Q3 2020 FinVolution Group Earnings Call

At this time all participants are in a listen-only mode after Management's prepared remarks. There will be a question-and-answer session.

Today's conference call is being recorded.

I will now turn the call over to your host Jimmy pen head of investor relations for the company Jimmy, please go ahead.

Hello everyone and Welcome to our third quarter 2020 earnings conference call. The company results will issue be our news while your services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IR section of our website. Mr. Boon our chief executive officer Mister Simon whole our Chief Financial Officer and Senior vice president for finance will start the call with their prepared remarks and conclude with a Q&A sessions during this call. We will be referring to certain non-gaap Financial managers to review and accessible operating performance. These non-gaap Financial measures are not intended to be considered in isolation, or as a substitute for the financial information prepared and presented in accordance with you guys gap for information about this non-gaap measures and Reconciliation to get managers. Please refer to our earnings press release.

Before we continue. Please note that today discussion will contain some statements under Safe Harbor provisions of the month. We looking statements involve inherent risks and uncertainties as such the company results may be materially different from the views expressed today for the information regarding this and other risks and uncertainties off included in the company filings with the Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law finally WE Post light presentation on our web site providing details of our results for the quarter. I will now turn the call over to our CEO, please go ahead sir. Thank you Jimmy Berg.

Hello everyone, and thank you for joining also called twenty-twenty earnings conference call today. We are pleased to report continued progress in our operations with the shift to higher-quality customer's name operational and financial results were better than expected in the third quarter 2020 a further Testament to the agility and the robustness of our capabilities for three month period between August to October how everidge declined to 28% as China gradually emerges from the aftermath of COVID-19. Our loan business office has been Gathering momentum our loan origination volume in mainland China for the quarter, which is 17 billion MB representing a 30% increase quarter-over-quarter and exceeding. End of our guidance range more encouragingly our operating income increased by 21% quarter-over-quarter to 689 billion, MB.

Focus on prudent to credit risk management coupled with our proprietary risk assessment technology continue to support Improvement across multiple operating metrics in the third quarter in the following month. First, the Vintage didn't consider eight for Longs originated in the second and third quarter of this year is expected to come in below 4% and going forward. We expect the Vintage didn't consider 8 to further over to around 3.5% by the end of the year next the vertical delinquency disclose continue to show sequential Improvement in all time, but notably the early stage of delinquency rates are 15 to 89 days past you have fallen to 1.9% If a historically low level for the company.

Finally all of these continued improvements despite the COVID-19 induced economic challenges demonstrate that our diligent efforts in targeting and serving better quality borrowers paid off as both shipped by our enhanced technology capabilities to build a greater synergies with our partners.

As expected we continue to experience strong demand from our partners for Quality assets without strategic shift towards better quality borrowers. We were able to study lower the cost of funding on the platform over the past one year. We are glad to report average cost of funds on the platform additional funding Partners declined to 8.2% in the third quarter the cost of both phones on the platform is even lower at below 8% given market dynamics in the aftermath of COVID-19 and evolving regulatory environment. Our business operation is remain healthy and profitable in the third quarter. This performance was powered by our technological capabilities and a strong execution of our corporate strategies with the faster and a better-than-expected trout fishing to adjust to all the higher quality borrowers. We now expect our loan value in the domestic market for the first quarter to be between 18 billion to 20 billion and be representing an increase of birth.

6% to 18% over the third quarter

Oh, I'd like to update you on our other strategic initiatives as we continue to leverage our technological capabilities to drive our growth in the wrong wrong first. We are making life, you know international business expansion in particular in Indonesia, which today forms the bulk of our international business Indonesia. We operate on the landing license issued by the month and we are now one of the leading Think Tank Platforms in their Market with over three million registered users our business operations. Indonesia is gaining strong faction long origination wage significantly Ruben of five times from the depressed levels in the second quarter 2020 during which many nations Nationwide lockdown measures in response COVID-19 were implemented wage low volumes in Indonesia are now well above recovered levels and at the highest level since we began operating them the strong momentum is continuing and wage.

backed loan origination

Indonesia to increase another 40% also quarter-over-quarter

We also have operations elsewhere in Southeast Asia. For example in the Philippines where the syntax ecosystem is emerging in a highly promising and a dynamic manner. We will continue to capitalize on our industry new house and technological capabilities to explore growth potential in the technology-driven financial services in these countries.

