Qfin Holdings, Inc. (QFIN) Q2 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to the QFIN Holdings second quarter 2020 earnings conference call. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Karen G, Senior Director of Capital Markets. Please go ahead, Karen.

Thank you, Asia. Hello, everyone, and welcome to QFIN Holdings' second quarter 2026 earnings conference call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO, Mr. Alex Xu, our CFO, and Mr. Zhen Yan, our CIO. Now I will quickly cover the safe harbor statement. Today's discussion may contain forward-looking statements, particularly statements about our business and financial results that are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. These refer to the safe harbor statements in our earnings release, which also contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Everyone, thank you for joining us today. Since the start of 2026, China's consumer finance industry has remained under pressure. According to the People's Bank of China, the outstanding balance of short-term household consumer loans fell by more than R&B 660 billion from the beginning of the year through the end of Q2, reflecting continued voluntary and involuntary deleveraging among households. Meanwhile, regulatory oversight continued to tighten. A series of measures were introduced to close regulatory gaps and promote a healthier, more compliant industry environment. These measures bring the entire credit industry under a stricter framework covering pricing, marketing, funding, collections, and payments. In late June, an unexpected industry event then triggered a crisis of confidence in the loan facilitation sector. This caused liquidity to tighten sharply across the market. Against this backdrop of profound industry adjustment and structural shakeout, we remained committed to prudent operations, prioritizing compliance, risk management, and efficiency over scale. By continuously optimizing our user mix and business structure, we further enhanced operational efficiency and strengthened the resilience of our business model. As of the end of Q2, our AI-powered credit decision engine and asset distribution platform served 168 financial institutions, delivering intelligent digital credit services to over 65 million credit line users on a cumulative basis, we maintained rigorous risk management standards while driving cost and efficiency improvements. In Q2, total loan facilitation and origination volume on our platform reached approximately RMB 63.4 billion, down 2.5% sequentially. Risk metrics continued to improve, accompanied by lower funding costs and greater operating efficiency. Amid a rapidly evolving industry landscape and broad-based contraction in consumer credit supply, we maintain the prudent balance across risk, scale, and profitability, demonstrating strong operational resilience. Risk management underpins every business decision we make and is critical to our ability to navigate industry cycles and achieve sustainable growth. Since the second half of 2025, risk optimization has remained our top priority. By expanding our base of high-quality users and optimizing our business mix, we have kept the risk level of new loans at historical lows. In Q2, our risk indicators continue to improve. The C2-M2 ratio declined by 17% sequentially to 0.66%, approaching the level in Q2 last year. This improvement reflected the benefits of our earlier asset mix adjustments and risk strategy optimization, as well as enhanced post-loan management capabilities. During the quarter, we further refined our pre-loan and in-loan risk strategies with closer monitoring of multiple borrowing and changes in customer liquidity. By analyzing multiple signals including recent customer behavior, external borrowing exposure, and changes in debt levels, we can quickly identify users with high debt burdens or declining income stability. This allows us to tighten risk strategies promptly and reduce our exposure to high-risk segments. For post-loan management, we continued to refine our collection scorecard or C-scorecard, improving our ability to segment users by risk level, willingness to repay, and repayment capacity. We then tailored our outreach strategies and offered targeted relief or repayment plans based on each customer's risk profile and actual ability to repay. These measures have improved the customer experience and made our collection efforts more efficient. As a result, our 30-day collection rate improved each month throughout Q2 and averaged 88.1%, up 2.3 percentage points sequentially. We also embedded risk discipline earlier in the customer acquisition process. Given the uncertain regulatory environment, we moderated the pace of acquisition spending and continued to optimize our customer and loan mix. In Q2, customer acquisition expenses decreased by approximately 13% sequentially, while high-quality users accounted for a larger share of loans issued to new users. We also maintained strict discipline on payback periods. By improving the user experience, we increased retention and repeat borrowing. which in turn raised user lifetime value. In addition, we continued to scale back long-tail API channels with weaker customer quality and less stable returns. As a result, API channels' share of new credit line users declined by 11 percentage points sequentially, while the API contribution to new loan originations fell by 3 percentage points. Following these adjustments, ROA for API channels improved by around 1.87 percentage points. As our user and channel mix improved, the average pricing of new loans decreased further to 18.2% in Q2. A higher quality user mix allows us to align our assets more effectively with funding demand while further strengthening our asset quality. On the funding front, we further optimized our funding mix by increasing the contribution of ABS to external funding and proactively scaling back marginal assets with higher funding costs. As a result, our overall funding costs declined by approximately 10 basis points sequentially in Q2. Supported by our long track record of stable asset performance, Our ABS issuance increased 90% sequentially to R&B 5.5 billion in the quarter, while issuance costs decreased by around 20 basis points. Following an unexpected industry event in late June, financial institutions have become increasingly risk-averse. Funding supply has fallen sharply, placing the industry under significant liquidity pressure. As a leading platform, we benefit from more diversified funding sources, stronger risk performance, and asset pricing that aligns well with regulatory guidance. As a result, our funding supply has held up better than most of our peers. We expect funding conditions to remain tight in