Nu Holdings Ltd.

Good afternoon, ladies and gentlemen. Welcome to NU Holdings' conference call to discuss the results for the fourth quarter 2023. A slide presentation accompanies today's webcast, which is available on NU's investor relations website, www.investors.nu in English and www.investidores.nu in Portuguese. This conference is being recorded and the replay can also be accessed on the company's IR website. This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Mute Original Audio. Please be advised that all participants will be in listen-only mode. You may submit online questions at any time today using the Q&A box on the webcast. I would now like to turn the call over to Mr. Jörg Friedemann, Investor Relations Officer at New Holdings. Mr. Friedman, you may proceed.

Thank you very much, operator, and thank you all for joining our earnings call today. If you have not seen our earnings release, a copy is posted in the results center section of our investor relations website. With me on today's call are Davi Veles, our Founder, Chief Executive Officer and Chairman, Youssef Larache, our President and Chief Operating Officer, Guilherme Lago, our Chief Financial Officer, and Jack Dougal, our Chief Product Officer. Throughout this conference call, we will be presenting non-IFRS financial information, including adjusted net income. These are important financial measures for new, but are not financial measures as defined by IFRS and may not be comparable to similar measures from other companies. Reconciliations of our known IFRS financial information to the IFRS financial information are available in our earnings press release. Unless noted otherwise, all growth rates are on a year-over-year effects neutral basis. I would also like to remind everyone that today's discussion might include forward-looking statements, which are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties and could cause actual results to differ materially from our expectations. Please refer to the forward-looking statements disclosure in our earnings release. Today, our founder, chairman, and CEO, David Vélez, will discuss the main highlights of our fourth quarter 2023 results and provide an overview of our company priorities for 2024. Subsequently, Guilherme Lago, our CFO, and Youssef Larache, our President and COO, will take you through our financial and operating performance for the quarter, after which time we will be happy to take your questions. Now, I'd like to turn the call over to Davi. Davi, please go ahead.

Thank you, Jorge.

Good evening, everyone, and thank you again for being with us today. Q4 2023 marks our second year as a publicly listed company and our 10th year since our foundation. Our mission, dedicated to fighting complexity and empowering people, continues to gain strong momentum, now serving nearly 100 million people in Brazil, Mexico, and Colombia. Meanwhile, our business model anchored in three fundamental principles. Fast customer expansion, expanding revenue per customer, and efficient operating costs is delivering onto the substantial earnings power we envision. Our customer base growth has consistently outpaced our expectations, reaching approximately 94 million customers at the end of the quarter compared to 54 million just three years ago. We are on our way to cross 100 million customers in 2024. and we plan to continue marching along thereafter towards the development of the largest consumer platform in Latin America. The base of customer net ads in Brazil remains impressive, averaging 1.3 million customers per month, resulting in a total of 87.8 million customers by the end of 2023. At the same time, our growth in Mexico has accelerated, with a net ad of almost 1 million new customers in the quarter, reaching a total of 5.2 million customers by the end of 2023. This underscores the success of our Q3 decision to increase deposit yields in Mexico, which has accelerated our company-wide flywheel in the country and consolidated NU as the indisputable leader in the digital banking category in Mexico. Finally, let me share some financial highlights with you. In the fourth quarter, our revenues surged to $2.4 billion, accelerating sequentially to a 57% year-over-year increase. Our gross profit surpassed $1.1 billion, growing 87% year-over-year, while our gross margin expanded once again, reaching 47.5% in the quarter. The sequential gross margin expansion boosted our net income, which reached $361 million. while adjusted net income stood at $396 million, reflecting a 229% year-over-year increase. This demonstrates the strength of our business model, capable of combining strong top-line growth with very solid levels of profitability. This slide provides a high-level overview of our financial performance trends over the past two years. It underscores our consistent success in expanding the customer base while accelerating revenues and profitability. The robust growth of our customer base, driven by the growing cross-selling and upselling opportunities facilitated by our highly engaged platform, resulted in a more than three-fold increase in quarterly revenues in just two years on an FX-neutral basis. This translated into an 82% annual compounded growth rate for this period. The third chart on this slide effectively illustrates our robust pricing and underwriting capabilities. where quarterly gross profit calculated as total revenues minus funding costs, transactional expenses, and credit loss allowances increased by more than fourfold in the same period. Lastly, we believe the combined impact of the aforementioned factors, coupled with the strong operating leverage of our platform and the maturation of our early products in Brazil, has resulted in a significant acceleration in net income growth. This upward trend is evident in the chart on the right, particularly over the past four quarters. We anticipate this compounding effect continuing in the years ahead, driven by the combination of sustained growth and heightened profitability within our platform. Now I'd like to highlight how our flywheel isn't just driving customer acquisition and data growth, but also sustaining strong momentum in our key financial metrics. As our three geographic regions continue to expand, leveraging the inherent operating advantage of our model, our holding company has effectively transformed its potential into profits. In the fourth quarter, new holdings achieved an adjusted net income of $396 million, reflecting an adjusted annualized return on equity of 26%, surpassing the performance of most peers in the region, and despite maintaining a considerable excess capital of $2.4 billion in the holding company. If one were to look at our operations in Brazil alone, our return on equity continued to increase and remains above 40%. I'd like to briefly recap how we fared against our priorities in 2023. At the beginning of last year, we communicated our top three priorities for the year. The first was to scale our lending business in Brazil, both unsecured and secured. The second was to grow or share a wallet within the upmarket segment in Brazil. And the third was to ramp up local currency deposits in Mexico and Colombia. As you can see in the first part of this slide, we doubled our origination of personal loans over the past year from almost $1 billion in the fourth quarter of 2022 to $2 billion in the fourth quarter of 2023. Currently, Nubank has an estimated market share of new originations in unsecured personal loans of approximately 22%, increasing from 12% from the end of last year. In addition, we launched our initial CIAPE public payroll loan product in April 2023, followed by FGTS in August 2023, and then ENSA Asset Payroll in October 2023. As of Q4 23, 10% of our personal loan origination was already derived from secure lending lines. Much more will come in 2024, but we're overall very pleased with our developments in scaling personal loans in Brazil over the past four quarters. Let's delve into our second priority, gaining share of wallet within the upmarket segment in Brazil. It is an effort that will take time and pay off over the long haul. We believe we're well positioned to compete and win in this segment. 2023 served as the foundation for this long-term journey. We have observed a substantial progression in our segmentation effort, with an accelerated growth in market share of Principality. Additionally, we have rolled out numerous features and products across all dimensions of our platform tailored to the segment, such as in banking, credit, and investments offered. Notably, our UV credit card purchase volume expanding from $0.5 billion in Q4 2022 to $1.1 billion in Q4 2023, a 104% year-on-year growth, while UV customers doubled in the period, and our brand perception improved materially in this segment. Finally, we have achieved the best industry net promoter score among Brazilian high-income customers. Finally, addressing our third priority for the past year, we successfully introduced our deposit account solution in Mexico, Cuentanu, in May. Following news announcement of increased remuneration of these deposits in November, we experienced a remarkable outcome. Within just two months, we quadrupled the level of deposits in the country to an impressive total of $1 billion at the end of 2023, achieving this milestone 3x faster than in Brazil, with a segment of higher-income Mexicans that are attracted by the more aggressive value proposition. We are extremely pleased with the success of this strategy, even though it is a significant investment, as we believe it unlocks the potential of our member-get-member referral program, enriches our credit underwriting models with more data, and enables our company to become self-sufficient in local currency retail deposits. This self-sufficiency is crucial for scaling a consumer finance business. We were also granted a financial license in Colombia at the end of December, allowing us to launch Cuenta in Colombia last month. Similarly to our experience in Mexico, we expect our flywheels in Colombia to be propelled by the Cuenta launch. Overall, we believe 2023 was the year we were able to definitely prove to the market with strong numbers that the digital banking model we have been building for over a decade is the future of banking. This model is not only able to acquire and serve tens of millions of customers at scale and extremely low cost, but also generates the highest satisfaction for consumers while producing one of the highest return on equity for shareholders. We achieved significant progress by getting banking licenses in two new geographies and by launching successful deposit franchises in Mexico. We also grew within new segments such as high income. Those developments point in the direction that this is a model that goes beyond Brazil and goes beyond mass market consumers. We realize there is still lots to prove ahead, but we continue to be incredibly excited about how early we are in the development of this model. Now, I'd like to pass the floor to our CFO, Guilherme Lago, who will guide you through our financial numbers. Over to you, Lago.

