreover, as of June 30th around 50% of the outstanding balance of unsecured personal loans in Brazil.
What was already held by new clients and nearly 40% off the outstanding balance of payroll loans in Brazil is also held by new clients.
In essence, we believe we have significant opportunities to expand our market share in this credit products, while selectively targeting our most valued customers.
Now, let's turn our rotation to funding our total deposits continued their growth expanding by 26% year over year, and reaching $19.1 billion. This quarter. This progress indicates another significant strides towards the realization of.
Our objective, which is building one of the most robust local currency retail deposit franchise in the region to support our consumer finance operations across the three Geos, where we operate.
Our loan to deposit ratio or LTR for this quarter remained stable at 35% with deposit growth showing sequential acceleration.
One year ago, our LDR was at 25%, indicating our ongoing efforts to optimize our balance sheet, but we believe there is ample room for additional balance sheet optimization ahead.
Our cost of funding for this quarter held steady at 80% of the interbank deposit rates of Brazil, aligning with our expectations.
This consistency underscores our progress in harnessing the value of our robust liability franchise.
We anticipate a slight decrease in the cost of funding next quarter, giving the seasonality observed in the final quarter of the year.
Regarding quinto, new in Mexico at the close of the third quarter, we had accrued over $150 million in deposits and amassed almost two 4 million accounts.
We believe the strong reception of our value proposition underscores our potential to further expand our deposit franchise Marlboro across lots of America. As mentioned previously we also expect to launch our savings account in Colombia in the near future.
Our net interest income or NII reached at $1.2 billion this quarter, marking another robust period of growth with on 111% year over year increase.
We believe this expansion can be attributed to the continued growth of our credit card and personal loan portfolio, which collectively have been the driving force behind the expansion of our NII.
And our net interest margin or NIM, reaching new record highs our naeem achieved 18, 8% this quarter showcasing an increase of seven seven percentage points compared to one year ago.
Now, let's focus on the third pillar of our strategy.
<unk> a low cost to serve we firmly believe that our most relevant and differentiating competitive advantage lies in maintaining a low cost to serve as we have highlighted in previous discussions our objective is to sustain our cost to serve at or below the one dollar level for the foreseeable future.
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In the third quarter of 2023.
Once again successfully realize this goal with our cost to serve per active customer standing and 90 cents. This figure currently remains virtually unchanged on an FX neutral basis compared to one year ago, All Y O R or <unk> increased by 18% we believe this outcome.
Underscores the robust operating leverage inherent in our business model.
Our gross profit increased to a new quarterly record high reaching $915 million Martina and a 100% year over year increase our gross profit margin reached 42, 8%.
Increase of one percentage point sequentially, and a 10 percentage point increase compared to the previous year.
This data underscores the margin expansion that began in the third quarter of 2022.
Notably new achieved this result, even in the face of higher credit provisions a natural consequence of our growth in both credit card and personal loans as discussed in previous slides.
We maintain our commitment to operating leverage as a defining element of our strategy. The chart provided here underscores the ongoing enhancement of our efficiency ratio over time.
In the third quarter of 2023, we reached a new all time low registering an efficiency ratio of 35%, marking the seventh consecutive quarter of improvement.
We firmly believe that this level of efficiency positions New holdings is one of the most efficient companies in lots in America.
Why are we have already achieved an impressive level of efficiency, we anticipate additional gains in operating leverage as we continue to scale through increased customer expansion product Upselling cross selling and the introduction of new features and products also we believe there.
Potential for increased leverage in the future, especially as our Mexican and Colombian views, which are currently operating with losses reached their inflection points.
Lastly in terms of profitability, we are delighted to report yet another quarter of robust bottom line performance.
Our adjusted net income has reached $356 million. Meanwhile, net income for the third quarter stood at $303 million.
This is strong and positive results serve as evidence of the effectiveness of our strategy and business model.
While we are pleased with the results we have achieved thus far it's important to reinforce that our business is managed with a keen focus on long term value creation.
With this perspective, our strategy may entail additional short term investments aimed at unlocking further long term value creation opportunities.
As I wrap up let me provide a summary of the sustainable advantages across all four cost pillars.
In terms of cost to acquire we successfully added more than 5 million customers. This quarter, while maintaining what we believe to be one of the lowest customer acquisition costs, among consumer fintech and banks on a global scale.
On cost to serve we consistently kept it below the one dollar threshold, which we estimate to be approximately 85% lower than that of incumbents. Our efficiency ratio is at 35%, which we believe makes new one of the most efficient companies in lots in America.
Regarding cost of risk, we have effectively managed the risk within our credit portfolio, even in the face of a challenging backdrop outperforming competitors on an apples to apple basis in terms of delinquency rates and finally on the cost of funding front, we maintain our COO.
Cost of funding at 80% of CDI, all while we increase in deposit volumes substantially.
Closing the magnitude gap of gas incumbent banks and widening the positive gap over consumer fin techs.
We are pleased with the results achieved this quarter and we remain confident in our ability to develop and scale best in class products expand internationally and continue to operate and low costs.
