Q1 2025 Nu Holdings Ltd Earnings Call
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Speaker Change: A slide presentation is accompanied to today's webcast which is available in news investor relations website www.investors.new 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 to mute original audio.
Speaker Change: Please be advised that all participants will be in a listen only mode. You may submit online questions at any time today using the Q&A box on the webcast.
Speaker Change: I would now like to turn the call over to Mr. Guilherme Soto, Investor Relations Officer at New Holdings. Mr. Soto, you may proceed.
Speaker Change: Thank you operator, and thank you everyone for joining our earnings call today. If you have not seen our earnings release yet, a cop is posted in the results center of our exact relation website.
Youssef Lahrech, Guilherme Lago, Jorg Friedemann
Speaker Change: With me on today's call, or, David Velez, our founder, Chief Executive Officer, and Chairman, Youssef Lahrech, President, and Chief Operating Officer, and Guilherme Lago, Chief Financial Officer. Thank you.
Speaker Change: Throughout this conference call, we will be presenting known IFRS information, including on Geoff and Ericka.
Speaker Change: These are important financial measures for those holdings but are not financial measures as defined by IFRS and may not be comparable to similar measures from other companies.
Speaker Change: Reconciliation of non-IFRS information to IFRS information are available in our own release. And let's note it otherwise, all growth rates are on an E over year.
Peace.
Speaker Change: I would also like to remind everyone that today's discussion might include poor-looking statements which are not guarantees of future performers and therefore you should not put undue reliance on them. This statement has subject to numerous risks and uncertainties and could cause.
Speaker Change: Don't. Please report to the four looks and statements disclosure in our earnings release. I will now turn the call to David. Please go ahead David.
Good evening everyone and thank you for joining us today.
Davi: We kicked off 25 with strong momentum. During the first quarter alone, we added 4.3 million customers, reaching a total of 119 million across all our markets.
Davi: That includes 105 million in Brazil, 11 million in Mexico, and just last month we cross 3 million customers in Colombia.
We now serve nearly 100 million monthly active customers.
Keeping our activity ratio above 83%.
Davi: These numbers reflect not just scale, but deep engagement and quality.
Davi: While 100 million monthly active customers positioning us as perhaps the largest financial institution in Latin America in terms of number of customers, I would like to quickly provide a high level reminder of the big opportunity we still have ahead of us.
Brazil is our most skilled and mature market.
About 60% of the population is a customer. [inaudible]
Davi: 85% are active and close to 60% of these customers, use new as their primary bank, translating into a market share of principality of over 30%.
Davi: And yet, our gross profit market share is just 5% as we're in the early stages of monetizing our customer base through larger usage and cross-shell of products.
Davi: Additionally, recent upgrades to our credit models, including new AI capabilities, are enabling us to responsibly expand credit access and unlock for the growth. But we're just as focused on non-credit opportunities which remain equally ripe for disruption.
Davi: These gap is our opportunity. We're doubling down, we're investing our earnings to close a distance between principality and market share, and to expand the size of the market itself.
Let's turn to Mexico, or next major growth frontier.
Davi: Mexico is Latin America's second largest bank in market, but more importantly it's one of the most under penetrated
Davi: The bigger opportunity here isn't just to win marketer, it's to expand the market itself.
Davi: Or Momentum in Mexico is strong. In the past four quarters, or customer base grew 70% rich in 11 million customers.
Davi: Deposites more than double on an FX neutral basis, exceeding $5 billion dollars.
Davi: or Credit Profolio, grew 60% FX Neutral to nearly 1 billion. Revenues nearly doubled FX Neutral, reaching 245 million last quarter.
Davi: These are early signs but strong ones that our model is working in Mexico. And I'm also very happy to announce that just a few weeks ago we were approved to get our banking license in this country. License that is going to enable us to accelerate our growth and provide many more products to our customers.
Davi: Between Brazil, Mexico and Colombia, we see a wide range of actionable, high conviction and profitable growth opportunities.
We are investing proactively and deliverably to the system.
Davi: As we continue growing our customer base and our penetration within these large markets, we will continue to benefit from the strong operating leverage of our business model.
Davi: Or Average Revenue Directive Customer, or ARPEC, increases towards the levels of incumbent banks while our cost remains largely unchanged at or below $1 per customer.
Davi: On the left-hand side of the slide, you see the historical backpack progression across customer
Davi: In the first 12 months, a cohort typically generates just about $5 per customer in revenue.
Davi: But as product usage deepens in cross-sale increases, RFX can grow more than fivefold surpassing $25 after seven to eight years.
Davi: And this figure could continue to rise and rise at a faster pace as we narrowed the gap within common banks, which generate RPEC over $40 by launching new products and entering new segments.
Davi: On the right-hand side, you'll see our cost to serve over time. Thanks to scale efficiencies, process automation, and sustained investment in technology, these costs have declined by over 80% in the past years, and now remain below $1 per customer.
Davi: Even as the business has grown significantly in scale and complexity, we expect this trend to continue.
Davi: So, taking together, these two trends illustrate the strength of our operating leverage, one of the defining features of our digital banking model and the most significant source of earnings unlocked potentially in our business.
Davi: To summarize, what we've already reached a significant number of customers across Latin America, or market penetration remains relatively low, including in Brazil, and the opportunity to further grow revenue is enormous.
Davi: The shifts from casual detail payments and from offline to diesel banking are structural decades-long trends, especially in underprint-traded markets like Mexico and Colombia.
