Q1 2020 Earnings Call
At this time all participants are in listen only about.
After managements prepared remarks, there will be a question and that's recession.
Today's conference call is being recorded.
I would not terribly covert your host <unk> head of Investor Relations for the company Jimmy Please go ahead.
Hello, everyone and welcome to all of this quarter, if anybody earnings conference call. The company results, we should be on news why your company and yet to be enough with the online.
Earnings release, and South email and that's fine.
<unk> website at <unk> Dot PB group Dot com.
John I would shoot I took the people see so at this time in whole, our Chief Financial Officer, I will talk a call. We've got prepared remarks I called <unk>.
During this call we will be referring to suburban non-GAAP financial measures to review and assess them operating for bombings.
Non-GAAP financial measures I'm, not intended to be considered isolation or as a substitute for the final certain information prepared and presented.
I didn't speak U.S. GAAP.
Well I care about these non-GAAP measures and be confirmation to get mattress piece prepared to our earnings press release before we continue to be snow day. After day discussions will contain forward looking statements made under the safe Harbor provisions of the U.S. probably towards the Carty <unk>.
Forward looking statements involve inherent risks and uncertainty.
The company results, maybe mckee pretty profound expressed today.
What are your phone from regarding these and other risks and uncertainties are included in the company called restrict the U.S. Securities Exchange Commission. The company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Finally of course, a slide presentation on our IR website, providing <unk> I will not tend to called our CEO Mr. Benjamin. Please go ahead sorry.
Thank you Jimmy Hello, everyone and thank you for joining L plus <unk> earnings conference call today.
So with a challenging stop to the beginning of 20 to 20, we adopt the effective measures to ensure the continuation of our business. The safety of our employees and took part of continuous service and support for all our users.
All while doing alcott to contribute to the bought a fight against a corporate banking.
During these precedented market conditions, we took action early to control credit risks and proactively reduced loans originated it all kind of fall, which results in a sequential decline of 23% <unk> our loan origination volume in the first quarter compared to the fourth quarter of 2019, these timely and proactive measures we took.
To ensure that our business operations remain resilient and allowed us to give a solid performance on a positive profitability in the fourth quarter in spite of the challenging environment.
Throughout this period funding all performed remained stable and ample how institutional founding partners continue to show keen interest in London, I'll kind of fall as mentioned on previous earnings call Roaring. The funding cost is a high priority for us. This year. We are therefore pleased to report that our credit costs off.
I don't have fallen to just above 9%, representing a roughly 50 basis points decline over the past three month, we expect further declines in funding cost throughout the remainder of the Ya.
Thanks to our continued efforts to improve credit quality of our borrowing base I'll put into approach to risk management and our timely response to the shifts in the external credit environment and also trying to successful containment tenant recovery from the virus impact delinquencies are under control and improving.
As mentioned on our previous earnings call. Following a period of deterioration due to the virus outbreak in China, We began seeing signs of improvement in delinquency trends in early March. This improvement trend has continued into April and May as China graduate contains the virus spread and the coverage from Sitos.
<unk>.
Oh, they want delinquency rate is now about is now about 20% ROA and pre pandemic levels. Thanks to our continuous efforts to shifted towards quality borrowers and put into risk management approach.
As a result off I will strengthen the efforts in loan collections. Our 30 day loan collection recovery rate has now turned to quit pandemic levels.
We therefore expect vintage of delinquency rates for loans originated in the past two malls to be about 6%, we should add the low end of our vintage it didn't quincy rates over the past two three years, we will continue to strengthen our [noise].
Mismanagement and expect the vintage it didn't put the race to fall below 6% in the second half of the.
You May wonder why this including trend is different from the total vertical delinquency rates just close in the earnings release wishing instead of shows an increase quarter over quarter. The reason is because the reports just because of course are lagging and secondary overstated. Because this metric is measured as a percentage of the outstanding low balance and due to for the throw Dom.
Loan origination volume in the first quarter outstanding loan balances declined by 18% of portable quota to 24 billion I'm be at the end of March.
We have a law and proven track record in managing risk, who didn't say under responsibly through various created an economic cycles <unk>.
Our strong culture, coupled it with proprietary technologies, such as matched Mira credit risk assessment, the access to credit bureaus, such as a high on credit and in future. The PD, you'll see credit Bureau enhances our ability to manage risk effectively as trying to gradually recover from the aftermath of the quote in the virus.
We believe our delinquency rates will continue to show structural improvement as the borrowers we engage with today have stronger credit risk profiles than those we engaged during the P to P era.
