Ladies and gentlemen, thank you for standing by, and welcome to the 360 DigiTech First Quarter 2020 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Ms. Mandy Zhong, IR Director. Please go ahead, Mandy.
Thank you. Hello, everyone, and welcome to our First Quarter 2022 Earnings Conference Call. Our results were issued earlier today and can be found on our IR website. Joining me today are Mr. Haisheng Wu, our CEO and Director. Mr. Alex Xu, our CFO and Director. And Mr. Yan Zheng, 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 statements 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 mentions are in RMB. I will now turn the call over to our CEO, Mr. Haisheng Wu.
Hello, everyone. I'm very happy to report a strong start to 2022. In Q1, total loan origination and facilitation volume reached RMB 98.8 billion, up 33% year-on-year and 2% Q-on-Q. Outstanding loan balance reached RMB 146.7 billion, up 44% year-on-year and 3% Q-on-Q. Despite the seasonal impact from the Chinese New Year and the macro and COVID headwinds, our solid performance continued to demonstrate the resilience and flexibility of our operations. I reckon the major concern to the market right now is the COVID outbreaks. To deal with the situation, we created precautionary plans to take rapid response measures to make the impact on our business under control. Such an effective response derives from our successful experience handling the pandemic that hit Wuhan back in 2020.
Back then, our response was seen as very timely and effective in the industry. As the COVID resurgence in Q1 in a number of Chinese cities, our team moved fast and implemented a range of preemptive countermeasures. For example, we launched a multi-tiered pandemic alert system for the cities that are key to our business. In addition, we strategically scaled back our business for high-risk customers in the industry hard hit by the outbreaks, such as recreation and hospitality. Meanwhile, we proactively communicated with major funding partners about potential extension for loan repayments for borrowers who were unable to make repayments on time or lost the capacity to repay in the near term due to COVID. Our customer service team step in and help them to apply for repayment extension. In the cities severely affected by the lockdown, it was very difficult for our offline team to acquire new customers.
In such cases, we quickly shift our team focus from offline customer acquisition to serving existing customers. This allowed us to uphold morale and sustain business performance.
经过这一系列比较有效的抗疫措施，我们结合今年我们整体的客群的上移的战略，我们成功地将我们的资产质量的影响控制在非常可控的范围内。今年上半年，我们整体上在客户资源的上移，包括获客阶段优质客户的占比提升，以及客户经营阶段优质客户的这个资源的倾斜，以及我们对尾部客户的清退。在这一系列的动作之后，目前我们A类客户的占比大幅提升，新交易的FPD30占比较去年Q4下降。另一方面，我们升级了我们的Cloud Bank系统，使得我们的资产发放中高风险的线上负债资产的风险有显著的下降。以及我们的中损从Q4的2.83%下降到三到四月的2.4%到2.7%。未来，还有可能会进一步下降。
Thanks to the effective measures to mitigate impact from COVID, and our strategy to optimize customer base. We successfully keep the impact to our asset quality under control. In the first half of this year, we are working to upgrade our customer base. This includes to acquire more high quality users, pivoting resource to better serve high quality users, and then reducing exposure to high risk borrowers. With these measures in place, the percentage of our Category A users, those with the best credit profile, greatly increased from budgeted level. Our first payment default rate 30 days, which represent the percentage of our first payment default for 30 days for new loan origination, also dropped Q-on-Q. At the same time, we upgraded our Cloud Bank System, which connects consumer demand with institutional offerings through smart matching, meaningfully improved asset quality of online loan facilitation segment.
For example, expected vintage loss rate decreased to 2.4%-2.7% recently from 2.83% in Q4 last year.