Davi: As the category leader in the Ito Banking across the region, we are exceptionally well positioned to capture outside value from this information.
Davi: That's why we remain steadfast in our commitment to long-term value creation, not short-term earnings of the musician.
Davi: Just as we're doing with the strategic ramp up for the positive franchises in Mexico and Colombia, which we will discuss later today, we will continue making significant investments aimed at maximizing sustainable shareholder value over time.
Even if that means accepting near term pressure on margins. [inaudible]
Davi: We believe this is the right approach to build a durable, profitable and category defining company for the long run.
Davi: And with that, I'd like to put the floor to our CFO , Guilherme Lago, who will walk us through the details of our financial results. Over to you, Lago.
Thank you, David, and good evening, everyone.
Davi: We had a strong start to the year with continued customer growth.
Davi: We now serve approximately 59% of Brazil's adult population, 12% in Mexico, and 8% in Colombia, and this figures exclude under 18th and SMEs, two segments that are growing even faster than our core adult base.
Youssef Lahrech, Guilherme Lago, Jorg Friedemann
Davi: A key differentiator of our digital banking model is our ability to drive principality.
Davi: Nubank isn't just a secondary wallet for ad hoc remitants or occasional purchase. [inaudible]
Davi: It is the primary bank in relationship for most of our active customers who uses every single day. Our Dalmau ratio continues close to 50%, one of the highest in the FinTech industry globally.
Davi: This creates significant competitive modes, including stronger unit economics and access to richer transactional data.
Davi: Our credit per fall, you reach at $24.1 billion in Q1, growing 8% quarter over quarter and 40% over year, both on an affect neutral basis.
Davi: As expected, credit card growth was seasonally softer in Q1, consistent with historical patterns.
Davi: Meanwhile, our landing paradas, both unsecured and secured, continue to grow faster than our credit
Davi: We expect this shift in composition to continue over the coming quarters.
Davi: Now, for the past two years, we've been sharing with investors the significant opportunity we see in secure lending.
Davi: While our approach is fundamentally different from the rest of the industry, viewed on a hundred percent dish to the rich nations, it is exciting now to show tangible traction, with a three hundred percent increase in balance over the past twelve months.
Now, turning to loan origination performance.
Davi: Dolphalon Originations, Richard A. Record of 20.2 billion reais in Q1 of 64% year-over-year.
Davi: Unsecure loans were the main driver, reaching an all-time high of 17.3 billion reais. This reflects the strength of our credit underwriting capabilities. [inaudible]
Davi: As you may recall, in late 2022, we deliberately pull back from this asset class in response to adverse credit conditions.
Davi: Since then, we have fine-tune our credit models and acquisition funnels, and today we are seeing the strongest momentum yet in both origination volumes and unit economics. Thanks.
Davi: Credit on the writing is never a straight line, and our ability to step back, recalibrate, and return with speed and discipline is a key competitive advantage.
Davi: Private payroll loans will open the door to customer relationships, customer data and customer collateral that were previously out of rich. We are all in.
Davi: Why we don't expect any material short-term impact on our unsecure landing business, we are confident that the scale and the strategic value of this opportunity far outweighed near-term risks.
Davi: Just like we did with FGTS, where we've become the market leader, we are building a digital native product from scratch, using our cost advantages to deliver the best offer in the market.
Davi: Now, let's turn to the breakdown of our credit card portfolio.
Davi: Groove in Interest Earning Installments, we accelerated in Q1, now counting for 29% of the total credit car per volume. This compares to Q4 which typically sees a seasonal increase in non-interest balance due to higher purchase volumes.
Davi: We also saw momentum supported by strong originations in peak financing and order transactional
Davi: On peak financing, specifically, why we have not yet fully resumed growth in some higher risk segments as testing continues with optimized in-app conversion flows. This drove stronger origination volumes, especially towards the end of the quarter.
Davi: Now, let's zoom in on Pix Financing and our order transactional credit products.
Davi: This is an honor, clear example of our discipline approach to credit. In the second half of 2024, we saw that among riskier bands, peaks financing usage began to negatively impact NPS and reduce engagement, posing a risk to principality.
We acted quickly, tightening eligibility criteria for those segments.
Disled to a deliberate decline in volumes and youths
Davi: But once again, we are not optimizing for linear growth. We are building sustainable, resilient value for both customers and shareholders. The constraining fixed financing wasn't like of demand or unfavorable unit economics, but our choice to protect customer experience and long-term principality.
Davi: Now, since then, with gradually re-expanded access, improved in app flows, and launched new features, leading to record high originations in March.
Davi: Disrecovert achieved without compromising credit quality highlights our agility, our customer first mindset, and our long-term orientation.
Davi: On the funding site, total deposits reach at $31.6 billion in Q1, up 48% year-over-year, and 1% quarter-over-quarter, both on an FX neutral basis.
Davi: Grove was driven by strong momentum in Mexico and Colombia, while Brazil saw a modest 1% decline, yet outperforming the typical Q1s' onality which averages a 5% drop.
Davi: We have continued investing in our deposit franchises in Mexico and Colombia.
Davi: Scaling local currency retail deposits, it is critical, not only to fund consumer credit at competitive terms, but also to generate data that powers our credit and the rioting and customer segmentation models.
Davi: We are very pleased with the pace and scale of our growth in this market as it has significantly de-risked our funding strategy there.
Davi: Now, naturally, these investments have led to a gradual increase in our average funding costs.
