Good day, and thank you for standing by. Welcome to the Lexin Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Tan. Please go ahead.

Thank you, operator. Hello, everyone. Welcome to our fourth quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and the strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance. 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. Last, please note that all figures are presented in RMB terms and all comparisons are made on a quarter-over-quarter basis unless otherwise stated. Please kindly note Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin.

[Interpreted] Hi, everyone. Thanks for joining us today for our fourth quarter 2025 earnings call. In the fourth quarter, we optimized our business operations within the new regulatory framework, successfully achieving our objectives of stabilizing scale and mitigating risk. During this period of industry adjustment, our unique business ecosystem demonstrated its differentiated advantages, leading to a significant rebound in active users. Guided by our long-term oriented philosophy, we are seeing the resilience of our multi-business synergy become increasingly evident, further strengthening our ability to navigate business cycles. In the fourth quarter, our loan volume reached RMB 50 billion and revenue reached RMB 3 billion. Number of active users stood at 4.53 million with 884,000 new active users. For the full year of 2025, total loan volume was RMB 205.3 billion. Net profit was RMB 1.7 billion, representing a year-over-year increase of 52.4%. Next, I will walk you through the key initiatives we have undertaken since the fourth quarter. First, we proactively aligned our operations with the new regulatory requirements, adhering to a high standard of compliance. Following the official implementation of the new regulations in Q4 and building on the earlier completion of business adjustments and system deployment, we remain focused on our customer-centric strategy to further optimize our product matrix and personalized service experience. By operating prudently within the regulatory framework, we have not only enhanced our long-term sustainability and risk resilience, but also effectively connected financial services with market demand. Through our diversified business lines, including online consumer finance, installment e-commerce and off-line inclusive finance, we continue to support the real economy and foster healthy growth in consumer spending. Second, we have comprehensively strengthened our risk management to ensure steady business development. Since the fourth quarter, the industry has faced an upward trend in credit risk. In response,…

[Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the fourth quarter. The fourth quarter of 2025 marked the full implementation of the new loan facilitation regulations. The resulting liquidity tightening across the sector created significant headwinds for both industry scale and risk performance. In response to the cyclical volatility, we maintained a disciplined approach to risk management throughout the quarter, increasing our mix of prime assets and optimizing our portfolio structure to ensure overall stability. Specifically, in the fourth quarter day 1 delinquency ratio of total assets increased by 7% and 90 days plus delinquency ratio edged up by 3% quarter-over-quarter. On a month-over-month basis, our risk indicators saw a marginal decline in November and December after peaking in October, signaling that asset risk performance has begun to stabilize. In December day 1 delinquency ratio declined by 8% compared to October. We will sustain our rigorous risk controls through the first half of 2026 to reinforce this downward trajectory and gradually bring our asset risks back within our target risk appetite. Next, I would like to walk you through the key risk management initiatives we have implemented during the fourth quarter. First, we continue to intensify the identification and management of high-risk customers. From a modeling perspective, we accelerated the iteration of our risk models by implementing automated weekly updates. By incorporating the most recent default samples into our training sets every week, we were able to more rapidly capture and learn the shifting characteristics of delinquent borrowers in the current market environment. On the strategy front, we integrated a broader range of real-time data dimensions, including cross-platform borrowing, delinquency history, leverage ratios, personal income and employment stability. This allowed us to apply more stringent transaction interception and credit…

Hi, everyone. Thanks, Arvin. I will now provide a detailed overview of our fourth quarter financial results. Please note that all figures are presented in renminbi terms and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. The fourth quarter marked a pivotal transition for the industry as the new regulatory framework officially came into force. We have strictly followed the regulatory requirements, ensuring that the comprehensive interest rate for all new loans is capped at or below 24%. Following the implementation of these new regulations, we observed elevated volatility in industry-wide credit risk. This complex market environment created challenges for our performance. In the fourth quarter, our net income recorded RMB 214 million. This sequential decrease was primarily driven by the pricing adjustment to strictly complying with the 24% cap, coupled with the contraction in loan volume resulting from our prudent strategy to proactively manage risk exposure. Furthermore, heightened market volatility led to increased credit costs and more conservative provisioning. Lastly, operating expense did not decline proportionately with the revenue due to the fixed cost and expense recognition seasonality. Now let's take a holistic review of our fourth quarter financial results. First, net revenue of the credit business, which is derived by adding up credit facilitation service income and the tech empowerment service income, net of credit costs, including provisions and fair value changes and the funding cost was RMB 1.4 billion, representing a RMB 586 million decrease quarter-over-quarter. The overall decline was primarily driven by a RMB 132 million drop in credit facilitation service income stemming from contracted loan volume in our online consumer finance business that decreased overall pricing. During the fourth quarter, weighted average APR of new loans originated was 21.7%, a 140 basis point decline quarter-over-quarter. This was compounded by approximately RMB 185…

[Operator Instructions] First question is from Alex Ye from UBS.

[Interpreted] So I have 2 questions. The first one is given the new regulatory environment, so how is Lexin's development strategy going to change going forward? And then second question is, could management share with us some of the key operating performance outlook for this year?