Now I'd like to hand, the call over to use of our President and Chief operating Officer, who will walk you through some of the key highlights of our asset quality.
Thanks, a lot of good evening, everyone. I will now take you through some of the key indicators of asset quality and credit portfolio of health for the third quarter of 2023.
Let's begin with NPL trends.
Our leading indicator NPL 15 to 90 showed a slight improvement with a decrease of 10 basis points from last quarter ending Q3 at four 2%. This was in line with our expectations.
Our 90, plus NPL ratio increased from five 9% to 6.1% quarter over quarter and was also in line with our expectations. It's important to note that this ratio exhibits a stock behavior due to loans moving through the delinquency buckets, rather than he flow behavior. As a reminder, we havent sold any credit receivables.
So our NPL ratios require new adjustment.
Renegotiation stood at approximately 90% of the book this quarter it's.
It's worth noting that nearly half of these renegotiations, where from loans that were current and not past due at the time of renegotiation.
Furthermore, about 90% of renegotiations occurred before the loan is 90 days late.
Having a limited impact on NPL rates.
I'd also like to take the opportunity to reiterate what Lago mentioned earlier, we see meaningful opportunities to continue to expand our credit portfolio going forward with attractive returns and robust resilience levels. We expect that part of that growth will come from expanding down the credit spectrum. As a result, this may lead to intentionally higher delinquency rates, but our goal is.
To ensure that these will be more than offset by additional revenues and result in even higher risk adjusted margins as we grow.
Now turning to the performance of our credit card portfolio versus the industry.
The sixth graphs show the time series of Npls for credit cards by income bent.
The purple line represents new and the Green line represents the Brazilian industry.
As you can see our npls continue to outperform the industry on a like for like basis in most segments and this is even more pronounced within the lower income bets.
The growth of our portfolio has a direct impact on provisions because we frontload credit provisions when originating loans in accordance with Ifr's nine standards. Therefore, the increase in credit loss allowance of $628 million. This quarter directly reflects the elevated level of loan origination during the period.
Despite this increase in provision volumes are risk adjusted net interest margin reached a new all time high of 9.8% for the quarter, a 100 basis point increase quarter over quarter.
Compared to the same period, a year ago risk adjusted NIM is up nearly three X.
In summary, we're very pleased with our results this quarter with the progress we've made and the track record we've built over the years.
Our asset quality and returns remained robust through the cycle, reflecting our effective approach to pricing and superior credit underwriting capabilities, we couldnt be more excited about the prospects for continued resilient high return growth going forward.
With that we're now ready to address your questions. Thank you very much.
We will now start the Q&A session for investors and analysts if you wish to ask a question. Please click on raise your hand. If your question is answered you can exit the Q basically can put your handout.
Please limit yourself to one question and a follow up.
If you have further questions. Please re enter the queue you may submit online questions at any time today using the Q&A box on the webcast.
I would now like to turn the call over to Mr. Newark, Friedman Investor Relations Officer.
Thank you operator, and our first question comes from the line our equity at Morgan Stanley.
Hi, everyone. Good afternoon Hope you can hear me.
I wanted to ask about.
First of all congrats on the numbers.
I wanted to ask about credit card growth on a sequential basis.
We see that all our numbers.
And those immediately decelerated quarter over quarter, but I'm wondering what the FX impact is.
We just don't know what percentage of the book is Brazil.
<unk> versus Mexico, So it's hard to look at it on a FX neutral basis, but just.
It just doesn't mean most of it is in Brazil.
Getting to ethics, good trial quarter over quarter growth of credit cards of around 6%.
Which is.
Lower than the 10% you registered in the.
Second quarter and also at 10% in the first quarter, so somewhat of a deceleration.
Wanted to see indeed, those are the right numbers on an FX neutral basis.
And if so what do you think explains that much lower growth rate versus the previous quarters. Thank you.
Thanks, So much for the question yes. Thank you you are very much right on the needs to do an FX adjustment.
Brazilian currency depreciated in the third quarter of the year.
<unk>, probably makes more sense to look at visit on a FX neutral basis.
Our calculations FX neutral evolution of our total credit portfolio credit cards lending grew by about 9%.
Which we believe is continues to be a fairly healthy growth in terms of credit card more specifically.
In the third quarter of 2023, the overall market decelerated a little bit.
However, it continued to gain share we grew what we estimate to be anywhere between 50 to 60 basis points market share in the quarter.
We believe that we have become the second largest credit card issuer in Brazil already.
And we also estimate that we will continue to acquire market share in the coming quarters.
There is one additional caveat that I would make the credit card numbers.
Is that accounting.
Change that we have made the way that we account for the credit card receivables starting in the third quarter of 2000.
The credit card receivables are accounted in our balance sheet is the present value of the future flows just like the credit card payables.
It has.
Cost is about $150 million to $200 million in the credit card book well all in all I think in FX neutral growth anywhere between 7% to 9%.
Cord robust market share gain.
