Q3 2026 Lufax Holding Ltd Earnings Call

October 28, 2026

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holding Q3 2026 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question and answer session. Please note this event is being recorded. Now, I would like to hand the conference over to your speaker host today, Ms. Xinyan Liu, the company's General Manager of Board Office. Please go ahead, madam.

Operator: Ladies and gentlemen, thank you for standing by, and Welcome to the Lufax Holding Q3 2026 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question and answer session. Please note this event is being recorded. Now, I would like to hand the conference over to your speaker host today, Ms. Xinyan Liu, the company's General Manager of Board Office. Please go ahead, madam.

Speaker #1: After the management's prepared remarks, we will have a question-and-answer session. Please note, this event is being recorded. Now, I would like to hand the conference over to your speaker host today.

Speaker #1: Ms. Qian Lu, the company's general manager of the Board Office. Please go ahead, madam.

Xinyan Liu: Thank you very much. Hello, everyone, and thank you for joining us on today's call. Our financial and operating results were released by our Newswire services earlier today and are currently available online. Today, you will hear from our Director and CEO, Mr. Ji Xiang, who will share recent developments and provide insights into the company's overall performance. Our CFO, Mrs. Liu Jia, who joined Lufax in October, will then walk you through our financial results. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. With that, I am now pleased to turn over the call to Mr. Ji Xiang, Director and CEO of Lufax. Please.

Speaker #2: Thank you very much. Hello, everyone, and thank you for joining us on today's call. Our financial and operating results were released by our newswire services earlier today, and are currently available online.

Speaker #2: Today, you will hear from our Director and CEO, Mr. Ji Xiang, who will share recent developments and provide insights into the company's overall performance.

Speaker #2: Our CFO, Mrs. Liu Jia, who joined Lufax in October, will then walk you through our financial results. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements.

Speaker #2: With that, I'm now pleased to turn over the call to Mr. Ji Xiang, Director and CEO of Lufax.

Ji Xiang: Thank you, Xinyan. Thank you all for joining our Q3 2026 earnings call. I would like to begin with two updates. First, trading in our ordinary shares on the Hong Kong Stock Exchange resumed on 24 September 2026. We thank all shareholders and the broader investor community for your patience and support throughout this process. Second, I am actually very pleased to welcome Ms. Jia Liu, who joined us as CFO in October. Ms. Jia Liu brings extensive experience in audit, banking, and financial management of listed financial technology companies. Most recently, as CFO of CITIC aiBank. She will walk you through our financial results following my remarks. Let me now share an update on the macro and regulatory environment. The operating environment for small and micro business owners remained challenging in Q3, and financing demand stayed weak.

Speaker #3: Thank you, Xinyan. Thank you all for joining our third-quarter 2026 earnings call. I would like to begin with two updates. First, trading in our ordinary shares on the Hong Kong Stock Exchange resumed on September 24, 2026.

Speaker #3: We thank all shareholders and the broader investor community for your patience and support throughout this process. Second, I am actually very pleased to welcome Ms. Liu Jia, who joined us as CFO in October.

Speaker #3: Ms. Liu Jia brings extensive experience in audit, banking, and financial management of listed financial technology companies. Most recently, as CFO of Citig AI Bank, she will walk you through our financial results following my remarks.

Speaker #3: Let me now share an update on the macro and regulatory environment. The operating environment for small and micro business owners remained challenging in the third quarter.

Speaker #3: And financing demand stayed weak. Chenggong Business School's SME Development Index remained below the 50-point boom-and-bust line, indicating that the financing environment for small and micro enterprises remains under pressure.

Ji Xiang: Cheung Kong Graduate School of Business's SME Development Index remained below the 50-point boom and bust line, indicating that the financing environment for small and micro enterprises remains under pressure. Consumer finance demand was also subdued. As of the end of September, household consumer loans declined 3.6% year over year. Domestic consumption remained soft. Consumer confidence continued to be cautious, and households continued to prioritize balance sheet repair. On the regulatory side, the industry continued to move towards greater standardization in Q3. Amid the intensified enforcement against the debt collection industry, both industry peers and Lufax have seen notable volatility in risk performance. The industry is currently recalibrating its compliance boundaries. Since Q2, tightening industry liquidity and heightened regulatory scrutiny, including collection practices, have led us to observe a rising risk across both small business owner and consumer finance lending markets.

Speaker #3: Consumer finance demand was also subdued. As of the end of September, household consumer loans declined 3.6% year-over-year. Domestic consumption remained soft, and consumer confidence continued to be cautious.

Speaker #3: And households continued to prioritize balance sheet repair. On the regulatory side, the industry continued to move towards greater standardization in the third quarter. Amid intensified enforcement against the debt collection industry, both industry peers and Lufax have seen notable volatility in risk performance.

