Earnings Call: Q3 2020

Dec 2, 2020

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to the Lufex Holding Limited Third Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. After the management's prepared remarks, we will have a Q and A session. Please note this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Mr. Yu Chen, the company's Head of Board Office and Capital Markets. Please go ahead, sir. Thank you, operator. Hello, everyone, and welcome to our first earnings conference call at the company. Our Q3 2020 financial and operating results were released by our newswire services earlier today and are currently available online. Today, we have Mr. Ji Guan Hung, Co Chairman and Director of the Executive Committee Mr. Greg Gib, CEO Mr. Weiss Choi, CEO of our RCF Business Mr. James Zheng, the CFO and Mr. David Choi, the CFO of our RCF Business on the call. You will first hear from Greg, who will start the call with a review of our progress and details of our development in the quarter. Afterwards, our CFO, James, will provide a closer look into our financials before we open up the call for questions. In addition, the additional management team, the entire management team will 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'll 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 filings with the SEC. With that, I'm now pleased to turn over the call to Greg, CEO of Bluefast. Thank you, and welcome, everyone, to our first earnings call as a public company. Before I begin, please note that all numbers are in RMB terms and all comparisons are at a year on year or year over year basis unless otherwise stated. We delivered solid results for the Q3 of 2020 with our balance of loans facilitated growing by 21 point 4 percent year over year to $535,800,000,000 Also, the leading indicators for risk performance on our lending portfolio or our lending platform returned to their pre COVID-nineteen levels. As planned, we also continued to make progress at establishing a more sustainable risk sharing business model with our funding partners during the quarter. On the wealth management front, our client assets grew by 7 point 8% year over year to $300,300,000,000 Among the switch, the current product portion grew by 61.6% year over year to $346,000,000,000 From a broader perspective, we continue to observe market concerns across the regulatory landscape for fintech companies in China as well as the tightening of regulatory controls. As such, we remain vigilant and are ready to comply with any new regulatory requirements. I'm sure there'll be more questions on regulation, which we'll be happy to address today in the Q and A session. On the back of China's economic recovery and adjustments to our product pricing, we maintained growth in our retail credit facilitation business during the Q3. Our outstanding balance of loans facilitated grew by 21.4 percent in the quarter, accompanied by a 16.7% increase in cumulative borrowers. During the Q3, 74.1 percent of new loans facilitated were dispersed to our core segment of small business owners, up from 61.3 percent in the same period of 2019. We also continued to invest in technology as we rolled out on a wider scale our AI and video loan products, thus enabling our customers to complete their loan application by simply talking to a robotic agent over the Internet without inputting any text. We also developed technology in other areas, including customer profiling, client sourcing, loan underwriting and payment collective. As a result, customer experience and operating efficiency continued to improve as evidenced by our solid operating results in the quarter. Starting on September 4 this year in line with our interpretation of the court guidelines for loan primary pricing announced in August, we adjusted our annual percentage rates or APRs to ensure that all in costs for new borrowers remain below 24%. After such adjustments, our new loans totaled $54,800,000,000 in September, representing an increase of 20.1% year over year. Underpinning our September growth was an ongoing shift of our business focus to higher quality borrowers who tend to organically produce larger ticket sizes in general. Meanwhile, our revenue take rate declined from 10.4% a year ago to 9.4% for this quarter, reflecting the reduction of APRs. 1 of our recent focuses has been to restore our loan portfolio quality to a pre pandemic level by leveraging our strong risk management capabilities. The leading indicator for our loan quality is our monthly flow rate from current loans to those 1 to 89 days past due or DPD. In September, for example, this leading indicator was 0.5% for general unsecured loans and 0.1% for for secured loans, which was in line with our pre pandemic levels. To give you some context, this same indicator was 1% for general unsecured loans and 27% for secured loans during the peak COVID-nineteen the peak of COVID-nineteen in February of this year. In addition, the delinquency rate for general unsecured loans that were more than 30 days past due had improved to 2 point 5% as of September 30 from 3.3% as of June 30, 2020. While the same metrics for secured loans that were more than 30 days past due had improved to 0.9% from 1.4% at comparable times. Importantly, we also saw a similar level of sequential improvement for our loans that were more than 90 days past due. Meanwhile, as planned, we continue to make progress in establishing a more balanced risk sharing business model with our funding partners in the period. As of September 30, our outstanding balance of loans facilitated with guarantees by 3rd party insurance partners decreased to 91.4% from 95.3% a year ago. Moreover, the share of loans directly guaranteed by ourselves