Hello, ladies and gentlemen. Thank you for participating in the Second Quarter 2024 Earnings Conference Call for FinVolution Group. At this time, all participants are in listen-only mode. After managements' prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I would now like to turn the call over to your host, Jimmy Tan, Head of Investor Relations for the company. Jimmy, please go ahead.

Thank you, Alison. Hello, everyone, and welcome to our second quarter 2024 earnings conference call. The company results were issued via Newswire services earlier today and are posted online. You can download the earnings release and sign up for the company email alerts by visiting the IR section of our website at irr.finvgroup.com. Mr. Tiezheng Li, our Chief Executive Officer, and Mr. Jiayuan Xu, our Chief Financial Officer, will start the call with their prepared remarks and conclude with a Q&A session. 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 reconsideration 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 Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company 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 laws. Finally, we will post a slide presentation on our high-end website providing details of our results for the quarter. I will now turn the call over to our CEO, Mr. Tiezheng Li. Please go ahead, sir.

Thanks, Jimmy. Hello, everyone, and thank you for joining our earnings call. This is Tiezheng Li, CEO of FinVolution Group. We are happy to speak with you today. We ended the first half of 2024 on a positive note, driving progress growth in the China market while maintaining our rapid growth momentum internationally. Through determined, strong execution of our local excellence global outlook strategy, or simply LEGO, legal strategy, we made great strides across our business in the markets in which we operate. Cumulatively, we have served around 31.5 million borrowers across China, Indonesia, and the Philippines as of June 30, 2024. During the first half of 2024, transaction volume for the China market reached RMB92.5 billion, up 6% year-over-year. Transaction volume for the international market continued to grow rapidly, soaring to RMB4.5 billion, up 32% year-over-year. In terms of outstanding balance, China reached RMB64.2 billion, while our international market rose to RMB1.4 billion, up 3% and 27% respectively year-over-year. This stellar performance stands out as a testament to the effective execution of our legal strategy and the unwavering commitment of our team. Customer acquisition is a key element of our legal strategy. We view it as an ongoing investment that will ultimately lead to a higher percentage of better quality repeat borrowers and drive sustainable growth. During the second quarter, our number of total new borrowers reached 823,000, up 22% year-over-year and 15% sequentially, validating our ability to grow our business across different countries. Notably, as we completed the transition to better quality borrowers in Indonesia and began to diversify our business model, the percentage of new international borrowers once again surpassed the percentage of new China borrowers. Furthermore, our number of new borrowers in the Philippines continued to grow robustly in the second quarter, increasing by 198% year-over-year…

Thank you, Li, and hello everyone. Let's go through our key results for the second quarter. To be mindful of the length of our earnings call today, I encourage listeners to refer to our second quarter earnings press release for further details. Despite China's 5% GDP growth in the first half of 2024, uncertainty still persists in the macro environment. Small ticket items and tourism-related activities remained the bright spot with the May holiday, 618 shopping festival and consumption-related index all showing signs of improvement. However, China's overall retail sales slowed to 2% growth year-over-year in June, which does not reflect an optimal recovery trajectory. China's manufacturing PMI index remained largely stable in July with manufacturing PMI holding steady at 49.4 points. Concurrently, the manufacturing PMI and compensated PMI both reached 15.2 points, which is within the expansion range, indicating Chinese enterprises' gradual production recovery. In short, although China's economy is recovering, there are still pockets of turbulence, which we will need to navigate using our vast experience in the technological and operational process. As Li mentioned, our performance in the first half of the year was solid with transaction volume growth in both China and the international market slanting within our guidance range. This was supported by consistent excellence across numerous other areas, such as institutional funding, loan collection, and risk performance, among others. Let me walk you through some of the details. During the second quarter, our average borrowing rate in China remained stable at IRR 22.2%, validating our strong commitment to advancing financial inclusion. Given financial institutions' growing desire to obtain good-quality borrowers for our platform, our funding costs improved significantly, shrinking another 90 bps during the quarter and recording a cumulative improvement of 114 bps in the first half of 2024, leading to consistent improvement in…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Cindy Wang of China Renaissance. Please go ahead.