Speaker #3: The industry is currently recalibrating its compliance boundaries. Since the second quarter, tightening industry liquidity and heightened regulatory scrutiny, including collection practices, have led us to observe a rising risk across both small business owners and consumer finance lending markets.

Ji Xiang: Well, we believe the tightened regulatory environment will benefit the industry in the long run. It has weighed on the near-term risk performance. In response to the changing macro and regulatory environment, we maintained a very prudent operating strategy. In Q3, we continued to implement our selective customer strategy, adjusted our post-loan collection approach, and continued to deepen our refined operation. Firstly, under our selective customer strategy, we proactively reduced and exited certain high-risk customer segments and adopted a more cautious approach towards some market customer segments. Second, we continue to leverage our in-house collection force and adjust our post-loan collection strategies. On the recovery side, we increased our use of judicial recovery channels and leveraged models to identify high-quality accounts, improving recovery efficiency. Our in-house collection team provides dedicated internal collection capabilities, mitigating our reliance on third-party collection service providers.

Speaker #3: While we believe the tightened regulatory environment will benefit the industry in the long run, it has weighed on the near-term risk performance. In response to the changing macro and regulatory environment, we maintained a very prudent operating strategy.

Speaker #3: In the third quarter, we continued to implement our selective customer strategy, adjusted our post-loan collection approach, and continued to deepen our refined operations. Firstly, under our selective customer strategy, we proactively reduced and exited certain high-risk customer segments.

Speaker #3: And adopted a more cautious approach towards down-market customer segments. Second, we continued to leverage our in-house collection force and adjust our post-loan collection strategies.

Speaker #3: On the recovery side, we increased our use of judicial recovery channels and leveraged models to identify high-quality accounts, improving recovery efficiency. Our in-house collection team provides dedicated internal collection capabilities, mitigating our reliance on third-party collection service providers.

Ji Xiang: We will continue to closely monitor regulatory development and reinforce compliance controls across the collection process, including enhanced compliance training to ensure that all collection activities remain within the applicable legal and regulatory framework. Third, we continue to deepen our refined operation. We continue to deploy differentiated products tailored to local industry and customers across different regions. Our Industry Prism program now covers over 700 sub-industries, offering industry-specific product that meets the industry's specific requirements of our customers. We have also established a dedicated direct sales team for consumer finance that targets quality salary customers. This team is moving our customer engagement model from single product sales to a full lifecycle relationship manager approach, enabling long-term customer value realization. In addition, we are deepening our management of existing customers, leveraging our license advantage. We are building a diversified product portfolio and a multi-channel customer management system to increase repeat borrowing.

Speaker #3: We will continue to closely monitor regulatory developments and reinforce compliance controls across the collection process, including enhanced compliance trainings to ensure that all collection activities remain within the applicable legal and regulatory framework.

Speaker #3: Third, we continue to deepen our refined operations. We continue to deploy differentiated products tailored to local industries and customers across different regions. Our Industry Prism program now covers over 700 sub-industries.

Speaker #3: We are offering industry-specific products that meet the industry-specific requirements of our customers. We have also established a dedicated direct sales team for consumer finance that targets quality salary customers.

Speaker #3: This team is moving our customer engagement model from single product sales to a full lifecycle relationship manager approach, enabling long-term customer value realization. In addition, we're deepening our management of existing customers; leveraging our licensed advantage, we are building a diversified product portfolio and a multi-channel customer management system.

Speaker #3: To increase repeat borrowing, we're also deepening our use of AI to enhance operating efficiency. Our AI-powered digital twins have added new features, providing end-to-end AI enablement from customer acquisition to customer management, and improving the efficiency and quality of our sales teams.

Ji Xiang: We are also deepening our use of AI to enhance operation efficiency. Our AI-powered digital twins have added new features, providing end-to-end AI enablement from customer acquisition to customer management, and improving the efficiency and quality of our sales teams. Looking ahead, we will further extend this AI capability to risk management. On the pre-loan side, we plan to further upgrade our risk models by leveraging AI capability, enhance identification of risky customers, and drive the optimization of our customer portfolio structure. In post loan management, we aim to further deepen collection reforms, expand application of AI-driven collection, and improve collection effectiveness through intelligent assistance. Now turning to our operating results. Total new loans sales in the third quarter were RMB 58.3 billion, up 2.5% year-over-year and up 14.1% from the second quarter.

Speaker #3: Looking ahead, we will further extend this AI capability to risk management. On the pre-loan side, we plan to further upgrade our risk models by leveraging AI capability, enhancing identification of risky customers, and driving the optimization of our customer portfolio structure.

Speaker #3: In post-loan management, we aim to further deepen collection reforms, expand application of AI-driven collection, and improve collection effectiveness through intelligent assistance. Now, turning to our operating model and operating results.

