Lufax Holding Ltd. Q2 FY2023 earnings call

• China's macro economy showed progress towards growth targets but had complex indicators. SBOs remained under pressure. - The company doubled down on cost optimization, adjusted strategy for U-shaped recovery, and advanced towards 100% guarantee model. - Consumer Finance business is becoming increasingly important. - Focused on strong regions, enhanced direct sales channel productivity, and upgraded risk control models with AI plus expert model and improved credit loss forecast model.

In the second quarter, the SBO segment faced challenges with new loan sales declining sequentially due to a weakened loan demand from SMEs and operational prudence. The C-M3 ratio stabilized but remained elevated. The Consumer Finance segment saw healthy growth: total outstanding balance of consumer finance loans was CNY 33 billion, up 31% year-over-year and 11% sequentially; NPL ratio improved to 2.2%; consumer loans accounted for 33.5% of new loans enabled in the second quarter, compared to 24.4% in the first quarter. Revenue from SBO contributed less due to the decline in loan balance, while Consumer Finance contributed more.

• Full year new loan sales expected to be in the range of CNY 190 billion to CNY 210 billion. - Take rate expected to improve to 13% to 14% for all new loans by the fourth quarter. - Impairment costs expected to remain at an elevated level of roughly CNY 3 billion per quarter through the remainder of 2023, with the driver shifting to provisions for new loans under the 100% guarantee model in the second half.

• Challenging macroeconomic environment for SBOs with slow recovery. - Elevated insurance premiums from credit enhancement partners putting pressure on take rates. - Potential impact of property downturn on SME loan demand.

Q: Have you noticed any change in SME loan demand, application volume, and sign of sequential recovery?

A: Market demand is weak, high-quality loan demand for SBOs is weak, and it will take time for SBO loan demand to turnaround.

Q: What drove the lower full year loan growth plan and details on loan mix?

A: Loan growth plan lowered due to macro demand recovery delay and strategy of prioritizing quality over quantity; consumer finance loans will make up a greater portion of new loans enabled.

Q: Progress on transition to 100% guarantee and product strategy?

A: 46 out of 84 funding partners agreed to extend under new model, covering all types of institutions; new product strategy focuses on higher-quality borrowers, with pricing around 20% while targeting better credit quality.