Qfin Q2 2025 Earnings Report

Qfin EPS Results

• Actual EPS: $1.78
• Consensus EPS: $1.79
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Qfin Revenue Results

• Actual Revenue: $728.00 million
• Expected Revenue: $4.68 billion
• Beat/Miss: Missed by -$3.95 billion
• YoY Revenue Growth: N/A

Qfin Announcement Details

• Quarter: Q2 2025
• Date: 8/14/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 14, 2025
• Conference Call Time: 8:30PM ET

Qifu Technology, Inc., through its subsidiaries, operates credit-tech platform under the 360 Jietiao brand in the People's Republic of China. It provides credit-driven services that matches borrowers with financial institutions to conduct customer acquisition, initial and credit screening, advanced risk assessment, credit assessment, fund matching, and other post-facilitation services; and platform services, including loan facilitation and post-facilitation services to financial institution partners under intelligence credit engine, referral services, and risk management software-as-a-service. The company also offers e-commerce loans, enterprise loans, and invoice loans to SME owners. It serves financial institutions, consumers, and small- and micro-enterprises. The company was formerly known as 360 DigiTech, Inc. and changed its name to Qifu Technology, Inc. in March 2023. The company was founded in 2016 and is headquartered in Shanghai, the People's Republic of China.

Qfin Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q2 financial performance: Non-GAAP net income rose 30.8% YoY to RMB1.85 billion and EPADS climbed 48.8% to RMB13.63, backed by a 16% increase in loan origination volume and a take rate improvement of nearly one percentage point.
• Positive Sentiment: AI-powered risk management upgrades: The integration of large language models into the credit decision engine improved FPD7 for new loans by ~5% MoM in June, while two core scorecard models saw KS score gains of 89 and 93 basis points.
• Negative Sentiment: Regulatory uncertainty is rising ahead of the October 1 implementation of new internet loan facilitation rules, prompting tighter risk standards, cautious loan origination in Q3, and potential short-term volume headwinds.
• Positive Sentiment: ABS issuance reached RMB7.8 billion in Q2, up ~70% YoY, with H1 issuance nearly matching full-year 2024 and funding costs falling by an additional 10 bps sequentially as ABS made up a larger share of the mix.
• Positive Sentiment: Share repurchase program is on track, with US$277 million spent to buy back 7.1 million ADS (a 9% YTD share count reduction), and management intends to continue opportunistic buybacks to boost shareholder returns.

Presentation

[Karen Ji, Investor Relations at Qifu Technology]

Thank you, Dassie. Hello, everyone, and welcome to Qfin's second quarter twenty twenty five earnings conference call. Our earnings release was distributed earlier today and is available on our IR website. Joining me today are Mr. Wu Haisheng, our CEO Mr. Alex Xu, our CFO and Mr. Jun Yan, our CRO. Before we start, I would like to refer you to our Safe Harbor statement in the earnings press release, which applies to this call as we will make certain forward looking statements. Also, this call includes discussions of certain non GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non GAAP financial measures to GAAP financial measures.

[Karen Ji, Investor Relations at Qifu Technology]

Also, please note that unless otherwise stated, all figures mentioned in this call are in RMB terms. In addition, please note that today's prepared remarks for our CEO will be delivered in English using an AI generated voice. Now I will turn the call over to Mr. Wu Haisheng. Please go ahead.

[Haisheng Wu, CEO & Director at Qifu Technology]

Hello, everyone. Thank you for joining us today. In the 2025, the global economic landscape faced growing uncertainty amid rising geopolitical tensions. Despite external headwinds, China's economy remained broadly stable, and demonstrated strong resilience. The consumer credit industry, which serves as a key driver of boosting consumption, is undergoing a wave of supply side reforms under regulatory guidance.

[Haisheng Wu, CEO & Director at Qifu Technology]

The goal of these reforms is to provide inclusive and innovative consumer credit solutions across a variety of consumption scenarios to better address diverse user needs. With a user centric approach, and a focus on the essence of fintech, we are actively leveraging AI to drive upgrades across the consumer credit value chain, reinforcing our leadership in the industry. By the end of the second quarter, our AI powered credit decision engine and asset distribution platform empowered a total of 165 financial institutions and served more than 60,000,000 users with approved credit lines on a cumulative basis. Total loan facilitation and origination volume on our platform increased by approximately 16% year over year to RMB84.6 billion. With operational efficiency continuing to improve, our take rate for the quarter reached 5.4%, up almost one percentage point year over year.

