LexinFintech Holdings Ltd. (LX) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to Lersing's second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star followed by one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Head of Capital Markets, Mr. Will Tan. Thank you. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our second quarter 2026 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our chairman and CEO, Mr. J. Wenqiqiao, who will provide an update on on overall performance and the strategies of our business. Our CRO, Mr. Arvin Zhang Wenchao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zeng, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which will also apply to this call, as we will be making forward-looking statements. Last, please note that all figures are presented in Renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Please kindly note, Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I am now pleased to turn over the call to Mr. Jay Wenjiexiao, Chairman and CEO of Luoxing.

Thank you. 第二 收紧风险管理 保持资产质量的稳定 公司主动压降资产规模 审慎控制新增资产 确保新增资产风险稳定可控 提升业务发展的长期安全性 第三 加强财务管控 提高运营效率 我们重点推进应收账款和保证金的回收工作 实现担保住在余额 有序平稳下降 保障公司的资金安全与运营稳定 第四 坚定推进多元化的战略 加快推动业务的结构转型 在非铸带的业务上 公司具备多年积累的生态业务优势 我们持续加快从担保铸带向科技富人转型 为未来的恢复打下比较好的基础 公司始终坚持合规经营放在首位 在当前行业的维系之下 仍然保持经营韧性 拥有持续的造学能力 长期经营安全可靠 下面我介绍一下公司二季度的具体情况 二季度公司实现交易额554.3亿元 营收31.9亿元 净利润1.01亿元 资产风险指标方面 受行业影响 录吹率有所上升 但出吹率也相应有所改善 面对行业的变化 我们对公司的长期发展仍然坚持信心 主要来自以下几个方面 第一 公司始终深耕场景 科技零售业务独特优势 在政策导向和需求增长下 我们预计未来科技零售业务拥有良好的成长空间 公司将不断完善我们的供应链体系 围绕用户刚需场景消费需求 提升平台的经营效率 第二 出逼数字科技业务保持较快增长 持续满足持牌机构优质资产的需求 公司多年深耕数字科技领域 行业优势显著 二季度2B数字科技业务以来较好的增长 实现了规模化的盈利 这项业务符合未来监管的导向 具备长期商业价值 我们将持续加大投入 第三 AI落地富人业务降本显著 AI在业务全链条已经落地 效果比较显著 已上线100多个AI智能岗位全面覆盖策略智能化生成 合规教验待货管理智能客服等业务场景 助力公司完成降本目标 二季度公司运营成本环比下降17.6% 随着AI技术的持续落地 我们预计三季度公司成本将进一步下降 展望未来,单个事件带来的冲击仍将继续,行业依然存在较大的不确定性,我们将继续审慎经营,第一,我们将继续加强经营管理,优化财务状况,推进电商多元非住在业务发展,坚定应对行业危机的信心,第二,我们把分红政策调整为一年一次,为业务的转型提供充足的资金储备和安全编辑, 第三 加快AI投入 游记赛科技富人领域落地应用 联合合作伙伴加快资金的恢复 伴随行业逐步明朗 我们将结合公司的情况 积极探索多元股东回报政策 让大家更好地分享公司成长的收益 接下来我把发言时间交给二位 谢谢大家 Hi, everyone.