Speaker #3: Total new loan sales in the third quarter were RMB 58.3 billion, up 2.5% year over year and up 14.1% from the second quarter. Consumer finance continued to lead our growth.

Ji Xiang: Consumer finance continued to lead our growth, with new loan sales up 25.2% year-over-year to RMB 39.7 billion, representing 68.1% of total new loan sales. Our total outstanding loan balance was RMB 167.1 billion as of the end of the third quarter, broadly stable from the second quarter, and down 11.9% year-over-year. Our consumer finance loan balance grew 19.8% year-over-year to RMB 70.5 billion. Consumer products with smaller ticket sizes and short tenure carry lower risk in the current environment. Over the long term, supported by policies aimed to expand domestic demand and boost consumption, we believe consumer finance continue to hold growth potential. Turning to asset quality. Our risk performance in the third quarter was negatively impacted by the macro and regulatory environment, especially the intensified enforcement actions against the debt collection industry.

Speaker #3: New loan sales were up 25.2% year over year, reaching RMB 13.7 billion and representing 68.1% of total new loan sales. Our total outstanding loan balance was RMB 167.1 billion as of the end of the third quarter.

Speaker #3: Broadly stable from the second quarter, and down 11.9% year over year. Our consumer finance loan balance grew 19.8% year over year, to RMB 70.5 billion.

Speaker #3: Consumer products with smaller ticket sizes and short tenure carry lower risk in the current environment. Over the long term, supported by policies aimed to expand domestic demand and boost consumption, we believe consumer finance continues to hold growth potential.

Speaker #3: Turning to asset quality, our risk performance in the third quarter was negatively impacted by the macro and regulatory environment, especially the intensified enforcement actions against the debt collection industry.

Ji Xiang: Our C-M3 flow rate for the total loan was 1.2% in the third quarter, compared to 1.0% in the second quarter. C-M3 flow rates for the unsecured and secured loans were 1.2% and 1.1% respectively, compared to 1.0% and 0.9% in the second quarter. Our DPD 30+ delinquency rate for total loans enabled, excluding consumer finance subsidiary, was 5.5%, down from 5.8% in the second quarter, and our DPD 90+ delinquency rate was 3.2%, down from 3.7% in the second quarter. As of the end of the third quarter, the NPL ratio for consumer finance loans was 1.3%, stable from the second quarter. Now let me turn to pricing and funding costs. The average pricing on the Rongyi loan was 20.3% in the third quarter, and the average pricing of consumer finance loans was 16.4%, as we continue to implement our selective customer strategy.

Speaker #3: Our CM3 flow rate for the total loan was 1.2% in the third quarter, compared to 1.0% in the second quarter. CM3 flow rates for the unsecured and secured loans were 1.2% and 1.1%, respectively.

Speaker #3: Compared to 1.0% and 0.9% in the second quarter. Our DPD30+ delinquency rate for total loan enabled, excluding the consumer finance subsidiary, was 5.5%, down from 5.8% in the second quarter.

Speaker #3: And our DPD90+ delinquency rate was 3.2%, down from 3.7% in the second quarter. As of the end of the third quarter, the NPL ratio for consumer finance loans was 1.3%, stable from the second quarter.

Speaker #3: Now, let me turn to pricing and funding costs. The average pricing on Rongyi loans was 20.3% in the third quarter, and the average pricing of consumer finance loans was 16.4% as we continue to implement our selective customer strategy.

Ji Xiang: On funding, our cost of funds continued to decline. Our cost of funds by balance, excluding consumer finance, was 3.6% in Q3, down 20 basis points sequentially and 80 basis points year on year. Finally, we continue to advance our compliance enhancement efforts. Under the leadership of our board of directors, we are further strengthening our internal control and compliance standards. Going forward, we will remain prudent in our operations, focused on quality growth, and committed to delivering long-term value to shareholders. With the onboarding of Jia Liu as the CFO, I am confident that our financial reporting capability and quality will be further enhanced. With that, I will now turn the call over to Jia Liu, who will walk you through our financial results. Thank you.

Speaker #3: On funding, our cost of funds continued to decline. Our cost of funds by balance, excluding consumer finance, was 3.6% in the third quarter—down 20 basis points sequentially and 80 basis points year-on-year.

Speaker #3: Finally, we continue to advance our compliance enhancement efforts. Under the leadership of our Board of Directors, we are further strengthening our internal controls and compliance standards.

Speaker #3: Going forward, we will remain prudent in our operations, focused on quality growth, and committed to delivering long-term value to shareholders. With the onboarding of Liu Jia as CFO, I am confident that our financial reporting capability and quality will be further enhanced.

Speaker #3: With that, I will now turn the call over to Liu Jia, who will walk you through our financial results. Thank you.

