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spk00: Hello and welcome to the CN Finance announces first quarter 2022 unaudited financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Jane Jin, Financial Manager of the Capital Market Department. Please go ahead.
spk01: Good morning and good evening, and welcome to CN Finance first quarter of 2022 Financial Results Conference call. In today's call, our Vice President and Director, Mr. Qian Jun, will walk you through the operating results followed by the financial results from our Acting CFO, Ms. Li. After that, we will have a Q&A section. Our CEO, Mr. Zhai Bing, will also be available during the Q&A. Before we start, I would like to remind you that this conference call contains forelooking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. This forward-looking statement can be identified by terminology such as view, expect, anticipate, future, intense, plans, beliefs, estimates, targets, going forward, outlook, and similar statements. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the following statements. Further information regarding this and other risks, uncertainties, or factors is included in the company's filing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, and otherwise, except as required under law. Now, please welcome Mr. Qian Jun.
spk03: Thank you. Thank you for taking the time to attend this telephone meeting. At this telephone meeting, we will introduce to you
spk01: Thank you everyone for joining us in this conference call. On today's call, we will introduce the company's financial and operational results in the first quarter of 2022, followed by a Q&A section. 本季度虽然受到外部环境的影响,公司仍然维持相对稳定的运营。
spk03: A total of 23 billion RMB for the implementation of the loan. A profit of about 4.2 billion RMB. A net profit of about 43 million RMB. The Japanese military loan amount under the platform model is more than 100 billion. A total income of about 4 billion RMB. The above two similar growths are more than 20%. During the first quarter of 2022, we were able to maintain stable business operations despite external challenges. We facilitated loans of $2.3 billion and recorded a revenue and net income of approximately $420 million
spk01: and $43 million, respectively. Both of the daily average outstanding loan principal and revenue under the collaboration model had a year-on-year increase of over 20% and worth $10 billion and $40 million, respectively. Now, I will share with you the challenges we faced and the measures we took in the quarter together with our future plans.
spk03: The company's business is greatly impacted by the pandemic. First of all, this quarter, China's overall economic development is changing. The GDP rose by 1.3% in the fourth quarter of 2021. In addition, this quarter, many important cities such as Guangzhou, Shenzhen, and Dongguan have had an outbreak. Local government departments have adopted stricter lockdown policies. The company's business growth has also slowed down. 不仅如此,接连几个季度以来,受我们的主要合作方信托公司的飞飙额度被压降的影响,公司的资金成本有所上升。 In 2022, our business was impacted by the economy downturn. The growth of China's national economy has slowed down, with GDP growth 1.3% as compared to Q4 2021.
spk01: We experienced recent lockdowns caused by local outbreak of COVID-19 in cities within China, including major cities like Shanghai, Shenzhen, and Dongguan. Moreover, our funding costs remained high as our major funding partners, the 12 companies, continue to be put under tightened regulations.
spk03: In this environment, the company will focus on stable business volume and risk control this quarter, mainly doing the following work.
spk01: In response to those challenges, the company focused on stabilizing business operations and managing risks. We did the following works. First, we continue to provide MFCs with inclusive financial services to help MFC owners whose business was interrupted by city lockdowns be voluntary, lower the interest rates of our loan products. In addition, we accepted more applications from sales partners to repurchase delinquency loans by installments. which left sales partners room to give payment extensions to MSE owners.
spk03: Second, we expanded our funding sources and continued to promote diversified products, which allowed us to reduce funding costs and cover more customers. During this quarter,
spk01: we started to cooperate with Zhongrong Trust and facilitate loans of 76 million. We also recommended prospective followers to commercial banks to facilitate loans of 40 million. Besides, we are close to start trial run of the three-party cooperation with Shaanxi International Trust and PICC. 第三,我们加大了对贷款合伙人的支持力度。
spk03: Third,
spk01: we increased our support to sales partners. In order to help sales partners to grow their business under the current condition, we allow more sales partners to repurchase delinquent loans by installments. The company will charge a certain fee based on the terms of the installments. By allowing installment payments, we help the sales partners to improve their liquidity and also increase their revenue of our own.
