Ladies and gentlemen, thank you for standing by, and welcome to Lufax Holding Limited Q1 2022 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Mr. Chen Yu, Head of Board Office and Capital Markets. Please go ahead, sir.
Thank you operator. Hello everyone, and welcome to our Q1 2022 earnings conference call. Our quarterly financial and operating results were released by our newswire services earlier today and are currently available online. Today you will hear from our chairman, Mr. Ji Guangheng, who will start the call with some general updates of our key achievements, then address some focal issues for investors. Our co-CEO, Mr. Greg Gibb, will then provide a review of our progress and details of our development strategies in the quarter. Afterwards, our CFO, Mr. James Zheng, will offer a closer look into our financials before we open up the call for questions. In addition, Mr. Yong Suk Cho, our co-CEO, and Mr. David Siu Kam Choy, CFO of Puhui, will also be available during the question and answer session.
Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please also note that we will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the International Financial Reporting Standards in our earnings release and the filings with the SEC. With that, I'm now pleased to turn over the call to Mr. Ji Guangheng, Chairman of Lufax.
大家早上好，感谢各位参加陆控二零二二年一季度的业绩发布会。今天的会议我将向大家介绍陆控一季度主要工作成果，就近期市场关心的问题分享我们的看法。由于上海的疫情影响，我和同事们在家里分别接入，假如会议中遇到了一些技术的问题，还请大家谅解。
Hello, everyone, and thank you for joining our Q1 2022 earnings conference call. I will start today's call with an update of our key achievements for the quarter, and then share our views on those focal issues for investors. Due to the COVID-19 situation in Shanghai, my colleagues and I are dialing in separately from home. Please bear with us should we encounter technical difficulties during the call.
第一方面，主要工作成果。
Key achievements.
一季度，在疫情反复、宏观经济承压的大背景下，陆控实现了财务指标的稳健增长。
Despite COVID-19 resurgence and macroeconomic slowdown, we achieved steady growth during the Q1 .
公司一季度收入173亿元，同比增长13.5%，净利润53亿元，同比增长6.5%。每个ADS收益人民币达到2.3亿元。我们于四月份完成了陆控上市后每ADS 0.34美元的首次分红，后续还会继续通过多种方式回馈股东。
During the Q1 , our total income grew by 13.5% year-over-year to RMB 17.3 billion. Net profit increased by 6.5% year-over-year to RMB 5.3 billion. Our basic earnings per ADS for the quarter reached RMB 2.31. In April, we paid a dividend of $0.34 per ADS for the first time since we went public. We plan to return value to our shareholders in a variety of ways going forward.
第二方面，市场关注的问题。
Second, key investor concerns.
一季度以来，公司与市场的交流渠道保持畅通，举办了六十余场交流会。在投资人及分析师的问题中，约60%左右是宏观形势与公司业务，30%左右与监管相关，余下为资本市场方面的问题。总体来看，市场对中概股还是较为担忧，认为中概股股价的持续下行已脱离基本面。虽然近期监管的表态为市场输入了一定的信心，但很多机构还是持观望态度。
We maintained open dialogues with the market and hosted over 60 investor events during the Q1 . Based on our data, roughly 60% of investor questions were about macro environment and business operations. 30% were about regulatory trends, and the remainder were related to capital market development. In general, investors are concerned about Chinese ADRs. Many think that the panic selling has caused ADRs valuations to decouple from their fundamentals. Although recent public statements from Chinese regulators have instilled some confidence into the market, most investors are still taking a wait and see approach.
目前来看，投资人最为关注的还是当前宏观经济环境下，陆控是否还能保持稳健增长。
Presently, investors' key concern rests on our growth prospects in the current macroeconomic environment.
三月份，国内疫情形势再次升级，尤其是上海，全面打响了攻坚保卫战，实行了全境——全域的静态管理，以加快推动动态清零。宏观经济受到国内疫情冲击，以及国际错综复杂环境的双重考验。信贷业务整体增速放缓，资产质量下降，陆控也受到了波及。总体来看，此次疫情对公司业务的影响远超2020年。陆控今年的经营压力较大，管理层已采取一系列的应对措施，包括提升信贷审批门槛，加强费用管控，做好流动性安排及预案等，做好过冬的准备。一会儿Greg会详细介绍我们的应对措施。
In March, China escalated its countermeasures to contain the coronavirus. Shanghai, for example, has experienced lockdowns under the nationwide COVID zero policy. Impacts from the pandemic included economic slowdown. The financial services industry as a whole unavoidably suffered deceleration in growth and deterioration in asset quality. Our own business was also impacted. Our analysis indicates that the impact from this year's pandemic is higher than that of 2020. In preparation for the challenge, our management has preemptively implemented a series of initiatives, including tightening our credit policy, enacting prudent cost control measures, shoring up cash flow management, and many more. Greg will elaborate further on those details later.