Becoming the second credit card issuance.
Thanks, Michael that was that was up.
Clear explanation. Thank you I wanted to ask a follow up also on credit if I may the follow up is on payroll loans is there any metric that you can share on the payroll products during the third quarter.
What.
Cross selling you've been able to do with your clients what market share over origination you've achieved any metric would be very helpful. For us to gauge. Your initial success of our product. Thank you.
Okay, Let me start with some some.
Some comments.
Here with us can certainly share more about.
The reception of the customer base.
We have launched as a recap the CIP.
Back in April 2023.
Launched at GTS in August 2000, and we launched <unk>.
In October 2023.
The ISS, which is the largest payroll business.
It's not yet represented in our September 2023 books, and we have only now launch portability. So we earn.
Very early days of that.
Journey or zero long journey to Brazil.
We couldnt be more excited.
Receptions, which Jack.
But also given the sheer size of the opportunity that we have ahead of us. So the payroll loans is the largest asset class within consumer blends in Brazil.
Counts for about 650 billion Reais of credit book.
And it also accounts for about one third of the profit pool for retail industry in Brazil.
Our customers.
We're growing today.
Our customers account for approximately 40%.
Total payroll books in Brazil, So just inside of digital we have a tremendous room for growth in the third quarter of 2023, we will see an onboard payroll loans accounted for no.
300 million Reais or 19 advisor resignation, so super and seeking to move ahead in 2023, and we are very excited with its ability to move the needle for us in 2024 and 20 planes.
Hey, this is Jamie. Thank you for the question, let me just complement a few of the points Michael.
As he said we couldn't be more encouraged by the initial reception.
These payroll lending products as you put them out in the market over the last couple of months. If you look at the net promoter score for our secured lending products.
Darren 78 versus the category average.
So well well above well above the average.
As Michael mentioned.
New banks customers accounted for 40%.
The balances in the market and in our originations in these very early stages.
Getting launched was less than 4%. So we expect a lot of growth in secured b being driven by secured lending as we headed as we head into 2024.
Yes.
The design of the products.
Has been engineered work backwards from the customer needs, we built the product to be direct to consumer.
With a much simpler UX that its difficult 100% digital slow.
That allows us to offer disbursement is alone much much quicker than what is typical in the market and we're also able to offer the product.
At a very low price typical versus what is typical in the market. Our average right now is about $1 three 9% versus a market average of about one 8%. This is also a category where we found customers are very responsive to the competitive price and the price in this disease.
So we see a lot of potential here, great great really start.
A lot of room to go.
As we head into 2020.
Thanks, <unk> very clear, thanks, again and congrats on the numbers.
And our second question comes from Bill.
Why not keep Lombard at Goldman Sachs.
Hi, Good evening, everybody. Thank you for the call and taking our questions and congrats also on the strong results.
I guess first question.
In terms of the provisioning levels.
It seems at least as a percentage of loans actually came down.
For the first time.
In some time.
Sorry is that.
So some good asset quality trends early npls looked a little bit better 90 days, which are lagging but went up a little bit.
But just some thoughts I mean, you mentioned as you grow Npls can go up but in terms of where we are in the credit cycle are you feeling more comfortable.
There to continue to accelerate growth.
How do we think about that cost of risk.
Does this mean, it's P and maybe that could be a tailwind going forward and how much of it was kind of impacted by the FX impact on loan growth I don't know if that had any impact at all.
Hi, Tito this is <unk>.
Thanks for the questions.
Let me address your question with a couple of points first off as you know we don't we don't provide guidance on.
On npls or otherwise nor do we try.
The time in the cycle.
Our philosophy is credit is to originate and manage credit with strong resilient returns through the cycle.
And I think our track record over the last 10 years is a good testament to that but that being said.
I would point out that what you see in our asset quality and delinquency metrics, both credit cards and unsecured lending.
The net result of two offsetting forces.
First thing is you've got older cohorts that we originated in the past that are maturing and as they mature to exhibit lower levels of delinquency.
The second effect is new cohorts in growth brings higher levels of delinquency and they are in the early part of their life cycle and then as I mentioned in.
In the earlier part of the call.
If anything we see more opportunities to grow the credit portfolio in part through expansions, which will likely increase npls going forward, but that's very intentional.
We're very comfortable.
Growing and accelerating that growth because we see those opportunities to expand it will come with higher levels of returns and higher resilience that will more than offset those higher delinquency rates. So at the end of the day. Our objective is not to minimize NPL. This to maximize NPV to originated in a resilient high return business.
Cluster is entirely consistent with that objective and we feel very comfortable growing going forward.
Okay alright. Thanks.
Thanks, that's helpful. Thanks for the color on that and then following up I guess, a little bit more kind of on that the growth outlook that you see maybe just on Mexico. If you can give any color just looking at the regulated data it looks like the loan portfolio is still not growing but nice growth in deposits clients you mentioned.
Picked up as well.
I think lateral you were in the press recently, saying that we shouldn't expect Mexico to maybe be profitable next year, but any color you can give on the growth outlook.
