Nubank Defends Lending Practices as Late Payments Jump

Lending practices at Brazil’s Nubank reportedly have Wall Street analysts uneasy.

As Bloomberg News reported Thursday (Sept. 5), the lender — Latin America’s largest — is enjoying rapid growth, with around 60% of Brazilian adults using its app and its stock up 109% over the past year.

However, the report adds, there is a growing number of skeptics who are puzzled by Nubank’s popularity, finding its approach to lending troubling.

The bank reported last month that non-performing loans of 90 days or more reached a record 7% during the second quarter, while also lowering provisions for bad debts to $760 million from $831 million three months earlier.

According to Bloomberg, late payments for 90 days or more are now substantially higher than the 5.5% average for the banking sector calculated by Brazil’s central bank.

While Nubank doesn’t break down non-performing loan or credit data by country — it does business in Brazil, Mexico and Colombia — Bloomberg notes that 90% of its customers are in Brazil.

“The discussion on credit quality made us decide to follow this from a little further away,” Fernando Fontoura, a portfolio manager at Persevera Asset Management in Sao Paulo, told Bloomberg.

In June, Persevera sold the entirety of its Nubank shares it held as the position became “crowded,” said Fontoura. The Bloomberg report notes that JPMorgan Chase UBS reduced their recommendations on the company to neutral in July, due to worsening asset quality.

Executives have defended the pace of lending growth, with Chief Operating Officer Youssef Lahrech saying in an earnings call that the bank prioritizes long-term strategies over “short-term non-performing loan metrics.”

And the bank’s press office told Bloomberg that concerns about Nubank’s performance are not the Wall Street consensus, pointing the news outlet to the strategy outlined on its earnings calls in lieu of additional comment.

Reached for comment by PYMNTS, Nubank pushed back against aspects of the Bloomberg report, arguing that the news outlet references reports based on Brazilian Central Bank data using a different loss provision methodology than the one Nubank employs.

A bank spokesperson added that Nubank’s credit philosophy prioritizes decisions that optimize its credit cohorts’ long-term net present value (NPV) instead of short-term non-performing Loan (NPL) metrics.

“When Nubank identifies an asset class or customer segment with compelling risk-adjusted returns that also encourages responsible customer behavior, the company actively pursues growth in these areas,” the spokesperson said. “This strategy has yielded increased revenue and greater resilience that are more than offsetting the higher delinquency rates that come with it.”

Nubank announced in May that it had amassed more than 100 million customers, saying it was the first digital banking platform to reach this milestone outside of Asia. At the time, the bank said it had more than 92 million customers in its home country, upwards of 7 million in Mexico and nearly 1 million in Colombia.

“In 2013, we had set ourselves the ambitious goal to reach 1 million customers in five years, which seemed almost impossible at the time,” Nubank founder and CEO David Vélez said in a news release. “In a decade, we have surpassed 100 million, which is a testament to the trust our customers place in us and to the power of a truly customer-centric business model.”