Davi: We've begun optimizing both the design and the pricing of our deposits in Mexico and Colombia, while still maintaining strong growth and engagement.
Davi: Or the coming quarters, we expect funding costs to trend down as the base maturers, though we will remain ready to adjust quickly in response to short-term opportunities or shifts in competitive dynamics.
Davi: In Q1, net interest income or NII, grew 34% year-over-year and 5% quarter-over-quarter, both on an affect neutral basis, reaching a new all-time high of $1.8 billion.
Davi: Consolidated net interest margins, or NIM, declined 20 basis points to 17.5%, reflecting the different stages of our geographies as we will see on the next slide.
Davi: In Brazil, Niem's expanded quarter of a quarter and remains stable compared to the prior year.
Davi: The business continues to grow with strong profitability and resilience, supported by a competitive deposit base. The evolution of our asset mix, coupled with a gradual increase in our loan to deposit ratio, or LDRs, is expected to drive further neem expansion in the coming years.
Davi: Now, in Mexico and Colombia, means were temporarily impacted by our decision to invest in building local deposit franchises.
Davi: These are deliberate strategic investments aimed at unlocking large-scale, low-cost funding, deepening our customer relationships, and enabling sustainable credit growth. It is nothing but the same playbook we have successfully executed in Brazil.
Davi: Moving on to Gross Profit, which totaled 1.3 billion in Q1, down 3% sequentially but up 32% year of a year, both again on an effects neutral basis.
Davi: The quarter of a quarter of decline and the corresponding drop in growth profit margins to 40.6% was mainly driven by higher credit loss allowance and increased interest expenses in Brazil.
Davi: This reflects the rise in silly grades, which we have not yet fully reprise across the entire portfolio. Additionally, the expansion of our deposit bases in Mexico and Colombia, while a strategically important investment, has placed short and pressure on margins.
Davi: Youssef will dive deeper into the credit allowance dynamics shortly, but I will give you a preview. It is a seasonal effect and largely in line with prior years.
Davi: Now, let's turn to operating efficiency, in key one, our efficiency ratio improved to 24.7 percent.
Davi: Reflecting a 520 basis points sequential improvement in a 740 basis points improvement year over year.
Davi: The squadron's results include a one-off impact of $47 million from the recognition of DTA credits. Yet, excluding this effect, the efficiency ratio would have been 26.7%.
Davi: Stu at 320 basis points in provement, Quater over Quater, ring force in our position as one of the most efficient players globally.
Davi: Net income reached at $557 million in Q1, up 74% year-over-year on an effects neutral basis.
Davi: As expected, sequential growth was more moderate due to the typical first-quarter seasonality, but we still delivered another quarter of very strong butterline performance.
Davi: This result translated into a 27% annualized rise, even while holding over $4 billion in excess capital across our geos and at the holding company.
Davi: These places new among the most profitable financial institutions in Latin America.
Davi: As we discussed, new banks consolidate the results as we have been doing across this presentation. It can be easy to lose sight of the performance of our digital banking business.
Why? Because all reported results combine three very different realities.
Davi: Number one, a more mature and scaled operations in Brazil. Number two, two high-growth, early-stage markets in Mexico and Colombia where up front investments are too significant.
Davi: and three, a holding company with close to $3 billion in excess capital.
Davi: That's why we are now taking a moment to zoom in on Brazil on a standalone basis!
Davi: It is the best proof point of this strength and scalability of our digital banking model, and it is a good preview of where Mexico and Colombia are headed over time.
Davi: As you look at the evolution of our scale and efficiency in Brazil, the takeaway is clear, the model delivers healthy profitability, even while offering best-in-class customer experience, wider access to financial services and below market pricing.
Davi: And we are just getting started. There's still a long runaway ahead of us.
Davi: With that, I'll hand it over to Youssef to walk you through acid quality and the overall health of our credit portfolio. Thank you.
Youssef Lahrech: Thank you, Lago. Hello, everyone. Starting as usual with NPL trends.
Youssef Lahrech: This quarter, 15 to 90 days in PLs rose by 60 basis points to 4.7%, broadly in line with expectations and slightly below the historical seasonal increase of 70 basis points.
Youssef Lahrech: As for 90 plus NPLs, we saw a 50 basis point of the climb to 6.5% outperforming historical trends.
Youssef Lahrech: This improvement is consistent with the lower early stage delinquency levels we observe in prior quarters, as 90 plus NPLs lag 15 to 90 by 1 to 3 quarters.
Youssef Lahrech: The allowance rose to $973.5 million this quarter, driven by two main factors, one continued portfolio growth, and two seasonal increase in early stage delinquencies we typically see in Q1.
Youssef Lahrech: This dynamic weighed on our risk adjusted name which declined to 8.2% [inaudible]
Speaker Change: Of the 130 basis point reduction, roughly three-quarters stemmed from seasonal effects on CLA, with the remaining impact primarily linked to short-term nymphressures in Mexico and Colombia, as Lago mentioned earlier, reflecting our strategic investment in building local deposit franchises in those two markets. Thank you very much.
Now, turning to our coverage ratios.
Speaker Change: In the left-hand chart, we show the coverage ratio over total balance.
Speaker Change: This metric reflects the historical evolution of our consumer credit portfolio. Over time, as the share of our interest earning portfolio from credit cards increased, and more recently as unfeatured lending, which carries higher risk, gained share, the ratio has trended upwards as expected.
