Please note this event is being recorded. I would now like to turn the conference over to Jade Jin, Manager of the Capital Markets Department. Please go ahead.
Good morning and good evening, and Welcome to CNFinance Second Quarter and the First Half of 2022 Financial Results Conference Call. In today's call, our Director and Vice President, Mr. Jun Qian, will walk us through the operating results, followed by the financial results from our acting CFO, Jing Li. After that, we will have the Q&A section. Before we start, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in U.S. Private Securities Litigation Reform Act of 1995. This forward-looking statement can be identified by terminology such as will, expect, anticipate, future, intend, plans, belief, estimate, target, going forward, outlook, and similar statements.
Such statements are based upon management's current expectations and current markets and operating conditions, and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the company's filing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under law. Now, please welcome Mr. Jun Qian. Thank you everyone for joining us in this conference call.
On today's call, we will introduce the company's financial and operational results in the 2nd quarter and the 1st half of 2022, followed by a Q&A section. In the 2nd quarter of 2022, our business was continuously impacted by the pandemic prevention and control measures, but we were able to maintain stable business volume. During the quarter, we originated loans of CNY 3.1 billion under our collaboration with trust companies and introduced loans of CNY 200 million to the commercial banks. The interest revenue under the collaboration model for the 2nd quarter were slightly higher than the same period of 2021, and interest expense decreased marginally. After we adjusted our commission policy, our collaboration costs decreased significantly year on year, which drove up the company's gross profit margin.
However, given the impacts of pandemic prevention and control policy, as well as the uncertainty of China's real estate market, we continue to be conservative in evaluating potential losses and recorded a provision for credit losses of CNY 80 million for the 2nd quarter. This was the main reason for the net income to be lower than the same period of 2021. Now, I would like to give a more detailed introduction of the challenges we faced and the measures we have taken, and also share the management thoughts on our future development. Our business continues to be challenged by the pandemic prevention and control. A number of cities, including Shanghai, were locked down during the quarter, and China's GDP fell by 2.6% as compared to the 1st quarter of 2022. At the same time, there were still uncertainties in China's real estate market.
The economic downturn has negatively affected our business growth, and the increase in delinquency rate has also affected the liquidity of our sales partners.
在此大环境下，公司聚焦稳定业务量，压降资金成本，降低风险敞口，以及精进合伙人的服务，助其缓解资金压力几方面，主要做了以下几点工作。
Under such conditions, we focused on stabilizing business volume, reducing financing costs, managing risks, and empower our sales partners during the 2nd quarter. The work we have done are as follows.
第一，促进业务增长方面。第一，为了更好地满足借款人的需求，助力小微企业，公司在本季度开始与紫金信托和中粮信托开展合作，并成功放款3,900万元。同时我们在保证综合收益率的前提下，进一步地调整了现有产品的贷款利率。第二，为了扩大客户覆盖范围，公司在本季度继续大力推动银行助贷模式，共为银行推荐贷款放款约2亿元人民币。我们也成功地落地了与人保的合作项目，并已实现了放款。
First, in order to better meet the needs of borrowers and help MSME owners, we started our collaboration with two new trust companies and successfully originated loans of CNY 39 million during the quarter. We have lowered the interest rate of our loan products this quarter. Second, we continue to promote our partnership with commercial banks and recommended loans of CNY 200 million to them. We have also started to Philippine loans under our collaboration with PICC.
第二，在控制成本方面，我们与主要的资金合作方开展了谈判，就下调融资利率和优化摊还的方式达成了一致，预计将于第三季度开始实施。
Second, cost control. We maintain dialogue with major funding partners and have reached consensus on reducing financing costs and optimizing the repayment policy. The adjusted policy is expected to be adopted in the 3rd quarter of 2022.
第三，控制风险方面。本季度有几家信托公司与我们所推荐的第三方风险投资机构签订了协议，允许该机构直接认购占发放贷款一定比例的劣后份额。通过引入第三方劣后投资人，我们将进一步地降低对自有资金的依赖以及风险敞口。
Third, risk control. In the 2nd quarter, several trust companies had signed agreement with 3rd-party subordinated unit subscribers recommended by us, allowing this institution to directly invest in the subordinate unit of the trust plan. By growing these 3rd-party investors, we further reduce the amount of our own funds needed and also lower our risk exposure.
