Good day, and welcome to the CNFinance Fourth Quarter and Fiscal Year 2021 Unaudited Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I'd now like to turn the conference over to Matthew Liu. Please go ahead.
Thank you. Good morning, evening, and welcome to the CNFinance fourth quarter and fiscal year of 2021 financial results conference call. In today's call, our CEO, Mr. Zhai, will walk us through the operating results, followed by the financial results from our acting CFO, Ms. Li. After that, we will have a Q&A section. Before we start, I would like to remind you that 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 U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intend, plan, believe, estimate, target, 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 these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. Now, please welcome our CEO, Mr. Zhai Bin.
谢谢，谢谢主持人，也谢谢大家抽出宝贵的时间来收听此次电话会议。本次电话会上，我们将向大家介绍公司二零二一年第四季度以及整个财年的运营财务情况。随后，我和我的伙伴将会回答大家的问题。
Thanks. Thank you everyone for joining us in this conference call. On today's call, we will introduce the company's operational results in the fourth quarter and the fiscal year of 2021, and then me and my colleagues will answer your questions.
本季度，公司的放款金额保持快速增长，共放款31亿元人民币，整个财年总放款量则达到128亿元人民币，分别比去年同期增长了15%和45%，再次印证了市场对于公司产品和模式的认可。公司在第四季度和整个财年分别实现销售收入4.5亿及17.8亿元人民币。考虑到宏观环境的波动以及疫情反复的双重冲击，公司在第四季度处置一批逾期资产，并提高了不良拨备。全年仍录得净利润6,500万元人民币的成绩，殊为不易，也超额了年初的既定目标。下面我将为大家具体介绍公司在2021年所做的工作，以及在2022年所面临的挑战和相应的发展规划。
Our loan facilitation business maintained fast growth in the fourth quarter. We facilitated loans of RMB 3.1 billion during the quarter and RMB 12.8 billion for the year, representing a year-on-year growth of 15% and 45% respectively. Such results were another proof of how the market has recognized our product and business model. The revenue for the fourth quarter and the fiscal year was RMB 450 million and RMB 1,980 million respectively. Hit by the fluctuation of the economy and local outbreak of COVID-19, we disposed of a bulk of delinquent loans in the fourth quarter and were more conservative in evaluating potential losses. Yet, we were still able to record a net income of RMB 65 million for the year and deliver operational results that exceeded our estimations at the beginning of the year.
Now I am going to review our work during 2021, introduce the challenges we may face in 2022 as well as our business plans.
二零二一年，公司的业务在一定程度上受到了外部环境的影响。首先是我们的主要合作方，信托公司的非标额度受到压降，资金供给出现紧张。其次，政府对房地产需求端的严厉调控，比方房屋限购限贷政策，乃至政府购房指导价的出台，使得房地产市场出现了下行的态势。同时疫情也持续牵淡地反复，并且影响了业务的拓展。
In 2021, the impact of external environment on our business persists to varying degrees. First, we experienced funding pressures as our major funding partners, the trust companies, were under tightened regulations. Second, the government imposed strict regulations on the demand side of housing markets, including introducing restrictive measures on housing mortgages and purchasing houses, and the implementation of government guidance crimes. Such regulations have caused a downward pressure on the housing markets. Third, our business operations was interrupted by local outbreaks of COVID-19 during the year.
[Foreign language]
Under such environment, the company focused on business expansion and risk control. Our main work in 2021 was as follows:
[Foreign language]
First, we worked on expanding funding sources to ensure funding supply. Other than the current funding model, we also worked with trust company partners to establish new funding models that are within the scopes of regulations, but not constrained by the cape of non-standard trust products. Our partnership with National Trust was one of the examples. Since the third quarter, we have partnered with the National Trust and facilitated loans of over RMB 900 million, RMB 700 million, and we expect the loan scale under such funding model to grow continuously.
[Foreign language]
Since the third quarter, we have different collaboration with commercial banks. We expanded the scale of our partnership with Blue Ocean Bank and also finalized terms with Everbright Bank and Huaxia Bank. Based on our estimation, loans under the bank lending model will carry a relatively large share in the overall outstanding loans by the end of 2022.
