Q3 2024 Nu Holdings Ltd Earnings Call
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Speaker Change: Good afternoon, ladies and gentlemen. Welcome to New Holdings conference call to discuss the results for the third quarter of 2024.
Speaker Change: A slide presentation accompanies today's webcast, which is available on NU's Investor Relations website, www.investors.nu in English and www.investidores.nu in Portuguese.
Speaker Change: This conference is being recorded and the replay can also be accessed on the company's IR website.
Speaker Change: This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Mute Original Audio.
Speaker Change: To access our conference in Portuguese, click on the globe icon at the bottom right of your Zoom screen and select the Portuguese Room option. When accessing the new room, make sure to mute the original audio.
Speaker Change: I would now like to turn the call over to Mr. Jorg Friedemann, Investor Relations Officer at New Holdings. Mr. Friedemann, you may proceed.
Speaker Change: Thank you very much, operator. And thank you all for joining our earnings call today. If you have not seen our earnings release, a copy is posted in the results center section of our investor relations website.
Speaker Change: With me on today's call are David Velez, our Founder, Chief Executive Officer and Chairman, Youssef Lahrech, our President and Chief Operating Officer, Guilherme Lago, our Chief Financial Officer, and Jack Dugal, our Chief Product Officer.
Speaker Change: Throughout this conference call, we will be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for new holdings, but are not financial measures as defined by IFRS, and may not be comparable to similar measures from other companies.
Speaker Change: Reconciliations of our non-IFRS financial information to the IFRS financial information are available in our earnings press release. Unless noted otherwise, all growth rates are on a year-over-year FX neutral basis.
Speaker Change: I would also like to remind everyone that today's discussions 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.
Speaker Change: Please refer to the forward-looking statements disclosure in our earnings release.
Speaker Change: Today, our founder, chairman and CEO, David Velez, will discuss the main highlights of our third quarter 2024.
Speaker Change: Subsequently, Guilherme Lago, our CFO, and Youssef Lahrech, our President and COO, will take you through our financial operating performance for the quarter, after which time we will be happy to take your questions.
Speaker Change: Now, I'd like to turn the call over to David. David, please go ahead.
David Velez: Thank you, Jorg. Good evening, everyone, and thank you again for being with us today.
David Velez: In the last quarter, our business model, anchored in three fundamental principles, customer growth, expanding revenue per customer, and efficient operating costs, has once again demonstrated its strength.
David Velez: We have consistently surpassed expectations in Net Customers Edition, achieving 110 million customers by the end of the quarter, reflecting a 56% increase from the 70 million recorded just two years ago.
David Velez: Strong customer additions in Brazil continue to fuel our growth, with an average of 1.1 million new customers each month, and bringing the total to 98.8 million at quarter end.
David Velez: As we announced over the past days, we already crossed the mark of 100 million customers in Brazil.
David Velez: Mexico also experienced strong growth with 1.2 million net ads in the quarter resulting in a total of 8.9 million customers.
David Velez: This success reinforces our strategy of increasing deposit yields in the country, further enhancing our momentum and solidifying new as the leading digital financial platform in Mexico.
David Velez: Moreover, Colombia has reached a significant milestone of 2 million customers and sustaining the positive momentum from the launch of the Quenta product.
The End of the World
Youssef Lahrech,
Now, let's review some key financial highlights.
David Velez: Despite the depreciation of Latin currencies against the US dollar during the quarter, our revenue surged to 2.9 billion dollars, driven by our successful cross-sell and up-sell efforts, along with our introduction of new products.
This solid performance reflects a 56% year-over-year increase.
David Velez: Our gross profit stands now at $1.3 billion, marking a 67% year-over-year growth, with a gross margin of 45.8%.
David Velez: Net income also saw robust growth, reaching $553 million, leading to an annualized return on equity of 30%.
David Velez: Additionally, our adjusted net income hit $592 million, expanding 10% sequentially and 89% year-over-year on an FX-neutral basis.
David Velez: These achievements underscore the power of our business model, which combines robust top-line growth with solid profitability.
David Velez: In this slide, we demonstrate how our flywheel effectively drives customer engagement, as evidenced by strong cohort performance on revenues.
David Velez: This consistent compound growth across all cohorts underpins our ability to cross-sell and upsell to our customers.
The End of the World
David Velez: Increased product adoption boosted by primary banking relationships, which we will further discuss in this presentation, drives increasing RPECs as cohorts mature over time.
David Velez: This trend is evident across all cohorts in this chart, including the more mature ones, which continue to display robust revenue cater.
David Velez: Notably, revenue CAGR for all cohorts acquired this decade is in the triple digits.
Now turning to profitability.
We have been presenting this table for several quarters now.
David Velez: In addition to the robust growth observed quarter after quarter, it is important to highlight that in the third quarter, for the first time, New Holdings' return on equity surpassed 30%, demonstrating the success of our strategy.
David Velez: This achievement was accomplished while still maintaining a robust level of excess capital of $2.4 billion at the holding level, with two subsidiaries in Mexico and Colombia yet to reach profitability.
David Velez: As we make progress in our three GEOs and execute against this strategy, we continue to be extremely excited with the huge opportunity we have ahead, around expanding our platform, increasing market share in our core products, and better monetizing our existing customer base.
David Velez: In addition, as we have stated earlier in the year, the growth into new verticals as part of our money platform strategy is starting to become a reality and broaden our total addressable market.
Speaker Change: With that I'd like to pass the floor to our CFO.
Who will go into more details finished caruso.
Speaker Change: Overdue level.
Thank you Lindsey and good evening everyone.
Speaker Change: The dimension, we reported robust quarter Mark Theine.
<unk> revenue growth enhanced customer engagement strong operating margins.
Speaker Change: Yeah.
Speaker Change: Now, let's take a closer look at our third quarter results to gain deeper insight into the progress we have achieved.
Speaker Change: Against Egfr, we're getting.
Speaker Change: Starting with customer acquisition, we experienced strong growth during the quarter welcoming $5 2 million new customers to our platform we.
Speaker Change: We closed the quarter with $109 7 million customers, reflecting a 23% year over year increase.
Speaker Change: As we continue to add more customers, our focus starts to shift to engaging and retaining them. Our active user base increased by 24% year over year accompanied by another sequential increase in our monthly activity rate, which now stands at 83 six.
<unk> up from 82, 8% our year ago.
Speaker Change: This represents the 12 consecutive quarterly increase in activity rate.
Speaker Change: Underscoring our ability to consistently provide a compelling value proposition to our customers.
Speaker Change: Moving onto revenue expansion. The first chart on slide 10 shows the new has established primary banking accounts with approximately 60% of our active customer base.
Speaker Change: There is a strong performance highlights our ability to capture a larger share of wallet among our customer base.