Thank you, Davi, and good evening, everyone.

Before starting the discussion around our year-end results and to better frame our operating and financial key performance indicators, I would like to recap the three key elements of our simple and powerful value generating strategy. First, we continue to expand our customer base in the three markets where we operate, quickly transforming new customers into active ones. Second, we are focused on increasing the average revenue per active customer, or RPAC, through effective cross-selling and upselling initiatives. And third, delivering growth while maintaining one of the lowest cost operating platforms in the industry. Let's delve deeper into our fourth quarter results to understand the evolution of each one of these pillars. Let's start with customer acquisition. During the fourth quarter, we once again experienced a noteworthy expansion of 26% of our customer base year-on-year as we welcomed nearly 5 million new customers, bringing our total to 93.9 million customers at the year-end. Brazil continues to deliver a high monthly net addition of almost 1.3 million customers, with a significant portion acquired through cost-effective organic channels. In Mexico, our customer count increased by almost 1 million, crossing the 5.2 million mark. And in Colombia, we are now serving more than 800,000 customers. As mentioned earlier by Davi, back in December, we received the regulatory approvals to operate in Colombia as a financing company, allowing us to launch Quanta in the country. With this milestone, we expect to onboard even more customers in Colombia, which will lead us to further growth. Now, more important than the process of onboarding customers is the ability to effectively activate and retain them. Our active customer base increased by 27% year-over-year, with the monthly activity rate posting another sequential quarterly increase now reaching 83.1%. We believe that this outcome highlights our ability to effectively engage our customers on our platform. Now turning our attention to revenue expansion. The first chart highlights the new has established primary banking relationships with around 61% of our active customer base, up nearly two percentage points in comparison to last quarter. As more customers choose new as their primary bank, the more products they tend to utilize, generating higher RPACs. These two effects can be seen in the following charts. The second chart illustrates our successful cross-selling strategy, introducing new products to our customers and establishing ourselves as their primary banking partner. Our active customers are consuming on average four products on our platforms versus an average of 3.8 products a year ago. The third chart shows how our expanding customer engagement, as demonstrated in the first chart, combined with our growing product cross-sell capabilities, as shown in the second chart, is compounding to produce increasingly positive results. Our monthly RPAC increased to $10.6, while our more mature cohorts are already generating a monthly RPAC of $27. The increase in RPAC has resulted in another quarter of solid revenue growth, as presented in the next slide. Our monthly RPAC has continued to grow steadily, expanding by 23% year-over-year. We remain confident that we still have untapped potential for further RPAC growth, moving us closer to realizing what we believe is our full RPAC potential. As shown in the second chart, our revenues reached a new record high of $2.4 billion, up 57% year-over-year, as the increase in active clients combined with higher RPEC continue to drive sustained top-line growth. Now, turning our attention to our cards business. Purchase volumes increased 29% to $32.6 billion in the fourth quarter. For the full year, purchase volumes reached more than $111 billion, up 37% over 2022. This strong performance underscores the power of our product cross-sell, up-sell, and customer engagement capabilities. The chart on the right depicts the correlation between purchase volumes and the aging of customer cohorts. Most of our purchase volumes originate from our more established customer cohorts, characterized by higher monthly spending compared to recent cohorts. While there is an initial disparity between newer and older cohorts, both show a clear upward trend in consumption over time. Effectively, when we look into a constant initial risk basis, there is a clear uptrend in the spedding patterns of our cards customers. We believe the compounding effect of integrating millions of new customers each quarter, coupled with the gradual shift to higher spedding patterns, will continue to fuel the future growth of purchase volumes. We believe we currently hold a 13.8% share of the credit card market in Brazil in terms of purchase volumes, up 150 basis points from a year ago. As our market presence is strengthened, our confidence in capturing additional shares in the future grows. This confidence is rooted in the steady pace of customer acquisition and their strengthening relationships with us. Our consumer finance portfolio comprising credit cards and personal loans posted another increase this quarter, up 49% year-over-year to $18.2 billion. This growth was boosted by expansions in both product categories. The credit card portfolio expanded by 44% year-over-year to $14.5 billion. We attribute this growth to the onboarding of new customers to our ecosystem and our low and grow focused approach. Our personal loan portfolio is a highlight this quarter, increasing 76% year-over-year and reaching $3.7 billion. Our personal loan cohorts have maintained expected credit behaviors following the same trends observed in the prior quarter, allowing us to increase originations for yet another quarter. We believe there are significant opportunities to continue to expand our loan book while we seek attractive returns and robust credit resilience. As we have previously mentioned, this may result in intentionally higher delinquency rates, but our aim is to ensure that these can be more than offset by additional revenues, resulting in higher risk-adjusted net interest margins. Now let's take a deeper look at the breakdown of interest-earning loans within our credit card portfolio. We continue to pursue our strategy of increasing the share of credit card loans that earn interest, with special emphasis on PICS and Boleto financing. This has driven sustained growth of our interest earning installment balance, which now accounts for 23% of our total credit card loan portfolio. Our goal is to capitalize on the increasing adoption of PIX in Brazil, where we remain the leading provider of PIX services in the country. As of December 2023, over 35% of our active credit card customers were active users of PIX financing feature. We believe that this type of financing offers an attractive risk-adjusted rate of return, allowing us to expand the monetization of our credit card business beyond fee generations, while also unlocking substantial value as we fulfill an important customer need. However, we have intentionally not increased our share of revolving receivables, which even compressed sequentially to 6% of our total receivables this quarter. In turn, our total IEP balance, including revolving, is at 29% of the portfolio this quarter compared to 23% of the market. Our personal loan portfolio, composed of both unsecured and secured loans, remains resilient and aligned with our expectations for asset quality. Originations doubled year over year, reaching R$10 billion in the quarter. Secured personal loans are growing according to plan, with originations in the quarter reaching 10% of the total versus 3% in the previous quarter. Over the past year, we have made substantial progress in broadening our lending product portfolio, introducing new secured and unsecured loans to cater to a wider range of customer needs. On the secured front, we now offer payroll loans for further public servants and retirees, and FGTS and investment-backed loans for the wider Brazilian population. While these new products may not have yet significantly impacted origination volumes or the credit portfolio, we believe they laid the groundwork for continued growth and contribute to the development of an even more resilient credit book in the years to come. Note