[Haisheng Wu, CEO & Director at Qifu Technology]

Non GAAP net income increased by 30.8% year over year to RMB1.85 billion, while non GAAP EPADS on a fully diluted basis rose by 48.8% to RMB13.63. Despite macroeconomic and regulatory headwinds, we maintained strategic discipline and prioritized high quality growth to achieve solid operating results. Given the relatively challenging market environment during the quarter, we continued to refine our risk strategies and models to improve key performance metrics. In April, we slightly tightened our risk standards in response to uncertainty related to potential tariff impacts. As regulatory developments created additional uncertainty, we further optimized our risk control and asset distribution strategies in June, maintaining our acceptance rate at a reasonable level while improving risk metrics.

[Haisheng Wu, CEO & Director at Qifu Technology]

As a result, the leading risk indicator FPD, or first payment default over seven days for new loans facilitated in June decreased by about 5% when compared to that in May, while our C2M2 metric, which measures delinquency rates after thirty day collection, remained stable. We also made further upgrades to our risk decisioning AI agent by leveraging large language models, or LLM technology, during the quarter. By integrating six seventy models, 7,129 strategy modules, and over 100,000,000 historical decisions into the foundation model, we are establishing an end to end risk management solution that is moving us steadily toward more intelligent decision making. Our user profile enhancement AI agent uses LLM capabilities to activate knowledge association and identify underlying logic behind the data, enriching user profiles for over 20% of our core user base. It refines and cross validates key labels such as industry, income, and occupation, which in turn optimizes our credit offers.

[Haisheng Wu, CEO & Director at Qifu Technology]

Meanwhile, our intelligent algorithm agent runs around the clock to train and fine tune our models, and automatically generates core risk model chains. Two of our core behavior scorecard models, or B scorecard models, improved KS scores, a metric that measures how effectively a model separates risk levels, by eighty nine and ninety three basis points, respectively. In Q2, overall liquidity in the financial system remained ample, though we observed some structural differences across asset classes. Despite an uncertain regulatory outlook for the industry, we leveraged our diversified funding partnerships and robust asset quality to maintain a relatively stable funding supply throughout the quarter. As the leading fintech platform, we continue to demonstrate strength in the ABS market, issuing approximately RMB7.8 billion during the quarter, representing a year over year increase of about 70%.

[Haisheng Wu, CEO & Director at Qifu Technology]

As a result, total ABS issuance in the first half of the year nearly matched the full year total in 2024, with issuance costs declining further to a record low. As the proportion of ABS in our capital heavy funding increased further, our overall funding costs decreased by an additional 10 basis points sequentially. On the user acquisition front, we continue to implement a user centric strategy, making our offerings available to users wherever they are. Through embedded finance, we have significantly deepened our presence across a diverse range of internet scenarios, including short form videos, e commerce, mobility, food delivery, and financial services. This enables us to offer users a convenient and seamless borrowing experience, while also expanding our brand visibility and market reach.

[Haisheng Wu, CEO & Director at Qifu Technology]

In Q2, we further extended the network of our embedded finance business, by adding four new strategic channels, bringing us close to full coverage across all leading internet platforms. During the quarter, total new credit line users grew 40% year over year to 1,790,000, while average cost per credit line user decreased slightly sequentially. The number of new borrowers increased by approximately 60% year over year to 1,230,000. New credit line users from the embedded finance channels increased by 103% year over year, while loan volume surged by roughly 155%. ROA of this segment remained stable throughout the quarter.

[Haisheng Wu, CEO & Director at Qifu Technology]

In Q2, loan volume supported by our total technology solutions business increased approximately 150% year over year. We continue to advance our AI plus bank strategy, which focuses on designing and developing AI powered products tailored for financial institutions. As a part of this effort, we are upgrading our FocusPro Credit Tech solution into a next generation super AI credit agent to strengthen our B2B services capabilities. We also entered into a strategic partnership with an AI hardware provider to develop a customized all in one AI machine that will further enhance the overall competitiveness of our AI products. These offerings will cover core functions such as user acquisition, risk management, and day to day operations.