第四，减轻合伙人负担方面，我们在本季度保持了对贷款合伙人的支持力度，继续允许合伙人通过分期付款的方式履行对逾期贷款业务的核销义务。我们则依照分期情况收取一定金额的服务费。同时，我们还希望引入具备处置能力的第三方机构，对合伙人的不良资产进行包括催收、仲裁和司法执行在内的全流程的债务管理服务，使合伙人承担较低的项目风险，而享有稳定的收益。
Fourth, in terms of empowering sales partners, we continue to allow more sales partners to repay their delinquent loans by installments, with the company charging a certain fee based on the terms. We also plan to bring in an asset management company to provide our sales partners with post-loan management services, including data collection, arbitration, and judicial proceedings. We hope that by collaborating with such asset management company, our sales partner could bear less risk and receive rather stable return on delinquent loans.
我们无疑将会在接下来一段时间继续面对挑战与机遇并存的局面。值得注意的是，根据央行最近公布的数据，2022年7月的新增人民币贷款为6,790亿元，比去年同期少了4,042亿元，这表明企业融资的意愿不强，实体经济需求并不旺盛，也表示公司需要付出更大的努力才能保持业务的增长。但我们也相信，国家必定会继续加强宏观经济政策对经济的刺激，以及对小微企业的扶持，而这将使得中国的普惠金融事业继续处在战略机遇期。在此大背景下，我们将会立足于增强销售能力，降低资金成本，提高处置效率，以实现公司业务的稳步增长，为更多的小微企业主提供优质便捷的金融服务。我们的主要计划有：
We will be presented with both challenges and opportunities in the future. According to the data recently released by the People's Bank of China, July's new RMB loans were CNY 639 billion followed by CNY 404.2 billion year-on-year. This indicates that the financing needs of both enterprises and customers has shrunk. This means we will need to put up more efforts to maintain growth. However, we believe as more macro policies to stimulate the economy and support MSEs take effect. There are still vast opportunities in China's inclusive financing industry. In order to seize such chance to expand our business and provide affordable and accessible financing services to more MSE owners, we will work on enhancing sales, reducing funding costs, and improve portfolio management.
Our plans are. First, with the change of the market condition, the company will focus more on the demand side and build a system that is sales-oriented. We will establish an all-around sales partner system based on the data collection and resource coordination, and use technology as a tool to improve the overall efficiency. Second, we will continue to promote our partnership with commercial banks and with PICC. We believe such partnerships will be, important supplement to our collaboration with trust companies, as they could improve our product mix and the customer coverage. In the future, we will not only set promotion plans to incentivize the sales staff of the commercial banks with PICC, but also cooperate with 3rd-party sales channels to jointly expand the customer base and increase the sales volume. Third, reducing financing costs will continue to be one of our long-term strategic goals.
We will maintain dialogues with funding partners, mainly focused on addressing the mismatch between funding supply and the loan applications. Our goal is to cut the overall cost of our loan products by reducing the balance of the idle funds. Lastly, we will deepen our collaboration with 3rd-party institutions to accelerate the disposal of delinquent loans and recover cash. By doing that, we hope to release the liquidity of sales partners so that they can use more resources in the business expansion. With that, I'd like to hand the call over to Ms. Jing Li, the Acting CFO of the company, who will walk you through the 2nd quarter and the 1st half 2022 financial.
Thanks, Mr. Qian, and thanks again to everyone joining us today. I'll walk you through our 2nd quarter and 1st half 2022 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, all the percentage change I'm going to give will be on that basis. Also, unless otherwise stated, all numbers I'm going to give will be in RMB. We will walk you through the figures for 2nd quarter of 2022 1st, followed by that for the 1st half. As of June 30th, 2022, the total outstanding loan principal decreased to CNY 9.4 billion compared to CNY 10.4 billion as of December 31st, 2021. The total loan origination volume was CNY 3.1 billion, compared to CNY 3.8 billion in the same period of 2021.
