LexinFintech Holdings Ltd.

Good day and thank you for standing by. Welcome to Leasing FinTech fourth quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mandy Dong, IR Director. Please go ahead.

Hello, everyone. Welcome to Le Xin's fourth quarter and full year 2023 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are our CEO, Jay Hsiao, CRO, Arvin Chow, and CFO, James Zheng. Before we get started, I'd like to remind you of our Safe Harbor Statements in our earnings press release, which also applies to this call. During the call, we may refer to business outlook and forward-looking statements, which are based on our current plans, estimates, and projections. The actual results may differ materially and we undertake no obligation to update any forward-looking statements. Last, unless otherwise stated, all figures mentioned are in RMB. In today's call, Jay will first provide an update on our overall performance. Arvind will discuss risk management progress. James will cover the financial results in more detail. I will now turn the call over to Jay. His remarks will be in Chinese, and English translation will follow.

Hello, everyone. I am very happy to share with you the results of our 2023 design. The current macroeconomic environment and industry challenges us. In the fourth quarter, we adopted a cautious and stable business strategy, and adhered to both risk and data drive to achieve stable development. Good evening and good morning. I'm pleased to give an update regarding our performance.

for the fourth quarter of 2023. In the face of the current macroeconomic environment and the industry challenges, we adopted a prudent business strategy in the fourth quarter. We adhere to our strategy of dual business growth engine, driven by data and risk management, achieving steady development. Total loan origination in Q4 reached $61.2 billion, a 9% year-over-year increase. Total loan donation volume for the full year was $249.5 billion, a 21.9% year-over-year increase. Loan balance grew $124 billion, a 24.5% year-on-year increase. Revenue was $3.5 billion in Q4, a 15.1% year-on-year increase. Total revenue for the full year was 13.1 billion, a 32% year-on-year increase.

Based on the new customer division, the Law & Grow growth system is built, and the RTA model is built with our own platform, which significantly increases the ability to identify traffic. In the fourth quarter, in the case of the new registered users and the third quarter, the new active users have increased by 51%, and the new asset early risk has been stabilized and entered the next channel. In December, the indicator dropped to 15%. In the future, it will effectively supplement the quality of the customer group for the company, improving the overall asset quality of the market.

In the fourth quarter, the industry faced increased challenges due to the slow recovery of macroeconomic, weak credit demand, and intensified competition. As a result, the risk level across the industry went up and we faced some short-term pressure on profitability. In response, we took a series of measures in risk management and refined operation to mitigate the impact. To be specific, In terms of new customers, we developed the low-end growth risk growth system based on new customer segmentation and jointly built the RTA model in collaboration with platforms such as ByteDance, significantly improving our risk identification capabilities for online traffic. In Q4, while the number of newly registered users remained the same compared to Q3, the number of new active users increased by 51.8% year-over-year. The early stage risk performance matrix of newly issued loans stabilized and entered an improving momentum with a nearly 1.5% decrease in December. This will effectively bolster the inflow of high-quality customers and improve the overall asset quality.

In terms of old customers, this quarter, we heavily optimized the price and transaction strategy system to further enhance the competitiveness of customer offers. The sales of special and high-quality customers increased by 12% in the third quarter, and the risk of old customers increasing by more than 15% in the second quarter. For potential customers who have lost or have not transferred, the transfer rate has increased by 50%. Using corporate WeChat to further enhance customer service efficiency and satisfaction. Currently, corporate WeChat has accumulated more than 1.9 million fans. Through these wind control and detailed operation measures, although the risk has fluctuated since the second half of the year, the overall risk of the company began to rise in December. In December, the road rush decreased by 6% and the initial rush was stable. Since 2024, new assets have continued to improve. The whole amount of asset risk indicators are also gradually developing.

In terms of existing customers, in Q4, we focused on upgrading credit lines, granting pricing, and the trading strategy system, further enhancing the competitiveness of top-tier customer offers. The proportion of transactions by super prime and prime customer groups increased by 12% compared to the third quarter, and the risk level of new loans issued to existing customers decreased by over 15%, compared to the previous quarter. We targeted potential customers who previously used our products but not activated for a long time or never activated their accounts before and made re-offers to them, resulting in a conversion rate increase. of over 50% Leveraging enterprise WeChat will further improve customer service efficiency and satisfaction, accumulating 1.9 million followers. Through this risk management and refined operation measures, despite fluctuations in asset quality in the second half of 2023 across the whole loan facilitation sector, Our overall asset quality started to stabilize in December, with day one delinquency rate dropped 6% compared to the previous month, and collection rate remained stable. Since we entered 2024, the quality of new issue loans has continued to improve, and the risk performance indicators of the overall asset portfolio are gradually improving as well. Our CIO, Arvin, will elaborate on this later. Each new year, we are confident to bring down the risk level of our assets going forward.