[Haisheng Wu, CEO & Director at Qifu Technology]

For example, we are building an AI agent to empower key credit approval processes, by combining multi modal LLM capabilities with our extensive experience serving financial institutions. Once widely adopted, this agent is expected to help address the shortage of risk personnel in lower tier cities and significantly improve the efficiency of credit approvals. With development partially complete, our AI agent products are already attracting strong interest from banks, securing several commercial orders scheduled for launch in Q3. In April, China's National Financial Regulatory Administration issued a notice on strengthening the management of the Internet loan facilitation business of commercial banks to enhance the quality and efficiency of financial services, providing clearer guidance for internet based lending practices. We believe the new regulatory guidelines will help further improve the overall health and sustainability of the loan facilitation sector, making consumer finance more accessible and delivering greater value to users.

[Haisheng Wu, CEO & Director at Qifu Technology]

In the near term, the industry will go through an adjustment period to align with these new regulatory requirements. Our prudent operations and strong execution capabilities have enabled us to successfully navigate similar adjustments in the past with resilience and solid results. As a leading platform in the industry, we believe we are well positioned to thrive in a healthier and more favorable market environment over the long run, and further consolidate our leadership position. Looking ahead to the 2025, we will continue to prioritize prudent, compliant operations, and optimize products and services to better address user needs while improving overall operational efficiency. We will continue advancing our One Core Two Wings strategy, executing on our AI plus Credit strategy, and enhancing our AI agent platform to drive the digital transformation of financial institutions.

[Haisheng Wu, CEO & Director at Qifu Technology]

Additionally, we are pleased to report encouraging progress in our overseas expansion. This quarter, we took a baby step with the launch of small scale operations in The UK, which, though still at an early stage, is delivering a healthy performance across key metrics. We will continue to refine our risk models, and enhance conversion efficiency. We believe the robust Fintech infrastructure this market offers presents significant opportunities for us, and are confident that our AI and Big Data capabilities will create substantial value by addressing underserved local demand. Meanwhile, we are proactively exploring additional international opportunities, and our commitment to global expansion has never been stronger.

[Haisheng Wu, CEO & Director at Qifu Technology]

With that, I will now turn the call over to Alex.

[Alex Xu, CFO & Director at Qifu Technology]

Thank you, Haisheng. Good morning and good evening, everyone. Welcome to our second quarter earnings call. Q2 was a roller coaster period as consumer sentiment swung widely in the quarter with the tariff war related news flow, and persistent economic uncertainties further pressured users' activities. Total net revenue for Q2 was $5,220,000,000 versus $4,690,000,000 in Q1 and $4,160,000,000 a year ago.

[Alex Xu, CFO & Director at Qifu Technology]

Revenue from credit driven services, capital heavy, was $3,570,000,000 in Q2 compared to $3,110,000,000 in Q1 and $2,910,000,000 a year ago. The sequential growth was mainly due to the increases in on balance sheet loans and year on year increase was driven by higher capital heavy loan volume. Overall funding cost percentage further declined modestly Q on Q as ABS contribute a larger portion of our total fundings in Q2. Revenue from platform services, capital light, was $1,650,000,000 in Q2 compared to 1,580,000,000.00 in Q1 and $1,250,000,000 a year ago. The year on year growth was mainly due to strong contributions from ICE and other value added service, more than offsetting the decline in capital light loan facilitation.

[Alex Xu, CFO & Director at Qifu Technology]

Platform service accounted for roughly 51% of our quarter ending loan balance. We made timely adjustment to the business mix in Q2 as we expect to continue to do so in the coming months as market dynamic may change rapidly due to the regulatory updates. During the quarter, average IRR of the loans we originated and or facilitated was 21.4%, flat Q on Q. Looking forward, we expect pricing to be fluctuate around this level for the coming quarters. Sales and marketing expenses increased 12% Q on Q.

[Alex Xu, CFO & Director at Qifu Technology]

The increase were mainly due to larger volume contribution from API channels in both new and existing users. We added approximately 1,790,000 new credit line users in Q2 versus 1,540,000 in Q1. We will continue to adjust the pace of new user acquisition in the coming months given the volatile macro condition and further optimize our user acquisition channels and improve user engagement and retention. Ninety day delinquency rate was 1.97% in Q2 compared to 2.02% in Q1. Day one delinquency was 5.1% in Q2 versus five point zero in Q1.