Unfortunately our wealth management initiative remains on track in expanding its product and service offerings with continued growth in cumulative Investments facilitates of around 1.6 billion representing an increase of 33% quarter-over-quarter, in addition speaking of the development of our technology as a service. We have been making steady progress in powering Banks and other financial institutions to increment digital transformation in the Consumer Finance operations currently have a healthy pipeline of institutions in discussion and will continue to spread continues to spearhead our wage of exporting our Technologies to more financial institutions.

in summary

I'll proven track record in Technology Innovation responsive.

Responsible risk management and effective measures taken to navigate across credit and economic Cycles have allowed us to successfully managed through the various regulatory changes in recent years.

We have repositioned our car business all findings on platform have transitioned from PDP to financial institutions. And the customer base has significantly shifted towards the higher-quality segment resulting in life and employees for our borrowers and much stronger credit risk profiles. We continue to invest in new strategic initiatives leveraging our technology and know-how and some of these initiatives off as Indonesia gaining momentum and the starting to pay off. We are financially solid and the web position to generate a sustainable growth and unlock the vast potential in the Consumer Finance in choice and abroad and also I would like to take this opportunity to thank Simon for his remarkable contributions to the company during his tenure Simon will join our board and we look forward to his continually contributions as a member of the board at the same time. I would like to extend a warm welcome to mist charging issue as our new CFO. We look forward to his contributions in his new role that I will now turn the call log.

Simon who will discuss our financial results for the quadrant

Thank you for calling and hello everyone in the third quarter of mid a recovering COVID-19 environment in mainland China. We delivered non-gaap operating profit of $6,098 million R&B representing a sequential increase of 21% further demonstrating the sustained profitability of our core business model our balance sheet and liquidity remains strong with 3.4 billion RMB in unrestricted cash and short-term liquidity leveraging on our strong technology. We look to capture them opportunities and expand our relationships with business partners. Now turning to the financial results for the third quarter in the interest of time. I will not walk through each item line-by-line on a call. Please refer to our earnings release for more details.

That's Revenue.

Third quarter of 2020 increased by 13% to approximately 1.8 billion RMB from 1.6 billion RMB in the same period of 2019 if I'm due to the adoption of a s c 3 to 6 at the beginning of the year loan facilitation service fees decreased by 46% to 486 million RMB for the third quarter of 2020 from 894 million RMB in the same period of 2019 primarily due to the decline in loan origination volume and a decrease in the the average wage of transaction fees post facilitation service fees decreased by 46% $261 million R&B for the third quarter of 2028 from 301 million RMB in the same period of 2019 primarily due to a decline in outstanding loans serviced by the company and the rolling impact of deferred transaction fees wage.

Guaranteed income was $747 and be the third quarter of 2020 due to the adoption of a s c 3 2 6 net interest income decreased by 24% to 261 million RMB for the third quarter of 2020 from 345 million R&B in the same period of 2019 mainly due to the decrease in interest income from the reduction in outstanding loan balances of Consolidated trusts other Revenue increased by 159% 238 million empty for the third quarter of 2020 from $53 million R&B in the same period of 2019 may need you to increase customer referral fees to third-party service providers as we have shifted towards higher quality borrowers on our platform. We have increased the referral of borrowers that do not meet our requirements to third-party platforms.

Non-gaap adjusted operating profit which exclude share-based compensation expenses before tax was $698 Million R&B for the third quarter of 2020 representing an increase of 6% from 658 million RMB in the same period of 2019 other income decreased by 49% to twenty six million R&B for the third quarter of 2020 compared with fifty two million R&B in the same period of 2019 which uh other income primarily consists of gains from investment wage was five hundred ninety-seven million R&B for the third quarter of 2020 compared to $599 million R&B in the same period of 2019 now before I close I want to address the Regulators recent consultation paper on micro lending in short. This does not materially affect us. We do not rely on our micro Lending Club.

What do we have pending arrangements with our funding Partners? We do have a micro lending company but loans disbursed through our micro lending company is small and accounts for less than 1% of outstanding loans on the platform. Our core business model is based on a loan facilitation model, whereby institutional funding Partners on the platform provide one hundred percent of the funds needed by borrowers and our role is to provide value-added services to the funding Partners as well as providing access to credit to Borrowers.

we

Have a well-capitalized balance sheet and our Leverage is conservative. If you divide the total outstanding loans now platform of $22 billion R&B. I'll shareholders Equity the leverage ratio across the business was only two point eight times. And now the quality position remains strong with approximately 3.4 billion RMB of unrestricted cash and short-term Investments as of the end of September 2020 how strong balance sheet means we are well-positioned in the current environment and gives us significant flexibility on BuyBacks. We would have continued to buy back our shares since I last earnings call. We have deployed 11 million US dollars to buy back of shares since we began we purchasing our shares in 2018. We have a lovely deployed hundred and twenty two million dollars on BuyBacks. Finally. I wanted to thank you all and to song and our team for all the support and partnership over the past several years.