In this quarter, the company has invested $1.36 billion in research and development, to further promote the combination of big models and business, to improve the efficiency of the company and the customer experience. Through training, the big model can automatically analyze multiple data sources, identify information about the users in the industry, and pay back their wishes. To build a personalized, personalized,

In Q4, we invested $136 million in research and development, further advancing the application of AI large language models in our operations to improve work efficiency and customer experience. Through advanced training, Our large language model can automatically analyze multiple data sources and identify users' industry affiliations, repayment intentions, and other relevant information. This capability enables us to create differentiated and personalized customer profiles and a laboring system, allowing us to implement data-driven, precise customer segmentation strategies.

In 2024, we will focus on a few tasks. First, we will try our best to reduce the risk and increase our profitability. Recently, we have fully upgraded our risk team. We invited Mr. Xiao Zhanwen to join us and to be the CIO. Mr. Zhanwen has been managing tens of millions of assets for over ten years. He has a lot of experience. Under his leadership, we have improved our risk framework. We have a clearer understanding of the structure of the whole life cycle system. of knowledge and goals, and developed a specific approach. In the new year, we will do a good job of wind control and operation from the three aspects of new customers, old customers, and asset recovery. In terms of new customers, we will continue to increase the customer base, strengthen the construction of free customer channels, especially the acquisition of small and medium-sized customers such as new workers, workers, and small and medium-sized customers. Through low-end growth, which is an effective dynamic growth system, we will increase the accuracy of high-quality customers, and increase the quality of high-quality assets. to promote the downfall of the overall asset risk. In the case of old customers, we will strengthen the infrastructure of the underlying recognition capability, based on the risk assessment of different users in different layers, especially the flexible use of the pricing strategy, to open up the pricing range of different customer groups. For high-quality customers, we will strengthen the competitiveness of offer, and take advantage of the high-quality customer information share, while reducing the risk of big plate organizing. Lexin has 200 million large users. We believe that there is still a lot of growth and operating space, In 2024,

we will focus on the following key areas. First, bringing down risk level of overall assets and enhancing profitability. We recently upgraded our risk team and invited Mr. Qiao Zhanwen to join us as our CRO. Mr. Qiao has over 10 years of experience in Ant Group, managing more than trillions of assets, and has extensive experience in risk management space. Under his leadership, we have gained deeper understanding and set clear goals for improving our risk management framework and developing a full lifecycle risk management system. Accordingly, we have planned out specific measures. In the year ahead, we will implement risk management work in three main aspects, new customers existing customers, and loan collection. For the first aspect, for new customers, we will continue to increase customer acquisition efforts, strengthen the development of our own customer acquisition channels, especially targeting white-collar newcomers, blue-collar workers, and mini or micro SME owners. Through the effective dynamic growth strategy of low-end growth, We will improve credit profile identification of high-quality customer groups, increase the volume of high-quality new assets, and drive down the overall risk levels. For the second aspect, for existing customers, we will strengthen the construction of underlying identification capabilities and match differentiated risk strategies based on different customer segments. Particularly, we will apply flexible pricing strategies to widen the price range for different customer segments. For high-quality customers, we will strengthen competitive offer, capture a large share of their wallet, and simultaneously lower overall portfolio risk. With over 200 million registered users, Lewisin Steel has ample room for growth. For the third aspect, in terms of loan collection, we will strengthen collaboration with financial institutions, expand the scope of legal action, and improve its efficiency. We will continue to advance the development of the localized collection and recovery integrated system to effectively ensure user experience and efficiency in delinquent loans recovery. we will strengthen AI technology to enhance delinquent loans management systems such as intelligent routing systems and leverage large language models to improve loan collection efficiency.

