Lufax Holding Ltd American Depositary Shares, each representing two (2) Ordinary Shares

Ladies and gentlemen, thank you for standing by and welcome to the LUFIX Holding Limited third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan, the company's head of board office and capital markets. Please go ahead, ma'am.

Thank you very much. Hello, everyone, and welcome to our third quarter 2022 earnings conference call. Our quarterly financial and operating results were released by our Newswire services earlier today and are currently available online. Today, you will hear from our chairman and CEO, Mr. Y.S. Cho, who will provide an update of the macroeconomic and the COVID impact. Our latest business strategies and the recent regulatory developments Our co-CEO, Mr. Greg Gibb, will then go through our third quarter results and provide more details on our business priorities. Afterwards, our CFO, Mr. David Choi, will offer a closer look into our financials before we open up the call for questions. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements Please also note that we will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards in our earnings release and the findings with the SEC. With that, I'm now pleased to turn over the call to Mr. Y.S. Cho, Chairman and the CEO of Bluefax.

Thank you for joining. The first quarter has been challenging. Our core small business owner segment, which makes up 87% of our new loans facilitated, excluding consumer finance loans, has been significantly impacted by the deteriorating macro environment in the third quarter. In periods of macroeconomic change, small businesses are typically the earliest to be impacted ahead of consumer finance and other landings. As a result, Our profitability has been negatively impacted due to rising credit impairment losses and credit enhancement costs. Ongoing pandemic controls and strong economic growth impacted credit quality in the third quarter. Our lead indicator for credit quality the C-to-M3 ratio, which estimates the percentage of non-performing at the end of three months increased by 0.1% quarter-on-quarter to 0.8% this quarter. Oh, I see. I'll talk to Mr. Sun later. Okay. Our C2M3 ratio stood at 0.4% in the third quarter of 2021, indicating that credit quality has worsened considerably versus a year ago. In the third quarter of 2022, data from market analysts suggest that GDP share of cities with high and medium risk pandemic controls increased versus the second quarter, which we believe is having a broader impact on small businesses, given a backdrop of declining business and consumer confidence. While credit quality deterioration advanced across the board in the third quarter, we witnessed growing differences in economic resilience in various regions, which led to significant divergence in credit performance by region. Taking Shanghai, for example, the C2M3 ratio for general unsecured loans spiked to 2.3% in second quarter this year. But after a short period of time, after reopening, quickly returned to pre-lockdown level of 0.5% in third quarter 2022, demonstrating strong resilience in comparison C2M3 ratio for some other regions, in particular lower tier cities, were worse and probably will take much longer to recover. Let me provide a sense of this by comparing credit quality for unsecured loans. On average, the C2M3 ratio for top performing regions, which mainly consists of cities and regions with strong economic foundations such as Beijing and Shanghai, improved by one basis point in the first quarter compared to the second quarter, while the ratio for average performing regions and less desirable performing regions deteriorated by 13 and 20 basis points. Respectively, during the same period, Geographic divergence is fundamentally reshaping the map for where sustainable lending can be enabled mid-term. Today, about two-thirds of our existing business is in cities and regions where we believe the economic foundations are stronger and likely to be more resilient in recovery. Small businesses contribute to 60% of GDP and 80% of job creation. while receiving only 26% of financing as of 2021 year-end. We believe long-term demand will remain substantial as a small business owner segment is expected to be agile and responsive when the macro environment improves. We are confident that we are well-positioned to rescale when the time is appropriate, leveraging our existing strengths including extensive channels and institutional partnerships and a strong capital position. However, medium-term, we must first adjust our business strategies by deepening our focus on well-rated small business owners in more resilient cities with increased resilience on our direct sales force channel. The increased focus will result in reduced gross revenue in mid-term, but will improve the profitability and sustainability of new things. We must go through a period of digesting credit losses on the existing vintages as they run down, while building up the more sustainable and profitable new portfolio. This process will likely result in U-shaped recovery patterns In the near term, we expect this adjusted strategy will generate neuron facilitation volumes at approximately two-thirds of the volumes we have generated in recent years. Exact volumes will be determined by the overall timing of macroeconomic recovery, which remains uncertain at this moment. While we hope that recovery will come sooner, Our immediate plans assume a status quo in the current operating environment. Our optimization of resources, including further cost restructuring, will be completed over the next several quarters. During this time, we assume that our credit impairment losses and CGI credit enhancement costs will remain at elevated levels. while the underperforming portion of existing vintages run down, clearly impacting profits. Taking uncertainties into account, we believe that timing for a notable improvement in our bottom line performance is more likely in 2024 than in 2023. This is clearly a challenge for us, but we are confident in our ability to execute We use this business reprioritization to continue to upgrade our technology, operations, and risk management with the objective of strengthening our long-term market leadership in the small business owner segment. Given our resources, given our customer access, strong balance sheets, and long-term partnerships with financial institutions, we have the necessary advantages to navigate through this difficult period. While the operating environment demands change, the regulatory environment is now stabilizing. The 429 rectification process led by PBOC and CBIIC has now transitioned to normalized regulation oversight without substantial outstanding issues for the company. Our bank guarantee model under which we bear 22.5% credit risk on the outstanding balance of loans we facilitated as of the end of September is distinct from a lending facilitation platform and in line with prevailing requirements. Looking forward, we expect our portion of risk sharing with financial partners to increase to at least 30% over the next several quarters. As stated before, the use of our guarantee company also allows us to share required data directly with funding partners. On October 25th, the CBIC released a report regarding the P&C industry, where credit guarantee insurance are core components of our business model. is recognized as playing a positive role in helping small businesses increase their funding availability. Finally, I have an update on change to our board. In consideration of potential Hong Kong listing requirements and to improve our ESG standing, we have added two new female directors, namely Ms. Cai Fangfang and Ms. Fu Xin to the board. In addition, we are pleased to welcome Mr. Ji Kwang-hung to join our board as director again. All three new directors are Ping An executives, reaffirming the ongoing support from our largest shareholder. The new board structure continues to be made up of nine members, with four current independent directors, two current company directors, myself and Greg, and the three new directors who are Ping An executives. Under the new structure, we are reducing one independent director and adding an additional director nominated by Ping An. I will now turn the call over to Greg for more detail on our operating results and business priorities.