If we take a step back and look at where we stand today many of the challenges and uncertainties. We faced over the past 12 months are largely behind us.
Sorry.
Uncertainties with the PDP business are now behind US, we're very close to 40 winding down our back book of P to P lows as at the end of April the outstanding balance off Pete will be funded loans was only 1.3 billion I'm be representing a contraction of 94% compared to a year ago seems to fourth quarter off losses.
<unk> hundred percent of our loan originations have been funded by institutions. We have been completed rely on this new loan facilitation model based on partnerships with financial institutions for over six months now funding all powerful has been stable and we have brought on board more and more financial institutions.
Our financial results shows that this business model is stable and profitable.
Secondly, we believe the rather shrinking Brahman to for our business is becoming clearer the CB I'll see his recent reproduce the consultation on commercial banks online lending group provides much greater clarity on the types of partnership and long facilitation services that banks and online lending platforms can engaging we believe.
Leaves the regulators stance towards the long consideration motto is supportive and recognize the value that online lending platform is bring to flashing institutions in terms of enhancing innovation efficiency and access to credit we believe much over the regulatory uncertainty over the past few is now behind us.
Finally, the worst over the pandemic and its impact is also behind US as described earlier delinquency trends have peaks and are improving as chinas economy is reopening they are still lingering uncertainty is due to virus, especially with regards to the shape of economic recovery overseas and we will.
Continue to remain vigilant and agile during this period, but we are cautiously optimistic on the outlook for the rest of the and we plan to resume growth in loan originations in the Silpada and expect to steady growth during the second half of the.
Oh, we see ourselves as being a position with better visibility and a greater certainty than six to 12 months ago.
So all of these very challenging Shearer, our employees partners and other stakeholders have provided us with tremendous support and I would like express my gratitude for all of them for all they have given us as China story lift the restrictions Beijing and other cities have been lowering their quoting the virus emergency response measures in the recent.
Weeks with hope that they can now help the economy to cover and a return to normalcy.
All the while we are maintaining our focus on the Boston consumer finance market in China by shipping by sharpening, our technological capabilities and providing high quality service to both customers and partners.
Before I move the call, but to Simon I'd like to take this opportunity to second guess still wait for his contribution in shaping the company the direction and a strategy of fall over nearly a decade, we look forward to his continuous support into his new role as our advisor competent to that our cost stress position us well to continue to capture the enormous potential in the.
Consumer finance market.
With that I will now turn the call over to our CFO, Simon Hope, who will discuss our financial results for the quarter.
[noise], Thank you, Phil and Hello, everyone.
In the first quarter, we delivered non-GAAP operating income of 464 million RMB, a solid results given the unprecedented market conditions.
Our balance sheet and put a t. remain strong with 2.4 billion RMB of cash and short term liquidity.
Leveraging our strong technology, we look to capture new opportunities presented in the post pandemic environment and expand our relationships with business partners.
Before I go over the financial results for the first quarter I would like to make a few comments on the new accounting standard S. C. Three to six commonly known as diesel which we adopted from January the first twentytwenty.
As a result of Cecil we recognized a decrease in the opening balance of retained earnings of 883 million RMB.
There were essentially two adjustments made as a result of Cecil and this is laid out in a table in the earnings release.
Firstly, we adopted a uniform credit loss model for all on and off balance sheet credit exposures that reflects lifetime expected credit losses.
The adjustments do you see on the asset side of our balance sheet, mainly in loan receivables and accounts receivables reflect this change in credit model from an incurred loss method to an expected loss method.
Secondly for guarantee accounting Cecil has meant that boasts a guaranteed liability and Cecil liability has to be set up upfront on day, one for each of the guarantee liability reflects the value of us providing quality assurance services to our institutional funding partners, which is then really.
Do you start with a term of each loan as income.
While the Cecil liability is consistent with the over a requirements of the Cecil standard to recognize credit risk upfront increase and the opening balance about quality assurance payable.
Of 619 billion RMB, primarily reflects this change in accounting treatment.
Adoption of Cecil also means we now presented results from quality assurance in our income statement differently you.
We foresee saw gains or losses related to quality assurance were recorded in one single line item within other income.
Under Cecil the income and credit losses related to quality assurance are recorded separately within operating revenues and operating expenses.
Now turning to the financial results for the first quarter and interest of time I would not walk through each item line by line on this call. Please refer to our earnings release for more details.
Net revenue for the first quarter of 2020 increased by 14.8% to approximately 2.11 billion RMB from 1.5 billion RMB in the same period up 29, TDE, primarily due to the adoption of assay three to six.
