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spk04: Hello, ladies and gentlemen. Thank you for participating in the second quarter 2023 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.
spk02: Hello everyone and welcome to our second quarter 2023 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 IRR section of our website at irr.finvigroup.com. Mr. Tien-Chen Lee, 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's followings 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. Tia-Jeng Lee. Please go ahead, sir.
spk09: Thanks, Jamie. Hello, everyone, and thank you for joining our earnings call. This is Tia-Jeng Lee, CEO of Evolution Group. We are happy to speak with you today. Since our expansion into the Indonesian market back in 2018, we have continued to execute our local focus global outlook strategy in the Pan-Asian region with under-weaving determination. Today, we have cumulatively served over 28 million borrowers in China, Indonesia, and the Philippines. By integrating our local business focus with an international perspective, we are able to leverage our expertise and insights derived from diverse markets to drive growth and foster innovation within our organization. We expect this strategy to produce further benefits as we expand into additional countries and strengthen our presence in our existing markets. As China transitions into the post-COVID era, recent July microeconomic data continue to be challenging with pockets of improvement in certain areas. However, microeconomic data from the ASEAN markets in which we operate currently paints a more positive picture, reflecting growth across different operational metrics. Given these circumstances, we are adopting a strategy of progressive growth in the China market while pursuing rapid growth in the international market. while we await the domestic micro-environments in recovery from the current challenges. We have been continuously investing in R&D. We have substantially enhanced our technology, enabling us to streamline our processes, upgrade our customer experience, and achieve improvements across the various markets in which we operate. We are pleased to share that Finvolution's total transaction volume in the second quarter increased to RMB 47.3 billion, while our outstanding loan balance reached RMB 63.7 billion, up 14% and 13% respectively year over year. This growth validates our company's ability to efficiently adapt to the challenging economic landscape, while continuing to meet the needs of our customers across our market. in the Pan-Asian region. Technological innovation continues to be the core of our mission and the primary source of our competitive advantage. In July, we hosted the eighth Femolution Technology Cup competition. Our annual event showcasing and cultivating technological talent and creativity. This year's event focused on the development of automatic speech recognition, ASR, to improve the technology's grasp of Chinese dialects and language, aiming to increase chatbot's efficiency and accuracy when communicating with customers from different regions. Our commitment to innovation was recently recognized as the 2023 World Artificial Intelligence Conference, where the thesis we developed in the cooperation with the University of Zhejiang. DropMessage, unifying random dropping for graph neural networks, was nominated for the outstanding thesis award. Our investment in AI and machine learning began years ago with R&D spanning across different product categories such as self-help services, chatbots, data analytics, and credit risk assessments. Over the past several years, we have been training our model utilizing billions of dollars of transaction data, steadily increasing their accuracy. We currently employ a fully automated loan approval process with all of our funding partners, and our automated chatbot resolves about 80% of customer inquiries on average. We consistently embrace new technologies and deploy them into our daily operation to deliver a more personalized and tailored experience for our users. along with the use of chatbots in customer service and to address early days delinquencies in the loan collection process. We have also upgraded to a streamlined user experience by automating self-help functions and providing instant response for our users. In addition, we have incorporated AIGC into our advertisements for our overseas business. increase our campaign's audience targeting accuracy and achieving greater visibility on leading social media platforms such as Facebook, Instagram, and TikTok. As a result, during the month of July, our followers on TikTok grew to around 700,000, while followers on Facebook and Instagram reached 967,220, respectively. Furthermore, we strove to advance our commitment to promoting financial inclusion during the quarter, aligning our ESG efforts with this business goal through better borrowing rates. We further optimized our average borrowing rate in China to 22.3%, ensuring our service accessible and affordable for our borrowers. On a related note, I would like to share some updates on our ESG progress. We recently published our 2022 ESG report, the fifth in our company's history, demonstrating our dedication to transparency and sustainability. Responsible ESG reporting allow us to