increased to 4.5% of September 30 from 2.5% a year ago. Looking ahead, we plan to make this initiative of continuing to take on more risk on the platform as a key business focus for the remainder of 2020 beyond. Now turning to our wealth management platform. During the quarter, our ongoing transformation in this business segment remained on track as our total number of active investors grew by 8.3% year over year to $13,000,000,000 Meanwhile, our total client assets grew by 7.8 percent year over year to $378,300,000,000 amongst which the current product portion, excluding legacy products, increased by 61.6 percent year over year to $346,000,000,000 dollars As of September 30, 2020, legacy products made up just 8.5% of total client assets versus 39% a year prior. During the Q3, our wealth management take rate for current products increased by 6.4 basis points year over year to 36.6 basis points. However, when including legacy products, the total rate take rate for our wealth management platform decreased to 56.6 basis points from 88 basis points in the same period of 2019. One of our management team's core focus remains on the improvement of our product mix, which underpins the quality of these take rates. As we continue to improve our customer analysis and insight capability during the quarter, we were also able to not only improve our product and service offerings, but also tailor them to each individual investor's preferences. As a result, our 12 month investor retention rate remained high at 95.2% as compared with 91.6% in the same period of 2019. In addition, the contribution of our total client assets from customers with investments of more than RMB300000 on our platform increased to 77 point 5% as of the quarter end from 73.1% a year ago, which once again validated our chosen set of focus for the Wealth Management business. In summary, during the Q3, we continued to transition our business model while proactively assessing our product prices in sync with market requirements. By leveraging our strength in data analysis and risk management, we continue to optimize our funding mix, reduce our funding costs and improve our credit quality. Looking ahead, we expect to deliver solid results for the full year of 2020, with total income to be in the range of renminbi51,000,000 to 51,500,000,000 yen and net profit excluding the nonrecurring charges for the CROWN convertible note restructuring to be in the range of RMB13.2 to date, we remain extremely vigilant. Should either new or more sweeping regulatory requirements be introduced, we are prepared to quickly make necessary changes and ensure our businesses grow in a compliant, sustainable and profitable manner for the long term. I will now turn the call over to James Dung, our CFO, to go through the financial details. Thank you, Greg. I will now provide a close look into our Q1 financial results. Before I begin, please note that all numbers are in very good terms and all comparisons are on a year over year basis unless otherwise stated. We delivered solid financial results in the Q3 of 2020. During the period, our total income was CNY13.1 billion, up by 10.5 percent year over year, while our net profit was CNY2.2 billion, down by 36.8 percent year over year. Excluding loan off charges of $1,300,000,000 related to our C1 convertible notes restructuring, our adjusted net profit was CNY3.5 billion in the 3rd quarter, an increase of 2% year over year. We achieved these solid financial results during the period in which we were dealing with the residual impact of COVID-nineteen, transitioning our business to a more balanced risk sharing model and adjusting our annual percentage rate or APRs to keep the all in cost for our new borrowers below 24%. Our strong performance in spite of these changes is testament to both the resilience of our wins model and also the stability of our earnings. Now let's take a closer look at our financial metrics for the Q3. While our total income increased by 10.5% year over year, Our revenue mix changed with the evolution of our business model. As we increased the funding from those consolidated trust plans that offered lower funding costs. The related income was recognized as net interest income, which increased to 18.5 percent of our total income in the Q3 of 2020 from 6.5% during the same period last year. As we gradually took on more credit risks through our guarantee companies, our guarantee income as a percentage of total income increased to 1.3% during the Q3 from 0.8% a year ago. As a result, our retail credit facilitation service fees contributed to 72% of our total income in the 3rd quarter as compared to 84.6% a year ago. What affected our near term income growth relative to our underlying business growth were a number of transitory factors, including the impact from borrower early payoffs, the reduction in retail credit facilitation fees recognized from loans previously funded by P2P, to reduce the wealth management income due to the runoff of legacy products. These temporary tax wins were supplied as we alleviate the early payoff impact by changing how we charge our borrowers as well as by phasing out our legacy products. While we sustain our revenue growth, we also exercised prudence in our expense control. Although our total expense increased by 32.6% to CNY 9,500,000,000 during Q3 of 2020, our expenses, excluding the nonrecurring charges for our 3 round convertible notes restructuring, increased only by 13.7% year over year to RMB8.1 billion. Our expenses, excluding credit impairment losses and financing costs, only increased slightly by 6.6 percent to RMB6.9 billion from RMB6.4 billion during the comparable period. Our sales and marketing expenses decreased by 14.3% to CNY4.2 