Qfin Holdings - Earnings Call - Q1 2025

Transcript

Operator (participant)

Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead, Karen.

Karen Ji (Senior Director of Capital Markets)

Thank you, Darcy. Hello everyone, and welcome to Qifu Technology's first quarter 2025 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 financial measures to GAAP financial measures. Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms.

Before we start, we would like to let you know that today's prepared remarks from our CEO will be delivered in English using an AI-generated voice. Now, I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Haisheng Wu (CEO)

Hello everyone. Thank you for joining us today. In the first quarter of 2025, China's economy showed early signs of a mild recovery under the guiding principles of stabilizing growth, optimizing structure, and managing risks. Meanwhile, the global economy is undergoing profound technological transformation and structural changes. In an increasingly complex and volatile environment, we upheld prudent operations, leveraged AI to reshape the credit value chain, and achieved high-quality growth, delivering results that surpassed our expectations. By the end of the quarter, our AI-powered credit decision engine and asset distribution platform empowered a total of 163 financial institutions and served more than 58 million users with approved credit lines on a cumulative basis. Total Loan Facilitation and Origination Volume on our platform increased by 15.8% year-over-year. With operational efficiency continuing to improve, our Take Rate for the quarter reached 5.7%, up 2.2 percentage points year-over-year.

Non-GAAP net income increased by 59.9% year-over-year to RMB 1.93 billion, while non-GAAP EPS on a fully diluted basis rose by 78.5% to RMB 13.5. Despite macroeconomic headwinds, we have consistently improved upon our past results and outperformed our market commitments through ongoing evolvement and enhancements to our business. At the start of this year, we began rolling out our AI+ Credit Strategy at scale, aimed at building the industry's first AI Agent platform to empower core credit processes. We plan to recruit an additional 100 algorithm engineers by the end of the year and accelerate our transformation into an AI-native organization. We have also established our DeepSeek division, which is driving the research and development of our AI-Plus bank agent products to support the intelligent upgrade of financial institutions.

In April, we introduced an internal AI Agent platform and by May deployed five digital employees across key functions such as data analytics, operations, compliance, risk management strategy, and financial reconciliation. Our AI Agent, ChatBI, is now deeply integrated into our intelligent decision-making and business analysis workflows. This agent provides real-time data insights and attribution analysis, empowering us to dynamically optimize our strategy and enhance decision efficiency. Risk management has always been a cornerstone of our business. This quarter, we allocated a small portion of our traffic to pilot an end-to-end risk management framework powered by large language models. By training on historical decision logs using DeepSeek, we achieved a notable improvement in AUC area under curve to 0.64, a metric that measures risk-tiering ability. We also upgraded our data mining capabilities by incorporating video and other multimodal inputs, enabling richer and more diverse feature representations.

On top of that, we developed a user profiling agent that performs consistency checks on user features with over 95% accuracy, supporting differentiated credit lines and pricing based on user profiles. In terms of risk strategy, we maintained a differentiated approach in user operations, driving moderate loan growth while preserving ample risk buffers. With loan volume increasing by 15.8% year-over-year during the quarter, our C-M2 Metric, which measures delinquency rates after 30-day collections, remained largely stable at 0.6%. In Q1, we made further upgrades to our intelligent asset distribution platform to improve the precision of fund asset matching. This helped us boost underwriting efficiency and strike a better balance between risk and return of our loan portfolio. Benefiting from our robust asset quality, we maintained our negotiating leverage on the funding side, resulting in a consistent decline in funding costs.

In Q1, we issued RMB 6.6 billion in ABS, a year-over-year increase of approximately 25%. With the proportion of ABS in our funding mix growing further, our overall funding costs decreased by an additional 30 basis points sequentially. We expect funding costs for the coming quarters to decrease slightly from Q1 levels. In terms of user acquisition, we have modestly increased our spending and are actively exploring a broader range of channels. In Q1, we added 1.54 million new credit line users, up 6% year-over-year, with new borrowers increasing approximately 41% year-over-year to 1.13 million. Our marketing-focused AI Agent leverages multimodal recognition technology to analyze user intent in real time, integrate campaign management across multiple channels, and enable real-time strategy adjustments.