此外，大家依然关注四二九整改情况，及ADR的退市风险。目前公司已完成绝大部分四二九整改事项，剩余几项长期整改事项也有明确的方案。在三月十六日，国务院金融委的会议上，刘鹤副总理提出，稳妥推进并尽快完成大型平台公司的整改工作。四月二十九日，中央政治局会议也强调，要促进平台经济健康发展，完成平台经济短期整改。我们判断，这预示着四二九整改工作有望进入验收收尾阶段。
Many investors have expressed concerns about the April 29 ratification progress and the ADR delisting risk. Having completed the vast majority of our ratification-related initiatives, we have also devised detailed action plans for the remaining issues that require prolonged efforts. At a Financial Stability and Development Committee meeting on March 16th, the Vice Premier of the State Council, Mr. Liu He, made a call to press ahead with the ratification of large platform companies and to finish this task as soon as possible. On April 29th, the Political Bureau of the Communist Party of China's Central Committee also stated at a meeting that efforts should be made to advance the ratification of platform companies and promote the regulated and sound development of the platform economy. Judging from this information and insights, we believe that the regulatory ratification process is at the point of entering its final phase.
关于ADR的退市问题，我们注意到当地时间2022年5月9日，美国证券交易监督委员会将陆金所控股列入了基于《外国公司问责法案》的初步认定名单。目前有超过一百家中概股上榜。我们看到中美双方监管正在相向而行。在近期的博鳌论坛上，证监会方星海副主席表示，中国证监会谈判团队和美国团队谈判得非常顺利，很有信心在未来达成协议。我们相信中概股退市风险会进一步降低。
Regarding the delisting risk, the U.S. Securities and Exchange Commission provisionally identified Lufax as a commission-identified issuer under the Holding Foreign Companies Accountable Act on May 9, 2022. Over 100 Chinese ADRs have been included on the SEC's provisional list. More importantly, we have been delighted by the positive market signals indicating that the PRC and U.S. authorities are moving closer towards an agreement. During the recent 2022 Boao Forum for Asia Annual Conference, Vice Chairman Fang Xinghai of the China Securities Regulatory Commission stated that negotiations between Chinese and American regulators over other issues involving U.S.-listed Chinese companies have proceeded smoothly so far, and that a cooperation agreement appears to be possible. We are confident that the delisting risk will likely diminish further.
第三方面，陆控的中长期发展。
Third, Lufax mid- to long-term development.
尽管短期内受疫情影响，公司业绩承压。但我想强调的是，陆控的业务具备符合政策导向、市场潜力巨大、业务模式独特、资本实力雄厚等四大优势，能够支持公司平稳度过经济周期。
Despite the short-term challenges caused by COVID-19, what I would like to reiterate here are the four key competitive advantages that we possess. Namely alignment with policy direction, tremendous market potential, unique business model, and abundant capital reserves. These advantages have given us confidence that we should be able to navigate through the current economic cycle.
一、符合政策导向。
Alignment with policy directions.
小微企业作为国民经济的重要组成部分，受到国家全方位多层次的政策支持，且在发展的空间广阔。小微企业融资往往面临三高、三无、三难的情况。
Because small micro businesses are part of the core engine powering China's economy, they get a thorough and comprehensive policy support and thus enjoy enormous growth potential. At the same time, they often encounter three hurdles when trying to get funding. The characteristics of those hurdles are three excesses, three deficiencies, and three difficulties.
三高是指小微企业贷款时面临的高成本、高定价、高风险。三无是指小微企业往往无报表、无信用评、无抵押。三难是指小微金融服务难统一、难规范、难推广。
The three excesses refers to the excessively high cost, high pricing, and high risk that small micro businesses face when they apply for loans. The three deficiencies are the lack of financial statements, credit scores, and collateral when these businesses typically face. The three difficulties represent the difficulties in unification, standardization, and promotion of financial services to small micro businesses.
综上，小微企业从传统银行业获得贷款的难度较大，且成本较高。陆控作为小微企业金融服务的头部企业，会继续适应监管的方向，践行普惠的初心，进一步解决小微企业融资难、融资贵的问题。
As a result, it is difficult and costly for small micro businesses to borrow from traditional banks. As the leading financial services provider for small and micro businesses, we'll continue to align with regulatory directions, remain true to our mission of offering inclusive financing services, and deliver solutions to solve small micro businesses financing difficulties.
