Ladies and gentlemen, thank you for standing by, and welcome to the Qfin Holdings Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please also note that today's event is being recorded. At this time, I'd like to turn the conference over to Ms. Karen Ji, Senior Director of Capital Markets. Please go ahead.

Thanks, Darcy. Good morning, and good evening, every one. Welcome to Qfin Holdings Fourth Quarter 2025 Earnings Conference Call. Joining me today are Mr. Wu Haisheng, our CEO; Mr. Alex Xu, our CFO; and Mr. Zheng Yan, our CRO. Before we start, I will quickly cover the safe harbor statement. Today's discussions may contain forward-looking statements, particularly statements about our business and financial outlook that are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor statements in our earnings release. On this call, we will also discuss certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of the non-GAAP financial measures to GAAP financial measures. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

Hello, everyone. Thank you for joining us today. In 2025, China's consumer finance industry underwent a systemic restructuring under regulatory guidance, the introduction of several key policies, including new loan facilitation rules, window guidance for consumer finance companies and guidelines on comprehensive financing cost management for micro lenders. In the near term, these measures tightened market liquidity, which in turn suppressed credit demand and put unprecedented pressure on both loan growth and risk management across the industry. Over the longer term, however, we expect the ongoing consolidation will facilitate a healthier and more efficient market environment, creating broader opportunities for leading credit tech platforms. We have proactively pivoted our strategy to embrace regulatory changes, by putting compliance and risk management at the core of our strategy. We concluded 2025 with resilient financial and operational results. As of the end of 2025, our AI-powered credit decision engine and asset distribution platform served 167 financial institutions, delivering intelligent digital credit services to over 63 million credit line users on a cumulative basis. The rollout of new loan facilitation rules in Q4 led to a further contraction in market liquidity. In response to the dynamic market conditions, we further tightened our risk standards while continuing to optimize our business structure. As a result, total loan facilitation and origination volume on our platform decreased by 21.8% year-over-year to RMB 70.3 billion in the quarter. Non-GAAP net income in Q4 decreased by 45.7% year-over-year to RMB 1.07 billion, and non-GAAP EPADS on a fully diluted basis decreased by 39.8% year-over-year to RMB 8.23%. We delivered on our previously issued Q4 guidance despite the challenging market environment. Turning to the full year. Our performance remains resilient and stable overall. Total loan facilitation and origination volume reached approximately RMB 327.1 billion, representing a year-over-year increase of 1.6%.…

Thank you, Haisheng. Good morning, and good evening, everyone. Welcome to our fourth quarter earnings call. We closed the year in a drastically changing operating environment, challenging macro conditions combined with intense regulatory scrutiny, put significant pressure to the consumer finance industry, causing noticeable liquidity squeeze and rising risks in Q4. Our operational focus has shifted towards efficiency improvement and cost reduction as well as a continuous effort to manage risk exposure. Total net revenue for Q4 was CNY 4.09 billion versus CNY 5.21 billion in Q3 and CNY 4.48 billion a year ago. Revenue from credit driven service, capital heavy was CNY 3.43 billion in Q4 compared to CNY 3.87 billion in Q3 and CNY 2.89 billion a year ago. The year-on-year increase was mainly due to the increase in on-balance sheet loans more than offsetting the decline in off-balance sheet loans. The sequential decline was also due to significant lower off-balance sheet loans. Overall funding costs declined 20 bps Q-on-Q as we rely on less external fundings in Q4. Revenue from platform service capital light was CNY 660 million in Q4 compared to CNY 1.34 billion in Q3 and CNY 1.59 billion a year ago. The year-on-year and sequential decline was mainly due to significantly lower ICE contribution in response to the regulatory changes and lower ICE take rate due to the rising risks. During the quarter, average IRR of the loans we originated and/or facilitated declined about 150 bps versus prior quarter. Looking forward, we may continue to see gradual decline in average pricing as we focus more on high-quality and low-priced users in the coming quarters. Sales and marketing expenses declined 17% Q-on-Q. We took a more cautious view in customer acquisition given the higher overall risks. We added approximately 1.45 million new credit line users…

[Operator Instructions] Your first question today comes from Richard Xu from Morgan Stanley.

