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spk09: Hello, ladies and gentlemen. Thank you for participating in the second quarter 2021 earnings conference call for Finvolution Group. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Jimmy Tan, head of investor relations for the company. Jimmy, please go ahead.
spk02: Hello everyone and welcome to our second quarter 2021 earnings conference call. The company results were issued via newswire services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IR section of our website at ir.pinpigroup.com. Mr Feng Zhang, our Chief Executive Officer and Mr Jia Yuan Xu, our Chief Financial Officer will start the call with their prepared remarks and conclude with a Q&A session. During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with US GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. Before we continue, Please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Finally, we post a slide presentation on our IR website providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Feng Zhang. Please go ahead, sir.
spk01: Thanks, Jimmy. Hello, everyone, and thank you so much for joining us today. We continue to provide value for both users and institutional partners in different aspects. Leveraging our cutting edge technology, we have been providing value for users across multiple segments, such as consumer finance, small business owners, and different types of financial institutions. Through our platform, users are able to enjoy the convenience of finance at their fingertips, accessing credit lines in a timely and efficient manner. On the other hand, our institutional partners are able to access and evaluate quality borrowers with efficiency. Along with the value created, we are thrilled to be reporting another set of record-breaking operational and financial results in the second quarter. As we harness our technological capabilities effectively to acquire new and better quality borrowers and constantly increase our acquisition channels, our total number of new borrowers acquired globally once again crossed the 1 million mark to a new record high of 1.18 million, an increase of over 500% year-over-year and 18% quarter-over-quarter. More specifically, the number of new borrowers acquired in China reached 812,000, representing an increase of over 380% year-over-year and 31% sequentially. The number of new borrowers acquired in the international market reached 371,000, approximately a 13-fold increase compared to the same quarter last year. Another clear indication that we are resuming high-quality growth is that our total transaction volume for the quarter reached a new record high to 33.4 billion RMB, a 153% jump year-over-year, and a sequential increase of 25%. Specifically, transaction volume in China climbed 148% year-over-year and 25% quarter-over-quarter to 32.5 billion RMB, while transaction volume for international markets grew exponentially by 1,780% year-over-year and 23% sequentially to 940 million RMB. Simultaneously, our outstanding loan balance further expanded to 39.4 billion RMBs, representing year-over-year growth of 87% and 21% sequentially increase. In order to better support the healthy growth of our facilitation operation, we have been making consistent investments in acquiring new, better quality borrowers through an array of online and offline channels We have diversified our online channels and have also established an offline team of over 600 employees, covering around 80% of China's provinces. In the second quarter, our offline channels contributed around 10% of total new transaction volume. Offline acquisition is not only an alternative channel, but also validate our technologies can be seamlessly integrated in different scenarios to enhance efficiency. Going forward, we intend to expand the offline team to beyond 1,000 employees in a year or so. Since 2020, we made our services available to small business owners in China, aiming to capitalize on the significant opportunity presented by these groups' underserved needs for operational firms. In the second quarter, growth momentum for our small business owner segment remained robust, with transaction volume increasing 41% sequentially to 6.2 billion RMB. Notably, the total number of small business owners served in the quarter exceeded 408,000 compared to just 220,000 in total for the full year 2020. We believe serving the needs of small business owners is in line with national policies and play a part in meeting the needs of this segment of the society. Going forward, we will maintain our strategic focus on serving this segment and expect this portion of our business to account for around 20% of total transaction volume in the second half of 2021. In line with regulatory directions, we amply continue to lower borrowing rates in the second quarter to 26.2% for our borrowers. And more recently, in August, the rate was further reduced to 25.4%. We're also pleased to share that the recent percentage of transaction volume with borrowing rates at or