我们新交易的客户资质结构应该说比以往都好，即使是在疫情的影响之下，风险表现比去年也有明显改善。我们相信未来会进一步改善。但存量资产确实会受到疫情的影响，有所波动，整体上是在可控范围内。目前存量资产这个陆催率为4.97%。相比去年有所改善，也处于这个历史低位。但是回收率有所下降，尤其是上海和吉林等地区，回收率下降还是比较明显。不过我们也看到，到五月份，这些地区的回收率已经稳定住了，整体全国的这个回收率处于一个回升的状态。随着我们这个客群结构的进一步优化，风险表现也会进一步稳健。
The credit quality of our new customers in Q1 was better than any of our previous quarters. Even with the impact of COVID, risk performance was significantly better than last year, and we believe it will continue to improve. Although there was some fluctuation for the asset quality of our existing loan book due to COVID, the overall impact is still within the control. Currently, the day one delinquency rate of existing loan book is 4.97%, better than last year and at a relatively low level on record. Our collection rate dropped in Q1 with significant drop in the lockdown cities such as Shanghai and Jilin. However, we noticed that by May, the collection rate had stabilized in this region and it started to improve nationwide. As our user base continues to optimize, our risk performance will keep improving gradually.
Q1实施了封城措施的地区，比如吉林，受线下活动的风控的影响，我们的线下获客短时间内出现了一定程度的下滑。线上客户整体影响还是可控的。尽管用户的消费意愿有一些下降，比如这个封城期间的封城时间较长的吉林，交易规模也有一定的小幅的下滑。但是我们看到随着上海以及社会面的清零，正在开始全面的复工复商，所以相信我们在这些地区的运营也会逐渐回归常态。
In Q1, our offline operation was restricted in some cities under COVID lockdown, such as Jilin. The lockdown temporarily put some pressure on offline user acquisition. The overall impact on our online user base was limited. Although we do notice some users were less willing to spend in the challenging environment. Even in Jilin, with its relatively long lockdown, our total transaction volume only showed a small decrease compared to the pre-lockdown level. Currently, most municipal districts in Shanghai have reached zero COVID at the community level, and the businesses are expected to resume operations in the near future. As such, our operations in these regions are likely to gradually return to normal.
面向今年，疫情带来的不确定性依然存在。但是我们相信我们已经在实战中不断积累了应对疫情的这种一揽子解决方案，不断地打磨、提升我们的这种应对能力。我们有信心继续将疫情的影响控制在可控的范围内。
Although COVID-related uncertainties are likely to persist throughout this year, with the set of counter solutions we have deployed over time and our enhanced ability to effectively respond to new outbreaks, we are confident that we will continue to keep the impact of the pandemic to a manageable level.
关于这个行业的监管方面的一些政策，我也做一些分享。
Next, let me provide an update on industry policies which the market follows closely.
这个自上而下的整体政策，我们现在感受到是明显向好的。四月二十九号这个中央政治局会议明确提出要促进平台经济健康发展，完成平台经济专项整改。央行和银保监会也分别召开了专题会议，贯彻落实这个会议精神，提出要完成平台企业金融业务专项整改，实施常态化监管，支持促进平台经济规范健康发展。这标志着金融整改工作已经接近尾声，相关平台在金融监管部门的指导下完成整改，后续将进入常态化的监管阶段。经过一年多的整改，相关的这个平台将率先规范，走上更加健康可持续发展的道路。
We have seen positive top-down policy development for the industry. On April 29th, our Political Bureau meeting pledged support for healthy development of platform economy and to complete special rectification measures for the platform economy. PBOC and CBIRC made similar comments at following special meetings. Those regulators vowed to complete rectification of financial operation of platform companies, implement normalized supervision, and support healthy development of the platform economy. This signals that the current rectification of the industry is close to an end. Related internet platform company will complete rectification process under the guidance of financial regulator and will be under regular supervision afterwards. After over a year-long rectification, these companies will be the first in the industry to be fully compliant and will be well positioned to develop in a healthier and more sustainable framework.
行业的这个政策方面，四月初，央行和外管局联合印发《关于做好疫情防控和社会经济发展金融服务的通知》，提到在推动平台经济、网络金融业务规范发展的这个基础上，发挥平台企业金融服务的积极作用。我想这是近期金融监管系统对平台经济金融服务积极作用的一种非常正面的肯定。
At the industry policy level, in early April this year, PBOC and SAFE jointly issued the notice to enhance financial services to support pandemic control and economic and social development. The document mentioned leveraging the benefits of financial services provided by internet platform companies while promoting the disciplined and healthy development of such services. This is a recognition by the financial regulators of the positive role internet platform companies play in financial services.
