By Brazil Stock Guide — Citi downgraded Nubank (NU) to neutral from buy, cutting its price target on the digital bank’s U.S.-listed shares to $13 from $18, as analysts warned that the company’s dependence on credit could limit further upside for the stock.
The new target implies roughly 10% upside and signals a more cautious view on one of Latin America’s most closely watched fintech stories. Nubank’s Brazilian depositary receipts (BDR) trade in São Paulo under the ticker ROXO34.
The downgrade does not amount to a rejection of Nubank’s business model. Citi still recognizes the strength of the company’s brand, scale and execution. The concern is valuation — and whether the market is underestimating the risks that come with the next phase of growth.
For Citi, credit remains Nubank’s most important avenue for monetization. But it is also the part of the business most exposed to changes in consumer behavior, household leverage and asset quality.
“It is unlikely that Nubank will slow its growth trajectory without sacrificing monetization and profitability,” Citi analysts wrote.
That sentence captures the dilemma now facing the purple-card bank. Nubank built its story on speed: acquiring customers quickly, expanding products efficiently and turning a massive user base into one of the most profitable digital banking platforms in emerging markets.
But the next stage is more complex. Growing from here increasingly means lending more. And lending more means taking on more credit risk.
According to Citi, about 60% of Nubank’s revenue is linked to credit-driven ARPAC, or average revenue per active customer. That makes the company more dependent on lending than some global fintech peers, which have diversified more aggressively into investments, payments, foreign exchange and other financial services.
The concentration matters because Citi sees a strong relationship between loan growth and risk costs at Nubank. The bank estimates the correlation between credit portfolio growth and cost of risk at close to 90%.
In practical terms, the faster Nubank expands its credit book, the more pressure it may face from provisions and potential deterioration in asset quality.
Citi also points to Nubank’s exposure to unsecured lending, especially credit cards and personal loans. These products can be highly profitable in normal conditions, but they are more vulnerable when lower-income consumers come under financial stress.
A second risk is less obvious but central to Citi’s downgrade: the growth of private payroll loans in Brazil.
At first glance, payroll loans could look like an opportunity for Nubank. They are generally safer because installments are deducted directly from salaries, and Nubank has a huge national customer base that could help it scale the product. Citi notes that around 9% of Nubank’s credit clients already have exposure to payroll loans, a share that is likely to increase over time.
But the same product may also create a problem for banks with large exposure to unsecured credit.
“Credit card and personal loan exposures are effectively subordinated to private payroll loans,” Citi said.
Because payroll loans are paid directly from wages, they have a natural priority in the household budget. As payroll lending takes a larger share of monthly income, consumers may have less room to service other debts.
That means the stress may migrate to unsecured products — precisely the area where Nubank has built a significant part of its monetization engine.
Citi said the expansion of payroll lending is likely to reduce borrowers’ payment capacity and push incremental credit stress toward unsecured loans. In its view, that risk is not yet fully priced into Nubank’s investment case.
The downgrade came with lower earnings estimates. Citi cut its profit forecast for Nubank by 9% for 2026 and by 15% for 2027. The bank now expects Nubank to earn $3.7 billion in 2026 and $4.4 billion in 2027.
The analysts also lowered their view of Nubank’s sustainable profitability. After years in which the company delivered returns on equity near or above 30%, Citi now sees a more normalized ROE closer to 25%.
That matters because Nubank’s valuation has long depended on the market’s confidence that the company can sustain unusually high returns while still growing faster than traditional banks.
Citi said the stock is trading at about 3.2 times estimated 2027 book value for a near-term ROE of around 28%. At that level, the bank sees limited room for another meaningful rerating.