below 24% has risen to around 60%. We plan to continue acquiring better quality borrowers, expanding new funding sources across regions, and enhancing operation efficiency to provide more attractive rates and terms for our borrowers while maintaining a healthy take rate and operating margin. On the international front, with our state-of-the-art technologies and swift execution, we have continued delivering strong performance In particular, we successfully launched a pilot testing operation in Vietnam, which demonstrated encouraging growth prospects. More excitingly, this marks the fourth country in our global roadmap, in addition to our international presence in Indonesia, Philippines, and Singapore. We are very pleased with the accelerating pace in broadening our global footprint and thrilled that our recent entry in Vietnam is already demonstrating great potential with positive user feedbacks. We attribute our success in building out our first mover advantages in emerging markets to our fundamental capabilities, talented and efficient team with global perspective, proprietary technologies, operational expertise, and deep-rooted corporate value. Our technology supports us in successfully navigating our business transition in China and also plays a crucial role in our expansion across different international markets. We're confident in our global roadmap and remain firmly committed in our mission to make financial services more accessible and inclusive for borrowers around the world. Going forward, we will continue to advance our technological capabilities and solidify our operations in these countries while working with our local partners to explore new opportunities that will enable us to diversify our business models. Leveraging our technologies, operational expertise, and in-depth understanding of our institutional partners, we are able to provide diversified products and solutions for them in multiple scenarios. In particular, through cooperation with eight different institutional partners, we increased the portion of capital life model on our platform from 2.3% in the previous quarter to 13% in this quarter. All these achievements are further testament to the solid trust and the confidence that our funding partners have in Finvolution as we remain committed to building credibility and a strong corporate reputation amid ever-evolving market dynamics. Supported by our enhanced credit management model built on targeting higher quality borrowers, our delinquencies have shown further improvement across the multiple risk metrics. For example, our day one delinquency rate remains stable at 5.4% in August, compared with 7.5% in the same period last year. We expect vintage delinquency rates to continue improving to a level below 2.3% in the second quarter, while our 90-day bus delinquency ratio reached a historical low of 1.01% from 7.13% in the same period last year. Our loan collection recovery rate also stabilized at around 91%. As we look ahead, our primary objectives for 2021 and beyond are to continue pursuing high-quality growth in China, leverage technologies to strengthen our first-move advantage in the international markets, and diversify our business models, continue empowering financial institutions through business-as-a-service solutions, and empower a variety of businesses globally through our digitalization capabilities to create long-term value for our stakeholders. During the past several years, we have encountered and overcome many difficult challenges, such as exiting the P2P business, shifting our funding sources, moving towards better quality borrowers, and many more. We have the technological know-how, capabilities, and resources to deliver better results and achievements in this rapidly evolving environment. Our dynamic business model and operating strengths, coupled with our strategic investments in multiple sectors, will drive our success with a sustainable growth, sustainable return for all our stakeholders in the long term. Last but not least, I would also like to report our progress on corporate social responsibilities. During the past several years, we have consistently fulfilled our duties as a responsible corporate citizen. For example, during the recent flood in Henan, We have donated RMB 10 million as post-disaster aid and activated our local employees to distribute food supplies for those in need. Together with our institutional partners, a low-interest loan program for small business owners has also been introduced. Our third annual ESG report was also published recently, and for those who are interested in having more information, do visit our website for a copy. In summary, leveraging our technologies and the digitalization capabilities creates long-term value for our stakeholders. We are confident in our ability to maintain our position as the leading fintech platform in China while capturing tremendous growth opportunities globally. With that, I will now turn the call over to Jiayuan Xu, who will discuss our financial results for the quarter.
