Good day and thank you for standing by. Welcome to LexinFintech fourth quarter and full year 2021 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone. Please be advised that today's conference is being recorded. If you have any further assistance, please press zero-star zero. I'll now like to hand the conference over to your first speaker today, Ms. Patricia Cheng, Head of Capital Markets. Please go ahead.
Thank you. Good morning. Welcome to Lexin fourth quarter and full year 2021 earnings call. I'm joined today by CEO Jay Xiao, CFO Sunny Sun, and CRO Jaden Zhao. A quick reminder before we begin. During the call, we will discuss business outlook. Any forward-looking statements that we make on the call are based on assumptions as of today. The actual results may differ materially, and we undertake no obligation to update any forward-looking statements. Unless otherwise stated, all numbers mentioned are in RMB. I will now turn the call over to Jay. His remarks will be in Chinese and English translation will follow. Jay, [Non-English content ].
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Good morning. It's my pleasure to share with you my thoughts about the macro environment, industry development and our business development. The macro environment will likely remain volatile in the short term. As you can see from the Two Sessions meeting, China has set a GDP target of 5.5%, a record low for the past three decades. Besides, in the past year, because of geopolitical tensions, trading in U.S.-listed Chinese companies has been very volatile, with market sentiment further moving away from company fundamentals.
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There have been major-
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There have been major changes on the regulatory front, such as the cap on loan pricing at 24%, the restriction on the geographic operations of regional banks, and also more scrutiny on internet platforms and the personal information protection. So far, you know, we have been very actively responding to these changes and mitigating measures include reducing our exposure for long-tail customers and focus on existing customers. To broaden the relationships with financial institutions, targeting more nationwide funding and to enhance our ability in asset-liability matching, and also to roll out new risk model to strengthen the compliance in response to personal information protection.
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In the mid to long
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[Non-English content]. In the mid- to long-term, the demand for consumer finance remains solid and the growth fundamentals remain attractive, with this strong potential coming from tier two and lower cities, with the cohort making up 65% of the consumer finance population and the market reaching RMB 6 trillion. We also expect strong growth in the next 15 years. [Non-English content].
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We will continue to innovate in order to strengthen our competitiveness and compliance and also to look for new growth opportunities. In customer acquisition, we will expand more into our offline channels, the breadth and depth of the offline channels as online becomes more expensive. In customer service, we'll also enhance the management of existing customers to drive further growth. We'll be monetizing our core capability. We will look into generating new revenue from exporting our niche in customer acquisition, risk management to financial institutions. In addition, in the platform business, we'll be also developing. We'll be leveraging our insights into consumers to further build our e-commerce and to be solutions.
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Next, let me give you an overview of our achievements in 2021. Our loan origination volume grew by 21% year-over-year to RMB 213.8 billion, in line with expectations set at the beginning of the year. While the 24% policy put pressure on our operations in the second half of the year, full-year revenue was largely stable at RMB 11.4 billion. Our net profit for the full year reached a record high of RMB 2.33 billion, reflecting our quality of focus. We have also brought in some 20 top talent in recent years, demonstrating our commitment to drive growth with our R&D investment.
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While there will be fluctuations in the change process, we continue to focus on the compliance. There's some slowdown in the quarterly trend due to our banking partners adjusting to the new regional policy and also the 24% pricing cap changing the consumer behavior and also the risk model has to be fine-tuned as a result. The drop in pricing as a result affected both revenue and profit. Nevertheless, the six core capabilities of Lexin remain intact. Number one, our technology-driven risk identification and management. Number two, our data advantage from over eight years of experience. Number three, we've been creating a traffic loop from proprietary consumption scenarios. Number four, multiple touch points online and offline for customer acquisition. Number five, stable funding relationship with financial institutions. Lastly, more refined customer segmentation.
These will continue to drive our success in the future.
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This year, 2022, is a pivotal year in Lexin's transformation journey. We'll continue to strengthen, you know, our competitiveness and compliance. We'll step up our compliance and we'll also step up customer management and also risk management, also our funding efficiency. We'll continue to optimize our funding structure and cost to broaden the cooperation with financial institutions, to introduce more nationwide funding and to expand into new channels like ABS. This year, we'll continue to optimize our asset liability structure, enhance digitalization in our operations, and to expand into new opportunities. We expect loan origination volume to increase by about 10% this year. We're confident that we can complete the execution of the 24 policy and to keep full year take rate above 3%.
