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Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holding second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question-and-answer session. Please note this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Ms. Xinyan Liu, the company's Head of the Board Office and Capital Markets. Please go ahead, ma'am.

Thank you very much. Hello, everyone, and thank you for joining us on today's call, the company's first investor conference call in almost two years. Our financial and operating results were released by our Newswire services earlier today and are currently available online. This represents a key milestone as we return to a normal reporting cadence. Today, you will hear from our Director and CEO, Mr. Ji Xiang, who will provide an update of the recent developments and strategies of our business. He will also provide details on our financial performance and the business operations. 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 will be making forward-looking statements. With that, I am now pleased to turn over the call to Mr. Ji Xiang, Director and CEO of Lufax. Please.

Thank you, Xinyan. Thank you all for joining our second quarter 2026 earnings call. Today's release marks the first step towards a normal, predictable reporting cadence of Lufax. We very much appreciate the continued patience and support of our shareholders and the broader investor community throughout the process. I want to begin with updating you on the progress our management team has made in restoring Lufax financial reporting and strengthening our governance. Since taking on our roles, we completed the re-audit for 2022, 2023 financial statements and completed audits for 2024 and 2025, with all financial reports now published. As a result, we have brought our SEC periodical filings current and regained compliance with New York Stock Exchange continued listing standards.

We engaged Deloitte Consulting (Shanghai) Co., Ltd. as our new independent internal control consultant to conduct a comprehensive review of our internal controls and to provide rectification recommendations to enhance our internal control system. We have implemented corresponding remedial measures to address identifying internal control deficiencies in accordance with Deloitte's recommendations. Beyond engaging Deloitte, we also strengthened our corporate governance through a restructuring of our board and the establishment of the position of Chief Compliance Officer. Independent non-executive directors now make up a majority of our board, and our Chairman, Mr. Dicky, is an independent non-executive director himself. Going forward, we remain committed to further strengthening our internal controls, including through our new company-wide compliance initiative and the compliance culture we're building across the organization. We are equally committed to delivering long-term value to our shareholders as we return to a normal, predictable reporting cadence.

As you may note, while our ADSs have been trading normally on the New York Stock Exchange, our ordinary shares remain suspended from trading on The Stock Exchange of Hong Kong Limited. A matter we continue to work through with The Stock Exchange of Hong Kong Limited. Now moving on, let me share a bit of update on the macro and regulatory environment. Amid numerous external uncertainties and instabilities, China's overall economic growth continued to moderate in the second quarter, with GDP growing 4.3% year-over-year. The operating environment for small and micro enterprises stayed difficult, and financing demand remained weak. Tsinghua Business School SME Development Index fell month-over-month during the quarter and dropped below the 50-point boom-bust line in June. This basically reflects a challenging environment for our core small business customer base. Consumer finance demand was similarly soft.

Household consumer loan balances were down 1.7% year-over-year as of the end of June. On the regulatory side, regulators have issued a number of guidelines, policies since 2025, covering a wide range of things such as collection practices, data securities, and personal information protection. Oversight now spans the full value chain from pricing and customer acquisition through risk management, post-loan operations, and data governance. Combined with continuous interest rate compression and the fee transparency requirements, industry margins are narrowing. The previous business model of offsetting high risks with high fees is no longer sustainable. We see this as near-term pressure on growth and profitability. Over time, however, we believe such tightened regulatory requirements will support healthier and more disciplined competition across the industry, and enhance competitive advantage of top players with proper licenses and compliance mechanisms. Now, let me turn to our operating strategy.

Given the environment, we are remaining a prudent strategy characterized by selective customer strategy and AI-powered refined operations. Our selective customer strategy is focusing on shifting our customer mix towards lower-risk borrowers. Meanwhile, we aim to improve our performance through AI-powered refined operations. We are now focused on customer segmentation and on deepening our relationship with existing customer base. We launched our Industry+ product, which deploys differentiated product and operational priorities tailored to local industries and customer across different regions. So basically, the plus is industry, plus region, or even at a country level. We develop customized financing solutions based on the unique operational characteristics and funding needs of different sectors, enabling more precise and customized support to satisfy the financing needs of our SBO, mobile owners customer base. Moreover, we are using AI to further improve our operational efficiency. We introduced AI-powered digital twin.

This supports our direct sales team across acquisition, product recommendation, post-loan management, and customer engagement, improving both service quality and operational efficiency. We are also improving our customer management model, going from single product sales towards full lifecycle account management, leveraging our direct sales team expertise and interaction with customers. We believe this effort will enable long-term customer value cultivation. Turning now to our operating results. Total new loan sales in the second quarter were RMB 51.1 billion. This was up 4.6% year-over-year and up 4.8% from the first quarter. This growth was driven by consumer finance, where new loan sales grew 27.6% year-over-year to RMB 36.9 billion. We continue to gain share in a pretty contracting market.

Our total outstanding loan balance was RMB 167.3 billion as of the end of the second quarter, down 13.5% year-over-year, reflecting continued weak demand in the SBO business segment, combined with our prudent underwriting approach. Turning to asset quality. We prioritize improvement of our intelligent risk control system by further optimizing our risk strategy and upgrading our models. On the post-loan side, we expanded our collection model reforms and broadened the use of AI-powered collection. These efforts delivered improvement in asset quality on a sequential basis. Our CM3 flow rate was 1.0% in the second quarter, down from 1.2% in the first quarter.