This has significantly improved our user profiling accuracy across channels, with a conversion rate of new credit line users to new borrowers increasing by 33% from the same period last year. Our embedded finance business remains a key strategic focus as we continue to expand both the breadth and depth of our channel coverage. In Q1, we added seven new channels, spanning from leading internet platforms and various small and mid-sized platforms to banks in multiple regions. We are also in the midst of onboarding two additional strategic platforms, signaling broader collaboration with leading internet traffic platforms and unlocking meaningful and incremental growth potential going forward. During the quarter, our new credit line users from the Embedded Finance Channels grew 36% year-over-year, while loan volume surged by roughly 106%. The overall ROA of these channels improved by 20% on a sequential basis.

Regarding our technology solutions business, we established partnerships with three additional mid- to large-sized municipal banks in Q1, driving loan volume from this segment to grow by roughly 144% year-over-year. Powered by our Focus Pro Credit-Tech platform, our proprietary solution for SME lending, which is built on a three-tiered credit assessment system, gained meaningful scale in loan facilitation volume and delivered better-than-expected risk performance in Q1. This success has created new opportunities for our market expansion and growth in 2025. We have already received a wide range of inquiries from multiple banks about our AI+ bank agent products and recently entered into strategic partnerships with several of them.

As a key component of these partnerships, we will help banks deploy AI Agents across a broad range of applications, including marketing and customer acquisition, risk management, and loan approval, decision analytics, growth operations, compliance reviews, multimodal recognition, remote banking, and digital employees, facilitating their digital and intelligent transformation. In April, China's National Financial Regulatory Administration issued a notice on strengthening the management of the internet loan facilitation business of commercial banks to enhance the quality and the efficiency of financial services. The notice provides clearer guidance for internet-based lending practices, emphasizing that commercial banks should establish equal, mutually beneficial partnerships with platform operators and credit enhancement providers, sharing risk responsibilities and adopting a long-term perspective. We view these guidelines as strong regulatory recognition of the value the loan facilitation model provides.

By setting clearer industry standards, the notice is expected to improve the overall health and sustainability of the sector. We will continue to engage in proactive and constructive discussions with regulators, regularly reviewing our practices and upholding prudence and compliance in our operations. The increasingly complex international landscape has added uncertainty to the pace of China's economic recovery. That said, we believe the economy will remain fundamentally resilient over the long run, supported by China's technological innovation, supply chain upgrades, and government measures to boost domestic demand. At the press conference held on May 7 this year, the State Council Information Office announced a package of financial policies aimed at stabilizing markets and managing expectations, including guidance for financial institutions to increase support for key consumption verticals. More recently, we are seeing encouraging progress in U.S.-China Trade Talks.

Overall, the macroeconomic and policy landscape is showing signs of stabilization, which will provide a favorable environment for the steady development of the consumer credit industry. As we progress through 2025, we remain cautiously optimistic. In the near term, our focus will be on enhancing operational efficiency, optimizing capital allocation, and enhancing shareholder returns. Over the long term, we will continue executing our One Core, Two Wings strategy. We expect our core loan facilitation business to sustain high-quality growth, while our technology solutions business will continue to empower financial institutions to accelerate their intelligent transformation through our AI+ strategy. Internationally, we will focus on near-prime segments in markets with relatively stable regulatory environments, leveraging our leading fintech capabilities to build a strong competitive edge. In Q1, we issued $690 million in convertible senior notes, further expanding our international funding channels and improving capital allocation efficiency.