第二，市场潜力巨大。
Enormous market opportunities.
我国小微企业金融服务的市场具有发展快但比例低的特点。根据央行的统计，2019年至2021年，我国普惠型小微贷款余额复合增长率达到了29%，行业处于快速发展阶段。同时单位余额占金融机构各项贷款总额只有10%，占比较低，与发达国家大约30%的小微贷款占比尚有一定差距。因此，我们相信小微企业金融服务的市场潜力巨大，在各种市场支持下将持续高速增长。
Domestic financial services targeting small micro businesses can be characterized as high growth and low penetration. According to statistics from the People's Bank of China, the balance of inclusive loans to small micro businesses grew at 29% CAGR from 2019- 2021, and it constitute roughly 10% of total loans. Although the industry is growing rapidly, it still has a long way to go to catch up with its peers in developed countries, where 30% of total loans are lent to small micro businesses. Such a gap presents an enticing opportunity for the industry to develop under a variety of supportive policies.
三、业务模式独特。
Unique business model.
公司通过线上线下相结合的模式，聚焦服务于小微企业主的贷款需求，并凭借十八年的经营实践，摸索出一套高效的客户触达和风险管理体系，积累了丰富的科技与线上运营经验。公司管理层具有金融科技行业的复合背景，凭借丰富的管理经验及国际化视野，有能力带领公司不断实现突破。我们相信陆控独特的业务模式在当下的市场环境中将继续发挥积极作用，帮助我们更平稳地度过外部环境的波动。
Over the past 18 years, we have been providing integrated online to offline financing services to satisfy small micro businesses needs. Our technology, combined with our online operational experience, have equipped us with an effective mechanism to reach borrowers and manage risks. Led by a team of seasoned executives with extensive expertise in technology and finance, rich experience in operational management, and global vision in corporate development, we have broken down barriers and achieved important breakthroughs. We believe that our unique business model will support and continue to serve as a solid foundation for our steady growth and steer us through market fluctuations.
四、资本实力雄厚。
Abundant capital reserves.
截至2022年3月末，陆控的净资产达到了约人民币1,000亿，上面拥有超过人民币400亿的现金。充足的资本一方面可以帮助我们平稳度过经济周期，另一方面也保证了我们持续回馈股东的能力。尽管今年业绩可能受到疫情影响，但管理层将持续每股分红不低于2021年的水平。
As of March 31st, 2022, we had ample capital reserves of roughly RMB 100 billion in net assets and over RMB 40 billion in cash. Thus ensuring our smooth navigation through economic cycles and consistent returns to our shareholders. Despite the challenges brought by COVID-19 this year, we will maintain our per ADS dividend amount at the same or above level than that in 2021.
综上所述，虽然今年的宏观经济环境面临挑战，但是公司依托在政策、市场、模式、资本四个方面的优势，一定能与小微企业一起平稳度过当下的周期，持续健康发展。公司也将持续响应国家政策，服务小微企业，助力实体经济的发展。
In summary, despite this year's challenging macro environment, our advantages in regulatory compliance, market potential, business models, and capital reserves have positioned us well to navigate through the current economic cycle while executing our mission of serving small and micro business owners. Going forward, we'll remain fully in sync with China's national policy directive of supporting the growth and development of small micro businesses and the real economy at large.
接下来请Greg具体介绍公司的经营情况。
With that, I will turn the call over to Greg, who will share our business updates in detail.
Thank you, Chairman Ji. In the Q1 , we built on the solid foundations of 2021 to deliver stable operational results in an increasingly challenging environment. Cognizant of the negative impact brought by COVID-19's resurgence, we have recently launched critical actions for the more difficult market conditions ahead. Before turning to our COVID-19 response, let me highlight a few key figures for the Q1 . Please note that all numbers are in RMB terms unless otherwise stated. In the Q1 , we generated CNY 17.3 billion of total income and CNY 5.3 billion of net profit, both figures exceeding our prior guidance. The take rate in our retail credit facilitation business remained steady at 9.7% this quarter versus 10% a year ago.
By the end of the Q1 , the wealth management business saw stable client assets of CNY 433 billion despite volatile markets, and the revenue take rate in this business reached 53.9 basis points in March. Operational costs were held steady while we continued with technology investment to empower our direct sales productivity in the loan facilitation and to optimize online customer management and wealth. In the Q1 , about 40% of our new direct sales hires for lending facilitation met our upgraded target profile for the ongoing channel transformation. Q1 direct sales productivity for lending increased 4.8% versus a year ago. Now turning to the resurgence of COVID. We believe the multi-city lockdowns that started in March will likely have a deeper impact on the economy and our operations than seen prior in 2020.