I will continue to serve as the company in my new role on the board, and I am excited to hand over to Alexis and who is well prepared to lead sin volution, which has a strong technology and management capabilities and is very well positioned to adapt to the involving environment and deliver long-term value to shareholders with that. I will conclude my prepared remarks wage now open the call to questions operator. Please continue the question and answer session to ask a question you may I ask if you are using a speakerphone we ask that you please stay on your handset before pressing the keys to enjoy your question, please press * then two.

The benefit of all participants on today's call if you wish to ask you a question to management in Chinese. We asked you please kindly repeat your question in English. We are now pause momentarily off garage door.

Today's first question comes from Boone with City, please. Go ahead.

Hi evening management team specific in my question. So I have three questions here. So first just regarding your on the financial. So we noticed that there seems to be a meaningful decline in the credit cards in for a quarter on your lungs. So if I take your credit cards for quality assurance edge of financial on volume is only like 2.3% So just wondering like what's the reason behind whether there's any work that in the quarter and second is regarding unit, I'll look so after you adjust your loan pricing now too all below 27% I also what the heck. Yeah, the the long-term sustainable economic follow-up and it's possible. Okay. Can you bring it bring it back into the average APR and they call that credit cards et cetera and and lastly, Georgia.

onto a check at

That's only if I can reach his side and that's a pass on this new online micro-lending. We do see quite a number of statements like from customer to show it seems the tone is more towards the Titanic title of this level of impact at all the online customer Learning Center. So so so this management can share your thoughts on the future Library she direction or maybe like what you have been hearing from your funding Partners or from The Regulators or deference. Thank you.

All right, Daphne. Thank you very much for your questions. I'll take them one by one. The first question is about the credit coughing and you know provisioning levels and why they were so low. Yes, there were right backs in the third quarter because of the better than expected credit took a risk experience as we have been highlighting throughout the commentary earlier. So there were right back during the quarter particularly for the guaranteed credit loss the figure of 327 million included in that was a right back of roughly $619 million R&B. Okay, and this right back is for loans outstanding price or to the second quarter. Okay with regards to your second question about the profitability and sort of the unit economics and as we have said

Our transition to lower lending rates have been ahead of expectations. Delinquency rates are improving faster than expected funding costs continues to decline and we are closing a loan volume because of these favorable Trends we expect our take rate in the fourth quarter to decline only slightly compared to the third quarter. May I take rate was 3.9% in the third quarter and two four, we think we'll mostly the take rate will mostly come in and the range of perhaps between three and a half percent down 2.9% Now going forward we expect the take rate to stabilize or even improve from this level as we continue to optimize our credit quality and drive down credit cost. Okay now as a side note, we as we have shifted to better quality borrowers, there is all dead.

In an increase in fees from customer referrals these borrowers don't meet our new standards to the uh to our new standards and these have been referred to other platforms such referral fees in the third quarter amounted to about 19 million R&B and these are completely free of credit risks. Um, so we we will continue to purchase leave work to improve profitability and there is room for efficiency gains as long as volume expands, and we worked to optimize costs and we are confident of delivering healthy and sustainable profitability.

So I hope that helps address.

Your question on on you know, the profitability Outlook and your final question on sort of government, you know the regulatory Outlook. I think I I I think we can make a few comments. I think you know clearly I think government regulations Regulators recognizes the value that same tech companies bring to the table such as in online customer acquisition and servicing data technology and in risk management, and I think this has been consistent in all the comments that have come out and the you know, the same tech industry complements and benefits the traditional Banks expands access to credit increases efficiency. I think this is all very positive. I think, you know personally I think the recent rules and Michael lending Cole ending seems to be primarily aimed at some of the larger companies and this does not impact us as we do not rely on this whole ending model wage.