[Foreign language]
Our negotiations with insurance companies have also entered into the final s tage. As of today, the deal with Sinosafe Insurance has been signed, and we are close to finalize the terms with PICC. We believe the partnership with insurance companies will be very helpful for a potential ABS product of our own.
[Foreign language]
Second, we disposed of a bulk of legacy loans under the traditional facilitation model. We started our model transformation in 2019 and stopped facilitating loans under the traditional model. Following the transformation, as the current loans under the traditional model being serviced in full gradually, the majority of loans under the traditional model are now delinquent. This has been negatively affecting the Company’s financial performance, our negotiations with potential funding partners, as well as our valuation in the capital market.
In the third quarter, facing the fluctuation in the housing market, the management evaluated the relative expenses of holding and disposing of those legacy loans, and made the decision to dispose them. In the fourth quarter, we hired a professional appraisal firm and compared quotations from a few AMCs, and made a bulk sale of loans with the book value of RMB 1 billion at an average discount of 65%. The sale of such legacy loans was the main drive of the losses in the fourth quarter. We plan to sell the remaining legacy loans of RMB 300 million in the first half of 2022.
[Foreign language]
Third, we were more prudent in assessing the risks related to sales partners. We consolidated the business scale and operational records of each sales partner and adjusted the repurchase policy to better suit them. We have also taken a more conservative approach in evaluating the potential credit losses under the collaboration model.
[Foreign language]
In 2022, the economic fluctuation and local outbreaks of COVID-19 are likely to continue. We will focus on promoting the collaboration model to its 2.0 version, as we believe this will lay a strong foundation for our future growth. Our work plans are as follows.
第一，我们将与第三方风险投资机构展开紧密合作。我们的目标是接下来的新增贷款资产均由第三方风险投资机构直接作为劣后投资人。目前各家合作信托以该模式已进入了准入阶段，我们也将加快落地和保险公司的合作。
We will cooperate with venture investors. Our goal is to bring in third-party investors to subscribe to the subordinated units of new loans facilitated. Such plans were sent to our trust company partners and has already entered the stage of admission. We are also working closely with insurance companies to finalize the terms.
第二，我们将推出多样化的产品，扩大客户覆盖范围。接下来，公司除发放传统B类信贷产品以及继续扩大和银行的合作规模外，我们还将形成以下四种产品的组合，即A加类产品、A类产品、B加类产品和B类产品，以满足不同客户群体的需求，并同时降低资金成本。
Second, we will diversify our loan products to cover more customers. We will continue to facilitate the current Class B trust products and expand our partnership with commercial banks. Going forward, our product combination will consist of four differentiated products from Class B to Class A+ to suit the needs of borrowers with different risk preferences and reduce our funding costs
。 第三，我们将致力于平台的数字化与自动化。我们将完善自动审批和中台数字化的流程。通过精细化的管理，我们希望提高整个贷款流程的效率，并提高资金端和业务端的匹配度。与此同时，我们也将不断升级合伙人服务平台，使其操作更加简洁。
Third, we will adopt digital and smart technologies in our platform. We will refine the automatic evaluation and approval of loan applications by increasing the capacity of data storage and the efficiency of data analysis. This we expect to better manage our process and make it more efficient. We also expect to better coordinate the loan applications we receive and the fundings we obtain. We will also continue to maintain and upgrade the sales partner service platform to make it friendly to users.
。第四，公司将继续保持与各级相关监管部门的交流，征收相关法律法规，确保业务和模式的合规性。
We will keep communicating with regulators at all levels and make sure our operation and business model are in full compliance.
年是公司业务转型的关键之一年。在这几年里，公司依然感受着转型的阵痛，但也取得了不小的成就。通过越来越完善的合伙人体系，越来越高效的管理手段，公司始终如一地为全国各地的小微企业主提供着经济、便捷、高效的金融服务。也正是如此，我们更加坚信公司所进行的事业是有意义的。我曾很多次介绍过，公司所代表的一类企业是构建中国普惠金融体系的重要一环。虽然2022年随着平台模式的不断升级以及公司有规模的不断扩大，我们有信心肩负起更大的社会责任，为更多的小微企业主提供金融服务，使他们感受到融资便利度的提升和综合融资成本实实在在的下降。
The year of 2021 was very important in our history. We faced many challenges and scored many achievements. In 2021, our service system was refined, our management was more efficient. We stayed true to our mission of providing affordable, accessible, and efficient financial services to MSE owners, and we are now more confident in the meaning of our work. As I have introduced on many occasions, CNF and many other enterprises like us have formed an important part in China's inclusive financial system. In 2022, we will keep refining our model and growing our business, while shouldering more responsibilities to provide MSE owners with financing services that are more convenient and with solid fee cut.