Our 18 years of credit experience has taught us that rapid changes in the environment requires decisive preemptive steps to both minimize downside risks and to be best positioned for growth when the environment recovers. Under the current zero COVID policy, we believe that simultaneous rolling lockdowns across multiple cities will likely remain rooted in the landscape through most of the remainder of 2022. We enter this landscape facing a weaker macro economy than in 2020. The two-month-plus long lockdown of Shanghai, its interregional, interprovincial highways, its supply chains, is creating much larger ripple effects than those seen in Wuhan during 2020. Through the lens of our data and experience, we can now roughly profile the impact of Shanghai's lockdown on our lending facilitation business.
We forecast that C2A entry flow rates will triple during the lockdown period, gradually returning to pre-lockdown levels six months after the lockdown ends. However, as zero COVID policies and restrictions are constantly evolving, it's difficult to predict their impact on other cities. Furthermore, we think it's only prudent to assume that during the second half of the year, more cities could be placed under the varying degrees of lockdown. From our vantage point, we are unable to estimate the exact number of cities that could be affected, and thus the overall impact is extremely difficult to assess at this point. While there remain uncertainties ahead, we are nonetheless confident that the array of measures we have implemented nationwide will mitigate the challenges posed by this operating environment. These measures include targeting higher quality customers, providing more customized products, and improving our risk management efficiency.
First, we are continuing to target higher quality customers and tightening our credit policy by utilizing a differentiated approach. On the one hand, we are gradually ceasing serving high-risk profile customers. For non-SME business owners or industries that are likely to be hardest hit by COVID, for example, travel-related, we have tightened our credit policies nationwide. On the other hand, we've adopted a differentiated approach based on risk performance. For geographies and channels with stronger credit performance entering this landscape, we've made smaller adjustments. For geographies with below C-M3 flow rates, we only target new businesses and loan top-ups for the highest quality customer segments. Second, we are providing a greater number of customized products to mitigate any potential sales losses created by our adoption of higher quality standards.
For those customers who represent too high a credit risk for us to provide unsecured loans, we encourage them to pledge collateral and apply for secured loans. For those small business owners who have higher quality risk profiles, we provide them with lower APRs, longer tenor period products, and more flexible payment schedules to relieve their financial burden and to help them overcome their current difficulties. Finally, we are improving our risk management efficiency. Our collections team are equipped with our risk management system, remote working platforms, technology tools, and the deep experience they gained in 2020 to do the work. By leveraging these tools and abilities, they can work remotely to monitor the status of borrowers, proactively identify potential loans at risk, and take immediate action on loan collection. Our proprietary data-driven collection force of 10,000 agents is deployed across 10 cities.
This team, together with our more than 57,000 direct sales agents, is fully deployed to help manage and mitigate any and all risks. It's also important to note, as Chairman Ji just did now, that our strong balance sheet and cash position provide us with resilient ability to overcome challenges. As of the end of the Q1 , our net assets stood at CNY 98.3 billion, and our leverage ratio for our guaranteed company stood at less than two times, positioning us well to handle risk fluctuations. Our credit insurance partners are also in a strong capital position to handle associated risks, although they will certainly reprice credit insurance fees as we move through this cycle.
The financial strength of the underlying credit enhancement and risk sharing that we have with our funding partners provides them with little burden in the ongoing loan servicing to small business owners. We believe this notable strength will enable stable funding availability through this challenging time and further distinguish Lufax versus other platforms who may now charge higher prices, encounter higher risks, and have less capital resources to protect operational resilience. Being in a relatively strong position with strong partners will enable faster resumption of growth when the macro environment stabilizes. While we are selectively putting on the brakes on new loan growth to be prudent near term, we also remain focused on executing our longer-term strategic priorities.
The channel transformation has continued at pace in the Q1 , with our direct sales making up 57% of new sales in the Q1 versus 49% a year ago, underpinning the improved productivity. Also within the direct sales team, we recruited more high-quality talent and dismissed below-average-performing ones. As a result, high-quality talents accounted for 40% of new hires in the Q1 , and we believe this proportion will continue to grow. More broadly, we sense the regulatory environment is placing increased focus on funding availability for small business sector, indicating likely greater stability and regulatory requirements this year versus the past year. Taking all these points together does lead us to revised guidance for the first half of 2022, and we will provide full year guidance when we get more clarity.
