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Q & A Highlights

Q: Can you explain the resilience of Brazil's Net Interest Margin (NIM) despite higher Selic rates and seasonal weaknesses? A: Guilherme Lago, Chief Financial Officer, explained that despite headwinds from higher Selic rates and a pullback from PIX financing, the resilience in Brazil's NIM is due to increased loan-to-deposit ratios (LDRs). This balance sheet re-leveraging is expected to drive NIM expansion in the medium term, although short-term fluctuations may occur.

Q: How did the FGTS loan API disruption impact loan originations, and what was the magnitude of this impact? A: Guilherme Lago noted that the FGTS loan API disruption caused a 10% impact on the quarter's FGTS originations. This operational issue affected the market for about 10 days, impacting the overall origination volumes.

Q: Is the focus on Brazil and Mexico a shift in strategy, and what is the status of international expansion beyond Latin America? A: David Osorno, CEO, confirmed that Brazil, Mexico, and Colombia remain the primary focus due to significant growth opportunities. While international expansion is considered a long-term strategy, the current emphasis is on strengthening operations in these key markets.

Q: How do you plan to stabilize risk-adjusted NIMs given the higher cost of risk observed this quarter? A: Guilherme Lago explained that the drop in risk-adjusted NIMs was largely seasonal, with three-fourths of the decline due to typical first-quarter effects. The remaining impact was from investments in Mexico and Colombia. He emphasized that Brazil's NIMs are expected to remain stable or grow as the balance sheet re-leverages.

Q: What is the long-term potential for secured lending, and how aggressive can Nu Holdings be in this area? A: Guilherme Lago highlighted the significant growth potential in secured lending, particularly in public and private payroll loans. The company is optimistic about leveraging its digital model to capture market share, with FGTS and private payroll loans expected to drive substantial growth.

Q: How does the debt renegotiation plan, Recomeco, impact PIX financing and overall credit origination? A: Youssef Lahrech, President and COO, clarified that the Recomeco program is not directly related to PIX financing. It aims to provide customers with a fresh start by offering selective credit access and discounts, designed to promote healthy credit behaviors without creating a moral hazard.

Q: What are the expectations for net interest margins in Mexico and Colombia compared to Brazil? A: Guilherme Lago stated that while Mexico and Colombia currently have tighter NIMs, the profitability in these markets is expected to converge towards Brazil's levels as the company optimizes funding and loan-to-deposit ratios. Mexico's unit economics are particularly promising.

Q: Why did Nu Holdings increase coverage for Stage 2 loans, and what does this indicate about risk management? A: Youssef Lahrech explained that the increase in Stage 2 coverage was due to a recalibration of provision model triggers, reflecting a proactive approach to risk management. This adjustment is seen as a one-time effect, pulling forward loans that would have been classified as Stage 2 later.

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

This article first appeared on GuruFocus.