Jia Liu: Thank you, Xiang Ji. Hello, everyone. I am pleased to join you for my first earnings call as Lufax CFO. My priorities are to deliver accurate and timely financial reporting, maintain disciplined oversight of liquidity and capital, and support the execution of our operating strategy. I look forward to engaging with you in the quarters ahead. As I walk you through our results, please note that all amounts are in RMB and all comparisons are year over year. Before jumping into the details, I would like to address the net loss we previewed in our profit warning announcement on 16 October. We recorded a net loss of RMB 1,494 million within the range of RMB 1,300 million to RMB 1,700 million that we indicated in the announcement, compared with a net loss of RMB 380 million a year ago. Our net loss comprised two components.

Speaker #1: Thank you, Jizong. Hello, everyone. I'm pleased to join you for my first earnings call as Lufax CFO. My priorities are to deliver accurate and timely financial reporting, maintain disciplined oversight of liquidity and capital, and support the execution of our operating strategy.

Speaker #1: I look forward to engaging with you in the quarters ahead. As I walk you through our results, please note that all amounts are in RMB and all comparisons are year-over-year.

Speaker #1: So before jumping into the details, I would like to address the net loss we previewed in our profit warning announcement on October 16.

Speaker #1: We recorded a net loss of $1,494 million, within the range of $1,300 million to $1,700 million that we indicated in the announcement. Compared with the net loss of $380 million a year ago, our net loss comprised two components.

Jia Liu: One is a loss before income tax of RMB 721 million, and the other is the income tax expenses of RMB 773 million. Starting with our pre-tax performance, as Xiang Ji discussed, the operating and collection environment remained challenging during the quarter, contributing to higher credit impairment losses. This increase in credit impairment losses was the main driver of our pre-tax loss. Turning to income tax, our tax expense included a charge from a reduction in deferred tax assets at our financing guarantee subsidiary based on our current assessment of its business performance and outlook. This was a non-cash accounting charge. We also updated our offshore funding plan in connection with the redemption arrangements for convertible promissory notes. The plan includes dividend distributions from domestic to overseas subsidiaries to meet offshore funding needs. Thus, we also recognize the additional withholding tax on those expected distributions.

Speaker #1: One is the loss before income tax of $721 million, and the other is the income tax expense of $773 million. Starting with our pre-tax performance, as Jizong discussed, the operating and collection environment remained challenging during the quarter, contributing to higher credit impairment losses.

Speaker #1: This increase in credit impairment losses was the main driver of our pre-tax loss. Turning to income tax, our tax expense included a charge from a reduction in deferred tax assets at our financing guarantee subsidiary, based on our current assessment of its business performance and outlook.

Speaker #1: This was a non-cash accounting charge. We also updated our offshore funding plan in connection with the redemption arrangements for convertible promissory notes. The plan includes dividend distributions from domestic to overseas subsidiaries to meet offshore funding needs.

Speaker #1: Thus, we also recognize the additional withholding tax on those expected distributions. After taking into account other tax items, total income tax expenses were $773 million, compared with $74 million a year ago.

Jia Liu: After taking into account other tax items, total income tax expenses were RMB 773 million, compared with RMB 74 million a year ago. Now, let me walk through our Q3 financial results in more detail. Total income was RMB 6,180 million, down 4.6%. Declines in technology platform-based income and the guarantee income were partially offset by growth in net interest income. Technology platform-based income was RMB 1,055 million, down 24.1%, reflecting lower retail credit and enablement service fees associated with the decrease in the new loan sales and outstanding balance of off-balance-sheet loans. Net interest income was RMB 3,677 million, up 10.3%, primarily driven by the expansion of our consumer finance and micro-lending business. Guarantee income was RMB 1,020 million, down 24.6%, reflecting a lower average balance of off-balance-sheet loans and lower average fee rates. Other income was RMB 167 million, down 37.7%, primarily due to a decrease in account management fees caused by decreased collections.

Speaker #1: Now, let me walk through our third quarter financial results in more detail. Total income was $6,180 million, down 4.6%. Declines in technology platform-based income and guarantee income were partially offset by growth in net interest income.

Speaker #1: Technology platform-based income was ¥1,055 million, down 24.1%, reflecting lower retail credit and enablement service fees associated with the decrease in new loan sales and the outstanding balance of off-balance sheet loans.

Jia Liu: Net interest income was RMB 3,677 million, up 10.3%, primarily driven by the expansion of our consumer finance and micro-lending business. Guarantee income was RMB 1,020 million, down 24.6%, reflecting a lower average balance of off-balance-sheet loans and lower average fee rates. Other income was RMB 167 million, down 37.7%, primarily due to a decrease in account management fees caused by decreased collections.

Speaker #1: Net interest income was ¥3,677 million, up 10.3%, primarily driven by the expansion of our consumer finance and micro-lending business. Guarantee income was ¥1,020 million, down 24.6%.

