LexinFintech - Q4 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to LexinFintech 4th Quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mandy Dong, IR Director. Please go ahead.

Mandy Dong (Director of Investor Relations)

Hello everyone. Welcome to LexinFintech 4th Quarter and Full Year 2023 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are our CEO Jay Xiao, CRO Arvin Qiao, and CFO James Zheng. Before we get started, I'd like to remind you of our safe harbor statements in our earnings press release, which also applies to this call. During the call, we may refer to business outlook and forward-looking statements, which are based on our current plans, estimates, and projections. The actual results may differ materially, and we undertake no obligation to update any forward-looking statements. Last, unless otherwise stated, all figures mentioned are in RMB. In today's call, Jay will first provide an update on our overall performance. Arvin will discuss risk management progress. Lastly, James will cover the financial results in more details.

I will now turn the call over to Jay. His remarks will be in Chinese, and English translation will follow.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Good evening and good morning. I'm pleased to give an update regarding our performance for the fourth quarter of 2023. In the face of the current macroeconomic environment and industry challenges, we adopted a prudent business strategy in the fourth quarter. We adhere to our strategy of dual business growth engine driven by data and risk management, achieving steady developments. Total loan origination in Q4 reached CNY 61.2 billion, a 9% year-over-year increase. Total loan origination volume for the full year was CNY 249.5 billion, a 21.9% year-over-year increase. Loan balance grew to CNY 124 billion, a 24.5% year-over-year increase. Revenue was CNY 3.5 billion in Q4, a 15.15% year-over-year increase. Total revenue for the full year was CNY 13.1 billion, a 32% year-over-year increase.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

In the fourth quarter, the industry faced increased challenges due to the slow recovery of macroeconomic weak credit demand and intensified competition. As a result, the risk level across the industry went up, and we faced some short-term pressure on profitability. In response, we took a series of measures in risk management and refined operation to mitigate the impact. To be specific, in terms of new customers, we developed the Low and Grow risk growth system based on new customer segmentation and jointly built the RTA model in collaboration with platforms such as ByteDance, significantly improving our risk identification capabilities for online traffic. In Q4, while the number of newly registered users remained the same compared to Q3, the number of new active users increased by 51.8% year-over-year. The early-stage risk performance matrix of newly issued loans stabilized and entered an improving momentum with a nearly 15% decrease in December.

This will effectively bolster the inflow of high-quality customers and improve the overall asset quality.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

In terms of existing customers, in Q4 we focused on upgrading credit lines granting, pricing, and trading strategy system, further enhancing the competitiveness of top-tier customer offers. The proportion of transactions by super prime and prime customer groups increased by 12% compared to the third quarter, and the risk level of new loans issued to existing customers decreased by over 15.15% compared to the previous quarter. We targeted potential customers who previously used our product but not activated for a long time or never activated their accounts before, and made re-offers to that, resulting in a conversion rate increase of over 50.50%. Leveraging Enterprise WeChat will further improve customer service efficiency and satisfaction, accumulating 1.9 million followers.

Through this risk management and refined operation measures, despite fluctuations in asset quality in the second half of 2023 across the whole loan facilitation sector, our overall asset quality started to stabilize in December, with day one delinquency rate dropped 6% compared to the previous month and collection rate remained stable. Since we entered 2024, the quality of new issued loans has continued to improve, and the risk performance indicators of the overall asset portfolio are gradually improving as well. Our CRO Arvin will elaborate on this later. In the new year, we are confident to bring down the risk level of our assets going forward.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

In Q4 we invested CNY 136 million in research and development, further advancing the application of AI large language models in our operation to improve work efficiency and customer experience. Through advanced training, our large language model can automatically analyze multiple data sources and identify users' industry affiliations, repayment intentions, and other relevant information. This capability enables us to create differentiated and personalized customer profiles and the labeling system, allowing us to implement data-driven, precise customer segmentation strategies.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

In 2024 we will focus on the following key areas: first, bringing down risk level of overall assets and enhancing profitability. We recently upgraded our risk team and invited Mr. Qiao Zhanwen to join us as our CRO. Mr. Qiao has over 10 years of experience in Ant Group, managing more than trillions of assets, and has extensive experience in the risk management space. Under his leadership, we have gained deeper understanding and set clear goals for improving our risk management framework and developing a full lifecycle risk management system. Accordingly, we have planned out specific measures. In the year ahead, we will implement risk management work in three main aspects: new customers, existing customers, and loan collection.