Speaker Change: Additionally, we are very pleased to see how recent cohorts are reaching this level principality at an accelerated rate.
Speaker Change: As shown in the chart in the middle of business life. The average number of products per active customer now stands at four highlighting the effectiveness of our cross selling strategy, even as we rapidly onboard more and more new customers by successfully introducing our products to this new.
Speaker Change: Customers, we reinforce our position as their primary bank and partner.
Speaker Change: The final chart shows the combined impact of these two powerful dynamics significant customer engagement as depicted in the first chart together with our expanding cross sell capabilities as shown in the second chart allows us to deliver increasingly favorable performance.
Speaker Change: So while our average monthly <unk> stands at around $11, our more mature cohorts are already achieving a monthly <unk> of $25.
It is also worth remembering that the dynamics of our packaging business slide is affected by the acceleration of our customer base in Mexico and more recently in Colombia.
Speaker Change: While our deposit to strategy in this new juice may attract customers. We initially engage with the kwanza product only are proud of the generates relatively low art Peck levels. We are very confident in the long term results that this growth strategy is expected to yield four new bank as we have seen in Brazil.
Speaker Change: <unk> for almost a decade now.
Speaker Change: As shown on the left chart of this slide while our monthly <unk> declined <unk> to $11 on an FX neutral basis, <unk> grew 2% sequentially and a strong 25% year over year up from $10, just one year ago and in spite of the custom.
Speaker Change: Pick up of the new Geos previously highlighted.
Speaker Change: We remain confident in our ability to increase our pack to its full potential over time.
Speaker Change: The chart on the right side of this is live highlights that our revenues hit a new record high this quarter of $2 $9 billion.
Speaker Change: Up 56% year over year. This growth was driven by the increase in active customers combined with higher <unk> levels.
Speaker Change: Our consumer finance portfolio, which comprises credit cards and lending grew strongly during the third quarter of 2024 up 47% year over year, and 8% quarter over quarter, both on an FX neutral basis and reached a total of 12.
Speaker Change: <unk> 9 billion.
Speaker Change: This growth was fuelled by increases across both product categories.
Speaker Change: Our credit cards portfolio continued to grow during the quarter fueled by further expansions in the shares of wallets across all customer segments.
Speaker Change: Creasing, 33% year over year, and 4% quarter over quarter on an FX neutral basis to $15 2 billion.
Speaker Change: Now our lending portfolio posted especially strong performance growing 97% year over year, and 19% quarter over quarter on an FX neutral basis to $5 7 billion.
Lending continues to outpace credit cards, and now accounts for 27% of the total portfolio.
Speaker Change: In line with trends from previous quarters, our lending cohorts demonstrated strong credit performance, allowing us to continue scaling new originations.
Speaker Change: Now, let's turn to the breakdown of our credit card portfolio.
Speaker Change: Interest earnings stall months remained steady at 20% of our total credit card portfolio aligning with expectations shared last quarter.
Speaker Change: While demand for our peaks financing products remained strong we have intentionally slowed the pace of eligibility expansions to more closely monitor performance over the coming quarters.
Speaker Change: If the portfolio continues to perform well we may resume growth in the near term.
Speaker Change: Our focus is on gathering additional data to ensure our credit models remain resilient.
Speaker Change: The demand for this product is very clear and we are strategically managing supply to safeguard credit quality and maintain portfolio resilience.
Speaker Change: In terms of our lending business originations increased by 17, 9% year over year to $15 9 billion reais in the quarter.
Speaker Change: <unk> lending remains the main growth engine, which this quarter alone generated $13 4 billion reais.
Speaker Change: This demonstrates our ability to continue fostering financial inclusion in Brazil, making credit available to people, who previously didn't have access to this product.
Speaker Change: Now our secure lending origination reached $2 5 billion reais during the third quarter of 2024 accounting for 16% of total lending originations. We are pleased with the good performance. We have seen from the recent introductions of new features for public payroll loans.
Speaker Change: Such as portability top ups and refinances.
Speaker Change: Now to expand eligibility and the total addressable market or Tam, we have signed nine new collateral agreements, reaching a total of 11, including with the armed forces and several major Brazilian states and municipalities.
The integration of these entities are ongoing and once completed we will tap into more than 70% of the overall Tam for public Bureau loans in Brazil, and released the product for the newly eligible customers. Thus supporting continued growth in originations.
Speaker Change: Now equally exciting is the performance we have seen in the originations of F. GTS Beckett loans.
Speaker Change: This product currently accounts for over 50% of our total originations of secured loans and our market share of new originations already exceeds 25%. This reinforces the strong product market fit.
Speaker Change: Our fully digital distribution channel.
Speaker Change: The reduction in credit yields you see in this slide is primarily a result of the increasing share of secured lending within our total originations.
<unk> secured lendings, typically offer lower yields and lower risks than unsecured loans.
Speaker Change: Now moving on to funding our total deposits for the quarter increased to $28 $3 billion up 60% year over year on an FX neutral basis and supported by robust expansions across all of the three geos in which we operate.
Speaker Change: In Brazil alone deposits reached $23 $5 billion up 6% sequentially on an FX neutral basis.
Speaker Change: In addition, we believe our depot right the strategy in Mexico, and Colombia is delivering strong results, allowing us to increase deposits in both countries why are we expanding our mission to empower our customers to gain more control of their financial lives.
Speaker Change: This has also led to additional cross sell opportunities and improved unit economics for a new bank.
Speaker Change: At the close of September our operations in Mexico reached $3 $9 billion in deposits almost four acts more than three quarters ago.
Speaker Change: Now lastly, we are very pleased with our recent performance in Colombia, just one quarter. After the launch of new Columbia checking account product consumer deposits reached $900 million.
Speaker Change: Far exceeding our expectations.
Speaker Change: Net interest income or NII increased 63% year on year.
Speaker Change: On a sequential basis NII remained flat in nominal dollars and $1 7 billion.
Speaker Change: And expanded 4% quarter over quarter on an FX neutral basis.
Speaker Change: This slowdown in growth was mainly driven by the combination of three factors.
Speaker Change: Yields on the credit card portfolio declined reflecting improvements both in products and customer risk second lending yields decline as previously mentioned in this presentation due to the increase in mix of secured lending.
Speaker Change: And third funding costs were pressured by the deposits ramp up in Mexico, and Colombia and in line with our depot rates of strategies New Geos.
Speaker Change: This also impacted net interest margin or NIM, which compressed 140 basis points to 18, 4% this quarter.
Speaker Change: Now as we look ahead and irrespective of the direction of local interest rates. We are confident that the key driver for future NIM will be the ongoing deployment of our balance sheet capacity through growth in credit originations.
As well as the repricing of our liability franchises in the new Geos Luca.
Speaker Change: Looking into Mexico as an example, we launched liquid cohesive at 15% per year back in November 2023, almost 400 basis points above the tier.