spk08: Thank you, Kun, and hello, everyone. With continued improvement across multiple operations metrics in the second quarter, we delivered a non-GAAP operating income of 726 million RMB, an increase of 26% year-over-year and a sequential increase of 8%. Further validating the viability of our business model, our robust balance sheet with 4.9 billion RMB in unrestricted cash and short-term investments coupled with our strong technology capabilities positions us well to explore opportunities both in domestic and international markets. Now turning to the financial results for the second quarter. In the interest of time, I will not walk through each item line by line, but on this call. Please refer to our earnings release for more details. Net revenue increased by 32 percent to 2.4 billion RMB for the second quarter of 2021 from 1.8 billion RMB in the same period of 2020, primarily due to increase in transaction volume and partially offset by the decrease in government income as a result of improved asset quality. Low facilitation service fees increased by 135 percent to 952 million RMB for the second quarter of 2021 from 405 million RMB in the same period of 2020, primarily due to the increase in transaction volume, which was partially offset by the decrease in average rate of transaction fees. Post-facilitation service fees increased by 96% to 300 million RMB for the second quarter of 2021 from 153 million RMB in the same period of 2020, primarily due to the increase in outstanding loan service by the company and the low impact of deferred transaction fees. Guaranteed income was 666 million RMB for the second quarter of 2021 compared to 821 million RMB in the same period of 2020 as a result of improved asset quality. Net interest income decreased by 7% to 309 million RMB for the second quarter of 2021, from 333 million RMB in the same period of 2020, mainly due to the reduction in outstanding loan balance of consolidated trust, partially offset by the higher transaction volume in the international markets. Other revenue increased by 61% to $158 million for the second quarter of 2021, from $198 million in the same period of 2020, mainly due to increased customer referral fees to other third-party platforms. Nungap adjusted operating income, which excludes share-based compensation expenses before tax, was $726 million for the second quarter of 2021, representing an increase of 26% from $576 million in the same period of 2020. Net profit was $620 million for the second quarter of 2021, representing an increase of 37% compared to $454 million in the same period of 2020. We have a well-capitalized balance sheet and our leverage ratio remains low. Leverage ratio across our business was only 3.8 times and our strong liquidity position consisting 4.9 billion RMB of cash and short-term investments as at the end of June 2021. Positions us well in the involving environment and gives us significant flexibility. With the COVID-19 recent resurgence in China and other regions around the world, the company will continue to closely monitor the situation of the pandemic and remain vigilant in its business operations. As such, the company holds a cautious view on its operations and anticipates steady growth in its transaction volume for the third quarter of 2021, which is expected to be in the range of 35 billion RMB to 37 billion RMB. With that, I will conclude my prepared remarks. We will now open the call to questions. Operator, please continue.
spk09: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. 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 two. For the benefit of all participants on today's call, if you wish to ask your question to the management in Chinese, we ask that you please kindly repeat your question in English. At this time, we will pause momentarily to assemble our roster. And our first question comes from Thomas Chong with Jefferies. Please go ahead.
spk00: Hi, management. Thanks for taking my question. Congratulations on the strong results. So, first, I have two questions here. So, first, could you please share some updates about the regulatory environment and how much of our LOINs already have an APR below 24%, and how should we think about the trend in APR going forward? And my second question is, what about our outlook on LOIN origination volume in the second half and 2022? Thank you.
spk08: Okay, let me answer these two questions. The first question, I believe everyone is very concerned about it. Recently, the supervision here has also passed on the requirement of interest rates to be set at 24. According to our understanding, it should be a cross-border guidance for Xiaojin Company. Currently, among our cooperative partners, it is mainly Xiaojin Company. Okay, let me do the translate for Mr. Xu.
spk02: From our understanding, the cap on IRR 24% is a window guidance from the CBIRC for consumer finance companies. Thus, it is not evenly implemented across the country as there are different timelines for different institutions. For example, some determine that the outstanding loan balance of all loans above 24% will be reduced to zero by the end of next June, whereas for some, institutions will follow the guidelines that there will be no new originations above 24% by the end of next June.
spk08: For this situation, we are not surprised because we have been preparing for it. Our CEO, Mr. Zhang, mentioned it just now. As you can see, our average price at Q1 is about 26.8 yuan. Our average price at Q2 has dropped to 26.2 yuan. At the latest, our average price has reached 25.4 yuan. This is actually something within our expectation, and we have been preemptively reducing interest rates for our borrowers. For example, in the call earlier, our CEO, Mr. Feng Zhang, has mentioned that
spk02: In the first quarter our borrowing rate was 26.2 and in the second quarter this borrowing rate was reduced to 26.2. I mean in the first quarter was 26.8 and it has been further reduced to 25.4 in August and also the proportion of loans facilitated at or below 24% has reached 60% in August.
spk08: So in fact, we have been preparing for this point. And now we should say that it is already very close. It's all cut to a level of 24. We actually did a corresponding pressure test for 24. We expect that if we look at all of them according to the average price of 24 in extreme cases, we will have an impact of about 1500 to 1100. Okay, we have been making the preparations and we believe we are close to shifting our loans to under 24%. And based on the static assumption stress test, we believe the impact will be around 0.5% to 1%.