For Mexico, both on deposits and loans.
Into next year.
Sure Hi, this is Debbie.
We remain incredibly excited about this.
These potentially as big of an opportunity as we have in Brazil.
Very large market with an 11% pretty card penetration.
And we've seen very good product market fit since we launched about three years ago.
I think on the crude side, where you will see us doing forward in what you might have seen it historically is.
Net credit product is never a straight line into the upper right you will accelerate at times, you will see accelerated up times. As we include your data sources as we knew whose models into production as we evolve our methodology as we look kind of a test data.
They are the best couple of months, we are in that phase in Mexico, where we are increasing significantly the capabilities support models, we're reading a bit the kind of the data that's coming out of our models after having gone from zero to one of the largest credit card issuers in the country in about three years.
So thats why you might see.
Exploration on the on the growth on the credit card side.
I would expect us to continue growing as we get more comfortable in certain areas. If we read better data, especially around the back population, which is the <unk>.
Challenge as well as the opportunity that we see in Mexico is banker rising 80.
89% of the of the country.
So on the credit side I think we continue to grow fast, but I would say we are in a bit of a.
Lets invest more and reaccelerate over the next few months.
The debit side in content has been a phenomenal success, we're super happy with the initial.
Receive all of the product, which happening over a couple of months, we have been over $2 4 million accounts.
Over $150 million in deposits and a couple of weeks.
We even decided to increase the yields that we're offering.
In Mexico to double down on the market opportunity that we're seeing there and making sure that we really position the way into the Undisputable best savings product in the country and I think we will just move on the yield side, we are doing that.
So we're very focused on winning these market and that's where we're willing to invest.
You alluded to breakeven next year, we won't break even next year in Mexico, we want to continue investing as we see the opportunity of growth, we'll invest even more wearing an opportunity where we have a very valued very valuable and earnings generating Brazilian basis that can fund our growth.
If a new geos. So that's the playbook that we expect to execute in Mexico and in Colombia, and so just generally we are really excited about what we're seeing.
No no I started Jeff illustrate line.
We will like scenario times consecutively.
Speeds will go in one direction, we're going up against the direction will be mainly trying to become delaying Fayetteville banking franchise in the country.
Thanks, Great. Thanks, Tony and congrats again on the results.
Thank you Tito.
And our next question comes from the line of <unk>.
Mary.
Hey, guys. Good afternoon, congratulations on the quarter, let me ask two questions as well and that kind of follow ups to the questions that have been asked.
When I look at.
In your slide on page 14.
The loan book this quarter expanded by about $600 million.
While we have expanded by $2 billion in it.
This quarter and then when we look.
On page 16, you showed that your origination jumped to $8 9 billion from seven three.
So I'm wondering why if youre originating so much more this quarter why your loan book wouldn't have expanded at a faster pace. So I don't know if theres any accounting issues there.
That's question number one question number two.
Is related to your slide on page 26, the NPL trends.
You know clearly show Randy you have lower npls than the industry, but some of this chart, we see that the industry seems to have.
Npls have peaked for the industry, but when I look at your numbers are still rising.
Uh huh.
Especially when I look at it and they want the two months of minimum wage the two to three months and also now seeing higher NPL in the higher income brackets and being industry. So I would just like to hear your views here like the.
The industry seems to be peaking youre not peaking at what could explain that and why are you seeing higher delinquencies in the higher income segments. Thank you.
Thank you so much for your questions. Let me try to take the first one and you said again.
We address the second one so I think.
The two slides that you've mentioned the main difference that justifies the magnitude of growth is effects. So the slide 16 as you take a look at the title.
Is denominated in local Brazilian reais currency.
And when you look at slides.
You guys want to slide 14.
Emanated in dollars. So if you take a look at the growth.
Sure.
Book It would have.
<unk> grown by only 4% nominal dollar terms.
Once you do effects neutral adjustment he goes from it goes to between nine and 10% just because of the FX movements in the quarter. So we do believe that most of the potential discrepancy in growth base as a result of the FX depreciation of the Brazilian currency.
And maybe with respect to your second question on the.
The NPL trends compared to the industry.
Youre correct in your observation, but.
Some of these segments industry seems to be coming down.
With respect to our trends.
Back to what I said, a few minutes earlier, which is.
The net impact of older cohorts maturing and more growth being put on the book with higher levels of Npls.
That's the result of that dynamic we actually expect that dynamic if anything to continue into the future as we see opportunities to expand.
And then lastly on them on the highest income band.
Two things I'd say there is.
Historically, we haven't had.
A big Delta either way up or down versus the industry.
It actually matters. The most is where you have a higher risk content. So the lower income buckets is where we tend to have a much bigger advantage in terms of.
Apples to apples NPL comparisons.
Okay, but as part of your strategy. It is Brian like you're trying to eventually.
<unk> increased your presence among the higher income population in Brazil.
Does that mean that you are trying to be a little bit more aggressive and thats why that NPL could be a little bit higher.