And as you know, the long facilitation model that we primarily rely on has been recognized for you know in the CBI RCS online lending rules for commercial Banks, which was officially released only recently on July. I think, you know more stringent requirements and moves to prevent monopolisation, you know should be positive for approving companies with a strong track record like us from the one hand serve basis the entry barriers for smaller players and on the other hand, it should limit competition from the major, you know, the larger major internet companies. So in the long run, I think this will encourage healthy and sustainable development for the industry.

And I hope this helps helps to answer your questions ask me.

Yeah, yeah sure offense Diamond. Maybe just one quick for a while regarding the the loan pricing will be the average APR after you have addressed make adjustments.

And I think you know as phone said we in in the 3 months period between August to August to October average, irr was running at about 28% off I think in you know recent months or so. It's been around twenty-seven. So, you know, we're around the levels that we want to be. This is this is where we want to be going forward. Roughly speaking.

And and this is you know, this is this is this is a dynamic. I think we will continue to observe watch very closely with The Regulators do and am finding Partners. Uh, uh, you know what their views? What is the demand as well as the market right, you know our competitors, how are they doing their pricing sucks. So I would just want to call and say our is around twenty-seven twenty-eight percent. But uh, you know, it is it is pretty fun to go and we will be we will watch closely all these factors and adjust if necessary accordingly.

Okay understood. Thank you.

Question today comes from a long with a V6 research, please. Go ahead.

Thank you. My husband for taking my questions configurations inquiry supporter. My first question is only funding type in the recent regulatory environment. Is there any change in attitude of your Founding Farmers? And what is the proportion of the breakdown for your Educational Funding Partners can only a few of your top one Partners home and my second question is how the business model involvement. So what is the progress on your profile sharing model for which you do not react with the risk.

try

Yeah, yeah, I'll have the first question will have a Lexus to answer. Yeah. Hello. This is Alex. I will take this question month and for the first class. She I want to say our founding fathers remain supportive as you can tell from the gradual decline in funding costs our platform and you just quarter Banks and the consumer finance companies facilities around 85% of our loan volume 12 trust companies took it around the remaining 15%

And for your second questions about our base model, we have already been working capital light model such as profit sharing sharing models with some of our institutional funny partners and we will continue to update the market when they where the progress off. Yeah. Hopefully educating helps you how

Thank you. I have a question on the reservation environment. So I basically I saw some local calls for timing 2023 Fusion from the four times are ending interest rate cap, but it seems that the regulated result is such as t or steals a month. So I mean you color on your side will be very helpful.

Hi, this is this is a phone. Yeah, I'll share my thoughts. Yeah, you know with regard to the spring called redcap decisions off the super 4 x l t a cab only applies to private lending and not to financial licensed financial institutions. This was clearly stated in the Supreme Court decision. Uh, and uh, I don't know if he notice it was also evidenced by a recent Court ruling involving p.m. Bank in certain Province and our lenders outperform license to financial institutions now despite all these in the spirit of reducing borrowing costs of our customers providing better services to them also in line with our strategy of targeting better quality of customers. We have voluntarily significantly lowered the borrowing rates for new loan originations since August as I mentioned. The average borrowing rates are

Credit for me. The last three months August to October was about 28% or andar.

Basis compared to 33% in August prior to the Supreme Court decision and our current average is about 27% And as I also mentioned that you know, we will watch them and watch the regular it has move closing and you know, it is all practical now, we believe we are fully compliant with current regulation and are able to achieve significant about a credit quality and the deliver healthy and sustainable profit under current pricing and we are continue to monitor the development in the country in the industry and the wage to make appropriate adjustments that are in line with regulatory requirements and the industry norms.

Thank you. It's a very helpful.

Thank you. Ladies and gentlemen, as a reminder to ask a question, please. Press star. Then what our next question comes from Alex me with UBS, please. Go ahead.

Hi, good evening, Ranch. One second while taking my question. I have a few follow-up. First one is on your car. Will it last for quality assurance commitment?

So apparently it was mentioned that there was a Wright-Patt of six hundred ninety million if I take it right, so if she added back into the the 300 or so million of credit laws for the quarter then eventually the company is making 1 billion of playlist provision them know that that would be equivalent for around seven percent of your potential on volume. So that compared to your advantage plus only like four to 4.5% So I'm wondering how long we should Corrections out just two numbers. Why are you still making such a lot of positions currently for the current culture? And my second question is on your degree Outlook off. So it was mentioned in earlier question that the detector ready for the next quarter is going to be slightly lower or or even or even close to this quarter, but given birth.