Speaker #1: Reflecting a lower average balance of off-balance sheet loans and a lower average fee rate. Other income was $167 million, down 37.7%, primarily due to a decrease in account management fees caused by decreased collections.

Jia Liu: Investment income was CNY 261 million, compared with CNY 134 million in the same period last year, primarily reflecting change in the valuations of financial assets made with our own funds. In terms of expenses, total expenses were CNY 6.9 billion, up 1.7%. Credit impairment losses increased 10.3% to CNY 4,511 million, reflecting higher actual losses and provision of loans and receivables. Sales and marketing expenses declined 13.7% to CNY 842 million, primarily due to the decrease in the outstanding balance of off-balance-sheet loans. General and administrative expenses declined 12.1% to CNY 420 million, primarily due to our continuous expense optimization and control measures. Operation and servicing expenses declined 16.1% to CNY 774 million, reflecting expense control measures and a decrease in the loan balance. Technology and analytics expenses declined 4.2% to CNY 226 million, primarily due to expense control measures.

Speaker #1: Investment income was $261 million, compared with $134 million in the same period last year, primarily reflecting changes in the valuations of financial assets made with our own funds.

Speaker #1: So in terms of expenses, total expenses were $6.9 billion, up 1.7%. Credit impairment losses increased 10.3% to $4,511 million, reflecting higher actual losses than the provision for loans and receivables.

Speaker #1: Sales and the marketing expenses were declined 13.7% to 842 million, primarily due to the decreased outstanding balance of balance sheet of off-balance sheet loans.

Speaker #1: General and administrative expenses declined 12.1% to $420 million, primarily due to our continuous expense optimization and control measures. Operation and servicing expenses declined 16.1% to $774 million, reflecting expense control measures and the decrease in the loan balance.

Speaker #1: Technology and analytics expenses declined 4.2% to $226 million, primarily due to expense control measures. Finance costs were $122 million, up 67.1%, primarily due to lower deposit interest income, partially offset by lower loan interest expenses.

Jia Liu: Finance costs were CNY 122 million, up 67.1%, primarily due to lower deposit interest income, partially offset by lower loan interest expenses. Other losses were CNY 5 million, compared with CNY 10 million in the same period last year, reflecting higher foreign exchange gains in 2026 and lower government subsidies. Turning to our balance sheet. As of 30 September 2026, we had approximately CNY 21.2 billion in cash at bank, compared with CNY 22.1 billion at the end of 2025. Net assets amounted to approximately CNY 80 billion, compared to CNY 82 billion at the end of 2025. Going forward, we remain focused on disciplined execution, strengthening our governance and controls, and building a sustainable, higher quality growth path for Lufax. We remain committed to our prudent strategy and to delivering long-term value to our shareholders. We appreciate your continued support. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Speaker #1: Other losses were $5 million, compared with $10 million in the same period last year, reflecting higher foreign exchange gains in Q3 2026 and lower government subsidies.

Speaker #1: Turning to our balance sheet, as of September 30, 2026, we had approximately $21.2 billion in cash at bank, compared with $22.1 billion at the end of 2025.

Jia Liu: Net assets amounted to approximately CNY 80 billion, compared to CNY 82 billion at the end of 2025. Going forward, we remain focused on disciplined execution, strengthening our governance and controls, and building a sustainable, higher quality growth path for Lufax. We remain committed to our prudent strategy and to delivering long-term value to our shareholders. We appreciate your continued support. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Speaker #1: Net assets amounted to approximately $80 billion, compared to $82 billion at the end of 2025. Going forward, we remain focused on disciplined execution, strengthening our governance and controls.

Speaker #1: And building a sustainable, higher-quality growth path for Lufax. We remain committed to our prudent strategy and to delivering long-term value to our shareholders.

Speaker #1: We appreciate your continued support. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Richard Xu with Morgan Stanley. Please go ahead.

Speaker #2: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your touch-tone phone.

Speaker #2: If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star, then two.

Speaker #2: And at this time, we'll pause momentarily to assemble our roster. Our first question will come from Richard Chu with MS. Please go ahead.

Richard Xu: Thank you for the opportunity. I got two questions. First of all, we are basically seeing some credit losses.

Speaker #3: Thank you for the opportunity. I have two questions. First of all, we're basically seeing some credit losses.

Operator: Pardon me, Mr. Xu. Your line may be muted.

Speaker #2: Pardon me, Mr. Chu, your line may be muted.

Richard Xu: Can you hear me okay?

Speaker #3: Can you hear me okay?

Operator: We are having issues hearing Mr. Xu. We are going to move on to the next question. Our next questioner will come from Yuji Ding with China International Capital. Please go ahead.

Speaker #2: We are having issues hearing Mr. Chu. We're going to move on to the next question. Our next questioner will be Yuji Jing from China International Capital.