Speaker Change: The most recent uptake also mirrors the increase in credit loss allowance we just discussed, which were driven by portfolio growth and typical first quarter seasonality.
Speaker Change: This ratio highlights the prudence of our risk management approach, which is based on front loading provisions under the expected credit loss model. The higher ratio, here means we're reserved for potential losses down the line, in line with our discipline and forward looking credit to lots of you.
Speaker Change: With that, we'll now open the call up for questions. Thank you.
Speaker Change: 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 answer, you can exit the queue by clicking on put your hand down.
Speaker Change: 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.
Speaker Change: I would like to turn the call over to Mr. Guilherme Soto, Investor Relations Officer.
Youssef Lahrech, Guilherme Lago, Jorg Friedemann
Speaker Change: Thank you, operator. Please open the line for Jorge Kuri from Agaravtali.
Jorge Cury: Hi, everyone. Thanks for the call and congrats on the numbers and thank you also for the additional disclosure. And I actually wanted to ask about the name of Brazil 21.8% new disclosure.
Jorge Cury: It's basically flaps into third order, even though...
Jorge Cury: Seligrates are roughly 200 basis points higher, which increases your funding cost
Jorge Cury: You have gone through the picks reduction, which is very high yielding asset.
Speaker Change: And in general, first quarters are normally seasonally weak for margin. So can you help us understand what's behind the resilience of that Brazil name? And I know you don't provide any guidance, but is it fair to say that? [inaudible]
Speaker Change: The name has really, you know, bottomed and we should see a continued improvement from here. Thank you.
Lago: Hi Jorge, this is Lago. Thanks so much for your question. I think you were referring to those lights 16 in which we provided the disclosures for NIMS for Brazil and NIMS from a consolidated basis.
Lago: In yes, we did see movements in per volume mix, especially as we'll pull back from pigs financing as we increase our exposure to our less risky customers, which would be all else constant to headwind for nymphs.
Lago: We also saw so big going up, which all else constant will be as light headwind for names in the short term, but I think conversely Jorge we did see kind of increases in LDR's long to deposit ratios which
Lago: Somehow offsets those two admins, and therefore we have had kind of a more resilient Mad Interest margins throughout 2024 in the first quarter of 2025.
Lago: Going forward, we do expect that the benefits from balance sheet re-leveraging with increases in LDRs.
Lago: To be the main kind of driver for our expansion of names. And in the medium term, we would expect names to go up, even though we can't necessarily have a high conviction outlook for one quarter here, one quarter there. It's never linear, but we do see upside from where we are today. [inaudible]
Speaker Change: Thank you, Lago. And if I may ask a follow-up question, and it's a clarification, I guess you mentioned that part of the origination of secure loans was impacted because FGTS was not originating for 10 days, is that?
Speaker Change: Ten working days out of the total working days of the quarter, or, you know, how do we think about the magnitude of that impact? In other words, if we, if we, which look at. We, we, we, we, we, we,
Speaker Change: The average origination per day or the origination adjusted for those days.
Speaker Change: You know, the 2.9 billion reais in originations that you did, the quarter would have been...
Speaker Change: Samuachair, again, just assuming a normal, rather than the 10-day loss that you had.
Speaker Change: I think this operation we should have the market had with FGTS probably caused 10% impact in the quarter, so for FGTS so that's no the order of magnitude.
that I would consider for that Jordan.
Alright, thank you and congrats again!
Eduardo Roisman: And our next question comes from Eduardo Rosman, from the PTG Pactual.
Hi, hi everyone, congrats on the numbers.
Eduardo Roisman: I think that I have a question to Davie because a couple of days after the fourth quarter was out, I think this was at the end of February , Davie was part of a podcast, a new cast.
Eduardo Roisman: Where he talked about, you know, a lot of things, but a strong message came from the big excitement about, you know, the lounge of new beyond Lata, right? Then at the end of March we saw the announcement that you were back to day-to-day operations right, taking direct leadership. [inaudible]
Eduardo Roisman: So just trying to understand here, how we can understand that, you know, is it fair to say that maybe Brazil and Mexico are maybe, I know that they are the priorities, but it's fair to say that they are, again, top priorities and maybe going beyond Lata.
Eduardo Roisman: It's a little bit more kind of a delay or should we still expect you know any announcement you know by the end of the year just trying to understand the recent announcements and the message thanks.
Speaker Change: Sure Rosman, thank you for the question. Yes, so Brazil Mexico and Colombia continue to be very much the focus of the company right now as you see in the story. Thank you very much.
Speaker Change: There is a lot to do, even in Brazil, as we continue to monetize this space. [inaudible]
Speaker Change: However, we've always thought that the pieces that we're executing since 2013, which is that
Speaker Change: The future of global consumer banking is of the digital banking market, the digital banking model.
Speaker Change: It's a global thesis. It's not as specific to Brazil, it's not as specific to Mexico.
Speaker Change: Some of the advantages that even Lago mentioned here in this slide where you suddenly have this business model that can grow faster, reach more customers, generate higher return of equity for shareholders and generate higher NPS. [inaudible]
Speaker Change: Proof that his model is the right model to back a very significant percentage of the population. So we are thinking about that now for the next five to ten years. We are thinking about that potential for internationalization.
Speaker Change: We are making progress with a small percentage of our allocation. I'm not ready yet to announce when we'll have more data specifically about what the strategy there is going to be. We did do think that it's going to be a big part of our story over the next five to ten years.