[Foreign Language] Basically, two questions for me. One is considering the regulatory efforts to reduce the funding loan yield? What are the some of these medium-term long-term outlook for the pricing of loans? And also, what are the average or sustainable net take rate levels going forward? Second question is on the shareholder return, whether -- how do you balance dividend and a buyback and particularly whether the dividend is [indiscernible]. Thank you.

Okay. Richard, let me take your first one and Alex can take the second one. And for the first one, over the past year, a series of new regulations and window guidance were rolled out to driven down overall borrowing costs. As the industry evolves, small platforms with high pricing are quickly exiting the market. In the long run, these policies will reduce the burden of borrowers and create a healthier market. This will lead to industry consolidation and support the growth of the consumption sector. Following the regulatory guidance, we are proactively focusing on high-quality users. In the fourth quarter, our average pricing dropped by 140 basis points. In 2026, we will continue to build our strength in serving these high-quality users. By using flexible pricing and a better user experience, we can gradually increase the portion of high-quality users and customer mix, thus ensuring stable asset quality and better LTV. As we improve our asset structure, we expect some room for further downward adjustment in our average pricing for 2026. In the medium to long term, our pricing will depend on changes in the market and the regulatory environment. In terms of the take rate, our Q4 take rates were 3.5%. Excluding onetime items, the operational take rate was slightly below 3%. We believe there is still substantial room to optimize this through better risk management and the efficiency improvement. Since Q4, our proactive measures have already shown clear results. Looking ahead, if the regulatory environment stays stable, we aim to maintain a take rate of about 3%.

Okay. Richard, I will take the shareholder return part. As you know, we have always been putting the shareholder return as one of the top items when we're making the critical decision-making in the company. In 2025, the cumulative dividend payout and the share buyback were close to $200 million and $680 million, respectively. That basically gives us a total payout ratio about 98% as a percentage of our 2024 GAAP net income. And since the beginning of 2024, we have brought back approximately 40 million ADSs in total, accounting for about 25% -- 25.4% of the total share count at the beginning of 2024. This payout ratio as well as the combined yield is probably still the highest among the Chinese ADRs. In the future, as I mentioned in the prepared remarks, we intend to maintain the progressive DPS policy in the foreseeable future. So that can give the shareholders an expectable kind of dividend yield with that policy support. Regarding the buyback, I think at this point, I would say we take a little bit more cautious view approach for this, just given what's happening in the macro environment and also as well as the regulatory dynamic there, but we are open-minded. And as you know, we still have an outstanding buyback program not being fully utilized yet. And if the opportunity arised, meaning when the macro conditions become more stable and the regulatory environment becomes more settled, we will restart the buyback program. Some people are concerned that with the buyback of the CDs, we sort of used up all the CD kind of proceeds at this point. But in reality, if you look at our balance sheet, we still have plenty of cash on the balance sheet to support any of the potential shareholder return programs there. So for the longer term view, I think we will continue to balance between investing in the long-term business growth and shareholder returns and to maintain a decent ROE and create long-term value to the shareholders. Thank you.

Your next question comes from Emma Xu from Bank of America Securities.

[Foreign Language] So the first question is about the risk. What has been the trend of risk indicators so far this year? And how do you foresee the future trend of risk changes? The second question is about business structure. Given the latest market environment, how should we waive the choice between asset-heavy and asset-light business models? What is your outlook on the proportion of the heavy versus asset-light structure for this year?

I will probably refer to the first risk question to our CRO, Mr. Zheng.

