Lufax Holding Ltd. American Depositary Shares, each representing two (2) Ordinary Shares 2026 Q3 Earnings Call

Hello, everyone, and thank you for joining us on today's call. Our financial and operating results were released by our Newswire services earlier today and are currently available online. Today, you will hear from our Director and CEO, Mr. Xiang Ji, who will share recent developments and provide insights into the company's overall performance. Our CFO, Ms. Liu Jia, who joined Lufax in October, will then walk you through our financial results. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. With that, I am now pleased to turn over the call to Mr. Xiang Ji, Director and CEO of Lufax.

Thank you, Tian. Thank you all for joining our third quarter 2026 earnings call. I would like to begin with two updates. First, trading in our ordinary shares on the Hong Kong Stock Exchange resumed on September 24, 2026. We thank all shareholders and the broader investor community for your patience and support throughout this process. Second, I am actually very pleased to welcome Ms. Liu Jia, who joined us as CFO in October. Ms. Liu Jia brings extensive experience in audit, banking, and financial management of listed financial technology companies. Most recently as CFO of CITIC aiBank. She will walk you through our financial results following my remarks. Let me now share an update on the macro and regulatory environment. The operating environment for small and micro business owners remained challenging in the third quarter, and financing demand stayed weak.

Chengong Business Goods SME Development Index remained below the 50-point boom-bust baseline, indicating that the financing environment for small and micro enterprises remains under pressure. Consumer finance demand was also subdued. As of the end of September, household consumer loans declined 3.6% year-over-year. Domestic consumption remained soft. Consumer confidence continued to be cautious, and households continued to prioritize balance sheet repair. On the regulatory side, the industry continued to move towards greater standardization in the third quarter. The mid-day intensified enforcement against the debt collection industry. Both industry peers and Lufax have seen notable volatility in risk performance. The industry is currently recalibrating its compliance boundaries. Since the second quarter, tightening industry liquidity and heightened regulatory scrutiny, including collection practices, have led us to observe a rising risk across both small business owner and consumer finance lending markets.

While we believe the tightened regulatory environment will benefit the industry in the long run, it has weighted on the near-term risk performance. In response to the changing macro and regulatory environment, we maintained a very prudent operating strategy. In the third quarter, we continued to implement our selective customer strategy, adjusted our post-loan collection approach, and continued to deepen our refined operation. Firstly, under our selective customer strategy, we proactively reduced and exited certain high-risk customer segments and adopted a more cautious approach towards some market customer segments. Second, we continue to leverage our in-house collection force and adjust our post-loan collection strategies. On the recovery side, we increased our use of traditional recovery channels and leveraged models to identify high-quality accounts, improving recovery efficiency. Our in-house collection team provides dedicated internal collection capabilities, mitigating our reliance on third-party collection service providers.

We will continue to closely monitor regulatory development and reinforce compliance controls across the collection process, including enhanced compliance training, to ensure that all collection activities remain within the applicable legal and regulatory framework. Third, we continue to deepen our refined operation. We continue to deploy differentiated products tailored to local industry and customers across different regions. Our Industry Prism program now covers over 700 sub-industries, offering industry-specific product that meets the industry-specific requirements of our customers. We have also established a dedicated direct sales team for consumer finance that targets quality salary customers. This team is moving our customer engagement model from single product sales to a full lifecycle relationship manager approach, enabling long-term customer value realization. In addition, we are deepening our management of existing customers, leveraging our license advantage. We are building a diversified product portfolio and a multi-channel customer management system to increase repeat borrowing.

We are also deepening our use of AI to enhance operation efficiency. Our AI-powered digital twins have added new features, providing end-to-end AI enablement from customer acquisition to customer management, and improving the efficiency and quality of our sales teams. Looking ahead, we will further extend this AI capability to risk management. On the pre-loan side, we plan to further upgrade our risk models by leveraging AI capability, enhance identification of risky customers, and drive the optimization of our customer portfolio structure. In post-loan management, we aim to further deepen collection reform, expand application of AI-driven collection, and improve collection effectiveness through intelligent assistance. Now, turning to our operating results. Total new loan sales in the third quarter were RMB 58.3 billion, up 2.5% year-over-year, and up 14.1% from the second quarter.