Let me start by sharing our business performance for the second quarter of 2026. Since the second quarter, the industry operating environment has faced ongoing headwinds. Most notably, in late June, risk events involving certain peers triggered a widespread tightening and even suspension of funding supply across the industry, severely impacting the industry landscape and shaking market confidence. As a result, our loan facilitation operations across both online consumer finance and offline inclusive finance were materially affected. We swiftly took the following decisive measures to mitigate the impacts on us. First, driving cost efficiency to enhance resilience through market cycles. We rapidly streamlined our organizational structure, optimized headcount, and accelerated AI adoption. These measures effectively reduced operating expenses. and enhanced our long-term sustainability through industry cycles. Second, tightening risk controls to maintain stable asset quality. We proactively scaled back overall loan volume and adopted a prudent approach to new loan origination. This ensures the risk profile of new loans remains well controlled, safeguarding the long-term stability and resilience of our business. Third, strengthening financial discipline to enhance operational efficiency. We prioritized the recovery of receivables and security deposits and drove a measured and steady scale down of facilitated loan balance, safeguarding our funding security and operational stability. Fourth, advancing our diversification strategy and accelerating business transformation. In our non-loan facilitation operations, we leveraged years of ecosystem advantages to accelerate our transition from a guarantee-backed model to a tech-empowered model, laying a solid foundation for business recovery. We have always placed compliance at the forefront of our operations. Additional resilience, maintain organic cash generation capability, and ensure long-term operational safety and reliability. Now, let me walk you through our second quarter business performance. In the second quarter, we achieved a loan volume of 55.43 billion RMB, generated revenue of 3.19 billion, and net profit of 101 million RMB. On the risk front, while day one delinquency ratio picked up due to broader industry headwinds, our 30-day collection rate showed an improvement. Despite current industry volatility, we remain confident in our long-term prospects. Let me explain why. First, our deep integration with consumption scenarios gives our e-commerce business unique advantages. Supported by favorable policies and growing consumer demand, we expect our e-commerce business to enjoy healthy growth going forward. We will continue to refine our supply chain system around essential consumer needs and enhance overall operational efficiency. Second, our fintech empowerment business serving corporate clients maintains rapid growth, continuously satisfying licensed institutions' demands for high-quality assets. Backed by years of expertise in digital technology, we have established a clear market-leading position. In the second quarter, our fintech empowerment business delivered solid growth and achieved profitability. As this business well aligns with future regulatory directions and has long-term commercial value, we will continue to increase our investments in this area. Third, AI adoption across our operations has delivered tangible cost savings. AI has been effectively deployed across the entire business processes. Over 100 AI agent roles are currently deployed across key operational scenarios, such as intelligent strategy generation, compliance check, post-loan management, and smart customer services, all contributing to our cost reduction targets. In the second quarter, our operating expenses decreased by 17.6% quarter over quarter. As AI adoption continues to gain traction, we expect further cost reductions in the third quarter. Looking ahead, the impact of the standalone event may persist, and industry uncertainties remain significant. We will continue to adopt a prudent operational approach by adopting the following initiatives. First, we will continue to strengthen our operational management, improve our financial position, and advance the development of non-loan facilitation business, like e-commerce, to navigate this industry headwind with confidence. Second, we are adjusting our dividend policy to an annual distribution to provide sufficient capital reserves and a financial buffer for our business transformation. Third, we will accelerate AI investment, particularly in the tech-empowered service space, and work with our partners to expedite the recovery of funding supply. When industry certainty gradually emerges, we will actively explore various shareholder return initiatives in light of our own circumstances, enabling our investors to better share in the value created by the company. With that, I will now turn the call over to our CRO Arvin.

Thank you. 已经供给进一步收紧新增放款大幅下降 我们预计存量资产风险环比仍将面临上行压力 叠加余额规模持续收缩 90 家余额不良率预计仍将上涨 在存量资产风险管理方面 我们持续加强入垂管理 差异化还款短信提醒等多种方式来控制存量风险上升幅度 同时加大风险波位计题,保障存量资产规模有序压降退出 在新增资产风险管理方面,二季度我们针对行业新的风险形式 持续收紧新增放款标准,二季度新放款FPD30环比QE小幅上涨4.6%左右 三季度我们会继续加强审核以及多头管控 收紧准入标准 拦截高风险资产 确保新增资产风险保持稳定 在风控能力升级方面 我们持续加大AI风控能力 探索和建设 并且取得了不错的成效 在信贷审批领域,我们成功推动信审Agent存辅助人工决策走向自主封控决策,其自主拒绝的风险识别能力达到人工审核的三倍,符合建议达到人工的1.2倍,并仍在快速迭代升级。 此外,我们正在开发内部封控Agent专家平台,打通底层大数据,汇集各种封控角色专业技能与本地大模型算力的闭环,让大部分封控任务实现AI专家化与标准化。 这一举措不仅将通用风险模型和常规策略的产出效率提升了5倍以上 更为我们未来向行业进行科技输出 风控负能做好能力储备 展望未来 虽然短期受行业影响风险有所波动 但我们有信心在严控风险的前提下 保障存量资产有序压降 新增资产质量平稳运行 In the second quarter, under the ongoing impact of the new regulations, funding supply across the industry remained tight, leading to a rebound in asset risk within our existing portfolio.