For the first aspect, for new customers, we will continue to increase customer acquisition efforts, strengthen the development of our own customer acquisition channels, especially targeting white-collar newcomers, blue-collar workers, and mini or micro SME owners. Through the effective dynamic growth strategy of Low and Grow, we will improve credit profile identification of high-quality customer groups, increase the volume of high-quality new assets, and drive down the overall risk levels. For the second aspect, for existing customers, we will strengthen the construction of underlying identification capabilities and match differentiated risk strategies based on different customer segments. Particularly, we will apply flexible pricing strategies to widen the price range for different customer segments. For high-quality customers, we will strengthen competitive offers, capture a large share of their wallets, and simultaneously lower overall portfolio risk. With over 200 million registered users, LexinFintech still has ample room for growth.

For the third aspect, in terms of loan collection, we will strengthen collaboration with financial institutions, expand the scope of legal action, and improve its efficiency. We will continue to advance the development of the localized collection and recovery integrated system to effectively ensure user experience and efficiency in delinquent loans recovery. We will strengthen AI technology to enhance delinquent loans management systems, such as intelligent routing systems, and leverage large language models to improve loan collection efficiency.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Secondly, we will continue adhering to the customer-oriented principle and improve our operation based on a refined customer segmentation matrix. On one hand, we will strengthen customer credit profiling to offer differentiated products for various customer segments. In 2024, we will sharpen our focus on the Le Zhouzhuan in Chinese [Foreign language] for SME customer segments and Le Jinka for high-quality consumer segments, and products such as Le Huaka and Speedy Lending in Chinese [Foreign language] for growing customer segments. On the other hand, through the dynamic growth strategy system of Low and Grow, we will serve the customer's needs and manage their risk throughout the entire lifecycle. Under this dynamic approach, we are able to offer appropriate offers to their credit needs at each phase of the whole lifecycle. In addition to various products, we will continue to reinforce our work on the customer rights protection front.

We have formed a consumer rights protection committee and a consumer rights protection center. In 2024, we will better meet customer demands and effectively improve customer satisfaction by enhancing consumer protection governance system and mechanism, thereby reducing the impact of malicious compliance from illegal groups.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Thirdly, our LexinFintech consumption ecosystem starts to show driving force for steady growth of our business. At Tech Empowerment SaaS business line, we will invest more in customer acquisition and expand to more city commercial banks and rural commercial banks, which will further fuel the growth in scale and revenue. As for our offline inclusive loan business in Chinese [Foreign language], we will continue to focus on low-tier cities that locate in industrial belts, conducting grid-based operations, and target micro SME customers, self-employed business owners, high-quality salary workers, and offer more competitive products. We will continue to scale up our team, upgrade sales force management system, enhance the team management, and underline the differentiation advantages of customer acquisition and firsthand information-based credit profile identification. As for the e-commerce business, while maintaining our advantages in 3C products, we will expand to more trendy goods SKUs that attract the youngsters.

We will strengthen differentiated trading and risk management strategies, upgrade risk management system, improve user credit profile identification accuracy, and uplift approval and transaction rates, aiming to expand scale and profitability.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Fourth, as for funding cost, currently our funding costs have already hit low 6%. This year we will issue ABS, and we expect this will further reduce funding cost.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Looking ahead into 2024, we will adhere to prudent operation principles, prioritize risk management, and maintain steady growth in transaction volume throughout the year. We are confident that as our scales expand and risk performance continues to improve, our profitability will further increase. We will continue our recurring cash dividends program and enhance shareholders' return. The board has approved the plan to distribute cash dividends of approximately $0.066 per ADS for the second half of 2023.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Next, I will hand over the floor to our CRO Arvin to discuss risk management.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Thank you, Jay. I'm glad to give an update regarding the risk management performance in Q4. First, let me give a few words of introduction about myself. I joined LexinFintech in December 2023. Prior to that, I served at Ant Group for over 10 years, in charge of the holistic risk management work of consumer credit products such as Ant Huabei and Ant Jiebei. I also served as the Deputy General Manager of Ant Consumer Finance Company in Chongqing, overseeing comprehensive risk management for consumer finance. I have deep involvement in the construction and integration of Ant's consumer credit risk management system, with extensive practical experience in building risk management teams, innovative risk management technologies, and consumer credit risk management.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