现在我将把时间交给我们的代理CFO李静女士，并由她为大家介绍公司二零二一年第四季度以及整个财年的财务状况。谢谢大家。
Now, I would like to hand the call over to Ms. Jay Li, the Acting CFO of the company, and she will walk you through the fourth quarter and fiscal year of 2021 financials. Thank you.
Thank you, Mr. Zhai, and thanks again to everyone for joining us today. I will walk you through our fourth quarter of 2021 financials, followed by that of fiscal year 2021. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, all percentage changes 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. In the fourth quarter of 2021, total loan origination volume was RMB 3 billion during the fourth quarter of 2021, representing an increase of 15% from RMB 2.7 billion. Interest and financing service fees on loans increased by 7% to RMB 448 million, as compared to RMB 417 million, primarily due to the increase in the balance of average daily outstanding loan principal.
Total interest and fees expense increased by 79% to RMB 205 million, as compared to RMB 159 million, primarily due to the increase in the principal of other borrowers, as well as the funding costs from trust companies. Collaboration costs for sales partners, representing sales incentives paid to sales partners, increased to RMB 120 million, as compared to RMB 104 million, primarily due to the increase in average daily outstanding loan principal under the collaboration model as compared to the same period of 2020.
Provision for credit losses recorded a reversal of RMB 380 million, as compared to a reversal of RMB 31 million, primarily due to the combined effect of. First, higher loss given defaults, LGD, under the current expected credit loss, CECL model, which takes into account the company's historical data of actual loss in the past few years. Second, the fact that the company transferred loans under traditional facilitation model to third parties in bulk during the fourth quarter of 2021, and the allowance of such loans was reversed. Net losses on sales of loans was RMB 459 million, compared with a net gain of RMB 44 million, primarily attributable to the fact that the company transferred loans under traditional facilitation model to third parties in bulk during the fourth quarter of 2021.
Such loans were all facilitated prior to 2019, and the majority of them were long past due and therefore sold at a large discount. Total operating expenses decreased by 8% to RMB 150 million, compared with RMB 115 million. Income tax expense was RMB 50 million, as compared to an income tax expense of RMB 74 million, primarily due to the fact that the company recorded a loss before income tax for the fourth quarter of 2021. Such loss was due to the loss associated with the sale of loans under traditional facilitation model in bulk during the fourth quarter of 2021. Net loss was RMB 105 million, as compared to a net income of RMB 105 million. Now let's move on to the financials of 2021 as a whole.
Total loan origination volume was RMB 13 billion, representing an increase of 46% from RMB 9 billion. Interest and financing service fees on loans decreased by 3% to RMB 1,770 million, as compared to RMB 1,829 million. Primarily due to the lower interest rates on loans facilitated in an effort to comply with rules and regulations issued by relevant PRC regulators, including the decisions of the Supreme People's Court to amend the Provisions on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases issued in August 2020. Interest and fees expense increased by 6% to RMB 776 million, as compared to RMB 731 million, primarily due to the increase in the principals of other borrowings, as well as the funding costs from trust companies.
Collaboration costs for sales partners increased to RMB 4,026 million as compared to RMB 450 million, primarily due to the increase in average daily outstanding loan principal under the collaboration model as compared to the same period of 2020. Provision for credit losses record a reversal of RMB 279 million, as compared to RMB 278 million, mainly due to the combined effect of, first, the fact that company transfer loans under traditional facilitation models to third parties in bulk during the fourth quarter of 2021, and the allowance of such loans was reversed.
