FinVolution Group (FINV) Q2 2026 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for participating in the second quarter 2026 earnings conference call for FinVolution Group. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Yam Cheng, Head of Capital Markets for the company. Yam, please go ahead.

Hi all. Thank you for joining our call. Welcome to our second quarter 2026 earnings conference call. The company's results were issued to newswire services earlier today and are posted online. You can download the earnings release and sign up for the company's e-mail alerts by visiting the IR section of our website. Mr. Tim Li, our Chief Executive Officer; and Mr. Alexis Xu, our Chief Financial Officer, will start the call with the prepared remarks and conclude with a Q&A section. During this call, we will be referring to several non-GAAP financial measures to review and assess our operating performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. For information about these non-GAAP measures and reconciliation to GAAP measures, please refer to our earnings press release. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Finally, we posted a presentation on our IR website providing details of our results. Before I turn over to our CEO, we are dialing in from multiple locations, so if there is any delay in connection, please bear with us. I will now turn over to our CEO, Tim. Tim, please go ahead.

Thanks, Yam, and thanks, everyone, for joining us. Let me start with the big picture. For years, we have pursued one clear strategy: internationalization. In a world this volatile, such strategy matters more than ever. It let us take what we have learned and put it to work in markets that are ready for fintech, and it helps us diversify away from any single market. That strategy served us well this quarter, and it is exactly where we are headed. Overall, the second quarter was a solid one. In China, a stable risk backdrop, together with the preemptive actions we took in early quarters, give us a constructive environment to operate in. Overseas, momentum in Indonesia and Australia more than offset a deliberate temporary pullback in the Philippines. That is our diversification strategy working as designed. Let me turn to the results. Given the results in China in the fourth quarter of last year, the sequential trend is more telling measure. Group volume rose 5% sequentially to RMB 45 billion and the revenue moved [ in step ], up 6% to RMB 3.4 billion. Net profit was RMB 427 million, up 1%. But the figure we are most encouraged by is overseas, RMB 54 million in operating profit, up 17% sequentially. Overseas now account for roughly 27% of group revenue, and that share will keep rising for the rest of the year. Now let me dive into the 2 segments, starting with our Chinese Mainland. At a high level, we booked RMB 41 billion in loan volume, up 6.5% quarter-over-quarter, a healthy continuation of the recovery that began at the beginning of 2026. That said, the industry was rattled by an isolated credit incident, which adversely impacted the risk and funding dynamics. I will walk you through in a bit. Right now, we are watching 3 priorities closely: asset quality, fundings and regulation. First, asset quality. Coming into 2026, we expected a gradual recovery following the regulatory result in the fourth quarter of last year. Two quarters in, that played out as we expected through the first half. Risks continue to ease through the second quarter. C-M2 came down again from 0.68% to 0.56%. So we grew the book selectively, focusing on the high-quality repeat borrowers as we know well. The strategy generated 6% sequential growth in unique borrowers while keeping credit quality firm. Vintage credit cost was steady at roughly 2.7%. The environment has since turned. In July, an isolated credit event led institutional funding partner to reduce funding for loan facilitation. Many smaller platform either exited or sharply cut loan origination. Separately, a regulation campaign around the collection industry has tightened the collection capacity across the industry. Together, this creates a risk headwind for us in the coming quarters. While it is in the early stage, we are staying cautious on the risk of our portfolio. On funding, let me be direct. The same tightening sits behind our funding outlook. Our own funding held up well in the second quarter, but beginning in July, we are seeing the industry as a whole tighten as the institution turn more cautious. For us, that could meaningfully lower our origination volume and some upward pressure on funding costs. Here is how we are managing it. Our balance sheet and liquidity give us room, and our asset quality and compliance record matter more when funding partners get selected. We've already begun allocating liquidity towards our China funding base and will prioritize funding stability over near-term growth until the environment normalizes. On regulation, the new fee disclosure requirements took effect on August 1, and we are complying. The online marketing rules take effect at the end of September, and we are already working with our partners to be ready. Now let's move on to the Overseas segment. Our Overseas segment is performing well. Volume rose 19% year-over-year and revenue reached RMB 930 million, up 18%. More important, these numbers are backed by real demand. Our unique borrowers more than doubled from a year ago to 5.3 million. Over the past 2 years, we have reached several important milestones. We have built a diversified portfolio of markets, where temporary weakness in any one country can be offset by strength in the others. Last year, we absorbed an interest rate cap in Indonesia on the strength of the Philippines. This quarter, we deliberately dialed back origination as the new rate cap took effect in the Philippines. And that gap was filled by structural growth in Indonesia and the progress we keep making in our newest market, Australia. As the country becomes balanced and as we add more profit -- profitable markets, our growth trajectory would be increasingly predictable and certain. Our playbook remains the same, product expansion and customer upgrade. We use broad portfolio of easy-to-use financing products to attract customers to try out and progressively cross sell other credit solutions to build better unit economics over time. In Indonesia, offline buy now, pay later continued to lead the growth. Our partnership in various offline consumption scenarios continue to proliferate. Offline buy now, pay later is now around 25% of the volume comparing to single-digit contribution a year ago. In the Philippines, the rate cap took effect this quarter. We slowed down deliberately to protect quality, the same approach we have taken through past transition. And growth has typically returned once the new pricing settles in. In Australia, we further expanded our offerings to large ticket size, lower interest rate products to attract consumers with strong credit profiles for higher credit limit. While this is still preliminary, we plan to continue to pursue customer upgrade as a core strategy. We also made further investments in building the open banking infrastructure, giving us direct access to bank statement data and a far sharper read on each borrower. Finally, ESG. In our business, trust is everything. In June, we published our eighth annual ESG report. On fraud prevention, we made 60 upgrades to our antifraud system, flagged more than 9,000 suspicious activities each day and blocked over 17,000 fraud attempts. We also launched our own consumer protection system, Golden Sentinel. It systematically integrates early risk warnings, compliant analysts, [indiscernible] and data dashboards to drive consumer protection governance from post-incidence handling towards proactive warning and thus, resolves 74.5% of cases on first contact, with customer satisfaction at 98.5%. With that, let me hand it to Alexis for a closer look at numbers.