100% of the proceeds from this issuance will be allocated to share buybacks. Adopting a cash par settlement structure allows us to significantly reduce the potential dilution to existing shareholders. On the 25th of March pricing date, we concurrently completed a $227 million share repurchase, resulting in an immediate 3.6% reduction in our share count. Combined with our $450 million share repurchase program that took effect on the 1st of January, we expect our total repurchases this year to be no less than $680 million. Based on the current share price, we estimate our total share count will decrease by approximately 11% when compared to the beginning of the year. We are confident in the future of our company and remain dedicated to delivering long-term value to our shareholders.

Moving forward, we will continue to prioritize efficient capital allocation and shareholder value creation through recurring share buybacks and dividends. With that, I will now turn the call over to Alex.

Alex Xu (CFO)

Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our first quarter earnings call. We started 2025 with a solid Q1, as overall user activities were stronger than normal seasonality. While the macro environment appeared stabilizing early in the year, impacts from trade war added uncertainty recently. We will continue to focus on efforts to optimize operations and manage risk exposures in an uncertain market. Total revenue for Q1 was RMB 4.69 billion versus RMB 4.48 billion in Q4 and RMB 4.15 billion a year ago. Revenue from credit-driven service, capital-heavy, was RMB 3.11 billion in Q1, compared to RMB 2.89 billion in Q4 and RMB 3.02 billion a year ago.

The sequential growth was mainly due to increases in unbalanced loans and lower early repayment discounts. Overall funding costs further declined modestly quarter on quarter, as ABS contributed a larger portion of our total funding in Q1. Revenue from platform service capital light was RMB 1.58 billion in Q1, compared to RMB 1.59 billion in Q4 and RMB 1.14 billion a year ago. The year-on-year growth was mainly due to strong contribution from ICE and other value-added service, more than offsetting the decline in capitalized loan facilitation. Platform service accounts for roughly 56% of quarter-ending loan balance. We expect the ratio to be roughly stable in the near term. During the quarter, average IRR of the loans we originated and/or facilitated was 21.4%, compared to 21.3% in prior quarter. Looking forward, we expect pricing to be fluctuated around this level for the coming quarters.

Sales and marketing expenses increased 13% Q on Q and 42% year-on-year. The sequential and year-on-year increase were mainly due to larger volume contribution from API channels in both new and existing users. We added approximately 1.54 million new credit line users in Q1 versus 1.69 million in Q4. We will make timely adjustments to the pace of new user acquisition in the coming months, given the volatile micro-condition, and further optimize our user acquisition channels and improve user engagement and retention. 90-day delinquency rate was 2.02% in Q1, compared to 2.09% in Q4. Day-one delinquency was 5.0% in Q1 versus 4.8% in Q4. 30-day collection rate was 88.1% in Q1, essentially flat Q on Q. Another key risk metric, C-M2, which represents the outstanding delinquency rate after the 30-day collection, increased modestly Q on Q to 0.6%, still within our comfortable range.

We will remain vigilant to manage overall risk exposure, particularly given the latest micro-uncertainty, and try to maintain relatively stable risk metrics in the coming quarters. At the same time, we continue to take a conservative approach to book provisions against potential credit losses. Total new provision for risk-bearing loans in Q1 was RMB 2.23 billion versus RMB 2.07 billion in Q4. The increase in new provision was mainly due to increases in risk-bearing loan volume Q on Q and higher provision booking ratio. Writebacks of previous provisions were approximately RMB 1.14 billion in Q1 versus RMB 1.02 billion in Q4. Provision coverage ratio, which is defined as total outstanding provisions divided by total outstanding delinquent risk-bearing loan balance between 90 and 180 days, was 666% in Q1, a historical high, compared to 617% in Q4. Non-GAAP net profit was RMB 1.93 billion in Q1, compared to RMB 1.97 billion in Q4.

