Ladies and gentlemen, thank you for standing by, and welcome to the 360 DigiTech Fourth Quarter and Full Year 2021 Earning Conference Call. Please also note today's event is being recorded. At this time, I would like to turn the conference call over to Ms. Mandy Dong, IR Director. Please go ahead, Mandy.

Thank you. Hello, everyone, and welcome to our fourth quarter and full year 2021 earnings conference call. Our results were issued earlier today and can be found on our IR website. Joining me today are Mr. Wu Haisheng, our CEO and Director; Mr. Alex Xu, our CFO and Director; and Mr. Zheng Yan, our CRO. Before we begin the prepared remarks, I’d like to remind you of our Safe Harbor statement in our earnings press release, which also applies to this call. We may refer to forward-looking statement based on our current plans, estimates, and projections. Also, this call includes discussions of certain non-GAAP measures. Please refer to our earnings release for a reconciliation between non-GAAP and GAAP ones. Last, unless otherwise stated, all figure mentioned are in RMB. I will now turn the call over to our CEO, Mr. Wu Haisheng.

Hello, everyone. I'm very happy to report another solid quarter that cap-off a strong year. In 2021, total loan facilitation through our platform reached RMB357.1 billion, up 45% year-on-year. This beats the midpoint of our rate of full year guidance. In Q4, total loan facilitation reached RMB96.9 billion, up 4-0, 40% year-on-year. Outstanding loan balance reached RMB142 billion, up 54% year-on-year. Our business overcome multiple challenges related to macro economy uncertainty, through erratic outbreak of COVID and the fast changing regulatory environment in a rather volatile year of 2021. We delivered growth, while maintaining stable asset quality and further demonstrating the resilience and flexibility of our business. Now, let me walk you through some updates for Q4. Regulation remains an area that draws a lot of attention. So, let me first share some updates here. I can think of the government policy for 2022 is very clear, which is to achieve that economic growth by driving consumption, suggesting more supportive to the development of consumer finance. We expect policymakers to introduce additional measures to drive consumption and support SMEs as China's State Council has made the above mentioned policy theme as a higher priority. We then hope at the municipal level working by your plan, or the financial industry report, supports the expansion of consumer finance industry through proper loosening of financing restrictions for consumer finance companies. At the central government, level PBOC has acknowledged the value of fintech is dangerous development plans for 2022 to 2025. There are tremendous opportunities for financial institutions and the tap companies to work together and contribute to the digital transformation of financial sector. In addition, the PBOC and other national regulators are promoting innovation in Financials generalization, outlined in the 14 by year plan for the financials standardization. We actively participates in policy…

Thank, you. Haisheng. Good morning and good evening, everyone. Welcome to our quarterly earnings call. As Haisheng mentioned, despite facing multiple micro challenges, we delivered solid Q4 results in both operations and financial terms, and finished 2021 with a series of record setting annual numbers on the book. During the quarter, we saw continued healthy consumer demand for credit were asset quality was fluctuating in Q4 mainly as a result of are glad to see improvement in the new year as funding becomes ample. Net revenue for Q4 was $4.4 billion versus $4.6 billion in Q3 and $3.3 billion a year ago. Revenue from credit driven service capital heavy was $2.71 billion compared to $2.62 billion in Q3 and $2.56 billion a year ago. The year-on-year and sequential increase was mainly due to growth in on balance sheet loans and releasing guaranty liability on previous loan balance, more than offsetting the decline in capital heavy facilitation volume and revenue take rate. The trade -- take rate decline was as expected at the average prices of our loans were lowered by 200 basis point during the quarter. Well the offsetting factors yet to kick in. Revenue from platform service capitalized was $1.71 billion, compared to $1.99 billion in Q3 and $780 million a year ago. The strong year-over-year growth was mainly driven by a significant increase in capitalized loan volume. The sequential decline was due to a decrease in capitalized loan volume along with a modest decline in revenue take rate in Q4. During the quarter, capital-light and other technology solution contribute roughly 54% of total loan volume. Capital-light loan volume was negatively impacted by seasonal shortage of overall funding supply, as well as the 24% rate cap related tightening from traditional funding sources. At least for the first half of…

Thank you, management. For those who can speak Chinese, please kindly ask your question in Chinese first, followed it by English translation. In additional, in order to have enough time to address everyone on the call, please keep to one question and one follow-up and then return to queue if you have more questions. Thank you. Our first question is Yao Lee from CICC. Please go ahead.

Okay. That was a good translation. The first one is, I'd like to know the progress of the pricing adjustments. What's the proportion of loans in Tokyo 2021 that are priced under the 24%? And how much this proportion can reach up to for the first quarter this year? And wonder pricing going downward and the target customers sort of get shocked. I was wondering how are we shifting our customer acquisition strategy. Thanks.