关于我们的业务方面，今年的这个战略重点是结构化地优化我们的客群、我们的资金，提高用户的长期服务价值，提高优质资金的这个比例和稳定性，从而进一步强化平台的这种韧性。在一季度我们在各个要素端都取得了不俗的一些进展。
On the business front, our strategic focus this year is the structural optimization of our user base and funding sources. To enhance user lifetime value and increase the sustainable contribution of high quality funding, therefore further improve our operational resilience. In Q1, we achieved a noticeable progress in some key areas.
在资金层面，优化资金结构我们持续进行中。这是持续地供给充裕的资金，保证了业务的增长。要是不断地优化我们负债端及资金成本及分润资产的商务条件。在当前的这个市场情况下，我们这种优质的这种资产还是持续受到机构的追捧。第三是持续地对接补充了股份制大型城农商行等受地域限制比较少、资金供给能力更强的合作机构，为我们这种未来这种特殊时期的这种流动性可能出现的问题做前瞻性的一些准备。全国性放款的各类金融机构中，我们已经对接了70%。近期呢，我们还会将增加三家全国性的合作或者民营行的接入。另外还有七家全国性机构在推进中。
On the funding front, we continue to optimize our funding structure. First, we ensured a sufficient funding supply to support business growth. Second, we continuously optimize the funding cost and the contractual terms with our funding partners as our high-quality assets are in high demand by financial institutions. Third, we expanded funding partnership with joint stock banks and the major urban and rural commercial banks, which have broader regional coverage and a strong funding supply. Such expansion will prepare us to better serve business growth and deal with economic uncertainty. So far, we have connected with approximately 70%, 70% of nationwide financial institutions. We will soon add three more national joint banks or private banks into our partnership and have another seven in the pipeline.
在产品层面，我们积极响应资产监管部门的这种合规指引，推动解决方案的落地。四月份开始，我们的自营产品定价全部降到IRR 24%以下，提前完成监管目标。在断肢连上，我们也主动地提高标准，按提高标准要求自己先行一步。我们相关的流程也已经基本确认完成。目前和基金公司已经进入开发落地阶段。
At the product front, we have followed the regulatory guidance closely, specifically starting in April. The IRR of all loans originated through our platform is within 24% ahead of the regulatory timeline. Regarding credit agency reform, we act proactively and have defined our workflow structure with credit agency. We intend to gradually implement these procedures.
一季度资金结构的优化，我们的产品层面还进行了一些调整，匹配新进的这种全国性资金的偏好，我们不断地提升这个放款的成功率。至于我们进一步接入全国性的这种股份制大行资金，同时考虑到大行对于低风险资产的偏好，以及当下车机客情的风险波动加大的情况，我们重构了现有的这种资产分发引擎，将实际资产的风险预估与对应机构的风险偏好进行配置，并引入机构收益动态作为调整机制，在保证机构收益符合预期的前提下，确保大行获得的资金与他们希望获取的这种资产更为吻合。我们合作的这种银行资产的放款成功率从去年的70%提升到现在的75%以上。
In addition, we have also adjusted product offerings to align with our optimized funding structure, reflecting the asset preference of new national funding sources. This allowed us to improve our loan approval rate. In Q1, we connected with more national joint stock banks. Meanwhile, given the preference of big banks for higher quality assets and the increased risk of near prime borrowers in the current macro environment, we restructured our asset distribution engine to optimize the matching between loans and funding institutions. We also introduced a dynamic adjustment mechanism for the returns of financial institutions. The mechanism allows banks to get assigned loans that aligns with their preference while ensuring their expected returns. The loan approval rates of our partner banks rose above 75% in Q1 from roughly 77.0% last December.
在客群层面，客群的提升是我们今年的核心战略。截至目前，取得了应该说是很不错的进展。一到四月，我们进行的优质客群、顾客的转型成果也比较显著。通过我们新建设的这种Pre-A的模型，结合我们RTA技术以及容量的提升，有效地提升了我们的顾客体量。完备客户中获得最高风险评级的客户上升到38%。多个维度的客群质量指标也持续在改善，包括户均的低头客户的占比，还有房贷、车贷用户的占比，还有收入跟稳定客群的占比，以及有资产用户的占比都在提升。这些说明我们优质客群的数据特征明显提高，所以也会进一步大大提高我们这个整体平台的韧性，和我们演系的这种生命周期的价值。
As for our users, our key strategy this year is to improve the quality of user base. So far, we have achieved very noticeable progress. Specifically, we leveraged a combination of newly developed Pre-A model, RTA, real-time API technology, and the capacity expansion to effectively optimize the quality of user acquisition. Among the customers that applied credit line in Q1, 38% received the highest rating from the financial institution for their low risk credit profile. Multiple key indicators of user quality continued to improve, such as ratio of user with fewer multi-platform credit lines, user with mortgage and car loans, user with a stable income and user with tangible assets. The improvement of these indicators show that we have greatly enhanced the resilience of our business and increased user time value.
