Nu Holdings Ltd. Q1 FY2025 earnings call

Customer Growth

• Kicked off 2025 with strong momentum, adding 4.3 million customers in Q1, totaling 119 million across markets, including 105 million in Brazil, 11 million in Mexico, and over 3 million in Colombia. Monthly active customers reached nearly 100 million with an activity ratio above 83%.

Market Situations

• Brazil: Most scale and mature market, ~60% of adult population are customers, 85% are active, ~60% use NU as primary bank with over 30% share of principality but gross profit market share just 5%. Recent credit model upgrades including AI capabilities enable responsible credit access expansion.
• Mexico: Latin America's second largest banking market with underpenetration. Customer base grew 70% in past four quarters, deposits more than doubled on an FX neutral basis exceeding $5 billion, credit portfolio grew 60% FX neutral to nearly $1 billion, revenues nearly doubled FX neutral to $245 million last quarter, and was approved for a banking license.
• Colombia: Crossed 3 million customers last month.

Operational Leverage

• Average revenue per active customer (ARPAC) can grow significantly as product usage deepens and cross-sell increases. Cost to serve remains below $1 per customer, having declined by over 80% in past years due to scale efficiencies, process automation, and technology investment.

Credit Portfolio

• Credit card growth was seasonally softer in Q1 but lending products, both unsecured and secured, continued to grow faster. Total loan originations reached a record of R$20.2 billion in Q1, up 64% year over year, with unsecured loans as the main driver. Secured lending was temporarily impacted by FGTS loan API disruption but public payroll loans grew over 50% quarter over quarter. Private payroll loans in Brazil present a unique growth opportunity. Deposits growth driven by Mexico and Colombia, with investments in deposit franchises in these markets to fund credit and power credit underwriting models.

In the first quarter of 2025, NU Holdings achieved strong customer growth. It added 4.3 million customers, reaching a total of 119 million across markets. Brazil had 105 million customers, Mexico 11 million, and Colombia over 3 million. Monthly active customers reached nearly 100 million with an activity ratio above 83%. The credit portfolio reached $24.1 billion in Q1, growing 8% quarter over quarter and 40% year over year on an FX neutral basis. Total deposits reached $31.6 billion in Q1, up 48% year over year and 1% quarter over quarter on an FX-neutral basis, with growth driven by Mexico and Colombia while Brazil saw a modest 1% decline but outperformed Q1 seasonality.

NIM Expectation

• In Brazil, expects net interest margins to rise in the medium term due to balance sheet re-leveraging. For Mexico and Colombia, while short-term investments in deposit franchises impact margins, long-term看好 their business development. ### Market Expansion
• Continues to invest proactively in Brazil, Mexico, and Colombia to seize growth opportunities in large underpenetrated markets, with internationalization seen as a potential in the next five to ten years but currently focused on the three key markets.

Credit Risks

• First quarter saw seasonal increase in early-stage delinquencies, impacting risk-adjusted NIM. ### Investment Risks
• Short-term pressure on margins due to investments in deposit franchises in Mexico and Colombia. ### Model and Market Risks
• Credit model adjustments and market dynamics may bring risks, such as potential recidivism in debt renegotiation plans if not carefully designed.

Q: How is the resilience of Brazil's NIM and future expectations?

A: Brazil's NIM is affected by portfolio mix and SELIC rate rise, but the increase in loan to deposit ratio is expected to drive expansion of NIM, with medium-term expectation of rise.

Q: What is the magnitude of the impact of the 10-day impact on FGTS loan origination?

A: This operational issue had about a 10% impact on FGTS business in the quarter.

Q: Priorities in Brazil and Mexico and internationalization?

A: Brazil, Mexico, and Colombia are current focuses, and internationalization is a potential in the next five to ten years but currently focused on developing these three markets.

Q: Stabilization of risk-adjusted net interest margin and its source?

A: About three-fourths of the decline is seasonal, and one-fourth is due to margin contraction from deposit investments in Mexico and Colombia; in Brazil, net interest margin is expected to rise with balance sheet re-leveraging.

Q: Long-term opportunities of secured lending portfolio?

A: Secured lending in Brazil has large market potential, with low market share in areas like public payroll loans, FGTS, and private payroll loans, presenting huge growth opportunities.

Q: Strategy for non-transacting credit card customers?

A: Partly due to credit limit constraints, and expanding credit limits can promote transacting behavior.

Q: Impact of the debt renegotiation plan?

A: This plan had no impact on Q1, expected to have a small positive impact in Q2, carefully designed to avoid moral hazard and incentivize good repayment behavior.

Q: Brazil's net interest margin, funding cost, and loan to deposit ratio?

A: Brazil's funding cost has limited room to improve, but balance sheet re-leveraging is expected to drive net interest margin rise; Mexico and Colombia's net interest margin is expected to converge to Brazil's in the future.

Q: Coverage of Stage 2?

A: Stage 2 is affected by seasonality and provision model recalibration, with part of the coverage ratio adjusted, and about three-fourths of the decline in risk-adjusted net interest margin being seasonal.

Q: Tax situation of DTA?

A: DTA is already on a post-tax basis.