LexinFintech Holdings Ltd.

Thank you, operator. Hello, everyone. Welcome to our second quarter 2025 EARNEST conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our chairman and CEO, Mr. J. Wenjie Xiao, who will provide an update on overall performance and strategies of our business. Our CIO, Mr. Arvin Zangwen Chao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Chen, will discuss our financial performance. 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. Last, please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Please kindly note Jay and Arvind will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvind's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjiexiao, Chairman and CEO of Lexin.

Please. Hello, everyone. I'm very happy to share with you our business plan for 2025. The company is committed to risk-driven, data-driven, and strategic transformation of economic operation. and another high-quality growth record. In the face of an uncertain red-light environment, the company's strategy to win victory over victory continues to grow and develop more steadily. The second quarter's trading volume is 5.29 billion yuan, with a return growth of 2.4%. The revenue is nearly 3.6 billion yuan, with a return growth of 16%. The net profit is 5.11 billion yuan, with a return growth of 19% and a return growth of 126%, creating a new high of 14 quarters. Consumption continues to decline, and the growth of ecological businesses has led to excellent performance in the quarter. The company has always paid great attention to shareholding returns and is committed to returning shares in various ways. In the second half of this year, the shareholding ratio will increase from 25% in the first half of the year to 30%. In July, the company announced another $60 million stock return plan in the next year. The company's shareholding return rate has been further improved and has reached the top of the industry. Next, I will introduce the key work and specific progress of Group II. First, the unique ecological business continues to develop healthily. The core competitiveness is constantly improving. The company's business resilience is clearly improving. The branch sales business is focused on young customers. We have fully upgraded the supply chain and introduced dozens of top-level brand merchants in the industry. We have strengthened the model of real products, factory chains, etc. to meet the needs of the users. We have improved the business strategy of one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time, one step at a time Increased service capacity, efficient service, no small users. Profitability is growing rapidly. Personal consumption, new business, acceleration of deployment. We have added a number of head-on platform cooperation, occupying a strong position. For future further growth, we have established a foundation. A standardized system and risk management capability for digital business. We continue to assist banks in connecting with various major debt platforms, improving the banking speed and risk management capability, and the recognition of wide-ranging cooperating banks. In the quarter, the scale and number of customers have increased significantly, and the development trend is good. In the overseas business, we continue to strengthen the human resources construction in the middle and late stage. We have made good progress in the quarter, and the scale and revenue of multiple quarters have increased significantly. Second, to improve product service experience, promote quality customers, scale steady growth. Second, we enrich product evidence, provide competitive offer and flexible management for users, match users' product and service needs throughout their lifetime. Users are much younger and stronger. For quality personal consumption new generation customers, launch a new hot gold card with a more competitive price. to meet the individual needs of the users. After the product is launched, it is widely welcomed by users. For the high-quality Puhui micro-videos, our joint bank has launched flexible products, which have further reduced the cost of financing the users and accurately met the needs of more Puhui micro-videos. Third, AI has further highlighted the truth for the business. The AI model of localization is deeply used in multiple core business scenarios, The AI support platform has been implemented in the management of users from case allocation, collection, and homework. The full-route AI support of the loan strategy effectively increases the overall return rate of the loan. The company's self-proclaimed AI self-management system has also made a major progress. Currently, more than 50 AI self-management systems are available to be used in strategy support generation, strategy inspection, Autonomous monitoring and other core business areas have greatly improved the company's operating efficiency. The company is based on the service concept of the user as the center, and continues to optimize user service experience, effectively respond to the needs of users, and work hard to enhance the customer's sense of achievement and credibility. We continue to focus on the construction of top-level design and long-term mechanism of sales management and management, and promote sales integration into the entire business chain, to remove the engine, to build a pre-built full protection system, to promote consumer protection work and high-quality development. In the third quarter, we have increased the technology investment of Xiaobao, perfected the digitalization and modelization tools, and improved the response rate of service users. Looking forward to the future, in the third quarter, we will maintain a stable scale, and the risk will continue to decrease, and the profit will grow steadily. The new rules will be implemented in the fourth quarter, Although Xinggui may bring some changes to the industry, we believe that Xinggui will be beneficial to the long-term health development of the industry, especially beneficial to a platform such as Lexin, which pays great attention to the rule of law. We will actively play Lexin's business ecosystem-cooperative advantage, create some competitive advantages for us, and promote the stable operation of the company. Therefore, we maintain the overall performance guidance of the whole year. Thanks for joining us today for our second quarter 2025 earnings call.