Non-GAAP net income per fully diluted ADS was 13.53 in Q1, compared to 13.66 in Q4 and 7.58 a year ago, as strong earning growth and proactive share repurchase created significant EP ADS accretion. At the end of Q1, total outstanding ADS share count was approximately 134.5 million, compared to 142 million at the end of Q4 and 155 million a year ago. Effective tax rate for Q1 was 18%, compared to our typical ETR of approximately 15%. The higher-than-normal ETR was mainly due to withholding tax provision related to cash distribution from onshore to offshore. With higher contribution from capital-heavy models, our leverage ratio, which is defined as risk-bearing loan balance divided by shareholders' equity, was 2.7 times in Q1, still near the low end of historical range. We expect to see the leverage ratio fluctuated around this level in the near future.

We generate approximately RMB 2.81 billion cash from operation in Q1, compared to RMB 3.05 billion in Q4. Total cash and cash equivalent and short-term investment was RMB 14.03 billion in Q1, compared to RMB 10.36 billion in Q4. The increase in cash was mainly due to the net proceeds from our $690 million CB issuance. As we continue to generate strong cash flow from operation, we will further optimize our capital allocation to support our business initiatives and to return to our shareholders. We start to execute the $450 million share repurchase plan on January 1. As of May 19, 2025, we had, in aggregate, purchased approximately 4.4 million ADS in the open market for a total amount of approximately $178 million, inclusive of commissions, at the average price of $40.2 per ADS, ahead of the time schedule.

In addition, on March 25, we successfully priced our $690 million US CB Offering and repurchased approximately 5.1 million ADS concurrently with the aggregate value of approximately $227 million. The concurrent buyback and the net share settlement mechanism make the CB immediately accreted to EP ADS at issuance. Altogether, so far in 2025, we brought back approximately 9.6 million ADS for a total amount of $405 million, including commissions, at an average price of $42.3 per ADS. The accelerated pace of share repurchase further demonstrates management confidence and commitment to the future of the company, and the management intent to further use share repurchase to achieve actual EP ADS accretion. Finally, regarding our business outlook, while we observed some tentative sign of marginal improvement in user activity early in the year, micro-uncertainty persists.

We will continue to take a prudent approach in business planning for 2025 and focus on enhancing efficiency of our operation. For the second quarter of 2025, the company expects to generate non-GAAP net income between RMB 1.75 billion and RMB 1.85 billion, representing a year-on-year growth between 24% and 31%. This outlook reflects the company's current and preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

Operator (participant)

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. For those who can speak Chinese, please start your question in Chinese followed by English translation.

To allow enough time to address everyone on the call, please keep it to one question and one follow-up, and return to the queue if you have more questions. Thank you. Your first question comes from Richard Zulick from Morgan Stanley. Please go ahead.

Richard Zulick (Executive Director)

[Foreign language]. I'll just make a translation. There are two questions. What kind of impact of changes do we expect once the new loan facilitation rules come into effect in October 2025? Secondly is, what's the latest trends Qifu Technology is seeing on the credit quality? How does it compare to the second half of 2022, and 2023? When, you know, Qifu Technology was, started to tighten credit risks, will that impact the total, expected loan growth for the year?

Haisheng Wu (CEO)

Thank you. Okay, Richard, thank you. I can let him take your first question, and our CRO will answer your second question.

In terms of regulation, in our opinion, the new rules released in April is a positive signal in the sense that regulators recognize the value of loan facilitation platforms. The regulator's intention is to promote a more orderly and healthy development of the industry, setting principles and gradually sequencing out the long-tail platforms, which are less capable of complying with the industry standards and meet regulatory requirements. At the same time, the new rules recognize the value of leading loan facilitation platforms and encourage banks to adopt a whitelist approach, set clear entry standards, and build equal long-term and mutually beneficial partnerships based on risk sharing. In conclusion, with the implementation of the new rules, the industry will become more organized, which will enhance the overall health and the sustainability of the loan facilitation sector.

As a leading industry player, we believe we will benefit from the less competitive market environment. We will continue to engage in proactive and constructive discussions with regulators, review our practices, and operate with prudence and in compliance. For a second question, Zheng Yan, can you answer it?