the second half of the year, with funding costs to potentially increase. We will continue to build on our asset strengths and work to maintain stable funding supply. At the same time, we will better match funding with assets to improve capital efficiency and overall portfolio yields. Tighter funding conditions will also materially affect industry risk levels. To prepare for potential volatility ahead, we will continue refining our risk management and asset distribution strategies while proactively optimizing the allocation of our collection resources. These steps will help us maintain an adequate margin of safety in a volatile market environment. On the regulatory front, new requirements covering comprehensive financing costs, personal loans, disclosures, and the online marketing of financial products are taking effect in Q3. Together, these measures establish higher standards for transparency and consumer protection across the industry. They also raise the bar for our operational execution. Meanwhile, an ongoing nationwide regulatory campaign targeting the collection industry has led to a severe shortage of collection capacity across the board and put significant near-term pressure on collection costs and efficiency. Over the longer term, however, these measures will help foster a healthier and more sustainable industry ecosystem. We expect industry resources to increasingly concentrate among leading players with reasonable pricing, strong risk management, and disciplined operations. As we strengthened the foundation of our credit business and refined our unit economics, we continued to advance our one-core, two-wings strategy, extending our proven technology and credit capabilities to tech solutions for financial institutions and our overseas business. In Q2, loan volume enabled by our tech solutions business reached RMB 10.5 billion, up approximately 515% year-over-year, while outstanding loan balance reached around RMB 16.1 billion at quarter-end, up 313%. Through Focus Pro and other solutions, we embed our capabilities spanning customer acquisition, product, risk management, operations, and post-loan management into the workflows of financial institutions, enabling banks to serve customer segments typically priced between 3% and 12%. Our AI plus credit strategy also made meaningful progress. Recently, we secured two AI agent development projects with banks covering marketing growth and credit risk management. Our AI loan officer will be deployed across the bank's retail, SME, and corporate banking businesses, supporting relationship managers from lead identification and customer engagement to conversion. Our AI credit officer will support SME lending in areas such as transaction analysis, audio and video due diligence, and credit review and approval, which will help banks improve credit assessment and approval efficiency. These wins demonstrate growing recognition of our AI agent capabilities in real-world environments at financial institutions. With both projects entering implementation. We are now positioned to provide deeper support for the digital and intelligent transformation of financial institutions. This progress comes as the regulatory framework for AI in financial services enters a new phase. Since July, regulators have issued a series of major policy documents, including guidance on the secure development and the use of AI in banking and the insurance sectors. These policies mark that AI plus finance is shifting from encouraging innovation to prioritizing security and compliance. We believe this shift will create greater market opportunities for our AI solutions, which are secure, compliant, and deeply integrated into real-world financial workflows. Overseas markets represent a long-term growth opportunity for us. By combining the technology and know-how we have developed in China's credit market with strong local operations, we are trying to build an efficient and replicable model for overseas expansion. During the quarter, we continued to refine our risk models and deepen our understanding of the European and Latin American markets. Based on small-scale sample data, our models have already shown competitive performance in select markets. With continued iteration and refinement, we believe our strengths in risk management and technology will set us apart in overseas markets. In Southeast Asia, we are steadily advancing licensing efforts, exploring partnership opportunities, and building local teams, we expect more progress in the second half of the year. At this stage, we are taking a disciplined approach to overseas expansion, carefully balancing risk, and capital deployment to ensure efficient capital allocation. At the organizational level, we continued our transformation into an AI-native company. We are gradually turning the knowledge and capabilities accumulated across our teams, documents, and systems into organizational assets that AI can understand and use. We have also begun building our proprietary agent platform. The value of AI native transformation extends beyond efficiency gains. It is about turning individual and team experience into shared, reusable, organizational capabilities and creating a new form of organizational leverage. Over time, this will accelerate learning and iteration across the organization, while steadily raising both execution efficiency and the ceiling of what we can achieve. Looking to the second half, industry adjustments are still underway, and market volatility is accelerating the exit of weaker platforms. In the process, we have already seen many competitors leaving the market. As a result, customer acquisition costs have fallen sharply and non-compliant practices are decreasing. Once the dust settles, we expect a more stable and predictable regulatory environment. We will remain disciplined and vigilant in our approach to both regulation and risk. Under the new regulatory framework, we will continue to strengthen our capabilities, refine our business model, and improve operating efficiency. Precedents from overseas markets suggest that as the market transitions from disorder to order, even industry leaders often experience short-term pain. This is an inevitable part of the process. However, those that successfully navigate the transition will emerge better positioned for sustainable growth and long-term success. Going forward, we will remain firmly committed to our one-core, two-wings strategy, anchored by our domestic credit business and supported by tech solutions commercialization and overseas expansion. As we advance this strategy, we will continue to pursue sustainable, high-quality growth. We are confident that we will thrive over the long term. Thank you. With that, I will now turn the call to Alex.