We're delighted to report another quarter of high quality growth. The company has successfully executed the transformation towards a business model by data analytics, risk management, and refined operations. Despite macroeconomic uncertainties, our prudent strategy has led to continued profitability recovery and sustainable growth. In the second quarter, total GMV reached 52.9 billion RMB, a quarter-over-quarter growth of 2.4%. Revenue increased by 16% to 3.6 billion RMB. Net profit reached 511 million RMB. representing quarter over quarter growth of 19% and year over year growth of 126%, a record high in the past 14 quarters. The excellent quarterly results are driven by the sustained improvement of asset quality and resilient growth across our business ecosystem. The management has always placed great emphasis on shareholder returns and remains committed to improving shareholder returns through various means, Starting from the second half of this year, our cash dividend payout ratio is raised from 25% to 30%. Also, in July, the company announced a $60 million share repurchase plan to be executed within the next 12 months. These measures will further raise the company's shareholder returns above the industry average level. Now let me introduce the specific business progress we have made in the second quarter. First, our unique business ecosystem has sustained strong growth, which has enhanced our competitiveness and strengthened our operational resilience. Our installment e-commerce business focuses on the essential consumption needs of young customers In the second quarter, we comprehensively upgraded our supply chain and partnered with dozens of top-tier brands to expand our product matrix. Also, we fully tapped into users' diverse consumption demands through two merchandising categories, high-quality offerings and factory outlet products. In addition, based on our user insights, we developed and optimized our HAPR personalization approach to customize operation and risk strategies for different segments of customers. During the June 18th shopping festival, our e-commerce GMV increased by 139% year-over-year, putting this business firmly on a rapid expansion path. For offline, inclusive finance business, we strengthened localized operations and expanded our business into lower tier cities. By adopting customized risk management and differentiated competition strategies, Enhancing our service capabilities and improving our efficiency to serve small and micro business owners, the profitability of inclusive finance business achieved steady sequential growth. For online consumer finance business, we accelerated its development by partnering with multiple leading platforms to secure a favorable market position, laying a solid foundation for future growth. For our tech empowerment business, we leveraged our standardized systems and risk management expertise to help partner banks efficiently connect with major platforms, enhancing their data-driven risk management capabilities, and have gained wide recognition from our partner banks. During the quarter, the business saw significant increase in business volume and number of users, maintaining robust growth momentum. For overseas business, we continue to strengthen mid- and back-end capabilities, making notable progress during the quarter. It delivered substantial quarter-over-quarter growth in both business volume and revenue for multiple consecutive quarters. Second, we strove for product service excellence to drive the growth of quality user in our online credit business. In the second quarter, we expanded our product portfolio, offering users competitive terms and flexible repayment options to meet their product and service needs throughout the full life cycle, significantly increasing user engagement. For prime customers, we launched a product with more competitive pricing, upgraded Lojin Card, catering to their demands for on-demand borrowing and repayment with daily interest calculation. The product has been well-received since its launch. For qualified small and micro-business owners, we partnered with banks to introduce products with flexible terms, further reducing financing costs, and precisely meeting the needs of the segment. AI further enhanced our business quality and efficiency. Our locally deployed large AI models have been deeply applied in most business scenarios. For example, in post-loan management, the intelligent data-driven platform has achieved full process end-to-end AI support, ranging from case allocation and collection operations to customer operation and repayment strategies. Effectively improving the post-loan collection rate, the company's self-developed AI agents have also made significant progress, with 50 AI agent roles currently deployed in key business areas, such as operational strategy generation, credit strategy review, and automated monitoring. greatly enhancing our operational efficiency. The company adheres to a user-centric philosophy and strives to enhance consumer satisfaction and trust by optimizing user service and experience and responding to user needs efficiently. We remain focused on the top-level design and long-term mechanisms for consumer rights protection governance, integrating consumer rights protection into all business processes. Also, we have built a proactive consumer rights protection system to advance the high quality development of consumer rights protection. During the quarter, we increased technology investment in consumer protection and have refined over 50 digital and model-based tools to improve service response and user satisfaction. Looking ahead, we will maintain table business scale, further reduce risks, and sustain profit growth in the third quarter. Although the new regulation of loan facilitation, which is to take effect in the fourth quarter, may bring some changes to the industry, we believe it will foster the healthy development of the industry, particularly benefiting platforms. like Colossium that place high importance on compliance. We will strengthen our business ecosystem synergy to build a unique competitive advantage and ensure continued business growth. As such, we maintain our full-year guidance of achieving significant year-over-year profit growth. Now I would like to give the floor to our CRO, Arvind. Thanks.

