FinVolution Group American depositary shares, each representing five Class A ordinary shares 2026 Q2 Earnings Call

Hi, all. Thank you for joining our call. Welcome to our second quarter 2026 earnings conference call. The company's results were issued through Newswire Services earlier today and are posted online. You can download the earnings release and sign up for the company's email alerts by visiting the IR section of our website. Mr. Tim Li, our Chief Executive Officer, and Mr. Alexis Xu, our Chief Financial Officer, will start the call with the prepared remarks and conclude with a Q&A section. 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 US GAAP. For information about these non-GAAP measures and the reconciliation 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 Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties are included in the company's 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 law. Finally, we posted a presentation on our IR website providing details of our results. Before I turn over to our CEO, we are dialing in from multiple locations, so if there is any delay in connection, please bear with us. I will now turn over to our CEO, Tim.

Tim, please go ahead. Thanks, Yam, and thanks, everyone, for joining us.

Let me start with the big picture. For years, we have pursued one clear strategy: internationalization. In a world this volatile, that strategy matters more than ever. It let us take what we have learned and put it to work in markets that are ready for fintech. It helps us diversify away from any single market. That strategy served us well this quarter, and it is exactly where we are headed. Overall, the second quarter was a solid one. In China, a stable risk backdrop, together with the preemptive actions we took in early quarters, give us a constructive environment to operate in. Overseas, momentum in Indonesia and Australia more than offset a deliberate temporary pullback in the Philippines. That is our diversification strategy working as designed. Let me turn to the results.

Given the result in China in the fourth quarter of last year, the sequential trend is a more telling measure. Group volume rose 5% sequentially to 45 billion RMB, and revenue moved in step up 6% to 3.4 billion RMB. Net profit was 427 million RMB, up 1%. But the figure we are most encouraged by is overseas. 54 million RMB in operating profit, up 17% sequentially. Overseas now account for roughly 27% of group revenue, and that share will keep rising for the rest of the year. Now let me dive into the two segments. Starting with our Chinese mainland. At a high level, we booked 41 billion RMB in loan volume, up 6.5% quarter-over-quarter, a healthy continuation of the recovery that began at the beginning of 2026. That said, the industry was rattled by an isolated credit incident, which adversely impacted the risk and funding dynamics.

I will walk you through in a bit. Right now, we are watching three priorities closely: asset quality, fundings, and regulations. First, asset quality. Coming into 2026, we expected a gradual recovery following the regulatory reset in the fourth quarter of last year. Two quarters in, that played out as we expected through the first half. Risk continued to ease through the second quarter. C-M2 came down again from 0.68% to 0.56%. So we grew the book selectively, focusing on the high-quality repeat borrowers, as we know well. That strategy generated 6% sequential growth in unique borrowers while keeping credit quality firm. Vintage credit cost was steady at roughly 2.7%. The environment has since turned. In July, an isolated credit event led institutional funding partners to reduce funding for loan facilitation. Many smaller platforms either exited or sharply cut loan origination.

Separately, a regulation campaign around the collection industry has tightened the collection capacity across the industry. Together, this creates a risk headwind for us in the coming quarters. While it is in the early stage, we are staying cautious on the risk of our portfolio. On funding, let me be direct. The same tightening sits behind our funding outlook. Our own funding held up well in the second quarter. But beginning in July, we are seeing the industry as a whole tighten as the institution turn more cautious. For us, that could mean meaningfully lower origination volume and some upward pressure on funding costs. Here is how we are managing it. Our balance sheet and liquidity give us room, and our asset quality and compliance record matter more when funding partners get selective.

We've already began allocating liquidity towards our China funding base, and we'll prioritize funding stability over near-term growth until the environment normalizes. On regulation, the new fee disclosure requirements took effect on August 1st, and we are complying. The online marketing rules take effect at the end of September, and we are already working with our partners to be ready. Now, let's move on to the overseas segment. Our overseas segment is performing well. Volume rose 19% year-over-year, and revenue reached 930 million RMB, up 18%. More important, these numbers are backed by real demand. Our unique borrowers more than doubled from a year ago to 5.3 million. Over the past two years, we have reached several important milestones. We have built a diversified portfolio of markets where temporary weakness in any one country can be offset by strength in the others.

Last year, we absorbed an interest rate camp in Indonesia on the strength of the Philippines. This quarter, we deliberately dialed back origination as a new rate camp took effect in the Philippines. That gap was filled by structural growth in Indonesia and the progress we keep making in our newest market, Australia. As the country becomes more balanced and as we add more profitable markets, our growth trajectory would be increasingly predictable and certain. Our playbook remains the same: product expansion and customer upgrade. We use broad portfolio of easy-to-use financing products to attract customers to try out, and progressively cross-sell other credit solutions to build better unit economics over time. In Indonesia, offline buy now, pay later continue to lead the growth. Our partnership in various offline consumption scenarios continue to proliferate.

Offline buy now, pay later is now around 25% of the volume, comparing to single-digit contribution a year ago. In the Philippines, the rate camp took effect this quarter. We slowed down deliberately to protect quality, the same approach we have taken through past transition. Growth has typically returned once the new pricing settles in. In Australia, we further expanded our offerings to larger ticket size. Lower interest rate products to attract consumers with strong credit profiles for higher credit limit. While this is still preliminary, we plan to continue to pursue customer upgrade as a core strategy. We also made further investment in building the open banking infrastructure, giving us direct access to bank statement data and a far sharper read on each borrower. Finally, ESG. In our business, trust is everything. In June, we published our eighth annual ESG report.

On fraud prevention, we made 60 upgrades to our anti-fraud system, flagged more than 9,000 suspicious activities each day, and blocked over 17,000 fraud attempts. We also launched our own consumer protection system, Golden Satin Shield. It systematically integrates early risk warnings, complaint analysis, and data dashboards to drive consumer protection governance from post-incidence handling towards proactive warning, and thus resolves 74.5% of cases on first contact, with customer satisfaction at 98.5%. With that, let me hand it to Alexis for a closer look at members.

Thank you, Tim, and hello, everyone. Let me walk you through our key results for the second quarter, and please refer to our earnings press release for further details. Now let me discuss each of the segments. First, China. Macro in China remains in a gradual recovery model. China's real GDP growth slowed down from 5% in first quarter to 4.3% in the second quarter, on the back of subdued household consumer confidence. For us in Q2, revenue was RMB 2.4 billion, up 8% sequentially, a direct result of recovering loan volume during the quarter. Take rate stabilized at about 3.2%, in line with the first quarter. On risk, asset quality on new loans held steady at 2.7%. Early risk indicators show signs of improvement on outstanding loans. The day one delinquency ticked up slightly from 5.2% to 5.3%, while the 30-day collection rate strengthened from 87% to 89%.

Overall, C-M2 improved to 0.56% from 0.68%, below the Q3 2025 level. While this points to a portfolio of improving credit quality, we are vigilant on the risk uptick following various industry events since July. Separately, funding costs rose a further 30 basis points sequentially to 3.7%. Institutional funding supply began to tighten toward the end of the quarter, and we expect further upward pressure on funding costs in the coming quarters. On customer acquisition, we raised our risk appetite for repeated borrowers. Combined with acquisition costs holding at an attractive level, that brought our overall customer acquisition costs down quarter-over-quarter. As a result, China's operating profit grew 4.3% sequentially to RMB 625 million. Same to the overseas. Overseas revenue rose 18% year-over-year to RMB 930 million, partially dragged by our deliberate pullback in loan origination in the Philippines.