Lufax Holding Ltd. Q3 FY2026 earnings call

• Regulatory & Macro Environment: The operating environment remains challenging with weak financing demand for SMEs and subdued consumer finance demand due to cautious household confidence. Regulatory enforcement against debt collection has intensified, causing near-term risk volatility across the industry.
• Strategic Pivot: Management is shifting from scale-driven growth to 'high-quality' and selective customer strategies. This includes exiting high-risk segments and adopting a more cautious approach to downmarket customers.
• Operational Adjustments:
  • Collection Reform: Increased reliance on in-house collection teams to mitigate third-party risks; greater use of judicial recovery channels and AI models to identify high-quality accounts for better recovery efficiency.
  • Product Diversification: The Industry Prism program now covers over 700 sub-industries. A dedicated direct sales team targets quality salary customers for consumer finance, moving towards a full-lifecycle relationship model.
  • AI Integration: Deploying AI-powered digital twins for end-to-end operations (acquisition to management) and planning to extend AI capabilities to pre-loan risk modeling and post-loan intelligent assistance.
• Asset Quality Trends: While Q3 CM3 flow rates increased (Total: 1.2%, Unsecured: 1.2%, Secured: 1.1%) due to macro/regulatory pressures, the NPL ratio for consumer finance loans remained stable at 1.3%. Delinquency rates (DPD 30+ and 90+) showed sequential improvement.

The provided transcript does not break down financial performance by distinct product segments (e.g., Consumer Finance vs. SME Loans) in terms of absolute revenue contribution percentages or separate profit/loss figures for each segment. It reports consolidated Total Income of $6,180 million (down 4.6% YoY). Key income components include Net Interest Income ($3,677 million, up 10.3%), Technology Platform-Based Income ($1,055 million, down 24.1%), and Guarantee Income ($1,020 million, down 24.6%). New loan sales were led by Consumer Finance, which accounted for 68.1% of total new loan sales.

• Risk Outlook: Management expects the risk volatility caused by recent enforcement actions to be temporary, though negative impacts may persist for a couple of months into year-end.
• Growth Strategy: Commitment to prudent operation and 'quality growth' rather than pure scale expansion. No specific numerical forward guidance for loan origination volume or profitability was provided.
• Funding: Expects funding availability to remain sufficient without material constraints, leveraging license advantages and stable partner bank relationships.
• Long-term View: Believes tightened regulation will benefit the industry long-term by supporting healthier competition and enhancing competitive advantages for licensed, compliant players like Lufax.

• Credit Impairment Losses: Significant increase in credit impairment losses driven by actual losses on existing loan assets that underperformed expectations, exacerbated by the challenging macro environment.
• Regulatory Enforcement: Intensified enforcement against the debt collection industry has created operational volatility and compliance risks, impacting collection efficiency and asset quality metrics in the short term.
• Tax Expenses: Non-cash accounting charges related to the reduction of deferred tax assets at financing guarantee subsidiaries, based on current business performance assessments.
• Macro Economic Pressure: Weak domestic consumption and balance sheet repair priorities among households continue to suppress consumer finance demand.

Q: Yuji Jing (CICC) asked about loan origination trends following the digital technology incident and how collections are performing given large asset impairments. / A: Ji Xiang stated Q3 new loan sales reached ~58 billion RMB (+2.5% YoY), with Consumer Finance leading at +25% YoY. Asset quality saw CM3 rise to 1.2% due to regulatory pressure, but is expected to stabilize as selective strategies deepen. Collections were negatively impacted by tighter liquidity and enforcement, but Lufax’s in-house capability mitigates peer struggles. Recovery efforts via judicial channels and AI are being enhanced, though results will take months to materialize.

Q: Richard Xu (Morgan Stanley) inquired if credit loss drivers were one-off or sustaining, and how upcoming regulations might change the business model. / A: Ji Xiang explained that losses stemmed from increased credit impairments due to macro/regulatory pressures and additional tax expenses (deferred tax asset reduction and withholding taxes). He emphasized that risk volatility is temporary. Regulators are enforcing standardization across the value chain, making the old model of offsetting high risks with high fees unsustainable. Lufax is transforming its model to focus on compliance and long-term health, positioning itself well due to its diverse licenses.

Q: Yuxin Qin (Hightower Securities) asked if funding supply remains sufficient despite industry tightening, and why asset quality deteriorated in Q3. / A: Ji Xiang confirmed funding supply remains largely sufficient for Lufax, with stable bank partnerships and declining funding costs (3.6%, down 80 bps YoY). Regarding asset quality, the deterioration was primarily driven by actual losses on existing loan assets, while newly originated loans in 2026 performed within expectations and better than prior periods. Management expects risk volatility to be temporary and plans to optimize the customer mix further.