In Q4, our asset quality showed some pressure, mainly due to the slow macroeconomic recovery with consumer demand and turmoil in the loan collection industry, which resulted in fluctuation in the risk performance of our existing loan book. We have taken timely and effective countermeasures to mitigate the impact, including strengthening risk identification capabilities, reclassifying customer segmentation, enhancing risk management of existing customers, upgrading risk management tools, and accelerating talent acquisition. Looking at the asset quality of overall loan books, the FPD7 of newly issued loans reached its peak level at the beginning of Q4 2023 and has since been gradually trending better on a monthly basis. The Day-1 Delinquency Rate of the overall assets reached its peak level in the middle of Q4 2023 and has been improving month by month, reaching its lowest point recently with over 10% improvement compared to the peak level.

The collection rate of the overall assets started to come under pressure in the second half of 2023 but began to stabilize and recover from January 2024.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Next, let me give an update regarding the major progress we have made in risk management workstream in Q4. Firstly, in Q4, we further strengthened our risk identification capabilities. On the data front, we conducted in-depth joint modeling with several leading platform-based internet companies. By fully leveraging their massive amounts of scenario data, we have greatly improved accuracy and stability of our risk scoring models. Additionally, in the development of risk models, we have introduced and applied cutting-edge algorithms such as time series models and relationship graph models, effectively expanding our risk identification capabilities in the temporal and spatial dimensions. Based on richer scenario data and the model algorithm, we have comprehensively iterated and upgraded the risk management system for our three core business lines that are consumer finance, offline inclusive finance, Puhui, and e-commerce.

The performance of our risk identification capabilities has seen an improvement of nearly 30%.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Secondly, in Q4, we reconstructed our customer segmentation by using customer basic information, credit profiles, and customer credit scores to classify customers into four categories that are super-prime, prime, near-prime, and subprime. Compared to the previous customer segmentation, this new approach has significantly improved risk level differentiation and stability among various customer segments. In the consumer finance business line, we have reconstructed the risk strategy and operational system throughout the customer lifecycle based on the new customer segmentation. This has led to a 35% increase in credit approval rate and a 10% decrease in risk level for new customer loans. In the future, we will further enhance our precision targeting of high-quality customer groups and leverage a dedicated growth strategy system to boost the drawdown rate of high-quality customers, thus expanding the scale of high-quality assets.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Thirdly, in terms of risk management for existing customers, we have upgraded and improved the overall credit approving, pricing, and transaction strategy system. Through refined risk management for different customer segments, we have enhanced the competitiveness of offers for our super-prime and prime customer groups. The ratio of GMV loans volume for our super-prime and prime customer segments has increased by 12% compared to Q3, effectively improving our asset structure and reducing the risk of new loans to existing customers by 15%. Furthermore, we have achieved significant results in customer retention through measures to prevent churn and recall lost customers, particularly for our high-quality customer segment.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Fourthly, we have further upgraded our risk management tool and established a standardized risk strategy management process and framework. This enables standardized data input and decision output, as well as the ability to orchestrate highly visualized and complex decision strategies. This has greatly improved the operational efficiency of risk management systems, supporting rapid strategy iteration and launch of new business products. The upgraded risk management framework can effectively support end-to-end standardized link between risk management and marketing systems, further enhancing the responsive iteration and refinement among different parts of our operation process.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Lastly, as we accelerate the implementation of the four mentioned risk management upgrade measures, we have also brought in a group of outstanding mid to senior-level risk management talents from leading platforms in the industry.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