Speaker Change: By October 2024, this rate had already dropped to 12, 5% per year, only 200 basis points above the tier.
Speaker Change: Now, let's shift our focus to the very less pillar of our strategy.
Speaker Change: Maintaining a low cost to serve we firmly believe that our platform is among one of the most cost effective in serving customers within our markets.
Speaker Change: It's low cost to serve represents a significant competitive advantage and we expect this cost to remain at or below $1 per active customer for the foreseeable future.
Speaker Change: And for yet another quarter, we successfully achieved this goal with our cost to serve per active customer at 80.
Speaker Change: On an FX neutral basis. This represents a 2% year over year increase when adjusted for the one offs in the third quarter of 2024, mostly related to FX impact on data and cloud costs that had been allocated under customer services and now we're relocate.
To G&A.
Speaker Change: During the same period, our ARPA grew by 25% and this highlights the strong operating leverage of our business model.
Speaker Change: Our gross profit amounted to $1 3 billion.
Reflecting an increase of 3% quarter over quarter, and 67% year over year, both on an FX neutral basis.
Speaker Change: Now our annualized gross profit margin stood at 45, 8% closer to 2023 levels and in spite of the higher cost of funding in the new Geos, where we operate as anticipated during this presentation.
Speaker Change: Achieving operational leverage is a fundamental aspect of our strategy.
During this quarter, our efficiency ratio improved by 60 basis points quarter over quarter, reaching 31, 4% and more than 360 basis points better than a year ago.
Speaker Change: This was achieved even with costs for the third quarter, increasing 2% sequentially on an FX neutral basis, mainly reflecting a one off in marketing expenses related to the repositioning of the new coin program and the impairment of capitalizing tangible assets associated with it.
Speaker Change: We are poised to capitalize on our platforms operating leverage as we continue to expand our customer base.
Speaker Change: Sell and cross sell products introduced new features and achieve profitability in the new markets of Mexico, and Colombia, which are currently in their investment phases.
Speaker Change: Lastly, we delivered another quarter of robust profitability with net income increasing 107% year on year to $553 million.
Speaker Change: This resulted in an all time high net income margin of 19% and this positive results emphasized the success of our strategy and of our business model.
Speaker Change: Also adjusted net income reached $592 million for the quarter up 89% compared to a year ago.
Now while we are pleased with our third quarter results our commitment to long term value remains unwavering.
Speaker Change: This long term strategy may require short term investments to maximize our future opportunities even if they come at the expense of profitability for a few quarters.
Speaker Change: We do expect to continue to pursue a number of strategic short term investments over the coming quarters as we continue to seek new growth avenues for the company.
Now I'd like to hand, the call over to Youssef, Our President and Chief operating Officer, who will walk you through key highlights of our asset quality and credit portfolio health.
Youssef Lahrech: Thank you Michael good evening everybody.
Youssef Lahrech: Starting with NPL trends.
Speaker Change: Our leading indicator to 15 to 90 NPL ratio declined once again during the third quarter, dropping 10 basis points from last quarter to four 4%.
Speaker Change: 90, plus npls increased by 20 basis points to seven 2% also in line with expectations.
Speaker Change: Recall that 90, plus behaves as a stock credit inflow metric in the sense that this quarter's 90, plus houses inventory that was in 15% to 90.
Speaker Change: From one quarter ago, all the way to three quarters ago.
Speaker Change: Thus to understand the movement in 90, plus from last quarter to this quarter Youll have to trace it back to the change in <unk> to 90% from four quarters ago, all the way through last quarter.
Speaker Change: As discussed in past earnings calls, we are intentionally and strategically growing our lending book and expanding down the credit spectrum, where we see attractive opportunities.
Speaker Change: In line with our credit philosophy, we prioritize decisions that optimize the net present value of the lifetime of our customer relationships rather than focusing solely on short term NPL metrics.
Speaker Change: When we identify asset classes or customer segments with compelling risk adjusted returns that promote responsible customer behavior. We actively pursue growth in these areas in line with our strategy of pursuing primary banking relationship status with increasing engagement and cross selling and Upselling overtime.
Speaker Change: As we will show in the following slides. This strategy has yielded increased revenue and greater resilience more than offsetting the higher delinquency rates that come with it all within our risk appetite.
Speaker Change: This slide shows asset quality trends, both 15% to 90 and 90 plus Npls. This time on the basis of interest, earning balances rather than total receivables.
Speaker Change: Here, you can see a stable to declining trend in the last few years.
Speaker Change: This demonstrates that we have been rewarded for the additional risk we've taken reinforcing our strategic decision to focus on maximizing NPV I E. The lifetime value of customer relationships, rather than solely optimizing delinquency metrics.
Speaker Change: Aligned with the growth pace of our credit portfolio and early delinquency performance credit loss allowance expenses increased by 6% on an FX neutral basis to $774 million this quarter.
Speaker Change: Finally risk adjusted NIM decreased by 90 basis points in the quarter as a result of the 140 basis point decrease in NIM as explained by legal earlier, which was partially offset by a 50 basis point improvement in cost of risk.
On a year on year basis risk adjusted NIM increased by 110 basis points underscoring once again, the result of our focus on optimizing the lifetime value of our customer relationship cohorts.
Speaker Change: With that we're now ready to take your questions. Thank you very much.
Speaker Change: We will now start the Q&A session for investors and analysts.
Speaker Change: You wish to ask a question. Please press the reaction button and then click on raise your hand.
Speaker Change: If your question is answered you can exit the queue by clicking on your hands down.
Speaker Change: Please limit yourself to one question and a follow up.
Speaker Change: If you have further questions. Please reenter the queue you may submit online questions at any time today is in the Q&A box on the webcast.
Speaker Change: I'd like to turn the call over to Mr York Freedom, and Investor Relations Officer.
Speaker Change: Thank you operator, and our first question comes from the line of Jorge Kuri at Morgan Stanley.
Jorge Kuri: Hi, everyone. Thanks for taking my question and congrats on the.
Speaker Change: Great numbers.
Speaker Change: Wanted to ask about new cell and.
Speaker Change: Can you <unk>.
Speaker Change: Maybe share with us.
Speaker Change: What does the business model.
Speaker Change: What is the revenue model.
Are you charging a commission or you're renting the network and then creating your own revenue base.
Speaker Change: Basically passing on.
Speaker Change: The revenues to that.
Speaker Change: Carriers, what are the unit economics, how profitable it could be and how do you see these ups.
Speaker Change: Back in your financials over time.
Speaker Change: Something that could potentially be material surgical assess as we start thinking about it or is it sort of like an add on that adds to the overall ecosystem without vessels hardly becoming a big part of your P&L. Thank you.
Speaker Change: For Jorge Thank you for your question, so listen together I'll step back.