Secondly, we will use customers as a guide to optimize customer management. On the one hand, we will strengthen the image recognition and precision recognition capabilities to achieve better management effects for products with different customer pairs. In the new year, We will focus on doing a good turn for small and medium-sized customers, a good turn for high-quality new customers, and a good turn for growing customers. On the other hand, through the Low and Grow dynamic growth strategy system, we manage the value of the customer's life cycle. In different stages of growth, the dynamic optimization of offer continues to meet customer needs. In addition to the adaptation of products and offers, we continue to strengthen the customer's right to protect work, Secondly, we will continue adhering to the customer-oriented principle and improve our operation based on a refined customer segmentation matrix. On one hand,

will strengthen customer credit profiling to offer differentiated products for various customer segments. In 2024, we will sharpen our focus on the 乐周转, in Chinese, 乐周转, for SME customer segments, and 乐金卡, for high-quality consumer segments, and products such as 乐花卡 and speedy lending, in Chinese, 急速借钱, for growing customer segments. On the other hand, Through the dynamic growth strategy system of low-end growth, we will serve the customers' needs and manage their risks throughout the entire lifecycle. Under this dynamic approach, we are able to offer appropriate offers to their credit needs at each phase of the whole lifecycle. In addition to various products, we will continue to reinforce our work on the customer rights protection front. have formed a Consumer Rights Protection Committee and a Consumer Rights Protection Center. In 2024, we will better meet customer demands and effectively improve customer satisfaction by enhancing consumer protection governance system and mechanism, thereby reducing the impact of malicious compliance around illegal groups.

Yifan? Ecological business began to develop, promoting more stable and high-speed growth, helping the business expand more banks on the existing foundation, continue to increase the number of customers, and realize the further high-speed growth of scale and sales. Pukui business will break down the low-line urban industrial belt, carry out network management, focus on serving small and medium-sized businesses, individual business owners, high-quality workers, etc., improve product and offer competition advantages, continue to strengthen team building, upgrade sales management system, expand team size, Thirdly, our leasing consumption ecosystem starts to show driving force.

for steady growth of our business. As for TechEmpowerment's SaaS business line, we will invest more in customer acquisition and expand to more city commercial banks and the rural commercial banks, which will further fuel the growth in skill and revenue. As for our offline inclusive loan business in Chinese, PuHuiYeWu, we will continue to focus on low tier cities that locate in industrial belts conducting grid-based operations, and target micro-SME customers, self-employed business owners, high-quality salary workers, and offer more competitive products. We will continue to scale up our team, upgrade Salesforce management systems, enhance the team management, and underline the differentiation advantages of customer acquisition and first-hand information-based credit profile identification. As for the e-commerce business, while maintaining our advantages in 3C products, we will extend to more trendy goods SKU that attracts the youngsters. We will strengthen differentiated trading and risk management strategies, upgrade risk management systems, improve user credit profile identification accuracy, and uplift approval and transaction rates. aiming to expand scale and profitability.

Fourth, as for funding cost, currently, our funding costs have already hit low 6%. This year, we will issue ABS, and we expect this will further reduce funding costs. In 2024, we will adhere to the strict business principle and stick to the risk priority. The annual trading volume will continue to grow steadily. We are confident that as the scale expands and the risk continues to improve, the company's profitability will further improve. We will also continue to share in the corresponding amount to increase the return of shareholders. The company will use the approval of this time to develop a cash share of US$0.066 per ATS.

Looking ahead into 2024, we will adhere to prudent operation principles, prioritize risk management, and then maintain steady growth in transaction volume throughout the year. We are confident that as our skills expand and risk performance continues to improve, our profitability will further increase. We will continue our recurring cash dividends program and enhance shareholders' returns. the Board has approved the plan to distribute cash dividends of approximately $0.066 per ADS for the second half of 2023.

Next, I will hand over the floor to our CIO, Arvin, to discuss risk management.

Thank you. I am very happy to share with you the risk situation of Q4 Leqin. I joined Leqin in December 2023. Before that, I worked in ants for more than ten years. I was in charge of the management of the risk management and construction of ants as the vice general manager of Chongqing Ant Consumption Capital. I was deeply involved in the management of ants consumption. Thank you, Jay. I'm glad to give an update regarding the risk management performance in Q4. First, let me give a few words introduction about myself. I joined Luoxi in December 2023.

Prior to that, I served at Ant Group for over 10 years in charge of the holistic risk management work of consumer credit products such as Ant Huabei and Ant Jiebei. I also served as the Deputy General Manager of Ant Consumer Finance Company in Chongqing, overseeing comprehensive risk management for consumer finance. I have deep involvement in the construction and the integration of ANZ consumer credit risk management system with extensive practical experience in building risk management teams, innovative risk management technologies, and consumer credit risk management.