Speaker Change: But for now, I think all I can say is we are very, very focused on...
Speaker Change: District Market, and a lot of the work that we continue to do with improving platforms and improving systems, improving the overall quality that we have in our product. All of that ultimately is going to help out in any potential internationalization via the markets that we operate today. Thank you very much.
Okay, thanks a lot, David. Thank you.
Speaker Change: And our next question comes from Pedro Leduc from Itaú BDA.
Pedro Leduc: Thanks guys for taking my question on on provision expenses and then paying it up.
Speaker Change: with means not historically because have always overcome higher provision expenses by pricing it very adequately. [inaudible]
Speaker Change: Norther specifics in Brazil and Mexico, but when I look at the overall NII, Post Costa Riz, it hasn't slipping a little bit, at risk of just an impact, several quarters now.
Speaker Change: So my question is in respect to this direction going forward, when you think you can adjust or stabilize the overall risk, adjust the names and where do you think is going to come from? Is it going to be lower cost of risk?
Speaker Change: which honestly was the biggest surprise to me, this was the higher cost of risk given that we're underwriting more selective in the last two quarters. So try to reconcile these pieces, one for all. Thank you.
Speaker Change: Yeah, Leduc, thanks so much for your question. Let me try to refer you to a few slides and then I think it will help us tie the story that we have. So if you go to the slide 24, you will see the evolution of our risk of just the net interest margin, which I believe is something that you were alluding to. Thank you.
Speaker Change: Deriska Justin Margin, in the very last quarter, 1st quarter of 2025, had a drop of about 130 basis points. About three-fourths of the drop, three-fourths is entirely seasonal.
Speaker Change: So, every first quarter of every year, especially due to the dynamics in Brazil, as you have seen in the first quarter of 2024, as you have seen in the first quarter of 2023, you do see an increase in CLA and you do see an increase in Costa Frisk in the quarter. [inaudible]
Speaker Change: In fact, if you take a look at the Delta cost of risk,
Speaker Change: In every first quarter of every year, the one in 2025 was by no means higher than the average of what we have experienced over the past three years.
and you can see the cost of risk in 2024. So...
Let's say three-fourths of those was seasonal. [inaudible]
The other one fourth, Leduci.
Speaker Change: was basically the result of the contraction of Niem resulting from the investments that we are
Speaker Change: So it is the way that we are seeing the business now when we put this on a consolidated basis. It is it's harder and harder to have a very accurate perspective off each of the business because you basically have three different pieces.
Speaker Change: You have Brazil which is a more mature, though not yet mature operations. You have Mexico and Colombia which are high growth operations in which we are making a lot of investments. And you have a holding company that is now holding about $3 billion. $3 billion.
Speaker Change: So I think going forward, if you take a look at Brazil specifically, you would expect to see Neem's stable to growing as we re-lovers the balance sheet, and with a very attractive risk of just enlargence.
Speaker Change: That should be largely stable or going up. We do expect to continue to invest in Mexico and Colombia. And the extent to which we're going to make those investments will largely depend on the additional customer engagement and the competitive dynamics that we will have there.
Speaker Change: The final thing that I would say is that in this quarter of Leducia, I think for the first time we provide it.
Speaker Change: Stan Alon, portray of the performance of Brazil. So if you go to his light 21,
Speaker Change: You will see the evolution of no customers, revenues and net income in Brazil and the returns that we have had in Brazil on a standalone basis.
Speaker Change: And you can see that on the right hand side, even when you keep. [inaudible]
Speaker Change: No, nadinterest margins, relatively flat, as we had from 2024 to 2025, you can continue to see returns on equity going up, primarily due to the releveraging of the balance sheet and the operating leverage that we have in our business.
Speaker Change: And in our view, the portrayed that we are offered here on slide 21 serves not only as a reference that the business model works as KO in Brazil, but also paints the direction to which we believe Mexico and Colombia will be going in the future.
It's very complete, Lago. Thank you.
Tito Labarta: and our next question comes from Tito Labarta, from Goldman Sachs.
Tito Labarta: Hi, good evening. Thank you for the call and taking my question.
Tito Labarta: I guess my questions follow up on the just the secured lending overall, you know, very good trends in the quarter despite not being able to originate the STTS loans for those 10 days. But maybe just help us think a little bit more about the...
Tito Labarta: I know you don't have any guidance, but just help us think about how big can a secured ending portfolio.
Tito Labarta: Get for you and how aggressive can you be there in FGTS, public payroll and private payroll just to think about that long term opportunity set for you given it's still very early stages for you.
Tito Labarta: No, I did both. Thanks so much for the question. Look, I'll try to address those three pieces of your questions head on. I would just start by drawing your attention to the slide six in which we provide our most recent view on the profit pool of Brazil.
Tito Labarta: And I think at least it helps me now get some perspective on what is the size of the market?
Tito Labarta: We started with credit cards where we now have 15% market share there. We continue to grow across all of the segments and the second product that we launched was personal loans that you can see on the left hand side of the string, which is the single largest profit pool per se. Thank you very much.
Tito Labarta: We are our customers, if I take the social security numbers of our customers.
Tito Labarta: and take them to the central bank database, they now count for nearly 60% of the profit pool, so that means that...
Tito Labarta: We don't need to fish outside of our fishbill to be able to grow our shares in unsecure person loans by almost 10X. So that's a massive thrill for us.