Day 1 delinquency ratio across our total assets rose by roughly 9.5% quarter over quarter, while 90-day plus delinquency ratio rose from 3.5% to 3.6%. In the third quarter, as funding supply tightens further and new loan originations drop sharply, we expect risk indicators on our outstanding loan portfolio to continue trending upward on a sequential basis. Compounded by a shrinking loan balance, the 90-day plus delinquency ratio is expected to rise further. Regarding the risk management of our existing portfolio, we continue to strengthen early-stage collections and implement differentiated SMS repayment reminders, among other measures, to control the magnitude of risk elevation. Meanwhile, we are setting up provisioning and ensuring an orderly runoff of these existing assets. On the new loan front, we proactively raised our underwriting standards in response to the evolving risk landscape during the second quarter, limiting the quarter-over-quarter uptick in FPD30 to a minor level of around 4.6%. For the third quarter, we will maintain tight entry criteria, strengthen risk assessment for borrowers with cross-platform debt, and filter out high-risk applicants to maintain a stable risk profile for our new loans. On the technology front, our continued investment and explorations in AI-driven risk control are yielding meaningful results. In credit approval, our credit assessment agent has evolved from merely assisting human reviewers to making autonomous decisions. Notably, its risk detection capability is three times that of manual review for autonomous rejection and 1.2 times for review recommendations, and it continues to iterate rapidly. Beyond that, we are building an internal risk control agent expert platform by integrating underlying big data, domain expertise across risk management roles, and localized LLM capabilities into a seamless closed loop. We are enabling AI-driven expertise and standardization across the majority of our risk management tasks. This initiative has not only boosted the output efficiency of general risk models and routine strategies by over five times, but also positioned us well for future tech empowerment and risk solution offerings to the industry. Looking ahead, while risk may experience short-term fluctuations due to industry headwinds, we are confident that, with stringent risk control in place, we can ensure an orderly runoff of existing assets and steady asset quality for new loans, laying a solid foundation for sustainable operations. Next, I will hand over to our CFO James to provide a review of the company's financial performance for the second quarter.