Loan facilitation service fees decreased by 60% two or 375 million RMB for the first quarter of 2020 from 939 million RMB in the same period of 2019, primarily due to the decline in loan origination volume any decrease and the average rate took transaction fees.
Post facilitation service fees decreased by 41% to 183 million R&D for the first quarter of 2020.
From 300, and Eightmillion RMB in the same period of 2019, primarily due to the rolling impacts of deferred transaction fees.
Net interest income was 315 million RMB compared to 171 million RMB and the same period of 2019, mainly due to the increased interest income from expansion and the outstanding loan balances of consolidated trusts.
Guarantee income was 1.15 billion for the first quarter of 2020 due to the adoption of the U.S.C. three to six.
Non-GAAP adjusted operating income, which excludes share based compensation expenses before tax was 464 million RMB for the first quarter of 2020, representing a decrease of 43% from 807 million RMB and the same period of 29 team.
Other income increased by 105% to 54 million RMB for the first quarter of 2020.
Paired with 26 million R&D in the same period of 2019, primarily due to government subsidies.
Net profit was 420 million RMB for the first quarter of 2020 compared to 703 million R&D in the same period of 2019.
Next let me give a few further updates.
Covert 19 has brought unprecedented levels of macroeconomic disruption and uncertainty across the globe.
At present, many aspects of daily life in China are starting to return to more normal routines.
Since late March we have also seen signs of improvement in our loan collection rates and delinquency trends as a result, we expect loan origination volume in the second quarter of Twentytwenty to be at a similar level compared to the first quarter of Twentytwenty.
Although the first quarter has not been easy we are well positioned for the resumption of growth in the second half of that year.
Turning to share buybacks, we purchased approximately 5.5 billion Ats between January 2020, and May 22nd of Twentytwenty.
As of May 22nd.
We have cumulatively deployed approximately 84.6 million U.S. dollars to repurchase the company's Ats under our share repurchase program, where they total auto realized about dot 120 million U.S. tallest we are very comfortable with our balance sheet and liquidity position.
In particular, our cash position remains strong with approximately 2.4 billion RMBS cash and short term investments as at the end of March 20 to 22.
During these times of uncertainty, our strong capital and liquidity position as an important source of confidence for all our stakeholders.
Including our employees and institutional partners.
We are confident that our core prescribing position us well to continue to capture the enormous potential in the consumer finance market with that I will conclude my prepared remarks, and we will now open the call to questions. Operator. Please continue.
Yes. Thank you.
We will now begin the question and answer session.
If you would like to ask your question. Please press Star then one on your Touchtone phone.
If you are.
Your question. Please press Star then too.
Please pick up your handset before asking your question.
The benefit of participants on today's call. We ask that if you ask a question of management in Chinese. We also vessel you kindly repeat your question English.
So if those trusts in mind. Please hold all your some of the roster.
And the first question comes from Alex you with yes.
Hi, Thanks, Paul.
Hi.
Okay.
So.
Average transaction.
So could you give us an update.
Hey, PR.
Q1, so what's the decline due mainly.
Due to moving forward off your.
To a higher credit profile customers and.
Would you expect that too.
Okay to come in new.
Coming quarters.
Secondly.
The bulk youre, a turnkey income booked in the revenue line. So for the 1.2 billion of guaranteed income could you give us a breakdown of how much of that is related to a release back from previously and how much was due to develop new loan.
From from Q1, and my third question, it's on Euro.
The asset quality trend you have mentioned.
They went delinquency have or falling to about 20% below the pre.
And dynamic level right. So.
Hi, My understanding is that your your ethic rookie if now running even better than the pretty cold benighting level. So what's that also due to a shifting to higher.
Profile Cosmos.
Would you expect.
That kind of a customer profile mix to continue for the rest of this year. Thanks.
Alex Thank you for your questions.
One by one with regards to the transaction fee rate.
Notice that the commentary we made was on a year on year basis our.
Our transaction fee rates currently in the first quarter is averaging about 4%, probably just slightly a little above 4%. In fact, it is roughly stable versus the fourth quarter Oftwenty 19, but first is first quarter of 29 team.
It is lower.
And if you recall.
During the course of 2019, what we did was we shifted a lot of the funding from.
[laughter] pure individual sources to institutional sources.
And also.
We also upgraded continuously upgraded our a borrower customer segment throughout the year. So.
You know at the current moment.
The lending rates that our lenders in the park on charge is capped at IR, 36%. It has been hundred percent that way you know even in the fourth quarter as we were 100% funded by institutions. So I hope that gives you a bit of color that comment was on a on a year on year basis.