In the next quarter, we plan to further strengthen risk management from the following three aspects to ensure a continued decline in the risk level of newly issued loans.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Firstly, we will expand and utilize more core data sources to comprehensively improve our risk identification, customer profiling, preference identification, and stability identification capabilities.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Secondly, we will continue to enhance the modularization building up of our risk management system, improving the standardization of risk strategies. We will transform core inputs from different dimensions into standardized modules, such as income module, multiple platform module, responsive module, etc. This will further enhance the standardization and consistency of risk management strategies.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Thirdly, we will develop intelligent risk management product capabilities by creating multiple product-like risk management tools, such as strategy robots and strategy experimentation platforms. These tools will further enhance the efficiency and precision of risk management work.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Looking ahead into 2024, we will continue to uphold the principles of risk management priority and prudent operations. We will comprehensively upgrade our risk management capabilities in various aspects, including infrastructure, risk management framework, risk management data source, models, strategies, tools, and talent teams. Our goal is to significantly enhance our risk identification capabilities for different customer segments. We will expedite the implementation of multiple specialized initiatives to strengthen risk management and refine our ability to manage customer risk throughout their entire lifecycle, including loan origination, loan servicing, and delinquent loans management. We will continue to enhance our ability to identify high-risk customers and employ various measures, such as account closure, credit line amount reduction, and transaction interception, to reduce the generation of delinquent loans.

With confidence, capability, and effective methods, we aim to achieve a gradual decline in risk level on a quarterly basis, refine asset quality, support steady growth, and improve profitability margins.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Next, I will hand over the floor to our CFO, James, for financial updates.

James Zheng (CFO)

Thank you, Arvin. I will now provide more details on our financial results. Please note that all numbers are in RMB unless otherwise stated. In a challenging economic landscape marked by modest economic recovery and consumer spending caution, we closed 2023 on a positive note, achieving our business targets. Despite industry-wide risk volatility, our commitment to strategic pillars, rigorous risk management, customer segmentation and upgrading, operational refinement, and cost optimization, has fortified our financial framework and yielded positive business results. I'd like to highlight a few points related to our operations and financial progress from last quarter. First, loan origination and profitability growth. Despite the controlled loan growth in response to the industry risks in Q4, we have recorded commendable loan volume and profitability increase over the year. Our Q4 GMV reached RMB 61.2 billion, a 3.3% sequential decline, reflecting our tightened credit standards and focus on quality growth.

The annual loan origination grew by 21.9% to CNY 249.5 billion, with outstanding loan balance up 24.5%. Annual revenue surged by 32%, and net income spiked by 56.2%, excluding investment-related impairment losses. Second, we have demonstrated strong and resilient revenue-generating and growth capabilities. Despite the GMV year-over-year growth of only 9.2% in Q4, the revenue growth outpaced at 15.1% year-over-year. In Q4, we have continued to lower borrowing costs for our users. We cut the weighted average APR by 0.4% to 23.7% from 24.1% in Q4 a year ago, therefore resulting in a 40-basis decline in pricing. Additionally, as a general practice to reduce the risk exposure, we have shortened the new loan tenor from an average of 13.9 months to 12.3 months. The 40-basis point decline in pricing, the shortened tenor, along with the industry-wide risk fluctuation, did not significantly impact the overall Q4 revenue take rate.

We only saw a marginal revenue take rate dip of 25 basis points to 2.47% from 2.72% of a year ago. This is due to the strong positive revenue uplifting effect from lowered funding costs and the continued improvement in customer early payoff. We have recorded a historically low funding cost of 6.18% in Q4, down 63 basis points year-over-year. We achieved this through ample funding and partnerships with cost-efficient national financial institutions. The funding cost hit a new record low level below 6% in February, and we expect this downward trend to continue going forward. We have taken some proactive measures to reduce the borrowers' early repayment. The repayment ratio lowered to only 87% of the peak level in 2023. Thirdly, we have substantially optimized our cost structure.

We trimmed down the total expense, including the processing service, sales marketing, R&D, and G&A, as a percentage of average loan amount from 4.51% in Q4 2022 to 3.88% in Q4 2023, thanks to the execution of cost optimization projects. One such example is the user acquisition cost. We realized a big saving on acquisition costs per user in Q4 thanks to our upgraded RTA marketing model and more attractive loan offerings. Our sales and marketing expense ascended a bit by 4.6% compared to last quarter, while our new acquired users with approved credit lines and new active users grew much faster at a rate of 21.5% and 25.7%, which indicates a 14% and a 17% unit acquisition cost saving, respectively. Fourth, the risk fluctuation and its impact. The industry-wide risk fluctuation during the second half of last year has impacted us as it did to our peers.