spk02: and our take rate will be reduced to around 3.5% from the current level of 4.4% in the second quarter when the cap has been fully implemented.
spk08: I would like to add here that this calculation is still a very static calculation, because in fact, as the price drops, it may become better in terms of risk performance. In fact, in the past, And do you know that this is based on a static assumption and
spk02: We are confident to further improve our funding cost, delinquency rate, and operating efficiency going forward. And all these will actually help to make an improvement in our take rate going forward.
spk08: And then regarding the second question, which is the overall impact of the second half of this year, the first thing we judge is that the whole thing will still have a grace period. It will not immediately cut everything into 24. The second is that we are very close to that level. Based on these two considerations, we believe that in this year's overall transaction, we can achieve the guidance of the beginning of the year, and we can beat the upper limit of the guidance.
spk02: We believe there is a grace period involved over here, and based on this assumption, we are very confident in achieving our full-year guidance that we have given out at the beginning of the year, and we are confident in beating the upper end of the guidance that we have given out, which is $120 billion. Thank you.
spk09: As a reminder, if you have a question, please press star then 1 to be joined into the queue. The next question comes from Alex Yee with UBS. Please go ahead.
spk06: Hi. Thanks for taking my question. I have a few questions. First one also on the margin for look, the impact from the price curtain. So after you have implemented a lower price recently in August, so how, how has that affect your tech rate so far? And so how is the outlook for the next year? And then second question is on your sales marketing trend. So I saw that it has continued to go up quite substantially and outpace your overall growth. I'm wondering, can you share more color on what's the, drivers behind your sales and marketing trend and when could we sort of start to expect some sort of stabilized trend in terms of the sales and marketing as percentage of your loan volume. And then first question is about your overseas market strategy. It's quite encouraging to see for the progress on that front and it currently accounts for around 3% of your total loan volume. So I'm I wonder if you could share with us if you have any, like, your targeted long-volume contribution from overseas market, like, in the next two to three years. Thanks.
spk08: Okay, Alex, let me answer these three questions. The first question is actually related to take rate. Actually, I already mentioned it in that question. Okay, this question is still related to the earlier question of
spk02: interest rate being capped at 24 percent. Our current take rate is around 4.4 percent, and based on the static stress test, we believe our take rate will be reduced by 0.5 percent to 1 percent to around 3.5 percent. And as for the pace of the reduction, we will still need to discuss with our partners in order to determine the right pace for this reduction. 然后这里呢,接着机会也给大家也报告一下,就说
spk08: Although there are challenges in the tickering in the future,
spk02: I would also like to update that we have achieved significant progress in our ABS application, and in the future, we believe that ABS will diversify our funding sources.
spk08: 然后,我第二个问题,第三个问题是关于这个海。 对,是关于我们那个marketing的 fee。 Uh,
spk02: Okay, in the second quarter, our customer acquisition cost was around 400. The CPS in China was about 470 in the second quarter versus 450 in the first quarter. And for our CPS in internet for the international market, it was around 230 RMB in the second quarter.
spk08: And we expect that in the future, the overall CPS will remain at such a level. In China, we expect it to be around 450 to 500 RMB. And then the international market, we think it is also at the level of more than 200.
spk02: And in the future, we believe this trend will be stable. In China, we expect our customer acquisition cost to be in the range of 400 to 450. For the international market, it will be around the range of 200 plus RMB.
spk08: And then I would like to share some of the progress we have made on the customer channels. Our current customer channels I would also like to update on my different customer acquisition channels. For example, our information peak channels consist about 60% to 70% of
spk02: of new customer acquisition. Our app store has about 15% and our offline customer acquisition team has been making very fast progress and it consists of about 10% of our new customer acquisition today.
spk08: The third question is about our internationalization. In the second quarter, our overall turnover reached RMB9.4 billion. In the second quarter, our loan origination for our international markets was about $940 million. On a quarter-on-quarter growth, it has increased by about 24%, and we have also penetrated and begun operations in our fourth country, Vietnam. There has been some research of the COVID-19 in the Southeast Asia recently.
spk02: And we believe we are still confident to be able to achieve about four times growth compared to last year, which is about 4 billion RMB of loan volume in Southeast Asia market.
