Please note this event is being recorded. I would now like to turn the conference over to Ms. Jane Jin, Financial Manager of the Capital Market Department. Please go ahead.
Good morning, and good evening, and welcome to CNFinance Q1 of 2022 Financial Results Conference Call. In today's call, our Vice President and Director, Mr. Jun Qian, will walk you through the operating results, followed by the financial results from our acting CFO, Ms. Jing Li. After that, we will have a Q&A session. Our CEO, Mr. Bin Zhai, will also be available during the Q&A. 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 the US Private Securities Litigation Reform Act of 1995. This forward-looking statement can be identified by terminology such as will, expect, anticipate, future, intend, plans, beliefs, estimates, targets, going forward, outlook, and similar statements.
Such statements are based upon management's current expectations and current market 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 this and other risks, uncertainties, or factors is included in the Company's filing with the US 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, and 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 Q1 of 2022, followed by a Q&A section. During the Q1 of 2022, we were able to maintain stable business operations despite external challenges. We facilitated loans of CNY 2.3 billion and recorded revenue and net income of approximately CNY 420 million and CNY 43 million respectively, both of the daily average outstanding loan principal and revenue under the collaboration model had a year-on-year increase of over 20% and worth CNY 10 billion and CNY 40 million respectively. Now, I will share with you the challenges we faced and the measures we took in the quarter together with our future plans. In 2022, our business was impacted by the economic downturn.
The growth of China's national economy has slowed down with GDP growth 1.3% as compared to Q4 2021. We experienced regional lockdowns caused by local outbreak of COVID-19 in cities within China, including major cities like Shanghai, Shenzhen, and Dongguan. Moreover, our funding costs remained high as our major funding partners, the trust companies, continue to be put under tightened regulations. In response to those challenges, the Company focused on stabilizing business operations and managing risks. We did the following works, expanded the coverage scope, allowing more micro and small enterprise owners to defer principal and interest payments.
First, we continue to provide MSEs with inclusive financial services to help MSE owners whose business was interrupted by city lockdowns. We voluntarily lower the interest rates of our loan products. In addition, we accepted more applications from sales partners to repurchase delinquency loans by installments, which lets sales partners room to give payment extensions to MSE owners.
[Foreign language] 第二，公司在拓展融资渠道上持续发力，并推进贷款产品的多样化，在降低资金成本的同时，扩大了客户的覆盖范围。公司在本季度与中融信托达成合作协议，并成功实现投放人民币7,600万元。除与信托合作放款外，我们在本季度还为银行推荐放款人民币4,000万元。公司与陕国投信托和人保财险的三方合作模式也取得突破性的进展，准备进入试点运行。
Second, we expanded our funding sources and continue to promote diversified products, which allowed us to reduce funding costs and cover more customers. During this quarter, we started to cooperate with Zhongrong International Trust and facilitated loans of CNY 76 million. We also recommended prospective borrowers to commercial banks to facilitate loans of CNY 40 million. Besides, we are close to start trial run of the three-party cooperation with Shaanxi International Trust and PICC.
[Foreign language] 第三，我们加大了对贷款合伙人的支持力度。本季度为了鼓励合伙人在经济放缓的环境下继续做大规模，我们开始允许更多的合伙人通过分期付款的方式履行对逾期贷款的回购义务。公司依照分期情况收取一定金额的服务费。此政策下，合伙人的资金流动性增强，公司的收入也有所增加。
Third, we increased our supports to sales partners. In order to help sales partners to grow their business under the current condition, we allow more sales partners to repurchase delinquent loans by installments. The company will charge a certain fee based on the terms of the installments. By allowing installment payments, we help the sales partners to improve their liquidity and also increase the revenue of our own.
[Foreign language] 第四，考虑到房产价格的波动，公司继续严控贷款成数。本季度所发放的贷款平均LTV成数约为56%。同时，即使对有合伙人回购的资产也采用谨慎的拨备制度，保持了充足的准备金率。
Fourth, given the ongoing fluctuation in China's property markets, the company maintained a rather low LTV ratio. The weighted average LTV for loans facilitated in Q1 was 56%. Besides, we took into account the operation conditions of sales partners and took a conservative approach in evaluating the potential credit losses of loans to keep the allowance ratio at a safe level.
[Foreign language] 公司认为，在接下来一段时间内，外部环境的冲击将持续存在。但同时，国家对于整个小微企业金融支持力度将进一步的加大，也将为公司提供难得的发展机遇。我们将把工作的重心放在丰富贷款产品体系、提高合伙人产能以及降低成本几个方面，以实现业务规模的不断增长。我们的工作计划包括。
Going forward, we are likely to be continuously challenged by economic fluctuations. At the same time, we are also presented with huge opportunities as the government is now encouraging financial institutions to offer more support to MSE owners. To seize such opportunities, we will focus on diversifying our product profile, helping sales partners expand their business scale and reducing our own funding costs. The work plans are.