Tito Labarta: Then you go into payroll loans, which is the one that you explicitly asked. We still have a market share there of less than one percent, and then you go above and beyond the private payroll loan that has recently been launched in which we are extremely excited to be part of.
So if I were to slice your question in three
Tito Labarta: Now, public payroll loans, FGTS and private payroll loans, I would say that in public payroll loans, we are starting to see their encouraging traction there. We grew by 50 percent.
Tito Labarta: But we are nowhere near where we want to be in this product. We are still ramping up our connectivity with...
Tito Labarta: A number of collateral systems. We are citing up collateral agreements with the largest states and municipalities.
Tito Labarta: And as we start to see potentially interest rates drop in in Brazil over the coming quarters, you would expect to see the third ability of public payroll loans to go up.
But that is a product.
That was born kind of offline, it was born through...
Alonbrokers and bank branches originations. [inaudible]
Tito Labarta: So it's harder for us to change the behavior, but the early signs are super encouraging, and we think we will get the air faster than...
Tito Labarta: We originally thought. Now, the interesting thing to do is that when you go into FGTS, which is a product that was already born digital, right? There was no, there was no,
Tito Labarta: It is a product that we have been able to accelerate even faster. We think that in 2024 we accounted for approximately 20 to 25% of the entire originations of FGS in Brazil.
Tito Labarta: In the first two months of 2025, we may have accounted for about 30% of there and growing.
Tito Labarta: So it goes to show that when we are able to pull it at play our low cost advantages, we can have no fairly impactful role there.
Tito Labarta: And in private bureau loans, we don't think it's going to be any different than the FGTS, why?
It's a product that has been born fully digital already! [inaudible]
Tito Labarta: It is a product that we will be able to serve to know a very large number of our customers with a very low cost base with the best UX and UI and with a disruptive price.
Tito Labarta: I don't think there is any special kind of a first mover advantage to try to take a little bit more risk on the collateral structures until it's better tested, but it's certainly a product that we expect to be leaning in very aggressively in the coming quarters and years.
Speaker Change: Great, that's helpful, Lago. If I can just one quick follow up on that. You mentioned that you do not expect any material short-term impact from potentially, I guess maybe refinancing some unsecured loans into the private payroll. Can you give just maybe a little bit more color why you don't seem to think that there should be any impact for you guys on that?
Speaker Change: Because we basically think that the size of the pie, the growth of the size of the pie, will far at weight any potential short-term cannibalization on insecure personal laws, right? And it is the best product for our customers, is the product that we will know.
Speaker Change: putting front of every single customer that can benefit from this. [inaudible]
Speaker Change: and we think that we will be able to grant more credit.
Banner Credit, and to more customers,
then we could otherwise do and this should be...
Speaker Change: No, even a stronger trend than a potential short-term negative impact on unsecure personal
Pedro Leduc: And of course, if you're going back to I think Leduc's question, Chito, on a risk adjusted basis, giving this product is expected to have lower risk, not no risk, but lower risk on a risk adjusted basis, it should also give us a very good, kind of a gross profit going forward.
Berkley, thank you Lago.
Youssef Lahrech, Guilherme Lago, Jorg Friedemann
Speaker Change: Hi everyone, thanks for the opportunity, we've got the result. I have one question on the credit card. When I look for the active car holders in this quarter, it's more expensive, sorry, probably because this product seems to be close to the maturation in Brazil. [inaudible]
Pedro Leduc: But call call call call our attention that there were about nine million per holders in the first few that are active in terms of revenues but not in terms of transactions.
which means about let's say 22% of your car road base.
Speaker Change: This level of clients that are not using the card for neutral transactions is a concern for new. Do you have any strategy to try to reduce this number? And only to connect with this, if they start that you announced the refinance program? No, I don't think so.
Speaker Change: Somehow coding through the number of active users of the car holders.
Youssef Lahrech: Hey, thanks for the question, this is Youssef. Yeah, as you point out, there's always a-
the fair number of credit card customers.
Youssef Lahrech: that are active from the revenue definition standpoint, but not necessarily from a transacting standpoint. A lot of that can be driven just by credit limits constraint. As you know, we tend to be very conservative, especially initially with new customers around how we grant credit limits.
Youssef Lahrech: And so we wait to see both utilization and good risk behavior before we go and expand those credit limits and what we find is when we expand those credit limits, we then see transacting behavior pickup. So that's not a new phenomenon by any stretch.
Okay, thanks, and congratulations for the new division of Guilherme.
Thank you for waiting for the menu.
Youssef Lahrech: De Nugaland, we have two now, but I think we forgot to address one of your questions you asked about the renegotiations.
So we did announce the renegotiations in early...
2nd quarter of 2025 so it has no impact whatsoever.
to our financial statements. [inaudible]
Youssef Lahrech: We do expect it to have a mild positive impact in our financial statements in the coming quarters with higher recovers, the more than that and to your point.
Youssef Lahrech: We do expect to actually see this fostering more activity within some of the credit cards. And thanks for talking to Adam, we are very glad with his acquisition.
and thank you. Thank you, Lago.
Speaker Change: Thanks, Jaggo. And our next question comes from Gustavo Schroden from Syria.
Gustavo Schroden: Hi, good evening, guys, and thanks for taking my question. My question is regarding the depth for an negotiation plan that you announced the last month.
Gustavo Schroden: which is the largest renegotiations campaign from the bank. So my first question, if it is related to Pixfine and Spraud, then it is the idea is to bring customers back to...
