QFIN Q2 2023 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Qifu Technology Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. Please all note today's event is being recorded. At this time, I would like to turn the conference call over to Miss Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen. Thank you, operator. Hello, everyone, and welcome to Qifu Technology's Second Quarter 2023 Earnings Conference Call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO, Mr. Alex Xu, our CFO, and Mr. Zheng Yan, our CRO. Before we start, I would like to refer you to our safe harbor statement in the earnings press release, which applies to this call, as we will make certain forward-looking statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to GAAP measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms. Now, I will turn the call over to our CEO, Mr. Wu Haisheng. Please go ahead. Thanks, Karen. Hello, everyone. Thanks for joining our second quarter earnings conference call. Hello, everyone, thanks for joining our second quarter earnings conference call. Since the second quarter of this year, we have felt that the momentum of economic recovery in the macro economy has slowed down. In the consumer credit industry, we see that user has slowed down. In the consumer credit industry, we see that user demand is also more cautious. We are still continuing to follow a stable business strategy. We are maintaining risk and performing stably while pursuing reasonable growth. In the second quarter, our total loan origination volume reached RMB 124 billion, an annual increase of 26.4% and a quarterly increase of 13.5%. Compared to the first quarter, it should be said that it has accelerated further. As of the end of the second quarter of this year, our platform has served 153 financial institutions and has cumulatively provided lending services to over 47 million billion, an annual increase of 26.4% and a quarterly increase of 13.5%. Compared to the first quarter, it should be said that it has accelerated further. As of the end of the second quarter of this year, our platform has served 153 financial institutions and has cumulatively provided lending services to over 47 million billion, an annual increase of 26.4% and a quarterly increase of 13.5%. Compared to the first quarter, it should be said that it has accelerated further. As of the end of the second quarter of this year, our platform has served 153 financial institutions and has cumulatively provided lending services to over 47 million users. During the quarter, given the softening macroeconomic recovery and a more cautious sentiment among consumer credit users, we remain committed to our prudent operating strategy and pursued meaningful growth while maintaining stable risk performance. In Q2, total loan facilitation and origination volume on our platform reached RMB 124.2 billion, up 26.4% year-over-year, and 13.5% quarter-over-quarter, reflecting an accelerated growth trajectory compared to Q1. By the end of Q2, our platform had empowered a total of 153 financial institutions and accumulatively served more than 47 million users with approved credit lines. Throughout the year, we have been steadily advancing our strategic upgrade. While pursuing our high-quality growth, we have further improved our profitability and increased our safety margin, making our business model more resilient in the complex macro environment. In terms of business growth, we have continued to expand and diversify our customer acquisition channels. By partnering with multiple leading traffic platforms under the embedded finance model, we have effectively expanded our coverage to the targeted users. We have also developed products tailored to different consumer and SME profiles, addressing varied users' needs and providing additional growth engines for our business. In terms of profitability, we have taken further steps to boost operational efficiency, reduce funding costs, and improve risk assessment capabilities. ... to optimize asset allocation and improve the overall profitability of our loan portfolio. [Foreign Language] 现在我来具体分享一下我们 Q2 的一些重要的进展. Let me share some of our highlights in the second quarter. [Foreign Language] 嗯，第一个方面呢，我们继续去拓展多元化的这个获客的渠道和创新的获客的方式，提升获客效率。