Our renewed guidance in this very dynamic environment is based on the principle that it is better to be conservative early rather than sorry later. Hence, we are revising our new loan sales growth for the first half of 2022 to decrease between 7% and 10%. For our wealth management business forecasts, we remain largely unchanged, and we'll continue to monitor domestic capital performance, which impacts investors' CA and overall investment sentiment. We expect our first half revenue growth to be 8%-10% year-on-year. We believe the impact of the lockdown on multiple cities, the volatility we see in foreign exchange rates, and our increase in credit losses where we bear risk will be higher than previous guidance. Thus, our net profit for the first half is likely to decrease between 11% and 13% year-on-year.
If non-cash foreign exchange losses were excluded from calculation of net profit, then the company's expectation for the first half profit will be a decrease of 3%-4%. As Chairman Ji just said, we are confident that we will successfully navigate through the current cycle and are committed to maintaining our 2022 per ADS dividend about at or above the level in 2021. Last but not least, our CFO, James, has decided to take an early retirement. James has been with the company for 8 years, and we really wanna thank him for his great contribution to the company. The company has started the search for a new CFO, and during the interim period, Mr. David Choi will assume the finance function of the company.
With that, I'll turn the call over to James Zheng, our CFO, to go over the financial details. James?
Thank you, Greg. I will now provide a closer look into our Q1 results. Please note that all numbers are in RMB terms, and all comparisons are on a year-over-year basis, unless otherwise stated. We achieved solid financial results in the Q1 as we continue to drive growth in both the top line and the bottom line. During the quarter, our total income was RMB 17.3 billion, up 13.5% year-over-year, and our net profit increased by 6.5% to RMB 5.3 billion year-over-year. Let's have a closer look at our operating numbers. First, we maintained a stable unit economics for our retail credit facilitation business while further reducing our APR.
Our loan balance APR was 21.8% in the Q1 of 2022, a three percentage point decline from 24.8% in the Q1 of 2021. In comparison, our loan balance take rate was 9.7% in the Q1 of 2022, only a 0.3 percentage point decline from 10% in the Q1 of 2021. Our continued efforts to diversify funding sources, engage with more banking partners, reduce credit insurance premiums on our loan portfolio, and improve customer charging mechanisms to diminish the impact from the early loan repayments enabled us to maintain stable unit economics and drive further enhancements for ourselves and operating efficiency despite APR declines. Second, we continue to penetrate our core and targeted customer segments. On the retail credit side, we continued focusing on serving small business owners.
During the Q1 , excluding our consumer finance subsidiary, 83.5% of new loans facilitated were dispersed to small business owners, up from 75.7% in the same period of 2021. On the wealth management side, despite the negative impact of P2P and online deposit products runoff, we managed to grow our total client assets by 2.7% to CNY 432.6 billion as of March 31, 2022. Client asset contribution from mass affluent customers investing more than 300,000 increased to 81.3% as of March 31, 2022, up from 76.3% as of March 31, 2021. Third, we continue to drive forth the evolutions of our risk-sharing business while maintaining vigilant on asset quality changes.
In line with prevailing regulatory requirements, we bore credit risks for 20.4% of the new loans we facilitated in th Q1 of 2022, up from 12.5% in the Q1 last year. All the aforementioned operating metrics exclude those of our consumer finance subsidiary. Due to the slowdown of macroeconomic growth and the COVID-19 pandemic, we saw some deteriorations of overall asset quality. However, thanks to our risk management system, the negative impact on our risk indicators are limited. Excluding consumer finance subsidiary, our DPD 30+ and DPD 90+ delinquency rates were 2.6% and 1.4% for the total loans we facilitated as of March 31, 2022, compared to 2.2% and 1.2% as of December 31, 2021.
We will remain vigilant and be prudent on our borrower acquisition and risk management strategy. Now let's take a closer look at our Q1 financial numbers. At the highest level, our total income in the Q1 grew by CNY 2.1 billion or 13.5% year-over-year, while total expense increased by CNY 1.6 billion or 19.1% year-over-year. The net income grew by 6.5% year-over-year to reach CNY 5.3 billion. If non-cash foreign exchange losses were excluded from the calculations of the net net profit, then the year-over-year net profit change would be 2.1%. While operating-related costs continue to remain flat due to efficiencies, total expense increase is primarily driven by credit impairment costs due to higher risk-taking and increased risk and impairment provision rate related to loans.