Asset quality metrics have shown signs of stress, including the D1 delinquency rate, M1 collection rate, and the 90-plus days delinquency rate. Our 90-plus days delinquency rate moved to 2.9% versus 2.67% in last quarter. We have enacted risk mitigation strategies that are stabilizing the situation close to the end of the year and early part of this year. The immediate financial impact is the sequentially almost flat revenue in Q4 and the increased provisioning of credit impairment costs. Total provision related to cost items, including the provision for financing receivables, provision for contract assets and receivables, provision for contingent guarantee liabilities, and the change in fair value of financial guarantee deliverables and loans at a fair value, increased by 7.1% on a quarter-over-quarter basis due to the increased pressure on our asset quality in Q4.

We are maintaining an ample bad debt provisions, staying a robust coverage ratio of approximately 317%, which is defined as a total provision amount divided by the principal amount of 90-plus days delinquent loans. Apart from the above four operation-related highlights, I would like to elaborate a little bit more on specific items from financial statements. First, investment-related impairment losses. The major impact on earnings came from the investment impairment related to a domestic investment of a private bank. Excluding after-tax impact of RMB 224 million of investment-related impairment losses, the net profit for the fourth quarter was RMB 236 million, with a net margin of 6.7%. Second, some notes on revenue line items. Guarantee income grew steadily by 11% on a quarter-over-quarter basis and 42% on a year-over-year basis due to continuing releasing from existing loan books.

Tech empowerment services fell 6% from last quarter and increased 3.4% from last year, primarily due to the reduced volume in tech empowerment business. Third, some notes on cost line items. Funding costs on our income statement, which related to our own balance sheet loan generation, dropped significantly by 42.1% quarter-over-quarter and by 47.9% year-over-year due to the maturity of a portion of trust funding in Q4. Additionally, the processing and servicing costs increased by 15.3% in Q4 compared to the previous quarter due to the increased risk management initiatives and projects. General and administrative expenses rose by 26.6% in Q4 from last quarter due to the addition of more risk management talents. Fourth, on balance sheet items. Our cash position is strong, ending the quarter with around CNY 4.4 billion in RMB and a solid equity position of CNY 9.7 billion.

We continued our recurring cash dividend plan and declared a cash dividend for the second half of 2023, amounting around $10.8 million, equivalent to roughly 20% of total net profit for the second half of 2023. The total 2023 combined dividend payout is about $0.182 per ADS, with a dividend yield at roughly 10% based on the year-end closing price of 2022. Looking ahead, we will continue to either maintain or increase the dividend payout ratio to our shareholders when the market conditions improve. Looking forward to 2024. Due to the uncertainty of the economic growth and our prudent business approach, we expect the annual GMV amount for the full year 2024 to be no less than that of last year as we remain focused on the enhancement of risk management as a top priority. Net profit will grow from last year as well.

In summary, 2023 was a year of rebound with a strong growth in both top and bottom line, surpassing many peers, driven by our core strategies. We remain focused on improving risk management capabilities, upgrading user groups, operational excellence, and cost optimization to capitalize on emerging opportunities. That concludes our prepared remarks. Operator, we are now ready for the Q&A session. Please open the floor for questions. Thank you.

Operator (participant)

Thank you very much. We will now conduct the question-and-answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please kindly read your question in English and Chinese. Please stand by as we compile the Q&A roster. Our first question comes from Alex Ye of UBS. Please go ahead.

Alex Ye (Equity Research Analyst)

[Foreign language] I have a question for Mr. Qiao, who previously was in charge of the risk management for the CNY 3 trillion balance of consumer loans. Since you have been with Lexin for several months now, we would like to learn about the key reasons that have led you to choose to join the platform, as well as the main challenges and opportunities you have seen since joining. Thank you.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Okay, Alex, this is Mandy. Let me do the translation for Mr. Arvin. When I made my decision to join LexinFintech, there were several key considerations. Firstly, LexinFintech is one of the earliest established consumer finance platforms in China. It has accumulated over 200 million registered users, with immense growth potential. LexinFintech has built its unique Lexin consumption ecosystem that consists of various business lines, including consumer finance, offline inclusive finance, e-commerce, and SaaS tech products. We see the recommended synergy potential among these business lines. In my perspective, LexinFintech has a very solid foundation and a strong customer base. For the second point, you can see the risk level of LexinFintech's assets nowadays stands at a relatively higher level when we compare to other industry peers.