spk03: Fourth, given the ongoing fluctuation in China's property markets,
spk01: The company maintained a rather low LTV ratio. The weighted average LTV for loans facilitated in Q1 was 56%. Besides, we took into account the operation conditions of sales partners and took a conservative approach in evaluating the potential credit losses of loans to keep the allowance ratio at a safe level.
spk03: The company believes that in the next period of time, the impact of the external environment will continue to exist, but at the same time, the country's financial support for the entire small and medium-sized enterprises will be further increased and will also provide the company with rare development opportunities. We will place the focus of our work on the rich loan product system, improve the capacity of partners, and reduce costs in several aspects to achieve continuous growth in business scale.
spk01: Going forward, we are likely to be continuously challenged by economic fluctuations. At the same time, we are also presented with huge opportunities as the government is now encouraging financial institutions to offer more support to MSC owners. To see such opportunities, we will focus on diversifying our product profile helping sales partners extend their business scale and reducing our own funding costs. The work plans are... 第一,继续推进向轻资产重运营模式的升级。 公司将会作为服务商,对贷款资产进行全流程的服务和管理。 促进优质的贷款合伙人直接与信托公司签约或引入第三方风险投资机构
spk03: First, we will strive to finish upgrading an operation-oriented and asset-line model, under which
spk01: we will act as service provider and manager of loans. Our plan is to introduce elite sales partners to sign contracts directly with trust companies, or bring in third-party subscribers to subordinate units of the new loans facilitated. As of today, several sales partners have already signed contracts with trust companies, and a number of our trust company partners have conducted due diligence on third-party investors introduced by us. Based on our estimation, such cooperation arrangement will be ready to facilitate loans before the end of Q2.
spk03: We will continue to seek cooperation with more commercial banks in the future and expand the bank loan model in the scope of the company's overall business. Secondly, we hope that in the second quarter, Nordic will cooperate with R&D to further enrich
spk01: Second, we will promote diversified products and expand customer coverage. The bank lending model will be one of our priorities, as this model allows us to reach customers with high credit ratings. Currently, the company is introducing and helping commercial banks facilitate loans of $50 million each month. We are now seeking to establish cooperation with more commercial banks and make bank lending models a more important contributor to our revenue stream. Besides, we also want to start facilitating loans, too, under the aforementioned cooperation with PICC before the second quarter ends.
spk03: Third, we will continue to maintain the support of our partners.
spk01: Third, we will keep supporting our sales partners. We want to offer more flexible fee rate based on the terms and tenure on the instrument to suit sales partner with different operational and financial capabilities. At the same time, we want to get trust company involved. If a sales partner qualifies the standard of the trust company, the trust company could choose to pay us the full amount of repurchase on behalf of the sales partner and receive the installment payment from such a sales partner.
spk03: 第四,我们将会加大对科技的投入, 坚持用科技赋能业务增长。 目前公司的IT团队正在开发一款能够整合全部业务信息数据的移动展业中端系统, 开发此APP的目的, Fourth, you'll keep investing in technology
spk01: and use it to empower the business growth. Our IT team is developing a mobile app that can integrate all the information related to loan application. By developing this app, we want to make it possible for our service team to obtain the status of follower, channel information, loan products, and funds in real time. And therefore, to timely interact with sales planners and our application reviewers. We hope this app could assist our service team with initial review and timely transfer of loan applications. The app is expected to be put into use in the second half of 2022.
spk03: 目前公司已经与几家信托合作伙伴就降低公司融资成本达成了一致。我们也计划在现在的基础上继续降低贷款利率,让利于小微企业。 Fifth, in order to offer long products with lower interest rates, we will keep dialoguing with trust companies on reducing our funding costs. Consensus has been reached between us and several trust company partners on that.
spk01: Once the deal is finished, we will soon apply the fee cuts of loans we facilitate.
spk03: 2022 is not an easy year. In the future, the company will also face challenges in the supply and demand situation. In the past, the company has accumulated valuable experience in big and small projects, continuously managing and implementing strategies, and is always ready to serve small and medium-sized enterprises, providing economically convenient and efficient financial services. The first quarter of 2022 was not all smooth, and we will still be presented with both opportunities and challenges in the near future.