[Alex Xu, CFO & Director at Qifu Technology]

Thirty day collection rate was eighty seven point three percent in Q2 versus eighty eight point one percent in Q1. C M2, which represent the outstanding delinquency rate after thirty days collection, increased modestly Q on Q to zero point six four percent, in part due to the mix change in the business. While overall portfolio risk increased modestly in the last couple of quarters, it's still well within our targeted range. As we have gradually tightening risk control standard to deal with the recent change in the market, we start to see marginal improvement in new loans quality. We will remain vigilant to manage overall risk exposure, particularly given the latest micro uncertainties.

[Alex Xu, CFO & Director at Qifu Technology]

At the same time, we continue to conservative approach to book provisions against the potential credit loss. Total new provisions for risk bearing loans in Q2 were approximately $2,500,000,000 versus $2,230,000,000 in Q1. The increase in new provision was mainly due to increase in loan risk bearing loan volume Q on Q and the near historical high provision booking ratio. Write backs of previous provisions were approximately $1,180,000,000 in Q2 versus $1,140,000,000 in Q1. Provision coverage ratio, which is defined as total outstanding provision divided by total outstanding delinquent risk bearing loan balance between ninety and one hundred and eighty days remained near historical high at 662% in Q2.

[Alex Xu, CFO & Director at Qifu Technology]

Non GAAP net profit was $1,850,000,000 in Q2 compared to $1,930,000,000 in Q1. Please note, in Q2, we booked CNY 170,000,000 loss associated with the currency derivative instrument related to our CB issuance, partially offset by approximately CNY 108,000,000 foreign exchange gains. Also in Q1, we were benefited by approximately $188,000,000 tax rebate, whereas in Q2, rebate was only approximately 26,000,000 Non GAAP net income per fully diluted ADS was $13.63 in Q2 compared to $13.53 in Q1 and 9.16 a year ago, as strong earnings growth and the proactive share repurchase created significant EP ADS accretion. At the end of Q2, TotalOne's outstanding ADS share count was approximately $132,400,000 compared to $134,500,000 at the end of Q1 and $148,800,000 a year ago. Effective tax rate for Q2 was 19.3% compared to our typical ETR of approximately 15%.

[Alex Xu, CFO & Director at Qifu Technology]

The higher than normal ETR was mainly due to withholding tax provision related to the cash distribution from onshore to offshore. With higher contribution from capital heavy model, our leverage ratio, which is defined as risk bearing loan balance divided by shareholders' equity, was 2.8x in Q2, still near the low end of historical range. We expect to see leverage ratio fluctuated around this level in the near future. We generated approximately $2,620,000,000 cash from operation in Q2 compared to $2,810,000,000 in Q1. Total cash and cash equivalent and short term investment was $13,340,000,000 in Q2 compared to $14,030,000,000 in Q1.

[Alex Xu, CFO & Director at Qifu Technology]

As we continue to generate strong cash flow from operations, we may deploy additional cash to support our business initiatives in the rapid changing market dynamic. We start to execute the $450,000,000 share repurchase plan in January 1. As of 08/14/2025, we had in aggregate purchased approximately 7,100,000.0 ADS in open market for a total amount of approximately $277,000,000 inclusive of commissions at an average price of US38.9 dollars per ADS. The pace of the repurchase is consistent with the timeline. Given the increased uncertainty ahead, we may continue to execute our buyback programs opportunistically in the near term.

[Alex Xu, CFO & Director at Qifu Technology]

And in the long run, we are still committed to deliver industry leading returns to our shareholders. In accordance to our current dividend policy, our Board has approved the dividends of US0.38 dollars per Class A ordinary share or US0.76 dollars per ADS for the 2025 to the holders of record of Class A ordinary share in NADS as of close of business on 09/08/2025, Hong Kong and New York Times, respectively. Finally, regarding our business outlook. Given the persistent economic uncertainty and fast changing market dynamic, we will continue to take a prudent approach in business planning for the rest of 2025 and focus on enhancing efficiency of our operation. For the 2025, the company expects to generate non GAAP net income between RMB1.6 billion and RMB1.8 billion.