Gustavo Schroden: John Eligible Bays for Credit Again, Name It, Increased Credit Regidation, Pete Finez, and if that wouldn't create a more harder effect, putting pressure on the state-of-built of Pete Finez product.
Gustavo Schroden: Gradyna, Vishu Psycho of Acceleration and Deceleration in the product origination in the coming quarters.
Speaker Change: And if you want that, if you could share with us how the program is evolving, giving some continuative metrics on these and what are the main impacts, expecting the balance sheet and the PNL, MFD, Quality Indicators.
Speaker Change: And it's still not clear for me if it shouldn't increase the right of balance, why are discounts through the negative impact it's P&L. Thank you.
Speaker Change: So thanks for the question. So just a few, a few things on this program. As Lago mentioned a minute ago, this is...
Speaker Change: A new program, so I hadn't had any impact on the first quarter. We expected to have a fairly small deposit of impact on the second quarter.
Speaker Change: The way we think about it, this is an opportunity to give some of our customers a fresh start.
Speaker Change: You know, some of those customers may have had, you know, lateness and the link when she, the link when she issues in the past.
Speaker Change: A lot of them have actually managed to resolve their deaths either partially or fully, and so we want to give them an extra incentive to get back on track with their deaths by providing in some instances in a very selective way access to credit again. So for some of them we will...
Speaker Change: Reactivate their cars for some of that we may offer discounts, which are very much in line with discounts we provide in collections, and we have for years now successfully. And it's very carefully designed and carefully tested. Thank you very much.
Speaker Change: To actually avoid any issues of moral hazards, so we tend to exclude people who have shown signs of recidivism, we don't want to get people into cycle of the debt, but the sort of customers that serve us.
Speaker Change: and it's designed carefully to incentivize people paying down their past debts, resolving them. [inaudible]
Speaker Change: and then getting a fresh start. Again, with often very small limits to begin with as part of this fresh start, often with secured deposits acting as a collateral for those new limits.
Speaker Change: and then very gradually increasing those limits over time as we have done very meticulously in the past as we see good repayment behavior. So all of that is...
Speaker Change: Kind of designed to provide, you know, incentives for customers to show, you know, that they can handle the credit again and promote, you know, healthy credit behaviors.
Speaker Change: And then, you know, you are alluded to whether this is related in any way to picks financing, no, it's not in any way picks financing play or anything like that.
Alright, thank you.
Speaker Change: And our next question comes from Mario Pierry, from Bank of America.
Youssef Lahrech, Guilherme Lago, Jorg Friedemann
Speaker Change: Hey guys, good evening. Congratulations on the results. Thanks for taking my question.
Speaker Change: I really wanted to focus on the net interest margin in level you mentioned, right that margins in Brazil
Speaker Change: But, you know, my concern is, it feels like, or the data shows that you're growing a lot more insecure loans.
That should technically have lower margins than unsecured.
When we think about your funding. The funding.
Speaker Change: When we look at the bulk of your funding today is the short maturity, and as you expand into loans over longer duration, I would imagine you have to increase the duration of your funding as well and that there should be a little bit more expensive. Thank you very much.
So, given...
Speaker Change: I can't believe that the margins in Mexico or Colombia are going to be as profitable as these and as you showed right, your margins in Brazil two years ago were like 10% so I would imagine as you're growing into Colombia in Mexico
Speaker Change: Your margins are probably not going to be the same pace as Brazil, so technically we should continue to see margins coming down as the composition of loans in Colombia and Mexico continue to gain. And, um...
Youssef Lahrech: You know, a bigger share of your loans. And finally, you know, when I look, you show this slide, the loan to the [inaudible]
Youssef Lahrech: I think it's one of your slides. I think you're only doing loans to interest, you're doing deposits to interest earning loans and you are consolidating the whole balance of deposits and loans.
Speaker Change: But my understanding is that deposits that you have in Mexico cannot be used in Brazil. So, when I look at just a loan to deposit ratio, not looking at interest earning loans,
Speaker Change: I don't know how they can improve, especially if you have to increase the duration of those deposits. Thank you.
Speaker Change: No, Mario, thanks for the question. Let me try to impact a little bit and go a point by point. If you don't mind, let me talk about Brazil and then I'll talk about Mexico and Colombia and then we can try to...
Speaker Change: to pull everything together. So I think in Brazil, I don't think that, as you corrected, pointed out, that cost of funding has a lot of room to improve from where it is today. So we don't expect even though we have...
Speaker Change: with lots of funding in Brazil. We don't expect that we will aggressively lower our cost of funding. We want to be the...
Speaker Change: The Place where no all residents receive payments, make payments, the store value, so we want to be very competitive there. And yes, you are correct.
Speaker Change: that as we grow the duration of our assets, so too we will have to grow the duration of our liabilities going forward and that would actually kind of if anything increase a little bit the cost of funding that we would have.
Speaker Change: Having said that, I think first we still have plenty of deposits within our Brazilian franchise.
Speaker Change: And we still have a lot of medium to long-term funding from retail deposits in Brazil that is already embedded in our today's cost of funding and that in itself already enables us.
Speaker Change: to increase in a fairly decent amount the size of our secure loan book.
Speaker Change: Remember that our unsecure loan book and our credit card book are very short dated and can be adequately funded without any massive increases in the duration of our liabilities.
Speaker Change: So, why did I say that net interest margins in Brazil are expected to remain as they are and in the mid- and long term increase?