Speaker Change: When I go back 10 years in time and I remember the industries that we were discussing around opportunity for disruption in Brazil, and Latin America.
Speaker Change: There are two classes of industries that were in the in the companies that where these slides the most by Brazilians.
Speaker Change: First one is where banks the second ones were telecoms that has changed over the past 10 years, we like to think maybe because we brought more competition in the industry, but on the telecom side, there's still a lot of opportunity to improve customer experience. The NPS is slow.
Speaker Change: The general offering for consumers, who is very complex.
Speaker Change: Kevin when we talked to customers seven out of the 10 things that customers took the most.
Speaker Change: Their plans is around the user experience there is too many different plants to many different bonuses to many different footnotes.
Speaker Change: And just overall too much complexity.
Speaker Change: So that combination of an industry that has hundreds of millions of lines in Brazil, combined with low customer experience creates a very obviously target for us as we as a company CEO of our mission to be fighting complexity to empower and people.
Speaker Change: So we've been looking at the industry for a long time.
Speaker Change: I think the complexity of entering the telecom space, especially as <unk> is asked many people have mentioned.
Speaker Change: Generally you have disincentives with your provider.
Speaker Change: Because if youre going to March you are cannibalizing.
No that is giving you access to the network. So it took us for a long time to try to find the right partner and the right contracted to be able to negotiate a deal in this case with claro that aligns fully incentives and what it really means is instead of just simply passing a fixed fee we have a revenue share.
Speaker Change: Contract, we're not able to disclose exactly what their revenue share is bringing to a situation where we're sharing revenue we are providing were.
Speaker Change: We're using all of our infrastructure energy efficiency to serve consumers at a lower cost that they can and so ultimately they're able to serve customers through us.
Speaker Change: Making revenue at a lower cost.
Speaker Change: It's a win win situation for both companies. If we succeeded in offering a product that tens of millions of consumers log.
Speaker Change: Our partner is going to be making more money and he is going to lose its going to spending less money, serving those customers and obviously there is a huge amount of synergies around the consumer base that we have we are clearly getting close to 60% of the <unk> population over 100 million Brazilian customers. So we have to spend very little money on.
Speaker Change: Customer acquisition and marketing, there's a huge amount of synergies on serving customers efficiently. We know how to do that for different sub segments.
Specifically, there is a lot of value in creating a digital ecosystem.
Speaker Change: This is something we've been speaking about for several quarters now where we think that there is a big opportunity to build to go beyond financial services and new verticals.
Speaker Change: That allows us to give more products and services to our customers and increasing and increase the value propositions are consistently to them. So we can do that by adding something that all of our 100% of our customers use every single day.
Speaker Change: And and there is a lot of synergy in cross selling the products and adding rewards on top of that so that's something that we are launching I think this first value. This first announcement for the first plan you should see it as a beachhead as an entry path into the space, but there is ton mark to come in terms of how we're going to be tying.
Speaker Change: All of these products together and how we're going to expect increased loyalty and the value proposition to customers as we add new cell, but also travel we've announced travel marketplace and the number of our verticals tar here to come in terms of financial.
Speaker Change: The benefit I think it's early to tell we are excited about this.
Speaker Change: This profit pool and also what this can bring to the financial services space and all of our segments. So overhauls.
Speaker Change: I won't get into a lot of details there, but I do think the opportunity to go beyond financial services. Once you start, adding a number of different verticals.
Pretty substantial and what's not only substantially in terms of revenues, but also in terms of diversifying the business model away from credit and having a much more.
Speaker Change: Robust less cyclical type of revenue much more fee revenue much more subscription revenue and Thats, a nice distribution and diversification to our overall business model. So it is the first we're just kind of taking the first baby steps in that direction.
Speaker Change: But I think the logic is very compelling and we're very excited about what we can do there.
Speaker Change: Thank you that was very good.
Jorge Kuri: Thank you Jorge.
Speaker Change: And our next question comes from the line of Myopia.
Speaker Change: At Bank of America.
Speaker Change: Hey, guys.
Speaker Change: Thank you for taking my question, let me focus on the current business rather than the future business.
Speaker Change: When we look at.
Speaker Change: Your risk adjusted net interest margin right.
Speaker Change: It declined.
Speaker Change: When I look.
Speaker Change: Nominal.
Speaker Change: When I look at the margin itself also declined a few basis points.
Speaker Change: I get that part of business to do change.
Speaker Change: Have you been more secured lending, but I was wondering as this continues to happen right. I think that's part of the strategy how does that impact your profitability.
Speaker Change: The short term because it seems to me like you're moving away from a very profitable product, which is private cards.
Speaker Change: A product that is more secure but less profitable Ryan, especially when we look at the payroll loan market in Brazil, given that you have.
Regulated prices there. So I'm just trying to understand how do you see the evolution of risk adjusted margins as you continue to shift your loan mix. Thank you.
Hi, Mario this is logwood. Thank you so much for for your question. So look when we look at our business portfolio.
Speaker Change: They are certainly composed by asset classes with a very different kind of a risk returns.
Speaker Change: Provided that none of those asset classes are expected to yield us returns on equity of less than 30%.
Speaker Change: So yes.
The first product that we have credit card.
Speaker Change: <unk> has a phenomenal set of unit economics, both in Brazil, and Mexico, and Colombia lending as well and we are by no means moving away from those asset classes, we are actually adding additional asset classes to that portfolio.
Speaker Change: Without necessarily diluting the unit economics of the prior what's in my view My view when you take a look at our balance sheet, we still have a loan to deposit ratio up about snow, 30% to 35% depending on how you cut it so by and large two thirds of all of the deposits that we have are sitting idle.
Speaker Change: And treasury bonds, so as we shift the allocation from treasury bonds into credit assets, both secured and unsecured you should expect to see nims extending going forward you should expect to see risk adjusted margins expanding going forward.
Speaker Change: What has been kind of the rationale behind the contraction in NIM in the third quarter of 2024, I think it is the composition of three things.
Speaker Change: Number one we have seen increasing kind of funding costs in our business in Mexico, and Colombia, given our strategy to aggressively pay higher deposit rates in those countries.
And as such it has no shrunk the nims on a consolidated basis going forward, we do expect to bring some of those deposit rates in Mexico, and Colombia down as we have been doing sequentially quarter over quarter. So that's the first thing the second thing within our credit portfolio in Brazil, you'll start.
Speaker Change: To elude, yes, we are seeing the average yield go down.
Speaker Change: Primarily because of.
Speaker Change: Of mix like secure lending gaining more weight, but also because.
Speaker Change: Even within credit card as we improve and optimize the price elasticity models.
Speaker Change: We have been able to play around with lower rates in order to maximize the NPV and the lifetime economics of the customers.
Speaker Change: So in a nutshell, we do not expect the movement into new asset classes.