showcase our strong governance practice and our actions addressing the environmental and social issue affecting our industry. They are also empowering us to design effective future initiatives. For instance, since the launch of our entry-free loan for eligible small business owners in China, we have cumulatively supported over 11,000 small business owners in pursuit of their dreams. Our subsidiaries in the Indonesian and Philippine markets are also proactively engaging in ESG work, such as conducting cost management workshop to educate borrowers and launching a large-scale micro-tree planting project to improve people's livelihoods in their local community, along other activities. We firmly believe that aligning our ESG and the business goal will ultimately create long-term value for our stakeholders while achieving a positive societal impact. Before we move on to additional operational and financial metrics with our CFO, I'd like to share that Finvolution celebrated its 16th anniversary during the second quarter. A milestone that affords us a glimpse of our future outlook as an enterprise with sustainable growth. As we have grown and built the business throughout the years, we have accumulated a suite of technologies, skill sets, and capabilities that enable us to navigate and succeed in all the markets in which we operate. We will remain committed to our vision of leveraging innovative technology to make financial services better, propelling Finvolution's long-term sustainable growth along the way. With that, I will now turn the call over to our CFO, Jiayuan Xu, who will discuss our operational and financial results for ER.
spk06: Thank you, Li, and hello, everyone. Welcome to our second quarter 2023 earnings call. In the interest of time, I will not go through all of the financial items on this call, Please refer to our earnings release for further details. As Lee mentioned, the domestic macro environment continues to be challenging with pockets of improvements in certain areas. The official manufacturing purchase manager's index came in at 49.3 points in July compared to 49 points in June and 48.8 points in May. According to data released by the National Bureau of Statistics on July 31, 2023, meanwhile, total social financing data in July increased by just $528 billion, below market expectation. Total retail consumption in July only increased by 2.5% compared with the same period last year. However, despite the challenging microenvironment, we are encouraged by the strong operational and financial results we delivered in the second quarter of 2023. Driven by our stable and better quality borrower base, we achieved solid operational metrics in the second quarter in the China market. Cumulatively, we have served over 24 million borrowers in China, with the number of unique borrowers at around 2.3 million of 5% sequentially. Additionally, our China transaction volume reached RMB 45.5 billion, while our outstanding loan balance reached RMB 62.6 billion as of June 30, 2023, both up 12% on a year-over-year basis. Boasted by our prudent approach to risk management with proven fraud detection technologies, we have maintained a stable risk level In the second quarter of 2023, our day one delinquency rate was around 5.6%, and the vintage delinquency rate is expected to be around 2.3% for the quarter. Finally, thanks to our loan collection team's impressive efforts, our loan collection recovery rate maintains stable at around 90%. As we continue to strengthen our strategy of serving better quality borrowers our proportion of category A and B borrowers in the China market further expanded to 80% of our total borrowers in the second quarter, compared with 74% in the same period last year. Furthermore, our transaction to better quality borrowers helped us to further optimize our funding costs during the quarter. We have also expanded our number of cumulative founding partners to 82 financial institutions, and our pipeline of potential partners remains robust. All these operational improvements enable us to maintain a healthy take rate of around 3.1% during the second quarter. As a company deeply committed to social responsibility, we continue to support small business owners during this challenging period. We have also noticed that our small business owners segment has been recovering at a healthy pace. Most of borrowers from this segment are focusing on wholesale, retail, food, and beverage industry. During the quarter, we served around 459,000 small business owners and facilitated RMB 11.5 billion of loans for them, representing an increase of around 11% compared with the same period last year and up 12% sequentially. Now, I'd like to share some additional details on our international expansion efforts. Indonesia Our largest overseas market recorded continued growth in its macroeconomy during the second quarter. Notably, on a monthly basis, the manufacturing PMI grew by 2.2 points to 52.5 points, and the business confidence index reached 99%. Indonesia's economy continued to remain robust in the second quarter and has maintained growth of 5%, over the past several quarters. Going forward, Indonesia economy is expected to maintain growth of around 5% in 2023. We anticipate that its domestic consumption will remain robust. We are excited about