Alex Ye

Alex Ye inquired about the operational impact of the new loan regulation (APR below 24%) and Lexin's development strategy and outlook for its e-commerce business.

Answer

Chairman and CEO Jay Wenjie Xiao explained that Lexin proactively adjusted to the new regulation, stopping loans above 24% APR, which impacted volume and pricing but validated their risk management. He highlighted the resilience of Lexin's diversified ecosystem, including online consumer finance, offline inclusive finance, and e-commerce. For e-commerce, he noted upgrades to the supply chain, expansion of lifestyle product categories, and a prudent growth pace due to industry risk fluctuations, with plans to resume growth when rates stabilize.

Alex Ye asked about the specific impacts of the new loan regulation, effective October 1st, on Lexin's business operations and requested further details on the development strategy and future outlook for the company's e-commerce business.

Answer

Chairman and CEO Jay Wenjie Xiao explained that Lexin proactively adjusted operations, ceasing loans above 24% APR, which impacted volume and pricing but led to stabilization in new and existing loan portfolios. He highlighted the long-term benefits of compliance and the resilience of Lexin's diversified ecosystem. For e-commerce, Mr. Xiao detailed supply chain upgrades, growth in essential daily consumer goods GMV, and a prudent, risk-managed growth pace, which will accelerate once industry rates stabilize.

Alex Ye from UBS Group AG asked how Lexin's risk management system is responding to potential risk fluctuations from regulatory changes and requested more detail on the drivers of the improved net profit take rate.

Answer

CRO Arvin Zhanwen Qiao explained that the company took proactive measures, including tightening approval standards, using AI models to identify high-risk customers, and increasing provisions, which raised the coverage ratio to 270%. CFO James Xigui Zheng attributed the net profit take rate improvement to strong net revenue growth from both the credit and e-commerce businesses. He detailed how a shift to the capital-heavy model and better-than-expected asset quality in the capital-light model contributed to the 34 basis point sequential increase in the take rate to 1.92%.

Alex Ye from UBS Group AG asked for details on the drivers behind the Q2 changes in delinquency and collection ratios, the trends seen in July and August, and concerns about risk spillover. He also questioned how the overseas business development compares to initial plans and the expected contribution from the recent convertible bond issuance.

Answer

Chief Financial Officer Jiayuan Xu stated that risk levels were largely in check in Q2, with a moderate uptrend in July that stabilized in August due to proactive risk management adjustments. He noted the provision coverage ratio increased to 543% as a buffer. Regarding the international business, Mr. Xu confirmed performance met expectations and explained the $150 million convertible bond will significantly lower funding costs, now projecting a profit contribution of at least $15 million for the year, up from a previous $10 million estimate.

Alex Ye of UBS Group AG questioned the drivers behind the Q2 asset quality trends, particularly the uptick in the C2M2 ratio, and sought details on the assumptions underpinning the Q3 earnings guidance.

Answer

An executive explained the C2M2 increase was due to higher risk in the growing embedded finance business and a slight decline in collection rates. They detailed risk mitigation efforts and noted provision coverage remains near a record high. CFO Alex Xu outlined the Q3 guidance assumptions, including a modest decline in loan volume, a potential mix shift from light to heavy models, and continued heavy provisioning due to modest risk pressure.