一季度，外部环境带来各种挑战，我们的团队也再一次经受住了考验，交出了比较优秀的一个成绩。疫情的不确定性依然存在，我们将继续对可能的风险保持高度关注，以谨慎的态度稳扎稳打，完成今年过渡期转型的这种战略目标。
The external environment brought a lot of challenges to our business in Q1. However, our team once again met the challenge and delivered solid results. Given the ongoing uncertainty related to the COVID, we will continue to stay vigilant on potential risks and maintain prudent operations in order to accomplish our strategic objectives in this transitional year.
今年对于行业和我们公司来说都会是有较多挑战的一年。中美关系对于中概股的影响，监管对于行业政策的影响，疫情对于业务风险的影响。但是我相信这三个最大的外在影响变量正在向好的方向转变，尤其是在政策层面，甚至迎来了一些支持。疫情方面，我们的消费资产属性相对韧性也非常强。对比我们在2020年武汉疫情那次的数据，我们今天非常有信心。国内疫情基本面已经在快速地好转，我们看到的这个商业活动也逐渐地回归正常。我们今年做的客群和资金的结构化的这种升级，会让我们的行业也处在一个更好的竞争地位。不管是C端的用户还是B端的这种银行，我们看到我们应该是更加被需要，这就是我们的价值所在。我们将继续投入更多的科技研发，提升我们这个平台的运营效率，实际上我们在这个又宽又厚的雪道上积累越来越大的竞争优势。
2022 will be a quite challenging year for both our company and the industry. There is pressure from the China-U.S. relations on ADRs, regulatory development for industry, and impact from the pandemic. Nonetheless, we believe these factors are gradually turning around, especially with recent positive policy signals. In addition, our consumer loan assets demonstrate very strong resilience during the pandemic. Looking at our current data compared to the time when the pandemic first hit China in 2020, we are quite confident from business prospects. As the most recent wave of COVID outbreaks gradually subsides in China, we expect to see business activities return to normal.
The structural upgrades we have made this year on our user base and the funding network will put us in a more competitive position. We have seen greater demand for our service, both from end users and from financial institutions, and that precisely reflects our growing value. Going forward, we will invest more in technology to boost our operation efficiency. This will enable us to continually build up our competitive advantage in a market of great scale and magnitude.
下面请我们的CFO Alex给大家带来更多的数据分享。
Now I will turn to our CFO, Alex Xu.
Okay. Thank you, Haisheng. Good morning and good evening everyone, welcome to our First Quarter Earnings Call. As Haisheng discussed earlier, we had a pretty solid quarter in a rather rough period of time from microeconomic perspective.
Consumers' demand for credit came in more or less consistent with normal seasonality in Q1. Well, we did experience some impacts from the resurgence of COVID in some regions in China. Overall asset quality was actually modestly improved during the quarter as optimization of our risk model and the contribution from high-quality new borrowers more than offsetting COVID-related fluctuation among existing borrowers. Of the two leading indicators of the asset quality, overall day one delinquency improved to 5.2% from 5.4% quarter-over-quarter. More importantly, day one delinquency for new borrowers in Q1 came in well below 4%, indicating clearly better quality vs existing borrowers. Overall, 30-day collection rate declined modestly to 86% from 87% quarter-over-quarter. Mainly because we have to make necessary adjustment to our collection operation in regions being significantly impacted by COVID.