OK, thank you. Next, I will report on the work situation and progress in the second quarter of risk management. The economic environment and industry environment of the second quarter are still complicated and uncertain. We take action quickly and take targeted risk management measures to deal with external risk impacts to ensure that the risk continues to fall. The focus is on the identification and management of market risk fluctuations that affect customers. By delivering re-offer, we can greatly promote the growth of high-quality customers, and use the ability of large models to upgrade wind control to enhance the efficiency of risk assessment and the accuracy of the price strategy. Through a series of risk management measures, it ensures that the risk of both new assets and full assets continues to fall in the second quarter. Specifically, the new asset FPD7 in the second quarter fell by about 5% compared to the first quarter. The full asset inflow rate fell by about 2%, and the full asset 90 plus bad rate fell by about 106. Next, I would like to introduce the key risk management mistakes we made in the second quarter. On the one hand, in terms of model recognition capability, in the second quarter, we continue to optimize the data model and focus on special identification and handling of customers affected by the risk fluctuations in the retail industry. First of all, we rely on the continuous data accumulated in the past several credit cycle of the company's credit risk, and use the因果推断技术 to build a risk detection model that evaluates customers' risk for environmental change sensitivity. The model shows that high-sensitivity customers identified in the same risk level are more than 1.5 times the risk of low-sensitivity customers in the current situation. In addition, we focus on applying customer image, work stability, asset status, and other more stable data to strengthen the predictability of long-term risk, and provide a more stable modern scale for high-quality customers to promote a growth of high-quality scale. The second part is to continue to strengthen the risk management of the government. On the one hand, the risk of the retail industry that is identified in the top model is affected by the risk of the risk of the risk of the risk of the risk of the risk of the risk of the risk The new financial products of individualized real-time re-offering, large-scale DC, etc., which combine quantitative and artificial, have maintained a good customer size and motivated customers to increase and grow. In the third quarter, we will continue to strengthen the risk management strategy of the government-oriented integration, and continue to maintain a stable downturn trend of risk, promoting a good scale and uptrend of customers. Thirdly, in terms of e-commerce, in the second quarter, we have continuously upgraded the risk management system for merchants. In search, recommendation, offer, match, transaction review, re-offer, we have established a good level of real-time risk decision-making ability. Under the premise of risk control, we meet the needs of different consumers' commercial transactions. Thanks to the independent wind control system, the recognition capability of e-commerce models has increased by more than 30%. Business users, especially high-quality users, are more likely to receive messages and order pass rates, which greatly improves the rapid growth of e-commerce business. Finally, we continue to expand the intelligent wind control engineering construction and application, and use the latest large model technology to develop and land the Edo robot. On the Edo decision, The efficiency and effectiveness of the decision have achieved good results. Pricing robots through experimental data to establish price curve, dynamic optimization of interest rate strategy, under the pretext of risk control, greatly improved the scale of price reduction. In the future, we will continue to expand the application exploration of the big model in risk management, promote risk management,存量化风险管理,向智能化风险管理, We will continue to strengthen risk management, actively respond to risk changes, use risk asset automatic inspection and disposal capabilities, strengthen entry and entry trading management, and improve the disposal capabilities of high-risk customers. Thanks, Jay.