Thanks, Arvin. I will now provide a detailed overview of our second quarter financial results. Please note that all figures are presented in renminbi terms, and all comparisons are made on quarter-over-quarter basis, unless otherwise stated. During the second quarter, we continue to advance our business transformation and the new regulatory framework that took effect in the in the fourth quarter last year, achieving progress that largely met our expectations. However, the landscape has shifted notably just before the second quarter ended. Before I dive into our second quarter financial details, I would like to briefly address recent developments that have created some uncertainty for the industry. Recently, risk events evolving certain industry players have triggered heightened regulatory scrutiny. This raised caution among funding partners, leading to an ongoing sector-wide tightening of funding supply. This has impacted loan volumes across industry, including Le Xing. That being said, I would like to emphasize two key points to our investors. First, compliance has always been our operational bottom line. We have never engaged in any similar non-compliant practices, and our business operations stand up to strict scrutiny. Second, we currently have a cash position of $2.5 billion, which provides a financial buffer to help us navigate industry volatility and ensure the steady operations of our business. I will talk more about the impact of these recent developments and our countermeasures later in my remarks. With this context, let's now review our second quarter financial performance. During the second quarter, total loan origination volume was $55 billion, representing a 4.3% decrease sequentially due to the continuous decline in our consumer finance business and partially offset by the steady growth of our fintech empowerment business and e-commerce business. Total revenue came in at $3.2 billion, and net income stood at $101 million. Now let me dive into the details and walk you through the key numbers. First, the net revenue of the credit business, which is derived by adding up credit facilitation service income and tech empowerment service income, net of credit costs, which consists of provisions and fair value changes and funding costs, was 981 million representing a 32.5% or 473 million decrease quarter over quarter. This was due to the decline of both credit facilitation service income and the tech empowerment service income. Specifically, credit facilitation service income representing our capital-heavy business decreased by 43.6% to $508 million, primarily driven by lower loan volumes in our online consumer finance business. rising funding costs, and our prudent decision to maintain adequate provisioning. Meanwhile, our tech empowerment service income, representing our capital life business, decreased by 14.4% to $473 million. This was mainly attributable to the revenue decrease from value-added services and the scale-down of legacy ICP portfolios. Second, net revenue of the installment e-commerce bins, defined as the installment e-commerce revenue net of cost of inventory sold, increased by $122 million to $329 million. So, the total net revenue summing the credit bins and the installment e-commerce bins added up to $1.3 billion, a 21.1 percent or $351 million decrease quarter over quarter. On the expense side, operating expenses, including sales and marketing, research and development, general and administrative expenses, and processing and and the servicing costs decreased by 17.6% or 244 million to 1.2 billion. Tax and others decreased by 9.3% or 6 million to 62 million. Consequently, total expenses added up to 1.2 billion, a decrease of 17.2% or 251 million by deducting the total expenses of 1.2 billion from the total net revenue of 1.3 billion we arrived at a net income of 101 million a decrease of 49.7 percent or about 100 million quarter over quarter to sum up the decrease in this quarter's net income was largely attributable to three combined factors, a revenue decrease resulting from the ongoing scale down of our loan facilitation business due to regulatory impact, an increase in provisioning driven by our prudent risk approach, and despite our cost optimization efforts, expense reduction lacked top-line contraction, temporarily squeezing our near-term profitability. Now, I would like to walk you through the three key highlights from this quarter. First, the growing diversification of our business mix. While our overall loan origination volume experienced a minor decline of 4.3% in the second quarter, our fintech empowerment service successfully bucked the trend with continued growth of 8%. As a result, the loan volume contribution from our fintech empowerment and e-commerce business has now reached 45%. As we discussed last quarter, the steady expansion of our fintech empowerment business continues to lay the groundwork for highly visible long-term revenue pipeline and higher asset quality. Complementing this pivotal shift, our installment e-commerce business maintained a steady momentum, continuing to serve as reliable stabilizer for a broader portfolio. Second, the solid growth and expanding profitability of our installment e-commerce business. Consistent with our strategy from the previous quarter, We maintained a disciplined approach, prioritizing asset quality and risk control over