[Alex Xu, CFO & Director at Qifu Technology]

This outlook reflects the company's current and preliminary view, which is subject to material changes. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.

[Operator]

Thank to ask a question, please press 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press 2. If you're on a speakerphone, please pick up the handset to ask your question. For those who could speak Chinese, please start your question in Chinese followed by English translation. To allow enough time to address everyone on the call, please keep it to one question and one follow-up, and return to the queue if you have more questions.

[Operator]

Thank you. Your first question comes from Richard Zhu from Morgan Stanley. Please go ahead.

[Richard Xu, Managing Director at Morgan Stanley]

I'll just translate the question. First of all, what's the management's latest outlook on the loan volume growth? Are we seeing any signs of potentially rebound in the consumer loan demand compared to particularly start of the year? Secondly, what's the latest views on the take rates? Any areas performing better than expected?

[Richard Xu, Managing Director at Morgan Stanley]

Do we expect that take rates remain at the current level over the next several years? If any changes, what will be the factors that are driving those changes? Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

Thank you, Richard. Let me take your first question and Alex can take your second one. For the customer demand, a few days ago, PBOC released the latest financial data for July. From January to July, short term household loans decreased by RMB383 billion, which is quite unusual, and shows that consumer confidence and credit demands remain soft.

[Haisheng Wu, CEO & Director at Qifu Technology]

Meanwhile, government has introduced policies to subsidize consumer loans. This should help lift credit demand, but it will take time to see any meaningful impact. From what we are seeing day to day, the situation is broadly in line with the macro data. Effective demand for products remains soft at the moment, and we haven't seen clear signs of recovery. Recent industry adjustments have also made it harder for some users to get loans.

[Haisheng Wu, CEO & Director at Qifu Technology]

This has driven up demand from this group, but most of them does not meet our risk standards. In the second half of the year, given the regulatory uncertainty and ongoing industry adjustments, we will put risk management as our top priority. We will take a more cautious approach to our loan origination and the facilitation, which could mean some pullback in Q3. By Q4, we should have a clearer view once the new rules are implemented.

[Alex Xu, CFO & Director at Qifu Technology]

Richard. I will take the second part of your question. Our Q2 take rate was 5.4%. If you calculate based on our guidance for Q3, basically, you're talking about around 5% take rate. This is still quite consistent with what we have been saying in the beginning of the year.

[Alex Xu, CFO & Director at Qifu Technology]

And I think that outlook doesn't really change at this point. However, there's still some near term volatility in particular related to the new regulation being effective on October 1. So it's still hard to say how and when this new regulations will be implemented. So the impact from the regulation to the take rate is hard to predict at this point in time. So that's kind of in the near term, but longer term, after this new round of a regulatory change, we're expecting the market being cleaned up, meaning the long tail portion, being kind of, clean out of the market, whereas industry getting to the more consolidated stage, the competition and other factors, will become more, rational.

[Alex Xu, CFO & Director at Qifu Technology]

And, overall will be sort of beneficial to the long term our operation as well as the take rate. I think regardless how the regulatory changes will be, the demand is still there in terms of the segment of a customer. And we in the history has proved that we're one of the best in terms of operations in this segment regarding the funding, the customer acquisition, the efficiency and the risk management. These are our advantage. In the past, we have been through many round of the regulatory adjustment in every single one of those times, we emerged, more healthier and stronger.

[Alex Xu, CFO & Director at Qifu Technology]

I don't think this will be the exception, this time around. Thank you, Rita.

[Operator]

Thank you. Your next question comes from Lincoln Yu from JPMorgan. Please go ahead.

[Richard Xu, Managing Director at Morgan Stanley]

Okay. Now I'm going to translate my questions. So the first one is the follow-up on the new regulation. So what would be the estimated impact of the new regulation on our ICE business? And what is our current strategy?

[Richard Xu, Managing Director at Morgan Stanley]

And regarding the products under the 24% plus benefits loan products? And after the official implementation in October, will there be any impact on the competitive landscape and customer acquisition costs for the product that's priced within 24%? And my second question is about our overseas expansion. So what are the main considerations of the company when we select the target market? And in The UK, so could management please provide more details on how we have, you know, how the progress is going?