Next I will provide a review of our key initiatives and achievements in risk management for the second quarter. In the second quarter, while the macroeconomic and industry environment remained complex and uncertain, we took swift action to address the potential impacts and maintain the downward trend in risks. Specifically, we focused on identifying customers vulnerable to industry fluctuations and taking measures to mitigate potential risks. Also, we adopted interactive re-offers to drive the increase of high-quality asset volume. In addition, we leveraged large models to upgrade our risk management capabilities, improving the efficiency of risk decision making and the accuracy of pricing and credit line strategies. Thanks to the initiatives we've taken, risks of both new and overall assets continue to decrease. Leading risk indicator for new loans, first payment default, FPD, over seven days of the second quarter declined by about five percent compared to the previous quarter on total loan portfolio day one delinquency ratio decreased by about two percent and 90 days delinquency ratio decreased by six percent quarter over quarter i will introduce in detail the key initiatives we've taken for the second quarter first In terms of risk identification, we continued to optimize data models in the second quarter, focusing on identifying customers who are vulnerable to industry fluctuations and mitigating potential risks. Based on the accumulated data on time series changes of credit risk across multiple credit cycles, we employed causal inference techniques and scenario simulations to develop a risk identification model that assesses customers' risk sensitivity to environment changes. The model has proven to be highly effective. Among customers of the same risk rating, those who are identified as highly sensitive exhibit 1.5 times risk level of low sensitivity customers in the current environment. In addition, we focused on using data that shows greater stability features such as customer profiles, job stability, and personal asset status to enhance our predictive capability for long horizon risks, thereby providing more reliable credit services to high quality customers. Second, we continue to strengthen risk management through preventive and proactive approaches. For customers identified by our model who are vulnerable to external environment changes and show higher risks, we've promptly taken measures such as reduction or suspension of their credit lines in order to mitigate the potential impacts of industry risks. Meanwhile, we continue to enhance the competitiveness of offers for quality customers. In the second quarter, we launched a mechanism for customers to supplement credit enhancement documents, conducted personalized real-time re-offering, which combines machine review and manual review, and launched a braided legion card, a new financial product featuring higher credit amount and lower fee rate. These measures helped drive the asset volume of prime customers and number of active customers to increase quarter over quarter. In the third quarter, we will continue to strengthen the risk management strategy that combines preventive and proactive approaches to sustain the risk reduction trend while expanding high quality assets and customers. Third, in terms of e-commerce, we further upgraded the risk management system for e-commerce, which is an independent system from online consumer finance business. Specifically, we established millisecond-level real-time risk decision-making capabilities across key processes, including search recommendations, offer matching, credit approvals, and re-offer, et cetera. This ensures we meet customers' diverse consumption needs while maintaining risks well under control. Based on the independent risk management system, the risk identification capability of e-commerce platform improved by over 30% compared to the previous quarter. Approval rates for credit application and order placement of platform users, especially quality users, have significantly increased, which has promoted the rapid growth of e-commerce business Last but not least, we continue to strengthen the development and application of intelligent risk management tools. Leveraging the latest AI large models, we have developed and implemented the credit line robot and pricing robot, which has delivered favorable results. The credit line robot has improved the efficiency and effectiveness of credit line decisions, while the pricing robot significantly improved the volume growth from pricing reduction by establishing price curves based on experimental data and dynamically optimizes pricing strategies. In the future, we will continue to explore the application of large models in risk management, advancing our capabilities from quantitative risk management to intelligent risk management, and building a leading edge in risk management capabilities. In the third quarter, while external uncertainties and industry fluctuations remain, we will continue to strengthen our capabilities in automated high-risk asset screening and resolution, further refine credit approval and lending management, and enhance customer onboarding and transaction management while swiftly addressing high-risk assets. In the meantime, we will further optimize credit approval and credit line granting strategies to better meet the needs of quality customers, improve user experience, and foster continued quality assets growth. These efforts are aimed at ensuring that key risk indicators remain on a downward trajectory. Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the second quarter.