Speaker Change: Contract means our risk adjusted Nims on the country, you should expand as we increase the loan to deposit ratio.
Speaker Change: Okay, that's clear.
Speaker Change: Let me follow up then.
Speaker Change: Yes, what it would look at your credit cards.
Speaker Change: When I look at <unk>.
Speaker Change: Got it contracted quarter over quarter.
And you are at a point spread where you have been gaining market share. So I wanted to understand then when we look at this.
Speaker Change: <unk> volume.
Speaker Change: Why why did decline quarter on quarter.
Speaker Change: And my question also has to do like when I look at the number of cards outstanding and Brazil seems like it declined by 100009 from $38 1 million to 38 million this quarter, even though you added $3 4 million clients in Brazil.
Speaker Change: No.
Speaker Change: One is the data telling me.
Speaker Change: Are you at the point, where you already are at a certain level of market share there'll be hard for you to gain market share from Hong Kong from where we are right now.
Mitra: So it's a good question Mitra I think just let me try to address those two points that ive raised specifically and then I'll try to.
Mitra: Provide a general overview on market share in credit cards.
Mitra: First I would draw your attention to slides 27, and 28 of our earnings presentation.
Mitra: And you will see that our purchase volume.
Mitra: In in Brazil, Mexico, and Colombia, but mostly in Brazil have not contract that they have actually expanded on an FX neutral basis.
Mitra: You should note that there has been a material effects devaluation in the third quarter of 2024, I think the devaluation in Brazil has been between 4% and 5% devaluation in Mexico has been between 10 and 11%. So if you do an FX neutral adjustment you will see that the PV.
Mitra: PV has actually gone up.
Mitra: In the third quarter and then if you look at the PV.
Mitra: For Brazil, which you, which you highlight that module is over the past.
12 months.
Mitra: <unk> in Brazil for New Bank has grown by about 24%.
Mitra: Which is about twice the growth of the PV in the industry that means that we have of course increased market share.
Mitra: If you look at it in terms of receivables the credit card receivables off New bank, Brazil increased by about 32%.
Mitra: Which is almost three to four X the increase in credit card receivables of the industry. So again the market share continues to grow.
Mitra: So when you look at every single segment in which we play the less affluent and more affluent as well as the total market share we continue to gain market share at a fairly good pace. Our estimates that in terms of credit card receivables in Brazil, our market share has grown by about.
Mitra: 300 to 310 basis points over the prior 12 month period. So we are we're super encouraged by by the ability to continue to gain market share in the country now to your second point.
Mitra: Yes, indeed, the number of active credit cards has been slowing down to the number of credit cards.
Mitra: Credit cards denominated in terms of PV has been flat at around 38 million credit cards in terms of revenues. It has gone up from 45, 3% to $45 8 million, but it certainly will grow in the coming kind of quarters and years.
Speaker Change: In Brazil, and has a lower pace than it grew in the prior years.
Speaker Change: However, if you take a look on slide.
Speaker Change: With here.
Speaker Change: On slide 28.
Speaker Change: You will note that notwithstanding this stabilization of the number of active credit cards, we do expect the purchase volume per active credit card to continue to go up.
Speaker Change: Quite strongly and that's what we have seen both from old cohorts as well as from new cohorts.
Speaker Change: But on average the purchase volume per active credit cards goes up by about three <unk> within 24 months. So I think when you combine the maturation of the cohorts and the increase of receivables. We do expect market share to continue to grow in Brazil, let alone the expansions that we're going to have an <unk>.
Speaker Change: Mexico and Colombia.
Speaker Change: Okay.
Speaker Change: It's clear when I was talking about the purchase volume of credit cards decelerating right I was looking on in.
Speaker Change: In BRL and I saw a growth of 3% quarter on quarter and you were growing 8% previous quarter, you were growing at a higher pace.
Speaker Change: But no yes, you answered very clear thank you.
Speaker Change: Thank you Mike.
Speaker Change: And our next question comes from the line of <unk> from Goldman Sachs.
Speaker Change: Hi, Good evening, everyone. Thank you for the call and taking my question.
Speaker Change: My question following up a little bit on the decline in NIM, but you.
Speaker Change: You had mentioned that you are intentionally slowing the pace of eligibility for <unk>.
Speaker Change: I'm trying to get some more data there just want to understand are you concerned about asset quality is it just the <unk>.
Speaker Change: The pace at which you have grown over the last year.
What's giving you a little bit more caution there and will that be.
Speaker Change: Maybe a short term headwind for your ability to expand NIM.
Speaker Change: At least for the next few quarters as you get some more comfort there.
Speaker Change: Thanks for the question look so we are we continue to be Super excited with.
Speaker Change: With the peaks in bolitho financing products within within the credit car family.
Speaker Change: The demand for this product is enormous.
Speaker Change: And the unit economics of this product is very strong now we do often no pursue optimizations of the risk return strategies of every single asset class. They are not kind of a straight line. So there are times in which we accelerated there are times in which we decelerate so over.
Speaker Change: The past, new one or two quarters, we have.
Slow down into actually the pace of eligibility expansion in <unk> financing to.
Speaker Change: To kind of watch how those cohorts will continue to perform and if they continue to perform well as they have most likely we will resume growth over the course of the course of the of the coming quarters.
Speaker Change: We do see kind of the peak financing family of products as a strategic.
Speaker Change: Feature and product that we offer to our customers and something that actually leverage on many of.
The strength of new bank in Brazil, as you know we have about one in every four peak.
Speaker Change: <unk> transactions in the country go through new bank. So the flow of data is super strong and gives us and our customers the ability to develop and enjoying new financing products. So now we do expect to continue to grow this product in the coming quarters and years. We are just now taken a pause to see how.
Speaker Change: The overall performance of the recent cohorts continue to perform.
Speaker Change: Okay. No. That's helpful. I will thank you for that and then I guess just another follow up on the margin.
Because <unk> had strong growth in deposits again, I know you are overpaying, a beta in Mexico to kind of grow that deposit base.
Speaker Change: Would you consider maybe reducing the remuneration further either in Brazil, or Mexico to help sort of on the funding side of things, particularly with higher rates in Brazil, and then Conversely in Mexico. So there was some October data, where your loans jumped by 10% in October. So it seems like maybe you are getting more comfort.
Speaker Change: To grow it.
Speaker Change: Loan book in Mexico, How do you think about that.
Speaker Change: The outlook for loan growth in Mexico from here, yes, So just addressing some of your questions head on in Brazil, We do not expect to.
Speaker Change: A lower <unk>.
Speaker Change: Yields on the Depo rates, we believe we have a very good balance of our value proposition for our consumers and we are very pleased with the with the capital structure that we have in the counter so we.
Speaker Change: We do not foresee any material change in the short term in Mexico, and Colombia, we have been very positively surprised with the evolution of our deposits is strategy in both of those countries not only we have seen kind of fall.