Speaker #2: Please go ahead.

Yuji Ding: Can you hear me? Thanks for the opportunity to ask some questions. I am Yuji Ding from CICC, and I have two questions. First, what have been the trends in the company's loan origination and asset quality following the Jude Digital technology incident, and when do you expect them to stabilize? Secondly, the company has recognized a relatively large amount of asset impairment charges. How is collections performing now, and will the future recovery rate on the underlying loans be affected? Thanks.

Speaker #4: Can you hear me? Thank you for the opportunity to ask my questions. I'm Yuji Jing from CICC, and I have two questions. First, what have been the trends in the company's loan origination and asset quality following the digital technology incident?

Speaker #4: And when do you expect them to stabilize? And secondly, the company has recognized a relatively large amount of asset impairment charges. How is collections performing now, and will the future recovery rate on the underlying loans be affected?

Speaker #4: Thanks.

Ji Xiang: Yep. Thank you for the question from CICC. As far as the first question is concerned, Q3 new loan sales reached around CNY 58 billion, up 2.5% year on year and 14% quarter on quarter. Consumer finance new loan sales grew 25% year on year to roughly CNY 40 billion, representing around 68% of total. Asset quality-wise, the consumer finance NPL ratio remains stable. C-M3 flow rate increased to 1.2% from 1.0% quarter on quarter due to macro and regulatory pressure, particularly enforcement actions against the collection industry. We expect asset quality will gradually improve as we deepen our selective customer strategy. The macro and regulatory impact may continue for a couple of months towards the end of the year. The second question is around collection. Collection was definitely negatively impacted by the tightened industry liquidity, heightened regulatory scrutiny, and intensifying enforcement actions in Q3.

Speaker #3: Yep. Thank you for the question from CICC. So, as far as the first question is concerned, Q3 new loan sales reached around RMB 58 billion.

Speaker #3: Up 2.5% year on year. And 14% quarter on quarter. Consumer finance new loan sales grew 25% year on year, to roughly 40 billion RMB, representing around 68% of total.

Speaker #3: Asset quality-wise, the consumer finance NPL ratio remained stable. The CM3 flow rate increased to 1.2% from 1.0% quarter-on-quarter due to macro and regulatory pressure.

Speaker #3: Particularly, enforcement actions against the collection industry. We expect asset quality will gradually improve as we deepen our selective customer strategy. But the macro and regulatory impact may continue for a couple of months toward the end of the year.

Speaker #3: The second question is around collection rate. Collection was definitely negatively impacted by the tightened industry liquidity, heightened regulatory scrutiny, and intensified enforcement actions in Q3.

Ji Xiang: We think Lufax also has an advantage. We have in-house collection capability to mitigate the reduced supply of third-party collection services. I think some of our peers have really suffered from the reduced supply of third-party collection services. We are basically not exactly having the same issue. At the same time, we have adjusted collection strategies to improve recovery efficiency while balancing compliance requirements, including greater use of judicial recovery channels, model-based identification of high-quality accounts, expanded use of AI-driven collection, and increased reliance on the in-house collection force. However, for those actions to take effect, we still need a couple of months to see how it is going. While we are not able to provide a forecast for future recovery rates at the moment, we actually believe these measures will improve collection performance over time. Thank you.

Speaker #3: But we think Lufax also has an advantage: we have in-house collection capability to mitigate the reduced supply of third-party collection services. I think some of our peers have really suffered from the reduced supply of third-party collection services.

Speaker #3: Well, we are basically not exactly having the same issue. At the same time, we have adjusted collection strategies to improve recovery efficiency while balancing compliance requirements, including greater use of judicial recovery channels, model-based identification of high-quality accounts, expanded use of AI-driven collection, and increased reliance on the in-house collection force.

Speaker #3: However, for those actions to take effect, we still need a couple of months to see how it's going. Well, we are not able to provide a forecast for future recovery rates at the moment.

Speaker #3: We actually believe these measures will improve collection performance over time. Thank you.

Operator: The next question will come from Richard Xu with Morgan Stanley. Please go ahead.

Speaker #2: The next question will come from Richard Chu with MS. Please go ahead.

Richard Xu: Sure. Thank you. Can you hear me okay now?

Speaker #3: Sure. Thank you. Can you hear me okay now? Yep. Okay. Thanks for the opportunity. I have two questions. First of all, we're seeing the credit losses widening in the third quarter.

Ji Xiang: Yep.

Richard Xu: Okay. Thanks for the opportunity. I got 2 questions. First of all, we are seeing the credit losses widening inter quarter. Just want to know, what are the key drivers? Are these drivers one-off or are you seeing some sustaining pressures? Secondly, it is on the regulatory front. What is your expectation of any upcoming regulatory changes in the consumer finance and loan facilitation businesses? Would that potentially change further the Lufax business model? Thank you very much.