Thanks, Albert. I will now provide a detailed overview of our second quarter financial results. Please note that all figures are presented in written letters and all comparisons are made on a quarter-over-quarter basis unless otherwise stated. We are pleased to announce another quarter of solid financial performance, marked by robust revenue growth, sustained profitability, and expanding margins. We're on track on our probability recovery trajectory. Revenue recorded $3.6 billion in the second quarter, representing a 16% increase quarter over quarter. Net income grew strongly by 19% quarter over quarter, and 126% year over year, to reach $511 million. Our net income margin increased to 14.3% from 13.9% last quarter. Net income take rate, calculated as annualized net income divided by the average loan balance, increased 34 basis points to reach 1.92%. The net income, net income margin, and net income take rate kept reaching record highs for the past 14 quarters, laying a solid foundation to profit expansion. This set of financial results underscores our ability to turn around and drive sustainable growth in a dynamic market condition. To gain a clearer understanding of our business growth dynamics, let's take a holistic view of our financial results. First, if we add up credit facilitation service income, and tech empowerment service income, net of credit costs, including the provisions and the fair value changes, and the funding costs. We come up with a net revenue of the credit business. The net revenue provides a more accurate reflection of our credit business performance as it absorbs the impact of a different accounting treatment for capital light and capital heavy business as well as the shifting mix across quarters. In the second quarter, the net revenue of our credit business increased by 10%, or $183 million to $2 billion. The net revenue of our e-commerce business, defined as the e-commerce revenue net of cost of inventory sold, increased by 71%, or $40 million, to $97 million. So the total net revenue added up to $2.1 billion. Operating expenses, including sales and marketing, research and development, general administrative expenses, processing and servicing costs, tax and others, increased by 9.8% or $142 million to $1.6 billion. So if we deduct total expense of $1.6 billion from the total net revenue of $2.1 billion, we get a net income of $511 million, increased by 90%, or $81 million quarter-over-quarter. Driving the second quarter's strong financial performance are the following three BINS highlights, namely the flexible volume shift between BINS models continued improvement in asset quality alongside sufficient provisioning, and a robust growth in our e-commerce bins. Now, let me elaborate more on the three bins highlights. First, flexible volume shift between bins models highlights operational resilience, driving stable growth in volume, revenue, and net profit. From unit economics perspective, Net income take rate achieved 1.92% this quarter. The 34 basis point improvement quarter over quarter is mainly driven by a 82 basis point increase of revenue take rate of credit business, which is calculated by dividing the net revenue by the average loan balance. During the quarter, the net revenue take rate of credit business increased from 6.69% to 7.51%. The increase was mainly driven by the increase of APR of capital heavy model, which increased to 23.2% in the second quarter from 32.6% last quarter. And also, the stabilization of early payoffs impact happened during the last quarter, partially offset by the increase of funding costs. The improvement of net revenue takeaway reflects our business resilience in a dynamic and a complex environment. In the second quarter, we have observed a reduction in the supply of funds for capital light business due to the fluctuation related to the new regulation, leading to higher funding costs for both capital light and capital heavy models. To offset the impact, we proactively adjusted our business mix, switched more loan volumes from capital light model to capital heavy model. In the second quarter, the capital light model accounted for 20 percent of GMV, decreased from 27 percent in the first quarter, mainly driven by the decrease of loans from ICP model, which only accounted for about 15 percent of GMV decreased from 24% in the first quarter. The proportion of capital heavy model increased to 80% from 73% in the first quarter. As you know, the borrowers from capital light model typically have relatively higher risk profiles to reflect this risk premium the average APR of new loans under capital heavy model increased. At the same time, the provision increased due to the increase of loans under capital heavy model. The smooth switch was supported by our enhanced risk management capability, which equipped us to accurately assess borrower risk, enabling risk pricing and product offering to optimize probability in the volume growth. Asset quality sustained the improvement train and the provision remained prudent and sufficient. Our asset quality has continued to improve for four consecutive quarters. In the second quarter, 90-day dilution ratio declined by 16 basis points to 3.1%. FPD-7 of new assets further came down by about 5%. Day one delinquency rate of total assets also decreased by about 2% quarter-over-quarter. Also, our provision remained prudent and sufficient. As mentioned above, in the second quarter, our total credit cost, including three provisions line items and the fair value changes of financial guarantees derivatives, increased by 13.6% quarter-over-quarter, despite improved asset quality, and a decreased loan balance. It is important to note that due to the net accounting policy we have adopted for change in fair value of financial guarantee derivatives and loans and fair value account, the amount was partially offset by guaranteed income and recorded as the net value in our P&L. As such, it only represents part of the actual full provision. As another indicator of the sufficiency of our provisioning, our provision coverage ratio remained ample at 270%, up by two percentage points, quarter over quarter, and reached the highest level in the last four quarters. Third, e-commerce bins gained further traction. Our e-commerce bins is deeply integrated into our ecosystem. creating strong synergies and therefore becomes a unique competitive advantage. E-commerce vins not only generates gross profit by selling merchandise, but also creates interest income by providing installment services to customers. Around 97% of e-commerce customers choose to finance their consumption with our installment service. In the second quarter, E-commerce GMB witnessed a substantial quarter-over-quarter growth of 80% and a year-over-year growth of 117%. E-commerce business gross profit recorded $97 million in the second quarter, up 71% quarter-over-quarter. Going forward, we continue to expect a strong sequential GMB growth for the e-commerce business. Next, I'll go through some specific financial statement items. For our income statement, on the revenue side, total revenue reached $3.6 billion, representing a growth of 16% quarter-over-quarter. Credit facilitation service income amounted to $2.3 billion, up 4% quarter-over-quarter, driven by the increase of loan volume and the capital heavy model, higher APRs, and partially offset by the higher funding costs. Tech empowerment service income increased by 33%, or $205 million to $830 million, mainly thanks to the release of provisions of revenue and ICP model, reflecting better than expected asset quality performance and the increased income from our referral services. E-commerce platform service income increased by 69% to $487 million, driven by increased GMB. On the cost and expense side, total operating expenses, which include processing and servicing costs, sales and marketing, research and development expenses, general administrative expenses, increased by 10% to $1.4 billion, mainly driven by the increase of sales and marketing expenses and processing and servicing costs. For balancing items, as of June 30th, Our cash position, which includes cash, cash equivalents, and restricted cash, was approximately 4 billion RMB. Shareholder's equity remained solid at about 11.6 billion. Looking ahead, despite ongoing market uncertainties and evolving operating environment, the management maintains its four-year guidance of achieving a significant year-over-year growth in debt income. We remain committed to enhancing shareholders' value as demonstrated by our recent $50 million share repurchase program and $10 million CEO share purchase announced in July. The board has approved a cash dividend of 0.194 US dollars per ADS for the first half of 2025. The share repurchase program, together with our dividend policy, boosted our total shareholder return to above industry average level. Going forward, we will continue to evaluate opportunities to ensure we deliver optimal value to our shareholders. This concludes our prepared remarks for today. Operator, we're now ready to take questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. Your first question comes from Emma Zhu with B of A Securities.