七月份，我们，呃，陆续上线了一些头部的这个短视频啊，是支付啊等流量平台的一些合作。嗯，依托，呃，产品方更庞大的这种活跃用户的基础，我们通过这个双方一起联合建模，嗯，通过一些这个创新和定制化的这种客群的识别策略，我们的效率进一步提升，嗯，增加了我们对于优势客群的一个覆盖。呃，在投放规模与一季度基本持平的情况下呢，我们二季度的新客呃，动支人数比一季度提升了百分之十六，因此获客效率嗯，有一个进一步的提升。嗯，同时我们，嗯，也通过这个，嗯，一个这个百分之四点八利率的一个极限的这个嗯，定价的这个测试，嗯，更高效地去触达一批嗯，有稳定信贷需求的这种优质客群。嗯，我们发现他们的动意愿和这个额度的需求都相对的更好。嗯，这也是对我们现有客群的一个有效的补充。那接下去我们还会继续去探索各类型客群的这个获客和这个接触方式，通过这个产品的创新去满足这种更多样化的这个用户需求。 First, we continue to expand and diversify our customer acquisition channels while leveraging innovative approaches to improve marketing efficiency. In July, we entered into partnerships with top-tier traffic platforms, including short-form video platforms and payment providers, to tap into their massive active user base. Through joint modeling, process innovation, and tailored user identification strategies, we boosted user conversion and enhanced our ability to reach targeted users. With marketing spending largely flat from Q1, the number of new users making drawdowns increased 16% sequentially. Furthermore, we offered some experimental compelling rates to boost engagement in a more innovative and effective way with high-quality users with stable credit needs, stronger intention to borrow, and appetite for larger credit lines, which also serves as an effective supplement to our existing user base. Moving forward, we will continue to explore effective ways to acquire and manage users from various segments and address their diverse needs through product innovation. [Foreign Language] 第二个方面呢，我们加强了用户的精细化的运营，实现了用户活跃度的一个显著提升。我们从用户的需求出发呢，优化了我们用户全生命周期的产品、风险和运营策略，充分地利用我们这个人行的征信和范小微的这种数据的补充，精准地识别用户。嗯，实现了我们在这个风险稳定的基础上呢，提供了更加有竞争力的这个定价额度和更加灵活的这种还款方式，嗯，以满足用户更加多用，多样化的需求，也大幅地提升了我们新用户和，和老用户的这个动意愿。嗯，加上我们更多的这种对用户的触达方式和运营手段，我们在二季度新客的 M0 的这个人头动率比一季度提升了百分之十三，嗯，老客的复借率比一季度提升百分之八。嗯，在这个基础上呢，我们还引入了这个用户的忠诚度计划，通过为用户提供更加丰富的产品和权利，来提升我们平台用户的粘性。 Second, we improved our user engagement capabilities and achieved a significant boost in user activity. Starting from user needs, we optimize our product risk and operational strategies throughout the user lifecycle. We also enhanced our ability to identify users by leveraging PBOC credit data, as well as data related to the broadly defined SME segments. This enabled us to offer more competitive rates and credit lines and a more flexible repayment methods, catering to varied users needs, while ensuring the stability of our risk performance. As a result, we saw a notable improvement in drawdown intention among new and existing users. In addition, through our diverse user outreach and engagement approaches, the first month drawdown rate, drawdown ratio of new borrowers increased by approximately 13% from Q1, and the re-borrowing rate of existing borrowers, meaning the average percentage of existing borrowers with an outstanding loan balance that drawdown again the following month increased by approximately 8% from Q1. On top of this, we also introduced user loyalty programs and offered a broader range of products and benefits to boost users engagement. [Foreign Language] Three 个方面是我们继续维持稳定的定价和良好的风险水平. 我们充分地利用我们的资金端的优势, 进一步地优化我们的盈利模型. 2Q, 我们与金融机构进一步地加深合作, 推动了整体平台资金成本进一步的下降, 而且降幅应该说是超过市场区域的这个平均的下降水平. 我们通过创新的产品设计呢, 引入了多家这个 state-owned banks 和 joint-stock commercial banks 的 ABS 的投资. 2Q 的 ABS 发行规模达到 RMB 5.34 billion, 环比增长了 132%. 这个呢, 也应该说是进一步摊薄了我们整体的资金成本. 随着我们的风险识别能力的不断的提升, 我们对接了更多元化的金融机构合作伙伴, 来提升我们各类型资产分层的这种承接能力, 不断地优化我们资产分发的策略, 从而提升我们的整体的盈利能力. Third, we kept our pricing and risk performance at stable levels, leveraging funding strength to further optimize our economic model. During the quarter, our deepened cooperation with financial institutions contributed to a further reduction in our funding costs that far outpaced market rate cut. In addition, through innovative product design, we secured ABS investments from multiple state-owned banks and major joint-stock banks. We issued roughly RMB 5.3 billion of ABS in the quarter, up 132% quarter-over-quarter, and leading to a further reduction in our overall funding costs. As our credit assessment capabilities steadily improve, we are collaborating with a broader spectrum of financial institutions, which will enhance our ability to optimize asset allocation and boost profitability. [Foreign Language] 第四个方面，我们的金融科技战略应该说，嗯，得到一个稳步推进，并且取得一个初步成效。