In KU4, our overall asset level reflects a certain degree of stress. Mainly due to the slow recovery of the macroeconomic recovery, the demand for consumption is not stable, and the demand for the recycling industry is fluctuating, leading to the fluctuation of our risk of saving assets. We have taken immediate and effective measures to deal with the impact, including strengthening the risk identification ability, buying and selling by customers, strengthening the management of old customers, upgrading the wind control tools, and accelerating talent隐蔽. In general, the asset quality of the big plate, based on the risk data, the new asset FPD7 reached a peak at the beginning of Q4 in 2023, and then improved rapidly. The entry rate of the overall asset reached a peak at the middle of Q4 in 2023, and then improved rapidly, reaching a low recently. Compared to the peak, it has improved by more than 10%.

In Q4, our asset quality showed some pressure, mainly due to the slow macroeconomic recovery with consumer demand and turmoil in the loan collection industry, which resulted in fluctuation in the risk performance of our existing loan book. we have taken timely and effective countermeasures to mitigate the impact, including strengthening risk identification capabilities, reclassify customer segmentation, enhancing risk management of existing customers, upgrading risk management tools, and accelerating talent acquisition. Looking at the asset quality of overall loan books, The FPD7 of newly issued loans reached its peak level at the beginning of Q4 2023 and has since been gradually trending better on a monthly basis. The day one delinquency rate of the overall assets reached its peak level in the middle of Q4 2023 and has been improving month by month, reaching its lowest point recently with over 10% improvement compared to the peak level. The collection rate of the overall assets started to come under pressure in the second half of 2023, but began to stabilize and recover from January 2024.

Let me introduce the major progress we have made in terms of risk management in Q4. First, in Q4, we have further strengthened the construction of risk recognition capabilities. At the data level, we have conducted in-depth joint development with multiple leading platform Internet companies by fully digging up a large number of scenario data, which has greatly improved the accuracy and stability of risk evaluation models. At the same time, in the development of risk models, it strengthens the introduction and application of all-in-one algorithms, and well expands the risk identification of customers in time and space. Based on richer scenario data and model algorithms, the wind control system of Xiaojin, Puhui, e-commerce, and Sanqiao core business lines has been fully upgraded. Risk identification performance has been increased by nearly 30%.

Next, let me give an update regarding the major progress we have made in risk management workstream in Q4. Firstly, in Q4, we further strengthened our risk identification capabilities. On the data front, we conducted in-depth joint modeling with several leading platform-based internet companies. By fully leveraging their massive amounts of scenario data, we have greatly improved the accuracy and the stability of our risk scoring models. Additionally, in the development of risk models, we have introduced and applied cutting-edge algorithms such as time series models and relationship graph models, effectively expanding our risk identification capabilities in the temporal and spatial dimensions. Based on richer scenario data and the model algorithm, we have comprehensively iterated and upgraded the risk management system for our three core business lines that are consumer finance, offline inclusive finance in Chinese, Puhui, and e-commerce. The performance of our risk identification capabilities has seen an improvement of nearly 30%.

In Q4, we reconstructed the client division through client basic information, client image, and client rating, dividing the client into special, high-quality, ordinary, and growth four categories. Comparing the original client division, there is a significant improvement in risk differentiation and stability. Xiaojin's business is based on a new customer division, restructuring the risk strategy and operating system for the whole life cycle, increasing the acceptance rate by 35%, and reducing the risk of new customers releasing funds by more than 10%. In the future, we will further improve the accuracy of the high-quality customer groups and increase the use and transfer of high-quality customers through a dedicated growth strategy to increase the size of high-quality assets.

Secondly, in Tier 4, we reconstructed our customer segmentation by using customer basic information, customer credit profiles, and customer credit scores to classify customers into four categories that are super prime, prime, near prime, and subprime. Compared to the previous customer segmentation, This new approach has significantly improved risk level differentiation and stability among various customer segments. In the consumer finance business line, we have reconstructed the risk strategy and operational system throughout the customer lifecycle based on the new customer segmentation. This has led to a 35% increase in credit approval rate and a 10% decrease in risk level for new customer loans. In the future, we will further enhance our precision targeting of high-quality customer groups and leverage a dedicated growth strategy system to boost the drawdown rate of high-quality customers, thus expanding the scale of high-quality assets.

