LexinFintech Holdings Ltd. Q2 FY2026 earnings call

• Industry Headwinds: A risk event in late June triggered a sector-wide tightening of funding supply and suspended operations for some peers, severely impacting Lexin’s loan facilitation business and market confidence.
• Cost Efficiency & AI Adoption: The company streamlined its organizational structure and accelerated AI integration across over 100 roles (strategy, compliance, customer service), reducing operating expenses by 17.6% ($244 million) to $1.2 billion. Management costs are expected to drop further by 30-40% as efficiency improves.
• Risk Management: Proactive measures included lowering asset size, tightening new underwriting standards (FPD30 rose only ~4.6%), and strengthening collections. AI-driven risk agents now offer autonomous decision-making capabilities that exceed manual screening efficiency.
• Strategic Transformation: Accelerating the shift from a guarantee-backed model to a tech-empowered model, leveraging ecosystem advantages in fintech and e-commerce. Fintech empowerment and e-commerce now account for 45% of loan volume contribution.
• Financial Discipline: Maintained a strong cash position of $2.5 billion and robust provision coverage ratio of 230%. Adjusted dividend policy from semi-annual to annual to preserve liquidity for business transformation.

The company reported a total loan origination volume of $55 billion (a 4.3% sequential decrease) and total revenue of $3.19 billion, with net income of $101 million (down 49.7% sequentially). The Credit Business generated net revenue of $981 million (down 32.5%), driven by a 43.6% drop in credit facilitation service income to $508 million and a 14.4% decline in tech empowerment service income to $473 million. The Installment E-commerce Business saw net revenue increase by $122 million to $329 million, with gross profit reaching $329 million (up 58.7%) and gross margin expanding to 14.1%. Together, these segments contributed to total net revenue of $1.3 billion.

• Q3 Expectations: Revenue is expected to decrease further due to contracted loan volumes and tightened funding supply. Credit risks and costs are projected to trend upward, requiring adequate provisioning. The company expects to record a net loss in Q3 due to one-time organizational optimization expenses and higher credit costs.
• Full Year Visibility: Limited visibility on regulatory developments and funding partner recovery timelines prevents specific full-year guidance at this time; further updates will be provided as clarity emerges.
• Dividend Policy: Dividends will now be distributed annually rather than semi-annually. Any potential 2026 dividend declaration will be assessed during the Q4 results announcement in early 2027.

• Liquidity Squeeze: Industry-wide tightening of funding supply constrains borrower cash flows and impairs repayment capacity, leading to increased risk volatility.
• Asset Quality Deterioration: Day 1 delinquency ratios rose ~9.5% q/q, and 90+ day delinquency ratios increased to 3.6%. With a shrinking balance sheet, the 90+ day delinquency ratio is expected to rise further in Q3.
• Regulatory Uncertainty: Heightened regulatory scrutiny following peer risk events may lead to new industry regulations, delaying the normalization of funding supply and loan volumes.
• Revenue Pressure: Structural decline in capital-heavy loan facilitation business combined with lower origination volumes squeezes near-term profitability despite cost optimizations.

Q: Analyst Judy Zhang asked about the impact of recent industry risk events on Lexin and how risk trends are expected to evolve in Q3.

A: CEO Jay Wenjie Xiao explained that peer risk events triggered a trust crisis, causing widespread funding supply tightening. While Lexin remains compliant and on major partners' white lists, it faces meaningful hits to new loan originations. For Q3, he noted that existing portfolio rates will face upward pressure due to liquidity shocks and a contracting balance sheet, though adequate provisions are in place to manage an orderly wind-down.

Q: CFO James Zeng was asked about financial performance expectations for H2 given industry headwinds.

A: Zeng stated that limited visibility prevents specific H2 guidance, but Q3 will likely see a net loss due to falling revenues from tighter funding supply and higher credit costs. Additionally, one-time severance costs from organizational streamlining will temporarily increase G&A expenses. He emphasized that long-term benefits from efficiency gains will eventually flow through, positioning the company for resilient growth once the regulatory landscape clarifies.

Q: Analyst Yu Jiejing inquired about the long-term shareholder return plan following the change to the dividend policy.

A: CEO Jay Wenjie Xiao clarified that shifting from semi-annual to annual dividends is a prudent measure to maintain ample liquidity and financial flexibility for business transformation during the industry adjustment period. He affirmed that commitment to shareholder value remains intact, stating that the Board will actively evaluate other return options, such as share buybacks, once industry conditions stabilize and business performance improves.