CNFinance Holdings Ltd. Q2 FY2023 earnings call

• Continued to promote commercial bank partnership: Loans of RMB3 billion originated under this model in the first half of 2023, accounting for 40% of total origination, with net revenue RMB50 million.
• Continued to reduce funding costs and expand funds for sales partners: Accumulated RMB700 million for supporting sales partners' delinquent loan repurchases.
• Refined credit decisioning mechanism: Optimized borrower assessment, trialed a risk control model, strengthened collateral value evaluation; delinquency rate of company-originated loans dropped to ~15% from 18% at end-2022.
• Future plans: Focus on growth by improving product mix and leveraging technology; shift business to core cities; invest in technology to enhance borrower evaluation; strengthen compliance inspections.

In the second quarter of 2023, total loan origination volume was RMB4.5 billion, a year-on-year increase of 45%. Total interest income was RMB430 million, up 5% year-on-year, and net income was RMB44 million, a 142% year-on-year increase. For the first half of 2023, total loans originated were RMB8 billion, a 43% year-on-year growth. Total interest income was RMB885 million, up 7% year-on-year, and net income was RMB93 million, a 52% year-on-year growth. In the first half of 2023, loans originated under the commercial bank partnership were RMB3 billion, accounting for 40% of the overall loan origination volume, with associated net revenue of RMB50 million.

• Sticking to the target of reaching RMB20 billion loan origination for the year.
• Insisting on high-quality development while maintaining strict borrower and collateral valuation.

• Uncertainties in China's economy and the ongoing downward trend in the real estate market.
• Risks related to market conditions affecting funding costs and potential defaults.

Q: Please provide an update on the demand from SME clients in terms of the number of SMEs trying to take out loans, the size, the type, and how it compares to last year.

A: Overall loan demand for SMEs decreased. New loans in July 2023 were RMB270 billion vs RMB528 billion in July 2022. CNFinance's second quarter and first half 2023 transaction numbers were 60-69 (ph) and 11,812 (ph) respectively, up 18% and 16% y-o-y. Loan origination volume was RMB4.5 billion and RMB8 billion in second quarter and first half 2023, up 45% and 43% y-o-y. Average ticket size increased from ~600,000 in 2022 to ~700,000 in 2023 due to shifting business to Tier 1 and new Tier 1 cities.

Q: Are you still seeing origination growth over the remainder of the year?

A: Still sticking to the target of RMB20 billion loan origination for the year and will continue with high-quality development while maintaining strict borrower and collateral valuation.

Q: Regarding sales partners, the interest on loans to sales partners was down this quarter. What's the reason?

A: This is a positive indicator, meaning fewer defaults and improving asset quality, with fewer sales partners having to repurchase defaulted loans, indicating better performance of sales partners.