Third, in terms of risk management for old customers, we upgraded and improved the overall pricing, pricing, and trading strategy system. Through the detailed risk management of customer groups, we increased the offer competitiveness of the top customers, and the ratio of GMV deposits to high-quality customers increased by 12%, effectively improving the asset structure, and encouraging the risk of old customers adding deposits to drop more than 15%.

Thirdly, in terms of risk management for existing customers, we have upgraded and improved the overall credit approving, pricing, and transaction strategy system. Through refined risk management for different customer segments, we have enhanced the competitiveness of offers for our super prime and prime customer groups. The ratio of GMV loans volume for our super prime and prime customer segments has increased by 12% compared to Q3, effectively improving our asset structure and reducing the risk of new loans to existing customers by 15%. Furthermore, we have achieved significant results in customer retention through measures in prevent churn and recall lost customers, particularly for our high-quality customer segment.

Fourth, we upgraded the wind control management tool and built a set of standardized risk strategy management processes and frameworks to provide standardized data access and decision-making output, as well as highly observable and complex decision-making strategy programming capabilities, which greatly improved the operational efficiency of the wind control system, which can support fast strategic delivery and the launch of new business products. The upgraded wind control system can support

Fourthly, we have further upgraded our risk management tool and established a standardized risk strategy management process and framework. This enables standardized data input and decision output. as well as the ability to orchestrate highly visualized and complex decision strategies. This has greatly improved the operational efficiency of risk management systems, supporting rapid strategy integration and the launch of new business products. The upgraded risk management framework can effectively support end-to-end standardized link between risk management and marketing systems, further enhancing the responsive iteration and refinement among different parts of our operation process.

Lastly, as we accelerate the implementation of the aforementioned risk management upgrade measures,

We have also brought in a group of outstanding mid- to senior-level risk management talents from leading platforms in the industry.

In the next quarter, we plan to further strengthen risk management

from the following three aspects to ensure a continued decline in the risk level of newly issued loans.

Firstly, we will expand and utilize more core data sources to comprehensively improve our risk identification,

customer profiling, preference identification, and the stability identification capabilities.

Secondly,

We will continue to enhance the modularization building up of our risk management system, improving the standardization of risk strategies. We will transform core inputs from different dimensions into standardized modules, such as income module, multiple platform module, responsive module, et cetera. This will further enhance the standardization and the consistency of risk management strategies.

Thirdly, we will develop intelligent risk management product capabilities by creating multiple product-like risk management tools, such as strategy robots,

and strategy experimentation platforms. These tools will further enhance the efficiency and precision of risk management work.

In the coming 24 years, we will continue to uphold the principles of risk priority and stable management, store basic facilities, wind control framework, wind control data source, model, strategy, tools, and other elements, As well as a wide range of aspects, such as control, talent, team, and so on, comprehensively upgrade the ability to control and control, strive to greatly improve the risk identification ability of different customers, and quickly promote multiple special landing to strengthen the risk control and precision operation ability of the customer's full life cycle, such as in the front, in the middle, and in the back. We will continue to uphold the principles of risk management priority

and prudent operations. We will comprehensively upgrade our risk management capabilities in various aspects, including infrastructure, risk management framework, risk management data source, models, strategies, tools, and talent teams. Our goal is to significantly enhance our risk identification capabilities for different customer segments. we will expedite the implementation of multiple specialized initiatives to strengthen risk management and refine our ability to manage customer risk throughout their entire life cycle, including loan ordination, loan servicing, and delinquent loans management. We will continue to enhance our ability to identify high-risk customers and employ various measures such as account closure, credit line amount reduction, and transaction interception to reduce the generation of delinquent loans. With confidence, capability, and effective methods, we aim to achieve a gradual decline in risk level on a quarterly basis, refine asset quality, support a steady growth, and improve profitability margins.

Next, I will hand over to our CFO, James, for financial updates.