spk01: We have gained valuable experience from frustrations in the past and have continuously refined our management and business strategy. We have already stayed true to our commission of providing accessible, affordable, and convenient financial services to MSC owners. With more supportive micro-processes taking effect, we are confident that there will be another surge of capital demand from MSC owners. We believe we will be well prepared to see such opportunity and expand our business, increase our revenue, and provide higher return to our shareholders.
spk03: 现在我将时间交给我们的代理CFO李静女士,并由她为您介绍公司2022年第一季度的财务状况。 With that,
spk01: I would like to hand the call over to Ms. Jaylee, the acting CFO of the company, who will walk you through the first quarter 2022 financials.
spk02: Thanks, Mr. Tian, and thanks again to everyone for joining us today. I will walk you through our financials for the first quarter of 2022. Unless otherwise stated or percentage changes I'm going to give, will be on year-over-year basis. Also, unless otherwise stated, all numbers I'm going to give will be in RMB. For first quarter of 2022, total interest and fees income was 417 million as compared to RMB 425 million in the same period of 2021. Interest and financial service fees on loan decreased by 1.7% to $450 million from $422 million. It's primarily due to A, lower average expected interest rate of outstanding loans, and B, the decrease of average daily outstanding loan principal in the first quarter of 2022 as compared to the same period of last year. The decrease in average daily outstanding loan principal was due to the lower loan facilitation volume in the first quarter of 2022, resulting from the lockdown due to local outbreaks of COVID-19 in multiple cities within China. Interest and fees expenses increased by 28% to $201 million, compared to $156 million, primarily due to the increase in the outstanding principal of other borrowings, as well as the funding costs from chess companies. Collaboration costs for sales partners representing the sales incentives paid to sales partners decreased by 19% to $18 million compared to $19.8 million in last year. And it's primarily attributed to the lower free rate the company paid to the sales partner lower average effective interest rate of outstanding loans. Coercion for credit losses was 33 million. As compared to a reversal of 17 million in last year, the increase was due to the increasing economic uncertainties caused by lockdowns in reaction to local outbreaks of COVID-19. as well as the downward pressure faced by China's real estate market during the first quarter of 2022. Net gains on sales of loans decreased was 8 million as compared to 9 million in the same period of 2021. Total operating expenses decreased by 15% to 18 million. compared to $194 million in the same period of 2021. Income tax expense was $15 million in the first quarter of 2022. Net income was $43 million compared to $186 million in the same period of 2021. As of March 31, 2022, The company has cash equivalents and restricted cash of $1.7 billion, compared to $2.2 billion as of December 31, 2021, including $1.2 billion and $1.5 billion from structured funds as of March 31, 2022, and December 31, 2021, respectively, which would be used to grant new loans and activities. The delinquency ratio of loan originated by the company increased from 24% to 26% as compared to December 31, 2021 to this quarter. And the delinquency ratio excluding loan held for sale for loans originated by the company increased from 60% as December 31, 2021 to 70% as of March 31, 2032. The NPL ratio for loans originated by the company increased from 9.4% as of December 31, 2031 to 10.4% as of March 31, 2032. The NPL ratio excluding loans held for sale for loans originated by the company decreased from 2.1% as of December 31, 2021 to 1.8 as of March 31, 2022. With that, we would like to open the Q&A. Operator, please begin.
spk00: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Will with Green Ridge Global. Please go ahead.
spk06: Hi, everyone. I have a few questions. Can you disclose what the average interest rate you're lending at right now is? And in the prepared remarks, it was mentioned the rates paid to the sales partner was lower, is that a change in what they're getting, or just lower because there's less interest income in the quarter?
spk04: So for your first question, the weighted average interest rate of our loans right now is around 16.4%. And the lowered interest rate is not only because of our voluntarily adjustment, but also because
spk05: based on the macroeconomic condition and the regulation and policies of the government.
spk04: So this is a trend for overall rate cut, no matter it's for us or the sales partners. And we did adjusted our policy of collaboration cost.
spk05: to the sales partners, and we do want to keep their margin, but that has to be based on the growth of our business and the extension of our scale.
spk06: Thank you.
spk05: Okay.
spk06: Oh, sorry.
spk05: No, go ahead.