Average irr is is lower in from studies 6% to 27% I'm I'm just wondering where where the Savings in unit numbers coming from obviously suck. Your lower credit cause is one of the important factors that just wondering where are the other parts of the economic savings and and my last question is on the the international business expansion. So we we we have seen a lot of more details in in these quarters. So just wondering if if those in the National wage scale, how would that impact your p&l? So where where are they look at currently things?

Right Alex, very very very good questions. And you know insightful I'll take them one by one. I think your first question about the wage loss. I think yes, you are. Correct. New Provisions were running at around 1 billion now, I think we I think we'll put it this way. I think we continue to use a certain degree of prudence in our loan Club assumptions given that there's always obviously some degree of uncertainty looking to the Future and of course if improving delinquency Trends, uh, continue our assumptions could be too conservative and Thursday we have obviously some provisions of leases in the future. So I want to I think you should bear that in mind secondly in terms of your UGG question about the take the take rate off.

Yeah, and I think that you know.

As we mentioned delinquency rates have been steadily declining and has been better than expected. And this has contributed to a better take great now I'll take great in the second and third quarter was in hindsight understated because credit risk was at that point in time overestimated. So in other words, if we had perfect foresight on our credit performed, I would take Kuwait in the previous quarter's would have been higher than what was shown in our income statement. So due to these two reasons the decline in take rates being reported what we expect to be reporting the fourth quarter will be relatively small. I hope that makes sense to you and then you know your last question about

Indonesia, I think you know, I think

The Indonesia right now is a small sort of low single-digit component of our loan volume at the moment. It's obviously it's growing much faster than the Chinese the China business and I think we want to highlight that you know, the contribution to he's involved in, you know to to to learn volume is likely to be relatively small on the small side, but it does have higher profitability or general southeast. Asia will have higher profitability compared to China. And so I think that uh, it doesn't it it is not impacting the bottom line at this point, but we just wanted to flag the success the traction the momentum we've been getting there and obviously should the international Indonesian businesses. Do you have money?

Of an impact on our numbers and and bottom line going in to make sure we will make appropriate additional disclosures and update you.

Hey, hey, this is the phone. I want to add a bit color a bit more color on the question about the piano and the the time you need economics. So just add on what Simon had already said, you know, just just as a very quick like 80/20 math is about 27% off and I'll phone calls FTP is around 8% and you know, our vintage loss rate and this is on a original balance basis. We expect to be 3.4% to 3.5% So that given our long Tender Is about eight months. So if we translate that 3.5 original balance basis to an odd, that would be roughly 8.8% roughly analyzed lost weight. So if you you know take the 27% - 8% - 8.8%

Roughly come out.

Around like 10% So that would be I'll take care of that and I are basis now. Usually we talked about tikrit on a regional loan amount basis. So you translate that back given our loan is around eight months. So that gives you about 4% and you know now this is a very simplified version because, you know, we tried different for trust-based origination vs. Our local station model and appropriate like 20% small percentage of our you know, Thursday is recognized in Adelaide fashion, but like all things given and take you know, I hope that gives you a you know, a rough life to 4% Take rate given our current credit quality and our current pricing, you know is very reasonable.

Hope that helps.

Okay, thanks. So, so if I may just one follow-up on your on the right back, so I'm wondering so giving we are now in the fourth quarter middle 4th fourth quarter am just wondering have do we have any visibility on any potential more right back in the fourth quarter? Cuz we we have been having consistent right back in the office speak to reporters. I'm just wondering how do we do? We further expect that in the near-term and yeah any kind of and ethics

Yeah, Alex, I think as as film has been saying, you know risk performance has been obviously, you know, I'm pretty good at the moment and we are expecting the Vintage delinquency wage to be in in, you know, the new origination that we're doing in this quarter to be down in the sort of three and a half percent range versus the sort of you know, just below 4% range in the last two quarters. So I think you know, the credit metrics are heading and obviously in you know, in in in a in a positive direction and we'll have to see at the end of the quarter where things end up that.

Yeah, I think you know if the credit quality the environment has been has been been a while and I think if this trans continued them better than what we had assumed in the provisioning. I think it is possible that we may have some further release moving forward.

But that's that's if you know.