Interest and financing service fees on loans was CNY 408 million, a decrease of 9%, primarily due to the decrease of average daily outstanding loan principal in the 2nd quarter of 2022 as compared to the same period of 2021. The decrease in average daily outstanding loan principal was due to the lower loan facilitation volume in the 2nd quarter, resulting from the lockdown due to the local outbreak of COVID-19 in multiple cities within China. Interest expense was CNY 187 million, compared to CNY 195 million in 2021, primarily due to the decrease in the principal of other borrowings.
Collaboration costs for sales partners decreased to CNY 77 million in the 2nd quarter of 2022, compared to CNY 107 million in the same quarter of 2021, primarily due to the lower fee rate the company paid to the sales partner in the 2nd quarter of 2022. Provision for credit losses was CNY 18 million, compared to CNY 15 million in the same period of last year. The decrease was due to the increased economic uncertainties caused by lockdown in reaction to local outbreaks of COVID-19, as well as the downward pressure faced by China's real estate market during the 2nd quarter of this year. The total operating expense were CNY 91 million, an increase of 5% compared to CNY 87 million in the same period of last year. Income tax expense was CNY 3 million, a decrease from CNY 8 million in the same period of 2021.
Net income was CNY 18 million, a decrease of CNY 72 million from CNY 65 million in the prior year. Now we are moving on our financials for the 1st half of 2022. The total loan origination volume was CNY 5.4 billion, compared to CNY 6.7 billion in the same period of last year. Interest and financing service fees on loans was CNY 833 million, a decrease of 6%, primarily due to the decrease of our average daily outstanding loan principal in the 1st half of 2022 as compared with the same period of last year. The decrease in the average daily outstanding loan principal was due to the lower facilitation volume in the 1st half of this year, resulting from the lockdown due to the local outbreak of COVID-19 in multiple cities within China.
Interest expense was CNY 388 million, compared to CNY 351 million in the same period of last year, primarily due to the increase of funding costs from the trust company. Collaboration costs for sales partner increased to CNY 156 million in the 1st half of this year, compared to CNY 205 million in the same period of last year. Primarily attributable to the increase in loan balance under the collaboration model. Provisions for credit losses was a provision of CNY 112 million, compared to the recovery of CNY 3 million in the same period of 2021. The increase was due to the increasing economic uncertainties caused by the lockdown in reaction to the local outbreak of COVID-19, as well as the downward pressure faced by China's real estate market during the 1st half of 2022.
Total operating expenses was CNY 171 million, a decrease of 6% compared with CNY 182 million in the same period of 2021. Income tax expenses was CNY 19 million, compared to CNY 38 million in the same period of last year, primarily due to the increase in taxable income in the 1st half of 2022 as compared to the same period of last year. Net income was CNY 61 million, compared to CNY 151 million in the same period of last year. As of June 30th, 2022, the company has cash and cash equivalents of CNY 1.4 billion, compared to CNY 2.2 billion as of December 31st, 2021.
The delinquency ratio, excluding loans held for sale for loan origination by the company, decreased from 16% as of December 31st, 2021 to 14.9% as of June 30th, 2022. The NPL ratio, excluding the loans held for sale for loan originated by company, decreased from 2.1% as of December 31st, 2021 to 1.9% as of June 30th, 2022. With that, we'd now like to open up the call for Q&A. Operator, please.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. The 1st question will come from William Gregozeski with Greenridge Global. Please go ahead, sir.
Hi. You talked about, you know, trying to do different things to help the sales partners, and you obviously need the sales partners to grow the loan origination. You know, you talked about some of the, you know, bringing in asset management company. What's the financial health of your sales partners? Are they liquid enough to source new loans or are they just trying to manage what they have now?
Okay. Under the current condition, the liquidity pressure of our sales partners have been higher than before. I think that's mainly because of the increase of the delinquency ratio. Because under our collaboration with the sales partners, they will have to bear the obligations to repurchase the default loans. That has put a lot of pressure on their liquidity. Ever since the beginning of 2022, we have remained very supportive to our sales partners. I think the 1st thing we did is to allow them to you know fulfill their repurchase obligations by installments. Also, entering the 2nd quarter of 2022, we have been giving them extensions so that they can pay smaller installment every month.
