Nu Holdings Ltd. (NYSE:NU) has received regulatory approval to convert its Mexican operation into a full-fledged bank, a move that puts the spotlight on the company's deposit base and its potential to drive profitability. The Mexican banking regulator cleared the transition on July 10, giving Nu a 30-day window to complete the shift from its current SOFIPO structure. This milestone provides a short-term catalyst for investors, with shares bouncing off their June lows.
Deposit Dynamics in Mexico
As of March 31, Mexico accounted for approximately 14% of Nu's total deposits, amounting to over $5.9 billion, while hosting only about 11% of the group's global customer base of over 15 million. This disparity suggests that Mexican customers are depositing more on average, with deposits per registered customer reaching around $393 in the first quarter, compared to roughly $304 in other regions. However, these figures are estimates, as Nu rounds customer counts and not all registered users hold deposits.
Strategic Implications of Bank Status
The new banking license enables Nu to offer payroll accounts, raise deposit caps, and increase deposit insurance coverage by up to 16 times previous levels. This is crucial in a market where only 36% of Mexican adults had a payroll account in 2024, and nearly 90% of those were concentrated at five major banks. Nu views payroll as a gateway to becoming customers' primary financial institution, rather than just a savings app. The transition from SOFIPO to bank status unlocks these capabilities, but the challenge lies in converting new users into long-term, high-balance customers.
Financial Performance and Market Context
Nu's management reported that the Mexican business reached break-even in the first quarter, with its efficiency ratio improving by 78 percentage points. The company is adding approximately 12,000 new customers daily in Mexico and now covers 98% of the country's municipalities. CEO David Vélez emphasized, "Mexico is a key market for Nubank, and this is a decisive step in our long-term commitment to the country." Nu plans to invest a total of $4.2 billion in Mexico by 2030.
Group-wide, deposits stood at $42.4 billion and loans at $37.2 billion in March. The loan-to-deposit ratio rose to 58.3% from 49.1% three months earlier, while the risk-adjusted interest margin dipped one point to 9.5% due to higher provisions for credit losses. Early-stage delinquencies increased by 89 basis points to 5.0% for the quarter, though loans overdue by more than 90 days edged down to 6.5%. With Mexico's policy rate stuck at 6.5%, Nu may need to maintain competitive savings rates even as it seeks to expand lending margins. Capital Economics' Kimberley Sperrfechter noted that recent inflation data suggests "interest rates will remain on hold in the near term."
Valuation and Investor Sentiment
Nu's shares closed Tuesday at $13.99, up 2.34%, with trading volume of 152.7 million shares—more than double the recent daily average, though not directly attributable to the license news. The stock remains 26% below its 52-week high and 25% above its low, trading at about 21.6 times earnings. The $1 billion buyback authorization, representing roughly 1.5% of market value, offers some support, but the valuation reflects mixed sentiment: investors see potential in Mexico for funding and cross-selling, but await proof that the license improves customer economics rather than just adding numbers.
As Nu approaches its next quarterly earnings release, the focus will shift from membership milestones to deposit growth in Mexico, cost of funds, and early traction with payroll accounts. The new license expands Nu's product suite, but the ultimate test is whether it can lift returns on its growing deposit base.