Second, the higher loss given default under the current expected credit loss model, which takes into account the company's historical data of actual loss in the past few years, partially offset by, first, the lower probability of default under the current expected credit loss model, which takes into account the outlook of a more positive economic growth of China in the fiscal year of 2021 as compared to that of the same period of 2020 under the impacts of COVID-19 pandemic. Other gains were RMB 15 million compared to RMB 20 million when the loan defaults and the sales partner choose to repurchase such loans in installments. The company will charge certain percentage of the loan as the financing service fee.
The increase in other gains for fiscal year 2021 was mainly due to the fact that there was a larger number of cases where delinquent loans were repurchased by sales partner in installments, which led to an increase in fund recession fees received by the company. Total operating expenses decreased by 15% to RMB 381 million as compared to RMB 449 million. Income tax expense decreased by 40% to RMB 29 million as compared to RMB 48 million, primarily due to decrease in the amount of taxable income. Net income decreased by 43% to RMB 55 million as compared to RMB 115 million. Total outstanding loan principal was RMB 10 billion as of December 31st, 2021, as compared to RMB 10 billion as of December 31st, 2020.
As of December 31st, 2021, the company held cash and cash equivalents of RMB 2.2 billion, compared with RMB 2 billion as of December 31st, 2020, including RMB 1 billion and RMB 1.5 billion in RMB, RMB 1.5 billion from structured funds, which could only be used to grant new loans and other activities. The actual delinquency rate for loans originated by the company increased to 24.1% as of December 31st from 22.6%. Under the collaboration model, the actual delinquency rate for the first lien loan increased to 29.1% as of December 31st, 2021 from 18%. The actual delinquency rate for second lien loans increased to 19.5% as of December 31st, 2021, as compared to 15.6%.
The actual NPL rate for loans by the company decreased to 9.4% as of December 31st, 2021 from 11.7%. Under the collaboration model, the actual NPL rate for the first lien loans increased to 12.5% as of December 31st, 2021 from 6.7%. The actual NPL rate for second lien loans increased to 6% as of December 31st, 2021 from 4.6%. With that, we would like to open up to the Q&A session. Operator, please begin.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, ladies and gentlemen, that's star then one if you have a question. Today's first question comes from William Gregozeski with Greenridge Capital. Please go ahead.
Hi. With regards to the commercial bank lending, can you disclose the amount you lent from commercial banks in the fourth quarter? And in regards to, you know, your target for the year-end of this year, is that incremental to the trust lending or replacing that amount of trust lending?
我想问一下关于您在银行模式下贷款的问题，能不能向我们解释一下在2021年第四季度银行模式下贷款金额大概有多少？并且您认为2022年这个规模会变成多大？其次，您认为这个银行贷款模式是您目前信托贷款模式的一个补充呢？还是说它将会取代目前的信托贷款模式。
谢谢。银行模式我们是在，应该是在去年的年初，去年的年初开始来布局这个事情。原因呢，是基于两方面的考虑。第一方面呢，是我们合作的金主，主要金主，信托公司呢，面临整个行业的这个规模压减的这样一个环境。那公司从长远考虑，需要有更多的金主来参与进来。
Thank you. We actually started to negotiate with the commercial bank since the beginning of 2021. The main reasons are twofold. First of all, our main funding providers, which are the trust companies, were under tightened regulations throughout the year. We think we'd like to take one step ahead and just expand our funding sources.
第二考虑呢，是扩大我们产品的覆盖范围来考虑的。长期以来，我们和信托公司的合作，因为信托公司的融资成本比较贵，所以我们在客户端啊，也相对比较高，那么就限制了我们对更多客户的啊，需求的满足。
Our second thought was to just cover more customers with different, you know, risk preferences. As you know, the funding costs with the trust companies are high as compared to commercial banks. This has limited our ability to reduce our interest rate charge in our loan products, which has also limited our customer reaches.
二零二一年，应该是银行模式呢，只是我们在和银行在谈和初步落地的一个阶段中。
In 2021, we were mainly negotiating with the commercial banks and just entering into the stage of transition. That's the main work in 2021.
整体上的放款量也不大。
The overall loan facilitation under the bank lending model wasn't as high.
进入2022年以来，前两个月，可以说一下，每个月都几乎保持了1,000万以上的投放。
Yes, in the first two months of 2022, we have maintained the facilitation under the bank lending model of over RMB 10 million in each month.