And as you recall.
You know six to nine months ago, I think people were debating I know, whether institutionally funded loans to be lower take rate versus Peter he founded and that's what you're seeing on your and your basis.
So that's the first one.
The second what your second question and guarantee income.
I don't have a precise breaks down in front of me, but I, but but you could see from the table in the earnings release, where we broke down the impact of diesel on the January the first opening balances.
We'll see that 619 million increase in our quality assurance payables was primarily because of the.
Looking at that additional.
Guarantee liability, which needs to be then released over time.
Well leased over time in.
In Twentytwenty and so.
You know I'd say.
Yes, you could you could probably haven't have a sense of what that number could be.
We can follow up with you in more detail yet going forward.
Yes, if this doesn't answer your questions and we can try and they got some numbers.
For the day, one delinquency rates decline, yes. It is.
Roughly 20% below pre pandemic Oh, so it's actually at historically low point.
In the company's.
History.
Thanks in part, it's because of our proactive continuous efforts to shift to a better credit profile of borrowers. It's of course, all the efforts we put in drink, especially during this period in managing credit risk right and.
And if I give you another number.
You know you know that of all the approve borrowers on our platform, we have seven credit levels level, one being the lowest credit risk level seven being the highest credit risk.
And if you look back in our 20-F annual report, we actually disclosed the distribution of our.
Loan originations by the seven credit rating levels and for the full year 2019.
You will see that 50% of the loans, we originated last year fell within credit levels wanted to me. So the top read the best three categories in the first quarter off 2020.
Roughly 80% were originated in credit levels, one to three so you can see the significant shift that we've been making.
In sort of the.
The borrower mix and yes, I think one of the ways we we.
As from alluded to on the on is going as comments, we are expecting to further improve our credit risk in the second half of the year.
And I think this patent will continue yeah in the second half a year.
How does that answer your question, Alex, Yes, restaurants, which I just a bit of a follow up so on your comment about.
Great profile mix in Q1, 80% point number one to three so.
Obviously in Q1, you have taken a very tight credit approval policy, but theyre going to happen when you more comfortable terrific growth would you.
We expect if kind of a mix to relax somewhat in order to better balance youre going to rethink grows.
Thanks.
Yes, Alex potentially yes, there will be some variations and but you know our target is.
To further improve quite there yet at the same type.
[noise] okay. Thanks.
[noise]. Thank you.
The next question comes from Jon Kyl with Morgan Stanley.
Hi, Thank you management for taking my question, So I feel.
Mostly is probably housekeeping.
About some numbers I guess.
Can management provide the breakdown by on Palin shouldn't off balance sheet himself, the first quarter alone facilitation and the outstanding balance or and what is the total outstanding balances and of course colder and secondly.
So a number of questions is.
About it they went delinquency.
Hello.
We haven't.
Okay, we're going to actual number or that.
Well the trend in particular to how much. It's it's is rise during the probably not in period. Thank you.
Sure.
John I think.
Total loan outstanding balance as we mentioned at the end of March was 23.9 billion RMB.
And the the proportion you'll see the on balance sheet proportion you see on our own balance sheet as loan receivables. So I think you can have a sense of that.
In terms of the loan originations you know what I'm.
I'll come back with to you on that I have the numbers, but they don't have the percentage in front of me my I might have to come back to you on that.
The day, one delinquency rates.
Let me give you.
Some numbers for the our latest figure.
It's running at.
Nine about 9.7%, Okay, pre Colgate, which is the fourth quarter, let's call. It fourth quarter average was running at around 12.4%.
So you will see the gap.
And in February which is the Pete.
Obviously, you have all the credit issues, we were running at about 12.8%.
Thank you Simon So I guess I'll follow up on on that Oh regarding the.
That does the loss assumption or the provision. So obviously, we make a profit this quarter, which is a great I'm just wonder.
It's all the provision we need to fall probably not in has already been provided for and related to that is the loss of function or the vintage assumptions for the loehmann's opportunity in the first quarter Henry profile I.
Yes, I'm convinced we use in Macon, D.C., so argue pearman costs.
And.
And.
And I think on day, one we need to pull life cycle.
A standby viability and assist liabilities just wonder if that they want recognition in terms of the ratio between these two components are they the same or the or defer. Thank you very much.
Right.
Okay.
First of all John.
The numbers I have is you apply question of loan origination volume how much was on balance sheet versus off balance sheet. The number I have here is 76% off balance sheet, 24% on balance sheet in the first quarter up this year.
