Bradesco is expecting another quarter of deterioration in NPLs of Nubank, which should impose a challenging tradeoff on the bank. If it continues to increase the pace of loans, Nubank could be impacted by the increase in provisions; if it grows more slowly in credit, it may struggle with customers as approvals and limits may drop.
Bradesco has an ‘underperform’ recommendation for Nubank with a target price of US$ 3.30.
Analyst Gustavo Schroden detailed in a report why he expects an increase of 60 basis points in Nubank’s 90-day default in the second quarter – in the first quarter, the increase was 70 points.
He made the estimate based on the observed trend in the digital banking numbers in the first quarter and after examining the industry data.
According to the analyst, BC data show that the industry default rate still has a long way to go until it normalizes, returning to pre-pandemic levels.
“The average 90-day default rate for personal loans (excluding payroll) and credit cards in February 2022 was 140 basis points lower than in December 2019,” the analyst wrote.
In addition, Nubank’s Q1 data showed a “significant deterioration” of the bank’s 90-day default.
The Bradesco analyst estimated the ‘NPL formation’ (the change in the balance of overdue loans) at 2.4% in the first quarter – compared to 1.3% in the fourth quarter of 2021 – a sequential deterioration of 110 basis points.
The ‘NPL formation’ was calculated by the analyst from the data disclosed by Nu in the IFRS standard. The indicator indicates how the quality of credit is evolving, and in the case of an increase in this percentage, the conclusion is that delinquency and provisions are on an upward trend.
https://playcrazygame.com/2022/07/27/nubank-default-will-get-worse-says-bradesco/