Speaker #3: Just want to know, what are the key drivers? Are these drivers one-off, or are you seeing some sustained pressures? Secondly, on the regulatory front, what's your expectation regarding any upcoming regulatory changes in the consumer finance and loan facilitation businesses?

Speaker #3: Would that potentially further change the Lufax business model? Thank you very much. Thank you, Richard. In terms of the loss, operating loss was driven by increased credit impairment losses, a challenging macro environment for small and micro business owners, combined with tightened regulatory oversight—especially the enhanced enforcement actions against the collection industry in Q3.

Ji Xiang: Thank you, Richard. In terms of the loss, operating loss driven by increased credit impairment losses, challenging macro environment for small and micro business owners, combined with tightened regulatory oversight, especially the enhanced enforcement actions against collection industry in Q3, led to volatility in risk performance. As a result, we recorded an increased credit impairment losses and an operating loss in Q3. The other factor is additional tax expenses, primarily due to reduction of deferred tax assets based on our current assessment of certain PRC subsidiaries operating and financial conditions, and withholding taxes as we expect to satisfy the funding needs of the company and overseas subsidiaries through dividend distribution by domestic companies. Going forward, we expect risk volatility caused by enforcement actions to be temporary. Tightened regulation will benefit the industry in the long run, but may have some negative impact in the short term.

Speaker #3: This led to volatility in risk performance. As a result, we recorded increased credit impairment losses and an operating loss in Q3. Another factor is additional tax expenses.

Speaker #3: Primarily driven by a reduction of deferred tax assets based on our current assessment of certain PRC subsidiaries' operating and financial conditions, and by withholding taxes, as we expect to satisfy the funding needs of the company and overseas subsidiaries through dividend distributions from domestic companies.

Speaker #3: Going forward, we expect risk volatility caused by enforcement actions to be temporary. Tightened regulation will benefit the industry in the long run, but may have some negative impact in the short term.

Ji Xiang: We will actually closely monitor the macro environment for small business owners and implement prudent operation growth. I think that is also a reason why myself and the CFO expressed we will pursue a more high quality growth rather than a scale growth purely. The second question, overall movement towards greater standardization will for sure continue in the foreseeable future. Oversight spans the full value chain from pricing, customer acquisition, risk management, post loan operation, and data governance. Subsequently, previous business model of offsetting high risks with high fee is no longer sustainable. We see that very clearly, and that is why Lufax has embarked on a journey to transform the business model. Business impact-wise, near-term pressure on growth and profitability is for sure.

Speaker #3: We will actually closely monitor the macro environment for small business owners and implement prudent operational growth. I think that's also a reason why myself and the CFO expressed we will pursue more high-quality growth rather than purely scale growth.

Speaker #3: The second question: overall, movement towards greater standardization will for sure continue in the foreseeable future. Oversight spans the full value chain, from pricing, customer acquisition, risk management, post-loan operation, and data governance.

Speaker #3: Subsequently, the previous business model of offsetting high risk with high fees is no longer sustainable. We see that very clearly, and that's why Lufax has embarked on a journey to transform the business model.

Speaker #3: Business impact-wise, near-term pressure on growth and profitability is for sure. But as far as the long-term is concerned, it will support healthier and more disciplined competition across the industry.

Ji Xiang: But as far as long term is concerned, it will support healthier and more disciplined competition across industry and enhance the competitive advantage of top players with proper license and also compliant mechanisms. And we think Lufax is actually better positioned because we have consumer finance license. We also have guarantee license and micro-lending licenses. And our compliance culture is being strengthened and will basically show its value in the long term. Thank you.

Speaker #3: And enhance the competitive advantage of top players with proper licenses and also compliant mechanisms. And we think Lufax is actually better positioned because we have a consumer finance license, we also have a guarantee license, and micro-lending licenses.

Speaker #3: And our compliance culture is being strengthened, and we'll basically show its value in the long term. Thank you.

Operator: The next question will come from Yuxin Qin with Haitong Securities. Please go ahead.

Speaker #2: The next question will come from Yuxin Chen with Hightow Securities. Please go ahead.

Yuxin Qin: Hello, management. Thanks for giving me this opportunity. I am Yuxin Qin from Haitong Securities, and I have two questions. The first one is about the funding side. Recently, funding supply in the loan facilitation industry has tightened, with some banks scaling back cooperation with loan facilitation platforms. We would like to understand whether funding supply available to Lufax remains sufficient. Have there been any material changes in partner banks' willingness to lend, credit facility quotas, or funding costs? Have changes on the funding side affected the company's loan origination volume in Q3 2026? How does management view the funding supply outlook over the coming quarters? That is the first one. The second one is about the asset quality.