sheer volume expansion amidst the current macro environment. As a result, our e-commerce loan volume maintained stable at $2.3 billion. More importantly, our ongoing focus on operational refinement yielded solid profitability improvement. Gross profit for this segment reached $329 million, representing a 58.7% increase, while gross profit margin expanded from 9.4% last quarter to 14.1%. By seamlessly integrating consumption scenario into our broader ecosystem, this segment continues to serve as a valuable revenue driver, adding another layer of resilience to our diversified revenue streams. Third, our prudent provisioning strategy. The industry dynamics unfolding in late June, including a tightened funding supply and as anticipated, upward tick in sector-wide risk resulting from peer-level risk events, which I've noted earlier, have introduced a new market complexity. Incorporating these cautious forward-looking industry expectations into our risk assessment models, we adopted a more conservative provisioning approach for our second quarter portfolio. As a result of this strict and prudent stance, our overall credit cost increased 9.6% sequentially to 1.4 billion during the quarter. To better understand of our provisioning, let's look at our gross provision metrics. By stripping out the net accounting impact of fair value changes, our gross provision ratio for new capital heavy loans was at 7.8% higher than the last quarter. Furthermore, our provision coverage ratio remained robust at 230%. Now let's move on to our operating expense items. On the cost and expense side, our total operating expenses decreased by 17.6% or $244 million to $1.1 billion, mainly due to the decrease of the sales marketing expenses of $165 million and partially offset by a one-time decrease in G&A expenses driven by costs associated with our organizational optimization. For balance sheet items, as of June 30th, our cash position would include cash, cash equivalents, and the restricted cash was approximately 2.5 billion. Shareholders' equity remains solid at about 12 billion. Now turning to our business outlook. As I mentioned earlier, the recent risk events involving certain players have created sector-wide impacts and Le Xin has not been immune to these tech wins. Specifically, we are facing two main challenges. First, a contraction in new loan volumes. And second, the liquidity squeeze resulting from funding supply has constrained some borrowers' cash flows and could potentially impair their repayment capacity, leading to increased risk volatility in the coming quarters. Against this backdrop, we are taking proactive and decisive measures to navigate this environment. First, we are maintaining dialogue with our funding partners to reinforce mutual trust. This ensures that we are well positioned to resume normal funding supply as soon as the market conditions permit. Second, amidst the industry-wide funding squeeze, we are prioritizing cash flow management. while drug optimization and operational efficiency including staff reduction to safeguard our core business fundamentals. Third, like Jay mentioned earlier, we are proactively exploring new business models centering on technology empowerment services for B and consumers. These initiatives will safeguard our long-term sustainable growth and lay a solid foundation for our future business trajectory. Looking ahead, given the regulators heightened their scrutiny to resolve the risks associated with certain industry players, along with the potential introduction of new industry regulations, we have limited visibility on when funding partners will resume normal operations, and the exact timeline for our loan volumes to normalize remains uncertain. Compounded by the industry-wide liquidity squeeze, we expect our revenue to further decrease and the credit risks and the costs to trend upward in the third quarter, for which we will make adequate provisions. Additionally, we have initiated a series of organizational optimization to navigate industry uncertainties with the resulting one-time expenses primarily recognized in the third Consequently, we expect the company to record a net loss in the third quarter. As for the reminder of the year, due to the limited visibility at this time, we will provide further guidance as the year progresses. In light of ongoing industry uncertainties, the board has made a decision to adjust our dividend distribution policy from a semi-annual to annual payment. Therefore, any potential dividend declarations for 2026 will be assessed when we announce our fourth quarter results in early 2027. This proactive step allows us to optimize liquidity, fortify our core operations, and maintain strategic flexibility needed to navigate near-term market volatility. I want to emphasize that delivering shareholder value remains our top priority, and we view this as a prudent adjustment that may be temporary as the market visibility improves. The board will actively reassess our capital allocation strategy and explore renewed initiatives to drive shareholder returns. In conclusion, while navigating this industry-wide transition, we are taking decisive and proactive measures to safeguard our liquidity, protect the long-term shareholder value, and pivot ourselves for sustainable growth once the market normalizes. Operator, we are now ready to open the lines for questions.

