Lufax Holding Ltd (LU) Q3 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holding's Third Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. Now I would like to hand the conference over to your speaker host today, Ms. Xinyan Liu, the company's General Manager of Board Office. Please go ahead, madam.

Thank you very much. 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, Mrs. Jia Liu, 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'm now pleased to turn over the call to Mr. Xiang Ji, Director and CEO of Lufax.

Thank you, Xinyan. Thank you all for joining our third quarter 2026 earnings call. I would like to begin with 2 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'm actually very pleased to welcome Ms. Jia Liu, who joined us as CFO in October. Ms. Jia Liu 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. Cheung Kong Business School's SME Development Index remained below the 50-point boom and bust line, 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 continue to prioritize balance sheet repair. On the regulatory side, the industry continued to move towards greater standardization in the third quarter. Amid the 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 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 weighed 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 continue to deepen our refined operations. Firstly, under our selective customer strategy, we proactively reduced and exited certain high-risk customer segments and adopted a more cautious approach towards downmarket 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 judicial recovery channels and leverage the 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 operations. We continue to deploy differentiated products tailored to local industry and customers across different regions. Our Industry Prism Program now covers over 700 subindustries, 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 life cycle relationship manager approach, enabling long-term customer value realization. In addition, we're deepening our management of existing customers, leveraging our license advantage. We are building a diversified product portfolio and a multichannel customer management system to increase repeat borrowing. We're also deepening our use of AI to enhance operating -- 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 reforms, expand the application of AI-driven collections and improve collection effectiveness through intelligent assistance. Now turning to our operating model -- 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 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 aimed 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 the 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 rate 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 loan 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 second -- 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 loan 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 Jia Liu as the CFO, I'm confident that our financial reporting capability and quality will be further enhanced. With that, I will now turn the call over to Jia Liu, who will walk you through our financial results. Thank you.

Thank you, Xiang Ji. Hello, everyone. I'm pleased to join you for my first earnings call as Lufax's CFO. So my priorities are to deliver accurate and timely financial reporting, maintain disciplined 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 renminbi and all comparisons are year-over-year. So before jumping into the details, I would like to address the net loss we previewed in our profit warning announcement on October 16. 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 2 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 pretax performance. As Xiang Ji 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 pretax 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 noncash 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 recognized 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 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 service fees 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 a lower average fee rate. Other income was RMB 167 million, down 37.7%, primarily due to a decrease in account management fees caused by decreased collections. Investment income was RMB 261 million compared with RMB 134 million in the same period last year, primarily reflecting change in the valuations of financial assets made with our own funds. So in terms of expenses, total expenses were RMB 6.9 billion, up 1.7%. Credit impairment losses increased 10.3% to RMB 4,511 million, reflecting higher actual losses and provision of loans and receivables. Sales and marketing expenses were declined 13.7% to RMB 842 million, primarily due to the decreased outstanding balance of balance sheet -- of off-balance sheet loans. General and administrative expenses declined 12.1% to RMB 420 million, primarily due to our continuous expense optimization and control measures. Operation and servicing fees -- servicing expenses declined 16.1% to RMB 774 million, reflecting expense control measures and a decrease in the loan balance. Technology and analytics expenses declined 4.2% to RMB 226 million, primarily due to expense control measures. Finance costs were RMB 122 million, up 67.1%, primarily due to lower deposit interest income, partially offset by lower loan interest expenses. Other losses were RMB 5 million compared with RMB 10 million in the same period last year, reflecting higher foreign exchange gains in 2026 and lower government subsidies. Turning to our balance sheet. As of September 30, 2026, we had approximately RMB 21.2 billion in cash at bank compared with RMB 22.1 billion at the end of 2025. Net assets amounted to approximately RMB 80 billion compared to RMB 82 billion at the end of 2025. Going forward, we remain focused on disciplined execution, strengthening our governance and controls and building a sustainable, higher-quality growth path for Lufax. We remain committed to our prudent strategy and to delivering long-term value to our shareholders. We appreciate your continued support. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

[Operator Instructions] And our first question will come from Richard Xu with MS.

I got 2 questions. First of all, we're basically seeing some credit losses...

Pardon me, Mr. Xu, your line may be muted.

Can you hear me okay?

We're having issues hearing Mr. Xu. We're going to move on to the next question. Our next questioner will come from Yujie Jing with China International Capital.

I'm Yujie Jing from CICC, and I have 2 questions. First, what has been the trend in the company's loan origination and asset quality following the digital technology incident? And when do you expect them to stabilize? And secondly, company has recognized a relatively large amount of asset impairment charges. How is collections performing now? And will the future recovery rate on the underlying loans be affected?