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Although the external headwinds remain, we're confident that our full year target will be met. We're committed to strengthening the business fundamentals and achieving strategic transformation is critical to driving shareholder value. We believe the current share price fails to reflect the value of the company. With the authorization of the board, we have adopted a share repurchase program, which will allow us to repurchase up to $50 million worth of stock in the coming 12 months. Next, Sunny will go over the financial results. Sunny, over to you.
Okay. Thank you, Patricia. Good morning, everyone. Before talking about LexinFintech's fourth quarter and the 2021 full year results, I would like to first of all thank you for attending our call and your continued interest in LexinFintech. The year 2021 was a year full of challenges. For companies operating in China, policy changes were a constant companion regardless of the industry. Amidst these difficult times, we delivered a solid set of results, with profit reaching new high for the full year. The progress from the pricing policy change is also encouraging. Let me start with the update on the 24 policy. For the fourth quarter, the average pricing for our loan origination went down to 25.8% versus 27.3% in Q3, and over 28% in Q2.
About 69% of loan origination in Q4 was priced within 24%, up from 43% in Q3. Our strategy has been to gradually bring down APR to 24% over 12 months. The assessment at the midpoint of the progress confirms that we're on track to meet the target by June 2022. The adjustment does come with short-term pain. The amount of loan origination achieved in Q4 was RMB 43.6 billion, representing a quarter-on-quarter drop of 22%. The result was below our earlier expectations. Risk appetite from Chinese financial institutions became more subdued towards the end of the year. There was the lower loan quota towards year-end, a seasonal pattern. This year, two additional factors came into play. The shift to reduce funding priced at above 24% almost across the board, and constraints on geographic exposure for regional financial institutions.
Like our peers, we also experienced a sequential decline in loan volume. Lower loan volume and lower loan pricing at the same time means lower revenue. Operating revenue fell 26% to RMB 2.2 billion in Q4 from RMB 2.97 billion in Q3. The impact on gross profit was smaller. Gross profit decreased by 19.5% quarter on quarter to RMB 1.2 billion in the fourth quarter. Gross margin held up well, rising to 55.1% in Q4 from 50.7% in Q3. This reflects the improvement in quality of new loans. Though top line numbers have been hit by external headwinds, the measures taken in safeguarding asset quality have proved effective. My part, my colleague Jayden will elaborate on this later. The other thing we have been working on is how we manage our organization.
The nature of lending will always subject us to external forces that are outside our control, such as interest rates, liquidity, all these macro trends. We have been beating up internal management to boost our defense in these uncertain times. We continue to invest, especially in technology, ramping up infrastructure and know-how, so we can have a stronger back end, be more efficient in operations, and more equipped to address new opportunities at the front. R&D expenses increased 72% year-over-year and 25% quarter-over-quarter to RMB 164 million in Q4. Total operating expenses fell 16% quarter-over-quarter to RMB 610 million. Discipline and efficiency will remain our goal. Moving on to the bottom line. For the fourth quarter, net profit was RMB 256 million.
The industry's response to the change in policy environment largely began in the latter part of Q3, and therefore, the disruption became more evident in our results in Q4. For the full year, we overcame the slowdown in the second half and achieved a net profit of RMB 2.3 billion, 292% higher year-over-year and setting a new record for the company. While some of the uncertainties surrounding our sector are still around, we believe this year things will likely stabilize. We are in constant dialogue with the regulators to better understand their intentions and how we can cope and continue to move forward. The business is taking on new dimensions as we expand into new areas. From a to C focus to a more interactions with to B, i.e. business, and to F, i.e. financial institutions as well.
This integral approach is what sets Lexin apart from competition. Our customer-centric ecosystem spans from lifestyle to finance, giving us more points of access into the C, which in turn leads to broader and deeper relationships with business and financial institutions. We are going through unprecedented times. There will be volatility in our operations. As Jay outlined earlier, the strategic roadmap and operational priorities have been well-defined. With the foundation solidly laid and the agility of the team to respond, we're fully confident that we can move the business forward and continue to deliver quality performance. I will now hand over to our CRO, Jayden. Thank you.