Thank you. As a reminder, to ask a question, you need to press star 1 and 1 on your telephone for For the benefit of all participants, if you wish to ask your questions to management in Chinese, please translate them to English. One moment for the first question. Our first question comes from the line of Judy Zhang of Citi. Your line is open. Please go ahead.

Thank you for the first question. I have two questions. Let me translate. I've got two questions. The first question is, what's your take on the recent risk events in the industry? How has it affected the industry and your business? And what steps are you taking in response?

And second question is, how do you expect the risk trend to evolve in the third quarter? 已经涉嫌刑事犯罪 后续将催生更多的一些监管政策的出台 我们也预计行业的流动性和供给将会持续的收紧 收缩期将会显著的延长 公司始终坚持合规的经营 不存在该机构所涉及的问题 但我们也与行业一致受到了资金供给的收紧影响 7月住在业务受到较大的冲击 新增放缓明显的收缩 整体的资产质量也会随着行业进行一定的波动 公司拥有充足的资本储备及持续的造学能力 能够满足各项运营和需求 公司扔在主要资金合作伙伴的白名单中 确保能尽快恢复的放管 风险拨备也是非常的充足 存量的资产可以有序的压降退出 This is the translation for Jay's remarks The recent recent events involving certain peers

have triggered a crisis of confidence among funding providers causing a broad-based tightening and even suspension of funding supply across the industry That said, these are isolated cases though they do involve potential criminal conduct and we wouldn't be surprised to see more regulatory measures followed. We expect funding supply in the long facilitation sector to remain tight for a while and the adjusting series will likely last longer than initially expected. As for us, we've always operated strictly in compliance with regulations and we don't have any of the issues at this institution, but we're not immune to the broader industry trend. With funding supply tightening, our loan facilitation business took a meaningful hit in July. As a result, new loan origination have contracted notably and that's the quality is facing further volatility in line with the broader market. That said, we are in a solid position. We have ample capital reserve and organic cash generation capability to meet the needs of ongoing operations, remain on the white list of major funding partners, which should allow us to resume long-term origination as soon as conditions allow. And we have sufficient provision in place to manage and orderly wind down existing

portfolios. 面對新的行業環境,公司經營戰略正在加速調整. 我们将聚焦以下核心的几个方向 第一 我们还是要坚持多元化的战略 加快推动科技的转型 经济持续增长 为信贷需求提供了底层的支撑 金融机构合规自营将成为行业的趋势 公司顺应这一趋势 大力发展科技富人模式 利用平台流量 风控AI科技及运营能力 全方位助力金融机构发展自营业务 实现低风险可持续的 In response to the new environment, we are accelerating our transaction, focusing on the

few key areas. First, we are doubling down on our diversification strategy and accelerating on our tech empowerment transition. As economic growth continues to provide underlying support for credit demands, we see a clear industry trend for financial institutions to develop their own lending business compliantly. We are well positioned to ride this trend with our tech empowerment and model, i.e. leveraging our capabilities in traffic, risk management, AI, and operations to help financial institutions grow their own blending business in a low-risk and sustainable way. We've been building our ecosystem for years and we are advancing a transition for guaranteed-backed long-surgitation model to a tech-empowered model and that position as well for long-term sustainable growth ahead. Meanwhile, it's worth stressing that our e-commerce business will keep growing steadily and continue to contribute profit.

These diverse businesses are our differentiated advantages compared with our peers. 调整后组织响应速度会更快 能效会显著的提升 长期持续运营和应对周期变化的能力将进一步得到加强 为公司转型发展提供有利的保障 AI驱动运营的升级 公司将人工智能技术更深入的嵌入到核心运营 风险客户服务等各环节 通过AI智能化精简升级 升级经济流程 提升效率 进一步压价经营成本 确保公司在周期波动中保持精益的运营能力 载完未来 我们认为住在行业监管和资金收缩的态势 短期之内不会改变 恢复需要更长的时间 短期内公司将继续审慎的经营 确保风险资产有序压价 中长期通过科技富人金融机构与AI驱动运营效率的提升 加速向科技模式转型 以适应监管新常态并为长期稳健增长奠定基础 Second, we are driving cost efficiency to strengthen our ability to navigate industry cycle

We've rolled out a series of organizational streamlining and efficiency measures and we expect management costs to come down by 30 to 40%. As a result, we are seeing faster decision-making, significantly higher productivity per employee, and a stronger foundation for long-term operational sustainability and resilience to market cycles, all of which create a runway we need to execute our transformation. Third, we are deepening our AI integration across the board in key operations, risk management, and customer services. By embedding AI more deeply into our processes, we are simplifying workflows, improving efficiency, and further reducing operating costs so that we stay lean and agile even in a volatile environment. Looking ahead, we don't expect the regulatory and funding environment to ease any time soon. Recovery will take time. In the near term, we will stay disciplined, continue to adopt prudent operational approach and ensure an orderly wind-down of risk assets. Over the medium to long term, we will accelerate the transition to a tech-empowered model by empowering financial institutions with our technology solutions and driving our operational efficiency through AI, so that we are well adapted to the new regulatory landscape and position for long-term sustainable growth. Thanks.

In the third季度, we预估住贷资金供给将进一步收紧, and we will be able to do the threat and control and control.

We will be able to increase the increase in the next phase.