Thank you, Tim, and hello, everyone. Let me walk you through our key results for the second quarter, and please refer to our earnings press release for further details. Now let me discuss each of the segments. First, China. Macro in China remains in a gradual recovery model. China's real GDP growth slowed down from 5% in first quarter to 4.3% in the second quarter on the back of subdued household consumer confidence. First, in Q2 Revenue was RMB 2.4 billion, up 8% sequentially, a direct result of recovery in loan volume during the quarter. Take rate stabilized at about 3.2%, in line with the first quarter. On risk, asset quality on new loans held steady at 2.7%. Early risk indicators show signs of improvement on outstanding loans. The day 1 delinquency ticked up slightly from 5.2% to 5.3%, while the 30-day collection rate strengthened from 87% to 89%. Overall, C-M2 improved to 0.56% from 0.68%, below the Q3 2025 level. While this points to our portfolio of improving credit quality, we are vigilant on the risk uptick following various industry events in July. Separately, funding costs rose a further 30 basis points sequentially to 3.7%. Institutional funding supply began to tighten towards the end of the quarter, and we expect further upward pressure on funding costs in the coming quarters. On customer acquisition, we raised our risk appetite for repeated borrowers. Combined with acquisition costs holding at an attractive level, that brought our overall customer acquisition costs down quarter-over-quarter. As a result, China's operating profit grew 4.3% sequentially to RMB 625 million. Turning to the Overseas. Overseas revenue rose 18% year-over-year to RMB 930 million, partially dragged by our deliberate pullback in loan origination in the Philippines. One priority for our Overseas segment is to balance profitability with growth. By its nature, this business recognize customer acquisition costs and credit loss upfront, while revenue is earned over time. Philippines profit is inherently backloaded, and the rapid growth on its own would leave the early years deeply unprofitable. We manage it deliberately against that dynamics, ensuring we deliver profit even as we scale. The second quarter was a case in point, RMB 54 million in operating profit, up 17% quarter-over-quarter and more than double year-over-year. Earlier this year, we guided to USD 13 million of full year EBITDA. Doubling from last year, we remain confident in delivery. During the quarter, we added 2.2 million new borrowers in the quarter, up 29% sequentially. Offline buy now, pay later in Indonesia drove most of the new borrower momentum, a sign that our offline expansion is translating directly into new customers rather than just brand awareness. The Philippines continued to absorb the impact of the industry's new interest rate cap. We preemptively scaled back originations this -- over the past 2 quarters, but the momentum should soon restart. In Australia, unique borrowers grew 22% sequentially, driven by effective online marketing, a wider product range and a cleaner apps experience. Going into the next quarter, we continue to be mindful of the macros, such as oil price, may impose on currency as well as credit quality in market we operate. On a group basis, net revenue reached RMB 3.4 billion, up 6% sequentially on the back of higher loan volume. Operating profit came in at RMB 529 million, which included a one-off intangible asset impairment of RMB 64 million. Excluding that impact, operating profit was up 8% sequentially. Net income was RMB 427 million, up 1% sequentially. We held RMB 6.4 billion in cash and short-term investments and the leverage is set at 2.1x, near historical lows. The balance sheet strength gives us the flexibility to navigate a tighter funding environment in China. On shareholder returns, our capital allocation is clear. We prioritize business growth first and use buybacks as our flexible level, [ sized ] to market conditions, trading volume and the share price. In the second quarter, we repurchased USD 27.4 million of shares, bringing first half 2026 repurchase to USD 66.8 million. Now to our outlook. We are reiterating our full year revenue guidance of RMB 11.5 billion to RMB 12.9 billion based on information currently available. We set that range conservatively at the start of the year given industry volatility. Our first half performance tracked ahead of our internal plan. That gives us a cushion. The other performance we delivered in the first half year helps absorb the softer second half we now expect as funding and credit conditions tighten. Given that near-term pressure, we would expect to land in the lower part of the range unless the operating environment substantially changes. To sum up, China is moving through a transition that we believe will favor players with strong compliance and operational know-how. Overseas is becoming a second growing source of profit. We go into the third quarter clear-eyed about the funding and the regulatory pressure ahead and committed to the same disciplined execution that has carried us this far. Across both capital allocation and operations, we are focused on one goal: lasting compounding returns for our shareholders. Thank you. We will now hand the call to the operator for questions.