that our credit yield this quarter was affected by the loan mix. As secured personal loans by definition have lower interest rates, an increase in originations of these loans will directly impact the average interest rates. The unsecured personal loans yields, however, increase marginally quarter over quarter as we continue to expand eligibility to riskier bands of customers. Moving on to the progress achieved on the funding front, we continue to see a solid trend in the expansion of our deposit base, which increased 38% year-over-year, reaching $23.7 billion at the end of the year. This represents a significant step towards our goal of developing one of the strongest local currency retail deposits franchise in the region, bolstering our ability to support our consumer finance operations across the three geographies where we operate. In Mexico, we are experiencing significant growth in new quanta. By the end of the fourth quarter, we had accrued over $1 billion in deposits. Given our growing presence in Mexico, we have decided that from now on, we will show our cost of deposits as a percentage determined by the ratio between the interest income paid to customers and the intrabank rates of the countries, namely TIE for Mexico and CDI for Brazil. Even taking into account this calculation, our cost of deposits for this quarter stood at 80% of the interbank rate, in line with our expectations. This consistently low cost of deposits highlights our progress in harnessing the value of our liability franchise. Our loan-to-deposit ratio, or LDR, stood at 34% versus 35% in the previous quarter, with deposit growth showing sequential acceleration. We are very confident that there is still a lot of room for additional balance sheet optimization ahead of us. Our net interest income, or NII, increased 85% year-on-year, reaching a new record high of $1.3 billion in the quarter. We believe that the continued growth of our credit card and personal loans portfolio was the key driver of this expansion. We deliver a net interest margin, or NIM, of 18.3%, representing a drop of 0.5 percentage points compared to last quarter, but an increase of 5 percentage points in comparison to one year ago. This decrease was mainly attributed to an impact of our collections strategies associated with, but not limited to, Dezenhalla, which affected two different lines of our P&L in opposite directions, with virtually neutral effect on our gross margin and net income, but with a negative impact on our NIM. Customer discounts on the renegotiated portfolios are booked into the other interest expenses line, so are captured in our NIM. This line was negatively impacted by $60 to $70 million, representing a 90 basis points impact on our NIM. Without this, our NIM would have achieved 19.2%, an increase of 40 basis points quarter over quarter. The P&L line that was positively impacted in a similar amount was recoveries, which is booked deducting the credit loss allowance, so captured in the risk-adjusted net interest margins, which, as Youssef will explain next, continue to evolve favorably. Looking ahead, irrespective of the direction of interest rates, the main lever for future NIMS should be the progression of the company's loan-to-deposit ratio, as our excess deposits are basically invested into public bonds, the remuneration of which is much lower than that of our credit products. Moving to the third pillar of our strategy, maintaining a low cost to serve. We strongly believe that our main competitive advantage is maintaining a low cost to serve, which we aim to keep at or below the $1 level for the foreseeable future. In the fourth quarter of 2023, we successfully realized this goal with a cost-to-serve per active customer standing at $0.90. This figure currently remains unchanged on an effects-neutral basis when compared to our year ago, while our RPAC increased by 23%, demonstrating the strong operating leverage of our business model. Our gross profit reached a new quarterly record high, surpassing $1.1 billion, reflecting an 87% year-over-year increase. Moreover, our gross profit margin expanded nearly 5 percentage points to 47.5%, highlighting the margin expansion that began in the third quarter of 2022. Our gross profit margin continues to be positively impacted by ongoing improvements observed on our net interest margin and cost of risk. But the movement this quarter is also amplified by the positive seasonality relative to the purchase volumes of cards, which increased interchange revenues. Looking ahead, we expect annualized gross margins in 2024 to normalize to similar levels of 2023 as our investments in Mexico and Colombia are offset by the margin expansions in Brazil. After that, we expect the expansion trend to resume and gross margin to gradually grow towards 50%. We are fully committed to maintaining operating leverage as a key element of our strategy. During the fourth quarter, our efficiency ratio stood at 36%, an increase in comparison to last quarter due mostly to two factors. First, we invested more on branding efforts as we advance our strategy into the high-income segment in Brazil and as we progress in Mexico. Those efforts are linked to the company's priorities for 2023, and we are pleased with the solid developments achieved. Important to mention that marketing expenditures were below historical average during the first half of 2023. So, in part, the rising expenses this quarter were already expected and previously communicated. Second, our cloud expenses rose, driven by higher data usage from increased transactions and customers' activity, especially during the holiday season. We believe the scores will be reversed in the subsequent quarters. Despite a higher efficiency ratio in the quarter, the efficiency ratio for the full year of 2023 remains strong, achieving 36%, an improvement of 19 percentage points when compared to the previous years. We believe that our level of efficiency positions Nu as one of the most efficient companies in Latin America. We are also confident that we can achieve more improvements in operating leverage as we continue to scale the business by expanding our customer base, increasing product upselling and cross-selling, and introducing new products and features. Finally, we delivered another quarter of profitability, with a net income for the fourth quarter of $361 million, increasing almost 5x on an FX-neutral basis compared to the previous year. These strong and positive results serve as evidence of the effectiveness of our strategy and business model. Adjusted net income, in turn, reached $396 million in the quarter. While we are satisfied with the results we have achieved to date, let me reinforce that we manage our business with a strong emphasis on long-term value creation. Therefore, our strategy may involve making additional short-term investments to further uncover long-term value creation opportunities. This fourth quarter and 2023 as a whole serve as a clear evidence of our sustainable cost advantages. First, we successfully added around 5 million customers this quarter while keeping what we believe to be one of the lowest costs to acquire among consumer fintechs and banks on a global scale. Second, we maintain our cost to serve consistently low, below the $1 threshold, which we estimate to be approximately 85% lower than that of incumbents, making Nu one of the most efficient financial services companies in Latin America. Third, regarding cost of risk, we have effectively managed credit risk, outperforming competitors on an apples to apples basis in terms of delinquency rates, even in the face of a more challenging backdrop. And lastly, on cost of funding, we maintained it at 80% of the blended intrabank rates of Brazil and Mexico, while significantly increasing deposit volume, thus closing the negative gap against incumbent banks and widening the positive gap over consumer fintechs. We are very pleased with the results achieved this quarter and for the full year of 2023. We remain confident in our capacity to innovate and scale top-notch products, expand internationally, and continue to operate at low costs. Now, I'd like to hand the call over to Youssef, our President and Chief Operating Officer, who will walk you through some key highlights of our asset quality.