No I don't think the monetization or the getting deeper and wallet.
High income.
What caused the trend we've observed on npls to deviate substantially I think it is.
This is the way it's been.
Thanks.
Okay.
Let me go back to the first part of the question Ryan because if we if we convert the origination for dollars Ryan.
And I quickly look at the FX here, you originated about $1 $8 million this quarter versus $1 5 billion in the second quarter.
So when you originated $1 5 billion in the last quarter. We saw your loan book grew by almost $2 billion.
And this quarter your loan book.
<unk> 600 million so.
Is there any change in the maturity of the loans Youre originating are you originated previously.
No motor thing.
There is no there has not been any material.
Material change in the average duration during the profile.
I think the origination that your show that Youre, referring to.
Is it related to personal loans, only which accounts for about 20% or less.
So if you take a look on slides.
2014.
You do have an FX adjusted Jeff.
You will see the gap in growth is justified for US has an average duration of the personal loan book.
Somewhere between 5% and six months.
Okay. Thank you.
Thank you Mike.
As a reminder.
Don was saying.
Two questions follow up so we can take all of the questions in the call.
And our next question comes from the line, Jeff and beyond.
<unk>.
Hello, Thanks, very much for taking the question can you hear me okay.
Yes, we can hear you well thank you.
Thank you.
A question on the deposit side that there was quite a big increase in interest expense and interest.
Interest expense.
Deposits in the quarter, I think up from something like 400 million to $460 million.
I mean, I guess the growth in the previous quarter was it was a factor but can you just help us understand that it looks like quite a big step up in.
Deposit costs this quarter.
Okay.
So I mean.
So thanks for the question if I understand right you are asking why our interest expense have gone up and as Jim.
Not only the growth in deposits, but also the growth in our finances.
Our operations in Mexico, and Colombia are primarily funded through bilateral fight is in syndicated loans.
They have also contributed to the expansion of our interest expenses.
Thanks, I was more focused I think you break out the deposit Pos in the financial statements.
Specifically $401 million.
Into Q4, 64 and <unk>.
<unk>, so pretty big.
Increase just on the on the deposit side.
Yes, I think the deposit size of the peoples deposits looking at the financial statements Joel Armstrong.
Or the C mall.
Went from about $430 million to $463 million in.
And interest and financial expenses interest expense on deposits.
Which is largely a result of the growth and the sheer size of the deposits that reached $19 $1 billion of that.
The owner relatively jumped AC and interest expense is going from $29 million $74 billion that is the direct result of the growth of the finances of Mexico.
Okay. Thanks numbers I can see for <unk> look a little bit different but maybe we follow up later, thanks, thanks very much.
Thank you.
And our next question comes from the line.
On the Dol.
Sure.
Okay.
Your line is open.
Yes.
Andrew I think we can hear you.
Okay.
So let's try to take the next question and we can come back to later.
So our next question will come from the line of Thiago Batista.
At UBS.
Yes, hi, guys are listening.
A year of Thiago. Thank you. Okay. I guess my question is about the the high income segment.
You already commented in the past that this should be a focus of new into future.
My question is if the first one is it possible to really achieve to this client without a kind of a banking manager or branch manager.
Or if I should advisor.
Do you see dis Lulu bank, serving those clients are fully digital and also if it's possible to maintain the same level off a weak euro Brazilian operation, let's say, 30% to 40%.
In D. C are high income segment.
Thank you for the question.
If you think as we think about the high income segment, which you are correct as a as an important focus for the company. We think about it in two steps the first step of a context as customer acquisition and the <unk>.
Step is how do we monetize.
That customer base.
Our our customer acquisition has has made a lot of progress over the recent quarters. We now have about 60% of the high income customer segment as customers New bank.
And within the high income customer segments, we have.
Leading NPS in the in the market on the monetization side.
As a marathon, it's not it's not a sprint and we're still in the very early days of that process. We do believe that both the customer acquisition as we have already demonstrated but also the monetization can be achieved with a high degree of customer satisfaction and customer happiness.
In a digital way, we do intend to invest additional focused efforts to make sure that we're doing.
Everything we can to delight the high income customers, but we think that can be done.
Following.
The template of how new bank has operated over over many years essentially in a digital first matter. The initial signs on monetization have been very positive as we build out.
As we build on our on our customer acquisition efforts.
There are we believe three core components to having a compelling.
Solutions for high income customers.
There is having a a.
<unk> payments and banking and accounting infrastructure that they find compelling.
And on that front, we are the leader in terms of for example picks usage.
Well over 20% share.
As a transactional account.
On the credit side, we made a lot of progress this year.
We have for our <unk> product for example, been able to double the average credit limit.
<unk> been able to roughly double the number of ultra the electric customers.
We've also been able to double the purchase volume.
The answer would be allowed to credit card and as we go forward. We are working on wrapping a bundled solution around that flagship credit card product.
And on the investment side overall, we've seen agency grow 50% year on year. So we believe we're making a lot of progress with high income customers getting them to try and start developing the habit of using our products. We have a long journey ahead of us, but we are we are confident in the direction. We go in we believe we.