Next, let's go through the financial numbers line by line. As the total income mix of our retail credit facilitation business continue to change, thanks to the evolution of our business and risk-sharing model, total income increased by RMB 2.1 billion or 13.5% year-over-year. During the quarter, while our platform service fees decreased by 9.7% to RMB 9.3 billion, our net interest income grew 71.2% to RMB 5 billion, and our guarantee income grew by 245% to RMB 1.9 billion. Other income decreased to RMB 704 million in the Q1 from RMB 1 billion in the same period of last year. As a result, our retail credit facilitation platform service fees as a percentage of total income decreased to 50.2% from 63.4%.
Because consolidated trust plans provide lower funding costs, we continue to utilize them in our funding operations, enabling our net interest income as a percentage of total income to increase to 28.8% from 19.1% a year ago. Moreover, as we continue to bear more credit risk, we generated more guarantee income reaching 11% of total income compared to 3.6% a year ago. Our investment income decreased by 11.2% to CNY 435 million in the Q1 from CNY 490 million in the same period of last year, mainly due to the decrease of investment assets, partially as a result of share buyback.
In terms of wealth management, our platform transaction and service fees decreased by 5.3% to CNY 592 million in the Q1 from CNY 625 million in the same period of 2021. This decrease was mainly driven by the runoff of legacy products, which was partially offset by the increase in fees generated from our current products and services. Turning to our expenses. In the Q1 , our total expenses grew by CNY 1.6 billion or 19.1% to CNY 10.2 billion from CNY 8.5 billion in the same period of 2021, primarily driven by the increase of credit impairment costs.
Total expenses excluding credit and asset impairment losses, finance costs, and other losses increased by 2.7% to CNY 7.2 billion in the Q1 of 2022 from CNY 7.1 billion in the same period of 2021. Remain almost the same as we further improved operating efficiency. Our total sales and marketing expenses, which include expenses for borrowers and investor acquisition as well as general sales and marketing expenses, increased by 5.9% to CNY 4.5 billion in the Q1 . Our general and administrative expenses decreased by 15% to CNY 726 million in the Q1 from CNY 854 million in the same period of 2021. This decrease was mainly due to our expense control measures.
Our operation and servicing expenses increased by 4.5% to CNY 1.6 billion in the Q1 from CNY 1.5 billion a year ago, primarily due to the increase of trust plan management expenses, which resulted from the increase in consolidated trust plans. Our technology and analytics expense increased by 0.2% to CNY 448 million in the Q1 of 2022 from CNY 447 million in the same period of 2021, mainly due to the company's ongoing investments in technology research and development. Our credit impairment losses increased by 168.2% to CNY 2.8 billion in the Q1 from CNY 1.1 billion a year ago. This was mainly driven by two factors. One, increase of provision and indemnity loss driven by increased risk exposure.
As a reference, including the consumer finance subsidiary, the company bore risk on 19.4% of its outstanding balance from 8.7% as of March 31, 2021. 2, change in credit performance due to the impact of COVID-19 outbreak. Our finance cost decreased by 35.7% to CNY 211 million in the Q1 from CNY 284 million a year ago, mainly due to the increase in interest income resulting from the increase in deposits. Additionally, our effective tax rate was 26% during the Q1 of 2022, remained the same as the same period of 2021.
Other gains were RMB 118 million in the Q1 of 2022 compared to other losses of RMB 138 million in the same period of 2021, mainly due to the foreign exchange gains in the Q1 of 2022. We have noticed that the volatility of foreign exchange rate between renminbi and the U.S. dollar has increased, and such volatility could have both positive and a negative impact on our quarterly net profit in the future. As a consequence of aforementioned factors, our net income increased by 6.5% to RMB 5.3 billion during the Q1 from RMB 5 billion in the same quarter of 2021. Meanwhile, our basic and diluted earnings per ADS during the Q1 were RMB 2.31 and RMB 2.14, respectively.
As of March 31, 2022, we had a cash balance of CNY 40.6 billion in cash at bank as compared to CNY 34.7 billion as of December 31, 2021. In addition, liquid assets maturing in 90 days or less amount to CNY 52.1 billion as of March 31, 2022. During the Q1 of 2022, the overall economy in China was impacted by the regional lockdown and the current zero COVID policy. We believe that rolling lockdowns simultaneously across multiple cities will likely remain rooted in the landscape throughout most of 2022, thus exerting severe negative influences towards the entire economy and the credit business.