Speaker Change: Deposits, increasing by substantially at substantially higher pace than we expected, but we have seen material second order impacts from the inflows of those deposits what do I mean by that I see the deposits has brought in now many more customers that many more customers who also.
Speaker Change: <unk> cross to whom we were able to cross sell other products such as credit cards, and now personal loans in Mexico and soon Colombia.
Speaker Change: And we have also seen a marginal improvement in the mix of those customers that have allow us to expand eligibility and approval rates.
Speaker Change: And secondly, as was the case in Brazil. The inflow of deposits also comes with an avalanche of additional credit underwriting data that is super.
Speaker Change: Super important raw material to feed our credit and customer segmentation model, So really pleased there and as.
Speaker Change: We improved the value proposition of their experiences with new bank, we will consider.
Speaker Change: Progressively optimizing the cost of our liability and yes potentially continue to low deeper rates in Mexico in Colombia in Mexico, just to have an illustration.
Speaker Change: I think we launched the deposits in Mexico back in the first quarter of 2024, we launched the paying 15% per year at that point in time. It was around 400 basis points above the interbank deposit rates now.
Speaker Change: Now we are now at 12, 5% per year, which is only 200 basis points above the interbank deposit rates.
Speaker Change: And yes, we may we may bring this down going forward, but I think the most important benefit that we will have the nims is actually going to be on the expansion of the asset side of the balance sheet and we are super.
Speaker Change: Super pleased with the prospects that we have to increase the loan book in Mexico.
Speaker Change: It's performing now.
Speaker Change: Fairly well and we have resumed growth as you have seen in the recent numbers, including the ones that we have posted with the regulators I believe yesterday or today.
Speaker Change: Okay perfect great. So it does seem like that that could be a driver of growth going forward here.
Speaker Change: Yes, absolutely.
Michael: Thank you Michael.
Speaker Change: And our next question comes from the line of Jeff Elliott from autonomous.
Jeff Elliott: Hello, Thanks very much.
Speaker Change: For taking the question the credit call staged threes increased from nine one to nine.
Speaker Change: Nine 8% can you give us a bit more detail on what's happening.
<unk> specifically.
Speaker Change: Picks credit how has the performance.
Portfolio have been evolving thank you.
Speaker Change: Hey, Jeff This is Lisa thanks for the question so.
Speaker Change: Stage three.
Speaker Change: The short short hand for that I think about it is it's very correlated to what's happening to 90 plus.
Speaker Change: It tends to evolve in a similar way intends to behave like a stock metrics. So what youre seeing is kind of consistent with the trend in 90 plus.
Speaker Change: When you look at.
Speaker Change: More of a flow metric on late stage delinquencies I would invite you to take a look on page 30 at the NPL formation in the stage three formation and both.
Speaker Change: Indicators, if you take a look actually declined in the quarter 40.
Speaker Change: And 60 basis points.
Respectively.
Speaker Change: We see actually improvement from that standpoint.
Speaker Change: <unk> metrics and with respect to your question on fixed financing.
Speaker Change: You mentioned just a minute ago.
Speaker Change: We continue to be very pleased with both the consumer demand for that product and the economics of that product that the returns are phenomenal.
Speaker Change: So.
Speaker Change: The.
Speaker Change: Recent deceleration is by no means an indication of concerned on either.
Speaker Change: It's more kind of tactical adjustments, we make on the business as usual basis that we've done in the past in a number of.
Speaker Change: Products and customer segments.
Speaker Change: Got it thanks very much.
Speaker Change: And our next question comes from the lineup John Coffey at Barclays.
Speaker Change: Great. Thank you very much for taking my question.
Speaker Change: One theme that I've noticed in light of your answers is.
When you're talking about your NIM.
Speaker Change: I think you said that the NIM will improve when your loan to deposit rate improves which makes a lot of sense. I was wondering if you could just maybe broadly just say whats holding you back on having that right more is it that you have capital or not.
Speaker Change: These assets and you are not able to convert those into loans just yet because you are still testing the market, perhaps in Mexico, or Colombia or.
Speaker Change: Are there any other reasons that might be pulling.
Speaker Change: Pulling back that that ratio from rising more.
Don: Don Thank you. Thanks for the question. So let me try to split the response into I think.
Don: Between Brazil on <unk>.
Don: One hand in Mexico in Colombia on the other hand, so Brazil, we already have a fairly stable liability and deposit franchise.
Don: And we have been growing the asset side of the balance sheet.
Don: At a relatively good pace, depending on the assets that you look the overall portfolio has drawn at about <unk>.
Don: 47% to 50% year over year, the lending side per se, which is the one that consumes more funding more than credit card in Brazil. It has in fact grown by about 90% to 100% year over year, So Brazil's assets.
Don: As.
Speaker Change: Is is the first cruise control.
The air and we expect loan to deposits to continue to go up in.
Speaker Change: In Mexico, and Colombia, they are more recent markets and therefore, we continue to develop our credit underwriting capabilities. When we entered those markets. We did see that differently from Brazil, our core product, which was credit card was more funding intensive due to the credit car cycle. So the first thing that we wanted to do was to Derisk.
Speaker Change: The funding part of the business and therefore, we have been more aggressive on raising deposits from local currency.
Speaker Change: General public mostly retail deposits now that we have a very strong and healthy right side of the balance sheet.
Speaker Change: Accelerating the left the growth of the left side of the balance sheet and you have started to see a strong growth in the loan book of Mexico, and Colombia, and I believe you will not only continue to see those in the next quarters, but most likely it will even go up as we improve and sharpened our credit underwriting capabilities.
Speaker Change: Yeah.
Speaker Change: But the main bottlenecks that we have to continue to grow.
Speaker Change: The asset sides in Mexico, and Colombia and to certain extent also in Brazil, certainly not capital we have plenty of capital to deploy certainly not funding we have now plenty of funding to deploy against those opportunities, it's really our credit underwriting appetite to be able to cherry pick the most compelling.
Speaker Change: Risk adjusted returns for our company.
Speaker Change: Great. Thank you very much I just had one quick follow up this might be more for you Seth on the 15% to 90 day Npls I know those decreased 10 bps quarter over quarter can you help us decrypt a little bit more how that breaks out from seasonality versus creating more exposure to riskier loans is it is it straightforward or are there too many people to move into.
Speaker Change: Pieces to really break that out.
Speaker Change: It's pretty straightforward to be honestly the seasonality typically you Linda is in the range of 10 to 20 basis points of what we see is largely along seasonal lines as opposed to indicative of any wholesale changes.
Speaker Change: And the assets.
Speaker Change: Okay. So it's normally tends to 'twenty down from Q2 to Q3, that's about right, but youre also having like more exposure to a riskier credit books. So it almost expect those that would have maybe gone up are netted out to zero it doesn't seem like that's happening.