billion during the Q3 from CNY3.8 billion a year ago. Our borrower acquisition expenses, which are a major component of our sales and marketing expenses, increased by 28.9 percent to CNY2.8 billion from CNY2.2 billion during the comparable period. Borrower acquisition expenses mainly represent the expenses we incur in order to facilitate loans on our platform and to generate credit facilitation fees. Those loans that contributed to borrower acquisition expenses include both new loans facilitated during the Q3 of 2020 and also old loans facilitated in prior years whose remaining balance and obligation duration has not yet lapsed. During the Q3, our borrower acquisition expenses related to loans facilitated in 2020 increased by 11%, while the same expenses recognized in this quarter but related to loans of prior vintage increased by 38 Our investor acquisition and retention expenses decreased by 34.1% to RMB198,000,000 during the Q3 of 2020 from RMB 261,000,000 in the same period 2019, mostly due to the efficiency improvement in our investor acquisition process. Our general sales and marketing expenses, which mainly represent marketing staff payroll and the related expenses, brand promotion costs, consulting service fees, business development costs as well as other marketing and advertising costs decreased by 1.7 percent to RMB1.32 billion during the 3rd quarter from RMB1.34 billion a year ago. Our general and administrative expenses decreased by 3.7% to CNY 642,000,000 during the 3rd quarter from CNY 667,000,000 a year ago, mainly due to our ongoing execution of cost optimization initiatives. Consistent with our loan balance growth, our operation and servicing expenses increased by 5.4% to CNY1.6 billion during the Q3 of 2020 from CNY1.5 billion a year ago, while our outstanding balance of loans facilitated grew by 21.4 percent to CNY535.8 billion as of September 30, 2020 from RMB441.2 billion as of September 30, 2019. Moreover, an increase in our loan repayment volume led to an increase in our payment processing expenses during the Q3, which was partially offset by a reduction in costs due to our utilization of AI technology to improve the efficiencies of our loan approval and the collection process. Our technology and analytics expense decreased by 9.1 percent to RMB 482 million during the Q3 from RMB 530 1,000,000 a year ago, mostly due to a decrease in personnel related expenses. Our credit impairment losses increased by 125.6 percent to CNY952 1,000,000 during the Q3 from RMB422 1,000,000 during the same period last year. More specifically, credit impairment losses from loans to customers and financing guarantee contracts increased to RMB454 1,000,000 from a credit of RMB88 1,000,000 during the comparable period as we started to take on more credit risks as part of our business model transition. Credit impairment losses related to accounts and other receivables and contract assets increased to RMB479 1,000,000 from RMB163 1,000,000 during the comparable period, mostly due to the natural increase in off balance sheet loans as well as the residual impact of COVID-nineteen. Our finance costs increased to CNY1.7 billion during the Q3 from CNY297 1,000,000 a year ago, mainly driven by the non recurring expense of CNY1.3 billion for our C1 convertible notes restructuring. Our net cash was RMB2.2 billion during the Q3 of 2020 as compared to RMB3.4 billion during the same period of 2019. Our adjusted net profit, which excluded the aforementioned restructuring expense, was CNY3.5 billion in the Q3 of 2020 as compared to RMB3.4 billion in the same period of 2019. Our basic and diluted earnings per ADS were both RMB1.01 in the Q3 of 2020 as compared to RMB1.58 in the same period of 2019. Our adjusted basic and diluted earnings per ADS were both RMB1.62 in the Q3 of 2020 as compared to RMB1.58 in the same period of 2019. As of September 30, 2020, we had CNY14.4 billion in cash at bank as compared to CNY7.4 billion as of December 30, 2019. Looking ahead into our full year results, we expect new loan sales to be in the range of 58,000,000,000 to RMB 568,000,000,000 year end client assets to be in the range of RMB 395,000,000,000 CNY420 1,000,000,000 total income to be in the range of CNY51 1,000,000,000 to CNY51.5 billion and adjusted net profit, which excludes the nonrecurring fee run convertible notes restructuring expense, to be in the range of CNY13.2 billion to CNY13.4 billion. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks for today. Operator, we're ready to take questions. Congratulations on a steady result in a very challenging regulatory and interest rate environment. Okay, I have two questions. One is, can you let us know the IRR in the or effective APR in the Q3 and the recent trend in October to November and for the new loans as well as the average? And if you can give us a bit of the unit economics breakdown of the loans? And what's the trend for spending and CGI cost? Sorry, this is a long question with all these operating data. And then secondly, on the regulation development, what would be your response for the CBIC recent sort of criticism about bundling of Ping and P and C insurance products plus the high interest rate charge in your partnership with industrial bank, what will be the approach that you try to resolve of? Thank you very much. Great. Thank you, May. Greg here. What I'll do is I'll take your second question first, and then we'll come back to the details on the 1st year as we pull the numbers together for you. On the question of the regulatory issue, as you know, what was highlighted really was the question of whether or not there was any bundled sales. And we've investigated that carefully. From a legal perspective, there's actually