Thank you for giving me the opportunity to ask this question. Congratulations to the company for achieving this very good performance. My first question is to ask that it has been a while since Zhudai Xinggui came to the stage. What is the impact on the company? How does the company respond? Then the second question is to ask this second quarter company's ecological business development speed. Can you please share with the management team the company's subsequent strategy and outlook on the ecological business? So congratulations on the good result amid a challenging environment. So I have two questions. The first one is about the new regulations. So as the new regulation on facilitation has been rolled out for a few months, what impacts has the company observed and what measures will you take to address the impacts? The second question is about the ecosystem. So the ecosystem has developed rapidly in the second quarter. So could you share more on the development strategy and outlook of your ecosystem business?

好的,这两个问题我来回答一下。 住在新规其实出台已经一段时间了,但还没有开始执行。 其实行业里面已经受到了一定的影响。 我们在观察到我们自己的时候,我们看到其实很明显资金的供给上是开始变得更加紧张一点了。 So it will lead to a rise in the entire capital cost. The other one is that we see that it will lead to a certain decline in the entire recovery rate. So it will also bring about a certain risk fluctuation.

This is a translation for Jay Spencer. Thanks for the question. Yes, the new regulation on loan participation has been rolled up for some time, but not yet accessed. We think the industry has been impacted by this. For listing in the short-term, we did observe funding supply tighten a bit, which led to an increase in the funding cost of the second quarter. And also, some risk matches experienced minor fluctuations, for example, collection rates.

and they've decreased a little bit. But after the new regulation was introduced, we started to make some adjustments. First of all, we intervened early on. We developed a strategy to address the potential risk fluctuations in the future. So, so far, we can see that although we have some impact on the recovery rate, However, we still have a decline in the rate of return, so we can better cope with the impact of the risk fluctuation. The other thing is that we still have a very unique business ecosystem. So we can adjust the structure and layout of some of our businesses flexibly, and we can also cope with some of the future potential effects.

To address the impact, gradually we have technical action as early as in April. More specifically, we tighten our risk management strategies to mitigate potential impacts of sector-wide risk fluctuation. So, as I mentioned, the collection rate differs a little bit, but our day-one delinquency also decreases, so the impacts offset each other. Furthermore, leveraging our renewed business enforcement advantages, we have the flexibility to adapt our business model to navigate the challenges effectively.

In the long run, even though the new regulation will have some changes and impacts on the industry in the short term, If the new rules are implemented, it will be beneficial for the entire long-term and sustainable development of the industry. This is very important for us, including those who are passionate about it, for long-term management of this platform. So, in history, we have also experienced many times the development of the industry through the whole framework. So we can also respond very well to some changes in the entire industry to adjust some of our own business and layout to stabilize the entire business of the company. So I think in this respect, we still have a better experience and ability to deal with it. So we are still maintaining our year-round profit from the growth of the company.

In the long run, the implementation of the new regulation may bring some changes to the industry, but it will focus on more standardized, sustainable, and healthier industry environments, which benefit compliance platforms like LeShin. In the past, we also experienced different, several rounds of regulation, and I think we have the experience and flexibility to adjust our business model to navigate the challenges. For machine, we firmly support regulators' efforts to supervise and guide the sector and will continue to adhere to our customer-centered philosophy in terms of our ecosystem synergy and ensure continuing business growth. As such, we maintain our four-year guidance of achieving significant year-over-year profit growth.

The second question is that the company has actually made a good progress in terms of our ecological businesses in the second quarter. Let me give you a brief introduction. In fact, retail sales, that is, e-commerce, is actually the earliest business. We have been in this business for more than ten years. Last year, we upgraded the entire risk management system of our entire retail business. So we can see that in the last few seasons, the growth of our retail business is very good. And regarding your second question about our development,

of the business ecosystem. Actually, our business ecosystem achieved various progress. For our installment business, I'd like to stress that Zexin is the first installment e-commerce platform in China and has been developing this business for over a decade. It has been a crucial part of our ecosystem. And as part of our transformation towards a business model given by data analytics and risk management in the last year, we have built a C-dependent risk management system for the e-commerce business. So you can see in the past several quarters, our e-commerce long-term generation volume has sustained significant growth, particularly in the June 18 shopping festival, our GMV increased by over 100%.