[Operator Instructions] The first question will come from the line of Cindy Wang of China Renaissance.

[Foreign Language] I have 2 questions here. First, following the Juzi platform incident, what business adjustment did the company make to ensure risk control? What is the current funding supply situation? And will the recent exit of small size platform would lead to a resurgence of industry risk? And what are the recent changes in the company's early risk indicators? Second, what is the current interest rate adjustment situation in Philippines? And will they affect the growth rate of overseas new loan volume this year?

Thank you, Cindy. I will take your questions. I think you have 2 questions, and your first question is a very big and multipart question. So I will break it into different pieces. Okay. Let's start with what we are seeing on the funding side. After the Juzi event, the credit and the liquidity issues at the individual platform did trigger some broader volatilities in the funding across the loan facilitation industry. So the first impact is the tightening risk appetite of the financial institutions. The event raised concerns among the financial institutions about the funding flow safety and the compliance of the platform. Since July, a lot of institutions have launched internal self-checks and do some reviews for their partners. Some of them paused the business during the process, took a wait-and-see approach. So that led to a fairly sharp near-term pullback in funding supply across the whole market. I think most of the small- and middle-sized platforms have either exited or pulled back sharply on lending. And we are relatively less impact, but our China volume was down around 50% in July. And looking at August, we believe institutional confidence has started to stabilize. But the funding recovery is still coming back at a slower pace. Yes. And what we have done to adjust our business for the challenge, okay, so first is on transparency. We have worked very closely with our financial institution partners, give them the visibility into our fund flows and the repayment path, kept everything in a very clear and closed loop compliance process. We believe it will help to ease their concerns. And secondly, during this period, we have prioritized the quality over the scale, further refined our customer segmentation, raised the underwriting bar and prioritized the fundings for our high-risk quality customers. And then turn to the funding outlook. I think over the long term, financial institutions will keep reducing their exposure to those small platforms and focus on the big platforms, that they are compliant, well capitalized and have a strong risk track record. That's where we see it. I can show some figures. In the second quarter, we had RMB 6.4 billion in cash and short-term investments. Cash flows stayed solid through July and August. And the latest number is RMB 7.5 billion. And on top of that, we have got roughly RMB 5 billion in highly liquidity assets. I mean those cash, we can recover very quickly in near term. So the aggregated number is RMB 12.5 billion in total. Okay? That gives a real resilience and forms the foundation for our leading position in this industry and our long-term relationships with the founding partners. We think in near term, there will still be some volatility as the institutions still need time to rebuild their risk appetite and work through their process reviews. So maybe in the next 1 or 2 quarters, I think it comes down to 2 things. First, it depends on how fast institutions get through their self-checks and system fix. The pace varies a lot case by case, so industry-wide, the recovery hasn't quite caught up yet. Secondly, I think whether the broader credit environment stays stable and [ PL and SS ] keep existing and assuming there is no new extreme event, so in that cases, I would expect risk appetite and confidence to gradually come back with the self-check's ramp-up. Okay. And last, I will talk about our early risk indicators. This round of funding tightened also overlapped with the regulatory action in the collection industry at the end of July. So collection results got tighter. And the recovery efficiency took a bit of hit, too. That's added some challenges on top. Okay. Actually, we have seen some movement in our early risk indicators. As a result, our latest reading is up around 20% versus the second quarter. Given all of that, we are staying profit focused rather than chasing scale. We are also taking a more conservative posture on risk sharpening, how we are identifying higher-risk borrowers, speeding up model iteration and tighten the acquisition spend. All our goal is at protecting our unit economics. Okay? So that's my answer for your first questions. And your second question is about Philippines. Okay. The Philippines rolled out a new interest rate cap effective from April 1. So heading into that, we took a pretty deliberate cautious approach in the first half. We actually slowed down the originations on purpose to give ourselves room to adjust the business. Yes. short-term volume in the Philippines did take a hit, okay, as we have mentioned before. But based on our experience, navigating similar pricing adjustment in Indonesia before, we believe this kind of recovery typically takes about 2 or 3 quarters. So we expect the