Also we have been negotiating with a 3rd party asset management companies to see if they could provide, you know, post loan services for the sales partners, so that way they could have their cash recovered faster and so that way they could also release their liquidity and spend them on the business expansions. Does that answer your question?
Yeah. Could you also just talk about the quantity of sales partners you have? I mean, are you seeing more interest or are sales partners shrinking down and, you know, the quantity they're trying to source?
You mean the quantity for.
Yeah. The total number of sales partners you have, is that-
Uh-huh.
Number increasing or decreasing? And are you seeing them being more active or less active?
Okay. It is still going up slightly. Also in terms of the numbers I can give, numbers of sales partners, here's the data. The sales partners who have signed the collaboration agreements with us has went up slightly to 90,000 as of the end of the 2nd quarter. We have also seen a rising number of active sales partners, and that would be around 1,200 as of the end of the 2nd quarter of 2022, which is a 9% increase as compared to the same quarter of 2021. As for your question, the number has gone up as well as the number of active sales partners.
Okay, perfect. There's been a lot of, you know, news in the media about the real estate market from developers having cash shortfalls, the number of unfinished unlived-in homes, the interest rate cuts. How do you guys view the real estate market as a whole and how it impacts CNF going forward?
最近媒体上也有很多关于房地产市场的报道，比方说，房贷利息的下降，或者开发商现金流不足的问题，以及那些没能够建设完成的烂尾房爆发的问题。那么我想请问一下，您对于这个房地产市场的整体看法大概是什么样子的？并且您觉得这个房地产市场目前的状况对于泛华金融而言有哪些影响呢？
客观来讲，中国房地产市场经历过近十八年的高速增长，那么近两年应该来说是面临较大的困境和困难。准确地说，中国的房地产市场存在比较大的不确定性，也对我们的业务产生了一定的影响。那么类似于这个开发商的现金流不足、烂尾楼等事件，在一定程度上面影响了人们对于整个房地产的信心，市场的信心。那么对于我们的影响当然肯定是包括不下几点：第一，价格的波动必然会影响业务量，因为在我看来，整个房地产业务的良性发展在于房地产价格的稳定，只有稳定的房地产价格才能带来房地产业务的持续的增长。那么第二，直接的困难和问题就是，很显然，整个市场的交易的活跃性、流动性在持续地减弱，那么可能让我们面临这种我们在出现了逾期贷款的同时，我们的处置效率在不断地下降。但是，站在乐观积极的方面去看待来讲的话，在我看来，从陆陆续续国家出台的一系列的相关政策来看的话，国家层面是希望房地产企稳并继续走向持续走强的这样一个局面的。所以，国家会不断地加强对于整个房地产宏观政策方面的一些调控的一些手段的释放。那么从目前来看的话，国家所释放的这些宏观方面的政策是积极有效的。目前整个房地产市场的价格，可以讲是基本趋稳的。同时，在一些核心区域，能看到我们的房地产价格在稳中有升的。而泛华金融这几年一直深耕于这种特大和一线核心区域城市。所以，相对于我们的抵押来讲，我们在处在这个宏观政策调控、继续宏观政策调控的这个前提下，我们的这个资产应该说处在这种调控的受益方面是最具体现的这样的一个群体上面。所以对于整个的泛华来讲，包括我们的业务来讲，对于价格的波动，我们会有进一步的这种抵抗力。
Okay, after nearly 20 years of high speed growth of China's real estate market, I think it seems like it went into a dead end. I think that mainly affected people's, especially the consumer's view towards, you know, the housing market. As for us, like you mentioned, there are a number of problems in the real estate market, including, you know, the insufficient cash of the developers and as well as the, you know, unfinished homes and stuff. Particularly to us, I think 1st of all, the development of the, you know, home equity loans depends on the price of the properties, and that's for sure. That mainly affects our, you know, business volume and stuff.