the progress we have made in our overseas markets across multiple operational and financial metrics. Cumulatively, We have served over 4 million borrowers in Indonesia and the Philippines and continue to demonstrate significant growth in these countries With the number of unique borrowers served during this quarter reaching a new high at 786,000 up 22% from the same period last year International transaction volume sold by 100% year-over-year during the second quarter reaching RMB 1.8 billion while we set a new record in our outstanding loan balance at RMB 1.1 billion of 131% year-over-year. Our operations in the Philippines have also exhibited stronger than expected growth across numerous operating metrics. On a year-over-year basis, the number of unique borrowers transaction volume and outstanding loan balance all grew by several times compared with the same period last year. Alongside these impressive operational metrics, international revenue maintained its reversed growth trajectory, reaching RMB 503 million, an increase of 112% year-over-year, and it contributed around 16% of total revenue in the second quarter. We have consistently strengthened our relationships with both local traditional financial institutions, such as Bank of Permata and OCBC Bank, as well as innovative internet banks such as Bankjago and CBank. Thanks to these flourishing partnerships and our partners' validation of our technologies and operational capabilities, Our percentage of loans in the second quarter facilitated by these institutions reached 65%, compared with 39% in the same period last year. Going forward, we will further deepen our relationships with these institutions to increase our proportion of facilitation by local institutions and expand our network of local partners in the region. Driven by our ongoing investments in technology and our strategy shift toward serving bad quality borrowers, our net revenues for the second quarter rose to RMB 3.1 billion, up 15% year-over-year. Net income for the second quarter reached RMB 590 million, up 1% year-over-year. Our leverage ratio which is defined as risk-bearing loans divided by shareholders' equity, remains stable at 4.3 times. During times of uncertainty, our strong balance sheet and liquidity position continue to provide confidence to all our stakeholders and support the business growth for all our markets. our cash position remains robust with over RMB 8.2 billion of cash and the short-term liquidity as of the end of June 2023, representing an increase of 58% year-over-year and 6% quarter-over-quarter. We also remain committed to optimizing shareholder value through our annual dividend policy and the share repurchase policy. we believe the current microenvironment offers an attractive opportunity to return value to shareholders. And as such, during the first half of the year, we deployed around US $14.6 million to repurchase our stock from the secondary market. As of June 13, 2023, we have cumulatively returned US $491 million to our shareholders through our dividend and stock repurchase programs. In addition, our board of directors has also approved a new share repurchase program of USD $150 million, reflecting our strong commitment to enhancing shareholder value. On a related note, Our Chairman, CEO, and other senior management have also expressed their confidence in the company through personal shares repurchase totaling around 630,000 ADS in the first half of 2023. Given favorable macroeconomic conditions in our international markets and the progress we have made across numerous operational metrics for our international business. The company has increased its international transaction volume guidance for the full year of 2023 to RMB 7.7 billion, representing year-over-year growth of around 80%. Taking the current China microenvironment into consideration, the company's 2023 guidance for its China market remains unchanged at between RMB 100 and $89 billion to $205 billion, representing year-over-year growth of between 10% to 20%. Before I conclude my remarks, let me provide some additional color on our business outlook for the third quarter of 2023. Despite some uncertainties in the macro environment, our business trajectory remains solid. We expect our transaction volume in China for the third quarter of 2023 to be around RMB 49 billion, representing an increase of around 10.4% year over year. We expect our transaction volume in international markets for the third quarter to be around RMB 1.9 billion, representing an increase of around 73% year over year. In summary, Our outstanding performance in the second quarter of 2023 underscores our dynamic business model, technological know-how, and dedication to advancing our international initiatives. Entering into the second half of 2023, we remain focused on refining our risk assessment and management framework, expanding our healthy customer base, and optimizing our product mix. Looking ahead, we believe that we are well positioned to capitalize on the massive opportunities in both China and the international markets, driving growth while creating greater value for our customers, shareholders, and all of our stakeholders. With that, I will conclude my preparatory remarks. We will now open the call to questions. Operator, please continue.