Thank you, Albert. I will now provide more details on the financial results. Please note that all numbers are in RMB unless otherwise stated. In a challenging economic landscape marked by a modest economic recovery and consumer spending quotient, We closed 2023 on a positive note, achieving our business target. Despite industry-wide risk volatility, our commitment to strategic pillars, rigorous risk management, customer segmentation and upgrading, operational refinement, and cost optimization has fortified our financial framework and yielded positive business results. I'd like to highlight a few points related to our operations and the financial progress from last quarter. Loan origination and profitability growth. Despite the controlled loan growth in response to the industry risks in Q4, we have recorded commendable loan volume and probability increase over the year. Our Q4 GMB reached $61.2 billion, a 3.3% sequential decline reflecting our tightened credit standards and focus on quarterly growth. The annual loan origination grew by 21.9% to $249.5 billion, with outstanding loan balance up 24.5%. Annual revenue surged by 32%, and the net income spiked by 56.2%, excluding investment-related impairment losses. Second, we have demonstrated strong and resilient revenue-generating and growth capability. Despite the GMB year-over-year growth of only 9.2 percent in Q4, the revenue growth outpaced at 15.1 percent year-over-year. In Q4, we have continued to lower borrowing costs for our users. We cut the weighted average APR by 0.4 percent to 23.7% from 24.1% in Q4 a year ago, therefore resulting a 40 basis decline in pricing. Additionally, as a general practice to reduce the risk exposure, we have shortened the new loan tenor from average of 13.9 months to 12.3 months. The 40 basis point decline in pricing The shortened tenor, along with the industry-wide risk fluctuation, did not significantly impact the overall Q4 revenue take rate. We only saw a marginal revenue take rate dip of 25 basis points to 2.47% from 2.72% of a year ago. This is due to the strong positive revenue uplifting effect from lowered funding costs and the continued improvement in customer early payoff. We have recorded a historically low funding cost of 6.18% in Q4, down 63 basis points year over year. We achieved this through ample funding and partnerships with cost-efficient national financial institutions. The funding costs hit A new record low level below 6% in February. And we expect this downward trend to continue going forward. We have taken some proactive measures to reduce the borrowers' early repayment. The repayment ratio lowered to only 87% of the peak level in 2023. Thirdly, we have substantially optimized our cost structure. We trimmed down the total expense, including the processing service, sales marketing, R&D, and G&A as a percentage of average loan amount from 4.51% in Q4 2022 to 3.88% in Q4 2023, thanks to the execution of cost optimization project. One such example is the user acquisition cost. We realized a big saving on acquisition costs per user in Q4 thanks to our upgraded RTA marketing model and more attractive loan offerings. Our sales and marketing expense ascended a bit by 4.6% compared to last quarter, while our new acquired users with approved credit lines and new active users grew much faster at a rate of 21.5% and 35.7%. which indicates a 14% and a 17% unit acquisition cost saving, respectively. Fourth, the risk fluctuation and its impact. The industry-wide risk fluctuation during the second half of last year have impacted us as they did to our peers. Asset quality metrics have shown signs of stress including the D1 delinquency rate, M1 collection rate, and the 90-plus days delinquency rate. Our 90-plus days delinquency rate moved to 2.9% versus 2.67% in last quarter. We have enacted risk mitigation strategies that are stabilizing the situation close to the end of the year and early part of this year. The immediate financial impact is the sequentially almost flat revenue in Q4 and the increased provisionings of credit impairment costs. Total provisions related to cost items, including the provision for financing receivables, provision for contract assets and receivables, provision for contingent guarantee liabilities, and the change in fair value of financial guarantee, deliberatives, and loans at a fair value, increased by 7.1% on a quarter-over-quarter basis due to the increased pressure on our asset quality in Q4. We are maintaining an ample debt provisions, paying a robust coverage ratio of approximately 317%, which is defined as a total provision amount divided by the principal amount of 90-plus days delinquent loans. Apart from the above four operation-related highlights, I would like to elaborate a little bit more on the specific items from financial statements. investment-related impairment losses. The major impact on earnings came from the investment impairment related to a domestic investment of a private bank. Excluding after-tax impact of R234 million of investment-related impairment losses, the net profit for the fourth quarter was R236 million with a net margin of 6.7 percent. Second, some notes on revenue line items. Guaranteed income grew steadily by 11% on a quarter-over-quarter basis and 42% on a year-over-year basis due to continuing releasing from existing loan books. Tech empowerment services fell 6% from last quarter and increased 3.4% from last year, primarily due to the reduced volume in tech empowerment business. Third, some notes on cost line items. Funding costs on our income statement, which related to our own balance sheet loan generation, dropped significantly by 42.1% quarter over quarter and by 47.9% year over year due to the maturity of a portion of trust funding in Q4. Additionally, the processing and servicing costs increased by 15.3% in Q4 compared to the previous quarter due to the increased risk management initiatives and projects. General and administrative expenses rose by 26.6% in Q4 from last quarter due to the addition of more risk management talents. Fourth, on balance sheet items. Our cash position is strong. ending the quarter with around $4.4 billion in 10 and a solid equity position of $9.7 billion. We continued our recurring cash dividend plan and declared a cash dividend for the second half of 2023, amounting around $10.8 million, equivalent to roughly 20% of total net profit for the second half of 2023. The total 2023 combined dividend payout is about 0.182 U.S. dollars per UDS, ADS, with the dividend yield at roughly 10% based on the year-end currency price of 2022. Looking ahead, we will continue to either maintain or increase the dividend payout ratio to our shareholders when the market condition improves. Looking forward to 2024, Due to the uncertainty of the economic growth and our prudent business approach, we expected the annual GMB amount for the fall year 2024 to be no less than that of last year as we remain focused on the enhancement of risk management as a top priority. And net profit will grow from last year as well. In summary, 2023 was a year of rebound with a strong growth in both top and bottom line, surpassing many peers, driven by our core strategy. We remain focused on improving risk management capabilities, upgrading user groups, operational excellence, and cost optimization to capitalize on emerging opportunities. That concludes our prepared remarks. Operator, we are now ready for the Q&A session. Open the floor for questions. Thank you.