[Richard Xu, Managing Director at Morgan Stanley]

And are we trying to grow organically or partnering with some local players? Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

Okay. Thank you, Lingke. About the regulatory, first, I want to say that we see the new rules as a positive for the industry.

[Haisheng Wu, CEO & Director at Qifu Technology]

There may be some near term adjustments, but over the longer term, they should improve the overall health and sustainability for the sectors. We could see a healthier ag system with less intense competition, lower marketing and risk costs, and better user retention. We recommend them to promote fair competition. This will benefit companies with stronger technology capabilities. Smaller players without such advantages will gradually exit the market, allowing the stronger ones to capture a larger share of the market.

[Haisheng Wu, CEO & Director at Qifu Technology]

Second, regarding ICE, it is positioned as a referral service. We refer users to smaller platforms of financial institutions based on users' risk profiles and the risk appetite for the institutions. For this business, we don't participate in the pricing or risk decisions. ICE helps meet certain user needs and also deliver good returns for financial institutions. Although there is still some uncertainty around the final details of the new policy, we have already conducted a comprehensive assessment and prepared different alternative plans.

[Haisheng Wu, CEO & Director at Qifu Technology]

For the users referred through ICE, we currently see a sufficient safety buffer and solid returns. We can actually serve these users under our own balance sheet, capital heavy and capitalized loan facilitation models. We expect our take rates will remain healthy after this transition. We have prepared a few Plan B options, and we are evaluating them with our financial partners. We will explore all feasible plans and ensure that our approach will balance our user experience with long term business sustainability.

[Haisheng Wu, CEO & Director at Qifu Technology]

As the official implementation date approaches, we will keep a close dialogue with regulators and financial institutions to make sure our business stays compliant. At this point, we don't yet know exactly how the new rules will be rolled out, and we will not make bets on policy direction. We always see technology and operations as our core drivers. We believe it's best to focus on the things that don't change the areas that can help enhance our tech capabilities in the long term. In this industry, companies come and go.

[Haisheng Wu, CEO & Director at Qifu Technology]

In the end, the ones that remain may not be the biggest, but they will be the ones with real technology and a strong commitment to serving users. That's how we have always operated, and that's how we will continue to operate. The industry has been through many round of adjustments, and each time, we have proven our ability to navigate each cycle and thrive in a better way. And for the second question about overseas expansion. Our vision is to become one of the most respected fintech companies globally.

[Haisheng Wu, CEO & Director at Qifu Technology]

So overseas expansion is a very important part of our strategy for the next few years. When choosing a target market, we look at several factors, including the regulatory environment, openness to fintech innovation, and financial infrastructure. So first, the financial industry needs to be regulated. It will provide a clear framework for what can and can't be done, ensuring fair competition. That's why we focus on markets with relatively stable regulatory systems.

[Haisheng Wu, CEO & Director at Qifu Technology]

Second, we also look at the local fintech access system and whether regulators encourage innovation. In such market, we can learn from the experience of early players and leverage our unique strength to expand the market together. Third, we also look closely at how mature the local financial infrastructure is. Our advantage is applying AI and big data technology to evaluate user risk more accurately and provide different products and pricing. So a solid infrastructure is critical.

[Haisheng Wu, CEO & Director at Qifu Technology]

In The UK, we have only taken a biggest step so far. Monthly loan volumes are still very small compared to our overall portfolio. What matters more for us at this stage is building our understanding of the local market and refining our risk models. This naturally involves a process of trial and error. So we will take out time and move forward cautiously. Thank you.

[Operator]

Thank you. Your next question comes from Alex Yee from UBS. Please go ahead.

[Alex Ye, Greater China Financials Research Analyst at UBS Group]

So I'll translate my question. So my first question is about asset quality. So we have a very slight uptick in your CET1 ratio in Q2. Could you give us some colors on what's the main drivers? And how has been a trend so far in July and August?

[Alex Ye, Greater China Financials Research Analyst at UBS Group]

Also looking ahead in the coming months, how should we expect the asset quality to evolve along with the implementation of the new regulation? So second question is regarding your Q3 earnings guidance. So we have seen there's some Q on Q decline and it also implied a wider range than before. So what are the underlying assumption that we are adopting such as loan volume asset quality and loan mix?