spk04: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. 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 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. Our first question will come from Yada Li of CICC. Please go ahead.
spk01: Hello, Mr. Guan. Thank you for giving me the opportunity to ask this question. I'm Li Yada from a Chinese company. I have two questions for Mr. Guan today. First, I would like to ask about the overall asset quality in the last two months and some of the potential risks, such as the change in the trend of Day One and Vintage. Daniel, do my translation. Hello, management. Thanks for taking my question. This is Yada with CICC. And my first question today is about asset quality trends. Considering the current microeconomic condition, what is the latest trend of leading indicators like day one and eventual delinquency in July and August? And what can we expect going forward and how to affect our provision strategies? And my second question is related to the international business. And could you please give us more color on the updates such as the progress of business expansion in new countries, business model, and long-term strategic focus? Thanks.
spk06: Thank you, Adam. Let me answer these two questions. The first one is related to our risk performance. As I mentioned before, in the second quarter, our overall risk performance uh... you can do it because you can't do it because you can't do it because you can't do it because you can't do it because you can't do it because you can't do it The expected rate of 90 plus vertical is also around 1.68. From our current observation, the entire red-line environment is relatively weak. The pace of economic recovery is lower than expected. But from the modern environment, the overall impact is relatively controllable. Of course, we also pay close attention to the impact of economic change on our risk. So at least for now, from both external and internal data, we think that we can look forward to a relatively stable risk level in the future. On the other hand, I think we are also very confident, because in the past we have experienced a lot of cycles, including the epidemic two years ago. Let me do the translation for Alexis. Your first question is related to our risk assessment performance.
spk02: As mentioned, our vintage delinquencies performance is around 2.3% and it has always been around at 2.3% levels over the past few years and our 30 days loan collection recovery rate is around 90% and over the last few quarters, this metric has been relatively stable and our vertical delinquencies is at 1.68% which is also at a low level. From observation, the current macro environment is relatively weak with recovery below expectation. And from observation, the credit market is doing okay and we expect that it is going to maintain stable going forward with risk performance staying stable as well. We have been through multiple credit cycles, including the COVID and the lockdowns, and we have proved that throughout all these cycles, we have successfully navigated them and succeed after all these cycles.
spk06: The second question is about some of the sudden events in terms of new countries and new business. As you all know, Indonesia and the Philippines are now in a relatively leading position, but our overseas strategy is not limited to these two countries. We are also looking at other countries in Southeast Asia, including evaluating like Africa, Latin America, and other countries that have high growth opportunities. In terms of formality, in addition to the company's own work, we will also consider some more abundant means of acquisition, cooperation, and these investment methods to enter a new market. In the countries that we are currently working in, we will also actively explore some new human rights and new product opportunities. For example, in Indonesia, In addition to online information, we will also take a look at some opportunities to promote this smart industry offline. On the product level, we will also do more combinations with the scene. Because one of the local markets in Indonesia is its characteristics, which is that the young people are relatively high. Then our target audience is about 30 years old, with a certain income, economic strength and consumption ability. This crowd, in fact, with some consumption scenarios, Hello Yada, let me do the translation for Alexis.
spk02: As you know, we are already in leading positions in the Indonesia and the Philippines markets. And apart from these two countries, we are also looking at opportunities in other countries in the Southeast Asia and also looking for high growth opportunities in countries such as the Africa and Latin Americas. Our business model is not only restricted to online lending. We are also looking at opportunities, for example, we are also looking at opportunities in Indonesia for offline consumption scenarios, and as you know, the population in Indonesia is young, and we are working with leading mobile phone branders in the Indonesian market to target these borrowers for offline mobile phone consumption.