Speaker Change: And there are offsetting forces as we've talked about before so you have increased mix of secured loans within the lending book.
Speaker Change: You have continued expenses and credit card alright.
And then some of the tactical adjustments, we've executed through the last quarter. So so those tend to kind of offset each other we've seen relative stability in the last quarter perfect. Thank you very much.
Speaker Change: And our next question comes from the line of <unk> Agarwalla from HSBC.
Speaker Change: Alright. Thank you for taking my question just a quick one on the provisioning level.
Speaker Change: When people go back to the lines remain strong as the governor originations, which is the explanation why the strong pick up in the provisioning level nominally speaking when we look at this quarter. They were really strong pickup in especially English netted all of which grew 20% quarter on quarter.
Speaker Change: Patients grew only 6% quarter on quarter.
Speaker Change: Could you. Please explain what was different this quarter in line.
Speaker Change: I saw them pick up in provisioning.
Speaker Change: Yes, the origination was quite strong and also the <unk>.
Speaker Change: Cost of risk sequentially remained largely stable, there's probably some.
Speaker Change: In fact, some shift in mix, but given the stronger growth in patients on loans I would expect it to.
Speaker Change: To go up.
Speaker Change: And on that that'd be very helpful.
Speaker Change: Yes. This is Lisa thanks for the question, So again I would point out too.
Speaker Change: Some of the offsetting forces that I, just talked about and in particular when you look at lending the fastest growing element within that is secured lending which carries very little.
Speaker Change: Risks and hence has lower coverage ratios.
Speaker Change: That would.
Speaker Change: Explain in part what is going on even in unsecured lending, we've seen slightly better asset quality had unexpected so you see.
Speaker Change: You'll see a bit of an effect there too.
Speaker Change: And our next question comes from the line of Eduardo Rosman BTG.
Speaker Change: Yeah.
Speaker Change: Hi, Hi, everyone I wanted to get an update in Mexico.
Speaker Change: Maybe if you could help US you know.
Speaker Change: You've been delivering better and faster Kpis right way compared to what you did in Brazil, but I wanted to know if you think that Mexico is ready for the same impact you had in Brazil right now do you think.
Speaker Change: Mexico can be relevant within your results in the next three years or should we expect it to be more relevant in the future. Thanks.
Speaker Change: Sure.
Thank you for the question.
Speaker Change: So.
Speaker Change: There's a net Mexico is an opportunity that net net I think could be in our Brazil for us, but there are some differences to Brazil.
Speaker Change: Some positives and some harder to crack.
Speaker Change: The positives are is a higher higher income per capita are country.
Speaker Change: Then Brazil.
Speaker Change: And you also have a lower bank penetration lower credit card penetration.
Speaker Change: And that's a challenge as well as an opportunity with 12% credit card penetration, we could be if we crack the code of providing credit to the unbanked population that would be a huge competitive advantage versus in Brazil, where we found a market that was much more saturated with many more competitors now.
Speaker Change: It's probably going to take a little bit longer.
To really reach the levels of market share that we have in Brazil, because cracking, giving credit to the under banked or unbanked issues harder and we are here for the long run we don't want to do anything unnatural or it.
Speaker Change: Learning how to do that requires a lot of discipline a lot of methodology a lot of data a lot of additional testing.
Speaker Change: And it's a quarter, we accelerated our quarter, we pause in our quarter, we accelerate or be accelerated so youll see those six sagging of growth rates consistently because it's us continuously being better every single day are on hydro underwrite that market opportunity.
Now as you say, we have been so far has been faster than Brazil.
And we're very.
Speaker Change: Cited with getting to it about five years, we're now top 10 in Mexico in both credit cards and deposits, which is a huge.
Speaker Change: Victory I think in terms of our market positioning having started from completely from zero and theres been a huge amount of theres a lot of huge amount of work around connecting to cash in cash out infrastructure, which we're doing connecting to new data infrastructure. So we're doing all the blocking and tackling to your question is <unk>.
Speaker Change: Typically I think Mexico will move the needle or is on path to move the needle for us.
Speaker Change: There is an upside case here, where Mexico against the picks right and a digital payment systems right over the next five years.
Speaker Change: And <unk>.
Speaker Change: That upset Kase is Mexico being as big a pursuit for US there is a base case, where it takes a longer time to get all of these digital payment infrastructure in place and.
Speaker Change: It moves the needle, but he is not as big as Brazil, but net net I think it's definitely a business that will move the needle for us and it will be relevant for us.
Speaker Change: No great that'd be it thank you very much.
Speaker Change: Thank you.
Speaker Change: And our next question comes from EOD Fernandez at JP Morgan.
Thank you guys well most of the strategic questions that were already asked so I'll go to the X rates.
Speaker Change: I would say a highlight to this part.
You go to your financial statement, we see the all other line the other tax shoot.
Speaker Change: And basically that is Texas bowls and other things so just trying to understand what happened with tax rate.
Speaker Change: Just the seasonality as we saw in third Q2 thousand 23 backing.
Speaker Change: Last year was late debate.
Speaker Change: So just trying to understand if this is a level that is sustainable for tax rates or we should see rates with Tony back 33, 34, 35%. Thank you.
Speaker Change: Julia Thanks, so much for the question I think in this quarter.
Speaker Change: There were two things in our income statement that I believe are worth highlighting in the call.
One is a nonrecurring event and the other one is a seasonal event. So what is the non recurrent event. So in the third quarter of 2004, we decided to reposition new coin, which.
Speaker Change: Is our loyalty program.
Speaker Change: With that we would discontinue the crypto our liquidity pool that was allocated to this program initially.
Speaker Change: There's no shift in the program.
Speaker Change: Require us to absorb a onetime nonrecurring charge of about $48 million.
Speaker Change: There was fully absorbed in marketing and in G&A in general.
Speaker Change: So that is completely nonrecurring we should not expect.
Speaker Change: This to have any additional impact to our performance. If it was not for this one time event our efficiency ratio would have been even below 30%. So that one is completely nonrecurring with respect to the second point, which I believe you've ask on corporate income tax or the effect.
Speaker Change: The tax rate that is more of a seasonal thing than a nonrecurring thing.
Speaker Change: And you correctly pointed out just like it happened in the third quarter of 2023, we have in the third quarter our concentration in the filings for <unk>, which is an R&D R&D tax incentive that exist in Brazil. Then we also had in the third quarter of 2024 and that should be recurring and should.
Speaker Change: Continue with similar seasonality in the coming quarters and years.
Speaker Change: No Super clear, thank you very much logo.
Speaker Change: And our next question comes from and he can evolve at Santander.
Speaker Change: Hi, Thanks for the opportunity to make a question I would like to do a follow up on the question on the growth mismatch between provision and loans I understand the rationale of the change in the credit mix had been more secured personal loans, but my question is if we look forward.