Gentlemen, as a reminder if you would like to ask a question, please press star going to want today is next question comes from Jackie zero with China Renaissance. Please go ahead with higher management congrats on the solid results and congrats Simon and Alex for the new role. And yeah, and thanks for helping the in the past few years. So just two questions from my side number one is uh, you know, the drivers behind the solid recovery of the low volume in the in a certain order and I observed that the biggest size also increase so how much of the volume increase the tribute to the larger size and how much ugh, would you attribute to the, you know new powers, uh, especially the high quality Thursday,

and any change to our customer acquisition strategy and the color will be helpful and

In question is um Revolution again. So, uh, um, just uh, um, you know looking into details of the new uh online micro-lending license bulb loose since the capital requirement is quite high in this a bit difficult for you know, the all the players to get the national license. So I will. Affect your business if you know at the end you can't get a online micro-lending license. Thanks.

Jackie let me just quickly address some of those questions. I think in terms of the ticket size increase. I think it's it's expected and normal because as we shift to a better quality higher quality of life, as you can see from the credit metrics that uh, you know, we're we're we're we're showing at the moment, you know, delinquency rates down and they're sort of three and half or percent, uh borrow was in these segments just don't you know, they don't tend to borrow a bit larger than what we used to uh, give out. So actually, you know for first-time borrower is the ticket sizes are now Buffy, you know, the average ticket size into a quarter for first-time buyer 8500. Um, it is, you know, edging up words, but you know, typically speaking nine thousand ten thousand sort of you know is is is not in common. So so this is sort of the month the area we are operating in at this moment and you know, that's that's actually been an ongoing process over the last several quarters so dead.

Suddenly a a big bump. That number is an average for the third quarter. So and of course, you know, the the better-than-expected loan volume in third-quarter is is related to sort of them the better-than-expected transition. We've had to a lower lending rate environment. So we've had the confidence to actually to to grow to expand the book as we saw the sort of numbers and the performance can't come in. And so I think that's that's it's hard to separate ticket sizes, but it's an ongoing transmission which we as we consistently said has been, you know, it's it's been better than expected. It's been faster and more successful than expected now in terms of the uh, customer acquisition channel strategy, um, it hasn't changed significantly. We mainly rely on a range of social media platforms information feeds and advertising such as you age,

Beach hat told you I'll double Young and the types of channels haven't changed much but the methods the optimizations we are continuously improving and we work very closely with LT channels to build models and deploy technology that can more accurately Target the customers that we seek and I think Iraq will continue to optimize expand these channels to effectively reach out to our customer segments. So it is quite uh, detailed and quite technology-driven. Um, but we are not seeing that the adjustment overall has been smoother than expected and and your final question is is simple, you know, yep, the capital requirements of micro-lending licenses are much higher than previous version of the of the consultation paper, but I think at this point in time we will we will just have to uh, a wait for the final rules and be you know, assess wage.

what we ought to be doing at the moment, you know, we we don't rely on the microlending license as we said so

the the use a lot of facilitation model will have to see we're still obviously waiting and thinking

very helpful

And once more ladies and gentlemen, if you'd like to ask a question, please press * then 1 next question comes from your end zone with Credit Suisse, please go ahead.

Hi, thank you for taking my questions and congratulations on the strong culture. I just have one follow-up question on the customer side. It seems that Jose. He's been quite effective in your transformation to move up the quality curve for your customers. So, can you please share your thoughts in terms of how you managed to achieve that so far. It seems that the the number of new followers as a percent of unique bowl Rose from in 3Q was at a low life versus historical levels. So can I read that as you know, you're relying more on the better quality segment of your existing bharatpur and what's the way forward from here. Thank you.

Sure. Yeah, the number of unique followers that you see is is lower. But that's also reflection of loan origination volume that are still in that sort of low levels relative to where we want them to be and uh, so it's it's it's it's really a reflection of where the business is. And of course the larger ticket sizes, which we just mentioned. I mean, uh, yeah, so, you know our transition to better quality borrowers. I think how we've done it it's been a combination of several factors one is obviously as you know, we we have discontinued lending to borrowers with relatively high risk profiles. Number two. We've been adjusting the rates for existing borrowers as well and increasing the focus of customer acquisition and higher-quality segments and three. We've also been quite successful in reactivating phone number.

Inactive users that have been of good quality and of course, you know, we are offering the lower lending rates now, so probably they're open and coming back to us because you know, the interest rates are now attractive to them. So, you know, I I think you know, we're pretty we're pretty confident that you know that because of including credit quality the credit loss metrics of the past year, you know, we are able to maintain healthy and sustainable profitability. That's the smaller pricing. Um, so yeah, so I think I think that's that's where you know the how we've made the transition. I don't know if if if you if there's anything sort of choice whether answers your questions whether you want to have me follow up on what I've just said

Well, that's helpful. Thank you.