Speaker Change: is because of the relaveraging of the balance sheet. So as our long-to-deposit ratio in Brazil continues to go up
Speaker Change: By which I mean, our kind of a long book will continue to outpace our deposits, we believe that the increasing relaverging of the balance sheet will be a fairly relevant pay-win for our net interest margins in the conference.
Speaker Change: Having said that, just wanted to, I know that you have a full appreciation of that, I would just wanted to highlight this mighty witch's.
Speaker Change: Devolution of our net interest margins in Brazil, even if they stay flat.
Speaker Change: for Illustration Purpose Only. We can still materially increase the profitability of the business through Operating Leverage.
Speaker Change: So, as we have seen, the Volutions of Cat can cost the surf. [inaudible]
Speaker Change: But I wanted to address your question, head on, on Net Interest Marges from Brazil. Now let's go to Net Interest Marges for Mexico and Colombia.
Speaker Change: Yes, I think in Mexico, in the next few quarters, very likely the net interest margin there will be much tighter than they are in Brazil until we continue to grow and optimize our cost of funding and are long to deposit ratio in the country.
Speaker Change: Almost the same way that we did, as you may recall, Mario in Brazil, about three and a half to four years ago, in which we optimized the funding when we thought that timing was right from a competitive and customer value
Speaker Change: We do expect to do so in Mexico and Colombia at some point in time, not necessarily in the next few quarters, and at the point in time, we do expect the profitability.
Speaker Change: of Mexico to converse towards Brazil. I think Mexico's unit economics of our core products, namely credit cards and lending.
Speaker Change: Are as compelling as not more attractive than the ones in Brazil? So I wouldn't necessarily discard the scenario in which the possibility of Mexico can...
Speaker Change: No meat if not exceed that a Brazil, I think Colombia has no a more a more tighter kind of [inaudible]
Speaker Change: Nim, that I think the profitability there will likely be lower than in Mexico, but it's still a head-off all work, and a 5th, minimal 30% or a week threshold.
Speaker Change: Clear, Lago, but when you talk about profitability in Mexico being higher than in Brazil, you talking about the ROE or you talking about the net interest margin.
Speaker Change: I'm talking about the ROA and the ROE, both. I'm not talking about the net interest march.
Thank you.
Okay, thank you.
Youssef Lahrech,
Speaker Change: And our next question comes from you Fernandes from JP Morgan.
Yuri Fernandez: Hello, good evening and thank you for the opportunity of asking questions and also wishing good luck to both of you here.
Yuri Fernandez: I have a question on cost of risk, I follow up, and is there a question regarding page 2, the coverage of stage 2?
Yuri Fernandez: So, it is clear, like, first two seasonals, we have 15-90 days, you also had the higher origination.
Yuri Fernandez: But when we go to the stage of tune in particular to their relatively trigger...
Speaker Change: We note an increase this part on your coverage, used to have, I don't know, high teens, 20% coverage on stage
for your relative trigger. Thank you.
Speaker Change: and this part where you build a little bit of more covers.
Speaker Change: So just checking, you know, why is, you know, during, why Nubank's doing more covered for Stage 2, if you're seeing, you know, a little bit of more risk in that, in that bucket.
Speaker Change: Or for just equal servities, and whenever your cost of risk normalize after the first use of anality, we could see some buffer for your cost of risk to move down. Thank you.
Youssef Lahrech: Hi, Yuri, thanks for the questions, as you said. So yeah, you're correct in your observation. So there's two things going on with stage two, as you know.
Youssef Lahrech: One is just the normal seasonality we see in the first quarter, stage two closely correlates to early stage delinquencies and those tend to peak in the first quarter so there's that one effect. And then there's another effect beyond that which has to do with
Youssef Lahrech: The Relative Trigger, both in magnitude and in coverage ratio. What we do, Yuri, from time to time, we will recalibrate those triggers in our provision model. We've done such a recalibration in the first quarter.
So we've updated the criteria. Yeah.
for
and the rest of the criteria for to enter stage two. [inaudible]
Youssef Lahrech: and it resulted in two things. One is a slight increase in the coverage ratio for that component of stage two, and you will notice at the same time a slight decrease.
in the coverage of Stage 1. .
Youssef Lahrech: of both stage one plus stage two. The aggregate is a little increased by a little bit by about 5% or so. And we think some of some of that recalibration is just to pull forward of loans we would have classified as stage two later on in the future so there's a bit of a one time effect there.
Youssef Lahrech: No, that's super clear to us as any did. We saw the total coverage, like considering all stages, has been moving up especially for credit cards.
Speaker Change: If I may a very quickly one, unrelated follow-up, just an accounting uncertainty I have here.
Youssef Lahrech: On the 47th meet in the TA, given these are the TA, these are already post-taxes, or should we think on these on net taxes for your net income for the quarter?
Speaker Change: No, you should think about this as a post-tax basis already, Yuri.
Speaker Change: Oh, super clear. Thank you, Lago, and congrats on the margins showing signs of stabilization here. Thank you.
Thank you all.
Speaker Change: So, thank you everyone, we now have approached six minutes off the call, so we are now concluding today's call. On behalf of new holdings in our Vector Relations team, I want to thank you very much for your time and participation in our nurse's call today.
Speaker Change: Over the coming days, we will be falling off with questions received tonight. What we are not able to answer. And please do not hesitate to reach out to our team if you have any further questions. Thank you and have a good night.