Again, we see clear deviation between new borrowers and existing borrowers. For new borrowers, thirty-day collection rate remain above 90% in Q1. These risk metrics further validate the effectiveness of our user acquisition strategy, which focus on high quality segment of the market. Total net revenue for Q1 was RMB 4.3 billion, vs RMB 4.4 billion in Q4, and RMB 3.6 billion a year ago. Revenue from credit-driven service, capital heavy, was RMB 2.9 billion, compared to RMB 2.7 billion in Q4, and RMB 2.5 billion a year ago. The year-on-year and sequential increase was mainly due to longer average tenor of the loans, growth in on-balance sheet loans, as well as the releasing guarantee liability on previous loan balance, more than offsetting the negative impact from decline in average prices of the loans.
Capital-heavy facilitation revenue take rate actually improved modestly vs Q4, also due to longer loan tenor. Revenue from platform service, capital-light, was RMB 1.4 billion, compared to RMB 1.7 billion in Q4, and RMB 1.1 billion a year ago. The year-on-year growth was mainly driven by significant increase in capital-light loan balance. The sequential decline was due to a decrease in capital-light loan volume, along with decline in capital-light revenue take rate in Q1. During the quarter, capital-light and other technology solution contribute roughly 54% of the total loan volume. As we discussed in previous calls, we expect capital-light and other tech solutions percentage contribution to our total volume to remain fluctuating around current level throughout this year. Longer term, though, we will continue to pursue tech-driven business model and expect capital-light to become a larger portion of our business in the long run.
During the quarter, average prices of our loan portfolio dropped by 50 basis points and were below 24%. In fact, all new capital-heavy and Capital-light loans are already priced below 24% at this point in time. We are very confident to achieve the rate cap requirement ahead of the regulatory deadline. During the quarter, sales and marketing expense declined approximately 12% Q-o-Q, mainly because the Chinese New Year holiday, as well as our prudent control of the pace of our user acquisition. On a blended basis, average cost per user with approved credit line was RMB 417, compared to RMB 319 in Q4.
Again, this blended calculation evenly spread sales & marketing expenses among users with high credit line of between RMB 100,000-RMB 200,000, as well as those regular users with credit line between RMB 10,000-RMB 20,000. Logically, unit cost to acquire those high-ticket-size users should be justifiably much higher than the regular users. Therefore, makes the comparison of blended user acquisition cost become neither relevant nor reliable. On an apples-to-apples basis, excluding large-ticket-size users, average cost per approved credit line of regular users was approximately RMB 322 in Q1, compared to RMB 246 in Q4. More importantly, average cost per dollar amount credit line remained relatively stable Q-on-Q for regular users.
As always, we will continue to use lifecycle ROI and LTV as key metrics to determine the pace and the scope of our user acquisition strategy to ensure the sustainability and profitability of our operations. Although overall risk profile of our user, of our loan portfolio modestly improved in Q1 due to the contribution from high quality new users. The impacts from micro-uncertainty and COVID resurgence were still noticeable among existing users. Therefore, we continued to take a prudent approach in booking provisions against the potential credit loss. New provision for contingent liability for loans originated in the quarter was approximately RMB 1.4 billion. Meanwhile, approximately RMB 440 million of provisions for contingent liability of previous period loans was written back as actual performance of those loans was better than expected.
With strong operating results and stable contribution from capital-light model, our leverage ratio, which is defined as a risk-bearing loan balance divided by shareholders' equity, was at historically low at 4.2 times in Q1 compared to 5.4 times a year ago. We expect to see rather stable leverage ratio for the time being until capital-light contribution resume growth in the future. We generate approximately RMB 1.4 billion cash from operation in Q1, compared to RMB 2 billion in Q4. The decline in operating cash flow was mainly due to some COVID-related timing issue. As Shanghai being locked down late in Q1, we were unable to complete some administrative procedures that normally are required near the end of a quarter to collect receivables from some financial institutional partners.
As such, approximately RMB 400 million Q1 receivables are pushed into Q2 to collect, assuming the lockdown in Shanghai gradually easing. Total cash and cash equivalents was RMB 9.8 billion in Q1, compared to RMB 9.6 billion in Q4. Non-restricted cash was approximately RMB 6.2 billion in Q1, vs RMB 6.1 billion in Q4. As always, a significant portion of our cash would normally be allocated to support the security deposit and other usage in our normal course of business. As we continue to generate healthy cash flow from operations, we believe our current cash position is sufficient to support the growth of our business, to invest in key technologies, to satisfy potential regulatory requirements, and to return to our shareholders. In accordance with the dividend policy approved by our board last year, we declared another dividend of $0.22 per ADS for Q1.
