Brazil’s Nubank is the momentum story in global banking. In 2023, the bank added 19 million clients (to a total of 93.9 million), and it now can claim to bank 53% of the adult population of Brazil. It is also now seeing a positive operating leverage effect from the growth in its client base. In the fourth quarter of 2023, it recorded revenue of $2.4 billion (Nubank is listed on the NYSE and all its earnings are reported in dollars), which was up 57% on an annual basis. Net income jumped 489% to $360.9 million, with a return on equity of 23%.
The bank, led by chief executive and founder David Velez, says that it differentiates itself from the raft of neobanks by its ability to embrace credit. Credit accounts for 70% of the profit pool of the industry. He argues that if banks want to play in Brazilian financial services and are unable or unwilling to play in credit, they are completely removed from 70% of the total profit pool of $113.2 billion. Of that credit pool, most of the profits are generated by unsecured credit products, with 17% coming from credit card operations, 17.9% from unsecured personal loans and a further 11% from unsecured loans to small and medium-sized enterprises.
In 2023, Nubank’s credit cards and personal loan portfolios both saw exceptionally strong growth, with the former’s annual growth of 44% eclipsed by the latter’s 76%, albeit from a smaller base. Secured loans comprise 90% of the personal loan portfolio. The bank’s risk-adjusted net interest margin improved to 10.2% in the final quarter, up from 9% in the third quarter of 2023.
Nubank also has a differentiated approach to credit risk management. The bank doesn’t try to time the market or judge where the country is in a credit cycle. Instead Nubank assumes that, for the purposes of credit underwriting, the macroeconomic context will deteriorate in the future and therefore every single cohort that it underwrites has to be able to withstand a recession.
The approach appears to have worked. The slow buildup of internal credit underwriting processes – with new clients extended small amounts and then their limits increased over time with better data – is compensated by the high interest rates charged in the market. Nubank’s most recent non-performing loan ratio – its blended rate – is higher than the market average at 6.1%. But this is still a very profitable business.
In 2023, Nubank added 19 million clients (to a total of 93.9 million) and now can claim to bank 53% of the adult population of Brazil
Nubank’s ability to turn 83% of its users into active users has been impressive and the bank cites its high net promoter score and the growth of the brand as reasons for this engagement. According to Nubank’s fourth-quarter results, 61% of its customers are primary customers – a huge total. A recent UBS report found that Nubank has been consistently gaining market share in monthly average users and, in February 2024, had a 25% market share in the usage of all financial apps in the country. The closest competitors were incumbents Bradesco and Itaú, both on 10.1%. That 15-percentage point differential is only set to rise as Nubank grows its market share – by 130 basis points since December 2023.
Nubank is now growing strongly in Mexico and Colombia, where it has about five million and 800,000 customers respectively, and the bank is evolving into a truly regional entity.