[Foreign language] 第一，继续推进向轻资产重运营模式的升级。公司将会作为服务商，对贷款资产进行全流程的服务和管理，促进优质的贷款合伙人直接与信托公司签约或引入第三方风险投资机构作为资产的劣后投资人。目前已经有几家信托公司完成了与优质合伙人的直接签约。对于公司推荐的风险投资机构也已经进入了尽调阶段。我们预计该模式将在二季度顺利地落地并运行。
First, we will strive to finish upgrading an operation-oriented and asset-light model. Under which we will act as service provider and manager of loans. Our plan is to introduce elite sales partners to sign contract directly with trust companies or bring in third-party subscribers to subordinate units of the new loans facilitated. As of today, several sales partners have already signed contracts with trust companies. A number of our trust company partners have conducted due diligence on third party investors introduced by us. Based on our estimation, such cooperation arrangement will be ready to facilitate loans before the end of Q2.
[Foreign language] 第二，进一步推广多样化的产品，扩大客户的覆盖范围。首先，我们将继续推动银行助贷模式的发展。银行助贷模式使得公司可以覆盖信用评级较高的贷款客户，丰富了公司的收入构成。经过近两个季度的稳定发展，目前公司每月已经可以为商业银行推荐贷款5,000万元。我们将会在未来继续寻求与更多的商业银行开展合作，并扩大银行助贷模式在公司整体业务中所占的份额。其次，我们希望第二季度落地与人保财险合作的贷款产品，进一步丰富公司的贷款产品组合。
Second, we will promote diversified products, expand customer coverage. The bank lending model will be one of our priorities. As this model allowed us to reach customers with high credit ratings. Currently, the company is introducing and helping commercial banks facilitate loans of CNY 50 million each month. We are now seeking to establish cooperation with more commercial banks and make bank lending models a more important contributor to our revenue stream. Besides, we also want to start facilitating loans too, under the aforementioned cooperation with PICC before the Q2 ends.
[Foreign language] 第三，我们将继续保持对贷款合伙人的支持力度。我们希望为贷款合伙人减负。公司将会继续沿用并完善针对逾期贷款的分期回购政策。我们将根据不同的合伙人的实际经营情况，为其制定不同的分期回购计划和分期服务费的费率。同时，我们还计划引入信托资金，对于符合一定标准的合伙人，可以由信托资金帮助其先行将贷款一次性付清，再由合伙人分期返还给信托。
Third, we will keep supporting our sales partners. We want to offer more flexible fee rate based on the terms and tenure on the installment to suit sales partner with different operational and financial capabilities. At the same time, we want to get trust company involved. If a sales partner qualifies the standard of the trust company, the trust company could choose to pay us the full amount of repurchase on behalf of the sales partner and receive the installment payment from such sales partners.
[Foreign language] 第四，我们将会加大对科技的投入，坚持用科技赋能业务增长。目前公司的IT团队正在开发一款能够整合全部业务信息数据的移动展业终端系统。开发此APP的目的，是帮助公司的合伙人服务团队完成与贷款合伙人以及公司审批人员的及时交互，并能够实时同步获取客户渠道、产品、资金等信息，从而帮助他们对信贷业务进行统筹安排，并增加工作效率。本项目预计将于今年下半年投入使用。
Fourth, we will keep investing in technology and use it to empower the business growth. Our IT team is developing a mobile app that can integrate all the information related to loan application. By developing this app, we want to make it possible for our service team to obtain the status of borrower, channel information, loan products, and funds in real time, and therefore to timely interact with sales partners and our application reviewers. We hope this app could assist our service team with initial review and timely transfer of loan applications. The app is expected to be put into use in the second half of 2022.
[Foreign language] 第五，继续与信托合作伙伴展开谈判，降低公司的融资成本，确保客户的贷款利率稳中有降，减轻小微企业的负担。目前，公司已经与几家信托合作伙伴就降低公司融资成本达成了一致。我们也计划在现在的基础上继续降低贷款利率，让利于小微企业。
Fifth, in order to offer loan products with lower interest rates, we will keep dialoguing with trust companies on reducing our funding costs. Consensus has been reached between us and several trust company partners on that. Once the deal is finished, we will soon apply the fee cuts of loans we facilitate.