[Foreign Language]

[Interpreted] Okay. I will do the brief translation. So in the fourth quarter, the industry faced huge pressure due to tightened liquidity. We took proactive steps in both underwriting and collections. And by far, we have seen clear results. For underwriting, we quickly tightened our pricing and credit limit standards. We also improved our ability to identify multi-platform borrowing risks. This has helped us exclude high-risk groups early and focus more on high-quality customers, which has largely improved our customer structure. For collection, we adjusted our strategy on a timely basis. First, we started manpower intervention in collection earlier for high-risk users. Second, we offered fee discounts or waivers for customers with temporary financial difficulties. Third, we increased incentives to boost the performance of our teams.

[Foreign Language]

[Interpreted] Thanks for these efforts. Our FPD 30 for new loans in Q4 dropped by 18% Q-on-Q. The FPD 30 for December cohort was close to its best level in the past 2 years. This positive trend continues in 2026. Our January data shows that the FPD 7 improved by another 10% from December, also reaching a 2-year best. As new loans make up a larger share of our portfolio, our overall risk is improving, and we also see our C-M2 ratio peaked in October and stayed stable in November and December. In January, the C-M2 ratio dropped by 8.2% month-on-month. Based on current change, we will expect February C-M2 ratio to return to the levels of July and August '25.

[Foreign Language]

[Interpreted] Of course, the macro environment is still undergoing changes with ongoing industry adjustments. We will closely monitor early risk signals and remain flexible to adjust our strategies as the environment changes. Thank you.

And Emma, I will take the second part regarding the business mix. As you know, the capital-light and capital-heavy have their own sort of pros and cons. We normally will adjust the mix between the two, depending on the macro condition and outside environment. Normally, in the upcycle, we intend to do more capital-heavy because it's generally speaking, generating higher return and higher take rate, where in the down cycle, we prefer offloading more risks. So we prefer the capital-light side of the model. Consider that given the current regulatory and the macro environment, we probably want to have more flexibility and more diverse risk. And so this year, meaning 2026, we probably will directionally moving towards capital-light a little bit. In '25, for example, the -- on the loan volume side, total capital-light was about 44% as a total volume in '25. This year, most likely, we will see this number moving up. But that said, we're not going to set a fix target in terms of mix between the light and heavy. It's more like a dynamically changing target from time to time given the end market condition there. Thank you.

Your next question comes from Alex Ye from UBS.

[Foreign Language] I have two questions here. First one is about the ICE business. So we have seen the Q4 referral service fee. Obviously, it was down by 85% Q-on-Q. So could you help us understand the reason behind? And with the new loan facilitation regulation, so how should we expect this ICE business, the take rate to evolve going forward and the business outlook? Second question is about the funding cost. So with the new micro loan regulation, setting the 4x LPR cap on loan pricing. So how does that impact our ABS issuance plan for this year and the implication for our overall blended funding cost for the year?

Okay. Alex, I will take the first part, and then Haisheng will take over the funding cost side of things. So yes, the first quarter, our revenue contribution from ICE declined pretty meaningfully. Basically, there are 2 factors to drive that. First of all, the volume. Because the -- under the new regulatory setting the funding partners in the ICE segment become much more cautious in terms of providing funding. And also this the ICE targeted segment overall as in the industry declined significantly. And this caused our ICE volume declined by 41% Q-on-Q and ICE only account for roughly 20% of our total loan volume in Q4. Secondly, the second driver is actually the take rate decline. As you know, most of the ICE users are what we consider the marginal customers in terms of the risk level tend to be higher than other users. We -- to maintain a sustainable business relationship with those ICE partners, we basically proactively lowered our take rate a little bit to ensure the reasonable conversion rate and also to ensure the partner still can run a sustainable business. So although a short term look at it, we sacrificed some of the take rate there. But longer term, I think it's a good way to maintain a sustainable relationship and sustainable business in terms of ICE in the challenging period. Looking forward, we still believe ICE is a very important part of our platform strategy. We want to serve a broader user base as possible by different -- using different models, we match -- we can match assets with the right funding in the most efficient way. Even though the pricing dynamics changed quite significantly, still, the ICE segment can still serve some of the users that in compliance with the current pricing environment. So our future focus is to explore the diversity in need of the long-tail customers will stay in compliance. And by offering more valuable value-added services, we will improve their stickiness to the platform and long-term value. This will ensure the long-term profitability of our ICE businesses. Haisheng?