Consumer finance continued to lead our growth, with new loan sales up 25.2% year-over-year to RMB 39.7 billion, representing 68.1% of total new loan sales. Our total outstanding loan balance was RMB 167.1 billion as of the end of the third quarter, broadly stable from the second quarter, and down 11.9% year-over-year. Our consumer finance loan balance grew 19.8% year-over-year to RMB 70.5 billion. Consumer products with smaller ticket sizes and short tenure carry lower risk in the current environment. Over the long term, supported by policies amid to expand domestic demand and boost consumption, we believe consumer finance continue to hold growth potential. Turning to asset quality. Our risk performance in the third quarter was negatively impacted by the macro and regulatory environment, especially the intensified enforcement actions against the debt collection industry.

Our C-M3 flow rate for the total loan was 1.2% in the third quarter, compared to 1.0% in the second quarter. C-M3 flow rates for the unsecured and secured loans were 1.2% and 1.1% respectively, compared to 1.0% and 0.9% in the second quarter. Our DPD 30+ delinquency rate for total loans enabled, excluding consumer finance subsidiaries, was 5.5%, down from 5.8% in the second quarter, and our DPD 90+ delinquency rate was 3.2%, down from 3.7% in the second quarter. As of the end of the third quarter, the NPL ratio for consumer finance loans was 1.3%, stable from the second quarter. Now, let me turn to pricing and funding costs. The average pricing on the Rongyi loan was 20.3% in the third quarter, and the average pricing of consumer finance loans was 16.4% as we continue to implement our selective customer strategy.

On funding, our cost of funds continued to decline. Our cost of funds by balance, excluding consumer finance, was 3.6% in the third quarter, down 20 basis points sequentially and 80 basis points year-on-year. Finally, we continue to advance our compliance enhancement efforts. Under the leadership of our board of directors, we are further strengthening our internal controls and compliance standards. Going forward, we will remain prudent in our operations, focused on quality growth, and committed to delivering long-term value to shareholders. With the onboarding of Liu Jia as the CFO, I am confident that our financial reporting capability and quality will be further enhanced. With that, I will now turn the call over to Liu Jia, who will walk you through our financial results.

Thank you. Thank you, Jin Dong.

Hello, everyone. I am pleased to join you for my first earnings call as Lufax CFO. My priorities are to deliver accurate and timely financial reporting, maintain discipline in the oversight of liquidity and capital, and support the execution of our operating strategy. I look forward to engaging with you in the quarters ahead. As I walk you through our results, please note that all amounts are in RMB and all comparisons are year-over-year. Before jumping into the details, I would like to address the net loss we previewed in our profit warning announcement on October 16th. We recorded a net loss of RMB 1,494 million within the range of RMB 1,300 million to RMB 1,700 million that we indicated in the announcement, compared with a net loss of RMB 380 million a year ago. Our net loss comprised of two components.

One is a loss before income tax of RMB 721 million, and the other is the income tax expenses of RMB 773 million. Starting with our pre-tax performance, as Jason discussed, the operating and collection environment remained challenging during the quarter, contributing to higher credit impairment losses. This increase in credit impairment losses was the main driver of our pre-tax loss. Turning to income tax, our tax expense included a charge from a reduction in deferred tax assets at our financing guarantee subsidiary. Based on our current assessment of its business performance and outlook, this was a non-cash accounting charge. We also updated our offshore funding plan in connection with the redemption arrangement for convertible promissory notes. The plan includes dividend distributions from domestic to overseas subsidiaries to meet offshore funding needs. Thus, we also recognize the additional withholding tax on those expected distributions.

After taking into account other tax items, total income tax expenses were RMB 773 million, compared with RMB 74 million a year ago. Now let me walk through our third quarter financial results in more detail. Total income was RMB 6,180 million, down 4.6%. Declines in technology platform-based income and the guarantee income were partially offset by growth in net interest income. Technology platform-based income was RMB 1,055 million, down 24.1%, reflecting lower retail credit and enablement services associated with the decrease in the new loan sales and outstanding balance of off-balance-sheet loans. Net interest income was RMB 3,677 million, up 10.3%, primarily driven by the expansion of our consumer finance and micro-lending business. Guarantee income was RMB 1,020 million, down 24.6%, reflecting a lower average balance of off-balance-sheet loans and lower average fee rates. Other income was RMB 167 million, down 37.7%, primarily due to a decrease in account management fees caused by decreased collections.