The cash dividends represent approximately 20% of our Q1 earnings. Finally, regarding our outlook for 2022. As we communicate to the market previously, we believe 2022 will be a transitional year for the industry as the participants are adjusting to the new regulatory settings. Meanwhile, the unexpected outbreak of COVID, as well as associated measures to control the outbreak, create additional micro-uncertainties. Therefore, we want to maintain a prudent approach to plan our business and mitigate potential risks. At this point in time, we would like to keep our full year loan volume guidance of between RMB 410 billion and RMB 450 billion unchanged, representing year-on-year growth of 15%-26%.
We view this transitional year as the opportunity for us to optimize our operations, strengthen our technology platform, and upgrading our customer base to build an even stronger foundation for our future growth. As always, this forecast reflects the company's current and preliminary view, which is subject to material change. With that, I would like to conclude our prepared remarks. Operator, we can now take some questions.
Thank you, management. We now begin the Q&A section. If you have any questions, please press zero one on your telephone keypad and zero two to cancel. For those who can speak Chinese, please kindly ask your question in Chinese first, followed by English translations. In addition, in order to have enough time to address everyone on the call, please keep it to one question then one follow-up, and we'll try and include if you have more questions. Once again, zero one for questions. Our first question is Yada Li, CICC.
Uh, I'll do the translation part. The first one is about we have made a capital injection last year for our microloan license. Could you please elaborate more about how we plan to use it? Is it just a preparation for applying for the national license, or are we actually starting using it as an alternative funding source, maybe in the very near future? The second one is: considering the resurgence of the COVID-19 and the uncertainties in the economy, there will be some challenges, especially in the loan collection and in the offline business development. To be more specific, how are we going to dealing with the situation? Thanks.
好，谢谢。第一个关于小贷牌照、小贷基金的问题。这个牌照注资到五十亿，一方面是为了未来这个互联网小贷牌照做充分准备，另外确实这五十亿也确实作为一个杠杆资金，在我们的业务系统里面在运行，因为我们也不能把武器放在那不用。这个五十亿，它一方面作为资本金本身可以去使用，另外它其实也可以通过ABS和联合贷款的形式来做杠杆的一些使用。因为目前来看，比如说消费信贷、小微企业贷款，可以被ABS去发行。另外，如果是联合贷，可以有一个三比七的杠杆可以使用。所以，我确实有正在使用小贷这个资本金。这是第一个问题。第二个是关于线下催收，我们的业务里面是没有线下的催收环节的，全部是通过线上电话的形式。所以我们这个疫情的影响对线下更多的是偏销售性质的这种影响。在疫情地区，这种销售性质的业务确实也受到影响。但是我们线上电话的催收，应该说没有受到任何影响。我们当然也做了一些针对疫情的调整，针对用户因为疫情的延期申请，我们也会联合客户人员，他们在银行里面会做一些申请，帮助他去做一些延期还款的准备。
Hi, for two of your questions. For the first one, yes, you are right. For the RMB 5 billion capital that we use to inject into the micro-lending license. On the other hand, we also leverage the capital as the funding resource through the channel of ABS or joint lending products, both of which can improve our leverage ratio. For your second question. First of all, we do not do the post collection through offline. The pandemic impacts us only through the offline customer acquisition. All of our loan collection processes are conducted through online, and it's affected very, very little by the pandemic.
这现在已经有回答好你的问题。
Hope this clarifies all your questions.
The next question is Thomas Chong, Jefferies.
早上好，谢谢管理层接受我的提问。我的问题是关于我们全年的guidance，想问一下，如果我们看到从现在四月份到五月份的话，现在我们的business trend可不可以分享一下，然后我们的assumption是这个recovery，或者是那个反弹，是在什么时候会比较meaningful的反弹，这个可以分享一下吗？另外的话，就是关于一线城市，现在的business trend可以分享一下吗？Uh, thanks management for taking my questions.
I have a question regarding our business trend on a month-over-month basis starting in April. How should we think about the low end and the high end of the guidance and our assumption about the recovery trend in the coming quarters? How should we think about the recovery in terms of the consumer sentiment in coming quarters? My second question is about how we are seeing the business trend in top and lower tier cities given the pandemic impact more on the tier one cities? Thank you.