Can do that with strong.
That economics, and overall returns and we believe we can do that.
Following the new bank template that we've had historically across the market with a digital first approach and just to complement no. We do not expect.
Our share of wallet gains and high income will dilute our margins and returns objectives.
No very clear if I can do a small follow up.
You said a few comment a couple of minutes ago that is possible to see a higher delinquency ratio together with higher margins or.
Our margins after provisions at least dis ease how do guys see depicts finance do believe that the big finance should bring higher delinquency ratio with higher after proving to the market.
So the way I think about the impact of fixed financing.
Just one additional way to enhance the product.
It adds are packed.
For customer.
<unk> more interest bearing balances.
Customer level. So it just makes the unit economics of credit card.
More attractive, which ensures that allow us to do a couple of things one is increase credit limit selectively.
So acquire more customers profitably that we might not have acquired.
So you kind of get the second order impact of being able to grow more at more attractive returns, albeit.
Part of those.
Higher growth at higher levels of MBS.
Very clear and congrats on the results.
Thank you.
And we will try to would come once again to the lineup Pedro Leduc will keep at it.
Alright. Thank you so much your.
Hope you can hear me now coming back quickly to the.
Before mentioned accounting change that you had an impact of the credit card balance reason I'm asking is because in our our beat our estimates it looks like the installment credit card product decelerated, a lot and it's probably worth this accounting change had most impact. So it probably grew if you can understand help.
Understand how by how much and <unk>.
Innovation products in our picks crashed on volatile how relevant they are becoming on how much the growth this quarter, but really trying to get a.
All accounting constant growth figure for the installment.
What card with interest figure for the quarter and thank you.
No. Thank you for your question Pedro.
So let me request.
Can you change that we implemented with respect to credit card receivables and credit card payables in the third quarter was one whereby we are now representing those receivables and payables according to their respective present value.
Does that change so if you take a look at our financial statements into trade receivables in the lines that we call receivables installments. There is where you will see those numbers being affected and in the liability side and where your coal payable to the networks is where you're going to see a corresponding impact.
Almost offset each other with respect to your question about the growth of our interest bearing balances I will draw your attention to slide 51 five.
In which you can see that for <unk>.
<unk> consecutive quarter.
There were no share revolving balance has remained largely unchanged at about 7%.
Whereas the share of the financing portion went from 19% to 21%.
Most of this growth can.
You'll be attributed to the continuous growth of peaks and will lead to finance.
Yes.
Okay.
Slide Michael.
<unk> was also restated for that accounting change so it's comparable.
As not only we started to make this.
This new accounting treatment only in the third quarter of 2023.
Okay.
And the impact you said earlier it was like $150 million to $100 million. So we can probably do the adjustments here to the comparable then.
That's correct. Thank you.
Thank you.
<unk>.
And.
Our next question comes from the line of Eduardo Rosman BTG.
Hi, Hi, everyone I have a question I think to that view I think in a recent podcasting to review I think you talked about going beyond financial services and that you would be dedicating an important part of your time change that goal. So can you share with US you know the potential opportunities there.
This is something you know that we should be seeing you know a couple of years down the road or.
Can we expect something let's say in the short term so it would be interesting to know what youre thinking about it. Thanks.
Yes, sure absolutely. So I think when we take a step back.
When you think about what we're building and what we would have built in this in these.
10 years.
We realize that with a $90 million and growing.
Detailed consumer base, which is one of the largest in Latin America already one of the most valuable brands and highest NPS.
Really data rich ecosystem very high engagement, and then an opportunity to do a lot of cross sales.
This platform that we're building opens up a bunch of new Optionality is ahead of us.
These are optionality is not going to take a long time to figure out not necessarily something that happens very fast we are actively thinking about how do we.
We think it would be alone or evolution around affecting the first 10 years, we have to catch up to the big banks generally with our simple credit card unbundling the entire financial services products and then we were in a complete raised to try to fill the gaps that we had in financial services to be a priority.
And we are getting close to party. Obviously there are a couple of things that we think proving certain areas more insurance products more investment products very volatile provision for high income, but generally we're at least getting very close to the core products that somebody needs to hubs to choose us as their primary bank account.
And then and then we are thinking about the next 10 years or and how do we really change the game in the Mark how do we scale competition and this is.
Reinventing a number several products and using all of the SaaS.
I mentioned its basically these base to provide more products and services to our users. So.
We are here thinking about year 4567 years from now is going to be generally low investments over the next few years, we're operating.
We have a number of different.
Startups within the startup.
Some of that product that we've launched already that were growing or for example, marketplace, where we already have several million users already buying non financial products and services are up.
We are seeing bridging that to confection, and new pay which is a new way to pay online today with a number of different merchants.
We are bringing increasingly the concept of the AIG private bank, where we see being able to play a significant role and under those grew through the number of our initiatives that we are spinning out.