[Moderator]

Okay. Thanks for your question, Alex. Let me do the translation. In Q2, our day one delinquency rate remained relatively stable, but the collection rate decreased from 88.1 in Q1 to eighty seven point three percent. Our C2M2 came in at around 0.64%, slightly higher than 0.6% in Q1.

[Moderator]

Breaking it down, there were several reasons. So, first, for embedded finance business, the risk level of our embedded finance business increased. And these channels also made up a larger share of our total loan volume in Q2. For us, risk metrics for this business isn't just about keeping them as low as possible. It is about striking the right balance between the competitiveness and risk performance, also keeping a healthy margin of safety.

[Moderator]

So, in Q2, we actually made a number of targeted adjustments. We improved the conversion rates for channels with a higher safety margin and tightened risk standards for those with a lower margin. These adjustments are all about to make a proper safety margin. So, right now, all our channels are running within a reasonable buffer range. So for the app business, we will break it down into new and existing loan book.

[Moderator]

There is risk level for existing loan books through our app also increased though to a lesser extent than that embedded finance. The primary reason is the new rules issue in April, which had led to a tighter liquidity for some platforms. Overall industry risks on the rest, mainly reflecting a slight decline in the collection rate metrics in Q2. For the new loans, the rate levels through our app came down in Q2. In April and May, the early risk indicator FTD-thirty was down about 9% from Q1.

[Moderator]

In June, given the potential impact of funding and liquidity on the risk performance, we further optimized our risk management and asset distribution strategies to keep funding supply stable and improve risk metrics. So, for the new loans in June, since the performance of FPD30 hasn't completed yet, so we will look at another leading indicator for risk metrics, which is FPD7. We noted it has further declined by approximately 5% compared to May. Since July and August, due to industry concerns over the implementation of new rules, funding supply has tightened further, keeping the overall risk performance in the sector under pressure. In response, we have been making coordinated efforts across both pre loan and post loan management processes.

[Moderator]

On the pre loan side, we have enhanced the A score and B scores predictive power by incorporating variables generated by multimodal AI agents, which simultaneously, well, we simultaneously tightening risk control policies to reduce risk exposure in new transactions to respond for the impact from the new rule implementation. On the post loan side, on the July 5, we implemented enhancements to our collection strategies and operations. For the bills due from the July 16 and July 28, the sixteen day collection rate is performed on par with that in the same period of June. Further refinements was introduced in early August, which helped improve effective so far. The seven day collection rate has improved by one percentage point compared to the average of the same period of June and July.

[Moderator]

Finally, we have always been prudent with booking provisions. This quarter, our new provisions were about 5% of our new risk bearing loans, well above our historical vintage loss. Our provision coverage ratio in Q2 reached 662%, also near a record high. Thus, our financial position remains highly robust with ample cushion to manage potential risks. We have been through many challenges before, and we have always responded quickly and effectively for the every single time.

[Moderator]

This time, we are still confident that we can keep the risk well within a reasonable range.

[Alex Xu, CFO & Director at Qifu Technology]

Alex, I will take your second part of the question. As you know, with these new regulatory rules coming to effect soon, The industry is actually going through quite a bit adjustment. And as we mentioned in previous comments, this may lead to tightening liquidity and volatility in the risk for the entire industry. That's the reason why we decided to further tightening the risk management control on top of what we have did in Q2. Because of that, you probably will see a modest decline in loan volume in Q3 versus Q2 there.

[Alex Xu, CFO & Director at Qifu Technology]

And in terms of loan mix, I think the current assumption is that because of regulatory change, you may continue to see a movement from ICE to other segments of our business. That's one kind of force behind that. But at the same time, because we're controlling our timing, the overall risk management control. So the other segment, may also see some sequential decline as well. So at the end of the there's a good chance, the mix will shift from the light to the heavy side, but not in any large magnitude of that matter.

[Alex Xu, CFO & Director at Qifu Technology]

So that's the mix change. Because of the mix change, as you know, the capital heavy side of a mix typically has the higher revenue recognition percentage, but slower revenue recognition pace versus the light part of the mix. So that's why these two forces also will play a role in terms of overall revenue and the profitability kind of booking there. And then from the risk perspective, as we can see from the July and August risk level, you probably still continue to see some upward movement in terms of risk Q3 versus Q2, but very modest, well within our controlled range. And because of that, we'll continue to book, very heavily on the provision, and certainly we'll continue to have a huge amount of write back, as we do in every other quarters there.