嗯，我们进一步地完善了我们的产品矩阵和解决方案，嗯，支持了银行更多元化的这种需求。嗯，从组织上呢，我们已经搭建了一支，呃，初步具备规模的这个专业化团队，嗯，能更好地为我们的金融机构提供更专业的这种服务。那我们，呃，中小银行对于，呃，数字化转型呢，应该说我们看到有着非常迫切和很大的这个需求，也对我们提出了很更多的这种提供全流程的这个技术赋能的这个解决方案的需求。那我们目前呢，嗯，也陆续开始有项目逐渐进入到这个交付的阶段了。 Fourth, our technology solution business advanced steadily and has begun to take shape. We further optimized our product matrix and solutions to address the diverse needs of our banking partners. In terms of organizational development, we assembled a sizable team capable of providing professional service to financial institutions. Small and medium-sized banks are particularly keen to push forward the digital transformation with the support of our end-to-end tech solutions. A number of projects are currently in the implementation phase. [Foreign Language] 回顾这个, 回顾一下我们这个今年的上半年呢, 虽然宏观环境面临着很多的挑战, 我们也凭借我们非常稳健的这个经营策略, 我们平衡了增长和风险, 应该说还是取得了非常不错的这个, 这个表现. 下半年呢, 我们, 会进一步地去拓宽我们的渠道和产品线, 提升我们的用户粘性, 进一步地加深和金融机构的合作, 优化我们的这个资产的这个分层和分发的策略, 从而提升我们的收入和盈利能力. 在今天这个宏观形势下, 我们通过商业模式的这种持续的迭代, 会让我们的企业具有更强的韧性. 我们今天所处的这个行业地位呢, 和我们的这个资源禀赋, 也让我们非常有信心继续在这个行业保持一个领先的一个位置, 也获得一个长期更健康的一个发展. Looking back at the first half of 2023, despite the softening macroeconomic environment, we balanced the growth and risk through our prudent operational practice and delivered solid results. In the second half, we will further expand our channel presence and product offerings to enhance user stickiness, forge closer partnerships with financial institutions, and optimize our asset allocation to improve our top line and bottom line performance. Our ongoing efforts to refine and upgrade our business model will enhance the resilience of our company in today's macro landscape. We are confident that our industry position and unique resource and capabilities will enable us to sustain our leadership position in the credit tech market and deliver even more robust growth in the long term. [Foreign Language] 嗯，六月二十号，我们宣告了一个未来十二个月内以一点五亿美元为上限的股份回购计划。 [Foreign Language]...from 公告 to today, 呢, we have been actively executing the program. We have strong confidence in the company's long-term profitability and cash flow, performance, and remain committed to rewarding and creating value for our shareholders through those shareholder return initiatives. [Foreign Language] 好, 那我的, 我的部分到这里。下面请 Alex 给大家带来一些这个财务方面的分享。 With that, I will now turn the call over to our CFO, Alex Xu, who will walk you through our financial results for the quarter. Okay. Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our second quarter earnings call. Despite the slower than expected macro recovery, we continue to see modest improvement in many aspects of our operations throughout the first half of the year. Users' activity levels, measured by drawdown ratios, continue to improve in recent months, which led to the accelerated loan volume growth in Q2. The pace of macro recovery is still uncertain, we are proactively taking some actions to optimize our product and service offerings, strengthen relationship with key partners, and ultimately to drive long-term, sustainable quality growth. In Q2, the quality of our user base remained solid. Key leading risk indicators were relatively stable, near the best level of recent quarters. Day 1 delinquency was 4.2% in Q2 versus record-setting 4.1% in Q1. The slight uptick in Day 1 delinquency somewhat reflect borrowers' sentiment toward the ongoing macro uncertainties. 