徐总，你也来回答一下吧。
OK, 好的. Hi Thomas, thanks for your question. From the overall business trend, we look at our current assumption is that, as you know, that Shanghai will be gradually sort of reopen, you know, starting from maybe June. We are assuming a certain level of activity return to Shanghai, maybe starting next month.
You know, we don't expect a sort of a V shape turnaround right away. I don't think that's built in our model. We are expecting a rather compared to say 2020 when Wuhan pandemic happened it was a V shape turnaround. This time we're expecting a rather slower gradual kind of a recovery after the COVID. That's what we are building in our forecast. In terms of Tier 1 cities, again, the Shanghai situation is well publicized, and you know, like I said, you know, we at least according to the official media, it is gradually reopening. You know, we expect to get some kind of a return of normal operation starting from June. For other cities like Beijing, for one we from operational wise, we probably don't have much large exposure in Beijing.
Two, the Beijing situation is slightly different from Shanghai, or I would say quite different from Shanghai, meaning like a significant portion of the normal life in city is still remaining. Yes, there are certain kind of community lockdowns and so on so, but you know, the situation is much better than it was in the Shanghai at the peak of the pandemic last month. You know, we are again, you know, for this kind of situation, we obviously were closely monitoring the development in Beijing, but I don't think it will be anywhere near the Shanghai situation in terms of impact to our business or anything.
Thank you.
Thank you.
Next question is Alex Ye from UBS.
郭先生，早上好，感谢接受我的提问。我第一个问题是关于资产质量的，就想请问一下能不能给我们一些 color 关于就是比如说二季度以来，四月、五月份我们最近的一些 Day 1 的情况，还有 M1 collection 的一个 trend，跟 Q1 底的时候有多大的变化，然后是不是 expect 我们 Q2 六月底会持续保持稳定，还是说会有一定的恶化？然后刚刚有提到说这个 expected lending loss 会预期从 2.8% 下降到 2.4% 到 2.7%，就想确认一下，这个是指的是整个 loan book，还是说只是新的客户。然后第二个问题是关于 APR 这一块，刚提到我们现在已经整体就是 cap 在 24% 以下了，那想请问一下我们目前的 Q1 平均是多少，然后我们已经既然已经低于 24% 之后，那我们未来还会不会持续地往下走？那这个整个 take rate 的一个 outlook，预计会 Q1 已经是一个底部，还是说 Q2 会继续有一些下行。还有一个小问题就是我们新增加这些客户，他们可能是资产质量更好，但是可能利率也更低，那从一个 up to risk 的一个角度，那他们整个收益率跟一个原本的老用户相比，会不会有显著的比较低？
Okay, I will translate for my question. First one is on asset quality. Can you give us some color on your latest trend on Day 1 and M1 collection rate? Do you expect them to be stable or some deterioration in Q2? And also just want to clarify that you mentioned the expected interest loss will improve from 2.8% to 2.4% to 2.7%, just want to confirm whether that refers to the total loan book.
And second question is on the take rate and APR. I'm wondering what's your average APR now? And what's the current plan from now to Q2 to expect it to further decline? And do you expect your take rate to bottom in Q1 or may continue to edge down? And then all your new users that have a bit lower risk, I'm assuming they will also have a lower APR. So from a risk-adjusted perspective, how does their return compare to the existing users? Thank you.
好，谢谢Alex。请我们CEO田燕回答一下第一个和第二个问题，然后翻译我的问题。
好的。首先，中损这一块是指的新交易的中损。那其中，新客的新交易，它的年化中损，它的这个中损可能还要再更低一点，因为我们新客户现在整体质量上升是比较明显的。那这是其中一个问题。那第二块呢，就是说我们的陆催率，那我们现在说的都是指存量资产的陆催率，在四月份和五月份其实都是在持续下降的一个过程，比Q1都在持续在优化。那这里面，如果是要看新交易的话，那它降得会更低，会在3%左右的一个陆催率的数字。那，回收率来看的话，存量回收率我们看到五月份，已经在全面的除了上海和北京以及河南，这三个地方，其他的都已经全面在比四月份来得更好。
直到今天，我们依然看到这么一个现象。我们也预计说，在未来，只要疫情不是说非常恶化的严重，那它这一块也会持续地往一个好的趋势在走。请刘洋帮我翻译一下。
Okay, thank you for your question. Regarding to the vintage loss, it indicates the new transactions draw down in the first quarter. For the new customers we acquired in the first quarter, actually the performance will be better than the new transactions in the first quarter, because we have seen the quality of our new customers have been improved. For your first question, the delinquency rate also refer to the existing loans on book, and we have seen that it has been decreased in April and May. If you check the new transactions it will be decreased to 3%. Regarding to the recovery or collection rate and apart from regions like Shanghai, Beijing and Henan, for other regions, the recovery rate is better than April.