spk06: Okay, Ada. Do you have any further questions?
spk10: I'm sorry. I'm sorry. I'm sorry. I'm sorry.
spk02: I'm sorry.
spk09: whether it's online, offline, in the scene, or different levels, and the exploration model with partners, we actually have a very rich history of experience and knowledge. Some businesses in China cannot completely land, but we believe that such experiences and knowledge can help us in overseas countries. Although we, as Alexis mentioned, in addition to In addition to the online information flow, I think it will help us to provide great support for the expansion of overseas countries. The second point is that you can see that we are not the first to enter these related countries in overseas countries. But because we have very good reserves on technology, data and talent, and we have obtained very good market and cooperation partners in the local market. So after a period of development, In the corresponding countries, such as Indonesia and the Philippines, we have taken the leading position in the market. So in the future, if we expand to more new countries, although we also have very strong confidence, whether it is in the business model or in the long-term business development, and ultimately to achieve the leading position in the local market, we all have very strong confidence. So these two points are some additions to our international strategy.
spk02: Let me translate for Mr Tim. As you know, Finvolution was established 16 years ago and we are very experienced in different business models such as online, offline and have very good working relationships with different partners. Some of the business models might not work in China market but these are very useful experience for us when we penetrate into other countries. As you know, we are also not the earliest company to venture into overseas market, but we are in leading positions in Indonesia and the Philippines because of our tech capabilities, our operational capabilities, and also we have a huge base of talent pools. And with these advantages, we are able to leverage these capabilities and success in our overseas market. And going forward, we are confident to achieve further success in all these international markets.
spk05: Okay, thanks, Yada. And operator, please continue.
spk04: Our next question will come from Frank Zeng of Credit Suite.
spk10: Thank you, Mr. Guan, for giving me the opportunity to ask a question. The first question is about the follow-up to the overseas market we just asked. From a mid-term perspective, for example, how do we see the overall profitability of the overseas market over a year? Thank you, Matron, for giving me the opportunity to ask questions. The first one is a follow up on the international market. From a medium term perspective, for example, one year's time, How would you foresee the profitability of international market operations? And the second question is on domestic market. Do we have plans to further tap into prime customers with APR less than 18% in order to further expand the volume as well as improve the risk performance? Thank you.
spk06: Thank you, Frank. First, about the profit and loss situation overseas, In the second quarter, our overseas business has actually achieved profit. Of course, compared to our entire market, the profit ratio is not particularly significant. I think it is affected by several reasons. The first is that our overseas business is still in a very high-speed growth and investment stage. So this profit is not the most important goal we are pursuing in the short term. The second one is on accounting confirmation. Because it is a separate business, the confirmation of income will be more local. The third one is that we have a lot of investment in new customers in Hawaii. If we look at the number of new customers in the second quarter, we have about 37% of customers are new customers. Let me do a translation for Alexis. Regarding our international market profitability, our international business is already profitable in the second quarter.
spk02: but it is still relatively small compared to the China market. There are several reasons for this. Number one, it is affected by the rapid growth for our international business as we need to invest continuously. For example, our percentage of new borrowers in the Indonesia market is around 37%. And also, it is being affected by the deferred revenue because all these loans are conducted in instalment loans.
spk06: And then the second one is about our thinking in terms of the population. You can see that in the second quarter, we still have a further improvement in terms of the average price. We are 22.3% from the first quarter to the second quarter. In fact, this average price change reflects our exploration on the population and a change in structure. Because The main reason for this decline is that the proportion of people below 18 is improved. So how do we look at this? I think one thing is that we have to use historical data and our past experience. In fact, we also found that this price has an impact on our high-quality people. This more appropriate price actually attracts high-quality users to us, and increases the annuality of old customers. It will be very helpful to increase the life cycle of this loan. On the other hand, we will also balance the relationship between the return and the price. Here, as you all know, we can calculate that we have always been at a leading position in the industry in the ROE. If we take a look at the report, the ROA of the second quarter is around 3.7. At the same time, we still have a lot of room for cost optimization. For example, in the first quarter, we have an optimization of 30BP on the cost optimization of the entire capital. In the second quarter, we continue to have an optimization of 20BP. These cost optimization and the leading situation of ROA give us a certain adjustment space in terms of pricing to help us Hello Frank, let me translate for Alexis for this question.