Also for us, if the liquidity of the houses went down and the housing market is less active, it might influence our efficiency of disposing delinquent loans and the collectibles. We are still positive towards the future development of the you know real estate market 'cause we believe that our government is going to put more you know macro measures to stimulate and control the real estate market in China. In the long run, the price and the liquidity of houses will be more and more stable. We have also observed one thing, even in the fluctuation of the real estate market, the houses in the major blocks in Tier 1 and Tier 2 cities remained rather stable in terms of prices and liquidity.
Our collateral are mainly located within such areas. We think our collateral and our business is more resilient to the fluctuations of the capital of the real estate market. Does that answer your question?
Yeah. Can you just, you said most of the loans are in Tier 1, Tier 2 cities. What percent of your portfolio is in Q 1 and Q 2?
您刚刚提到了你们大多数的这个抵押物都是在一线和二线城市，我想请问一下，大概你们这个产品的构成是什么样子的？在一线二线城市的业务量所占的比例大概是多少？
我们很庆幸，也是基于我们这么多年在房抵贷市场的耕耘，我们所积累的风险认知和识别能力，我们的这个资产，90%分布在一二线城市，其中一线城市的分布占了31%，二线城市的分布占了58.5%。客观来讲的话，当然产品分布上面，我们的信托类的产品目前依然占了主流，目前基本上在整个一线城市的构成是28%左右，在二线城市的构成是58%。那么我们银行类产品，也就是我们的银行类加我们未来发展的人保类产品，我们目前按照发生额来算的话，我们在整个一线的占比是6.7%，在二线的占比是69.4%。
We are lucky that because of our experience in the home equity loan industry, our collaterals are mainly located in the major blocks in Tier 1, Tier 2 cities. As for the detailed percentages, over 90% of our collaterals are in Tier 1 and Tier 2 cities. In that, about 30% of the collaterals are in Tier 1 cities. That's in terms of the loan origination. That's under our collaboration with trust companies. I also want to give you the numbers that associated with our partnership with commercial banks.
That is rather the loans under the commercial bank partnership, which is around 7% that is facilitated in Tier 1 cities, which is rather lower than that of our partnership with trust companies. There are around 70% of the collaterals that is located in Tier 2 cities under our partnership with commercial banks.
Okay, perfect. Last question is, you've talked in the past about some technology upgrades you wanted to make. Can you just outline where you are on that process? You know, what's the focus for the remainder of this year and next year, and what's the cost going to be for that?
我最后一个问题是，您曾经提到过您公司对于科技的——将会加大对科技的投入，那么我只是想请问您一下，你们在这个上面的进度大概是怎么样子的？就包括在2020年的接下来时间，还有最近的几年。然后也想请您介绍一下相关的成本和花销大概是什么构成、什么样子。
经历近三年的业务规模的持续增长和三年疫情带来的线上业务发展的一些困境，在本年度，就是2022年，以及接下来未来两到三年，我们将持续地加大科技力量的投入。发展科技是为了更好地赋能销售，同时对于客户的服务体验，提供更好的线上科技服务的能力，包括不限于提升信息支持和服务质量的提升。所以在现阶段，我们当前的投入依然以内部科技力量为主，成本投入并不是很高，但是随着公司的持续发展的要求，我们的计划随着业务规模的不断扩大，我们也将加大对科技方面的投入，未来可能会将科技的投入与我们每年持续增长的销售收入相结合，目的是将泛华金融打造成线上线下相结合的普惠金融企业。
In the past three years, under you know the COVID-19 pandemic, we have seen how important it is for a company to do their business online. As our business volume kept going up, we have been investing more into the technology. I think I wanna make one thing clear that to improve our technological capability is to support the sales by you know coordinating data so that we can provide better services to the sales partners and the borrowers. As of this moment, as of today, the cost was not very significant as the major project was done by our in-house staff.
As for the future, we do not really have a certain plan for right now. Our thought is that to make the investment towards technology a certain percent of revenue. That means if the revenue goes up, with the investment in the technology will also go up. Our long-term goal is to make CNFinance a company that could promote business both online and onsite.