Yan Zheng (Chief Risk Officer)

[Foreign language]

Karen Ji (Senior Director of Capital Markets)

Okay, let me do the translation for Mr. Zheng. First of all, I want to say that so far our asset quality has remained largely stable. Our C-M2 ratio, which measures the delinquency rate after 30-day collections, has fluctuated within a narrow band, which is in line with our expectations. First, we believe that the current situation is completely incomparable to that in the second half of 2022 and 2023. Our average C-M2 ratio was 0.64% in the second half of 2022 and 0.69% in the second half of 2023.

The volatility in the second half of 2023 was partially due to the macro uncertainties and some line controls by China's telecom carriers. In Q1, our C-M2 ratio came in at 0.6%, which is significantly better than the second half of 2022 and 2023, and we expect this metric to remain largely stable going forward. Right now, our risk levels remain well under control, and we do not see a need to make any major adjustment to our risk policies. Therefore, as for the loan volume growth on a full-year basis, it will largely depend on the consumer's credit demand. In Q1, we saw early signs of a mild recovery in credit demand, and the overall trend also seemed to be stabilizing. However, the consistently changing global trade environment has increased macro uncertainties.

While recent U.S.-China talks have shown some encouraging progress, we still need to monitor how things will develop and what kind of impact that will have on China's economy. We will stay prudent in our operation at this moment. Last, I want to say that our business model is quite diversified, meaning that we can easily shift between asset-heavy and asset-light. That gives us the flexibility to adjust our asset allocation and balance between growth and risk. Based on what we've seen now, our outlook for full-year loan volume growth is largely unchanged from what we expected at the early start of the year. Thank you.

Operator (participant)

Thank you. Your next question comes from Alex Yee from UBS. Please go ahead.

Alex Yee (Analyst)

[Foreign language]. I'll do a translation.

My first question is about the asset quality indicators, specifically we saw Day 1 delinquency ratio was up by two consecutive quarters and now reaching 5.0% in the quarter, and then also bringing C-M2 ratio to the 0.60%. Can you share with us more color on the reason behind and how do you expect this indicator to trend going forward? The second question is on the credit demand, trends in the last two months since we have seen more noises coming from the external environments. Just wondering how has been the Q-on-Q trend in terms of credit demand. Thank you.

Yan Zheng (Chief Risk Officer)

[Foreign language]

Karen Ji (Senior Director of Capital Markets)

Okay, first of all, I want to say that the slight fluctuation in our C-M2 ratio were in line with our expectations and also well within the target range we have set for our risk performance. Overall speaking, our asset quality is at a healthy level compared to historical trends. As for the increase in the Day 1 delinquency rate, it was mainly driven by the change in our loan mix. In Q1, the percentage of loan volume from our embedded finance channel increased by 31% from last quarter, and this business line usually has a higher Day 1 delinquency rate, compared to our app-based or H5-based business.

Also, our overall loan volume was roughly flat, Q1Q, leading to a smaller portion of early-stage loans, which usually have a lower Day 1 delinquency rate. These two structural changes have led to a slight increase in our Day 1 delinquency rate, and our collection rate is very stable, as our CFO just mentioned in his prepared remarks. In April, given the uncertainty around tariff impact, we slightly tightened our credit standards. Since then, our risk indicators have remained stable through both April and May. Moving forward, we will continue to adjust our risk strategy on a dynamic basis. We expect our C2M2 ratio for the full year to remain largely stable around the 0.6 level, based on the assumption that the macro environment does not change dramatically. Thank you.

Haisheng Wu (CEO)

In terms of the credit demand, Alex, for the average daily loan volume, April was roughly in line with March.

We did see some fluctuation in borrower activities due to the impact of U.S.-China trade tensions. We proactively expanded our customer reach through partnerships with diversified channels, which should be able to mitigate the potential decline in credit demand. In May, credit demand slightly decreased sequentially, partly due to the May Day holiday. This is just normal seasonality. Based on what we are seeing now, we expect loan volume in Q2 will be largely on track as we planned at the start of the year.