As the overall impact is extremely difficult to assess, we would like to provide our revised first half guidance to account for the near-term macro headwinds, and we will provide full year guidance when we get more clarity. For the first half of 2022, as we become more prudent in underwriting, we expect new loans facilitated to decrease between 7%-10% year-over-year to the range of CNY 294 billion-CNY 301 billion. Client assets to grow by 1%-3% year-over-year to the range of CNY 425 billion-CNY 434 billion. Total income to grow by 8%-10% year-over-year to the range of CNY 32.5 billion-CNY 33.1 billion.
Credit-related provision will increase given the deterioration of asset quality driven by the COVID impact and higher risk exposure. Other losses will increase due to foreign exchange volatility. Operation-related costs will decrease as we continue to improve our efficiency. As a result, we expect the net profit to decrease between 11%-13% year-over-year to the range of CNY 8.5 billion-CNY 8.6 billion. If non-cash foreign exchange losses were excluded from the calculation of the profit, then the company's expectation would be for a decrease in the net profit for the first half of 2022 of between 3%-4%. The profit growth rate will pick up once the channel optimization impact starts to come through and the credit costs are normalized on annual basis.
This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to change. That concludes our prepared remarks for today. Operator, we are now ready to take questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on the telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask the question, please ensure your phone is muted locally and please mention the question in both English and Chinese. Thank you. Our first question comes from Winnie Wu from Bank of America. Please go ahead.
Thank you very much for giving me the opportunity to ask a question. My question is regarding the COVID lockdown. I mean, apparently management is being very prudent in terms of adjusting the growth target and lifting the lending ceiling. Just want to ask, you know, is the impact on loan demand temporary, or could this lockdown lead to more, you know, prolonged damage to the, you know, demand from the SME sector that, you know, the growth outlook for even 2023, 2024 might be impaired? Related to that, the second question is in terms of the impact on asset quality and impairment, you know, assuming the COVID situation can get under control by, you know, say end of June, when do you think is the peak in terms of, you know, NPL formation, NPL ratio and.
or impairment? I will do the translation.
Thanks,
Zhi Dong and then Winnie. This time COVID impact is quite different from 2020. This time it takes a lot wider and longer. In 2020, the impact was quite limited to certain area, and therefore relatively short period of time.
Our credit indicators also fully recovered back to pre-pandemic level only in three months' time in 2020. The overall economy was in a better shape back then, like, no supply chain issue, no import-export issue, not a big issue in real estate sector, for example. I think we all believe, we all agree that even after this pandemic control comes to end, the market environment will not be as good as pre-pandemic period at this time. With the concern on economy downturn, which was shown from many indicators from second half last year, we started taking preemptive actions from Q4 last year. That, as a whole, cut off more than 20% of our target segments and made the biggest impact on our life channel new loan sales.
It dropped almost 40% from the same period last year as a result. Looking back, we believe we made the right decision, and it is not the right time, we think, to pursue rapid growth. Instead, we'll be more prudent in new customer quality and our asset quality. There are still quite much uncertainties to how this pandemic control play out and its following impact. That's why we only provide the first half guidance. Nonetheless, you know that we have more than 15 years track record in consumer credit risk management, and we have more than, as Greg said, more than 10,000 creditors nationwide who have remote working experience during lockdown situation with the best-in-market system support.
Also, we can have 50,000-57,000 offline debt collectors engaged in offline collection and support our collection team. On the demand side, although recently demand on this operation loan is weakening, that's true, but we do not worry about demand side because you know that the market size is huge and that we merely take about 1% market share. In the long run, we know that this sector will surely grow in line with the government support and policy. Good news is you ask about when is the peak of our credit loss or credit consolidation or net flow, and then when it will recover, and how long it'll take. Still uncertain, but the good news is the peak time is already over.
In April, we saw the highest net flow ratio in terms of sequentially, and then it makes a clear progress, clear improvement starting from May. I believe, so now we're in the process of recovering already, including Shanghai.
Thank you. Our next question comes from Thomas Chong from Jefferies. Please go ahead.
Hi, good morning. Thanks management for taking my questions. May I quickly ask a question with regard to our wealth management strategies as well as how the consumer sentiment impacts the business trend? Thank you.
Hi, Thomas. Thanks for your question.
Yeah, if you don't mind repeating it, sorry. Breaking, we'll break a feedback. Yeah.
Okay. On the wealth management side, we really continue to do three things. One is continue to deepen our focus on the affluent and upper affluent customers, and providing them with more content and service around the new product set, which is now that all products in China have moved away from fixed income into NAV-based, you know, you know, mutual funds, private placement funds, that have more volatility than fixed income, providing with more content, more upfront information, more post-investment services, and really combining our relative expertise through online as well as through telecom services where needed for these higher end customers to really help them navigate this new environment.