Internet question today comes from Terry son. It's the M bi please go ahead.

Hi Mandy been thank you for taking my call. So just about the funding portion. You're saying the only cost you coming down in Creek. You just want to understand logging behind it. Cuz we've seen some marginal tightening of security and the in the band comes actually have been rising a bit. So why the funding Comcast is coming down?

Sure, I think it's a very fascinating question. Great question. I think this probably a couple of angles to this I think one is dead. We're not a very large player. So in terms of the overall liquidity in the market, we're pretty small particularly relative to the banking system. Secondly is that off our lending volumes have come off quite a bit over the past six to nine months because of covet credit risk concerns and all sorts of, you know, obviously changes in the environment and and actually, you know for a. We we have, you know, more demand for our assets than we do have for the the assets themselves and their mind also from the banks perspective. I think this is still very attractive segment. They want to be in if you look at the returns that they are getting whether it's you know, low 8% or you know below or 7 to 8 p.m.

And it's still a very very good return business for them. So I wouldn't be surprised that they would continue to work with us continue to Source quality borrowers and Asus, you know, and yeah, so so so, you know, I think you're all very familiar with the banks and banking system. This is a very attractive business for the banks home of the day, I believe.

Yeah, and we're pretty confident that you know, our funding costs can continue to improve from these current levels.

Okay, and is that thank you.

And once again ladies and gentlemen to ask a question, please press star than what our next question comes from Steve in hand with hi Tom. Please go ahead, and then Congress for your new role for Simon. I hope that you have free time and lies. Yeah, but anyway a few quick questions a quick follow-up. First of all, I used sales and marketing expect you estimate the so-called customer acquisition cause it seems that that will uh, a write-in in average customer acquisition cost increase to come back with his home. So just want to know whether it is correct or not and what has caused the rise in customer action causes 100 open and off.

oh, so you looking forward like that's the first one and the second question just to

Verify you just mentioned that about 85% of funding Partners the Consumer Finance company and 15% on trust company sold. So none of that is from bank. And and my question is the reason to be there are some court cases in different areas are saying that you know, the consumer finance companies may have to type the you know, High Court lending ceiling. So if most of the funding Partners the consumer finance companies, are you worrying about that? You know, you you know, you you have to apply to you, you know to to The Landing Red Cap, so that's the second one and finally I just to hold up. What what Alex question about your assumptions in the expected credit laws. So you have made 1 billion and Thursday.

Right, but do you think that you will re-elect your assumption little bit in Q4 and and maybe going forward into one Nexus? Yeah because of the improving vintage.

Yes even thanks for your questions. I think your second question is very simple. I think I think you probably misheard our response. The 85% figure is Forbes Banks and consumer finance companies combined. In fact banks are the large large majority. It's about probably sixty five or two thirds of the book Consumer Finance is probably about 15 to 20% maybe around 20% or just below that so we don't think that's a huge problem, you know, uh for us I think the bulk of the funding and the liquid the market as you know, come from Banks and there are many many more banks in the system than consumer finance companies at the end of the day in terms of the increase in your uh, a customer acquisition cost. I think. Yes, you're right. I think your calculations are fairly, you know, the trends are accurate and correct. There has been a general increase in customer acquisition cost as we have been slacking on each of the calls we

Pat in the past few quarters and this is mainly because of the shift to better quality borrowers that have significant and stronger credit risk profiles and they borrow larger ticket sizes and you should also bear in mind that in the second quarter and the first half of the year, they were not normal environments for customer acquisition because of covert and everyone was holding back customer acquisition. So two or three not only saw a bounce back in Market activity, but we ourselves also, you know increase customer acquisition as we look to resume growth. So I think those are the main reasons behind it, obviously the pickup and customer acquisition cost in the third quarter. It's the you know shift in our customer segments that bounced back in activity and also our our sort of more a month to push to acquire new customers, but I I do want to highlight a few points that you should bear in mind as you know, firstly we we we do estimate wage

internally estimate a typical bottle

We'll break even within the first twelve to eighteen months. So our newly-acquired customers deliver healthy, you know Net Present Value despite the higher cost of acquisition and and secondly new borrowers. They only account for about 10% of the loan volume today and 90% still come from repeat borrowers where we do not pay any acquisition cost at all. So I hope that clarifies and explains sort of a trend that we're seeing and your final question about, you know, our assumptions in the fourth quarter and right backs and I think we've we've addressed this quite thoroughly. I think we commented Long's quite slowly. I don't think we can uh, I don't think I can say p.m. Myself into assumptions going forward. I think that would be obviously dangerous, but obviously should we see actual uh credit Lost Levels better being better than expected than the you know that wage

It will result in some white backs and releases and yeah, so ill if you know it'll depend on the situation at that point in time.