Uh, do you like to go get one of the sample? Wait, he's a woman. I didn't mean it. I can't have my food. I can't have a little bit of shall we eat you to the good and shall we go? So did you want to keep the woman that I do? Woman, you know, kind of the year. What kind of dinner? You got done that. She's a good boy. You just saw woman. I should have been good at the end. So we should have been good at the end. You should have been good at the end. So we can see that the whole asset of PuHui is our entire channel of self-sufficiency. And its entire risk performance is also lower than the entire risk performance of our entire big plate for a long time. So this business is still growing relatively steadily. Another one is our vertical business. In this quarter, we still see that vertical business has made a good breakthrough. So we have launched a variety of new institutions and help these new institutions to connect some large residential platforms, It also helps them to better improve the whole risk management and asset management of the whole ability. In fact, overseas, we have achieved a good growth in terms of scale and revenue for several consecutive seasons. So in the future, in the overseas aspect, we will continue to strengthen our own ability construction to promote the development of overseas business for long-term health.

And for our online inclusive finance business, we will continue to expand our business into lower GSDs. And just to emphasize that this channel, we target at serving the small and micro business owners. And the differentiated advantages of nursing is that we have our own self-developed direct sales team. And in the second quarter, we cooperated with several new partners, helping them to connect with large platforms and banks and improve the digital risk management capability. For our tech empowerment business, leveraging our standardized system and risk management expertise will continue to help them to connect to connect to the large platforms and to enhance their customer acquisition capability. For our overseas business, we have a quarter-over-quarter sequential growth in business volume and revenue for multiple consecutive quarters, and that will continue to enhance team development in order to sustain healthy and sustainable growth.

Your next question comes from Alex Yeh with UBS. Your next question comes from Alex Yeh with UBS. So my first question is on asset quality. So in light of the current uncertain external environment driven by the regulatory trench, how does Le Xin's risk management system can help you better respond to the potential risk fluctuations. And second question is regarding your techway, ongoing techway improvement, could you also give us more color on the drivers on the online techway improvement?

Thank you. 关于风险的问题,由我来回答一下。

For the uncertainty risk of the new rules, we tightened the risk assessment standard of new assets in April. Then, we ensured that new assets can maintain a downward trend under the uncertainty of external risks. At the same time, we strengthened the repayment reminder for the stock assets. and an upgrade of loan capacity to ensure that we have a drop in the amount of assets, which is also a downward trend. At the same time, we especially target sensitive customers affected by risk fluctuations in the retail industry for targeted identification and disposal. Then we use the optimized data and the improved model capability to better identify the clients who are affected by this industry, and then take a timely measure of withdrawal and discount, so that we can maintain a stable and stable risk in this round of risk fluctuation. On the other hand, in addition to strengthening the mutual management of risk customers, we are also actively promoting and promoting a scale growth of high-quality customers, to improve and optimize our asset structure, through the joint adjustment of the share price and share price in both aspects, and then to improve our asset quality, to ensure the continuous stability of our risk.

In response to uncertainty of the industry-based performance arising from the new law facilitation regulation, we actually take proactive measures as early as in April. So we tightened the re-approval standard as early as in April for new customers in order to maintain our chance for new rates. And for vintage or existing loans, we improved the early reminders for the loan repayment in order to reduce the big one billion penalty. Also, we implemented targeted metrics for customers vulnerable to industry rate fluctuation. Both customers identified as high rate sensitive by our models. We've taken measures such as reduction and suspension of their credit lines to mitigate the potential impact of sector-wide rates. This has helped maintain steadily improving rate performance. Second, we continue to drive high-quality asset growth, which will lay a solid foundation for our future high-quality development. We leverage advanced AI models to enhance our risk management system. We also refined customized pricing strategies, which have increased the corporate competitiveness for prime customers while improving the overall user experience, further supporting our high quality asset growth. So overall, we not only reduce the high quality, we not only reduce the formation of high rate assets, but also try to drive the growth of high quality assets.

At the same time, in the face of uncertain risk fluctuations and impacts in the future, we have also increased the strength of the wave in the second quarter. Based on the continuous improvement of risk indicators, we actively increase the amount of waves and then enhance our anti-risk ability to deal with the uncertainty of the current cycle of the future. We have increased the amount of waves in the second quarter by more than 13% compared to the first quarter, up to 10 billion. In general, our future will continue to implement risks. Third, we also strengthen provisioning to enhance our risk buffer, enhancing our capability to cope with future uncertainties.

