(Bloomberg) -- Nu Holdings Ltd. expects profits from its Mexico expansion to remain elusive in the near-term as the Brazilian online lender grapples with the nation’s vast unbanked population. 

The digital bank’s Mexican operations won’t reach profitability this year or in 2024, Chief Financial Officer Guilherme Lago said in an interview. He predicts non-performing loans in the country will also remain elevated as Nubank rolls out its products to consumers typically underserved by Mexican banks.

“We have to actually learn how to underwrite people who do not have a credit history at all. And, therefore, we need to invest in those transactions and learn from them,” Lago said this week in Mexico City. “Our delinquency levels in Mexico will likely be higher than the average of the industry.”

Nubank, which counts Warren Buffett’s Berkshire Hathaway Inc. among its backers, is betting on growth in Latin America’s second-largest economy as it seeks to replicate its Brazilian business model in less penetrated markets. Morgan Stanley said last week that shares in Nubank could double by the end of 2026 as it expands in Latin America, pushing its market value above $100 billion. 

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The bank has posted non-performing loan levels of almost 12% in Mexico in the first two quarters of the year, while the levels declined to 11% in July and about 10% in August, data from Mexico’s banking regulator CNBV show. Credit cards issued by major banks have NPL levels of about 3.2%.

Over the longer-term, Lago expects delinquency levels in Mexico to remain above those in Brazil given the bank’s focus on the lower-end of the market. Around 50% of its Mexican customers have never had a credit card before compared to Brazil where 90% of clients had a prior banking relationship, he said. Around 65% of its Mexican clients carry a balance, versus only 25% in Brazil. 

“As we continue to grow very fast in Mexico, we will continue to print accounting losses,” he said. “But the NPV, the cohorts of all of the products continue to be super healthy and super profitable.”

Nubank is rolling out deposit account and credit card products in the country and is also seeking a banking license to be able to offer more services. The firm, which currently has a non-bank lending license in Mexico, began that process this month and it historically takes 12 to 18 months, Lago said. 

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Increasing deposits are “critical” to keep growing its credit card business in Mexico because of the significant working capital requirements in the country, where merchants are paid in one business day versus 27 days in Brazil. The online bank, without branches, is close to announcing deals with retailers where clients will be able to withdraw cash, he added.

Nubank has more than 90 million clients in Brazil, Colombia — and Mexico, where it now has 3.6 million customers after launching its credit card in 2020.

“Mexico can be as big for us as Brazil,” Lago said. “We don’t think that the big opportunity for us is actually stealing market share from the incumbent banks within the existing credit card holders. But it’s actually to increase the size of the pie and gain market share throughout people who are unbanked or underbanked.”

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