Thank you management for taking my call. I have two questions here. First question is, could you give us some color on the trend of your China borrowers' loan demand in the second quarter and also in July? And the second question is, in Indonesia, your customer acquisition strategy after the APR meets the requirement. And any updates on the regulation front of the interest rate requirement in 2025? Thank you.

Hello, Cindy. Let me do the translation. Regarding China demand, during the second quarter, the trend of our borrowers' demand is largely in line with the weakness in residential credit demand. The daily application rate of repeat borrowers declined by mid-single digit around 6% on an annual basis and quarterly comparison, reflecting weak consumer confidence. In July and August, we have observed that the application rate of our repeat borrowers has increased by mid-single digit between 6% to 7% on a daily basis. The demand of our borrowers is concentrated in the area of daily necessity. Therefore, when the economy is weak, it will show more resilience and we expect demand will gradually improve in the second half of the year. Hello, Cindy. Let me do the translation. From the Indonesian market environment, it is presenting a much more positive trend. After the Indonesian election, political situations have normalized with an improving economy such as GDP increase. Let us concentrate on our performance in Indonesia. During the second quarter, transaction volume for Indonesian market reached RMB1.64 billion, up about 6% to 7% annually, with outstanding loan balance between RMB1 billion, up about 4%. Revenue for the quarter reached RMB430 million. Number of borrowers reached RMB530,000 up 4% sequentially, and number of new borrowers reached 200,000, up 9% sequentially. We have cumulatively cooperated with seven financial institutions, and all our funding is from local financial institutions now. Our Indonesian operations has completed its pricing transition in just five months, and we have made adjustments in borrowers' costs, model iteration and credit risk has improved by 28%, meaningfully offsetting the impact of interest rate reduction. Therefore, our take rate returned to 10%, reflecting our business entering a more stable stage. For the second half of the year and for the third quarter, we expect Indonesian operations will resume growth of over 10%, with transaction volume potentially reaching new record high. Indonesian online operations will remain stable, with credit risk, customer acquisitions improving consistently. For offline operations, we have completed the acquisition of a multi-finance license, with a controlling stake of 83.7%. Going forward, we will proactively explore both online and offline China's multi-products and buy now, pay later installments for different scenarios such as electricity and electric bikes, et cetera. We will fully leverage our China expertise and leverage them in our Indonesian market to ensure future growth. Hello, Cindy. Any more questions from you?

No more questions from me. Thank you.

Thank you.

Thank you. And our next question will come from Yada Li of CICC. Please go ahead.

Then I will do the translation. Hello, management. Thank you for taking my questions. And I was wondering, what's the plan and growth target for the company's domestic business? And I've noticed that the company has gained a slightly faster volume growth compared with the peers. And looking ahead, how likely the company can maintain such growth? And how does the company balance the volume growth and profitability? That's all. Thank you.