30-day collection rate was 87.2% in Q2 versus 86.2% in Q1. This sharp rebound mainly reflect seasonal factors, as well as some improved collection efficiency. As economic recovery remain uncertain, we may continue to see some fluctuation of these metrics in the near future, although overall risk level should be relatively stable in our continued effort to proactively mitigate risks. Total net revenue for Q2 was $3.9 billion, versus $3.6 billion in Q1 and $4.2 billion a year ago. Revenue from credit driven service, Capital Heavy, was $2.8 billion in Q2, compared to $2.6 billion in Q1 and $2.9 billion a year ago. The year-on-year decline was mainly due to overall decline in expected average tenure of new loans, as well as lowered average interest rates. The sequential increase reflect growth in loan volume under Capital Heavy and relatively stable effective tenures. Early repayment levels were relatively stable in Q2 versus Q1. On-balance-sheet loans continued to grow nicely and account for nearly 19% of the total loan volume. We issued a record $5.3 billion ABS, up 143% and 132% year-on-year and sequentially, respectively, which helped us further lower our overall funding cost and drive for better utilization of our macro lending licenses. Revenue from platform service, Capital Light, was $1.13 billion in Q2, compared to $969 million in Q1 and $1.24 billion a year ago. The year-on-year decline was mainly due to overall decline in expected average tenure of the loans, and also the modest decline in average prices. For Q2, Capital Light loan facilitation, ICE and other technology solutions combined account for roughly 58% of the total loan volume, compared to roughly 56% in the prior quarter. We expect this ratio to be gradually trending down for the remainder of the year to a normalized level. We are evaluating different components of our operations and seeking a better mix between risk-bearing and non-risk-bearing solutions based on macro environment and operational conditions. During the quarter, average IRR of the loans we originated and/or facilitated remained stable Q-on-Q, well within the regulatory rate cap requirement. Looking forward, we expect pricing to be continued relatively stable for the coming quarters. Sales and marketing expense increased slightly quarter-on-quarter, as we remained prudent and continued to diversify user acquisition channels. We added approximately 1.5 million new credit line users in Q2, roughly flat versus first quarter. Unit cost to acquire a new credit user also increased marginally quarter-on-quarter at approximately $296. Well, we will continue to drive for efficiency in our operations. We may adjust the pace of our new user acquisition based on market condition throughout 2023. Meanwhile, we'll continue to focus on re-energizing existing user base as repeat borrowers historically contribute vast majority of our growth. Although we will continue to take a prudent approach in booking provisions against potential credit losses, we should expect further write back of provisions from previous periods, as overall risk profile of our loan portfolios has been stabilizing to improving. Total new provision for risk-bearing loans in Q2 were approximately RMB 1.9 billion. The write backs of previous provisions were approximately RMB 525 million. Provision Coverage Ratio, which is defined as total outstanding provision divided by total outstanding delinquent loan balance between 90 and 180 days, were 511% in Q2, compared to 432% in Q1. With solid operating results and stable contribution from platform model, our Leverage Ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was again at a historical low of 3.3 times in Q2, compared to 4 times a year ago. We expect to see Leverage Ratio fluctuated around this best level in the near future. We generate approximately RMB 1.8 billion cash from operations in Q2, roughly flat Q on Q. Total cash and cash equivalent was $8.5 billion in Q2, compared to $9 billion in Q1. Non-restricted cash was approximately $5.3 billion in Q2, compared to $5.1 billion in Q1. The sequential decline in cash position was mainly due to increased cash usage in our balance sheet lending. As we discussed earlier, we'll continue to look for