no third definition of that. But the regulators may have a different interpretation. And nonetheless, what we've done in recent weeks is to adjust that process so the customers have clear choice and so that there is clearly now on the platform no issue around the bundled sales question and customers do have the choice and the right to choose which ensure or guarantee that they deploy. I think that there's an important sub question in there, which other people may also have, which is there was some highlights around the APR itself. And our understanding really in the broader market environment, really since post the court guidelines issued in August, that the current view very much that the funding is coming from financial institutions, that the acceptable rate is 24% or below. And we think that's not something that is likely to change in the near term. And it's something that really has been backed up by many court cases in the last couple of months as people have gone to see if they can actually get their funding reduced or their interest rate reduced, and that's been backed up so far at 24% below. Having said that, one of the things that we mentioned in the course of the roadshow looking forward, we will take every opportunity where we can optimize operating costs and funding costs to pass on lower rates to customers while protecting our net profit margin. And so that remains a continued focus that we will work on in the future as needed. But again, I don't believe that the 24% member itself will see significant change in the near term. So with that said, I'll turn it back over to Wyatt. Do you want to go through the Q4? Yes. Let me answer your first question and then I may want to supplement about the questions as well. The first question is about our IRR trend. If you look at our Q3, our average HR voluntary loans was up 26 0.5%. But I believe you want to know about what the HR level actually reduced price down to 24% a month below, half of September 4. So if you look at our new loans in October, referring to October number 1, our current average price points per loan is 22.4%. And then while the funding cost remained somewhat changes at 6.7%, and the CIGI premium decreased a lot because now we are switching target market to our better product to our prime segment. So CIGI premium now at 6.5%. So those are key numbers to answer your second question. First question. Our first question, sorry. And the first question about the recent notice by the state count and TDI IP. Then it was about our past, sales growth in May 2019. And I see that there are basically 3 points. The first is bundled sales. And as Greg said, we believe this is not bundled sales, but no matter what, following CDIC's window guidance, we already changed our sales process to move forward. So we let our borrowers choose insurance companies from their application. The second point is about 1% guarantee. As we shared to 20% by the end of or start of next year. And then if you ever look at the October number, it's already 10 percent. So this is not something new for us. And then lastly, about the price, again, this is secured loan that we booked May last year with 22% HR. And then for secured loan, as of today, our price is 70 percent or lower. And also unsecured, we greatly reduced by down to less than 24% following CJS's window guidance as from September. And then also if you look at the recent court decision, then we are monitoring about more than 4,000 court cases and more than 90%. It's very clear they use 24% as a standard as a basis to make a decision on financial lending institutions, the HR dispute. So it's very clear that 4% is to commit market standards for financial institution lending. And then there's not any further discussion about the price change. So we don't have any plans to further reduce price in the short time. Your next question comes from the line of Winnie Wu from Bank of America. Your line is open. Hi, thank you very much. Just want to clarify, maybe I didn't get it very clearly. What's the Q3 versus September funding cost, CGI premium and EPO circuit. Could why ask you to repeat that? That's the first question. Secondly is, I think your investors concerned about recent U. S. Regulation or regulators talking about tightening the standard on the ADR. Just want to ask the management plan or thought on the potential risk of ADR delisting and the scenario of coming back to Hong Kong either for a secondary listing or possibly dual primary listing? Thank you very much. Okay. The first question, the funding costs remain unchanged from 2nd quarter to 3rd quarter is at 6.7%, while credit insurance premium charged by insurance partners decreased from about 9% down to 6.5% level. And if you look at if you measure the EPO by equity amount divided by the RMB1 1,000,000,000 balance is around 8% every quarter. It has been very steady, second quarter, quarter, I don't see any change. But knowing that, starting September, we greatly changed our target market. For those new segments, we have to wait and see how they perform differently in terms of our IPO behavior that I'll hear from you. Okay. On the question of the recent what's termed as the Kennedy bill in the U. S, obviously, this is an expected item going back a number of months now. If you look at that sale itself, obviously, it is laying out a 3 year period in which you would have to comply with the disclosures. What we would note is that at least the initial response that you see in the media from the CSRC is trying to, I think, proactively be ready to address it. So I think in the broader context, we do believe that a solution will be found. Having said that, there is also, we believe, some statements that will appear