S&P Assigns Nu BB- International Rating, Highlights Strong Growth and Better Efficiency

The rating is the same given to Brazil sovereign and incumbent financial institutions in the country

S&P Global Ratings assigned a BB- international rating to Nu Financeira and Nu Holdings. The main drivers for the decision were the growth prospects supported by an expanding customer base (85 million customers in Latin America as of July 2023), the company's solid capital structure (Basel Index of 20.2% in Brazil in Q2'23), and efficiency rate.

S&P is one of the most relevant credit rating agencies worldwide, and its evaluation reflects companies' capability to meet their financial obligations on time. It reflects trustworthiness and reputation by assessing the current solidity and future expectations of the entities.

"The rating on Nubank reflects an improvement of its financial metrics thanks to strong growth and better efficiency. In September 2022, Nubank achieved breakeven at the holding level and has been reporting stronger results since then," states the S&P report.

"S&P's rating is a statement of our long-term vision, a reinforcement that our business model is solid and on the right path. Currently one in every two Brazilian adults is a customer, so we see a large avenue of growth within our own base. There is great potential in gaining principality and further strengthening our position, as Nu's market share in many of the verticals we operate is still minimal compared to incumbents," says David Vélez, Nu's founder and CEO.

Consistent growth

Nu currently serves over 85 million customers in Latin America and has been reporting stronger results each quarter, with net income reaching US$225 million and revenues at US$1.9 billion in Q2'23. While revenues grew 5x in just two years, the customer base doubled in the same period, and monetization is ever-improving, with ARPAC (Monthly Average Revenue per Active Customer) surpassing US$9 for the first time.

In the report, S&P stresses Nu's increasing financial margin, stronger operational efficiency, and better capacity to manage expenses with credit provisions, despite increasing risks in the sector since 2022.

"We expect that the entity will continue improving its financial performance through its sticky and large customer base and through the gradual diversification of revenue sources. We expect results to improve during 2023 and 2024. Moreover, we expect Nubank to remain a leading digital nonbank financial company in Brazil, without compromising the quality of its assets and capital metrics," state the analysts.

Growing funding base

Nu's funding through deposits has been a growing strength, supported by an expanding customer base. With the launch of Cuenta Nu in Mexico this year, and the expected launch of the savings account product also in Colombia, the company is further amplifying its deposit base internationally.

Responsible, secured credit has also been a growing source of funding. Recent launches include options such as payroll loans for public servants in Brazil (NuConsignado) and FGTS-backed loans for formal workers in the country. While the former is a way for government employees to secure loans through direct payment from their salaries, the latter allows formal workers to use the money from a mandatory savings fund (FGTS) sponsored by employers to back their loans at Nu.

Both products offer competitive rates for customers, as Nu's fully digital and efficient operation allows it to keep operational costs ~85% lower than incumbent institutions and consequently charge less from the final consumer. NuConsignado, for example, helped increase competitiveness in the market by offering the lowest interest rate in this type of loan, according to data from the Brazilian Central Bank.

Additionally, Nu's products remove complexity from otherwise bureaucratic options and contribute to Nu's responsible credit philosophy. The company's credit portfolio has also expanded internationally with the recent launch of personal lending in Mexico.

Nu's successful lending strategy at a holding level is supported by its large customer portfolio, best-in-class credit underwriting platform, strong capital base, and ample liquidity position. In Q2'23, the company registered a US$2.8 billion lending portfolio, which represents a 33% increase year over year, on an FX-neutral basis, with cohorts continuously performing better than expected.

brAA+ rating in Brazil

In June, S&P upgraded Nu Financeira's local rating in Brazil from brAA to brAA+ with a stable outlook. Among solid and improving financial and operational results, the agency highlighted Nu's efficiency ratio at 39%. The metric has since improved to 35% in Q2'23, reinforcing the company's standing among the most efficient players in Latin America.

About Nu

Nu is one of the world's largest digital financial services platforms, around 85 million customers across Brazil, Mexico and Colombia. As one of the leading technology companies in the world, Nu leverages proprietary technologies and innovative business practices to create new financial solutions and experiences for individuals and SMEs that are simple, intuitive, convenient, low-cost, empowering and human. Guided by a mission to fight complexity and empower people, Nu is fostering the access to financial services across Latin America, connecting profit and purpose to create value for its stakeholders and have a positive impact on the communities it serves. For more information, please visit www.nubank.com.br

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