Thank you. Very clear. Thank Stephen. Thank you. Thank you. And once again to ask a question, please press star to the next question comes from the Henry Bots.

Hey Management glass on a good quality without I just have two quick questions to follow up one. Like can you guys share your secret doors on sort of managing down until consideration all the MTL While most of the players in the industry has no less still struggling or see that increasing way. I still am higher than the previous over. While we are just getting it like down to sort of record low again. And again, since you're like how you guys managed to to do that and the same question is that like you speak of the new customer acquisition and it seems like a low-volume is gaining momentum in the whole Squad. Can you share your plan of like the marketing input and expands hours and how you would think of acquiring new customer?

What channels and what kind of flies always thank you.

Hey, I'll take the first question about credit risk how this is the phone. Yeah, I think you know, it's a combination of the environment and our measures active measures and the ring agent philosophy and culture we have and the capability, of course, uh, in terms of environment. We have observed coming out of COVID-19 and the cleanup of P2P and the feedback forms, you know with tighter regulations and the January we have and generate an improvement in the credit information like availability previously credit bureaus of things has these to a, you know, in our view a more benign credit environment, you know than let's say like, uh, uh, uh, of course the pandemic. But also things slightly better than the pandemic. Our last year and now, you know more importantly I think we have taken a lot of proactive measures.

Now, you know besides the continuous shifter to better quality.

For us as I'm has mentioned that you know, not only we have uh, you know, uh, uh Step Up efforts in acquiring better quality new customer have also done a lot of work to kind of reactivate some dominant, you know users who you know with like, you know, better offers a good price but lines and you know that generates some positive seduction, you know, getting the better quality of you know, dominant customer inactive inactive customers wage. Um, and you know, also we continue to optimize the use of technology in customer acquisition is more accurate retargeting Louis customers would continue to optimize our this model credit policies as as well as our loan collection practices. So all these factors when we combine that together that results in dead

Uh, you know, the uh, the loss rate the credit quality improvement you have seen, you know, it's it's demonstrates a very clearly in the vertical last tables we have in the universities as well as the Vintage lost weight lost weight curves, you know, it's just for two by quarter continuous drive drive blower.

Hope that helps yeah, Henry Henry. Thanks for your question. I I'll address your second question about the obviously the customer acquisition front and marketing. However, thinking wage I think no doubt. I think as we as our loan obviously, you know volume grows. I think we will have to spend more on marketing and acquiring and you know, I'm getting new customers. Um, I think that's sort of in the inevitable. Um, we do internally Focus very hard on trying to assess wage stability of each end-user that comes into the platform. So as I mentioned we do use an npv model to model out and try to estimate profitability how much we should be paying. So I thought you know, the customer acquisition cost should be the appropriate cost should be different for every platform depending on the type of obviously followers the ticket sizes and yep.

So their ability to manage risk and generate a return from that customer. So I I think you know in some ways it's very it's actually hard to be completely comfortable and and my final comment is as we mentioned before it's probably not, you know, not my expertise at all, but we are happy to obviously follow up with you about details Jones the operational details, but there is a lot of obviously optimization that goes on with our key Channel Partners how we uh-huh, you know build models to specifically Target and effective models to Target the type of followers that we seek from each of these T channels. So I think oh there's been a huge amount of work that's gone into these type of activities, which I think is very underappreciated and you don't see it as much in the numbers up front. But but it's a lot of what we do a job.

and I think some teams spend a lot of

Effort on this and and I think we could clearly you could have we could sit down and explain all this and much more details, uh, you know, as a follow-up, um aside from obviously the call today.

Thank you so much. I really appreciate all the optimizations you have words and being very horrible glass again on the shoulder.

Thank you, Henry.

The questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you. Once again for joining us today. You still have further questions. Please feel free to contact solution investor relations teams. Good night.

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