[Interpreted] So this is the translation for Jay's answer. With the full implementation of the new regulation, the industry has entered a new phase centering on quality and compliance. Industry resources will increasingly concentrate on platforms that demonstrate both quality and compliance. Under such new regulatory environment, the key to Lexin's business resilience lies in our user-centric approach and our ability to serve customers across different segments. Our unique business ecosystem enable us to engage and serve users with varying risk profiles and achieve stable growth amid market fluctuations. Specifically, we actively respond to regulatory guidance by adhering to a high standard of compliance. Building on the current regulatory requirements, we further lowered the overall loan rates. In the fourth quarter, the average loan rate on our new loans was 21.7%, which will be further lowered in 2026. Furthermore, we remain deeply committed to the off-line inclusive finance market and serve the micro and small business owner segment. Leveraging our installment e-commerce platform, we enriched the supply of products on our platform across diverse and essential life service categories to tap into the consumption potential of our users. Meanwhile, with the steady expansion of our technology solution empowerment and overseas business, the revenue structure is becoming more diversified, strengthening our long-term operational resilience under the new regulatory framework. Last but not least, we adhere to a user-centric service philosophy, being consumer protection as a key part of enhancing our operational resilience. Moving forward, we will continue to improve efficiency and experience of our customer service through process standardization, intelligent task routing and refined operation, further strengthening consumer rights protection. Regarding the second question about the outlook of our business operation in the year of 2026. With risk level stabilizing, we will adopt a more proactive user acquisition strategy. By enhancing…

Next question is from Judy Zhang from Citi.

[Interpreted] Now let me translate the 2 questions. The first question is regarding on the risk outlook. Can management share with us the company's latest risk performance and the future outlook? And the second question is what is the outlook for the company's full year financial performance for this year?

[Interpreted] This is the translation for Arvin's answer. The fourth quarter was the first quarter after the implementation of the new regulation and was a critical period for the entire industry to digest the impact of the new regulation. While industry-wide risk has begun to show signs of stabilizing, it will take some time for this risk to be fully clear and return to the level before the first half of 2025. In response to this round of risk cycle, we continue to strengthen our risk management in Q4 by increasing the proportion of high-quality assets and optimizing our asset structure, ensuring risk remain under control. Regarding the specific performance, although the overall risk indicator in Q4 was higher than that in Q3, on a month-over-month basis, starting from the month of November, we have started to see rates trend down for multiple months consecutively, signaling a downward trend, and we expect this downward trend to continue. Despite this improvement, it's important to note that risk levels remain elevated in the fourth quarter. Looking ahead to the first quarter of 2026, we will continue to strengthen risk control over loans while intensifying our efforts in managing and phasing out high-risk segments to ensure a sustained downward trend in risk levels and gradually bringing the loan risk back within our target risk appetite in the second half of 2026.

Okay. I will take on the second question regarding the financial guidance. The fourth quarter of 2025 was indeed one of the most challenging periods absorbing the concentrated impact of several factors. This include revenue compression from pricing adjustments, the deliberate scale down of loan volume in our consumer finance business, a shift in the pace of revenue recognition driven by changes in our business mix due to the tech empowerment business volume growth, short-term uptick in our credit risk and the seasonal impact on our operational expenses. For the first quarter of this year, as I stated earlier, we expect the loan volume of originations to be at a similar level as our fourth quarter. Given the ongoing macroeconomic uncertainties and lower visibility, we are not providing a full year financial guidance for 2026 at this point. However, I would like to share a few variables that may impact our financial performance. Looking ahead, our full year financial performance will be primarily influenced by the following dynamics. On the revenue side, number one, volume. While our overall loan volume will remain stable or even grow a little bit, the short-term revenue contribution from a tech empowerment business, Shuke Ye will be relatively modest. This is due to its lower credit cost, lower pricing profile and relatively slower revenue recognition accounting schedule. Second is the pricing. The proactive downward adjustment to our overall pricing will also continue to weigh on all of our top line. On the cost and expense side, number one, funding costs. In the near term, frequent regulatory window guidance directed at funding partners has led to a somewhat tightened funding supply in the first quarter. Moving forward, our funding costs will be influenced by a combination of the broader regulatory environment, the quality of our customer cohorts and the overall funding liquidity. Second, the credit cost. As risk progressively stabilize and we pivot towards higher-quality customer cohorts, we anticipate a gradual optimization of our credit cost while maintaining an ample provision. Third point is the operating expenses. We'll persistently drive cost reduction and efficiency initiatives to optimize our operational leverage and steadily lower our operating expenses. So in summary, in view of the macro uncertainties, we will maintain prudent in our overall business strategy and execution at the same time, optimize the profit and the shareholder value and strive to build a long-term healthy and sustainable business.

Next question is from [ Claire Wang ] from Goldman Sachs.

[Interpreted] I'll quick translate my question. What's the company's future plan for enhancing shareholder returns in terms of both share buyback and cash dividend.

[Interpreted] So first, starting from the second half of 2025, our dividend payout ratio was raised to 30% of outstanding annual net profit. This actually puts us at the forefront of the industry. On top of cash dividends as of today, we have repurchased USD 39 million worth of ADS, completing 80% of our current repurchase program. I have also fully executed my personal USD 10 million share repurchase plan. This action reflects the management's firm confidence in the company's outlook and its long-term intrinsic value. Following this earnings release, we will continue to execute the remaining portion of our share repurchase program, delivering our commitment to enhance shareholder returns. Looking ahead, we will closely monitor market dynamics and based on our actual operational needs, actively explore diverse initiatives, including further repurchases to create sustainable value for our shareholders.

Thank you. I will now hand the conference back to Will Tan for closing comments.

Thank you. This conference is now concluded. Thank you for joining us today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]