spk02: In the second quarter, we further optimized our pricing to 22.3% from 22.7% in the first quarter. As you have seen, we are continually trying to explore to acquire better quality borrowers. Through our historical experience, lower pricing helped us to attract better quality borrowers and better quality borrowers will have a higher level of stickiness on our platform. If you observe, our ROA is also higher compared to the industry average. And in the second quarter, our ROA from our reported earnings was about 3.7%. And we have also optimized our funding cost structure by around 30 BIPs. We're funding 30 BIPs in the second quarter. And going forward, we will consider a balance between pricing and our ROA.
spk06: Okay, Brad, do you have any other follow-up questions?
spk10: No, that's all. Thank you very much. Okay, thanks.
spk04: The next question will come from Alex Yeh of UBS.
spk08: shareholder's return. If we look back at our company's history of repurchase in the past few years, of course, sometimes there will be more, sometimes less, but if we look forward, how to understand the rhythm and arrangement of repurchase in the future, is it possible to take it as a regular way for us to return shareholders? And then because I saw that this $1.5 billion is effective, in fact, in two years, should it be assumed that it is a more average distribution of a use efficiency? And then about if we look at the stock market plus the overall repurchase, do we have a general goal of a year's profit distribution ratio? So my question is on the shareholder's return. So we're happy to see management announced 150 million US dollar of share buyback plan, which shows case that management's focused on improving shareholder value. So if we go back to your chart record on this buyback, how should we consider your pace on deploying such product going forward? should we consider the $150 million quota to be deployed over a two-year horizon, as indicated by your authorization period? And also, is there any target payout ratio if we take into account both your dividend and buyback? Thank you.
spk06: Alex, first of all, I think we should look at what we have done in the past few years. This is a result of the return on interest. We have been doing this return on interest and return since 2018. The number is also introduced in advance. We have already made 2.6 billion in accumulated interest. Then the return amount is 2.3 billion, so it should be close to 5 billion US dollars. If you look at it according to the year, our average payout ratio of the two added up is actually close to 30%. The highest rate is close to 40% and the lowest rate is more than 15%. So, regardless of the duration of the shareholder's return and the total amount, we are at the forefront in this industry. This year, I think we are also I think the return rate this year will only be as high as the average level in the past five years. In terms of our current strategy, we have announced that we will not fall below 15% of the previous policy. In fact, we have reached 18.5% in the past few years, and we have been constantly improving. I think we still need to look at the return based on the market situation. Under the appropriate circumstances, we will Hello Alex, let me do the translation. Our share repurchase and buyback programs began in 2018 and we are already
spk02: have a few years of track record and cumulatively we have returned about USD$260 million in the form of dividend to our shareholders and USD$230 million for share repurchases. In total, it is about USD$500 million returned to our shareholders and the payout ratio if you calculate is around 30% to 40%. In terms of absolute amount, we are ahead of our peers. In the first half of 2023, our buyback amount is close to USD$15 million and the payout ratio for our annual dividend was 18.5%. So the payout ratio for 2023 is likely to be higher than our average historical years. And as long as the market conditions allows and is favorable, we will continue to return value to our shareholders as validated by our past historical performance.
spk05: Okay. Alex, is it okay for you?
spk08: 好了,非常感谢。 Okay, thank you.
spk04: And our next question will come from Thomas Tong of Jefferies.