In terms of the loss assumptions.
And I think generally the the assumptions that you can see so yes, you're right. We do from day, one half to set aside provisions.
For the expected credit loss over the lifetime of each loan right.
So I think.
Yes.
No I mean, a few comments.
Everybody is spend about these new accounting standard I first wanted makes him a few people comment. So I think there two features of diesel that I think everybody on the call should be aware off firstly Cecil doesn't make earnings more sensitive to the credit cycle because it requires you to make all the provisions upfront for the expected credit losses. So when the credit cycle is deteriorating earnings movie hit more severe.
And when credit as improving you could actually have releases.
Secondly, because the guarantee income released from the quality assurance is gradual wall over the term of alone. When you have fast volume growth there could be a negative temporary drag on earnings because you're recognizing that credit losses upfront, but the guarantee income is only gradually be recognized.
But at the end up a day.
This is an accounting standards he saw.
Does introduce changes to revenue timing credit loss measurement, but it doesn't change the eventual outcome and cash flows off the business. Okay. Now in terms of our sea salt assumptions and estimates.
You know as you know we have always had a prudent risk management culture.
We have continues this approach under the new accounting standards.
The Cecil framework requires our estimates to reflect expected credit losses over the full expected life and also considers expected future changes in macro economic conditions.
Given that there's still some degree of uncertainty and the outlook. We have built in a moderate upward adjustment into our Cecil estimate for prudent. So the numbers you see today reflect also includes also this moderate upward adjustment.
Because of Prudence and as we said we have seen improving delinquency trends recently and so if such trends continue we could end up being overly conservative in our credit loss estimates and result in provision releases sometime in the future. So I think you know what I'm trying to say as we are.
Again, being relatively prudent and our risk management assumptions here, Okay now.
Your final question is around about the Cecil liability versus the guarantee liability they reflect two different things and you'll see on our balance sheet. The seasonal liability is actually called expected credit losses for quality assurance commitments. Okay. This is this is basically the expected loss component.
Guarantee liability, which is what you referred to as the stand ready I think obligation.
Is reflecting the fair value of the.
Quality assurance services that we have provided to our institutional partners. Okay. So it's it's like an income it's the income component of this and this is Dan released through the PNM as revenues over the life of each loan.
I mean does this help clarify your questions John.
Oh, yes sure so.
Then we mentioned earlier that the for the loans.
March and April April we should expect the.
The vintage laws to be at around 6%. So I just wonder if that's the assumption we use for the first quarter.
In Asia or will you be higher utility.
Probably not impact.
And finally on on how can we have a number or your party previously that is the key way I've.
As a percentage off the QF potentiate alone and I understand diary.
We go down the risk bearing fruit just number should decline on just wonder if we have for similar metrics on on that as well. Thank you very much.
Yes, you're on your second question the quality assurance fun protect that loan.
Essentially all our loans at the moment is all you know and the quality assurance. So I think there's there's no real need to.
You know obviously continue.
Disclosing that type of number it's essentially you know at the moment all our loans are have quality pretty much have quality assurance.
In March April our expectation for.
You know vintage delinquency rates of six look I think as I said, we take.
We do take a somewhat more conservative view of the future.
And we built in a certain amount of prudence in these uncertain times.
And so.
Yes, yes. These.
Yes, yes, we end up being overly conservative these delinquency trends don't Pan out as expect as as we have baked in then there we could see credit loss credit provision releases in the future.
Thank you very much Simon.
Thank you thanks.
Thank you and the next question comes on definitely burn with Citi.
Hi, Thanks.
I have a couple of question.
So I.
Okay.
So first.
On the table that.
Yeah.
That does.
Oh, yes.
Yes.
Yes.
He off balance sheet.
D quite yet.
Yes.
Your next spring back.
If we see for example, when should we see hopeful.
Almost doubled.
[laughter].
Right, that's funny quality assurance payable is.
Oh, that's an issue.
[laughter].
Yes, hi.
Second we got going.
Guaranteed income.
Yeah.
First quarter.
Also it seems that I'm not sure.
Andy.
Excellent Okay, Hey.
Hi.
Thanks.
Thank you.
Hi.
Sure.
Okay. Thanks Bye.
Oh.
Also in comes off the.
I'm just wondering.
Thanks.
Honestly what would be.
Yeah.
Right.
Oh, the first culture.
[laughter] positive.
Sure.
Oh.
Thank you.
Okay.
Definitely thanks to these questions I.
I think this is becoming the Cecil call at the moment.