However, I'm very confident that by implementing a proven quantitative risk management system and enhancing further refined risk management, we can bring down the risk level of our Lexin assets to match industry average level. In the future, furthermore, we can gradually improve to the leading level of the industry. In addition, the company current P/E ratio is quite low. That may indicate ample room for returns as in the future we can gradually bring down the risk level and profitability will increase.

Arvin Qiao (CRO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Well, after the past few months of my work in the risk management space, I see there may be further room in the following points. First, Lexin has utilized a lot of third-party data sources, but may lack in quality in the future. In the future, we will improve the models, introduce more data sources, and improve models' stability and risk identification accuracy. Secondly, the risk model nowadays, mainly in the credit rating, credit scoring type, which shows a lack of variety. In the future we will include more different types of models, including the credit profile type, responsiveness type. Thirdly, there's still room for improvement of building a more robust risk management system and a more sufficient area of risk management tools.

Over the past few months, we have already made notable progress in upgrading risk identification system, establishing a full lifecycle risk management system, building intelligent risk management tools. To achieve the above-mentioned measures, we see the asset quality of newly issued loans already showed a turning point since the last year-end, with risk level declining on a monthly basis. Alex, hope that can address your question.

[Foreign language]

Operator (participant)

Thank you. Our next question comes from Yada Li of CICC. Please go ahead.

Yada Li (Equity Research Analyst)

[Foreign language] Then I'll do the translation. From the fourth quarter results, we observed the new users with credit lines went up by roughly 17% Q-o-Q, while the sales and marketing expenses grew by only 5%. I think it indicates a significant improvement in customer acquisition efficiency, and could management share some more recent moves and efforts on the customer acquisition? That's all. Thank you.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Well, Yada, I will do the translation for Jay. First, you see in Q4 we further upgraded our team model and strategy based on our enhanced risk identification capability. We adopted low and grow growth strategy on the credit line approval and drawdown. This resulted in a notable improvement of user with credit line increased by 0%, credit drawdown by the good quality users increased by 45%, and risk level of those newly issued loans consistently decreased on a monthly basis.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Secondly, we have put more efforts to diversify our channels in terms of customer acquisition rather than previously solely relying on the online advertising channel. So we tailored products and services and catered needs for different customer segments. By that, we achieved a differentiated and diverse customer acquisition matrix. Well, to be more specific, for the fresh graduates, micro SME owners, super-prime, and prime users, we also developed customer acquisition approaches and products. Operator, we can now open the question to the next listener.

Operator (participant)

Thank you. Our next question comes from Zoe Zou of CLSA. Please go ahead.

Zoe Zou (Equity Research Analyst)

[Foreign language] Let me do the translation. So as Jay mentioned in his remark, LexinFintech has launched the multiple growth strategy in 2024. That's the slow recovery of the domestic economy and the intensified competition in domestic markets. More and more PEs began to expand their business internationally. Does LexinFintech have the similar business plan in the future? Thank you.

Jay Xiao (CEO)

[Foreign language]

Mandy Dong (Director of Investor Relations)

Yes, you are right. Definitely, expanding internationally is one of our key growth strategies. Nowadays we already have some business running in the overseas markets. In 2024, we will expand business in some selected overseas markets, either by acquisition or building the business from the ground up by ourselves. We are confident to replicate our success in China market to overseas. But the business volume of our overseas business is relatively small. We will update more to the markets once we achieve more progress in the future. Well, operator, if there are no further questions lying, maybe that's come to the end of our call today.

Operator (participant)

Thank you. I see no further questions at this time. Thank you all for coming to this conference call. This is the end of our conference call. You may now disconnect. Have a great day, everyone.

James Zheng (CFO)

Thank you. Okay, bye-bye.

Arvin Qiao (CRO)

Oh, bye.

Mandy Dong (Director of Investor Relations)

Thank you. Bye.