In a way where they are provided a lot of optionality, we like to invest little money upfront led the teams run and as we start seeing positive market feeling we get excited about the potential that we run we invest more.
More resources and energy into this so big answer to effectively tell you were actually thinking about the next five years, but we're also actively thinking about the next 10 years.
And we think the opportunity ahead of us as just much bigger than simply building.
And are the most profitable and efficient banks in the world, which we're getting close to be and we wanted to make sure. We take advantage of the opportunity of some of the different assets that we are being able to accommodate an aggregate under one roof for the past few years.
No great and again, thanks, Thanks for the numbers and then congrats on the results.
Thank you so much.
And our next question comes from lineups.
At HSBC.
Hi, congratulations on the results.
That was your question.
Got it.
I apologize that we can't hear you very well would you mind speaking up a little bit.
Yeah.
Yes, slightly better thank you.
Okay, I'll try to speak loudly <unk> perfect.
Perfect. Thank you okay perfect.
Question is on <unk> I noticed that the stage three loans for credit cards has continued to rise in the last few quarters.
Increased from 71, 7% last quarter to eight 1% this quarter, what are the plus doses, but because it gives us that.
<unk> continues to decline quarter on quarter. So could you explain that dynamic why the gross does has been declining in the stage two loans continued to increase.
My second question is on <unk> I noticed that he is in the <unk>.
Bassil ratio has.
To almost 11%.
No.
Given the large increase in <unk> do.
Do you see the need of.
FIFA, sending some capital to Brazil in the next year or do you think there are profit.
And as it would be sufficient to meet the capital requirements any color on that.
And lastly, and I know this is something that.
We don't have much clarity on today, but any update on any news on the.
Pending regulations.
Regulations do they helpful. Thank.
Thank you so much.
Oh. Thank you. Thank you so much for your questions.
Let me try to start from the last one and then go.
Three forward so on the credit card.
Just from a regulation so.
Those continue to be ongoing discussions involving multiple parties off of.
The credit card industry all features.
Issuers acquirers versions consumers.
The Brazilian Central Bank, and the Ministry of Finance and the Ministry of planning as well we have been an active participant in those discussions and we believe we have the unique opportunity to promote.
More ambitious and positive overall overhaul in held for that part of the structure it in Brazil.
We are very encouraged by the discussions that we have had with the parties and we believe that we will probably have more clarity about this when we have our next earnings call.
<unk> to actually draw any high conviction outlook on how visible and bolt.
But we are working very hard together with industry and the regulator to have a positive outcome that allows us to have a much more balanced product going forward.
To your second question I think you related to the increase in capital.
I believe it's important to highlight that in 2022.
The Brazilian central Bank going forward, a new regulation, which is usually referred to as resolution 200.
Which basically harmonize the capital regulations of payment institution than a financial institutions.
And as a result of that as you can see on <unk>.
Section 32 of our financial statements.
You'll note that the Brazilian Central Bank has enacted.
Our gradual implementation of this new warm whereby the minimum capital efficacy ratio starts at 675% in 2023 goes to 875% in 2024, and then finally to 10, 5% in 2025.
And also payment institutions that control finished a Walmart <unk> will now have to report consolidated capital ratios. The result of all that is that we have a capital or equity ratio in Brazil 11.
7%.
Whereas the minimum capital requirements today at 675%, So we have a fairly relevant buffer in Brazil.
And in addition to that we have $2 billion of excess liquidity at our holding.
So we are super comfortable it's unclear to us whether we will.
Ever needed to capitalize on Brazilian entity is going forward it will largely depend on the growth base.
Sure.
Credit book.
We are very comfortable that with the business plans that we have for Brazil, Mexico and Colombia.
Those are fully funded and fully capitalize and the earnings that we generate in Brazil.
Excess capital that we have at the holding company will more than suffice to fund all of this planned for the next node for the foreseeable future.
Hi, there this is.
With respect to your first question on what is going on in the dynamics of the various stages.
Revisioning.
We refer you to note 13 in our financial statements, which contains all the breakdowns of the details that stage by stage. If you look at the coverage ratios and the migration across buckets.
But overall I would summarize it is very simply by saying that.
Stage, III and still largely correlate with 90 plus pass due delinquency rates. So it kind of mirrors what is going on there.
I mentioned earlier in the call.
As we write offs.
Credit card loans.
In our Brazil credit card portfolio at 360 days, so what tends to happen as you enter 90 plus in that for several months those loans accumulate as they accumulate.
And go further and further and delinquency stages, what tends to happen is coverage ratio increases.
And so you see those mechanics cleanup.
Okay.
Thank you so much.
Thanks for that.
And our next question comes from the line of <unk>.
<unk> at Jpmorgan.
Hi, everybody and congrats also on the another good quarter.
I have a question on fees.
We see if there are changes to be 75% of your total fees, but.
But we don't see other fees growing and you'll have many initiatives right you'll have the investment platform and have the assurance youll have that broken out.
Sure.
When should we see the.