opportunities to deploy resources to launch new initiatives, develop new technology, and expand service offerings. Non-GAAP net profit was $1.147 billion in Q2, compared to $976 million in Q1. As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support our business development and to return to our shareholders. In Q1's earnings call, we announced to increase our dividend payout ratio to 20%-30% and switch to a semiannual dividend distribution schedule. Today, we're glad to declare a semiannual dividend of $0.25 per ordinary share, or $0.50 per ADS, in U.S. dollar, both. Which represent approximately 30% of the payout ratio. In June 20, 2023, we announced a share buyback plan to repurchase up to $150 million over 12 months period. As of August 18, 2023, we have already bought approximately $28 million worth of our ADSs in open market, at an average price of $18.03. We will continue to execute the buyback program in accordance with the relative rules and regulations. With the fully execution of the repurchase program and the dividend plan, we may return more than half our net profit to our shareholders. Going forward, we will continue to optimize our capital allocation plan and make timely adjustments to generate higher returns to our shareholders. Finally, regarding our outlook. Well, we see accelerated year-on-year growth in loan volume in Q2, which is in part driven by easy comp. We do notice continued uncertainty in macroeconomy. At this junction, we still see a slow recovery in consumer credit, with a growth rate somewhat depending on macro conditions for the rest of the year. As such, we would like to adjust our full year total loan volume target for 2023 to between RMB 470 billion and RMB 485 billion, representing a year-on-year growth of 14%-18%. As always, this forecast reflects the company's current and the preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we're now open to take some questions. Thank you. As a reminder, to ask question, you will need to press star 1 1 on your telephone. For those who can speak Chinese, please kindly ask your questions in Chinese first, followed by English translations. In addition, in order to have enough time to address everyone on the call, please keep it to one questions and one follow-up, and return to the queue if you have more questions. Please stand by while we compile the Q&A roster. First question comes from the line of Alex Ye from UBS. Please go ahead. [Foreign Language] 管理层上午好，感谢接受我的提问。我的问题是，在过去 2 个季度，特别是 2 季度，我们看到这个贷款量的增速其实是超出预期的，也超出管理层之前的一个内部预期。但是我们看到这个营收方面的增速，其实似乎是较为缓慢一些，也包括，包括这个贷款的余额的增速其实也是慢于这个 volume 的。那想请问一下，这个背后的原因是不是还是跟之前提到的提前还款的一些结构性变化有关？还是说我们这个产品结构其实有一些新的改变，刚刚也提到有一些 product offering 的一些改动，那未来我们应该如何改善看待以后的一个收入 take away 的一个趋势。My question is, there appears to be some dislocation between the strong volume growth and the less strong revenue growth in the past 2 quarters. Is it mainly due to the higher repayment issue, or there is some product mix change that lead to such changes? How should we expect the revenue take rate trend going forward? Thank you. Sure. I think I will, I will take this one, Alex. And you're, you're probably right. Basically, the reason that the loan balance growth as well as the revenue growth, slower than the loan volume growth, is mainly because of the duration of the loans, at least so far this year, are shortening. Which in part because of the issue we encountered in the first quarter of the early repayment. If you recall, in the first quarter, there was no, there was a pretty significant impact on the revenue stream because of early repayment. Even though the second quarter, you know, we saw that the early repayment sort of peaked around the April timeframe, and then start to gradually, although marginally trending, kind of to the right direction for us, but still, compared to sort of historical average, we're still seeing a shorter, kind of duration of the loan book. Now, that shorter duration will definitely result in a kind of a slower accumulation of the loan balance, and