Alex Yee (Analyst)

Thank you.

Operator (participant)

Thank you. Your next question comes from Emma Xu from Bank of America Securities. Please go ahead.

Emma Xu (Analyst)

[Foreign language] So with recent China-U.S. trade escalation, how do you assess the potential impact of the tariff tensions, in the future, and will you tighten to lending standards?

My second question is, what strategy is management currently adopting regarding potential ADR delisting risk? Will you consider a dual primary listing in Hong Kong? Will you take measures to improve the liquidity of your Hong Kong ticker?

Haisheng Wu (CEO)

Okay. Hi, hi, Emma. In terms of tariffs, we believe the direct impact of tariffs on our business is quite limited. First, the vast majority of our loan volume is in consumer lending. Second, we reviewed the industries our users are involved in. In Q1, those related to exports accounted for just around 4% of our total loan volume. Among them, only about 1% were in sectors likely to be significantly impacted by U.S. tariffs. For these users, we have already adjusted our transaction and asset allocation strategies to mitigate potential impact from tariffs.

On the policy side, U.S.-China tariff talks have achieved some encouraging progress, and we view that as a positive for both credit demand and asset quality. However, the global trade landscape has been shifting quite a bit this year, and this has added uncertainty to China's macro environment and may affect people's consumption sentiment. Micro exports could put pressure on areas such as CapEx and household consumption. In April, out of caution, we slightly tightened our risk strategy. So far, overall risk levels have remained largely stable. We will continue to monitor how the tariff situation impacts risk performance and dynamically adjust our strategy as needed. In addition, our diversified business model also makes us more flexible to react to the potential challenges. For your second question, CFO, you can answer it.

Alex Xu (CFO)

Sure, Emma. As you know, this ADR delisting basically resurfaced every few years, depending on the U.S. side of a political need. Given that, you know, in early May, the U.S. and China entered into at least a tentative kind of agreement on the tariff. So, you know, compared to early April, I think the delisting risk clearly kind of reduced by quite a bit. But with that said, we have been carefully evaluating the potential risk of the delisting. I think we are well prepared, and we have a very clear plan to respond, what if, kind of a scenario. As you know, in November 2022, we completed the secondary listing in Hong Kong. This basically has given our shareholders more flexibility. They can choose to continue trading in the U.S. or move to the Hong Kong market.

Even in the worst-case scenario, where, when our ADS are forced to delist, investors would still be able to trade on our shares seamlessly in Hong Kong. As for liquidity, currently about 99% of our trading volume is in the U.S. market. In Hong Kong, obviously, it is very, very light. This is mainly because U.S. trading offers investors more flexibility and relatively low transaction costs. However, if a forced delist were to happen, all the trading would probably naturally shift from the U.S. to Hong Kong. Accordingly, the liquidity in Hong Kong will, you know, for sure, improve significantly at that point, and our Hong Kong listing would automatically convert from a secondary listing to a primary listing in accordance with the Hong Kong exchange rules. Okay.

We only need to file some additional document after that, conversion or, I mean, secondary to primary convert happening, as after providing the document support. Therefore, we believe the secondary listing that we already have already provides sufficient protection for our shareholders. We will continue to obviously monitor as the situation evolves and take, you know, correct measures, based on our ongoing assessment on this matter. Thank you.

Operator (participant)

Thank you. Your next question comes from Cindy Wang from China Renaissance. Please go ahead.

Cindy Wang (Analyst)

[Foreign language] Thanks for taking my question. In first quarter, the number of new users with approved credit was down 9% sequentially, but the CAC up 23%. What is the reasoning behind it? Since April, the trade war may cause a potential slowdown in loan demand. Has it affected the quality of new borrowers? Have you adjusted customer acquisition strategy?