Good evening, every crisis. At some piers in late June, liquidity squeeze, compounded by increasingly stringent regular significant changes in industry behavior and reshaped the landscape. For the time being, our financial discipline and focus on cost for Q2 is $3.91 billion in Q&A, the year-on-year end-sequences, as well as a decline in average pricing of low-end basis point Q&Q. As contribution from ABS increased in funding mix, year decline was mainly due to significantly lower in the quarter, averaging 0.7% in the prior quarter. As we continued to focus on attracting and retaining high-quality users, the modest fluctuation in average pricing under marketing expenses from acquisition and will continue to maintain new users, market environment, and restrictive 90-day delinquency rate, mainly related to our overall risk reversal in August. The aftermath of the liquidity crisis at some peers, operations, read the service industry. In response to the drastically changing industry dynamic, most participants in August, tightening of liquidity supply in the market of C-M2 in recent weeks, which may significantly impact our operation for the rest of the year, late June, and even more decisive actions in August. It will probably still take at least two to three quarters to bring the C-M2 ratio back to a we continued to provisions against potential credit limitly 1.1.6 is defined as total new provision divided by 6% in q2 approximately 649 million in q2 for outstanding provisions divided by total outstanding 175 million in q2 ability was the deleveraging in operation In Q2, approximately 500% was caused by a change in tax entity based on the updated interpretation of the results, an effective tax rate for Q3% significantly higher than normal. Based on the tax authority's guidance, we now expect operations to be around 20% provided by shareholders' equity due to the low. We expect to see less than 1 point, which is approximately 463,000 of our ADS in open market, 7,000,000 to the sudden outbreak of the liquidity crisis at some peers, since we saw our current 26, and our share, and the 9th of 2026, Hong Kong time and New York time, respectively. The dividend payout ratio is approximately 30%. As we have discussed, given the volatile market environment and serious mishaps among some peers and intensifying regulatory scrutiny, we continue to face heavy headwinds in the coming quarters. The company and the management at this point in time are to mitigate risks, streamline operation initiatives. Meanwhile, we may need to build additional financial counter any unexpected industry volatility. In the long run, though, we still believe that optimized capital allocation is the key to drive long-term value for the company and stakeholder. Business outlook will take extra in business planning for the rest of 2026. In 2026, the company expects to generate non-GAAP net income between RMB 400 million and RMB 500 million, representing year-on-year decline between 67% and 73%. This outlook reflects the company's current. With that, I can now take some questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. For those who can speak Chinese, please start your question in Chinese followed by an English translation. To allow enough time to address everyone on the call, please keep it to one question and one follow-up, and then return to the queue if you have more questions. Thank you. The first question comes from Richard Zhu with Morgan Stanley. Please go ahead.