Thank you, Lago. Good evening, everyone. I will now take you through some of the highlights of asset quality and credit portfolio health for the fourth quarter of 2023. Let me begin with NPL trends. Our leading indicator, NPL 15 to 90, declined slightly on a sequential basis to 4.1% in line with our expectations. Our NPL 90 plus ratio remains stable sequentially at 6.1%, also in line with our expectations. Recall that this ratio exhibits a stock behavior as loans move through the delinquency buckets rather than a flow behavior. We maintain their strategy of not selling any credit receivables. Therefore, our NPL rates require no adjustment. And as Lago mentioned earlier, and we've shared last quarter, looking ahead, we see meaningful opportunities to continue to expand our credit portfolio while seeking attractive returns and robust resilience levels. We anticipate that part of that growth will come from expanding down the credit spectrum. And while this may result in intentionally higher delinquency rates, our goal is to ensure that this will be more than offset by additional revenues, leading to even higher risk-adjusted margins as we expand. These two charts provide information about renegotiations in our Brazil credit portfolio. As you can see on the left-hand chart, around 9.6% of balances had been renegotiated by the end of Q4 2023, in comparison to 9.4% in the prior quarter. Following the trend of previous quarters, more than half of these were for loans that were current or less than 15 days late at the time of renegotiation. Moreover, 88% of renegotiations were for loans less than 90 days past due at the time of renegotiation. This goes to show that renegotiations have a limited impact on NPL rates. On the right hand chart, you can see that we maintain a comfortable level of provision coverage above the 90 plus balances of our renegotiated portfolio at 243.5%. As we mentioned on previous occasions, the growth of our portfolio is what has been driving the bulk of the increase in our credit provisions. This is because we front load provisions at loan origination in accordance with IFRS 9 standards. This quarter, however, we have incurred a lower credit loss allowance expense than last quarter at $592 million. This was mainly driven by higher credit card and personal loan recoveries as a result of the Dezenhola government-sponsored debt renegotiation program, as well as collections initiatives we implemented to capitalize on it. We estimate the size of this impact to be around $60 to $70 million in the fourth quarter credit loss allowance expense. As Lago explained earlier, this is virtually neutral to earnings as these higher recoveries are offset by discounts that are captured in the other interest expense line item and which negatively impacted our net interest margin in the quarter. Risk adjusted net interest margin was not impacted by these two offsetting dynamics and continued to expand, reaching 10.2% in the quarter, up 120 basis points sequentially. This again is a reflection of our pricing for risk and pursuit of resilient returns as we underwrite credit. In conclusion, we are pleased to report another strong set of results this quarter, which reflect the progress we've made and the track record we've built over the years. Our healthy asset quality and robust returns reflect our effective risk-based pricing approach and superior credit underwriting capabilities. We are thrilled about the prospects for continued growth and are confident that we will maintain and expand the strong track record of delivering superior returns going forward. Now, having shared these data and perspectives on credit and asset quality, let me now turn the call back to our founder and CEO, David Velez, for his concluding remarks.

David, back to you.

As mentioned earlier, we believe we're in the very early innings of a full transformation of financial services in Latin America and globally. With already close to 100 million customers in Latin America, but owning less than 5% of the financial services revenue in the continent, we think it's imperative we continue investing significantly and responsibly in growth and expansion versus trying to optimize short-term earnings. To give two data points around how much we're currently investing, in 2023, our operations in Mexico and Colombia accounted for only 6% of our consolidated revenues, but represented nearly 21% of our headcount. As of the end of Q4 23, approximately 42% of our operational personnel was allocated to growth and moon shoot projects, which were not yet operating at scale or not operating at all. In 2024, we will double down on our investments in new products and features and we will double down on our investments in Mexico and Colombia. While we believe we will continue to operate with healthy levels of profitability, the opportunities we have ahead of us are so compelling that we believe it is time for planting, not for harvesting. We find ourselves at a particularly exciting moment, where the landscape of the Latin American financial services industry has undergone rapid transformation. The emergence of new players like NU, coupled with technological advancements and evolving pro-competition regulatory frameworks, presents us with unprecedented opportunities. Moreover, NU's distinctive position, boasting exceptional access to capital and talent in the Latin American region, sets the stage for our potential success. This opportunity is ours to seize. I would like to end outlining our priorities for 2024, as well as how we believe we should be graded by the market against these objectives. Our first priority is to scale Mexico. Building on the launch of Cuentanou and the initiation of deposit and customer scaling last year, success in 2024 entails substantial growth in our customer base in the country, continued expansion of our deposit base, and accelerated credit growth, possibly with new products beyond credit cards. Additionally, we plan to launch a number of new products and features, reinforcing cash-in and cash-out solutions, along with ramp-up in primary banking customers. Our second priority is to ramp up secure lending in Brazil. Following the successful launches of payroll lending for federal and public servants in April 2023, and for pensioners and retirees in October 2023, we are reaching approximately 50% of the total addressable market in Brazil today. operating with interest rates at 20% to 30% discounts compared to the industry average, thanks to our fully digital direct-to-consumer distribution. We have recently introduced the portability functionality, These features enable us to bring credit from our banks and refinance those at lower rates. Success for 2024 entails expanding our portability solution for all eligible customers, adding new contracts to tap into more than 70% of the total addressable market by year-end, and rolling out the anticipation of FGTS product for the entire customer base. With these initiatives, we aim at secure lending representing a meaningful portion of our total personal loan origination by the end of 2024. Priority number three is to continue advancing into the higher income segment in Brazil. We have refined our segmentation effort by establishing two new thresholds. Super core, encompassing customers with monthly income between 5 and 12,000 reais. And high income, encompassing customers with monthly income above 12,000 reais. In Brazil, we already serve over 70% of super core customers and 60% of high income customers existing in the market. Hence, our main opportunity is to increase our share of wallet among the customers we already have inside our customer base. Success for 2024 entails further expanding our base of Ultravioleta customers and increasing their usages of our products, launching more products and services tailored for these individuals, and growing the number of our primary bank accounts within these segments. Finally, our fourth priority is making the concept of the money platform tangible and concrete for our customers. The new bank of the future is a multi-country consumer technology platform that provides products and services in financial services and beyond. And we believe that the compounding effects of real-time payments, open banking, and AI are accelerants for us in this strategic direction. And we want 2024 to mark an inflection point in the products and services we launch leveraging these technologies. Success in 2024 entails launching several new products and features to our customers that will continue to increase our value proposition while using technology to increase even more our operating leverage. With that, we invite your questions. Thank you for your attention and participation.

We will now start the Q&A session for investors and analysts. If you wish to ask a question, please click on Raise Your Hand. If your question is answered, you can exit the queue by clicking on Put Your Hand Down. Please limit yourself to one question and a follow-up. If you have further questions, please re-enter the queue. You may submit online questions at any time today using the Q&A box on the webcast. I would now like to turn the call over to Mr. Jörg Friedman, Investor Relations Officer.

Thank you very much, operator. And we are going to start the Q&A session with a question posed by Jorge Cury from Morgan Stanley.

Hi, everyone.