We will be able to increase the potential of the assets, and will be able to increase the pressure of K2. We will be able to increase the increase in the next phase. We will be able to increase the increase in the 90% increase in the 90% increase. 预计也将有一定的一个上涨 同时在这个催修方面 因为行业合规收紧以及近期政策的一个影响 预计回款率也会受到一定的一个影响出现 一定的一个下降 针对这个行业风险 我们持续加强这个审慎的风险管理策略 然后足额的进行风险拨备计题 This is the translation for Arvind's remarks.

Following the industry risk event in late June, we did see some volatilities in a few risk indicators recently, driven by a sector-wide liquidity shock. Looking ahead to Q3, with funding supply tightening further and active risk management measures in place, new loan originations will decline materially. As a result, we expect existing portfolio risk to remain upward pressure sequentially. Compounded by a further contracting loan balance, the 90 days plus delinquency ratio is expected to rise further. On the collection side, due to the industry-wide regulatory campaign and higher compliance requirements for long collection practices, our collection rate will also see a decline. That said, with our prudent risk approach and adequate provisioning, we have the capability to manage an orderly wind-down of existing risk assets. Our goal is to keep any risk fluctuations within our risk appetite.

Thank you for the question. Please hold for our next question. The next questions will come from the line of Alex Yeh of UBS. Your line is open.

Please go ahead. 管理先生好,我想请教一个问题是在当前行业风险事件的影响下,如何展望今年下半年的一个财务表现?

So, my question is, given the impact of recent industry risk events, how should we think about the financial performance for the second half of the year?

This is James. I'm going to take this question. Looking ahead to the second half, the overall market visibility still remains limited given the ongoing uncertainties around the funding supply recovery and the regulatory trends. so as a result we are not providing any specific financial guidance at this point however against the backdrop of sector-wide liquidity tightening we expect our third quarter performance to be under pressure mainly due to the following factors on the revenue side obviously the sector-wide funding tightening had a material impact on our new loan originations in supply into in in July and August, the last two months. If this situation continues, our Q3 loan origination volume will come down a lot, which will directly weigh on our top line. On the cost and expense side, there are two structural factors at play. One is the credit cost. Liquidity tightening across the sector has led to an uptick in default risks within our existing portfolio. In line with our prudent risk management approach, we will set aside sufficient provisions for the associated potential risks, which obviously will drive up the credit cost for the quarter. Second, the operating expenses. In Q3, we proactively streamlined our organizational structure, optimized headcount, and enhanced efficiency. This generated one of severance-related costs, which will temporarily drive up our G&A expenses for the quarter. Over the long run, however, the benefits of these cost savings and efficiency initiatives will gradually flow through to our financials. So if I factor in all of this, we expect the company to record net loss in the third quarter. For Q4, we'll update our business and financial guidance as we get more clarity on the regulatory front. While the short-term performance is under pressure, we are steadily resolving existing portfolio risks, advancing our technology-empowered transformation and driving organizational efficiency. This will for sure solidify our capitalized operation foundations and position ourselves well for steady, resilient growth and the new regulatory cycle.

Thank you for the questions. Our next questions will come from the line of Yu Jie Jing of CICC. Please go ahead.

Let me quickly translate my question. Following the change to your dividend policy, How should we view your long-term plans to return value to shareholders? Thanks.

In response to the recent industry volatility triggered by recent events at certain tiers, The Board, after careful evaluation, has decided to change our dividend distribution from a semi-annual to an annual schedule. The Board believes that maintaining and financial flexibility and preserving sufficient capital resources in the financial buffer for our business transformation will help us navigate the industry adjustment more smoothly and that in turn will better protect long-term shareholder interest I would like to stress that our commitment to creating and returning value to shareholders has not wavered as the industry gradually recovers and the business performance improves over time the board will actively evaluate a range of shareholder return options including share buybacks based on our specific circumstances at that time thank you thank you for the

questions at this time there are no further questions from the line I would like to hand the call back to management for closing.

Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

That concludes today's conference call. Thank you for your participation. You may now disconnect.