spk01: Thank you, Alex. This is Feng. I would just add that Southeast Asian market, in terms of total population size, is roughly half of mainland China. But in terms of population, GDP growth and financial market is at an early stage. So our business there is also at a much earlier stage compared to where we are in mainland China. So if you look at a three to five years horizon, we definitely expect our growth rate in Southeast Asian market to be faster than the domestic market. So it's hard to predict because it also depends on how much growth we get in the domestic market, which does have uncertainties given the regulatory environment. But we would certainly hope that within three to five years, our international business can account for maybe in the range of 20%-ish for our total transaction volume.
spk09: As a reminder, if you have a question, please press star then 1 to be joined into the queue. That's star then 1 to be joined into the queue. Once again, if you have a question, please press star, then 1 to be joined to the queue. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. And the next question is from Eric Lu with China Renaissance. Please go ahead.
spk07: Hi. Thanks for giving me this chance to ask questions and congrats for the performance in the second quarter. So, I got two questions. The first question is about overseas explanation. So, we know the company has extended in four countries in Southeast Asia. So, can you please provide more color about the model in each country? For example, the funding source, the asset quality, and the product nature. And the second question is about the casual life loan facilitation model. So can you please provide some color about the future plan of adopting a capitalized business model?
spk08: Thanks. Okay. Let me answer these two questions. The first one is about the situation of our overseas unit. Um.
spk02: The unique economics for our international business is actually very different from our business in China in terms of pricing, in terms of risk performance. And we can give, for the international market, the take rate is around 10% to 12%. 我们现在在海外,整体现在已经过了break even的阶段。 但现在我们在海外的总体的一个战略 的思考并不是以... We have actually achieved a break-even point for our international business, but at the moment our priority is not in turning a profit, but instead our focus is on acquiring more customers to have a faster growth.
spk08: Yes, the second question is about the capital light model. As our CEO, Mr. Zhang, just said, this quarter has achieved a very significant progress. Our current share price has reached 4.3 billion yuan, which is about 13%. Compared to last quarter,
spk02: 是一个非常显著的一个增长。 Our CEO has actually mentioned that we have made significant progress in our capital-like progress, from 2.3% in the previous quarter to 13% in this quarter, and contribute about 4.3 billion RMB. 然后我们在这个季度里面,我们已经和八个持牌机构,
spk08: We have six more pipelines in our pipeline.
spk02: And for the quarter, we have worked with eight different institutions under the Capital Light model. And in our potential pipelines, we have another six more institutional partners waiting to work with us on the Capital Light model.
spk08: And now, if we use the risk-saving model to compare, If you compare the capital light model to the capital heavy model, there's a 1% additional cost involved. So we will think more about the number of cooperating institutions and their relationship with them. So we will not do it in a fast pace. As you all know, we still maintain a very low leverage ratio.
spk02: And for the rest of the year, our focus on the capital light model is actually on the quality of the cooperation model of the capitalized model, meaning that we will continue to work with more partners on this model. And as you know, our leverage ratio is also relatively low at only 3.8 times. Thank you.
spk09: The next question is from Han San with CLSA. Please go ahead.
spk05: Thank you management for giving me this opportunity to ask a question. Um, I have two questions. One is about the regulation. Another one is about ad quality. So about the regulation wise, um, I think some other colleagues asked about the APR. I want to ask that the loan facilitation in terms of breaking up the link between the fintech platform and the bank, right? So there was a regulation asking that. Yeah. There was a regulation of the FinTech platforms to pack data through the licensed credit scoring company first, who can in turn pack data to banks. So based on this regulation, how do we plan to be compliant? And what are the impacts on our business, especially on the take rates? And what are the potential sort of, you know, change in the model? That's number one. Number two is on ad quality. We noticed that our ad quality trend was very good. So just wondering, looking at the most recent two months, what are the trends there? Do we expect, you know, continuous improvement in delinquency ratios? Thank you.
spk08: Okay, thank you. Let me answer these two questions. The first one is related to the cut-off period. Yes, we think about the cut-off period in two ways. The first one is actually about the use of data. In fact, the supervision also has a very clear requirement, which is a minimum requirement principle.
spk02: The regulator's view on data collection is actually based on minimum required standard.