Thank you very much. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please kindly read your question in English and Chinese. Please stand by as we compile the Q&A roster.

Our first question comes from Alex Yee of UBS.

Please go ahead.

Good morning, everyone. Thank you for the opportunity to ask a question. I would like to ask Mr. Qiao a question. I know that Mr. Qiao has been in charge of the product control of the $30 million consumer loan from Ant Group. You joined Lexin a few months ago. I would like to know about Mr. Qiao's main considerations when you joined Lexin and what problems and opportunities you encountered after joining Lexin. Thank you. I have a question for Mr. Chow, who personally was in charge of the risk management for Ungood's trillion-dollar balance of consumer loans. Since you have been with Lushin for several months now, we would like to learn about the key reasons that have led you to choose to join the platform, as well as the main challenges and opportunities you have seen since joining.

Thank you.

I was considering joining Lexin mainly because of the following reasons. First of all, Lexin is China's earliest set of established consumer finance platforms. It has accumulated quite a lot of customers in the past. There are more than 200 million registered users. The future customer base feels that the potential is still huge. At the same time, in this process, it has created many ecological consumer finance businesses such as Xiaojin, Puhui e-commerce, Fuke, etc. In the future, the effect of cooperating between various businesses feels that the potential is huge. Lexin has a very good business base and customer base. I feel that after joining Lexin, there will be a very good space for this to play out. The second is that the current risk level of Lexin is still at a relatively high level compared to the industry. I feel that through the acquisition of a relatively mature quantitative risk management system and the construction of a refined risk management capability, we can further upgrade our wind control capability. I am still confident that we can help Lexin's risk level with a significant improvement. We hope to return to the average level of the industry from the current relative high level. Okay, Alex, this is Mandy. Let me do the translation for Mr. Irving.

When I made my decision to join Luoxin FinTech, there were several key considerations. Firstly, Luoxin FinTech is one of the earliest established consumer finance platform in China. It has accumulated over 200 million registered users with immense growth potential and Luoxin has built its unique Luoxin consumption ecosystem that consists of various business lines including consumer finance, offline inclusive finance, e-commerce, and SaaS tech products. Well, we see there are tremendous synergy potential among these business lines. So in my perspective, Luoxin has a very solid foundation and a strong customer base. For the second point, you can see the risk level of Luoxin's assets nowadays stands at a relatively higher level when we compare to other industry peers. However, I'm very confident that by implementing a proven quantitative risk management system and enhancing further refined risk management, we can bring down the risk level of our losing assets to match industry average level and in the future, furthermore, we can gradually improve to the leading level of the industry In addition, the company's current P-E ratio is quite low. That may indicate ample room for returns as in the future we can gradually bring down the risk level and the profitability will increase.

I think in the following aspects, we still have room for improvement. One is the introduction and use of three-way data. The situation may be that the latter will focus more on deep cooperation with the core data manufacturers at the head to improve the stability and quality of our risk data. The second is the type of risk model. In the past, we may be relatively monotonous in terms of risk rating. We will focus on enriching our risk model identification types, including this image type, response type, gas type, etc. The third is that we are relatively sluggish in the current wind control system, and then in the future we will further improve the entire wind control system, and then the current wind control tools are also relatively lacking. In recent months, we have upgraded the risk identification system to build a wind control system for the whole life cycle, Well, after the past few months of my work in risk management space, I see there may be further room in following points. First, Losing has utilized a lot of third-party data source, but may lacking in quality in the future.