We foresee that the overall risk performance or recovery rate will be better in the second quarter. Hope this can clarify your question.
好，然后关于利率定价的问题。我们基本上在四月份把自营部分的利率全部降到二十以下，然后平台里的撮合部分也逐渐都会降到二十以下。四月份我们整体的IRR达到22%。关于未来趋势的话，我们在比较近期内，应该说是趋向于稳定，不会有大幅度下降的这种趋势性的变化。
Yes, starting in April, the IRR of loan products facilitated and originated through our platform is about 22%. In the near term, we expect this rate to remain relatively stable. We do not expect to see big drop on APR rate.
关于新用户，因为他这个客群比较优质，利率也会比较低，所以确实像您所说，它的这个风险表现会变得更好。那同时它这个，它的短期收益率也会，相比来讲，相比过去那种定价的用户来讲，它的短期收益率会低。但是我们从历史的数据看来，它的这个可以被服务的长期生命周期会变得更长，而且要长很多。所以我们现在来看的话，我们更多的是用一个用户的这个生命周期来评估。所以从这个角度来看的话，我们现在的新用户的这个价值其实比过去要更多。
For the new customers we acquire in the first quarter. If we only look at the short-term return, yes, compared to previous user base is relatively lower. However, we value more on the whole lifetime value that the new group users contribute a lot, much better than the previous group, user group.
好，非常感谢。Thank you。谢谢。
As a reminder, please press zero one for questions.
Operator, we'll probably have time to take one more. If any.
Our next question is Ethan Wang from CLSA.
好的，方总你好。我这里想很快follow up一下之前关于take rate这个问题。因为我们知道take rate和funding cost也是有关的。刚才海生总也提到我们今年至今在funding cost这块也做了很多工作，也与更大型的银行有协议，所以对于这个funding的供给是不需要担心的。但想就问一下今年至今这个funding cost这个水平是怎么样的，因为也会影响到我们的take rate，谢谢。Just a quick follow up question on take rate, because we know take rate is also affected by funding cost. Just wondering, in the current environment whether the banks we are caught can really have some pressure on us in reducing the funding cost.
Just want to see if management can offer more color on that. Thank you.
好，funding cost 我们，从趋势上看的话，整体上今年供给比去年是要宽松很多的，目前来看。从这个成本上来我们也能够逐渐地看到，就是这个有所下降。但是因为我们去年这个降幅已经比较大了，所以的话它在今年看到，你能看到这样的趋势，但是降幅上目前来看不是一个特别大的降幅。
Just we are now still mainly promoting our lending business. In the lending business, this funding cost may not be a major concern anymore.
Yes. Ethan, to answer your question, first we do notice we have sufficient funding supply this year. We noticed this funding cost declining trend. We feel that we do not see noticeable decline actually happen. This is because, in last year, 2021, we have already brought down a lot on our funding cost. The next point is we focus more on our tech, not tech business. For example, capital-light, which is less impacted by funding cost.
I just want to add a quick point there. Basically, the assumption is that as we expand into the large national banks, you know, that's actually our focus shop for this year. Along the way, there will be modest drop in funding cost, but not as significant as we did in the last year or previous couple years. Because at 7%, actually we are already probably one of the best funding cost among our peers. Thanks.
Thank you.
This is the end of the Q&A sessions. Now I hand back to management for closing remarks. Thank you.
Okay. Thank you again for everyone who joined our conference call. If you have additional questions, please contact us offline. Thank you.
This concludes our conference call. You may disconnect now. Goodbye.
Bye.