Nubank sees Brazil crisis as chance to grow

RIO DE JANEIRO, BRAZIL – The fintech debuted on the New York Stock Exchange less than 2 months ago as Latin America’s most valuable financial institution, at US$52 billion. Although its shares have slumped since then, Velez said the company – whose 48 million clients make it one of the world’s largest digital banks and which recently expanded in Mexico – is well-positioned to grow.

Velez said he expects the ratio of nonperforming loans (NPL) to rise this year as Brazilian consumers struggle with high inflation, rising interest rates and a sluggish economy.

But he sees Nubank keeping its NPL ratios below the market average due to its advanced use of data for underwriting policies. Nubank’s 90-day default ratio for credit cards stands at 3.3%, while the industry average is 4.8%.

The riskier outlook may be an opportunity for faster growth at Nubank, Velez said Tuesday. Funded with retail deposits, Nubank does not depend on credit markets and has a large cash position since its US$2.6 billion initial public offering (IPO) in December.

“We might actually have an opportunity to accelerate and take even more [market] share and leave interest rates even lower to make our products much more competitive,” Velez said. The short duration of the bank’s credit portfolio – 6 weeks for credit card loans and 4-6 months for personal credit – also allows better risk assessment, he said.

Expanding Nubank’s credit portfolio is seen by analysts as the key to reaching profitability. According to Morgan Stanley estimates in a recent report, Nubank obtains less than R$200 (US$37.67) in annual revenue from each active client, whereas its largest rival, Itaú Unibanco gets over R$1,200.

The most profitable credit products for retail banks are mortgages, followed by payroll loans and personal loans, according to Morgan Stanley.

Nubank is considering ways to start offering payroll loans, and also plans to expand home equity and auto equity credit lines offered by partner Creditas to its clients.

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