But I'll try my best to explain and answer all the questions.
Your rights.
Your first question as to why the adjustments for loan receivable account receivable.
Seems larger than quality assurance I think first of all looking at percentages may not be the best way to look at it but second of all.
The type of adjustments.
The corresponding adjustments are different in nature for loan receivable account receivable, it's because we in the past used the incurred loss method. So we had to move from incurred loss to Cecil to expected loss okay.
Well the quality assurance payable.
We've always the credit loss component, we have always used expected loss basis. So this is basically the vintage delinquency rates, we talk about so this the credit risk component has always been on Cecil okay or similar Cecil.
What we need to add on top is this guarantee liability reflecting.
The sort of you know as I said the value of these services, we provide it's not a credit it's not quite the credit risk component. So at a different it's a different nature.
You are trying to compare apples to oranges at the moment.
The second question is your second question 1.1 billion guarantee income why is this so much larger than the 690 million payable adjustment we made for Ses all.
It's again the 1.1 guarantee income also reflects the new bookings we did in the first quarter right. So there will be released is of guarantee income from loans originated in January and February right. So so theres.
And then there's the the loans we originated you know.
Second half of last year as well right. So there's the two components.
I hope that clarifies and your final question.
You know [noise].
What would our earnings look like.
Basically under the old accounting standard I I'm afraid, it's very difficult to answer this question because.
You know the way we account for key way payables and liabilities now is now different and the way. The this flows through the income statement is now very different so the income release from quality assurance did have a positive effects and I'll wrap Q1 revenues right. Some of this relates the release.
The additional guarantee liabilities, we set up in Canada. The first when we first implemented at Stifel.
And as our loan originations declined in the first quarter. This release of guarantee income.
Obviously had some positive effect on our Q1 revenues, but even if you stripped out this factor and also the higher provisions for the credit exposures that used to be on in the incurred method and now needs to be on C.. So our underlying business would still have been very clearly profitable.
But overall I think it's very hard to quantify because of the different accounting standards.
We can obviously walk through with you in detail offline.
Some of the mechanics, if you want if you're interested.
But at the end of the day, you know I just want to highlight this is an accounting change it doesn't change the eventual outcome and cash flows of the business.
Right understood.
And also on channel.
Clarifier Special survey, we should look at your commissioning all credit cost this is Jeff.
Looking now we can actually that publishing trash.
Has the costs fall back T shirts commitment.
Oh.
Yes, All your commission art.
No.
40.
Oh.
Yes.
Yes, correct.
Your final if not yet if I understand your question correctly, all the provisions for credit credit exposures would be in those three items the credit loss on quarterly.
Quality assurance commitments.
The provisions for loan receivables provisions for account receivables that it by loan receivables our on balance sheet loans.
Account receivables are basically our transaction fees our services.
That obviously, you know would be affected by credit risk and then.
Quality assurance credit losses would be for the off balance sheet component correct.
Right I missed it.
And lastly.
Just wondering if you have.
Sorry.
Michael Jackson's.
Okay.
Right.
The timetable had slipped of we're obviously because of co bid and and we will update you when there is progress.
But I still want to reiterate that we are in a good position to apply for this license. We are one of the largest platforms in Shanghai, we have a good relationship with our local regulators.
And of course, the wind down transition of our PDP business has been obviously one of the most successful in the industry.
And beyond that at the moment there is nothing concrete to report back, but we will update you when there is.
Okay got it yes.
Thank you.
Thank you and the next question constant Stephen Shang with Tommy International.
Hey, good evening, Simon as Stephen here.
Hi.
Thank you.
Three quick questions.
One is a again a follow up on these guaranteeing coming and credit loss.
For the quality assurance commitment.
Are you trying to compare with the one uniting the net speak for this hot now excluding the provision for loan we still because he's on balance sheet, but for the guaranteed income and the credit loss for quality us ruins actually if we passed the net release in first quarter.
Even compared with one Kunai team you have a net charge rather than a net release. So he is very interesting what has caused a natural release.
Under the does such a difficult environment is it because you have made I'll make a lot of excess published one during Q4 or because of the accounting adjustment you generally youre trying to boost your opening balance.
At the very high level, so, resulting a net I would describe it as a net release of guarantee.
Liabilities. So if that's the case if Q1 has been the most difficult.
Empowerment and you did such a good job on that part so does that imply the in the coming quarter.
We will likely to continue to see over the next release that means that the current income will continue to be higher than tend to create the laws of the quality assurance and end up and in a related question again relating to walk Alex has been mentioning about the take rate.