Okay. Let me take your second question about the funding cost. Given the macro and regulatory environment uncertainty this year, the marketing liquidity remains tight. This is putting pressure on our funding costs. First, regarding ABS funding costs, the implementation of 4x LPR are making investors more cautious. They may ask for higher returns on micro loan assets. As a result, both our issuance amount and the funding costs will face some uncertainty this year. Second, regarding funding of loan facilitation business, many financial institutions have received regulatory guidance to be more careful about deploying capital into this segment. This will also lead to a tighter funding supply to some extent. In terms of funding structure, if our ABS issuance goes smoothly, the proportion of our on-balance sheet loan will remain at a steady level, and we expect the overall funding structure to stay stable as well. Our strategy is to continue expanding our financing channels and optimizing our structure. We aim to keep our funding supply stable and our cost competitive throughout the whole year. Thank you.

Your next question comes from Cindy Wang from China Renaissance.

[Foreign Language] And I have two questions here. First, management mentioned that the C-M2 level improved significantly in January and February. So can we conclude that the credit risk has stabilized? And what is management's outlook for new loan volume growth in Q2 this year and beyond? Second is -- the question is related to the overseas market expansion strategies. Please give us an update on the latest development in overseas markets, especially in the U.K. Are there any plans to enter new markets this year?

Okay, Cindy. Yes. Indeed, the risk control measures we took in Q4 have shown clear results recently. Especially in February, the C2M2 ratio returned to the level of last July and August. However, we need some more time to see if this improvement is sustainable. In addition, as the industry-wide adjustments continue and the regulatory uncertainty remains, we will keep a prudent risk strategy and focus on quality of loans. At the same time, we are working to attract higher-quality users and improve our operational capabilities to serve them better. To us, health needs and the sustainability of our business is more important than just volume growth. We have seen positive signals from the recent 2 sessions regarding consumption and credit support. In our view, the underlying logic of consumer credit-driven consumption remain unchanged. After the industry consolidation, we will become stronger and better positioned to capture long-term growth opportunities in the market. And in terms of the overseas business, yes, overseas business will be a better part of our company's strategy to drive long-term growth and a diversified business structure. By reshaping our business mix, we will become more robust and defensive. Given today's market environment, this strategy is especially meaningful. Therefore, we will firmly invest more resources and speed up our pace of overseas expansion. In 2025, we took the lead and entered the mature market. We used small-scale volume to train our risk model and build our market know-how. This has already achieved early results. At the same time, we conducted extensive and deep research on multiple global markets. We have selected several markets for preparation and one of them has started operations in 2026. In 2026, we will actively explore multiple markets, including both mature and the developing regions, such as Europe, Latin America and Southeast Asia. These 2 types of markets have different pros and cons. Mature markets have higher entry barriers, but we have established credit system and higher regulatory uncertainty. Developing markets may not have perfect credit data yet, but they have a huge market scale and the lower barrier to enter. In this market, there is also a clear path to profit. Therefore, we rebalanced our resources between both types of markets. We expect our overseas teams to grow to about 200 people by the end of the year. Over the past 2 years, based on our extensive research and studies in different overseas markets, we are extremely confident that our technology and risk model are best in class. With our deep credit know-how, AI and big data-driven technology and a strong balance sheet, we are fully committed to our overseas strategy and aim to take a frog leap to become a leading global credit tech company in the foreseeable future. Thank you.

Thank you. There are no further questions at this time. I'll now hand back over for any closing remarks.

Sure. Thank you again for everyone to join the conference. If you have any additional questions, please feel free to contact us off-line. Thank you. Have a good day.

That does conclude our conference for today. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]