Thank you, Sunny. The year 2021 put our team to the test. It's one of the most challenging times as we are working with policy tightening and macro slowdown at the same time. Following the introduction of 24% pricing cap, financial institutions have been moving away from serving a meaningful part of the market. Especially in Q4, it has seasonally been a very tight period from money supply perspective in the financial system. When liquidity goes down, repayment ability of borrowers goes down as well. The thirty-day plus delinquency ratio finished the year at 3.99% versus 3.68% at the end of September. The ninety-day plus delinquency ratio increased by 7 basis points to 1.92% in the same period. The pressure on asset quality can be felt across the whole industry.
As we started the process with a higher proportion of customers priced at above 24%, we expected to experience more volatility in the adjustment process. We did experience interruptions, but so far we have managed to keep the asset quality trend in line with or better than peers. The results reflect our prudent approach and the strengthening of risk management across the board. At the front, we have revised the acquisition strategies, scaling back from relatively low-quality online channels and expanding the offline Pu Hui team. As the addressable market is rejoined, we have been continuously refining our risk models. In the middle layer, portfolio management has been enhanced to strengthen customer segregation and real-time risk monitoring. We have also stepped up the collection effort for the late bucket of overdue loans.
The pressure on credit quality is going to remain in the near term as we still face the pressure in the policy and the macro environment. Nonetheless, signs of improvement in early day performance indicators have begun to emerge. The restructuring of the asset mix is still ongoing, but once we get through the transition, we are confident that the business can enter a new chapter. Thank you.
Thank you, Jaden. Operator, we can now open the line for questions.
Thank you very much. As a reminder, to ask a question you will need to press star one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile the Q&A roster. First question comes from the line of Yada Li of CICC. Please go ahead.
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I'll do the translation. The first one is about the transmission mechanism of data related to the credit reporting thing. Have we started to experiment the cooperation with financial institutions and the credit bureau? Are we still in the exploration stage, and the one can we try the implementation of the final plan? The second one is regarding our risk matrix. I've noticed that the delinquency went up, and I was wondering if you can elaborate more about the underlying reasons. For 1Q22 and going forward, can we expect to see an improvement on the risk matrix? Thank you.
[Non-English content] Thank you, Yada. Jaden is going to take your two questions.
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Okay, so-
This slide. Okay.
Okay. So, uh, ever since, um, we get the, uh, information for, um, uh, disconnecting from, uh, direct, uh, transition of data, um, credit bureau data to, uh, financial institutions, we've been in active discussion with, uh, different credit bureaus and financial institutions, and we, uh, take compliance as first priority. Um, our, uh, um, plan, uh, and design of, um, this, uh, schedule has been passed the test and approved by Baihang Credit Bureau , and it has been online since, uh, the end of 2021. Now we are in active discussion with at least one of the financial institutions, and we expect, um, that before, um, June this year, uh, we will complete, um, the cooperation between a credit bureau, uh, our platform and at least one financial institution.
At the same time, we are still in discussion with other credit bureaus and financial institutions to, uh, push forward, uh, this plan. And the mode of our plan is for loading to upload, uh, all relevant information data to the credit bureau. The credit bureau will do the pro-- data processing and, uh, output, uh, the end results to the financial institutions. It's more like, uh, what, um, you know, the scheme that works in, uh, Europe and the United States. L ast but not least, the PBOC has not, uh, given us a specific deadline for putting this plan in place. So based on our current schedule, we are very confident that before the end of before June this year, we will be able to implement the plan, at least with one financial institution.
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A s I mentioned in the conference call. The risk performance has fluctuated across industry and so did we. But we have noticed that from the beginning of this year, especially early stage risk indicators have begun to improve quite significantly. As Jay mentioned in his part of the conference call, as we continue to increase our online and offline acquisition channels, as we continue to refine our customer segregation and risk strategy and modeling effort, and also by enhancing our cooperation with large and high quality financial institutions, we expect that this year will increase the proportion our high quality customers, especially customers priced below at or below 24%. Our risk performance will continue to increase at a high speed. Thank you.
Thank you for the questions. As a reminder to ask a question, please press star one on your telephone. Next question comes from the line of Ethan Wang from CLSA. Please go ahead.
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I have two questions. The first is on the funding cost. So Jay has mentioned in his remarks that we are preparing to have some new method to secure funding this year, including ABS. Just wondering, will that affect our overall cost of funding and what our view on the future trend of our funding cost going forward? Second question is on the platform versus capital heavy business model. We want to get some color on the percentage of the platform services in terms of loan origination in the fourth quarter. Maybe more importantly, is there any difference or maybe any discrepancies between platform and capital heavy business model in terms of asset quality from our latest data? Thank you.
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