from our understanding of the process with the SEC that is looking to create terms around a co audit process. So for example, if your auditing firm is a global firm that has a China team, it also has a U. S. National team. What would happen under this co audit setup is the national U. S. Teams would have to review the results and be accountable for whatever working papers are done by the China team. So this co audit process is something that we think will also potentially be put forward by the SEC in the near future. But just to reemphasize, in whatever outcome, whether it's the Kennedy bill or any changes that are further refined by the we do have a 3 year period, which gives us more than ample time to make any other preparations in terms of other listing options down the road. We don't have any immediate plans for a different listing, but obviously, we have a fair bit of flexibility there. Thank you very much. Your next question comes from the line of Elsie Cheng from Goldman Sachs. Your line is open. Good morning, Greg, Brian and James, and congratulations on a solid quarter. And thank you for taking my questions. I have 2 questions what do you see the potential risks as well as opportunities to Lufax? And could you also share a little bit more in terms of what's your business expansion plan in this environment, any changes versus 2 months ago? And the second question is really about our customer strategy. Following the updated pricing and customer strategy implemented in September, in addition to the APR trend we just talked about, could you also share with us more how has it been working out on the sales efficiency front? Any trends you are observing there? Thank you very much. Okay. I think on the regulatory side, although there has been really no specific announcement or no specific requirement issued by any regulator today, what we do understand is the regulators are clearly, if you look at the draft that's come out for the microfinance institutions, their real focus here is on platforms that are cooperating with banks to have more skin in the game, to bear more risk and to have sufficient capital to back up that risk. That is clearly the main focus. And while that has been clearly stated for the microfinance model, how it would apply to other business models in the market, including our own, to be honest, there is no clear statement yet. But as we disclosed when we were going through the IPO process, we are, as Wyatt highlighted, by the first half of next year, we would hope for all new loans that we will be making 20% in the mix. Whether that 20% could be changed, and some people ask for the 20% become 30%, that's something that we will have to monitor. If it were to be slightly more from 20 percent to 30%, we have more than adequate capital to handle that, even not even including the recent IPO. So we think it'll take a little bit of time for the regulators to really form a clear view for the industry as a whole across business models. We understand regulators working very hard on this issue. We also hope that there'll be an answer in the near term, but we're also reasonably well prepared for any eventualities. Maybe on this question for regulation, I'll ask Jibo, Chairman, Ji, to also make a few comments. So this is Chairman Zhi speaking. Given I think that questions. I will now provide a systematic overview of what we think of the regulatory environment and our responses. Firstly, due to the anti win, we think there And there are 2 major changes. And the first is the tightening of the overall industry environment. And the second is a comprehensive and goes through to the default level of the regulation. In the past, we have seen a lot of tolerance for innovation, which now today the regulators are a lot more cautious. Before the IPO, our biggest challenge was probably to deal with the full time LTI rules and post IPO. Today, our biggest challenge is to get a clear view of where the regulations are heading and what the regulators are currently thinking about. And no doubt, the full time LPR at the time of IPO and today's regulatory changes are the biggest uncertainty we're facing in our business. Because of the uniqueness in China, when we talk about regulators, usually we don't necessarily just need the CBOC, the CBRC and the CFRC. We have to take into consideration of the State Council and the government. And as you can see, the full time LPR was not set up by the traditional financial regulators, such as the PBOC and CDRC and CSRC, was issued by the Supreme Court. So this is for the major changes we have currently seen at various regulatory bodies today. Secondly, I want to talk about our responses and what we're going to do about it. We think the major areas of concern for the regulators are in the 7 4 areas. The first is overall cost for borrowing. Secondly, by the disposal 3rd is our leverage. And for its operating within districts or across different districts. Number 5, the lowest bank for funding providers that they play in this whole process, whether they do their own underwriting or their outsources to others. Assignments the user proceeds from the loan they borrow. And the second and last point, the consumer protection, and this is mainly reflecting the number of complaints and what we're doing about those complaints. And here is what we're going to do to address these concerns. 