CNFinance Holdings Ltd. Q4 FY2023 earnings call

• Promoting commercial bank partnership and enriching product mix: Originated loans of RMB 5 billion under commercial bank partnership in 2023 with net revenue of approx. RMB 88 million, and outstanding loan principal was RMB 4.3 billion as of Dec 31, 2023.
• Optimizing funding structure: Negotiated with funding partners to optimize funding structure, resulting in 8% lower interest expense in 2023 compared to 2022.
• Continuing to support sales partners: Refined installment policy for repurchasing delinquent loans to help partners alleviate liquidity pressure, with some partners resuming installments and introducing new borrowers.
• Improving asset quality: Shifted business to core areas of Chinese core cities, 90% of loans in 2023 were in Tier 1 and Tier 2 cities; disposed of bulk of nonperforming loans in Q4 2023 to reduce risk exposure and recover cash.
• Using technology to refine credit assessments: Applied property rating system and risk control model from commercial bank partner to improve collateral evaluation and borrower analysis, with delinquency ratio dropping to 15.6% as of end-2023 from 19.2% at end-2022.

In 2023, CNFinance facilitated loans of RMB 17.3 billion, a year-on-year growth of 18%. Interest income increased slightly compared to 2022, while interest expense was 8% lower. Credit loss provision decreased by 23%. Net income for 2023 was RMB 165 million, a year-on-year growth of 21%. Under the commercial bank partnership, in 2023, loans originated were RMB 5 billion, net revenue was approximately RMB 88 million, and as of December 31, 2023, the outstanding loan principal was RMB 4.3 billion. The interest income charged to sales partner in fiscal year 2023 increased by 10% to RMB 125 million from RMB 122 million in 2022. Total interest and fees expense decreased by 8% to RMB 723 million in 2023 compared to RMB 785 million in 2022. Provision for credit losses was RMB 183 million in 2023 compared to RMB 238 million in 2022, mainly due to lower delinquency ratio.

• 2024 major tasks include keeping mix innovation in product mix, prioritizing asset quality by refining risk control mechanism and disposing of nonperforming loans, and strengthening compliance building by refining internal control and conducting regular compliance training.
• Target to achieve RMB 20 billion in total loan origination in 2024, with commercial bank partnership model taking up 30% of loan originations.
• Plan to present to Board of Directors to extend the share repurchase plan for another year.

• Uncertainties associated with China's real estate market which may continue to pose challenges in 2024.
• Compliance risks as the company needs to continuously strengthen compliance building.

Q: With the continued decrease in the borrowing costs, do you think that the rate you've seen in the last quarter is the rate that we should expect you guys to be borrowing at going forward?

A: The average rate charged to borrowers in 2023 was 16.1%, down from 16.3% in 2022, and goal is to keep lowering financing cost for borrowers in 2024 based on market conditions.

Q: Can you talk kind of generally about the demand for the loans that you're seeing in terms of the size and the split between trust and commercial?

A: Due to real estate market uncertainties, loan demand from MSE owners was not as expected in 2023. In 2023, facilitated RMB 12.2 billion under trust lending model and RMB 50 billion under commercial bank model, with commercial bank model taking 30% of total loans originated. Target for 2024 is total loan origination of RMB 20 billion with commercial bank model taking 30%.

Q: You mentioned doing some things like the compliance training and the audits and the increase borrower quality evaluation. Does that tie in at all to the technology upgrades for the platform you've been talking about? Or is that something different?

A: Compliance building and technology upgrades are separate tasks. 2024 will enhance compliance building, and in 2023 invested in collateral evaluation and working with commercial bank partner on big data model for borrower ratings, and will continue to invest in technology in 2024.

Q: The share repurchase plan looks like it expired. Is there any plans to renew that?

A: CFO said they will present to Board of Directors hoping to extend the per share repurchase plan for another year.