Thanks for the opportunity to ask questions and congrats on the great numbers for the quarter and the year. I wanted to ask about payroll loans and if you can give us some flavor of how are you winning on payroll loans? Evidently, David said at the very end that you're offering prices that are well below what the incumbents are offering. Is this just across the board for all the clients? Are you seeing some sensitivity on prices where people are just switching their payroll loans to you because you have a better user experience or is every single client really coming at a much lower rate? And that seems to be the reason they're moving. Is it... payroll loans to people that didn't have a payroll loan or are you refinancing payroll loans are those refinancing mainly coming from government banks which normally tend to have a lot of the government payrolls or you're also seeing some refinancings coming from the private sector banks and And on the payroll lending as well, are you seeing the payroll payment being deposited to you as well? That would be my first question. And if you don't mind, I would like to add a second question about one of your priorities for 2024. David mentioned new products for the super core client base, meaning sort of like the high net worth individuals. What type of products are you talking about there? Thank you.

Jorge, this is Jag Dougal, Chief Product Officer. Let me answer your first question and get into some of what you're asking around our secured loan business and strategy. A couple of key points that I would make. First of all, about Equal volumes of our secured loan origination in Q4 came from FGTS, loans against the Social Security savings of customers, and then from Consignado, particularly the federal employees, SIAPI, and the retirees. The formula we are following in terms of why customers are coming to us is very specific and will be familiar to you as someone who has followed the company for a long time. We offer a dramatically simplified digital mobile experience, 100% mobile. Because we are able to offer that service direct to consumer, helping to make our costs very low, that allows us as David talked about, to offer a significantly lower price than the market average. And that's a pretty powerful flywheel where customers come both for the simplicity of the experience and also for the superior price. And we have found this to be a market where consumers are very price sensitive. Another aspect of your question was our customers switching from other places. A couple of key points to make here. All of the customers to which we are offering these secured loans are current new bank customers. So we are fishing in our own fishbowl, not out in the open sea. Another key fact to keep in mind in terms of our Q4 results is our product and processes around portability of these loans, which is an important factor in this market, are still in their very early stages. Essentially, all of the loans that we originated in Q4 were new loans from customers. Hopefully that gives you a real sense of, first of all, how relatively early in our roadmap and in our evolution of this business we are and what are the key drivers for the early success and therefore the drivers of our optimism about how well we can grow this business in 2024, as Daveed talked about.

And I would just add one point, Jorge. I think ultimately it's kind of the same receipt that we've been following in every single product. And it is the following. Technology distribution or direct-to-consumer distribution enables us to create a product that is better for consumers at lower cost. And ultimately we measured that by NPS. In this specific category, we're already measuring NPS upwards of 80%. which would be by far the best rated product in the market today. So that tends to be the leading indicator for growth. And that's what we've seen over the past six months that we've been starting to roll out. It's traditionally a very offline experience. It takes several weeks. There is a lot of fraud associated sometimes with the offline processes, a lot of paperwork. And so by just offering that direct to consumer distribution, we're able to simply better product at lower price. And consumers tend to understand that, obviously, that equation. To your second question on additional products for super core, which is a segment or effectively a higher segment or lower income segment of the high income, we are preparing to invest significantly in software-related solutions. We think we don't necessarily... compete well in the offline world where there are branches required. And we always said that if you need cash, if you need offline distribution, we're not well positioned there to compete. We are well positioned to compete when software becomes a differentiating factor. And there is a fair amount of differentiation we can do with software for this product. One specific example is we're rolling out what we call your household controls, where consumers are able to now enable their children, enable different people in your household to have a number of different cards to save jointly. And that type of product solve a pretty significant pain for these households. We tend to see use cases where the main person in the household got an UBAN card, but then gave that card to their younger son or to the driver. So it's being used, but it's not being used as the primary card. By adding a number of software capabilities, which by the way are relatively hard to program, we think we're going to be able to solve a big pain point for consumers and happens to also have certain network effects that we tend to like a lot. So just Like that theme of social, there is a number of themes that we will be implementing this year that we think will significantly improve the value proposition and allow us to play in an environment of software and online where we think we can win versus necessarily competing with incumbents in areas or in regions where we don't really have a possibility of competing.

Thanks for the detailed explanations and congrats again, David.

Thank you, Jorge. And our second question comes from the line of Tito Labarta, Goldman Sachs.

Hi, good evening, everyone. Thank you for the call and taking my question. Right. Lago, you mentioned that you expect gross margin, I guess, to be relatively stable this year, given the investments that you're making. Just so if you can clarify a little bit, is this because you expect provisions to be higher as you grow the loan portfolio? Is it interest expenses as you're growing deposits in Mexico where you're remunerating at a higher rate? Is it transactional expenses? Just to understand what's going to keep that gross margin somewhat stable-ish this year. And then just one second point to clarify the renegotiated discounts that impacted margin and provisions this quarter. Is that a one-time thing or should we expect that going forward as well? Or does that reverse next quarter? Thank you.

Ito, thanks so much for your question. Let me try to address both of them. I think first on the gross margin, we will largely see two effects throughout 2024 in our expectations. Number one, our Brazilian operations are expected to continue to post expanding net interest margins and expanding risk-adjusted net interest margins, primarily as we continue to grow the size of our credit book and optimize our balance sheet. On the other hand, we do expect to make additional investments and, as Davi mentioned, to double down our resource allocations to Mexico and Colombia. And those are markets that are less mature than Brazil. And therefore, the faster we grow in those markets, especially given the expected credit loss provisioning, we will have to make additional investments in terms of a P&L. The combination of those two effects, expanding margins in Brazil and additional investments in Mexico and Colombia, are largely to be offset. And therefore, we do not expect our gross profit margins to increase. to evolve materially away from the zip code where it was in 2023. So that's the first question. The second question on the collections, we do have, just to recap, the explanation in which we had on one hand additional discounts that we provided to our consumers, order of magnitude 60 to 70 million dollars, On the other hand, additional recoveries that we had also in relatively similar amounts of $60 to $7 billion, which were neutral to our P&L and neutral to gross profits. Although Dezenhola has announced that it will continue throughout the first quarter of 2024, We do expect that most of these impacts would have been seen in the fourth quarter of 2023. So we will likely see some additional impact of this detail throughout the first quarter, but in a much less pronounced manner than in the fourth quarter of 2023.

Okay, that's very clear, Lago. Thank you for that. If I can ask just one follow-up, just to clarify. So on the additional investments in Mexico and Colombia, will those come sort of below the gross margin or the gross profit line? So will that impact operating expenses? How do you think about efficiency for 2024, if you can give some color on that?

Yeah, so I think most of the investments in Mexico and Colombia, Tito, will come above the gross profit line, namely in CLA and interest expenses, as we basically increase the growth pace of our interest-earning assets and as we increase the volume of deposits in those countries. We do expect efficiency ratio, not only for Brazil, but also on a consolidated basis to post continuous improvements throughout 2024 and beyond.

Okay, that's very clear. Thank you, Lago. And congrats on the results.

Thanks, Tito.

And our next question comes from the line of Mario Pieri at BOVA.