also the slower, or kind of a slower growth in the revenue, relative to the loan volume. We are from, from, I guess from product mix perspective, they didn't have a too much significant kind of directional impact, say, you know, we're taking a, in a bunch of new products that happen to be shorter duration. No, I, I don't think that's a significant factor, and it's more so has to do with the issue I mentioned earlier. Going forward, we are ever since the second quarter, we are taking some kind of measures to gradually kind of move the duration or move the tenure of the loans to a longer period. As I mentioned, you know, since May, from May to July, we see a gradual kind of improvement, you know, so far. For the second half, you know, we'll continue to take some actions to manage the duration and, hopefully the second half the, the revenue take rate, you will see a little bit improvement, or increase compared to what you saw in the first half. Okay, thank you very much. Thank you. You for the questions. One moment for the next question. Next question comes from the line of Frank Zheng from Credit Suisse. Please go ahead. [Foreign Language] 感谢管理层给我提问的机会，我是 Credit Suisse 的 Frank Zheng。第一个问题是关于拨备和冲回的。基于目前咱们看到最近的一些 macro 环境的发展，以及基于公司目前这个刚刚说到 Provision Coverage Ratio 已经有进一步的提升，预期未来的话，我们在拨备上是会有更谨慎的一些安排，还是说有这个更多的冲回的空间？第二个问题是跟刚刚第一个问题的一个 follow-up，关于这个信贷的久期的。刚刚提到的一些去提升信贷久期的措施，能不能请管理层给我们一些具体的哪些措施？另外就是想请教一下，在目前的这个 macro 环境下，其实对于公司来讲，我们其实更希望这个久期是偏长一点还是这个更短一些？我自己来翻译一下。 Thank you, management, for giving me the opportunity to ask questions. This is Frank from Credit Suisse. The first question is, based on the latest macroenvironment and credit risk performance of the portfolio, do we foresee any extra provision we need to take, or is there any more room for extra write-back going forward? Especially considering the Provision Coverage Ratio recorded another step up to over 500% this quarter. The second question is a follow-up of the previous question. Could the management give us more specifics on measures taken to improve the duration of loans? I just wanna, just curious that in the current macroenvironment, are we preferring, you know, longer duration or shorter duration? Thank you. Okay. I think I will take the first part, and then, I will let our CRO, Mr. Zheng, answer the second part. In In terms of provisions, as you know, we have been on a very consistent policy to book our provisions conservatively, and make sure that all the provisions are more than enough to cover the potential risks there. If you look at the historical kind of the financial report of us, basically other than the very special quarter, one or two quarters, for the majority of the period, we have the write backs from the previous provisions. As I mentioned in my prepared remarks, I think right now we see a relatively stable, although some fluctuation in the risk profile, you should continue to see write backs in the coming quarters, although the size of the write back we can determine at this point. You know, it's up to a multiple, you know, the third party evaluation and also all the other factors. Directionally, you will continue to see write backs in the coming quarters. You know, we will in terms of continue booking additional provision, we will take more prudent approach based on what our observation of the macro environment, and if we feel necessary, we, we will book more provisions, and you know, to counter the potential risk. The Provision Coverage Ratio you mentioned the 511% versus last quarter's 430 something. That's not a metrics we have a target on, it's more than a... rather than it's a calculated number. We book provision, then, you know, when we do the calculation, it happen to be 511. So that's, that's not a something indication that we're targeting a higher coverage ratio or something. No, it's more, you know, we book provision basically based on the that quarter's loan volume, and the third party's evaluation. I will stop here. The second part of question will, I'll hand over to Mr. Zheng. [Foreign Language] 好的，那我，我用中文说一下，然后。