In the future, we will improve the models, introduce more data source, and improve model stability and risk identification accuracy. Secondly, the risk model nowadays, mainly in the credit rating, credit scoring type, which shows a lack of variety. In the future, we will include more different types of models, including the credit profile type, responsiveness type, there's still room for, also, thirdly, there's still room for improvement of building a more robust risk management system and a more sufficient array of risk management tools. Over the past few months, we have already made notable progress in upgrading risk identification systems, establishing a full lifecycle risk management system, building intelligent risk management tools, So achieved to the above-mentioned measures, we see the asset quality of newly issued loans already showed a turning point since the last year end, with level declining on a monthly basis. Alex, hope that can address your question.

Thank you.

Thank you. Our next question comes from Yada Li of CICC, please go ahead.

Thank you for giving me the opportunity to ask this question. I would like to ask Guan Yicheng today, from the business data of our fourth quarter, we actually saw that the number of new customers increased by about 17%, but the sales cost only increased by about 5%. Then I'll do the translation. From the fourth quarter results, we observed the new users with credit lines went up by roughly 17% QOQ, while the sales and marketing expenses grew by only 5%. And I think it indicates a significant improvement in customer acquisition efficiency and could management share some more recent moves and efforts on the customer acquisition? That's all. Thank you.

Okay. At Q4, based on the enhanced recognition ability of our superior customers, we have further improved the strategy and model of RKA's investment strategy and model of RKA's investment strategy. We have adopted a new low-end growth strategy system based on the RKA's investment strategy, which helps us to increase the growth of our mainstream RKA customers. Well, yeah, I will do the translation for Jay. First, you see in Q4, we further upgrade our team model and strategy based on our enhanced risk identification capability.

we adopted low-end growth strategy on the credit line approval and drawdown. This resulted in a notable improvement of user with credit line increased by 40% for zero percent, credit drawdown by the good quality users increased by 45%, and risk level of those newly issued loan consistently decreased on a monthly basis.

In addition, we have also strengthened the balance and diversified the entire customer, not only relying on the customer from the advertising channel, but also developing more comprehensive customer channels. For different customer groups, we have also launched diversified products to connect and realize a way of managing the entire business of different customer groups. Specifically, we are targeting young customers, small and micro customers, and high-quality consumer customers.

Secondly, we have put more effort to diversify our channels in terms of customer acquisition rather than, like in previous, solely relying on the online advertising channel. So we tailored products and service and catered needs for different customer segments. By that, we achieved a differentiated and a diverse customer acquisition matrix. Well, to be more specific, for the fresh graduates, micro SME owners, super prime and prime users, we also developed customer acquisition approach and products. Operator, we can see open the question to the next listener. Thank you.

Our next question comes from Yuying Zou of CLSA. Please go ahead.

Hello, everyone. Thank you for giving me the opportunity to ask this question. I would like to ask President Xiao. In our 20-year career, you have mentioned a lot of development directions. As the domestic economy slows down, industry competition is increasing, and a lot of industries are emerging. I would like to ask if Lexin has similar direction of consideration? Let me do the translation. So as Jay mentioned in his remark, LeSing has launched the multiple growth strategy in 2024. As the slow recovery of the domestic economic and the intensified competition in the domestic market, more and more peers began to expand their business internationally. Does LeSing have a similar business plan in the future? Thank you. 出海应该也是我们的一个战略的一个方向之一吧。

I think in the past, we have also had some attempts overseas. I believe that in fact, China has accumulated these financial technology capabilities overseas. It is able to have a very good competitive advantage. We have actually done some layout in Southeast Asia, including the United States, and have started to do some shows in the early stages. Yes, you are right. Definitely expanding internationally is one of our key growth strategies. And nowadays, we have already had some business running in the overseas markets.

In 2024, we will expand business in some selected overseas markets. Either we'll buy acquisition or building the business from the ground up by ourselves. We are confident to replicate our success in China market to overseas. But the business volume of our overseas business is relatively small. We will update more to the market once we achieve more progress in the future. Well, operator, if there are no further questions lying, maybe that will come to the end of our call today.

Thank you. I see no further questions at this time. Thank you all for coming to this conference call. This is the end of our conference call. You may now disconnect. Have a great day, everyone.