[Alex Xu, CFO & Director at Qifu Technology]

Other key elements for the financials, for example, the pricing, the funding cost, and the customer acquisition, I would say in Q3, will probably be relatively stable, versus Q2. Thank you.

[Operator]

Thank you. Your next question comes from Emma Zhu from Bank of America Securities. Please go ahead.

[Emma Xu, Research Analyst - Banks & Fintech at Bank of America Merrill Lynch]

So I have a question about the buybacks. So what is the current progress of the share buyback? As the company's stock price has significantly retreated from its high, do you have plan to increase the scale of your buyback?

[Alex Xu, CFO & Director at Qifu Technology]

Sure, Emma. Let me take this one. So as I mentioned earlier, so far to this day, we already the $450,000,000 program, we already executed $277,000,000 exactly on time in terms of timeline. Combined with what we did associated with the CV issuance, this year so far, we already spent over US500 million dollars in the repurchase and it's already exceed the twenty twenty four full year repurchase amount. In terms of share count reduction, so far this year, we already repurchased about 12,200,000.0 ADS, basically versus the beginning of the year, we reduced the share count by about 9%, so far this year.

[Alex Xu, CFO & Director at Qifu Technology]

Obviously, there's a lot of things going on, in terms of microenvironment and also in terms of regulatory uncertainties, there could be that could induce additional volatility in the market. We will take a more in somewhat flexible pace in terms of manage the buyback to basically enhance the capital allocation efficiency. And as I mentioned earlier, in the long run, we're still committed to deliver the industry leading shareholder returns, through the sustainable, growth, as well as a sustainable, shareholder return program. Thank you.

[Operator]

Thank you. Your next question comes from Cindy Wang from China Renaissance. Please go ahead.

[Cindy Wang, Director at China Renaissance]

So this year, the total ABS in first half, the issuance amount has been matched the full year in 2024. So if we look at the second half of this year, so what's the ABS issuance target in 2025? And also because ABS issuance increased, do you see there's any funding cost room to further go down in second half of this year? Thank you.

[Haisheng Wu, CEO & Director at Qifu Technology]

Okay. Thank you, Cindy. I'm glad you mentioned this topic. This year, supported by government policies to boost consumption, the market environment for consumer finance ABS issuance has been quite favorable. The issuance phase has also picked up.

[Haisheng Wu, CEO & Director at Qifu Technology]

In the 2025, our ABS issuance reached RMB14.4 billion, up about 45% from the same period last year. That's already close to the full year level in 2024. And now, issuance costs have also decreased further to a record low. As we mentioned before, ABS issuance tend to be seasonal. In the first half, demand and liquidity are usually stronger, so we make the most of that window to accelerate issuance.

[Haisheng Wu, CEO & Director at Qifu Technology]

In the second half, liquidity is generally tighter, so we will balance insurance costs and slow the pace a bit. That means the trend of our funding costs will also be influenced by the pace of our ABS issuance. For the full year of 2025, we expect our total ABS issuance will grow by over 30%. As a percentage of ABS in our funding mix increases, we expect our funding cost in 2025 to decrease meaningfully compared to 2024. Thank you.

[Operator]

Thank you. That concludes our question and answer session. I'll now hand back to management for closing remarks.

[Alex Xu, CFO & Director at Qifu Technology]

Okay. Thank you again for everyone to join the conference call. If you have additional questions, feel free to contact us offline. Thank you. Have a good day. Thank you.

[Operator]

You. That does conclude our conference for today. Thank you for participating. You may now disconnect.

Participants

Analysts

• Karen Ji, Investor Relations at Qifu Technology
• Haisheng Wu, CEO & Director at Qifu Technology
• Alex Xu, CFO & Director at Qifu Technology
• Richard Xu, Managing Director at Morgan Stanley
• Alex Ye, Greater China Financials Research Analyst at UBS Group
• Moderator
• Emma Xu, Research Analyst - Banks & Fintech at Bank of America Merrill Lynch
• Cindy Wang, Director at China Renaissance