spk08: In fact, this is something that our company is very concerned about. In fact, since this year, Actually, our app has gone through a lot of tests. But from the results, we should have achieved a very good result. So, we will continue to pay attention to this factor.
spk02: And our company has been working alone in this direction. And based on the past reviews, right, we believe we have fulfilled the requirements. Our app has actually received the App Security Certification and App Information Security Certification from the China National Computer Virus Emergency Response Center. I would also like to stress that our core capabilities is actually based on the data utilization and not based on the amount of data collected. And thus, the regulation's direction of the minimum required standard will not actually affect us a lot.
spk08: The second point is about the understanding of this issue. A supervisor's idea is to include the data related to authenticity into the scope of supervision. Based on our understanding on breaking up the link, all credit-related activities need to be supervised under licensed regulatory bodies.
spk02: This means that such activities need to go to a licensed institution and credit bureau agency is actually one of the channels.
spk08: It is also a product model that is actively exploring in the short term. Now it has achieved some good progress.
spk02: And going forward, we will strengthen our cooperation with the credit bureau agency. And we have been working with Baihang since 2018. And we have been developing products together with their teams.
spk08: The second one, as I mentioned just now, the idea of supervision is to put the real data into the supervision scope. As mentioned earlier,
spk02: All credit-related activities need to be supervised under a licensed regulatory body. And we are also exploring the possibilities of using our current licenses, such as our micro-lending license and financial-guaranteed license, to process the data.
spk08: The third one is that we will also be very active in exploring the opportunity to participate in new companies and invest in real estate institutions.
spk02: and we will also actively explore the possibilities of participating in a stake in one of the credit bureau agencies.
spk08: In conclusion, we think the indirect data transfer only changed
spk02: the protocol of the process, and it will add some cost, but the cost is not going to be material. And it doesn't impact the outcome of the business and the risk assessment results. As data management becomes more standardized and transparent, we believe we have the opportunity to secure higher and better data quality sources to further improve our operation efficiency.
spk08: 第二个问题是关于风险相关的。 其实可以看到我们在今年当中, 资产质量其实一直是一个非常好的这样一个态势, 不论是在优化,到QR的话我们预计,
spk02: And throughout the year, our asset quality has been improving progressively, and in the second quarter, we expect our vintage delinquency to be around 2.3%.
spk08: In the future, we have the confidence to maintain
spk02: our delinquencies at this level. As you know, lowering the pricing will also help to improve the risk level like what we have experienced from our P2P transition.
spk08: Thank you.
spk09: As a reminder, if you have a question, please press star then 1 to be joined into the queue. Once again, that's star then 1 to be joined into the question queue. The next question comes from Henry Lin with GoldDragon. Please go ahead.
spk04: Good. Congrats on the very strong results. Just two very quick questions to follow up. The first one is, can you provide some more color on the breakdown for your international business, like the loan facilitation volume for different countries? And the second thing is like, uh, I know that we, we just talk about, um, like the, the, the test, um, of your profitability on the 24%. Um, just like you've been, do you have a concrete guidance of. Earnings estimate, like how much earnings, um, downside offside we have, um, next year when everything is on the 24%. Uh, One is the international business. Can you tell us about these countries? Vietnam has just opened a breakthrough. What is the level of the exchange rate between Indonesia, the Philippines and these countries? The second question is, under the 24% interest rate restriction, what will be the level of our pressure test next year's profit range like 360?