Speaker Change: The macro environment has been deteriorated, we have a highest citic estimates et cetera.
And under the the expected credit loss provision model, we need to consider the market environment to do our population. So my question is what is the rationale for this behavior between provisions and all of US I mean is there a risk that eventually you may need to reinforce provisions I have that's it. Thank you.
Speaker Change: Hi Heath. This is you. So thanks for the question. So look yes, we do take into account.
Speaker Change: Macro scenarios.
Our provision setting.
Speaker Change: They are one of many factors as you know that that impact.
Speaker Change: The provision model.
Speaker Change: But I would say that the dominant effect is.
Speaker Change: Both of the nature of the mix of assets and the performance of assets, we put on book.
And so I think.
What you see in the and.
In the financial statements reflect our best estimate.
Speaker Change: The coverage ratio and as I mentioned, when you look at loan specifically.
Speaker Change: Probably the main driver of this quarter has been the accelerated growth of secured.
Speaker Change: <unk>, which tend to drive.
Speaker Change: Coverage down visa the unsecured.
Speaker Change: Hey, Thank you.
And our next question comes from the line of Federal Law Duking It out.
Speaker Change: Hi, guys. Thank you so much for the call and taking my question.
Speaker Change: Sorry to go back to the to the NIM.
Speaker Change: <unk>.
Speaker Change: First part of the question is easier. If you did have any of the credit card regulatory cap impact on the NII or gross interest accrual for credit cards. Other other players mentioned that.
Season.
Speaker Change: And then also if the renegotiated book took some part into NII slowdown as well, Okay and then the second piece of all of this.
Speaker Change: In the call you mentioned that you expect the NIM post cost of risk to improve going forward.
Speaker Change: Asset side, I mentioned funding, Mexico, but as I think about the main answer why I fell in love with the mix that this secured portfolio is usually more stickier. So.
Speaker Change: So I would expect with the compounding effect.
We do have a more prolonged effect on the NIM post cost risks. So we're just trying to get little more color on how it is in the shape of the recovery that you would imagine thank you.
Yes, Pedro let me, let me share some thoughts on this and then maybe Youssef can chime in as well so with respect to the NIM.
Speaker Change: In this quarter, one thing I would highlight which adds a little bit of complexity to the calculation is also.
Speaker Change: How FX has behaved through all of the third quarter of 2024.
Speaker Change: If you take a look at the average effects, which has the effect that is used to translate income statement and the end of period effects, which is the effects that is used to translate balance sheet items.
Speaker Change: You will note that the average effects has depreciated and the end of period effects has appreciated so youre actually translate team no less dollars in the income statement divided by balance sheet items, which have kind of a higher amount of dollars. So you would see if you adjust the effects.
Speaker Change: Both ways are much less pronounced deterioration in nims as you say so I think that is the first part of your question I'll do.
Speaker Change: The second part, which are which is where we see is all else equal. If we continue to have the same credit cards unsecured and we just increased the secure lending in our book and that increase in secured lending leads to an increase in loan to deposit ratio.
Speaker Change: We would be basically shifting money that is currently sitting at no siddiqi in treasury bonds and placing it with with secured lending so all else equal it should actually lead to an expansion of <unk> and an expansion of risk adjusted net interest margins as well the problem is that theyre all else equal.
Speaker Change: Never happened. So you do see continuous growth in deposits in Mexico, and Colombia, so on and so forth, but we do not agree with the notion that.
Speaker Change: The growth of our secure per faulty pursue will lead to a dilution in nims or evening in returns on equity it should lead to increasing loan to deposits and an expansion in both of those metrics.
Speaker Change: Thank you.
Speaker Change: And our next question comes from the line off we didn't think at FHA.
Speaker Change: Hey, guys. Thanks for taking my question I just have one for you here.
Speaker Change: Can you talk about the competitive market you see around secured lending.
Speaker Change: Particularly in Brazil, New has clearly done incredibly well on the unsecured front, but how did the operating dynamics change when you start to think about leaving your mark on the secured front, how sticky are customers when thinking about shifting away from existing providers.
Speaker Change: Two new bank. Thank you very much.
Speaker Change: No. Thank you so much.
Speaker Change: Super Super important question for US one that we debate and study at length and the experience that we have had so far with the secured lending which is a longer journey.
Speaker Change: Seems to be quite encouraging so within secure lending there are basically three types of assets you have the public payroll loans you have F. GTS and you have an investment in back and launch the first two account for about 90% of the loans that we originate.
Speaker Change: And 90% of the book So that is the lion's shares of our operations there.
Speaker Change: And in fact, the F. GTS backer loans has accounted for the majority of the originations in the majority of our book today in App GTS launch, which of the S class for which we believe we already have reached at product parity.
Speaker Change: Our origination is estimated to account for about 25% of the origination of the market So very strong.
Speaker Change: And it does support the view that you can have a very successful direct to consumer digital only distribution channel and we continue and we expect to continue to increase our <unk> market share in the coming quarters as we leverage on our low cost base to offer the product at the best.
User experience best user interface and the lowest price points now as we move into <unk>.
Speaker Change: Public payroll loans, we have been launching only chew collateral agreements, so far which are the two largest ones NSS and CRP.
Speaker Change: We have recently made fairly important improvements in those products.
Speaker Change: NSS, we've launched refinancing in November 24.
Speaker Change: CRP, we are going to launch refinancing in December 2024, and then over the coming quarters, we are going to add nine collateral agreements to the to the offer. So we expect that by December 2024, we will be launching the collateral agreements with the armed forces.
Speaker Change: And throughout 2025, many new collateral agreements with some of the largest us states and municipalities in Brazil. So as we have seen with the success that we have had we've had pts. So two we expect to see kind of what the ramp up of public payroll loans, there and why do we think we're competitive out there we think we're competitive because.
Speaker Change: Not only we have the best UX and UI with.
But the fact that we do direct to consumers we have much lower.
Speaker Change: Customer acquisition costs, much lower cost to serve which translates into much better prices to consumers in one of the industries in Brazil that offers the highest price elasticity points.
Speaker Change: Thank you <unk>, we have now surpassed 75 maintenance of this fashion. So we are now concluding today's call on behalf of new holdings and of our Investor Relations team.
Speaker Change: Want to thank you very much for your time and participation in our earnings call Tonight.
Speaker Change: We are excited with our development as we continue strengthening our position in the markets we operate.
Speaker Change: Over the coming days, we will be following up.
Speaker Change: With the questions received via our platform and with dose that attempted but were not able to ask questions Tonight. So please do not hesitate to reach out to our team. If you have any further questions. Thank you and have a very good night.
Yeah.
Speaker Change: The New Holdings Conference call has now concluded. Thank you for attending today's presentation you may now disconnect.