1st and foremost, we need to try to understand the regulators' intention and what they intend to do. And the 1 month after we did our IPO, we have been in Beijing having very frequent dialogue with different regulators to try to understand the intent. And not only will Lufax mentioned while Ping An senior management level is also involved in this process. We were hoping to get a clear steer from the regulators where they're heading next, especially an impact to our business model and profitability model. Discussing on what they're going to do next. We have we do believe our business model differ from end and there are certain recognitions from the regulatory bodies on that point. So I think as we're discussing, at the end of the 100% clear on what exactly they're going to do So all we can do is anticipate the future direction and assess our business model accordingly before Despite not knowing exactly what the future rules may be, we are now reasonably clear of their intent. And therefore, we will be prepositioning our businesses accordingly, so we are prepared on the user plan we have. Is all we can say at the moment. I will continue to do these communications. And thirdly, I want to say our communication to the capital markets, including our investors, we have a principle of the management will always be open, transparent and honest with the capital market. So this is all we have, and I have shared everything I have with you today. And if there are more developments, rest assured, we will be the 1st and foremost to let you know. We do think the reverse environment is actually tightened and it's changing rapidly. Therefore, we'll remain vigilant in Washington state. Okay. Wyatt, for the second Yes. Let me answer this question by providing a few numbers. So since we shifted our target market from September 4 with all our lower APR, then the results turn out to be very positive for our new sales. If I share October November, we see too much numbers. October despite we have 10 days holidays. Our news sales volume was more than RMB 45,000,000,000 a month. And in November, we closed RMB50 1,000,000,000 a month. So YTD, our November outpost in the U. S. Is about RMB530 1,000,000,000, which is surely ahead of our target. And as a result, our sales productivity increased by about 9% from Q2 to Q3. And while our churn mix stayed remained unchanged, 50% from direct sales, 40% live agents and 10% from telemarket and online. So, so far, it's very promising for our sales volume delivery. Got it. Thank you, Chairman Ji, for taking us through the regulatory concerns transparently. That's very helpful. I thank you, Greg and YSQ for the insights on the business. Thanks again. Your next Your next question comes from the line of Benny Wong from HSBC. Your line is open. Hi. Congrats management on the strong quarter and also There are 2 questions we have here. One is actually on the credit risk exposure. We understand that management had commented that New York Times will increase the credit risk exposure to 20% level as communicated during the IPO. Is there any plan you think that we need to also step up further to 30% to be just in line with the requirement under the co lending in the draft regulations? If so, how do you think that will change impact the tick rate for the credit facilitation business? That's question number 1. How should we see that would impact, say, maybe any magnitude you can give in terms of how increase in the credit risk exposure will translate into the increase in activity? And then second question is that if you look at the recent motives by the CB IRC on the saying that the 22% of the APR of loans arranged by Rufegh and industrial bank has appeared to be quite high. Understand that we are lowering the APR of all new loans to be below 24%. So these percentage from the CBIC will put further pressure to lower the APR further in the near future. What is the plan that we have been thinking of so far? And I mean, how does that impact our take rate? Thank you. Okay. Yes. So, first, talk about trend exposure. I think I want to share the O2BAR number because if you look at if you look at the O2BAR number, our attention is very clear. So yes, for the total sales volume, our sales guarantee portion already are up to 10% both about 1 month new sales volume. And then Ping An P&C, the CGI portion decreased greatly from above 90% down to 77% and while the rest 13% are taken by partner banks directly. So our mode of tension is very clear by its own press. And as Greg said, open to our plan, we want to achieve 20% sales growth portion by the end of first half next year for new launch. And then whether we can increase this further to 30%, we don't know yet. We haven't decided yet. If you look at that new tenant loan management loan announced by Yes. He said for small loan company joint lending, they need to take up to 30 percent credit risk. But that's not for our generative company, that's for small company, which we are not using now. But if 30% intake, 30% becomes margin norm and the new standard for this joint planning, no matter you use smaller license or insurance license or guarantee license, if that happens, then we believe we have more than enough cash to support the 30% guarantee because as of today, if I'm not mistaken, we have about $11,000,000,000 net assets on our guarantee company. And then through ordinary profit cost, this net asset will increase to RMB 25,000,000,000 by the end of next year. So surely, we can take up 30% credit risk for new loans without having any further capital injection. So we are confident. And then how this will affect our take rate? It does not affect much, even larger, it's positive flower take rate because when you take more credit risk, it always comes with the more revenue and then more net margin. And the second question about the price, 22.16 percent, that was again secured loans we booked May 2019. And secured loans, our average rate reduced and unsecured less than 24%. And then how far do we want to go down? We don't have any plans to reduce dramatically in the short run because