spk01: Thanks, Henry. This is Phuong. Yeah, just quickly, you know, in terms of country, international market, country breakdown, our Indonesia market accounts for about three-quarters of our volume, roughly, and the Philippines and Vietnam in total account for the rest. And Vietnam is, you know, just starting, so at a very early stage. Now, you know, in terms of the profit impact for the price regulatory change shift, I think we can just do a quick math. As we mentioned, currently our average IR is about 25.4 percent, and we have, you know, the loans that are facilitated by us, our outstanding is about $40 billion. So if we do the math, 40 billion times, let's say if we reduce to 24%, that's a drop of roughly 1.5%. So that's 600 million pre-tax profit impact. Now, in reality, we may maintain some of our volumes at a rate below 24%, so the impact may be a little bit more than that. But again, that's the... static version, as we mentioned. In reality, what we think will happen is we will continue to drive down our loss rate, and we think there's a very good opportunity. Now, with the market, we'll have much more limited asset supply for this sector. Lots of players, they operate between 24% and 36%. In fact, very close to 36%. It's going to be very, very difficult for them to adjust their business to 24%, to below 24%, without a... Either will not be able to do that, or they will do that, but with a huge impact on their volume. So the asset supply for this sector is going to be very limited. And with that, I think there's... great opportunity for us to further improve our funding costs with better negotiation power with our funding partners, with our institutional partners. And then lastly, as we increase our business volume, the size of our business, the fixed cost component, which is a big chunk of our total cost as we are such a research-heavy company, We spend a lot of human capital cost. The efficiency is going to be higher. The fixed cost is going to be a smaller percentage of our total revenue. So with all these improvement opportunities ahead of us, we actually think we can limit the profit impact to a significantly smaller impact than the number I just indicated. Hope that helps.
spk04: Yeah, so basically under that math, it looks like we will still have a very material growth, like if everything holds constant, we'll still have a material growth of earnings at 2022 from like last year, from last year's level. But this year is still like above 24, but yeah, so next year versus last year is still material growth.
spk01: I hope so. But I think people may have a different understanding of the material. I do think that the 24% cap is going to have some impact in the short term in terms of profitability. But I think that the key message here is you know, from all these aspects, we believe the impact is going to be very manageable for the short term. And we think if we look at the medium to long term, it's going to be a good thing for the industry and for our company.
spk04: Just one very quick follow-up. On the international business, have we, like, been considering U.S. as a potential area to enter? Because given, like, how strong Upstart has been doing both on their business, on the share price in that market. Are we under any future plan of entering that and share some of the economics there?
spk01: Yeah, I think we have been paying some attention, but as of now, we don't have... concrete plan to enter U.S. market. I think we mostly are focusing on developing worlds. I understand Upstart has a very high valuation, but it's still something we're trying to figure out. But I think when we look at medium to long term, we are pretty happy with the the mainland market and the developing world, particularly the Southeast Asian market, we think it's big enough for us to play for the years to come. Sure.
spk04: Thank you. Thank you. Yeah.
spk09: As a reminder, if you have a question, please press star then one to be joined into the queue. The next question comes from Harry Wu with China Securities. Please go ahead.
spk03: Thank you. Will there be any further changes to the regulatory policies on user privacy, especially user data data collection and what kind of response the company will do to ensure that business is not affected.
spk08: Thank you. Last Friday, there was a personal information safety law. This is a relatively new law. Of course, last year there was a draft. This year is uh... this is a cool one uh... that's what i thought i thought i thought i thought i just want to tell me if you can do you know i see uh... you can have a good deal what are you going to do you mean that you can see that you can follow it yeah i think that's it to you uh... to cook hot water soup to the point uh... if you want to see some people that i think that you should be okay last friday that would be that would be introduction people on the school put them at the top of action and also
spk02: the consultation paper on cross-border data transfer?
spk08: For the first one, I think the requirements have not changed at all. As I mentioned in the answer, there is a minimum requirement for data transfer. We have been following this. In terms of customer privacy protection, On the Personal Data Protection front, there hasn't been much changes.
spk02: The focus is always on the minimum required standard. And we have also received the App Security Certification and App Information Security Certification with Level 3 rating. from China National Computer Virus Emergency Response Center.
spk08: On cross-border data transfer,
spk02: We have maintained all the information collected in China to remain in China, whereas all the information collected in the international markets remains in their respective countries.
spk08: We think this law is still an emergency law. There may be more detailed requirements in the future. We will continue to pay attention to this.
spk02: This regulation is still relatively new and still evolving, and we will continue to closely monitor the developments of the regulations. Thank you.
spk09: As a reminder, if you have a question, please press star then 1 to be joined into the queue. Once again, that's star then 1 to be joined into the queue. As there are no further questions, now I would like to turn the conference back over to the company for any closing remarks.
spk02: Thank you once again for joining us today. If you have further questions, please feel free to contact our IR team. Have a nice day. Good night.
spk09: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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