Hello Yada, let me do the translation for Alexis. As you know, China market has some changes this year, and it is very different from the previous years. And currently, the scale of China consumer market has slowed down and entered into a stage of increased competition. After the fiscal risk fluctuation in the industry during the second half of 2023, many players have experienced varying degree of earnings reduction. Under the uncertain macro environment, we are searching for certainty that is beneficial for us and execute sustainable development in China. We have a few ways to achieve this. First of all, we have certainty for success on acquiring new borrowers through information fees, leveraging on data and behavior. We continue to optimize the information fees in China and improve the algorithms, and conduct joint modeling to enhance ROI. And we are able to increase the accuracy in determining the lifetime value of our customers and maintain stable customer acquisition strategy. Transaction volume contributed by new borrowers was up 2% and 27% year-over-year. Our percentage of new customers was between 12% to 15%. At the same time, we are able to have better cost control and a healthy LTB level. Apart from information fees in China, we are also actively diversifying our customer acquisition in China and have found multiple new internet platform partners to work with us. In addition, we are also leveraging on our brand to influence our borrowers. For example, during the Olympics period, our support for the national weightlifting teams has achieved tremendous success along with their wins at the games. Along with promoting a positive image for China Olympics, we have also gained remarkable results of over 100 million views and over 20 million counts of video traffic transmission. And secondly, the management of repeat borrowers is a certainty for us, and we have over 17 years of operating history and we are very familiar with our borrowers. Through deeply excavating their diversified multi-layers and differentiated requirements, we will then refer them with the most suitable products based on different scenarios such as user profiles and behavior characteristics. And all these have led us to increase our users' promotion impact by 36% in the first half, which leads to a higher transaction volume for repeat borrowers. Thirdly, our business operations remain healthy with stable performance coupled with continuous improvement in funding costs, which leads to progressive improvement on multiple funds such as tick rates. All these ensure our high-quality growth, which is above the industry and lay the cornerstone for sustainable growth going forward. Okay, thank you, Yada.

[Foreign Language]

Okay, thank you, Yada.

Thank you. [Operator Instructions] And our next question today will come from Alex Ye of UBS. Please go ahead.

Thank you. So, my first question is on asset quality. We have noted that early indicators have claimed to improve in the second quarter. Just wondering what are the key drivers behind a recent trend? And should we be worrying about any potential uptick in NPR in the second half, like in the third quarter last year? And the second question is on the sequential trend on the take-away. What have been the key drivers behind? What is the outlook for the second half? And is there any more room for improvement for the final cost? Thank you.

Hello, Alex. Let me do the translation. Regarding our overall asset quality. During the initial phase of restoration last year, we leveraged on our years of experienced and [Indiscernible] accurate predictions of industry trends and higher approval rates for riskier borrowers and higher debt, higher risk, and deploy different strategies for medium risk groups, and quickly adjust for the risk strategies during the early stages of delinquencies. In the first quarter, risk performance stabilized, and we are one of the earliest platformers in the industry that are able to contain risk at a lower level. During the second quarter, we further optimized, adjusted and iterated on the overall credit limit, and explored solutions for different types of users, while maintaining growth in transaction volume and balancing risk. We have also shared that during the second quarter, our vintage delinquency remained stable at 2.5%, while day one delinquency reduced by 10 basis points to 5.1%, and loan collection recovery rates improved to 88%. We don't think this situation will happen in the second half as the overall environment is much more stable now. I would like to share more information with you. Over the past 17 years in our operating history, industry-wide fluctuations in asset qualities have occurred four times, and such fluctuations on average last around 4-5 months, with the longest lasting 7 months and the shortest lasting 2 months. The fluctuation for this round is considered to be mid-term, and the impact of fluctuation is smaller. Based on past recovery experience, the recovery process normally takes place at between the 4 to 6 month. Therefore, the fluctuation this time round is not unique, and has already shown signs of recovery. And we are confident to handle any more of such fluctuations in the future, based on our experience. Hello, Alex, let me do translation. Regarding take rates during the second quarter our average borrowing rates remains at 22.2%. Funding cost optimized by 90 bps in the second quarter while vintage delinquency remain stable at 2.5% and take rate further improved to 3.1%. For the second half of 2024, we expect average borrowing rate to remain stable and funding cost and vintage delinquencies to have further optimization. Our asset quality is popular in such environment and we are one of the few platforms that are able to maintain growth. This is the reason why we are more room to negotiate for better funding costs with our funding partners. Funding costs has continued to improve by 140 basis points in the first half, improved by 90 basis sequentially. And going forward we still believe it will have room for improvement based on how it adjusted for the year. Okay, thank you, Alex.

Okay, thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact FinVolution Group's Investor Relations Team. Thank you all, and have a nice day.

This concludes this conference call. Thank you for joining. You may now disconnect your line.