Speaker #4: Hello, management. Thank you for giving me this opportunity. I'm Chen Yuxin from Hightow Securities, and I have two questions. The first one is about the funding side.

Speaker #4: Recently, funding supply in the loan facilitation industry has tightened, with some banks scaling back corporation-wide loan facilitation platforms. We would like to understand whether funding supply available to Lufax remains sufficient, and if there have been any material changes in partner banks' willingness to lend credit facility quotas or changes in funding cost.

Speaker #4: Have changes on the funding side affected the company's loan origination volume in the third quarter of 2026? And how does management view the funding supply outlook over the coming quarters?

Yuxin Qin: How does management view the funding supply outlook over the coming quarters? That is the first one. The second one is about the asset quality. We would like to understand whether the deterioration in the asset quality in Q3 2026 was mainly driven by existing loans, or are you also seeing weaker performance in newly originated loans? When does management expect asset quality to stabilize? Will the credit costs still face further upward pressure over the coming quarters? Thanks.

Speaker #4: That's the first one. The second one is about the asset quality. We would like to understand whether there's a deterioration in the asset quality in the third quarter of 2026, and whether it was maybe driven by lax loans, or are you also seeing weaker performance in newly originated loans?

Yuxin Qin: We would like to understand whether the deterioration in the asset quality in Q3 2026 was mainly driven by existing loans, or are you also seeing weaker performance in newly originated loans? When does management expect asset quality to stabilize? Will the credit costs still face further upward pressure over the coming quarters? Thanks.

Speaker #4: When does management expect asset quality to stabilize, and will credit costs still face further upward pressure over the coming quarters? Thanks.

Ji Xiang: Thank you. We do recognize that funding supply is under pressure for the industry, especially for some of our peers. As far as Lufax is concerned, funding supply remains largely sufficient. Major partner banks' willingness to lend and credit facility quotas remain stable. In fact, funding costs continue to decline. Cost of funds by balance, excluding consumer finance, declined to 3.6% in Q3, down 20 bps quarter-on-quarter and 80 bps year-on-year. Leveraging on interbank markets, the funding cost for consumer finance was also stable and lower than the funding cost of Rongyi loans. We actually hold a cautiously optimistic view on future funding supply based on our license advantage, as well as our strong collaboration with our funding partners. We do expect funding availability will not pose a material constraint on our lending business. In short, on the funding side, we are doing okay.

Speaker #3: Thank you. Yes, we do recognize that funding supply is under pressure for the industry, especially for some of our peers. As far as Lufax is concerned, funding supply remains largely sufficient.

Speaker #3: Major partner banks' willingness to lend and credit facility quotas remain stable. In fact, funding costs continue to decline. Cost of funds by balance, excluding consumer finance, declined to 3.6% in Q3, down 20 basis points quarter over quarter and 80 basis points year over year.

Speaker #3: Leveraging intra-bank markets, the funding cost for consumer finance was also stable and lower than the funding cost for lone loans. We actually hold a cautiously optimistic view on future funding supply, based on our license advantage as well as our strong collaboration with our funding partners.

Speaker #3: And we do expect funding availability will not pose a material constraint on our lending business. So, in short, on the funding side, we're doing okay.

Ji Xiang: Asset quality-wise, the increase in credit impairment losses in Q3 was primarily attributable to actual losses related to certain existing loan assets, whose actual performance fell short of expectations. Risk performance of loans newly originated in 2026 is within our expectations, and actually better than the previous ones. We do expect the risk volatility caused by enforcement actions to be temporary. We will continue to implement our selective customer strategy, optimize our customer mix, and enhance post-loan measures, leveraging AI-enhanced risk models to continue improving asset quality. Thank you.

Speaker #3: Asset quality-wise, the increase in credit impairment losses in Q3 was primarily attributable to actual losses related to certain existing loan assets, whose actual performance fell short of expectations.

Speaker #3: Risk performance of loans newly generated and originated in 2026 is within our expectation and actually better than the previous ones. We do expect the risk volatility caused by enforcement actions to be temporary.

Speaker #3: We will continue to implement our selective customer strategy, optimize our customer mix, and enhance post-loan measures, leveraging AI-enhanced risk models to continue improving asset quality.

Speaker #3: Thank you.

Operator: This concludes our question and answer session. I would now like to turn the conference back over to management for any closing remarks. Please go ahead.

Speaker #2: This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Please go ahead.

Xinyan Liu: Thank you, operator. This concludes today's call. Thank you for joining the conference call today. If you have any more questions, please do not hesitate to contact Lufax IR team. Thanks again.

Speaker #5: Thank you, operator. This concludes today's call. Thank you for joining the conference call today. If you have any further questions, please do not hesitate to contact the Lufax IR team.

Speaker #5: Thanks again.

Operator: The conference is now concluded. You may now disconnect.