spk07: our view on the future. Just now, in the Pre-Payment Remarks, the management team also mentioned that we also have to pay for the market promotion on Facebook. I would like to ask, in terms of Q2 overseas, how much is the investment? Then, from the perspective of CAC, how to compare the domestic CAC Thanks, management, for taking my questions. My question is about the competitive landscape in overseas market. Can management share your thoughts about the future outlook and on marketing spending? Given we talk about Facebook is one of our channels, can you comment about the customer acquisition cost in overseas versus domestic market? Thank you.
spk06: Thank you, Thomas. First of all, let's take a look at the international situation. We have also introduced that we are mainly in Indonesia and the Philippines, and the entire red-light environment in Indonesia and the Philippines is still very good. The GDP in Indonesia has exceeded 5% in seven consecutive seasons, and it is also about 5% in the whole year. The Philippines is a little weaker, but it also has a 4.3% growth rate. So it has a good red line. We should say that we are very competitive in the local area. Because we have the domestic leading technology and precision operation. This energy is attached to these markets. So we have continued to achieve such a high growth rate in the past. Like the number of people, we have reached a new high of 78.6 million people in the second quarter. In the small-scale market, we have always remained at the top three level. In the future, I think our local competitiveness will continue to be enhanced. Because the local market is still very large, compared to the domestic market, it is still in a relatively early stage. So we will continue to pass our This is an economic operation capability, a technology capability, to take advantage of our leading position in the local area. In the same way, we have also gained the recognition of our local partners. For example, last year, we had 39% of our institutional funds, and now we have increased it to 65%. We have already cooperated with four or five institutions. In PEPLAN, we have a dozen of them. I believe that the share price of our institutions will also be further improved. Then you just asked about the goods. Our total goods investment in the second quarter in the overseas market is about 80 million RMB. Hello Thomas, let me do the translation. As you have known,
spk02: Our operations are mainly in the Indonesia and Philippines market, and the macro environment in these countries are relatively positive. For example, in Indonesia, the GDP growth has been growing at over 5% for the last seven quarters, and in 2023, the GDP growth is expected to maintain at around 5%. The Philippines market is slightly slower compared to the Indonesia market, but the GDP growth is still growing at around 4.3%. And the reason why we are able to maintain our leading status positions in these countries are because we have deployed our technology capabilities and operational capabilities into these countries. And in the second quarter, our number of unique borrowers has also reached a new high at 786,000 and we are constantly among the top three players. These markets, Indonesia and Philippines, are huge markets and are at early stages for us. So we will continue to invest and maintain leading positions into these countries as supported by our technologies and operational capabilities. Our efforts and capabilities has also been recognized by local financial institutions. For example, this can be validated by the increase in the proportion of loans funded by local partners from 65% in the second quarter compared to only 39% in the same period last year. For sales and marketing, The amount we spent is around 80 million RMB has been invested into sales and marketing in the second quarter. And apart from Facebook, we are also investing into TikTok. We believe all these information-based channels will be good channels for us to acquire our new borrowers going forward.
spk05: Okay, Thomas, do you have any other questions? Yes, I do.
spk07: The second question is about the progress of our AI. You mentioned that we have invested in AI in the past, and we have also used AI in different scenarios. I would like to ask, in the past, in the online version, we were talking about the future development of big models and industry big models. In the future, Thank you management for taking my second question. My question is about AI. In the prepared remarks, we talked about we have been investing in AI for many years and apply AI in different scenarios. Given LLM is such a hot topic in the Internet sector these days, and people talk about LLM or industry LLM, I just want to get some thoughts from management with regard to this area, whether we are thinking of developing our own LLM or we are seeking a partnership with the top players. Thank you.
