Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Nu Holdings Ltd (NYSE:NU) experienced significant customer growth, reaching over 114 million customers with 20.4 million net additions in 2024.
• The company saw a 55% increase in total deposits, reaching $28.9 billion, bolstering its liquidity position.
• Revenues grew by 58% year over year on an FX neutral basis, driven by sustained growth in active customer base and strong ARPU levels.
• Net income doubled from 2023, closing at nearly $2 billion with an annualized return on equity of 28%, placing NU among the most profitable financial institutions globally.
• The efficiency ratio improved, dropping below the 30% mark to 29.9%, making NU one of the most efficient global financial services platforms.

Negative Points

• The net interest margin contracted by 70 basis points to 17.7%, primarily due to lower credit yields and increased funding costs.
• The company's loan to deposit ratio remains low at below 40%, indicating potential inefficiencies in balance sheet optimization.
• There is a deliberate deceleration in the expansion of certain financing products due to concerns over second-order impacts on customer engagement and NPS.
• The rapid growth in new geographies like Mexico and Colombia has initially attracted customers with lower ARPU levels, impacting consolidated activity rates.
• Despite strong growth, the company faces challenges in maintaining profitability in new markets due to higher funding costs and competitive pressures.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with AMGRF.

Q: Can you clarify what "not expanding peaks in the short term" means? Does it refer to not expanding as a percentage of the portfolio or in absolute terms? A: (CFO) It means not growing peaks financing as a percentage of the overall portfolio, not in absolute terms. Peaks financing should continue to expand in line with the overall expansion of our credit card portfolio in Brazil. We reduced eligibility growth to address some deterioration in second-order impacts related to NPS, churn, and engagement. We are working on improvements and expect to resume growth in percentage terms over the coming quarters, but it may not happen in the next one or two quarters.

Q: Can you help us understand the different moving parts affecting your risk-adjusted net interest margin (NIM)? A: (CFO) Our NIM dropped by about 70 basis points, primarily due to FX translation differences, which accounted for about 44-45% of the contraction. The remaining 55% was due to a drop in yields in our credit portfolio in Brazil and increased funding costs from deposit growth in Mexico and Colombia. For risk-adjusted NIM, we saw a 10 basis point improvement in cost of risk. We believe balance sheet optimization will drive future NIM expansion.

Q: How do you view the growth opportunity for secured lending, especially in a challenging macro environment in Brazil? A: (CFO) We are excited about the growth of our secured lending portfolio, which includes public payroll loans, FGTS, and investment bank loans. We expect acceleration in originations and loan portfolio growth throughout 2025, supported by new collateral agreements and product parity with the market. Secured lending is profitable and resilient, and we see it as a strategic asset class that enhances primary banking relationships and engagement.

Q: With the current macroeconomic environment, are you concerned about potential adverse selection in your credit growth strategy? A: (COO) We are always concerned about macro factors and underwrite loans with the assumption that the future will be worse than the past. Our underwriting framework is designed to withstand negative cycles, and we have a battle-tested portfolio. We remain confident in our ability to grow in both good and bad parts of the cycle, and we adjust provisioning to reflect worsened forecasts.

Q: What are your plans for becoming a global digital bank, and what does this mean for expenses in 2025? A: (CEO) We are building a technology platform to support global expansion, but for 2025, there won't be a significant change in expenses. Our focus remains on Brazil, Mexico, and Colombia, which account for over 90% of our efforts. Internationalization is a multi-year effort, and we are investing a small percentage of our capacity to prepare for future growth opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.