[Foreign language] 2022年的开年并不一帆风顺。未来一段时间，公司也会面临机遇与挑战共存的局面。公司在过往大大小小的挫折中积累了宝贵的经验，不断精进管理经营策略，始终如一地为小微企业主提供着经济、便捷、高效的金融服务。我们相信，随着经济的复苏和政府的大力扶持，小微企业的贷款需求将再度爆发，而我们也将做好准备，抓住机会，继续扩大规模，提高收入，为广大的股东提供更多的回报。
The Q1 of 2022 was not all smooth, and we will surely be presented with both opportunities and challenges in the near future. We have gained valuable experience from frustrations in the past and have continuously refined our management and business strategy. We have already stayed true to our commitment of providing accessible, affordable, convenient financial service to MSE owners. With more supportive macro policies taking effect, we are confident that there will be another surge of capital demands from MSE owners. We believe we will be well prepared to seize such opportunity and expand our business, increase our revenue, and provide higher return to our shareholders. 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 Q1 2022 financials.
Thanks, Mr. Qian, and thanks again to everyone for joining us today. I will walk you through our financials for the Q1 of 2022. Unless otherwise stated, all percentage changes I'm going to give will be on year-over-year basis. Also, unless otherwise stated, all numbers I'm going to give will be in RMB. For Q1 of 2022, total interest and fees income was CNY 470 million, as compared to RMB CNY 435 million in the same period of 2021. Interest and financial service fees on loans decreased by 1.7% to CNY 450 million from CNY 432 million.
It's primarily due to, A, lower average effective interest rate of outstanding loans, and B, the decrease of average daily outstanding loan principal in the Q1 of 2022 as compared to the same period of last year. The decrease in average daily outstanding loan principal was due to the lower loan facilitation volume in the Q1 of 2022, resulting from the lockdown due to local outbreaks of COVID-19 in multiple cities within China. Interest and fees expense has increased by 28% to CNY 201 million, compared to CNY 156 million. Primarily due to the increase in the outstanding principal of other borrowings, as well as the funding costs from trust companies. Collaboration costs for sales partners representing the sales incentive paid to sales partner decreased by 19% to CNY 18 million, compared to CNY 19.8 million in last year.
It's primarily attributed to the lower fee rate the company paid to the sales partner, resulting from lower average effective interest rate of outstanding loans. Provision for credit losses was CNY 33 million, as compared to a reversal of CNY 17 million in last year. The increase was due to the increasing economic uncertainties caused by lockdowns in reaction to local outbreaks of COVID-19, as well as the downward pressure faced by China's real estate market during the Q1 of 2022. Net gains on sales of loans decreased to 8 million, as compared to 9 million in the same period of 2021. Total operating expenses decreased by 15% to CNY 18 million, compared to CNY 19.4 million in the same period of 2021. Income tax expense was CNY 15 million in the Q1 of 2022.
Net income was CNY 43 million, compared to CNY 18.6 million in the same period of 2021. As of March 31, 2022, the company has cash equivalents, and restricted cash of CNY 1.7 billion, compared to CNY 2.2 billion as of December 31, 2021, including CNY 1.2 billion and CNY 1.5 billion from structured funds as of March 31, 2022, and December 31, 2021, respectively, which would be used to grant new loans and activities. The delinquency ratio of a loan originated by the company increased from 24% to 26% as compared to December 31, 2021 to this quarter. The delinquency ratio, excluding loans held for sale or loans originated by the company increased from-
From 60% at December 31, 2021, to 70% as of March 31, 2022. The NPL ratio for loans originated by the company increased from 9.4% as of December 31, 2021, to 10.4% as of March 31, 2022. The NPL ratio excluding loans held for sale for loans originated by the company decreased from 2.1% as of December 31, 2021, to 1.8% as of March 31, 2022. With that, we would like to open the Q&A. Operator, please begin.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from William Gregozeski with Greenridge Global. Please go ahead.
Hi, everyone. I have a few questions. Can you disclose what the average interest rate you're lending at right now is? In the prepared remarks, it was mentioned the rates paid to the sales partner was lower. Is that a change in what they're getting or just lower because there's less interest income in the quarter?
For your first question, the weighted average interest rate of our loans right now is around 16.4%. The lower interest rate is not only because of our voluntary adjustment, but also based on the macro economy condition and the regulation and policies of the government.
Okay.
This is a trend for overall rate cut, no matter it's for us or the sales partners. We did adjusted our policy of collaboration cost to the sales partners. We do want to keep their margin, but that has to be based on the growth of our business and the extension of our scale.
Okay. Oh, sorry.
No, go ahead.