Hi, everybody. Good evening. Thanks for the opportunity. My question is related to Mexico. Can you give us a little bit more color, the profile of clients that you're attracting in the country? Clearly, you're attracting clients by having a high remuneration on deposits, so I would imagine you're attracting more the higher income segments. You disclosed that you have 5.2 million clients in Mexico. Can you tell us how many credit cards outstanding you have in Mexico? And then finally, still related to Mexico, the choice of remunerating deposits at 15%, when the traditional banks are probably remunerating clients around 70% of market rates. So your remuneration is probably... twice as large as the traditional banks. So just wanted to get an understanding, you know, how did you come up with this 15%? Is there room for the ratio, for the rate to increase? And then finally, Mexico, if you can disclose any data on loan book there or what kind of NPLs you're seeing, that'd be great. Thank you very much.

Hi Mario, David here. Thank you for the question. So since we started in Mexico about three years ago, I would say we've seen about a 50-50% split between banked customers and unbanked customers. It's been fairly even. Remember that Mexico has only about 12% credit card penetration. So literally the big majority of the country is completely wide open for us. We tend to begin as a strategy, this was similar in Brazil, to target more high income at the beginning, and then eventually there is a bit of decrease toward mass market. And that shift tends to happen faster in Mexico to the 50-50% split that I've been mentioning. Now, when we decided to increase the yield in Mexico a couple of months ago, The reason why we did that is we saw an opportunity to reposition the deposit product even more attractive to consumers and accelerate the flywheel growth that we were having there. And that decision, while it's definitely expensive, it's a big investment, is paying for itself actually fairly quickly. We're seeing an improvement in the type of customer segmentation that we're having. We're now seeing many more Mexican, high income Mexicans coming in that is having beneficial impacts to credit quality. That's also adding a different type of customer that once you put deposit, it creates a pretty important data point for us, which allows us to take into account in terms of acceptance of the credit card application and even within limits. So we're able to increase limits a bit faster, driving unit economics faster. Obviously, it brings the deposits that we need to be able to really fund the business. As you remember, we start as a monoliner. where the biggest execution risk that we have is not having funding figure out. And we had to depend on our banks to fund ourselves. That risk is gone. It literally went away in three months of this new yield. We surpassed significantly any projections that we had on deposits. So in a way, we've removed one of the big execution risks that we had. for Mexico, and that's why it was one of our number three priorities or top three priorities for 2023. So, NetNet, it is a big investment that we decided to do for customers, but it's paying off handsomely, and it has positioned us in a very different trajectory in terms of growth and momentum in a market that we think is very significant for us. Last thing I'll say versus the banks, I think you're being very generous with competitors in Mexico. When you actually look at some of the biggest incumbents, they actually pay zero. Most customers, especially mass markets, they get no money paid by banks. In fact, they see deposits. Most mass market customers in Mexico are paying the banks to hold their money. They're not even used to the concept of banks paying them for their money. And it's amazing to see the reaction of customers once we start showing them that banks should pay them for their deposits because they're used to paying a lot of fees and pay zero. So it is indeed a significantly higher and more attractive position than incumbents. It would be extremely expensive for incumbents to match, and we haven't really seen them matching. So I think that positions us very well as an attractive position. It is important to say that even at 15% where we are, given the economics of the credit card business, it's a unit economics positive move. So it's not that we are making a crazy irrational decision. It's a positive unit economics at 15%. And then as we scale and we get all these deposits and we improve the value proposition of the account with a lot of the software that we're building and a lot of the cash in and cash out and a lot of the missing features, then we will get to eventually rationalize a bit that expense. And that's exactly what we did in Brazil two years ago when we went from 100% of CDI to 80% of CDI. And we saw the quality of the product improving, not decreasing. So that is sort of the strategy of the product is we want to make sure that the product quality continues to increase. continue to add additional deposits or balance sheet in Mexico will look a bit odd for a while as it looks odd even still for us in Brazil with a lot of liabilities. But eventually that's a great problem to have because then we're able to deploy all of that firepower in growing the credit card opportunity, which again is huge, 12% credit card penetration. So we're very excited about tackling that.

Thanks, David. Let me follow up then on these deposits. Are you seeing how sticky are they? Are you remunerating them from day one? Or are you doing some of the type of remuneration like you did in Brazil that you don't remunerate for the first 30 days? And just the number of total cards standing that you have in Mexico now.

So customers need to invest in what we have called a cajita or caixinha. So customers deposit the account and they do invest it in a small box that we have. So far, the deposits have been very low churn, so significant engagement. It's up to us to make sure that that engagement continues, and then we have a number of different capabilities to do that. First one, obviously, is giving a great critical product, and then add a number of different software features to make sure that those deposits stay. So far, they're staying, and so we feel very good at having the opportunity to make sure that that continues to be the case. Unfortunately, in terms of number of just cards, we don't disclose that number. um but uh but yeah but they you know they continue to accelerate and we're very happy with those numbers okay thank you very much thank you and our next question comes from the line of Thiago Batista from UBS hi guys uh release me

Yes, we are.

Okay, thanks for the opportunity. My question is about the renegotiated loans. By the way, the slide that you provided is really very helpful. My question is, doing a very simple calculation, we got that the level of provisions over those loans achieved 44% in this 4Q. It was 33% in 4Q 2021, 40% in 4Q 2022, So if you can comment your strategy over those renegotiated loans, and also if it's possible to assume that this level of 45% is the amount that Nu believes it will become losses over those renegotiated loans.

Hi, Thiago. This is Yusuf. Thanks for the question. So you are correct in your calculation of the coverage ratio over total receivables outstanding of renegotiated loans. It's around 40%, 45%. You know, the way I would think about it is it will mirror what happens to the total book in terms of coverage ratio. And you can see that evolution on page 34. of the presentation where you see both the coverage ratio over total balance and coverage ratio over NPL 90 plus. The dynamic there is similar because as loans move through the delinquency buckets and more and more go 90 plus, your coverage ratio of total balance goes up. Your coverage ratio of NPL 90 plus tends to be stable at all SQL, right? So that same dynamic applies to renegotiated loans. You know, albeit at a higher rate, because renegotiated loans just exhibit a higher level of inherent risk, as you can see on the analysis we provided.

Okay. Thanks. Very clear.

Sorry. And our next question comes from the line of Gustavo Schroden of ProDesco.

Hi, good evening. Thanks for taking my question. Well, my question is regarding your investments in the high-income segment in Brazil, more specifically regarding the investments that you made. I think that Lago mentioned during the presentation that a part of the let's say, impact on the efficiency ratio was regarding the investments in high-income segments. So if you could, besides Mexico and Colombia, could you give us a little bit of more color on how you should think in terms of these investments in high-income segments? Because As you mentioned, it is a target. And as you mentioned, as you know, that especially high income segments, usually it costs higher than the, let's say, the low income segments because, I mean, more investments, different necessities or needs. So if you could give us a... These investments, this impact regarding high-income segment is specific on this quarter, or should we expect that further, let's say, impacts on efficiency ratio regarding this strategy? Thank you.