In the second quarter, we increased provisioning by 13.6% to 1.04 million. The reinforced provision along with increased risk performance shows our provision coverage ratio derives to 270%. To summarize, we will continue to prioritize high-quality access roads while also enhancing provisioning and maintaining a state of steadily improving risk performance. While we continue to strengthen risk identification and management, we will also ramp up the application of intelligent risk management tools to increase efficiency.

Okay, I will take the net profit takeaway question. Almost a year ago, we told the market that thanks to the company's turnaround initiatives, We will be able to gradually improve the business profitability and this will be reflected in our net profit take rate. And I'm happy to tell you that in the last four quarters we have successfully delivered the promise of improving 20 to 30 basis points each quarter to reach 1.92% in Q2. We're now on track for the goal by the end of the year. As for Q2, Really, the credit goes to the strong revenue growth from both the credit and e-commerce business, as I mentioned in my prepared script. Specifically, the net revenue of our credit business increased by 10% quarter-by-quarter, about $183 million to $2 million. As a reminder, as I mentioned earlier, if we add up the credit facilitation service income, the tech empowerment service income, net of credit costs, including the provisions and the fair value changes, and the funding cost, we come up with a net revenue for the credit business. So if you further break down to the next level, the net revenue of the capital heavy model remains stable, driven by the increase of loan volume under the capital heavy model, higher APRs, and partially offset by higher credit costs and funding costs. By the way, as Arvind mentioned earlier, the increase of credit costs is mainly driven by our prudent provisioning policy. The net revenue of Captain Light model, on the other hand, increased by 33% quarter-over-quarter, or about $205 million to $830 million. mainly thanks to the income from our referral services and from the relief of provisions of revenue under the ICP model. This really reflects the better than expected asset quality performance within the ICP. So in addition to the credit business, the net revenue of our e-commerce business defined as the e-commerce revenue net of the cost of inventory increased by 71%. or 40 million to 97 million, also contributing to the increase of our profitability. So with the strong increase of revenue offsetting by some increases from the operation costs and expenses, we get the net profit take rate of 1.92%, a 34 basis point higher than the previous quarter. This fully demonstrates the uniqueness and the strong growth potential of our diversified business ecosystem. Looking forward for Q3, we continue to expect relatively stable volume, improved risks, strong quarter-over-quarter net income growth. Therefore, we continue to expect the net income take rate will improve in a similar pace as before.

Your next question comes from Alan Chen with Citibank. And then it's very important to look back. Whether it's through repurchase or sending red, do we still have any plans or space to further add this share return? Thank you very much. I'll translate it for you. Thanks for taking my question. This is Alan from Citibank. I just have a quick question on shareholder return. I noticed that in July, you have announced a 15-million share repurchase program. I'm just wondering, management, if you could give us a little bit more color on the thought process and rationale behind the buyback program And on top of that, if management has any plan to further boost shareholder return in the future. Thanks.

这个问题我来回答一下。 公司在7月21号已经发了公告, 将会在未来12个月内来回购最高5000万美元的整个的一个股票。 此外,还有我个人也会将通过自有资金来增持公司最多1000万美元的整个的股票。 If the entire return on investment of this time is fully executed, then combined with the share price ratio that we have adjusted twice before, the company's overall share return level has already reached the front of the entire industry. Combined with less than four times the entire P1 valuation, we think the company still has a better entire investment value. This repurchase and real estate has also fully demonstrated the firmness of the management of the company in order to develop the future of the company. It also once again proved that the company has the ability and sincerity to continuously improve the return of stocks. In terms of the whole specific implementation of the repurchase, we will start repurchasing it after the release of this quarter. We will strictly abide by the relevant rules of the repurchase transaction, follow the specific situation of the market, and decide the entire specific execution of the repurchase. This is the translation of Jay's answer.

On July the 21st, we announced a 50 million share repurchase program to the equity over the next 12 months. In addition to that, I plan to purchase up to 10 million USD worth of shares using my personal funds. If the company's repurchase program is fully executed, alongside the two increases in the cash dividend payout ratio, our total shareholder return will rise above the industry average. With a 4 PE ratio below 4 times, the company has compelling investment values. This repurchase program underscores the management confidence in a company's value and reinforces our commitment to delivering value to our shareholders. In terms of repurchase execution, we will implement the program after the second quarter results release and will strictly follow repurchase rules while taking into account market conditions. We will make regular updates on repurchase progress in our quarterly earnings release. As I said, the company values shareholder returns and will continue to explore various means to deliver value to our shareholders.

Thank you. That does conclude our question and answer session. I'll now hand back for any closing remarks.

Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.