Thank you for asking for the first question. 想问两个问题 一个就是刚才那个韩生总 还有那个许总都说到了 这个流动性的一个收紧的状况 那想问一下 那公司在三季度又采取了哪些 措施来控制这个资产质量 那我们预期这个Vintage Bloss 会上升多少 我们现在这个波贝 计题的这个缓冲空间 还够不够 第二呢就是 Essentially, we have two questions. One is on the liquidity tightening in third quarter. Essentially the company has taken what measures to control the credit quality and what the expected vintage loss increases and also are there room in the provisions to cushion the impact second is given the tightening of the collection policies what's the expectation of the recovery ratio and what are the measures the company has taken to mitigate the problems thank you Richard I think both The next question is regarding risk management and collection issues, so I'll pass it over to Mr. Jain of CIO.

Okay, I will briefly translate for Mr. John. The current uptake in risk was indeed triggered by a chain reaction set up by a well-known industry incident, compounded by the nationwide crackdown on the collection industry that began in late July. Since early July, financial institutions have visibly tightened their risk appetite, leading to widespread funding shortage across the industry. Smaller platforms with weaker qualifications have faced even more severe funding constraints. Funding conditions tightened further in August and have shown no sign of improvement to date. At the same time, the ongoing nationwide regulatory campaign targeting the collection industry has created severe shortages in collection capacity with a notable impact on recovery efficiency.

This is a challenge faced universally across the industry. 环比会上升大约25% 我们基于和同业的一些交流 大部分平台的风险在8月份都出现了跳升的现象 近期都在积极调整风险策略

不过目前风险表现的时间还是有些短 未来一段时间还需要结合市场环境变化和实际回收情况 进一步判断最终的风险水平 On the risk front, overall performance remained relatively stable in July with C2M2 remaining largely flat compared to June. However, risk levels began to rise in August. Based on early state risk indicators of FPD-3 and FPD-7 for August, we have seen an increase of approximately 20% month over month. We expect C2M2 for August to increase by roughly 25% sequentially. Based on our discussions with peers, most platforms experienced a sharp spike in risk in August and have seen actively adjusting their risk strategies. That said, the observed risk trends are still relatively short-term in nature, and we will need more time to assess the ultimate risk level, taking into account evolving market conditions and actual collection performance. As such, risk management has become our top priority in recent months. Based on our ongoing monitoring of evolving market conditions, we have progressively escalated our response. From a precautionary tightening stance in late June to early July, to an accelerated tightening approach in August, we moved swiftly to deploy measures across two key areas, risk strategy and post-load management. 等风险客群,加快了短期风险模型的一些迭代速度,将重点模型更新的频率由原来的月度提升至周度的一个频率,提高对风险拐点客户的识别能力。

同时我们会全面收紧新增资产 优化客户结构 分别会从经营交易和资产分发环节 加降风险产口 降低额度收紧交易批合率 并提高散表和助代资产的一些准入门槛 后续将持续观察新增资产的FP3 FP7以及存量的DPD7 其不同客群和渠道的一些风险分化情况 如果指标未见其稳

In terms of risk strategies, we will further strengthen the identification of high-risk customer segments with a particular focus on those exhibiting multi-platform borrowing, exposure to mid- and lower-tier platform distress, liquidity strain, frequent short-term delinquencies, and unstable income profiles. We will accelerate the iteration of our short-term risk models, increasing the update frequency of key models from monthly to weekly to enhance our ability of identifying inflection points in customer risk behavior. At the same time, we are tightening underwriting standards across new originations and optimizing our customer mix. We are reducing risk exposure across three dimensions, customer engagement, transaction approval, and asset distribution by lowering credit limits, tightening approval risks, and raising the bar for both on balance sheet and capital-heavy loan facilitation assets. Going forward, we will continue to monitor early-stage risk metrics such as FPD-3 and FPD-7 for new loans, as well as DPD-7 for existing portfolios, while tracking risk divergence across different customer segments and channels.