Hi, Gustavo. This is Lago. Thanks for your question. I think in short, no, you should not expect to see any material change in the efficiency trends that we have seen over the past quarters. So as I mentioned in the opening remarks, in the fourth quarter of 2023, we saw two impacts that drove kind of efficiency rate 100 basis points up. It was a higher concentration of marketing expenses in the fourth quarter and additional investments in technology and data. Those two effects combined accounted for about 170 basis points, and we believe they will be reversed in the coming quarters. So if you take into account those 170 basis points, you will continue to see additional improvements in efficiency ratio. In fact, we already at midpoint of the first quarter of 2024, and we already seen efficiency ratios being driven to the places where we expect them to be, which is lower and better going forward. The main investments that we are doing to increase our share of wallet within the higher income customers, I would say are largely broken down in two stages. I think in the first stage, which started about 18 months ago, we invested a lot of time and energy in the development of new products and features to acquire high income customers. And if you define high-income customers as someone who has an expected monthly income above 12,000 reais, we already have a new bank as of the end of the fourth quarter of 2023, over 60% of those are already customers of new bank. So the first stage was customer acquisition with very low customer acquisition costs. The second stage is customer principality, building on what Davi and Jack mentioned earlier today. And we will do so through the development of banking payments and investment products. They will be material investments in terms of human resources, but they will not necessarily drive any material change to the cost structure that we have had in Brazil over the past two years. But Jack, not sure if you wanted to add anything about the types of investments and products that we will launch.

Yeah, I'll quickly do so, Lago. So within the context of what Lago just said, which is that we expect our efficiency ratio to not show continued trends in the direction we saw this quarter. We are continuing to invest significantly in existing products and in new products, many of which are geared towards the super core segment as well as the high income segment. As Lago mentioned, We have a majority of those customers, 70% for the super core, 60% for the high income. Already as customers of NewBank, now how do we drive engagement and principality over time? A few trends that we are very happy with show that our flagship product for the high income, our Ultravioleta credit card, has over the course of 2023 shown dramatic gains in the net promoter score. We are now the highest net promoter score bank, according to Bain, for this segment. And that mirrors some of the trends we were tracking internally. And with that growing customer love of the product, which offers them 1% cash back and 200% CDI returns on that cash back, along with other features, we are seeing significant growth in their usage of the card and in their satisfaction with the credit lines that we are giving them, which is all building a flywheel together. Another major investment we made in the course of 2023 was to extend a bundle around the flagship card, the Ultravioleta bundle, which has a series of features from a free toll tag, free Rappi Prime, special customer service lanes for these customers, et cetera. Around the card and the bundle, we are investing in features and products around banking, around investments, around insurance that will gradually manifest themselves in our product and we expect will drive an increasingly complete solution for this segment, although those are investments that will layer in through the year, all within the context of what Lago shared, which is these are accounted for even as we continue to have strong operating efficiency.

Very clear. Just to follow up on this last part of the answer, you mentioned some products that you have already offered to high-income clients, such as some credit products and the intention to, if understood, to accelerate investment and insurance. Could you give us, like, are you thinking to invest or to offer, like, a mortgage or loans for these high-income clients or that should be more related to these, let's say, personal loans and investments and insurance? Just if you could give us a more... specific products that you could offer to high-income clients besides the credit and insurance and investments?

Yes, for sure. What I would say to you is, as David laid out in terms of our overall strategy, our ultimate aim is to serve is to serve these customers with a holistic and complete suite of solutions for them and so the credit card was the place we started in terms of the ultravioleta card but we are looking across our suite in looking at our lending products many of our secured lending products are actually disproportionately used for example by by high income customers we are looking at investments we are looking at insurance there are No doubt, certain product lines that we probably won't offer for a while, but we are looking across the entire suite of what we have offered in the mass market. And even beyond that, to start with this customer segment, understand their needs, understand where the highest leverage is for them and ultimately for us, and building products across the suite. So if you look across our product suite, you can rest assured that we are either building or investigating and in discovery for products and features that will serve this segment. Okay. Thank you very much.

And our next question comes from the line of Eduardo Rosman at BTG Pactual.

Hi, everyone. Congrats on the numbers. I have a question on regulation in Mexico. uh do you believe that there is room for the mexican regulator to move faster and mimic you know some of the big changes the brazilian central bank did here in brazil uh how important could be you know transforming cody into something like closer to pics you know how can you help you know the regulator to understand, you know, that that could benefit, you know, penetration of credit in Mexico, showing, you know, what it was done in Brazil. So it would be interesting to hear your thoughts here. Thanks.

Yeah, no, thank you for the question. So listen, I think the trend is positive. We've been spending a lot of time with regulators. I think the Brazil case has become an unbelievably clear example, really across Latin America and globally, of what a regulator can do to accelerate financial inclusion and bring more competition to a market. And that example is just too hard to ignore for regulators. So when we went to Mexico about three years ago, nobody really understood that. Today, when we engage, that's very clear. As you said, COTI was launched a few years ago. There were a couple of design decisions that didn't really make it successful. I think Regulator is going back at it and trying to make it successful. There is real attention and goodwill to see a free digital payment system in Mexico. Again, it's hard to oppose that because the benefits for society and for the country are so clear. So what I would say is I wish it would be a bit faster, but the trend is positive and accelerating, and it would be tough to take the opposite view that in five years from now, you'll continue to see 12% credit card penetration, or that five years from now, people will continue to use just cash for everything. The puck is going in the direction of full digitalization of the economy. That's one of those trends that you can count on really globally. Brazil was fast, Mexico, Colombia were a bit slower, but I think we see the momentum accelerating and we're definitely trying to play a very active role on that future to come faster because in a world where finance is digital, in a world of digital payments, in a world of open finance where there is less inertia from consumers to move, when consumers really own their data and they can transpose it to our institutions, then consumer really wins and competition becomes very powerful, becomes the possibility to see interest rate coming down, banking costs come down, inclusion goes up. So we think that's where the puck is going in Mexico. We think it's accelerating and we're definitely an active part of trying to push that forward.

Great. Thanks a lot, David.

Thank you.

And our next question comes from the line of Pedro Leduc at Itaú.

Thank you, guys. Good evening.

Congrats on the results. I would like to get your help a little bit more on the credit quality or provision expense side. We know this quarter it looked down right from 630 million to 590. Of course, you mentioned there the recovery effects. But I would like to get your help a little bit on how much these recovery effects were and get your sense on the underlying credit trends that you're seeing. You did mention that gross margins should continue at these levels, at least not for the next quarters. So just getting your sense there on how you feel on the credit quality side, making you choose where to grow and when. Thank you.

Hi, Pedro. So on the credit loss allowance expense itself, as Laibo and I mentioned in our earlier remarks, the 590 or so million number was impacted favorably by recoveries in the order of about 60 to 70 million dollars in the quarter. Right. So you can do the math of what would have happened without that effect. You know, it would have been around 650, 660. So it would have increased by an amount that's kind of similar in magnitude to the increase from Q3 to Q4. Right. And most of that increase is from growth of the credit book. Now, from a going forward standpoint, I I expect maybe a little bit of a residual impact of additional recoveries in Q1, as Vlago mentioned a few minutes ago, but I don't think it will be the same order of magnitude. So I expect the trend to kind of resume looking like prior quarters as we continue to expand the credit book. You know, some of that expansion, as I said last quarter and earlier today, some of that expansion and growth will come from going further down the risk spectrum. So, you know, it might cause higher NPLs, but we think it will be and therefore higher provisions. But we think it will be more than paid for in the form of higher returns and robust resilience. So that's generally how I would think about it.