<unk> line to growing because the interchange are growing but it's growing like 25, 26% year over year and we still don't see so just trying to get your expectations on those loan credit related business. Thank you.
So thanks for the question and look we do have this portfolio of business through all the comp, which we classify in three archetypes can we have the anchor business the growth business that the moon shots.
And.
The anchor business, which we classify as the credit card lending and our banking accounts are doing extremely well and their profitability is basically overshadow the very positive results and performance that we're having in more emerging business, but you pointed out.
Some of the business that we have today that are actually performing fairly well I would highlight the investment business, whose assets have increased by over 50% over the past 12 months number of customers have doubled so we do expect that over the fourth quarter.
<unk>.
We'll have much more visibility on the more growth we shop business.
We'll progressively emerge into more new anchor business over the next three to five.
Five years.
Having said that however.
If you take a look at the profit pool of the Brazilian retail industry.
About 70% of the profit pool.
It's skewed cobos by consumer credit, namely credit cars unsecured personal loans unsecured personal loans.
So it should not be a surprise.
To date, the majority of our revenues and gross profit margin also comes from some of those consumer finance products that I believe is the new business that we have namely investments marketplace insurance.
<unk> to emerge we will have more and more visibility of their financial and nonfinancial performance.
In the future.
Super clear logger, Thank you and I will limit myself to just one question. Thank you.
Thanks Julien.
Thank you.
And our next question comes from the line of bragging mirrored at Ft Ft partners.
Thanks for taking the questions.
So two questions one the activity rate showed strong improvement can you characterize what were the underlying drivers to that was it the growth in primary banking relationships or was it the launch of payroll and secondly, you're talking.
[noise] about going down the credit quality ladder, which could drive delinquencies a bit higher I'm curious your thoughts on how that might affect.
The portfolio. If you go if Brazil goes into another soft period regarding credit.
Should we expect to see.
A more significant rise in.
Losses, as a result, and how youre thinking about that with regard to provisioning.
Thank you so much for your question, let us let us take this staff. So the first question is about the activity rate that I would draw your attention to slide number 10 in which you see that activity rate is basically.
<unk> to go up from about 82% to now closer to 83% notwithstanding the very strong growth of our customer base.
That is largely explain and correlate that with our no progress towards primary banking relationship.
Take a look at the chart on Slide 11, which is the following one the chart on the left indicates the primary banking relationship cohort analysis that we present every single quarter.
And as you May know, we now have almost 60% of our active customers being primary banking relationship customers.
And you can also notes that we're getting to more than 50% faster and faster overtime.
For the 2018 2019 cohorts used to take us about 15 months to get the year now lets taken is less than 12 months to get there why is this happening I think it is happening as a result of external factors and internal factors.
Internal factors is that as consumers, where we operate embraced real time currency pigs, Grace digital banks more and more.
More easily embraced the business model off.
Of new bank that has become even more pronounced during and after COVID-19.
Internal factor is actually that chart that you can see in the center of this slide which is as we launch more products as we launch more features we earned the right to be the primary banking relationship with more and more customers. So if you were a customer of the bank back in 2017, you had only one product credit card or the.
Really it was very hard for you to view, our primary banking relationship customers with credit Carl.
But as we launch bank account peaks investments insurance marketplace in the mine, we have a much more compelling value proposition of much more complete set of products and that foster a primary banking relationship that foster engagement.
We do not see this trend stopping or declining on the country. We think that we will continue to large best in class products disruptive solutions and with that we will not only sustain high levels of activity, but we will also fostering the continuous expansion of those activities.
So I'll pause here I will pass the floor to use <unk> to address your second question related to credit underwriting.
Hey, Craig.
Credit expansions and what does that do to the credit book.
In the event of a downturn so as a reminder, we.
Underwriting obviously try to Max is seeking to maximize NPV, but also we underwrite our resilience when does that mean practically.
Is that every additional loan we book every new customer that we onboard.
We want them to be profitable and above hurdle returns in the event of a downturn. So specifically when you look at a cohort level, we underwrite our cohorts such that they are able to withstand the doubling of losses and still be NPV positive. So that gives us a lot of resilience.
A lot of.
A strong ability to withstand.
Variability in the.
And that was a cycle. That's one thing the other thing I'll point out is.
Thinking about various segments within the credit spectrum.
Having a high risk segment doesn't necessarily mean, it's going to be a higher volatility segment in the event of a downturn it does tend to be.
It is very dependent on what kind of down cycle. We're in we have seen in other markets more mortgage holders deteriorate more than the average we've seen small businesses sometimes.
It's more the average so it really depends on what kind of cyclical.
Dynamic youre facing.
And again, we take the approach of wanting to have through the cycle strong resilient returns in everything we underwrite.
Sure.
Okay. Thanks for the answers guys.
Thank you.
And this concludes the earnings call for the third quarter. The name of the holdings and its management team I want to thank you all for your participation in our conference call today.
Our IR team.
Salable twang additional follow ups, and we will be responding to questions and via webcast over the coming days.
With that we finished our earnings call have a good day. Thank you.
[music].