FinVolution Group

Hello, ladies and gentlemen. Thank you for participating in the second quarter 2022 earnings conference call for Finvolution Group. At this time, all participants are in 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.

Hello everyone and welcome to our second quarter 2020 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's email alert by visiting the IR section of our website at ir.ginvigroup.com. Mr. Feng Zhang, our Chief Executive Officer and Mr. Jia Yuan Xu, our Chief Financial Officer will start the call with their 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 findings 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.

Thank you, Jimmy. Hello, everyone, and thank you for joining our earnings call. The second quarter of 2022 was a challenging quarter. with Shanghai under COVID lockdown until June 1st, 2022, and many other major cities also experienced varying degrees of lockdown or restricted mobility during the quarter. All these unprecedented challenges significantly affected China's economic growth and exerted additional pressure on certain aspects of our operations. However, We were able to navigate all these challenges and achieve better than expected results, thanks to the experience and insight we have accumulated during our 15 years of operations. Consistent investments throughout our chain of technologies enabled most of our employees to conduct their work from home during the lockdown, minimizing disruptions to our operations. Our stable and capable senior management team with pragmatic goals coupled with an in-depth understanding of the industry seamlessly executed our decisive strategy despite micro-obstacles. Together with the company's ongoing transition towards better quality borrowers in both domestic and international markets coupled with our long-term goal of financial inclusion, these advantages further contributed to our growth momentum in this challenging quarter. Encouragingly, Our total transaction volume steadily increased for the ninth consecutive quarter to reach IMB 41.5 billion, up 24% year-over-year and 4.5% on a sequential basis. Driven by our stable, better quality borrower base, we achieved a solid set of operational metrics despite weak microeconomic conditions. The total number of unique borrowers in the quarter remained stable at around 3.1 million. Additionally, our total outstanding loan balance further expanded to RMB $56.4 billion as of June 30, 2022, representing year-over-year growth of 44% and a sequential growth of 5%. With respect to our strategic transition toward better quality borrowers, our proportion of Category A and B borrowers in the domestic market who meet our highest credit standards further expanded to 74% of our total borrowers in the second quarter compared to 68% in the previous quarter and from 54% in the prior year period. Accordingly, our average borrowing interest rate further declined to around 24.2% in the second quarter. Passion for technological innovation is embedded in our DNA, driving us to pursue high-quality innovation outcomes with the ultimate goal of serving the real economy and accelerating the digital transformation process. We leverage a host of cutting-edge proprietary technologies to maintain our growth momentum while stabilizing our credit risk performance. For instance, our Funchal platform automatically monitors the credit assessment process and risk control rules, accurately tracks data fields, and swiftly evaluates the performance of these data sources, leading to a 120% increase in operational efficiency. Working hand-in-hand with Funcao platform, our mean mirror fraud detection system provides visual network and fraud detection images, which can uncover up to 65% of intermediary fraud during the loan application process. Based on knowledge graphs, Mean Mirror utilizes complex network computing, machine learning, and a carefully selected rule engine, as well as over 2,000 models embedded with billions of relational data to effectively identify fraudulent activities. We have also implemented these technologies in our overseas markets, validating our technology's flexibility and transferability while strengthening our foothold in those countries. Supported by a prudent risk management framework with proven credit risk assessment and fraud detection technologies, we have maintained a stable risk level and overcome expected COVID-related issues while preparing growth. Our day one delinquency rate remained stable at 5.5% in the second quarter of 2022, with a continuous stable trend into July. Our delinquency rate below 90 days showed signs of recovery, failing to 1.44 from 1.56% in the previous quarter. In addition, as the impact of the COVID-19 resurgence became more manageable, our second quarter vintage delinquency rate is expected to be around 2.4%, Finally, thanks to our loan collection team's impressive efforts, as well as the easing of lockdowns across China, we have also seen an improvement in our loan collection recovery rate to 91% from 90% in the previous quarter. While maintaining our solid growth momentum, we continue to diversify our funding sources and improve funding efficiency in the second quarter. More encouragingly, our overall funding costs have been on a gradual downward trend, In line with our expectations, we significantly lowered our funding cost by 31 bps to around 7.5% during the quarter. Meanwhile, our capital right proportion remains stable at 17% in the second quarter compared to 13% a year ago. These results are a powerful testament to our effective business strategy and skillful execution. We also remain committed to supporting small business owners during this challenging period. During the second quarter, we served over 500,000 small business owners across a variety of industries, such as wholesale, retail, and manufacturing, among others. representing an increase of 23% from the same period of 2021. Transaction volume for this segment further increased to 68% year-over-year to a new record high of RMB 10.4 billion, contributing 25% of total transaction volume in the second quarter. Moving on to our international expansion, our strategic transition toward better quality borrowers with enhanced technologies continue to deliver promising results, Transaction volume for the quarter increased to RMB 0.91 million, representing a sequential increase of 6%. Notably, the proportion of better quality borrowers for the second quarter have exhibited continuous improvement to 62% from 54% in the previous quarter, with a larger number of better quality borrowers in our Indonesia business. Our proportion of loans funded by local institutional partner also increased to 39% from 14% in the previous quarter and from no institutional funding in the same period last year. More excitingly, outstanding loan balance for our international market increased to RMB 0.48 billion, representing a year-over-year increase of 60% and a 33% increase sequentially, validating the tremendous opportunities in the international markets. Last but not least, I'd like to provide an update on our ESG performance. At Finvolution, upholding our long-term commitments and responsibilities to our industry, the environment, and society is at the heart of our core values across operations. We continue to make strides in improving our ESG management practices and advancing our ESG initiatives during the quarter. Our recently distributed fourth Our recently distributed fourth annual ESG report highlights our ESG policies and accomplishments in 2021, and our membership into the United Nations Global Compact reflects our ongoing endeavors. Furthermore, as part of our ongoing efforts in enhancing our data privacy and the information security framework, we have obtained the ISO 27001 Due Certification of Information Security Management System issued by DMV. a well-known international standard certification organization. We will continue to reinforce our ESG engagement on multiple levels while leveraging Finvolution's innovative technology and differentiators in ways that improve and sustain communities for generations to come. In summary, our robust performance in the second quarter of 2022 is another powerful testament to our dynamic business model, technological know-how, and the dedicated efforts of our incredible team. Entering into the second half of 2022, we remain focused on refining our risk assessment and management framework, advancing our cutting-edge technologies, engaging better quality borrowers, and optimizing our product mix. Looking ahead, we remain confident in our resilience and our ability to skilfully navigate evolving market dynamics in a rapidly changing operational environment while capturing new opportunities in a more sustainable manner. With that, I will now turn the call over to our CFO, Xiaoyuan Xu, who will discuss our financial results for the quarter.