Philippines business will return to growth in the third quarter. And after the adjustment, the new regulatory framework sets in and as our mix shifts further toward high-quality borrowers, we have still got room to optimize both credit costs and funding costs and the growth picks back up from there. And to be clear, in the Philippines, I think we are not just cutting prices to comply with the new rules. We are using this as a chance to push deeper structure upgrade across the business. For example, on the risk side, we have raised our underwriting bar and the pullback on the marginal segment where risk and returns were not linear, while growing the share of higher-quality borrowers, the ones with more stable repayment behavior and better repeated borrowing performance. And on the product side, we are continuing to diversify beyond online cash loan product. We have expanded into more scenario-based products like our buy now, pay later product with the local smart shop company and Carousell. That lets us more beyond a single cash loan product into a broader range of consumption and payment use case. So we can match our better quality customers with the right credit line, tenure and the product and there, build the lifetime value through repeat borrowings. Now zooming out to the Overseas business as a whole. The fee adjustment in the Philippines in the first half doesn't change the overall growth trajectory for our overseas markets. And there is really, thanks to our -- the multi-market proof point. The Q2 pullback in the Philippines was largely offset by the strong growth in our Indonesia and Australia market. So heading to the second half, we expect the momentum in Indonesia and Australia to continue. And also, we expect the Philippines to work through this adjustment period to get back to sequential growth. So for the full year, we are very confident to expect the overseas volume to grow at a double-digit rate year-over-year.

The next question now comes from the line of Alex Ye of UBS.

[Foreign Language] So I'll translate for my question. First question is about the funding cost. So what has been the latest funding cost in recent months compared to Q2? And what's your expectation for the coming 1 to 2 quarters? Second question is that given funding supply has become a major bottleneck at the moment, so is there any adjustment that the company is going to make with regard to the utilization of your self-capital? So -- and in relate to that, how should we think about the pace of buyback in the coming 1 to 2 quarters?

Okay. Thank you, Alex. Yes. Your first question is about funding. Yes. We are seeing funding costs tick up in the third quarter relatively to the second quarter, up about -- around 30 basis points in July, and we expect the gradual upward trend to continue over the next quarter or 2, so just given the broader funding environment in China right now. Okay. And we believe short-term funding volatility is largely a matter of confidence. So over the long run, we don't see the competitiveness of the quality asset strategy. If anything, it will only get stronger. Your second question is about the capital deployment and the buyback pace. So recently, the funding tightness from that -- the industry event has made a lot of financial institutions more focused on the compliance and the capital strains, and on our side, we are leaning into our own strong balance sheet and ample cash reserves. We have showed the figures before. We are offering a solid safety cushion and credit enhancement in our funding partnerships to work with them to build the institutional confidence and speed up the recovery. Now we are also looking at exploring the possibilities at the capital injections into our licensed business, for example, the micro lending company, as a way to diversify our funding sources and improve the stability. So that's for our China business. And on the other side, even in the short term, there are some pressures in the China market. Our long-term overseas build-out is already paying off. We are moving into a profit release phase. So gradually, we have also noticed a lot of our peers accelerating their own overseas business lately. But for us, that validated 2 things, that we were ahead of our -- the curve on this and the strategy itself was the right one. So with a mature skilled Overseas business already in place, we have got a lot more patience and confidence to navigate the bumps in China. If anything, that's made us even more committed to accelerating investment overseas. For example, the Fundo acquisition in Australia last -- the first quarter last year also gave us valuable experience entering the new markets through M&A. So going forward, replicating the playbook through the capital allocation may be the smart move and can really help us to drive a healthy and faster growth Overseas business. And the last on the buyback pace, yes, as we have mentioned, we will prioritize the steady operations in business first, the steady business in China and the fast growth business in overseas market. And from there, we will keep the flexibility to execute the buyback plan based on the share price and the market and liquidity. But it will not change our long-term direction on shareholder returns. We will remain committed to return the capital to maximize the long-term shareholders' value. Okay.