Should these indicators do not stabilize, we plan to further tighten segment-specific screening criteria and asset distribution controls by late August to early September. 和回收产能,优化按键分配,控制入吹率回收率,防止进一步恶化。 针对高供债,重复入吹,Sysquad高风险等客户,我们会提前人工介入,并且配置纾困方案。 中期我们会通过智能协商,差异化纾困和代前代中代后的联动,逐步形成兼顾回收和合规的残态化的代后能力。

On the post-flow management front, our near-term priority is to stabilize staffing and collection capacity, optimizing case allocation, and prevent further deterioration in both delinquency inflow and collection rates. For high-risk segments, such as those with significant multi-platform borrowing, repeat delinquencies, or high-risk scores from our collection scorecard, we are intervening early with dedicated personnel and offering relief plans. Over the median term, we aim to build a sustainable post-loan management capability that balances recovery performance with regulatory compliance. Through intelligent negotiation tools, differentiated relief solutions, and closer integration between pre-loan and post-loan processes. And now I will pass over to CFO for the questions regarding provision.

Okay. On provision, given the current market condition, the volatility, and the significant challenge to asset quality, we have maintained, as I mentioned, new provision as a percentage of risk-carrying loan reached a historical high at approximately 5.4%. As you may know, our normalized risk control target is to keep the vintage loss largely within the range of 3 to 3.5 percent. And historically, we only have two quarters to reach that level to be around 4 percent. So basically, even under the most extreme assumptions, we believe our current and sufficient losses in any dramatic industry or market events. Operator, next one.

The next question comes from Alex Yu with UBS. Please go ahead.

So I'll translate from a question. So what's the current... long volume runway for your July and August so how much does it decline you know from the Q2 level and was this decline largely due to the shortage of funding supply or is it more due to your proactive risk appetite control and so should we take this as a temporary shock given the ongoing industry difficulties and let's say if we do see the funding supply getting normalized afterwards, should we expect this loan volume to somehow recover to your Q2 level? Thank you.

Industry-wide funding supply. Our IC business with the most effective capitalized model experienced a minor impact. While funding and the issue at the same liquidity stress proactively, tightest factors led to a 15% decline in July, including liquidity resources. We decided to adopt a more optimization text trajectory and funding. Optimization typically takes two to three quarters with regulatory and the She comes from Revisit Group.

The next question comes from Emma Xu with Beoface Securities. Please go ahead.

Thank you for the opportunity to ask. I have a question. In the current market environment and the current management system, the company's return to the company's return to the company's return to the company's return to the company? Given the deteriorating industry environment coupled with tightening regulatory constraints, Will the company adjust the shareholder retention policy?

Emma, I will take on this one. While we are still generating decent earning industry adjustment probability and the cashflow volatility intensifies, we have established a location to weather the storm and safeguard the safety of the company as well as the company's long-term operational stability. In addition, resources, strategic initiatives, and the reasonable shareholder return continuously accept allocation of...

Next question comes from Cindy Wang with China Renaissance. Please, go ahead.

Thank you for the opportunity to ask for this question. I have a question I want to ask you. Can we understand Q3 guidance behind Q3's basic假設? 那这些关键指标的变化背后的一个驱动因素为何? 那以及管理层如何看待这些指标的一个长期趋势? 那我这边很快翻译一下。 Thanks for taking my questions. So I have one question. Could management tell us the main assumptions behind the Q3 guidance? And what are the key factors behind the changes? and how does management view the long-term trends of these metrics? Thank you.

