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NuBank, South American's largest digital bank was recently mentioned by a VB in the IFast thread and it pipped my interest.
I had been going through The Compounder Fund's holdings recently and came across their write-up below. It is a good introductory read-up on NuBank:
Compounder Fund: Nu Holdings Investment Thesis - 24 Jul 2024
https://compounderfund.com/compounder-fu...nt-thesis/
Excerpts in italics from its 1H24 results (which VBs should be familiar with when we look at banks)
Nu continued to drive increased profitability and posted a Net Income for Q2’24 of $487 million and an annualized ROE of 28%
The company’s efficiency ratio improved 10 basis points QoQ to 32% during Q2’24, and over 340 basis points YoY, positioning Nu as one of the most efficient financial services companies globally.
in Brazil, consumer credit portfolio’s 15-90 NPL ratio decreased to 4.5%, slightly more than historical seasonality. The 90+ NPL ratio increased to 7%, in line with expectations. The 70 basis point increase in 90+NPL in this quarter is simply a reflection of the 90 basis point, mostly seasonal increase in 15-90 NPL we saw last quarter.
Net interest income: NII surged by 77% YoY FXN reaching another record high of $1.7 billion, driven by our expanding credit card and lending portfolios. The net interest margin (NIM) reached 19.8%, an increase of 30 basis points from last quarter and 150 basis points from a year ago.
1H24 results
https://international.nubank.com.br/comp...l-results/
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A digital bank is supposed to be low cost and NuBank's 32% cost-to-income is head and shoulders over the Spore's Big3 (themselves doing at ~40-45%). Matter of fact, NuBank is even better than the best in class, Msia Public Bank's 33-35% and may continue to improve as it scales up.
NuBank's annualized ROE of 28% and NIM=19.8%, coupled with a NPL ratio of 4.5% looks incredible. Maybe this is why as of this date, Nu Holdings is priced at ~10x P/B.
In general, less developed countries have higher NIMs (eg. Indonesia commercial banks have ~4-5% NIM). Also, those borrowers on fringes - less-served due to their higher risk profile/unsecured status - also have higher NIM (eg. Aeon Credit Service in Msia has 10-11% NIM).
In the Compounder Fund's writeup, they had mentioned that Mgt's approach to lending is not to minimise NPLs, but to maximise the value of the loans Nu Holdings underwrites......I thought this should get any bank's OPMI really nervous. But of course, what does an old fogie like me knows?
I had been going through The Compounder Fund's holdings recently and came across their write-up below. It is a good introductory read-up on NuBank:
Compounder Fund: Nu Holdings Investment Thesis - 24 Jul 2024
https://compounderfund.com/compounder-fu...nt-thesis/
Excerpts in italics from its 1H24 results (which VBs should be familiar with when we look at banks)
Nu continued to drive increased profitability and posted a Net Income for Q2’24 of $487 million and an annualized ROE of 28%
The company’s efficiency ratio improved 10 basis points QoQ to 32% during Q2’24, and over 340 basis points YoY, positioning Nu as one of the most efficient financial services companies globally.
in Brazil, consumer credit portfolio’s 15-90 NPL ratio decreased to 4.5%, slightly more than historical seasonality. The 90+ NPL ratio increased to 7%, in line with expectations. The 70 basis point increase in 90+NPL in this quarter is simply a reflection of the 90 basis point, mostly seasonal increase in 15-90 NPL we saw last quarter.
Net interest income: NII surged by 77% YoY FXN reaching another record high of $1.7 billion, driven by our expanding credit card and lending portfolios. The net interest margin (NIM) reached 19.8%, an increase of 30 basis points from last quarter and 150 basis points from a year ago.
1H24 results
https://international.nubank.com.br/comp...l-results/
------------------------------
A digital bank is supposed to be low cost and NuBank's 32% cost-to-income is head and shoulders over the Spore's Big3 (themselves doing at ~40-45%). Matter of fact, NuBank is even better than the best in class, Msia Public Bank's 33-35% and may continue to improve as it scales up.
NuBank's annualized ROE of 28% and NIM=19.8%, coupled with a NPL ratio of 4.5% looks incredible. Maybe this is why as of this date, Nu Holdings is priced at ~10x P/B.
In general, less developed countries have higher NIMs (eg. Indonesia commercial banks have ~4-5% NIM). Also, those borrowers on fringes - less-served due to their higher risk profile/unsecured status - also have higher NIM (eg. Aeon Credit Service in Msia has 10-11% NIM).In the Compounder Fund's writeup, they had mentioned that Mgt's approach to lending is not to minimise NPLs, but to maximise the value of the loans Nu Holdings underwrites......I thought this should get any bank's OPMI really nervous. But of course, what does an old fogie like me knows?