All the off the off balance sheet.
Persist off the lump a citizen business.
You mentioned that you have.
Which one Peter Peter institutional toys of of could good customer.
Did you see any any rise in guarantee calls I I suppose.
It is is quite unlikely went.
Because when we take a look at the take rate will have to minus that guarantee corso. So the effective guarantee calls when you look at it in Q1 comp up Q4 did you see increase or decrease because you saw that you know and that really easy E.
You can guarantee libraries of due to somebody not.
You know I I just I just wanted to clarify. So these are the first one quick question second question is pretty simple.
Are you going to move into non guarantee.
Some time I don't know maybe later this year.
And the reason.
For moving in or not we'll bring in why why is it. So so that's the second one and final question I didn't see all mention or how you know the the new rules on the on I.
Lending for the commercial bank console pay somebody but should be should be positive <unk> slightly positive for you, but at the same kind the feed I also see also used true.
You know what new guidance relating to the liability insurance.
Of the insurance company and these liabilities when should be on the gradual downtrend. So.
I just wonder whether some of your off balance sheet guaranteed business, Oh guarantee by the incidence company and and we would that rules negatively affecting you.
No guarantee business in future so.
Besides three questions.
Hi, Stephen.
Yeah, I think let's that's for the for the accounting question I think.
It's.
Based on what I'm hearing from you it's not quite.
It's it's not quite.
I think what she thinks it is I don't think it's quite apples to apples comparing twentytwenty and.
2019.
Yeah.
So I think what you're doing what I think you're doing is you have taken out guarantee income in the first quarter and then minus the credit loss and quality assurance. So you've got a net.
The number is a positive right [laughter].
Yeah, and then and then you're saying well first quarter 19, as a net charges I don't know what that number is but but but but let me just.
Explained is under.
In simplistic terms.
The the reason why.
Do you see.
There is this gap is because of the timing, obviously timing difference as well right when our loan origination volumes are declining and slowing under the new accounting standards. The revenues are accrued.
Accrued on a.
It's released on a monthly basis, so, but whereas the provisions only reflect the current quarter's origination and if you originally is coming down the current quarter origination could be small right. So therefore, you have a case, where the income becomes larger than the bottom and appeared.
When you are growing fast the reverse could happen right you have a lot more volume suddenly that needs to be making a provision.
Et cetera, so I.
And the new accounting standard your splitting out these two items explicitly.
The old accounting standard you can't it's not comparable because you see a similar item in our income statement court T. way, a gain or losses in the past right quality assurance gains or losses that is not just the net figure of income.
Minus credit losses actually the way, we come up with the key way asked gain or loss in the past is the methodology is different the process is different it's a bit too complex to go through on a call was obviously with so many people, but we can't go through with you in a bit more detail privately.
So.
It's what I'm trying to explain is it's it it's not apples to apples when you compare like that but your critical question I think what's you're trying to think of is is there going to be a net release right.
In you know going forward I don't think it's fair to say there should be net releases into perpetuity that it's not fair because if you have.
Assess the credit risk correctly and gift you have the growth is very stable then actually it should pan out right. It should pan out to be fairly fairly neutral in a way, but temporarily you could have differences in caps and what we've been trying to tell you.
The comment that I made earlier is that we have been quite conservative in.
Obviously looking at credit risk in this current quarter because there was obviously all the macroeconomic uncertainties and we've built in some upward adjustments and of course, we've seen improving trends and if such trends don't if such trends improvement trends continue we could be looking at Citi.
Operation, where we have been a bit too conservative overly conservative and these credit loss estimates and therefore result in some provision release I can only state as much.
You know technically if you if your estimates are accurate then you shouldn't see much deviations right.
And you're right the take rate in the past.
Is net of credit where its net of a lot of things then and you could have a situation where the take rate you see you know because of credit risk comes down a lot but in this under the new accounting standards actually it's all separate can pop separated components right I just I don't know this helps.
I think about it so you can't extrapolate what you've been seeing in the past in the past year in 2019, and say look it should be going this way in 2020, there's a few differences because of seasonal.
Your question on.
You know non guarantee.
Models.
You know.
I think we have continue to explore new economic models with our institutional finding partners.
Such as profit sharing riskless models.
You know the recent progress has been slow down buying the pandemic.
And I think we will provide you with more updates when there's obviously more concrete you know further concrete progress in these funds.
Yeah.
Yeah, Let me Hi, this is a phone let me add at a bit on that last question I think you're asking about that the new consultation of the online commercial bank online lending as well as some recent news on the.
