CNFinance Holdings Limited - Q2 2024

Transcript

Operator (participant)

Hello, and welcome to the CNFinance Holdings Limited first half of twenty twenty-four financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing Star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then one on your telephone keypad. To withdraw your question, please press Star, then two. Please note this event is being recorded. I would now like to turn the conference over to Simon Tan, Manager of the Capital Markets Department. Please go ahead.

Simon Tan (Manager of Capital Markets Department)

Thank you, Joe. Good morning and evening, and welcome to the CNFinance first half of 2024 financial results conference call. In today's call, our Director and Vice President, Mr. ian Jun, will walk us through the operating results, followed by the financial results from our Acting CFO, Ms. Li. After that, we will have a Q&A section. Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates, targets, going forward, outlook, and similar statements.

Such statements are based upon management's current expectations and, current market and operating conditions, and relates to the, events that involve known or unknown risks, uncertainties, and other factors. All of which are difficult to predict, and many of which are beyond the company's control, which may cause the company actual results, performance, or achievements to, differ materially from those in the forward-looking statement. Further information regarding these and other risks, uncertainties, or factors is included in the company's filing with the US Securities and Exchange Commission. The company does not take any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required on the law. Now, please welcome Mr. Qian Jun.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Good day, everyone. Thank you for joining us today. In the first half of 2024, our focus was squarely on navigating the microeconomic uncertainties by reinforcing our business fundamentals and ensuring the quality of our assets. During this period, we originate loans of $6.9 billion. As of June 30, 2024, our outstanding loan principal was approximately $16 billion, reflecting a year-over-year growth of about 10%. To manage potential risks, we continue refining our credit approval strategy and strengthen our efforts in collecting and disposing of non-performing loans. As a result, we maintain our non-performing loans ratio at approximately 1.2% as of June 30, 2024, consistent with the level at the end of last year. We recorded an interest income of approximately $930 million.

up 5% compared to the same period last year. However, while we benefit from a continued decline in interest rate of our trust financing, the increase in average daily loan principal under the trust model leads to a slight year-over-year rise in interest expense. Since the start of the year, we have enhanced our collaboration with third-party asset management institutions, particularly in area of overdue loan collections. These strategic moves significantly boosted our recovery amount. Though it also leads to a corresponding increase in operating expense due to service fee paid to the third party institution. Despite these additional costs, our net income from operating activities for the first half of 2024 was approximately $220 million, remaining largely flat compared to the same period last year. We have maintained our prudent approach in provision for impairments.

With the increase in our outstanding loan principal, the provision for credit losses increased to $172 million. Consequently, our net profit for the period decreased to $48 million.

Jun Qian (VP)

[Foreign language]

Simon Tan (Manager of Capital Markets Department)

Our key area of focus for the half-year period includes, first, we continue to drive down our funding costs. With market interest rates turning downward, we actively engage in negotiation with our funding partners to secure more favorable financing terms. Leveraging our long-term relationships, we achieved a reduction in our average financing rate by approximately 4% year-over year. The reduction allowed us to pass on the benefit to our customers, with end user interest rate decreasing by about 1 percentage point.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Second, we strengthen our support for sales partners. This quarter, we observe a further easing of liquidity pressure on our sales partners, with more of them resuming their repurchase obligation to protect the loans they recommended. This share benefit, share risk model has been instrumental in reducing our risk exposure.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Third, we maintain our focus on asset quality. We concentrate our business efforts on the core area of first-tier and new first-tier cities, with over 90% of our loan is in the period being originated in these regions. In addition, we deepen our cooperation with third-party asset management companies, enhancing our capability in collecting delinquent loans. Through these efforts, we successfully maintain our NPL ratio at 1.2% as of June 30, 2024, while achieving a recovery rate of 110% during the period.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

As we look ahead, we recognize the ongoing uncertainty in the microeconomic environment and the adjustment in the real estate market. We are committed to adjust the quality pressure of our existing loans and navigating the uncertainty surrounding new loans. To that end, we will continue to adjust our strategy, focusing on ensuring asset quality and enhancing operational efficiency. Our goal is to improve both quality and profitability of our business. Our specific measure moving forward include.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Enhancing our focus on asset quality, we will vigorously manage our credit approval standard for new loans, ensuring the quality of forward and levels. Additionally, we will continue to improve the efficiency of our delinquent loan recoveries, particularly through settlement recoveries, which offer the advantage of fast recovery and high recovery rates. We plan to deepen our cooperation with third-party asset management company to further leverage this as advantage, improving both recovery speed and recovery rates.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Strengthening our product innovation, we will maintain the high quality and fast advantage of our product, while expanding our product portfolio to adapt to various scenarios. To support these new business scenarios and enhancing overall efficiency, we will continue to optimize our sales system and adjust our credit approval policies, incorporating additional dimensions into our approval models.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Further strengthening our compliance efforts, we are committed to continuously improving our risk control and compliance process through target actions, which will help us prevent the non-market risk cases.

Jun Qian (VP)

[Foreign Language]

Simon Tan (Manager of Capital Markets Department)

Now, I will hand over the time to our CFO, Miss Li Jing, and she will introduce the financial result for the first half of 2024 to you.

Jing Li (CFO)

Our total interest and fees income increased by 4.7% to $926.5 million from $884.5 million. Total interest and fees expenses increased to $401.7 million from $366.3 million. The increase in total interest and fees expenses was mainly due to the increase in average daily balance of interest bearing borrowings. Net interest and fees income was $524.8 million, representing an increase of 1.3% from $ 518.2 million. Net revenue under the commercial bank partnership model was $58.4 million, as compared to $50.1 million in the same period of 2023.

In the first half of 2024, the majority of borrowers were introduced by sales partners, and the commission paid to sales channels has decreased, which has ultimately led to an increase in the net revenue under the commercial bank partnership model. Collaboration cost for sales partners decreased by 3.9% to $159.2 million from $165.6 million. Net interest and fees income after collaboration costs increased by 5.3% to $424 million, from $402.7 million in the same period of 2023. Provision for credit losses increased to $117.8 million, from $129.6 million in the same period in 2023.

The increase was mainly due to the increase in outstanding loan principal. Other expenses increased by 62.2% to $97 million from $59.8 million in the same period of 2023, primarily due to the increase in fees paid to third-party asset management company to collect delinquency. Net income was $48 million, as compared to $93.1 million in the same period of 2023. As of June thirtieth, 2024, the company had cash and cash equivalents and restricted cash of $1.6 billion, including $1 billion from structured funds as of June thirtieth, 2024, which could only be used to grant new loans and activities.

The delinquency ratio for loans originated by the company increased from 15.5% as of December thirty-first, 2023, to 16.4% as of June thirtieth, 2024. The NPL ratio for loans originated by the company was 1.2% as of June thirtieth, 2024, compared to 1.1% as of December thirty-first, 2023. With that, we would like to start the Q&A session.

Operator (participant)

Just one moment, please. Okay, at this time, I understand that this will conclude the question and answer session. I would like to turn the conference back over to Simon Tan for any closing remarks.

Simon Tan (Manager of Capital Markets Department)

That's all for today. Thank you for joining us. If you have any more questions, please feel free to reach us at [email protected]. Thank you.

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.