we are not clear about we haven't got any further information from TDIC. But according to our original plan, We plan to reduce our highest APR from 24% further down to 20% within 3 years' time. So our plan remains unchanged. Okay, great. Thank you. Thank you so much for the answers. Very clear now. Your next question comes from the line of Thomas Chong from Jefferies. Your line is open. Hi, good morning. Thanks management for taking my questions. I have a question about the Wealth Management Business. Can you comment about our competitive edge in automated portfolio and the returns versus other providers? Thank you. Thank you, Thomas. I'll just restate the question so that everyone can hear it. It was a bit faint. So the question was on the wealth management side, our competitive advantage in the portfolio services that we offer. I think I would outline the answer in 2 parts, up until now in the future. Up until now, as you know, our portfolio services in terms of scale are north of RMB10 1,000,000,000, which makes us one of the largest in the market. And the way that we've been able to achieve that is by creating a very transparent means online for customers to understand the benefits they get from a diversified investment approach. And we have now designed more than 16 different strategies for different risk appetites in different market environments. And we have also opened the platform to external providers, securities firms and other fund houses who are also offering the portfolio so that we can match customers. So I think up to now, what's allowed us to be successful is understanding our customer segments well, having strategies that are well positioned against those segments, and also in terms of our online interface with investors, getting them to understand the benefits of doing so and also helping them transition across portfolios as the market environment changes. Roughly, as the portfolios that we played a role in helping design the strategy, the year to date return is at average of about 12%. And so that sort of steady return together with the customer interface, I think, has been the key to success up to now. If we look going forward, what we are doing is continuing to deepen the design on the tech side to really improve the after investment service so that customers can really understand how their portfolio is performing, how it's being related to accommodate different market environments and how adjustments can be made for them to optimize. So really, the service element in a totally tech driven environment is something that we are building out very quickly, which I think will maintain a unique position in the market. The other thing from our discussions with regulators in terms of where they want to go with the advisory business in China, I think where they're starting to come out more and more is they see the advisory business as a business that's best offered to customers that can maybe invest RMB 50,000 or RMB 100,000 or more. And so it's there is where diversification really makes a difference for customers that can invest that minimal amount. So our ability to bring the technology and then given our customer segment, which is indeed sort of the middle class and emerging affluent, there's a very good match there that we enjoy that other platforms may not enjoy to the same extent. So our advantage up to now has been designing it simple, matching the interface of the front end for customers as well. Going forward, it's about deepening the tech on the post investment side. It's about creating more portfolios that are increasingly data driven against the market environment. And then finally, we think that our excitement will stand out in our ability to match these sort of services in the market as a whole. Your next question comes from the line of Richard Ju from Morgan Stanley. Your line is open. Thank you. Thank you for taking the question. I have a question on the progress of essentially make banks take risks on their own. I think they're trying to gradually reduce the PNC insurance guarantees and then ask the banks to take more questions more risk directly. Just want to know whether there's any progress during the Q3, any targets for this year and next year? And then maybe second question, do we have any guidance for currently for 2021 at the moment? Thank you very much. So Richard, on guidance, we will provide guidance as a whole when we report the full year results. So that will be coming soon. I think your first question was really about, and I'll ask Elias to restate a bit, around the evolution of how much risk we're taking, how much risk P and T is taking and how much risk is being directly borne by the bank. So maybe, Yves, you can restate around the trend for September, October. Yes. If I look at the October number, because September number is not that obvious. So if you refer to October number, the out of total loans, the risk bearing portion, sharply 10% by LoopEx and then 77% by Ping An TNC. You remember, it used to be above 90%, so sharply decreased down to 77% and the rest 13% are mostly taken by directly by partner banks. So our future, the transition direction is very clear. So we want to increase our risk taking portion up to 20%. And then insurance company, we reduced down to about 40%. And then while banks are taking the rest 40% with credit loss responsibility. So that is our direction. And then we want to achieve that if only then by the end of first half next year for Once again, if you would like to sorry, go ahead. Yes, I just thank you very much. I think that's a decent progress already. So looking forward to progress on that one. Thank you. Thank you, Richard. Your next question comes from the line of Han Seung