哎，能听到吗？ [Foreign Language] 可以. [Foreign Language] 我，我用中文说一下，然后请 Karen 帮我翻译一下。好，贷款期限这一块的话，其实是由借款合同期限以及提前还款率两个部分组成的。我先说一下提前还款率啊，提前还款率呢，我们其实是在稳步下降的。最核心的因素是宏观因素，其次是运营动作的因素。 Karen，你帮我说一下。 We believe loan duration is a combined result of contract tenure and early repayment. First, I will talk about the early repayment. Early repayment was steadily declining, mainly due to the macro environment changes. The second reason is our operational efforts. [Foreign Language] 嗯，从宏观因素来讲的话，呃，现在我们的信贷客户的提前还款需求，呃，现在是看到是在降温的。那呃，我们观察到从四月份到七月份吧，这几个月，呃，历史的存量资产的提前还款率连续四个月都在，都在呃，稳定的降低。那第二块是运营动作方面，呃，近期我们也在优化一些运营的策略，以降低提前还款率，那主要包括，呃，三个动作吧。一是，呃，发布最新的电话销售的基本法，呃，将提前还款率作为一个考核指标，那电销人员在这个基本法下面呢，他的话术和客群选择上面都会倾向于让客户提前还款率下降。那第二个是提前还款页面，我们增加了一些福利去挽回一些客户。呃，第三块是优化了我们的发放发券的一个策略，呃，降低了某些产品下面七天免息券的一个使用比例。呃，呃，那这个，呃，这个优化策略下面，我们的提前还款率也会也会有进一步的一个下降。 From macro perspective, the early repayment sentiment was cooling off. We have observed that the early repayment ratio for our historical loan portfolio has been decreasing for 4 consecutive months from April to July. From operation perspective, we have refined our operation strategy to reduce the early repayment in 3 ways. The first is we applied a new telemarketing rules to incorporate the early repayment ratio into the KPI of the salesperson, so the salesperson tend to control this ratio. Second, we offer some benefits to retain the users when they have the intention for early repayment. Three, we reduce the 7 day interest free coupon to avoid those short term borrowers. Based on those optimization, we have seen improvements in our early repayment situation. [Foreign Language] 呃，然后贷款期限方面啊，这个并不能简单地归结为越短越好，或者说越长越好。呃，还是说针对不同的客户，我们会有不同的一个最优期限的方案。呃，举个例子，比如说我们面对一个还款意愿比较好，但借款金额比较大，且收入比较稳定的客户，那我们会倾向于给他一个较长的期限，呃，以降低客户的一个还款压力。啊，但是如果我们面对一个长期还款能力较弱，但短期还款能力还可以的客户呢，我们就会倾向于降低客户的风险敞口，同时缩短客户的借款期限，以控制风险表现。 [Foreign Language] 啊那客户不同的风险属性以及借款额度都会会对长期和短期的信用风险造成，呃，不同的影响。呃，那我们会进一步去迭代我们自研的 GBST 模型，呃，就是之前我们提到的梯度生存树模型，去提升这个客户的期限的一个匹配度和适应度，啊，这样去平衡好收益和风险。呃，那整体来说，呃，我们觉得在宏观因素的影响以及我们积极的一个管理下面，我们预计三季度的一个提前还款率指标会进一步下降，呃，且实际九期会有所增加。 As for contract tenure, we won't say shorter the. As for contract tenure, we won't say shorter the better or vice versa. We offer the tenure based on the user's profile. For example, for those who have stable income and higher creditworthiness, we tend to offer a longer tenure to lower their repayment pressure. For those who have less long-term visibilities, we tend to reduce the risk, risk exposure and shorten the tenure to control the risk. Different user profile and ticket size will have different impact on the short term and the long term credit risk. We will further upgrade our self-developed GBST model, the Gradient Survival Tree model, to improve the fitness of long tenure and balance their profitability and risks. In conclusion, under current macro conditions and our proactive management, we expect the early repayment ratio will further decline and our effective loan duration will increase in Q3. [Foreign Language] 我不知道这能不能回答你的问题。好的，非常感谢。 I hope this answer your question. Thank you for the questions. We move on to the next questions from the line of Emma Xu from Bank of America Securities. Please go ahead. [Foreign Language] 嗯，谢谢给我这个提问的机会。呃，我想问一下，就是关于，呃，三季度的贷款需求和贷款利率的情况。那我们看到七月份的时候，居民短贷其实是下降了，呃，四百二十亿，然后整体目前来看，消费复苏还是比较疲弱的。那我们，呃，我们目前看到的三季度以来的贷款需求情况是怎么样的，那这个又会怎么样影响到我们的贷款利率？同时，呃，LPR 在六月份以来也下调了，呃，一年前 LPR 也下调了两次，那这个对我们的贷款利率会有什么影响呢？So, um, I have two questions. The first one is about the loan demand. In third quarter, we see the short-term consumption, household consumption loan declined $42 billion in July. And it seems the consumption recovery remained lacklustre. So, how, what's your loan, what do you see the loan demand at your side? And the second question is about loan pricing. So, will the lacklustre loan demand impact your loan pricing? And with the LPR being cut for twice since June, do you also need to adjust down your loan pricing? Thank you. [Foreign Language] 谢谢艾玛，我回答一下你的问题。我们也注意到了，七月份这个居民短贷是有一个下降。