Okay, Cindy, I will take this one as well. In Q3, we are obviously operating in a very highly volatile market environment. Funding supply across the industry has become extremely severe liquidity pressure on market players. The implementation of the multiple new regulatory policies is also adding operational uncertainty. At the same time, a wave of small platforms is facing accelerated exiting due to the funding depletion and deteriorating asset quality. In such an environment, I think we must remain highly disciplined. Risk control and efficiency comes first, and growth takes a backseat. For Q3, we're looking for decline from Q2 significantly in this challenging market condition. Given that the major platforms are all pulling back at the same time, we still expect the C-M2 provision, as I mentioned earlier, will continue to take a prudent approach to reflect actual risk performance and the changes in the market. And in terms of funding costs, funding costs increased by around 25 basis points in July and August. We expect the recent risk volatility to heighten the funding partner's concern and further tightening the funding supply. At the same time, some institution investors have become more risk-averse ABS subscription. As a result, funding costs will trend up in the second half. A more conservative approach to customer acquisition, as Hashim mentioned earlier, rather than pursuing volume, we will focus on sharpening the acquisition efficiency, improving customer quality, and enhance user life cycle. Over the past two months, nearly every key element of our business has changed dramatically. to connect to each other. This is not a company-specific issue. It's an industry-wide phenomenon, making our operational environment far. That said, as industry consolidate plays out, we expect consolidation condition to normalize, and most of these factors can come back to their normal trajectory.

The next question comes from Yoyo Fan with CICC. Please go ahead.

Thank you. 其实我们看到国内的运营环境也发生了比较大的一个变化 也是想要请教一下管理层是否考虑去进一步的加速海外战略的一个推进 能分享一下当前海外市场的一个最新进展 那我这边快速翻译一下 Thanks for taking my questions. This is Yo-Yo Fan from CICC. Two questions hail. Firstly, that's a small two medium platforms are now failing liquidity pressure. So, how do you view the current market environment and the competitive landscape? And what's your customer acquisition and growth strategy for the second half of the year? Secondly, we have seen quite big shifts in the domestic operating environment over the past six months. How do you consider about speeding up the overseas strategy? Could you work us through the latest updates on the overseas markets, these two questions? Thank you.

Thank you. Let me take both of the competition. The well-known incident has tightened industry funding and driven acquisition spending. Industry-wide spending fell nearly 50% monthly, with another 20% in August, including us, are still spending meaningfully. have putbacks sharper even living market acquisition cost and spending intensity market competition has clearly moderated liquidity remained regulations are still evolving the quality of the new car focusing on the actual retention spending at this stage the returns from our acquisition spending rather than simply the long-term value generated by We are bidding differently by user risk and value to the users, while keeping acquisition cost and improving user experience and engagement to lift retention and repeat. In the API channel, we are reallocating resources, cutting back on safety and stability to build safety margin. Our adjustment in the first half of the year, API channel improved by more than one percentage point, the resilience against market volatility. Looking into the second half, we expect industry adjustment to continue for some. Our near-term focus on the fundamentals of our business, improve our customer and channel mix, as well as enhancing the efficiency of funding marshes. The longer term, after this round of adjustments, market share is likely to become increasingly concentrated among leading platforms. It is not only a process of refining our business structure, opportunity to further strengthen our competitive position. The market becomes more sensible and competition returns position to adjust our market spending timely, capture new growth of our system. Steady progress in Europe and Latin. Deepening market knowledge, localizing risk models by business models in Latin America are already showing encouraging early results and we are deployed our own models. Open banking data to sharpen Southeast Asia and other higher advancing license, building teams and exploring partnerships, regulations and with deep respect for validation are still early in all this market with small teams with the team test and learning on business model customer acquisition and the risk control i think we have there are no further phone questions at this time i'll now hand it back

to management for closing remarks please go ahead okay uh thank you again for joining us If you have additional questions, please reach us offline.

Thank you.

That does conclude our conference call for today. Thank you for participating, and you may now disconnect.