Sure. Thanks, Yao. I would -- I would take the first part of the question and then Haisheng will do the second part. So in the first quarter, over 70% of our customers are priced below 24%. And as I mentioned in the prepared remarks, by year ending, the average price is already below 24. And this quarter in Q1, we're expecting even larger portion of customers being priced that below 24. And we are pretty confident that we will get the targeted rate cut goal, by the mid-year headline. Haisheng?

Yes. Let me try for our CEO, as four questions the customer acquisition strategy to access the higher quality customer groups. We will navigate three approaches. Number one, further invest more in R&D to improve our Tech as in light AI models to better identify the customer risk of profiles. What is the roadmap in Q4? They can approach. We adapt our API, customer acquisition approach with our capital enhancement study. We learned offline trend which historically shows is a much better approach is especially for the high quality customers.

Our next question is Richard Xu from Morgan Stanley.

Basically, my question is on the funding front, there's been increasing in ADS also the small loan company. Capital injection that's also completed should want to see whether there's a credit line with banks where cooperation with the banks is still expanding. And what will be the long term mix in terms of the funding between capital lights, capital heavy and then their different funding sources?

Yes. To answer your question, Richard, you are very correct. First, we -- well, it continuously expands our number of financial institution partners by introducing stronger banks. As this comes along, we can offer larger ticket size to better quality customers. Second, as for the capital light volumes, we will explore more diverse products catering to different needs of financial institutions. Their needs include marketing surveys, risk management surveys and loan collection surveys.

I just want to add one point. So from a longer term perspective, the capitalized contribution, as I mentioned in the prepared remarks, will be moving higher from current level. If you recall, in the past, we were at some point targeting like two-third or 70%. I think from a longer term perspective that's probably still be the target. This year will be fluctuated around this current level, just because the whole industry is adjusting to the new environment. And when we’re done with this adjustment, the trendline will start to move to the higher direction for cap light.

Our next question is, Ethan Wang, CLSA.

Okay. I have two questions. Firstly, is a quick follow-up just wondering the funding cost for the fourth quarter and the management view on funding costs for this year? And second question is down in the market concern on tightening regulation for the local financial institutions or causing financial institutions. And so for the regional banks who are collaborating, just wondering whether they are having concern on this front, and whether that's going to empower business and for guaranty companies does that mean there were set up various institutions across the country, so we can cooperate with them to lend nationwide? Thank you.

Okay. Thank you, Richard. I will take the first part again and then Haisheng will be taking care of the second one. So for the funding costs for the Q4, it was approximately 7%. And the Q4 as you know, it's always been a very tightening period from money supply perspective in the financial system. So normally that's reflecting the funding costs. And for moving into this year, as we sort of gradually transition to new institutional partners, the overall funding supply, we're getting more sufficient. But during this transitional period, we are expecting a rather stable funding cost around 7% and after we've done with this transitional, we'll probably start to see a gradual although modest, kind of decline in funding cost in the long run.

Yes, yes. To answer your question number one, your question comes from the very early requirement that the online loan business for urban commercial banks. This is quite early regulation and the regulator gives a rather long grace period for all the market participants. The cutoff date issue is January 1 this year. Currently, all our financial institution partners are within the compliance. Secondly, looking at the matrix of our financial institution earnest network, most of them are national wise operations. Therefore, we have very limited impact from this regulation. Yes. The second part of your question the regional restriction for guarantee company, guarantee company can stack local branch national wise to satisfy these requirements. It's comparatively easy compared to the banks to cover national wise.

Thank you.

Our next question is Thomas Chong from Jefferies.

Thanks management for taking my questions. I have two. My first question is about other SME strategy. Can management comments about how we should think about the contribution over the future as well as the borrowing cost and the loan size going forward, together with the industry categories that we are working with? And my second question is more about the macro headwinds that we are facing these days, an effect of COVID. Are we seeing any changes in terms of the consumer behavior, in terms of the use of the policies? Thank you.

Well, first regarding your question about SME business, the average ticket size for SME products overall is about RMB50K, five-zero, for some tax laws, which is larger ticket size, usually we provide products over RMB250K. For the tax law, we estimate the market expanded around 2%. Secondly, for your question about the use of loan, as most of our consumers were in the industry that are less impacted around the COVID and the macro economy, we are seeing their use of loan is consistent with previous. I want to add more color for our operating strategy for SME business line even under the tremendous demand for any borrower and the supportive part from government; we take a very prudent strategy in this business. We focused on those industries that are less impacted by the macro economy such as manufacturing and retail. This year, we do not expect to accelerate exponentially in this business, again, we will take very conservative role. Also we like to explore more capital life and the more tech driven solutions for financial institutions in this SME business.

Appreciate it.

Thank you. This is the end of our question-and-answer sections. Now I give it back to the management for closing remark. Thank you.

Okay. Thank you for -- again for participating in the call, and if you have any additional questions, please contact us offline and we'll discuss that. Thank you.

This concludes our conference call. You may disconnect now. Goodbye.