嗯，那从我们自己的角度来看呢，我们在七八月份的余额其实还是上升的，所以呢，应该说没有出现像这个宏观这个整体经济短贷那样减少的这个趋势，没有出现。 Thanks, Emma. I will answer your question. We also noticed that the citizen's short-term loan has decreased in July. From our perspective, our loan balance continued to increase in July and August, unlike the declining trend of the citizen's short-term loan balance. [Foreign Language] 嗯，从需求这个角度呢，我们也发现了一些，这个，这个从今年以来啊，这个发现了一些这种结构性的这种变化的趋势。嗯，这种结构化体现在几个方面。第一个就是我们从用户的资质这个角度来看，呃，我们发现呢，一些最优质的一些客户啊，倾向于这个提前还款，那次优一些的客户呢，需求相对就比较稳定。嗯，另外一个角度就是从这个用途这个角度，呃，用户角度呢，消费的这个消费客群的发起需求有一个降低，那小微的这个客群呢，需求，呃，反而是稳定的一个上升趋势。嗯，从行业来看呢，会体现在这种建筑行业、交通运输行业、旅游行业，呃，住宿、餐饮这些需求呢，上升还是比较明显的。那加上今年我们也侧重会在小微上呢，做了很多这种专项的开发工作和运营工作，那整体上这个客群的这个效率，嗯，我们看到有一些这个还是比较有一个大幅的一个提升的。 From demand perspective, since the beginning of this year, we have seen some structural changes in terms of users demand. From user quality perspective, the highest quality users tend to repay the loan earlier, while the low-lower quality users have relatively stable demand. From the usage perspective, the broader, broadly defined SME users are more active than the consumer credit users, especially for those in the construction, transportation, tourism, hotel, and the catering industries. Plus our operational efforts, we have gained efficiency improvement in managing the broadly defined SME segment. Given the softer consumer credit demand, we expect to increase our spending on the broadly defined SME users. Further, we will increase our penetration in the broadly defined customer segment in new user acquisition. For the existing users, we'll improve our service qualities to improve the users stickiness. In terms of the pricing, we expect the pricing will be stable in the future. From our past experience, the LPR rise or cuts had very little impact on our pricing. Our pricing is mainly determined by the supply and the demand in this market. Uh, uh, [Foreign Language] 谢谢，非常有帮助。 Thank you for the questions. One moment for the next question. Next question is from the line of Yada Li from CICC. Please go ahead. [Foreign Language] 管理层好，感谢给我这个提问的机会，我是 CICC 的 Yada Li 。今天想向管理层请教一下，近期我们的回购计划，想请教一下，这次这个 $150 million 的回购计划主要是出于什么考虑？那我们是否可以将本次的回购呢，视为对股东回报的这样一个常规方式？谢谢。 I'll do my translation. Hello, management. Thanks for taking my question. This is Yada Li with CICC, and today I just have one quick question. I was wondering, could you please elaborate more about the consideration behind the $150 million share repurchase program this time? Should we consider it as a regular way to return value to the shareholders? Thank you. [Foreign Language] 这个请那个 Alex 说一下吧. Okay. Yada, thanks for your question. You know, basically every quarter, we are reviewing our cash position, as well as our capital allocation, kind of a strategy. When we determine that there are actual, we consider the, you know, free cash, sitting there idle, without making a too much of a return, we would like to deploy that cash, either in the form of the dividends or in the form of the of the buyback. Okay? That's a, it's, I would say, ongoing process, you know, in the, in the future quarters as well. We consider a optimal balance between the buyback and a a dividend is the best way to return to the shareholders. Like I said, the first thing first, we need to complete this $150 million U.S. buyback program. Along the way, we will do our periodical review to determine, to determine, to determine what to do afterwards there. Long, longer term, I would say some kind of a combination between the between the buyback and the and the dividends. Thank you. Thank you for the questions. In the interest of time, I'll now conclude the Q&A session. I would like to hand the call back to management for closing remarks. Okay, thanks for everyone joining the conference. You know, since we have our peers right behind us in their earnings call. To the courtesy, we just conclude our call here. If you have additional question, please, you know, contact us offline. Thank you. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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