How do you expect the customer acquisition cost in second quarter? Thank you.

Haisheng Wu (CEO)

Okay, Cindy. First, the increase in unit customer acquisition cost in Q1 was mainly driven by change in our business mix. About 30% of our sales expenses came from API channels in the quarter. Unlike other channels, we pay channel fees for both new borrowers and repeat borrowers for APIs. When we calculate cost for users, we only count new users, not repeat ones. When API channels contribute to a higher percentage of loan volume, it pushes up our unit acquisition cost. However, the API channels are generating incremental loan volume for the company, and the acquisition cost for loan through API is much lower than in-feed marketing. We are able to recover the cost with just the first loan issuance.

In addition, we increased spending on in-feed marketing this quarter to reach higher quality users. Although these channels usually have higher acquisition costs compared to others, such as app stores or data-driven marketing, users from these channels tend to deliver stronger and healthier value in the medium to long term. We have also tried new strategies in this space, tailoring our approach to different pricing segments and applying different operations across a four-year journey. Furthermore, I want to say that we pay more attention to the efficiency of customer acquisition rather than the cost of customer acquisition. As we optimize the entire acquisition journey, the end-to-end approach has made our targeting more accurate in terms of both user quality and intent. This, in turn, boosts our overall lending efficiency for new users.

This quarter, our conversion rate from new credit line users to new borrowers reached 74%, up from around 55% in the same period last year. That is to say that our end-to-end customer acquisition efficiency remains very healthy. Since the start of Q2, users' credit needs have been affected by the ongoing trade tension, which in turn will also have a certain impact on our customer acquisition efficiency. Going forward, we will continue to closely monitor changes in the macro environment and the competitive landscape, and adjust our acquisition pace accordingly. We will also carefully evaluate our acquisition cost against the LTV of new users and further optimize our channels to improve efficiency. Thank you.

Operator (participant)

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

Yada Li (Analyst)

[Foreign language] l'll, do the translation.

My question is, given the policy stimulus to promote domestic consumption, looking ahead, how to view the trend of loan demand, funding liquidity from bank partners, and the company's loan strategy? Aiming this recovery environment, can we expect that the company can maintain a low funding cost in the long run and may adopt a more proactive loan strategy in the future? That's all. Thank you.

Haisheng Wu (CEO)

Okay, Yada. Since the start of the year, China has rolled out a range of supportive policies aimed at boosting consumption, such as trading subsidies and guidelines for stronger support to consumer lending. These measures have made a positive impact, as we can see in the quarter in the Q1 macro data. Retail sales were up 4.6% year-over-year, beating market expectations. Credit demand on our platform was also slightly better than typical seasonal trends.

On the funding side, the government announced cuts to both the interest rate and the reserve ratio in May. We expect the funding environment to remain relatively supportive this year, with some room for a further decrease in funding costs. In addition, we plan to further expand our ABS issuance and optimize our funding structure. Overall, we expect our funding cost for 2025 to decrease slightly from Q1 levels. Finally, about our lending strategy, I think it really depends on the risk outlook and the customer demand. Although our risk indicators remain largely stable at the moment, there is still some uncertainty in the broader macro environment. Therefore, we will continue to maintain a prudent strategy, pursuing high quality and sustainable growth. That is all. Thank you.

Alex Xu (CFO)

Yeah, Yada, I just want to add one, a little point here.

As you know, we are very much focused on the Take Rate of our portfolio. As in our previous discussion with the market, you know, we communicated that we continue to see from a four-year basis, we'll continue to see improvements this year, 2025 versus 2024, in terms of the net Take Rate, assuming there's no dramatic macro changes from now to the year end. I think that's still the assumption we're looking at, and I think that's still on target. Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I'll now hand back to management for closing remarks.

Haisheng Wu (CEO)

Okay. Thank you, everyone, again, for joining us for this conference call. If you have any additional questions, feel free to contact us offline. Thank you.

Operator (participant)

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.