from CLSA. Your line is open. Hi, good morning management. Thank you for taking my question. I got a couple of questions regarding Wealth Management segments. So the first thing is that the take rates in the current products were actually went up in Q3. So can you elaborate drivers behind this? And more particularly, we would like to know the product mix. If you can share the product mix change, that would be great among the current products. Number 2 is that, I think, curiously, there is a plan for us to apply for a mutual fund investment advisory sort of license. Just want to know what's the progress of acquiring this license. Number 3 is about the regulation related on the Wealth Management segment. We understand that overall regulatory environment for Wealth Management is actually quite favorable. But recently, there are some rising voice in the media, especially highlighting by one of the CBIC officials talking about the potential tightening of online distribution of deposit products. So for us, I think this kind of online deposit from banks accounts for 30% of our current products. So I just want to understand what the impact for us and do we have any plan to prepare for this change? Yes, that's all my questions. Thank you very much. Right. Thank you. So the on the mix, actually, we have seen a general increase across all products, but we have also seen a lift from more high end products related to equity related products and trust products as well. So it is a combination of a lift across the board versus the historical period we're comparing against, but also an improvement in the mix of higher end and equity related products. Going forward, this is something we will continue to emphasize and we will continue to emphasize around the portfolio advisory services, which we believe will generate higher fees. And I think we mentioned prior, we will make more efforts in building out the insurance product line as well, which will continue to support take rates over time. So this is something that's ongoing, and we will expect to continue to have positive evolution as we look forward in the next 12 months as well. On the question of the private license and the final license for advisory services, Where we believe the regulators are going at the moment is to extend the pilot period and to extend the pilot participants. And we are we have made our submission of our license in this regard. And we're hoping that as soon as possible, we'll get more clarity on the ability to obtain that license. The actual long term license for financial advisory, we were prepared. There was additional hope in the market that maybe the requirements may be announced by the end of this year will probably go later into the first half of next year, but it's something that we are working very hard on to be ready to obtain. And then the third question Mr. I'm glad that I've highlighted the question. Yes. In the Chairman, Zhe was just adding, in the process of getting a pilot license, our lineup in the list of potential participants is improving as we continue our communications and demonstrate our capabilities. So that's something that we're still very hopeful of. On the third question of deposits and deposit distribution, as of today, the total deposits that we've helped facilitate is probably about it's not quite 30%. If you look at the total AUM today of 370,000,000,000 I think it's about 700,000,000,000 yen thereabouts. So it's about 25% of the total AUM. We anticipate that there will be stricter guidelines coming out probably in the next couple of weeks as late as the next month or 2, right? So over the next couple of weeks, we may see more clarity coming from the PBOC. We believe the market will continue to exist in certain platforms working with banks. We believe that the regulators will probably provide more guidance on what level of pricing the banks can offer. They will also probably provide more guidance on which types of banks are able to continue to increase their deposits through online platform cooperation, which we think is, if you take a longer term view, probably a good development because it really makes sure that deposits are flowing quickly into banks that have the right risk structures to bear this. And I think, again, the focus of the regulators here is on managing overall macro risk and to some extent risk. And so we do think that this market, it will probably not grow as quickly as it has in the past given these changes. But we also, in anticipation of this, are advancing our cooperation with many of the new bank asset management companies that are in the market. We do believe that the product sets that are in those licenses and those entities will probably serve as a good replacement alternative for the deposit like products that are out in the market today. So with a combination of maybe optimizing our mix of the banks that we cooperate with, meeting any requirements on disclosure for investors in those products as well as continue to ship product mix with the advancement of the bank asset management guidelines, we will be able to continue to optimize the mix. Great. Thanks very much. There are no further questions. I turn the call back to management for closing comments. Great. Well, thank you. Thank you, everybody, again for participating in today's call. I think one important point that Chairman Gee made is, obviously, we remain in an environment of where to see new information coming. Where that new information is relevant and material, we will certainly do everything possible first to make it clear with regards to how any impact it may have on us. So again, thanks, everybody, for the attendance. That concludes today's conference call. You may now disconnect.