That's great. Thank you so much. I mean, what a second and follow up on this. Of course, your NII post-costal risk and making up for it. You mentioned you hit 23 ROE this quarter. Of course, reinvesting into growth. And I know it's hard to us maybe with a broad range you know on on how much you're reinvesting at this point from from this re figure and if this ratio is going to grow or be maintained or even fall a little bit given the others funding it into 2024. thank you pedro i believe um the best way to address your question is if you take a look at our cost structure in general

About 55 to 60% of our cost structure is largely payroll related. As Davi mentioned in his opening remarks, about 40% of our operational headcount is still in growth or moonshot business that are business that are not yet generating revenues at full capacity or not generating revenues at all. So this just gives you a sense of the allocation of our resources to business that are not considered to be our core profit generating business if we were to optimize for the long term or for the short term we would be able to post materially better results but that's not the case we are in the in the planting season we are not in the harvesting season so we do expect in the long term that ROEs in both Brazil and on a consolidated basis can expand further. And we are investing heavily for that. And by investing, we are investing primarily on human resources and technology. That's so great help.

Thank you.

Thanks, Pedro.

And our next question comes from the line of Rafael Farade from Citi.

Hi, guys.

Good evening. So my question is related to your capital position. You mentioned the previous quarter that your capital position was around $4.5 billion. In this quarter, it was $5.4 billion. So a big jump, quarter over quarter, higher than the earnings. So I'd like to understand if there's an adjustment here that explains this big increase in the capital position. Thank you.

Thanks for your question. No, I think the best way for me to address your question is to draw your attention to our financial statements, more specifically to explanatory note number 32. in which we basically break down our capital positions, regulatory capital positions for Brazil, Mexico, which are two regulated entities. And I think in the slides, what you will see is that the first time we are basically adding both Brazil and Mexico, and there you may see a slight increase in the numbers. But by and large, with the capital that we have allocated to our GEOs that are regulated, Brazil and Mexico, we have about two times the minimum capital that are required in this GEOs. And if above and beyond, you also take into account the $2.4 billion of excess capital that we have at the holding company, we would get to nearly three times the minimum regulatory capital. So we believe we are fairly comfortably capitalized. We don't foresee any need to tap the equity capital markets in the near future for our five-year plan. nor do we foresee the need to make any material capitalization in Brazil in the foreseeable future. Brazil is expected to generate enough earnings to sustain the growth of the business going forward.

And our next question comes from the line of Judith Fernandes at JP Morgan.

Hello, guys. Hi, Davi, Lago, Jorg. Thank you for the opportunity of asking questions. I have a follow-up on Mexico and on your deposit franchise. It's pretty impressive, $1 billion in Mexico. And again, it has been growing very fast since November. But Davi, I think he addressed some points like the wholesale cost and how the credit cards can make this higher 15% yield still possible. is still profitable at some sense. But my question is that your deposits are now growing much faster than loans, right? We just have the regulatory data for November. And I think you had around $800 million of loans in Mexico. So now you have more deposits than loans. That basically implies that you kind of have a negative spread here, right? You're paying 15, actually, I think 16, right? Because 15 is net of taxes. So my point is about Mexican losses, right? Maybe I think you have already addressed this, but I don't know. I think maybe it's the right strategy, but maybe we could see higher losses from Mexico in 24, 25. So I would like to address this. If you keep the 15% yield, even if you don't have the same counterpart on loans, you know, basically buying a security from the government around 11, 25. And then I can do a follow up on this question. Thank you very much.

No, great. No, this is the right question. So we absolutely see this as a way to accelerate credit as well. We always say that your right leg cannot go faster than your left leg. We started effectively only with a right leg, just with credit. When we launch deposits, we have a left leg. Now we have the challenge of coordinating ourselves. And it's a tough... problem because you are not able to ex-ante price for perfection the yield. In an ideal world, you would have perfect information and you have the absolute pricing so that it would build the product that you want. It optimizes. It's an NPV maximization problem. In an ideal world, you can get to that price immediately. We prefer to start high because it's important to create the right impression for consumers, and there tends to be an advantage when you are positioned as the clear category king. That's what we are striving for in Mexico. Once you have that position versus consumers and you start getting significant percentage of the market, then a lot of the flywheels really start turning. And so in that sense, you're right that suddenly deposits are growing faster than credit. But as I said, now we're starting seeing the second order benefits. We're seeing higher income Mexicans coming in, which allows us to increase credit card acceptance rates. for our customers. It allows us to increase limits, which increases IBB for credit cards. It brings more customers in, net-net. We have to spend less in marketing. And so overall, I think this is a big investment for us, as I said. We are looking at these investment decisions very carefully, optimizing for the long term, as I said. but it will be a continuous recalibration of this exercise. And as we go over the next few months and really over the year, we'll be trading off the different sides of that bet. But so far it's clearly, it's paying off really quickly because of the higher credit card customers, the differentiated income profile, the higher acceptance rate, the higher credit limits, increased IBB. We are operating with a product in Mexico that we think is more profitable than Brazil, the credit card per se. It has a higher return on equity so far. So there is plenty of economics to be paying right now a bit higher on the funding cost.

No, thank you, David. I was in Mexico last week and it's impressive the word of mouth of this deposit strategy. If I may, just a quick one here on the eligible unsecured credit customers for you. I think I have a slide on this, 15.5 million, one of the last slides of the presentation. I was checking the third quarter and you had like around 18 million eligible unsecured credit customers in the previous quarter. So it basically implies that this number was down at 3 million. So just checking if you are getting a little bit more risk averse on a secured credit lending in Brazil or, I don't know, anywhere else, or if it's just a different accounting on this number, because it was down again, like from 18.1 to 15.5 million eligible customers. Thank you.

No, Yuri, I think we are certainly not getting... no less optimistic with the expansion of unsecured personal loans. And it's just a different accounting of the eligibility of monthly accounting, monthly eligible customers. But in general, we are super pleased with the potential that we have in unsecured personal loans. If you take a look at the total unsecured personal loan market in Brazil, it's the second largest consumer asset class in the country, after only payroll loans. And our customers already account for approximately 51% of this pool. We have less than 7%, 8% of this market. So we will continue to grow and expand originations there threefold. Number one, increasing the eligibility of personal loans to more customers. Number two, progressively increasing the average ticket size, almost resembling the... the slow growth that we have in credit cards. And number three, it is to progressively increase also the duration. Our average duration today is about one third of the average duration of the market. So by flexing those three levers, we believe we will continue to increase originations of unsecured personal loans going forward.

That's great. Thank you, Lago.

And congrats.

As we already surpassed 90 minutes of the call, we are now concluding today's call. So on behalf of New Holdings and of our investor relations team, I want to thank you very much for your time and participation in our earnest call today. We are very excited with opportunities for the year of 2024 and to continue strengthening our position in Brazil, Mexico and Colombia. Over the coming days, we will be following up with the questions received by our platform and with those that were not able to ask questions tonight. So please do not hesitate to reach out to our team if you have any further questions. Thank you and have a good night.