Even though the markets have been in the A-share market, the A-share market in China has been down 20%-30%, really through May now, we've seen quite good stability in the customer base and quite good stability in the CA overall. We will continue to provide those services, continue to refine them, give customers more real-time input on their portfolios, helping them drive diversification, help improve their overall customer mix so they can generate a steady return in a difficult environment.
We do have hope that, you know, now that the markets have come off quite a bit in the first half that we may have a chance for some recovery for customers in the second half, which would be very helpful as we continue to change this product mix to this target segment. The other thing that we are doing as well is increasing our focus. This is something we've been working on for more than a year now on the insurance product set as well. We can certainly, as China goes through its overall changes, given our average customer age is about 39 years old on the wealth side, pension related issues where pension reform is advancing insurance and pension services are becoming increasingly important.
That's an interesting area because it is a nice margin business to have. Overall, we continue to drive it online. We continue to drive new customer growth. We continue to focus on the upper end and change the product mix to continue to drive up the overall net margin of the business. If you look, as we stated at the end of March, we're at about 53-54 basis points income over CA, which is up quite a bit from a year ago. This is an area that we continue to drive and over the longer term, we hope it will become a larger contribution to the holdings as a whole.
Thank you. Our next question comes from Hans Fan from CLSA. Please mention your questions in both English and Chinese.
Sure. Thanks. Thank you for giving me this opportunity to ask question. My question is mainly about the direct sales reform progress. As we know that since end of last year, Lufax has launched the progress to reform the direct sales team. Just wondering what's the progress now, and how long should we expect this reform to be largely completed? Also just to follow up a question regarding the breakdown of the customer acquisition. Can you share the percentage in terms of coming from the direct sales team, coming from the insurance team of Ping An and also from the telephone sales?
Thanks, Hans. Let me first share the products with life channel actions. Life channel, the Q1 new sales dropped by almost 40% from the same period last year, and now it takes about 20% to our new sales contribution. Direct sales, the Q1 new sales increased by roughly 10% from the same period last year, and it now takes 57%. Regarding the channel mix, life is contributing 20%, and then direct sales almost 60% now. The rest 20% are from telemarketing, especially for our existing customers rebuying. It is a mix.
Before I get into the DS channel reform, if I show some information about life channel, you know that we took series of risk mitigation actions from Q1 2020. Forty percent sales drop in Q1 this year is big, but it's not a huge surprise for us, it's intended. Now if you look at the life channel new customer quality in Q1 2020 after we took all those actions, we measure new customer quality by like a DPD 1+ at MOB 3 or DPD 30+ at MOB 3. It is now even slightly better than that of direct sales channel. It's very promising. Total number of life agents, now you see that it gets stabilized. It does not decrease further and much.
We believe life channel contribution to new sales, which it already reached the bottom, it cannot be lower than this. We believe this will rebound slowly going forward. This is update about life channel, the actual. I wanna say that we have a hope that this will contribute more new sales going forward. Coming to direct sales reform. This is ongoing reform. It takes time. As of March end, total number of direct sales we have is 57,000. That includes team leaders and other supporting staffs. It was 57,000, exactly the same number, in a year ago. Number of direct sales didn't increase at all for a year. Yet, DS channel sales volume increased by almost 10%.
That well indicates our DS channel productivity continuously improves. Although we continuously tighten underwriting policy and reduce target market to achieve better asset quality. We continue to focus on optimizing DS team mix with priority. This year, we said we do not pursue rapid sales growth or balance growth, but taking this opportunity, we focus more on how we can optimize our sales team mix. We try to get more, we call it N-tie, whose retention rate is two times higher than U-tie at MOB trial, meaning after one year they join us. Whose productivity is normally more than 20% higher than U-tie. We focus on how we can get more N-tie group versus U-tie, and then change the mix of our direct sales.
As already mentioned, the recent hiring shows that our U-tie portion, it takes up more than 40% out of total new hire. It was just one digit last year, so we are making progress. We are providing a lot more tech enablements through our sales and upgrade to enhance their sales efficiency. We are now trying to gradually removing team leader layer, which takes about 10% of total sales headcount. Naturally we further improve our sales productivity. This year, we focus on building stronger direct sales team, through DS reform, and then this will lay a foundation, solid foundation for our rapid growth from probably next year after we get through this difficult time.
Thank you. I now hand over to the management team for closing remarks.
Thank you everyone for joining the conference call. If you have more questions, please, do not hesitate to contact the company's team offline. Thanks again. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your line.