spk06: Okay. Yeah. So I guess if you could just talk kind of more generally about the impact the COVID lockdowns have had on the first quarter and having now, you know, in the past, you've mentioned that you've had more demand than you had capital available to lend out. But you've also mentioned that Shanghai is a big market for you guys. So I was curious if you can talk about, you know, how much of an impact that's had on what you've just reported today and then what's going on right now.
spk05: I would like to ask you to introduce the impact of this policy on your business. I remember that in the previous few seasons, you mentioned that the demand is greater than the loan you can afford. But you also mentioned that Shanghai is a very large customer base. It is also a very important part of your business. I would like to ask you to introduce in detail the impact of the lockdown on your business. And what do you think the impact will be and to what extent? First of all, the need for a loan from the lockdown has a big impact, especially in Shanghai.
spk04: And in the first quarter, Shenzhen and Dongguan had a lockdown at that time. So yes, like you said, there was a relatively large impact on the demand for capital because of the lockdown policies in the first quarter.
spk05: And as we have introduced, there wasn't only Shanghai, but also Shenzhen and Dongguan that were locked down during the first quarter. And we wouldn't say there wasn't demand, but it's just you cannot satisfy those demands due to the lockdown policies. And surely, it will last in the second quarter, too. The impact.
spk04: But the impact of the demand for this kind of wind tunnel can be reflected in the report of our first quarter. We did not reach the same level as last year and the same period as last year. But at present, the impact is still slight.
spk05: So you can see the impact based on our financial results, especially on the loan facilitation, which had a year-on-year decrease. But I wouldn't really say that the impact was that large. I think it still could be overcome.
spk04: For us, first of all, because overall, We will promote the adjustment of our capital cost and partner revenue to ensure that our profit rate does not drop.
spk05: So as for us, first of all, we have a network that is scattered across China. So we will take advantage of this network and push the business growth in other areas that is not locked down. Also, the second thing is we will push to reduce our funding cost as well as refine our profit split with the sales partners to maintain a reasonable margin.
spk06: Thank you. Thank you. Two more questions. You've talked about trying to get to about 30% of your lending from the commercial model by the end of the year. Do you think that's still achievable?
spk04: We are still working on it. We are still working on it. We are working on it. We are working on it.
spk05: We still remain positive about the development of the commercial bank model because the government's policy that urges the banks to give more support to the MSEs has never been so strong and is getting even stronger. And our goal is one of our priorities to start collaboration with more commercial banks. and to help them to facilitate loans to MSC owners. So we remain positive of our goal to make the balance under the commercial land model 20% to 30% of the total loan book at the end of the year.
spk06: Thank you. Okay. And you kind of touched on in that answer, but the The push from the government towards the SMEs, have you seen any impact on, you know, seeing more demand from SMEs or anything government-related that's helping drive demand to you from SMEs?
spk05: The government's support is mainly reflected in two important things. The first is in the support for loans. Recently, the State Council held a meeting.
spk04: The core is to reflect the support for loans, that is, the support of DBC. The second is that the People's Bank issued a document today to support financial institutions to dare to pay, wish to pay, be able to pay, and be able to pay. These things are actually relaxed in terms of the tolerance of the risk. So these will promote the liability of financial institutions' loans to small and medium enterprises.
spk05: Okay, so the government's support towards MSEs are mainly reflected from two aspects. So, the first one is the supporting policies about refinance. It's one of the, so there was a meeting from the State Council saying that they will have the support to refinance doubled, and also today The People's Bank of China also released a document that's saying the commercial banks should give financial support to MSC owners, and it's reflected in the tolerance in terms of the... We expect that after June,
spk04: So there was a policy made by the People's Bank of China that's saying
spk05: We should give more freedom and more room for commercial banks to support the financing needs of the MSEs. And also, so we estimate that at the end of June, there will be another surge of demand from the MSE owners for capital.
spk04: Thank you.
spk06: All right. Thank you, guys.
spk00: This concludes our question and answer session. I would like to turn the conference back over to Ms. Jane Jin for any closing remarks.
spk01: That will be all for today. Thank you for joining us. If you have any further questions, please feel free to contact our IRR surface at irr.castchina.cn. Thank you.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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