那么第三个呢，我们自己觉得，和这个信托的合作，并不会因为和银行的合作就会取代和信托的合作，我们认为和信托的合作在二零二二年仍是我们的主流。
To answer your second question, we don't think the bank lending model is going to replace the current trust lending model. We think in 2022, the partnership with trust companies will still make up the majority of our loan facilitation.
我们规划希望和银行的合作，这个产品的规模能够占到我们2022年10%到20%左右。
Our most updated estimation is that to make the loans under the bank lending model to add up to 10%-15% of the total outstanding loan principal by the end of 2022.
谢谢。
That's the answer to your question. Thank you.
Okay, thanks. My next question is about the investment in technology and the platform you talked about on the call. How much are you looking to spend, and is that investment going to change at all depending on how much you do on a share repurchase?
我的第二个问题是关于您刚刚在演讲中所提到的平台的智能化和科技化投资的问题。我想请问一下，您打算在您的规划中，这项投资的金额大概是在接下来一段时间大概是多少？另外，您刚刚之前公布的那个回购股票的计划会不会影响您对这一方面的投资？
首先第一呢，现在科技的投入在我们整个投入当中，其实呢比例还是比较小的。
Okay, first of all, we have to admit that the investment in technology costs only a very small proportion of our expenses at this moment.
这个归结于科技的发展，使整个这个IT的成本其实是不断下降。
I think one of the reasons is that the development of the technology has dragged down the overall cost of the information technologies and no matter it's hardware or software.
第二呢，当前其实最贵的是科技人才。那么对于科技人才，可能接着下来我们在科技的投入上，我们想采取和他们合作，共同啊进行投资的办法。
I think what's very precious and of course, expensive at this moment are the technological talent. I think our plan is to cooperate with them in the future.
所以呢，在现金当中的比例并不会太大，所以也不会影响我们对于公司股票回购的承诺。
I don't expect this to take up a whole lot of our cash and I don't think the recruited program is going to interfere with our investment in technology.
谢谢。
Thank you.
Okay, great. Last question is about the property market. Has the uncertainty with that affected your ability to assess borrower risk or facilitate loans? I know loans are obviously up, but is it impacting what you guys are able to do going, you know, this year based on how the market is right now?
我的最后一个问题是关于房地产市场的不确定性的。我想请问一下，目前这些房地产市场的波动有没有影响到您获客方面，或者是风险评估方面，亦或者是说您的这个利息，或对您的经营的任何影响。
首先，你应该注意到我们去年第四季度的时候，我们对房地产后面的前景我们是相对悲观一些的。
To answer your question. Starting from the fourth quarter of 2022, we have been rather conservative when it comes to the estimation of housing market in China.
所以我们处置了一批预期的资产和提高了我们现在在盘的不良拨备。
As I have introduced, we disposed of certain legacy loans in both during the fourth quarter of 2021 and also took a more conservative approach too in the valuation of our potential credit losses.
但是我们对政府调控的这个目标以及政府稳定经济的、发展经济的这个决心，我们还是非常认同和认可。
We are positive about the government. We are positive and confident in the government's ability and anticipation to stabilize the economy and future growth of the economy.
所以总体来讲呢，我认为今年应该会稳住下降的态势。
Based on my estimation, I think the price of properties and houses will stop the downward turn and remain rather stable in 2022.
所以我们今年的承接的标准以及等级的要求，我们并没有显著地发生太大的变化。我们只是觉得对于好的物业和好的出租人应该享受更便宜的资金。
In terms of loan applications and risk assessments and the evaluation of borrowers, our standards didn't really change a whole lot in this year. One of our intention is to roll out cheaper loan products to the high quality borrowers whose collaterals are also with high quality.
所以我们主要的策略是想根据客户和物业的情况，能够配置不同的我们的不同的产品。
As I introduced, one of our goals is to give very customized loan products to each customer depending on the condition of their collateral as well as their credit record.
谢谢。
Thank you.
Okay, great. Thank you. Congratulations on a good quarter.
Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star then one. Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to management for any final remarks.
Thank you again. Thank you for joining us in today's conference call. If you have any further questions, please feel free to reach out at any time at ir.cashchina.cn. Thank you.
Thank you.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.