Our next question will come from the line of [ Yoyo Fan ] from CICC.

[Foreign Language] This is [ Yoyo Fan ] from CICC. My question is on Overseas business. We can see that the Overseas business is well on track based on the first half year data. So looking ahead to the second half of this year, what will be the key drivers of our Overseas profit growth?

Okay. Thank you, [ Yoyo ]. Before I get into the specific drivers for the second half, let me give you a bit of context. Looking back at how our Overseas business has developed, I would say has been marked by a real foresight and the proactively strategy from the start. Back in 2018, 8 years ago, where our China business is we're still enjoying strong growth, the group. We have already made global expansion a long-term strategic priority. So over the past 8 years, we have steadily built up our overseas foundation, securing license, establishing the local operations and building out our funding's ecosystem. We proved that the model from 0 to 1 in Indonesia and then replicate the experience in Philippines and the other countries and acquired the Fundo and entering the Australia, upgraded the whole approach into what we now call the strategy, LEGO+. As such, the years of deliberate groundwork and sustained investment, that allowed our overseas business to become what it is today, a mature second profit engine, delivering steady and meaningful profit for the group. Okay. And then let me get into the details in the second half. Looking ahead, we expect our 3 major overseas markets to work together in a very fairly commensurate way. Indonesia contributed the bulk of the incremental growth and the Philippines gradually recover and the Australia continue its rapid expansion. For Indonesia, which is the largest one, it already accounts for more than 50% of both our overseas volume and revenue. Even with the seasonal drag from Ramadan, we still delivered a solid 13% growth versus the second half year 2025 in the first half. So the second half trends to benefit from the traditional peak season. So we would expect some further improvement in growth. We are also continuing to build out offline buy now, pay later products through our motor finance license. And the customer segment tends to be high quality, longer tenure and the larger ticket size, which will help us to keep improving our overall customer mix and finally drive the healthy returns. Okay. That's for the Indonesia. And on the Philippines, in the first half, we made a deliberate choice to tighten up in response to the new interest rate cap, to raise our underwriting standards and cleanup of our customer mix. So after the new price environment stabilized, we would expect the Philippines volume to start recover sequentially in the second half. And as the share of the high-quality customers keep rising, that will continue to bring risk down and support the ongoing improvement in the unit economics. And for Australia, as the new starts in our overseas expansion, it's very high compliance, high-value developed market and the growth has been fast since we consolidated at the end of last year. And in the second quarter, unit borrowers were up 22% quarter-over-quarter. It drove the volume to 70% sequentially. So we would expect Australia to keep going up to double-digit sequential growth in the second half. Given the Australian customer tends to have the larger ticket size and better risk performance overall, we think Australian contribution to overseas profit will keep increasing as the customer base grows and more of our acquisition shifts to our proprietary apps. Okay. So that's for our 3 major overseas market. And yes, summary, okay, our Overseas business is no longer dependent on any single market, instead as build out 3 things working together, and maybe in near future, it will be more countries added in. Broader product diversification, continued customer mix upgrade and our LEGO+-- global platform, so together, we have built a cross-regional growth structure that is really resilient through the cycle. That's what gives us the ability to bear the regulatory shifts in any single market and stay on track towards the long-term goal. We have an ambitious target by 2030. We expect the overseas revenue will reach more than 50% of the total group revenue. Okay. That's all for my answer. Thank you.

Questions now, I would like to turn the call back over to the company for closing.

Thank you. Thank you once again for joining us today. If you have any further questions, please reach out to the Investor Relations team. Thank you very much.

This conference call, thank you for your participation. You may now disconnect your lines. Thank you.