CNFinance Holdings Ltd. Q1 FY2023 earnings call

• Continued to promote and refine commercial bank partnership, with targeted borrowers having better credit ratings and bank lending products requiring less own capital. The commercial bank partnership model has gained recognition, and loan origination volume of bank lending products grew quickly in the second half of 2022 and continued to grow in Q1 2023.
• Brought sales partners into commercial bank partnership to further reduce risk exposure.
• Reduced funding cost and diversified financing mix, with interest and fees expense in Q1 2023 decreasing 8% year-on-year to RMB180 million.
• Established a couple of funds with third-party AMC and provided funding support for sales partners needing to repurchase significant loans, improving their liquidity.
• Improved asset quality by analyzing historical loan originations, conducting risk factor analysis, refining risk assessment model, and prioritizing business operations, Tier 1, and new Tier 1 cities, resulting in a decrease in delinquency ratio at the end of Q1 2023.
• Focused on increasing loan origination volume and better serving high-quality sales partners.
• Kept promoting commercial bank partnership, refining trust lending model, and exploring opportunities to deepen collaboration with insurance companies.
• Adjusted products based on market conditions and planned to roll out a new bank lending product with an annual interest rate less than 12% in the second quarter of 2023.
• Refined funding model, including maintaining dialogue with trust company partners on adjusting trust plan structure and negotiating with AMCs to reduce their charging interest rates.
• Invested in technology, refined product design and risk assessment, analyzed historical loan data, tailored collateral-based loans in core areas, and rolled out low-interest trust lending products to improve asset quality and resistance to market fluctuations.

In the first quarter of 2023, loan origination volume increased 48% from the same period of 2022 to RMB3.4 billion, including RMB1.2 billion under commercial bank partnership. Net revenue under the commercial bank partnership model came in at RMB21.5 million for the first quarter of 2023. The total interest and fees income for Q1 2023 was RMB450 million, representing a year-on-year increase of 9%. Interest income charged to sales partners was RMB37.5 million. Net income in Q1 2023 increased 14% year-on-year to RMB49 million. Loan origination volume of bank lending products accounted for 35% of total loans originated by the company in Q1 2023.

• Focus on increasing loan origination volume and continuing to better service high-quality sales partners.
• Keep promoting commercial bank partnership, refining trust lending model, and discovering opportunities to deepen collaboration with insurance companies.
• Adjust products based on market conditions and plan to roll out a new bank lending product with an annual interest rate less than 12% in the second quarter of 2023.
• Refine funding model, including maintaining dialogue with trust company partners on adjusting trust plan structure and negotiating with AMCs to reduce their charging interest rates.

• Forward-looking statements involve known or unknown risks, uncertainties, and other factors that may cause actual results to differ materially from forward-looking statements. Further information regarding these risks is in the company's filings with the US Securities and Exchange Commission. The company does not undertake to update forward-looking statements except as required by law.

Q: How should we look at the provision for credit losses going forward for modeling purposes?

A: We have a consistent provision policy based on a model supported by auditors and peers. Sales partners provide good guarantee, delinquency ratio decreased, and macro economy improvement impacts forecast. Future will rely on collaboration with sales partners to control risk and expand scale.

Q: Do you think the proportion of commercial lending will get higher given its fast growth and new product?

A: Loans originated under commercial bank partnership accounted for 35% in Q1 2023. Future proportion will be kept at 35%-40% based on current expectations, and will grow higher if new low-interest product is rolled out.

Q: Are you seeing more demand for traditional lending given macro economy improvement?

A: Lending demand was stable in Q1 2023 compared to same period 2022. Confident in China's economy, but will pursue high-quality development, focusing on asset quality and compliance, with expected total loan origination volume of RMB20 billion for the year.