Okay. Yeah. I guess if you could just talk kind of more generally about the impact the COVID lockdowns have had on the Q1 and having now. You know, in the past you've mentioned that you've had more demand than you had capital available to lend out, but you've also mentioned that Shanghai is a big market for you guys. Just curious if you can talk about, you know, how much of an impact that's had on what you've just reported today and then what's going on right now.
[Foreign language] 尤其是上海，还有在一季度的时候，当时深圳、东莞啊都有封城，那么就迎来贷款需求。当然不是说没有需求了，是因为封城带来的贷款无法满足。这个影响在一季度啊，可能还会持续到二季度，这还都是存在的。
Yes, like you said there was a relatively large impact on the demand for capital because of the lockdown policies in the Q1 . As we have introduced there wasn't only Shanghai but also Shenzhen and Dongguan were lockdown during the Q1 . We wouldn't say there wasn't demand, but it's just you could not satisfy those demand due to the lockdown policies. Surely it will last in the Q2 too. The impact.
[Foreign language] 但是对于这种封城带来的需求的影响，可以体现在我们一季度的报表上。我们整体的放款呢，就没有达到去年同期的水平，是比去年的同期是有下降的。但是目前来看的影响还是轻微的。
You can see the impact based on our financial results, especially on the loan facilitation, which had a year-on-year decrease. I wouldn't really say that the impact was that large. I think it's still could be overcome.
[Foreign language] 对我们来讲，第一，因为我们整体上是对全中国大陆的网络的建立，所以我们会通过网络的进一步扩大来对冲某些城市和地区封控带来的影响，这是第一个。第二个，我们会推动我们的资金成本和合伙人收益的调整，来保证我们利润率的不至于下降。
As for us, first of all, we have a network that is scattered across China, so we will take advantage of this network and push the business growth in other areas that is not lockdown. Also, the second thing is we will push to reduce our funding cost as well as refine our profit split with the sales partners to maintain a reasonable margin.
[Foreign language] 谢谢。
Thank you.
Okay, thank you. I have two more questions. You've talked about trying to get to about 30% of your lending from the commercial model by the end of the year. Do you think that's still achievable?
[Foreign language] 我还有两个问题，其中一个是您曾经说过您想要在本年度末的时候让银行助贷模式下的贷款余额达到整体余额的30%，您现在觉得这个目标还可以达成吗？
[Foreign language] 我们对此还是很有信心。因为整体上，从政府的策略来讲，在促进银行业对普惠金融的发展的力度，这个力度是很大的。我们也在更多的和各类银行正在加紧对接，加紧对接。所以我们仍然是把我们整个银行业务的合作，要占到我们整个贷款的比重，达到20%到30%，这个还是作为我们一个目标来准备的，来布局的。
We still remain positive about the development of the commercial bank model. Because the government's policy that urges the banks to give more support to the MSEs has never been so strong and it's getting even stronger. Our goal is one of our priorities to start collaboration with more commercial banks and to help them to facilitate loans to MSE owners. We remain positive of our goal to make the balance under the commercial bank model 20%-30% of the total loan, the total loan book at the end of the year.
[Foreign language] 谢谢。
Okay. You kind of touched on in that answer, but the push from the government towards the SMEs, have you seen any impact on you know, see more demand from SMEs or anything government related that's helping drive demand to you for from SMEs?
[Foreign language] 你也谈到了政府对于小微企业的政策支持。那么我想问一下，政府对小微企业这些政策支持是怎么体现在有没有引起这个小微企业贷款需求增加，或者说是怎么让更多的小微企业主来到您这寻求资金支持的呢？
[Foreign language] 政府的支持，主要体现在两个重要的东西上。第一个，是在再贷款的支持上。最近国务院开了会，核心就是体现了对再贷款的支持，也就是说低利息的支持要增加一倍，这是第一个。第二个，人民银行今天出了一个文件，就是支持金融机构要敢贷、愿贷、能贷、会贷，在风险的容忍度上也有所放松，那么这些都会促进金融机构对小微企业贷款的覆盖率。
The government support towards MSEs are mainly reflected from two aspects. The first one is the supporting policies about refinance is one of the, so there was a meeting from the State Council saying that they will have the support to refinance doubled. Today the People's Bank of China also released a document that saying the commercial banks should give financial support to MSE owners. It's reflected in the tolerance in terms of the.
[Foreign language] 我们预计，在六月份以后，也就是说二季度的最后一个月到第三季度的时候，我们认为在这些政策在不断地落地的同时，会带来小微企业主对贷款需求的增长。
There was a policy made by the People's Bank of China that saying we should give more freedom and more room for commercial banks to support the financing needs of the MSEs. We estimate that at the end of June there will be another surge of demand from the MSE owners for capital.