The governance guidance our insurance.
So I think there's no question the short answer is.
Out of our institutional partnerships. There is a very very small percentage that involves insurance company. So the impact of that is.
You know negligible to us no impact to pretty much no impact to our partnership with our institutions and I think you know I want to echo on your points that you're right that.
We believe the recent a consultation on the commercial banking online lending.
Rule.
Is a very positive news for the industry because it really establish the phone fundamental framework for how banks can engage in online lending together with partnership with.
Our technological with Fintech company Fin tech platforms like us I, that's the importance of that cannot be overstated and you know to the industry to company like us. So we are very very encouraging.
All right. Thank you and the next question comes on your end John with Credit Suisse.
Hi.
Just.
Last question.
Can you please provide.
Hello.
You mentioned.
Chris.
Yeah.
Okay.
Okay.
Yeah.
Yes.
And also do you see any impacts.
And that's true.
[music].
With that.
Structure.
Right a year on thank you very much for your question.
I think on the call phone mentioned.
You know funding cost of about nine just above 9%.
This is the current you know a recent month.
Level, I think first quarter would be a little bit higher than that it's obviously somewhere between 99 a half.
You know for 2019, I think we're on our previous calls we've been describing the funding costs of between 10% to 11%.
And the trend really has been falling throughout the year and and we started the year probably closer towards 11 and at the year closer to 10, and then now it's heading towards nine it gets down to nine and a half and down towards not so I think you know for the for the for the time being we have confident that.
This is it looks like we can still continue to improve on this funding cost and I think theres going to be.
More more declines that we'll see going forward.
In terms of the trust I don't think we have we seen much impact costs are about a quarter of our loan volume.
So we haven't no we haven't seen a much much impact at all and.
Thank you and the next question comes on player Yang with Seahawk capital.
Congratulations for that.
I have three questions first Kim please talk about.
How are you.
Great.
Hi.
Last year, and what's your outlook, reflecting cost.
Second half this year and the second question on yes, as you guided on it and its result, and Oh loan origination in the same quarter, which is on at the same level with first quarter and yeah.
With the NPL getting better on do you see on a quarterly on Pos eight to increase quarter to quarter ended third question I can't talk about how is the on regulation on a long on NPL collection.
And yeah on how would you not reach the on individual investors on indoor P to P model as we see the new business Cod Yonce hassle.
Thank you.
Right. Thank you Claire.
I wasn't I didn't hear the very early part of your first question, but it's about sort of the outlook for our funding cost I think there was something about our business trends transition, but it's pretty preliminary outlook for the funding cost correct.
Oh, yes.
Yes, so so as the it's one that I have been saying.
You know.
Our funding cost has come down to low 9% or close to 9% of the moment.
And it used to be 10, 11% last year. So it's been considered on a consistent declining trend every month.
And we expect further declines in the second half of the year from the 9% now.
You know I think it'll go below we could get it below eight below 9%.
The your second question.
Unfortunately, we haven't given out any quarterly net profit guidance.
It will be a profitable quarter no doubt, but you know the quarters not closed so I'm afraid we can't give very specific guidance on on you know quarterly net profits.
It's not something we've we've done in the past either.
On NPR on regulations on NPL collections.
You know if you go back in time last year.
We in the fourth quarter for the fourth quarter results.
We did allude to of course.
You know.
We tightened certain standards in loan collections.
Et cetera, but I'm very happy you know and then of course covert 19 hit in February So, there's a big disruption, but as we said on the earnings.
You know in our actually earnings release, our low recovery rate have actually returned back to pre Corbett fourth quarter levels.
And this is the what we call. The 30 day don't collection recovery rates. So I think you know the effectiveness the measures we've taken to improve loan collection, there's clearly been working.
And we're actually back to fourth quarter levels.
And finally your questions about wealth management, yes, we do have a you know a fairly significant base.
Individual PGP investors that have been loyal and obviously had a good experience with US you know me made good returns in the past you know how many years that we've had the P to P products.
And we are in the early stages of developing you know wealth management offering centered around in the beginning outreaching to these PDP investors.
The offering at the moment is mainly focused on you know.
Bank time deposits.
But it's really in a very early stages and I think what we'll do is what will update you later when we have more information to share on this topic.
Thank you.
Thank you.
And as our no further questions now I'd like turn the call back over to the company for closing remarks.
Thank you once again for joining US today, you have further questions pushed through FY, two contacting pollution group Investor Relations team.
Thank you. This includes the conference call you May now disconnect your lines. Thank you.
[noise].