spk09: Thank you, Thomas. It's not an opportunity for a company of our type, because I think this is a form of investment that requires a huge amount of investment at the national level, and requires a lot of data and a lot of talent. So for us, the general or large-scale industry model is not what we want to see in this field. Secondly, as we mentioned in each of our presentations, the company pays great attention to technology and AI. In this regard, we pay more attention to two aspects. On the one hand, we pay more attention to the specific application and landing of AI related to our business. You can see that in the history of the company, and integrate the relevant technologies into our specific application scenarios, we have been doing very well. The efficiency and productivity improvement brought by this part has always been our focus. On the other hand, we will continue to explore these fields, such as the opportunity to serve as a sponsor, as well as the opportunity to analyze the model data. Hello Thomas, let me do the translation for Mr. Tim.
spk02: The General Big Data model is not for a company of our size as it needs to be at a country level where huge resources are required for development. Our focus is on the implementation of AI models into our daily operations in an attempt to increase our efficiency. And also, we will be looking at specific opportunities that are suitable for us for deployment into our business where we can also consider to work with other partners to increase our efficiency.
spk07: Thank you.
spk05: Okay. Thanks.
spk04: And the next question will come from Cindy Wang of China Renaissance.
spk03: Thank you for this opportunity. I have a few questions to ask. The first is related to international business. We can see that the overall funding of institutions is gradually increasing. In the long-term plan, what is the level of funding? The second question is that Thank you for taking my question. This is Cindy from China Renaissance. So I have two questions. The first question is related to the overseas institutional funding. So we've seen the institutional funding has been going up pretty quickly. So in the mid-term, what's the percentage contribution would be contributed from the institutional funding? The second question is related to provisions. So we see the asset quality has been improving in second quarter. However, the provisions compared to first quarter has been slightly up. So can we talk about what's the difference between here and whether we have any right back in the second quarter? And how do we foresee the provision in the second half of this year? Thank you.
spk06: Okay, thank you, Cindy. The first question is about the funding ratio for our overseas business. As I mentioned earlier, the share price of our institutions in Indonesia has increased to 65% in the second quarter. By the end of the year, we expect the figure to reach around 80%. I think there may be further opportunities in the future, but because of the structure of the asset, it is related. So I think around 80% to 90% is our stage goal. The next point we are more concerned about is the cost of institutional funds. We can also see that the cost of institutional funds is also very significant in this year. The second question is about our risk management. I think we need to look at the stock market from a domestic and international point of view. Its asset characteristics are expected to be higher than that of China. The development speed of our entire overseas business is still relatively fast, so its overall weight ratio in this will also become larger, so it will look like its growth will be faster. But if you look at it from a different perspective, whether it is China or overseas, the overall vintage remains a relatively stable situation. In the first quarter of this year, we found that we had a once-in-a-lifetime rebound and optimization in the storage part of last year. From the current point of view, the entire domestic environment is still below expectations, so I think the risk performance is basically consistent with the expectations after the first quarter. Cindy, let me do the translation. As mentioned, we have around 65% of funds
spk02: 65% of the loans in Q2 was funded by local Indonesian partners in the second quarter and we expect this amount to be around 80% by the end of the year. Going forward, we still think that there is opportunity for us to further increase this proportion but our next focus will be on the funding cost where we need to do some optimisation on our funding cost for the international markets. Going to the next question, When we take a look at the provisions, we need to divide into domestic and international provisions. The main reason is because international business is growing at a very rapid rate. This is the reason for the provisions levels to be higher. In the first quarter, there was a write-back. Now, if we take a look at the domestic China recovery, the recovery is still weak and slightly below expectations, so we don't have any plans for a write-back at the moment, but All these will change when the economy is recovering at a faster pace, and then we believe there will be opportunities for write-back going forward.
spk03: Okay, thanks, Cindy.
spk02: Thank you, Cindy. Thank you.
spk04: At this time, I would like to turn the call back over to the company for closing remarks.
spk02: Thank you once again for joining us today. If you have further questions, please feel free to contact me or my investor relations team. Thank you so much.
spk04: This concludes this conference call. You may now disconnect your line. Thank you.
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