Yes. Thank you for the question from CICC. So as far as first question is concerned, Q3 new loan sales reached around RMB 58 billion, up 2.5% year-on-year and 14% quarter-on-quarter. Consumer finance new loan sales grew 25% year-on-year to roughly RMB 40 billion, representing around 58% of total. Asset quality-wise, the consumer finance NPL ratio remained stable. C-M3 flow rate increased to 1.2% from 1.0% quarter-on-quarter due to macro and regulatory pressure, particularly enforcement actions against collection industry. We expect asset quality will gradually improve as we sort of deepen our selective customer strategy, but the macro and regulatory impact may continue for a couple of months towards the end of the year. The second question is around collection rate. Collection was definitely negatively impacted by the tightened industry liquidity and heightened regulatory scrutiny and intensifying enforcement actions in Q3. But we think Lufax also have advantage. We have in-house collection capability to mitigate the reduced supply of third-party collection services. I think some of our peers have really suffered from the reduced supply of third-party collection services, while we are basically not exactly having the same issue. At the same time, we have adjusted collection strategies to improve recovery efficiency while balancing compliance requirements, including greater use of judicial recovery channels, model-based identification of high-quality accounts, expanded use of AI-driven collection and increased reliance on the in-house collection force. However, for those actions to take effect, we still need a couple of months to see how it's going. While we are not able to provide forecast for future recovery rates at the moment, we actually believe these measures will improve collection performance over time.

The next question will come from Richard Xu with MS.

Can you hear me okay now?

Yes.

I've got 2 questions. First of all, we're seeing the credit losses widening in third quarter. Just want to know what are the key drivers? Are these drivers one-off? Or are you seeing some sustaining pressures? Secondly, is on the regulatory front. What's your expectation of any upcoming regulatory changes in the consumer finance and loan facilitation businesses? Would that potentially change further the Lufax business model?

Thank you, Richard. So in terms of the loss, operating loss driven by increased credit impairment losses, challenging macro environment for small and micro business owners, combined with tightened regulatory oversight, especially the enhanced enforcement actions against the collection industry in Q3 led to volatility in risk performance. As a result, we recorded an increased credit impairment losses and operating loss in Q3. The other factor is additional tax expenses, primarily due to reduction of deferred tax assets based on our current assessment of certain PRC subsidiaries' operating and financial conditions and withholding taxes as we expect to satisfy the funding needs of the company and overseas subsidiaries through dividend distribution by domestic companies. Going forward, we expect risk volatility caused by enforcement actions to be temporary, right? Tightened regulation will benefit the industry in the long run, but may have some negative impact in the short term. We will actually closely monitor the macro environment for small business owners and implement prudent operation growth. I think that's also the reason why myself and the CFO expressed, we will pursue a more high-quality growth rather than a scale growth purely. And the second question, overall movement towards greater standardization will for sure continue in the foreseeable future. Oversight spans the full value chain from pricing, customer acquisition, risk management, post-loan operation and data governance. Subsequently, previous business model of offsetting high risk with high fee is no longer sustainable. We see that very clearly, and that's why sort of Lufax has embarked on a journey to transform the business model. Business impact-wise, near-term pressure on growth and profitability is for sure. But as far as long term is concerned, it will support healthier and more disciplined competition across industry and enhance the competitive advantage of top players with proper license and also compliant mechanisms. And we think Lufax is actually better positioned because we have consumer finance license, we also have guarantee license and micro lending licenses. And our compliance culture is being strengthened and will basically show value in the long term.

The next question will come from [ Shujin ] Chen with Huatai Securities.

I'm [ Shujin Chen ] from Huatai Securities. And I have 2 questions. The first one is about the funding side. Recently, funding supply in the loan facilitation industry has tightened with some banks scaling back cooperation with loan facilitation platforms. We would like to understand whether funding supply available to banks remain sufficient. And have there been any material changes in partner banks' willingness to lend credit facility quotas or funding cost? Have changes on the funding side affected the company's loan origination volume in the third quarter of 2026? And how does management view the funding supply outlook over the coming quarters? That's the first one. The second one is about the asset quality. We would like to understand whether the deterioration in the asset quality in the third quarter of 2026 was mainly driven by legacy loans? Or are you also seeing weaker performance in newly originated loans? When does management expect asset quality to stabilize and will the credit cost still face further upward pressure over the coming quarters?

Thank you. Yes, we do recognize that funding supply is under pressure for the industry, especially for some of our peers. As far as Lufax is concerned, funding supply remains largely sufficient. Major partner banks' willingness to lend and credit facility quotas remain stable. In fact, funding costs continue to decline. Cost of funds by balance, excluding consumer finance declined to 3.6% in Q3, down 20 bps Q-on-Q and 80 bps year-on-year. Leveraging on intrabank market, the funding cost for consumer finance was also stable and lower than the funding cost of Rongyi loans. We actually hold a cautiously optimistic view on future funding supply based on our license advantage as well as our strong collaboration with our funding partners. And we do expect funding availability will not pose a material constraint on our lending business. So in short, on the funding side, we're doing okay. Asset quality-wise, the increase in credit impairment losses in Q3 was primarily attributable to actual losses related to certain existing loan assets, whose actual performance fell short of expectations. Risk performance of loans newly generated -- originated in 2026 is within our expectations and actually better than the previous one. We do expect the risk volatility caused by enforcement action to be temporary. We will continue to implement our selective customer strategy to optimize our customer mix and enhance post-loan measures, leveraging AI-enhanced risk models to continue improving asset quality. Thank you.

This concludes our question-and-answer session. I would now like to turn the conference back over to management for any closing remarks. Please go ahead.

Thank you, operator. This concludes today's call. Thank you for joining the conference call today. If you have any more questions, please do not hesitate to contact Lufax's IR team. Thanks again.

The conference has now concluded. You may now disconnect.