CM3 flow rate of unsecured loans was 1%, and secure loans was 0.9% as compared to 1.2% and 1.0% respectively in the first quarter. DPD 30+ delinquency rate, excluding consumer finance subsidiary, was 5.8%, down from 6.1% sequentially. As of the end of the second quarter, the NPL ratio for consumer finance loan was 1.3% as compared to 1.4% as of March 31st, 2026. Now let me turn to pricing and funding costs. The average pricing of Rongyi loans, previously known as Puhui loans before the rebranding in 2025, was 20.4% in the second quarter, slight sequentially and up slightly year-over-year. The average pricing of consumer finance loan was 19% in the second quarter. On funding, we continue to optimize our costs.

We leverage our long-term relationships with our banking partners to reduce funding costs under our guaranteed model. Our cost of funding by balance, including consumer finance, was 3.8% in the second quarter, down around 90 basis points year-over-year. As for consumer finance loans enabled by our consumer finance subsidiary, we continue to access low-cost funding in the interbank market, leveraging our license advantage and consistent with broader downward trend in the interest rate. All right. Now, let me briefly discuss the key business drivers behind our second quarter results. On the top line, total income declined by 15.5% year-over-year, driven primarily by decrease in the balance of our Rongyi loans as small business owners demand remained weak. And we maintained a prudent underwriting approach in light of the increased risk associated with certain long-tail customers.

This was partially offset by continued growth in our consumer finance loan balance, which grew nearly 20% year-over-year. On the bottom line, while our net loss narrowed sequentially from the same period last year, we recorded net loss for the quarter continue to reflect credit costs that remain elevated relative to our income base. This is heightened by the challenged macro environment for small business owners and by tightened regulatory requirements that impacted supply of high-priced products. While we believe such tightened regulatory requirements will benefit the development of industry in the long run, in the short term, the reduction in supply to high-risk customer segments adversely impacted their repayment capability and increased our credit costs. Going forward, we remain focused on disciplined execution, strengthening our governance and controls, and on building a sustainable high-quality growth path for Lufax.

Again, we very much appreciate your continued support, and this concludes our prepared remarks for today. Operator, we are now ready to take any questions.

We will now begin the question-and-answer session. To ask a question, please press star then one. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press star then two. In addition, I would like to remind you to please mute yourself after stating your question. Thank you. The first question today comes from Richard Xu with Morgan Stanley. Please go ahead.

Thank you for taking my question first. Two questions. One on strategy. I just want to see from the view of management team, what will be the top two or three priorities over the next two to three years? Will there be any material changes versus previous strategy? Secondly, is on the loan growth and business mix. New loans return to positive in second quarter. Obviously, the consumer finance accounting for a rising share of business. Is this sustainable, there is still a lot of policies trying to obviously influence the growth in this area's pricing. Under the new strategy, what should be the long-term balance between consumer and, I guess, the SME loan portfolio? Thank you very much.

Thank you, Richard. Thank you for your questions. Basically, the first question is around strategy, right? Over the next two to three years, our top priorities are pretty clear, right? First, growing the mid- to low-risk customer base. We want to focus on high-quality customers across three segments. Small business owners, which is really the stronghold of Lufax over the years. Individually owned businesses or self-employed. That is basically a new customer segment we want to broaden. And salaried employees, right? Through consumer finance, we see some good momentum and want to see that to continue. By increasing the proportion of mid- to low-risk customers, build a more diversified product matrix, right? Deepen refined operations by customer segment and achieve improvement in risk and profitability. So that is our basically the very much the top line priority.

Second priority, with all the pricing compression and sort of credit cost going up in the market, we want to continue to optimize our cost structures. We are going to comprehensively apply and promote AI applications across business to optimize customer acquisition, risk, operating costs, and create more rooms for improved profitability while we are lowering the price. Third, strengthening internal controls and compliance, right? Like what Xinyan Liu said, it has been two years, we have not been able to talk to you. So we want to strengthen internal control and compliance, strictly implement regulatory requirements to achieve a long-term sustainable development. The previous strategy, as is set out in 2024, two years ago in the earnings call, centered around two pillars. Number one, prudent operation, prioritizing asset quality over scale growth. Number two, business diversification, growing consumer finance, expanding our non-SBO consumer base.

Going forward, this is still the sort of the strategy we are basically trying to implement. We will further strengthen our due engine strategy for small business lending and consumer finance, while also relying on our new selective customer strategy to optimize customer base, drive growth in the business scale, and improve profitability. When it comes to the second question, right? The second question around, we have the consumer finance going up, whether that is sustainable with the proportion between the consumer finance business and SME. Our strategy is to build two growth engines. One is small business lending, the other is consumer finance, with resources concentrated on the two core consumer segments. As you can see, consumer finance is a new growth engine and will continue to be the driver for growth.

We are testing new customer acquisition models as we speak and product combinations to serve higher quality customers. We believe this growth is sustainable. When it comes to small business lending. Small business lending, we see that as our traditional strength. Our focus there is to return to growth through improved customer acquisition efficiency and broadened product portfolio and stronger risk management capability. We see small business lending and consumer finance complementary. They have different demand characteristics and risk profiles. So going forward, we will endeavor to continue to optimize our business mix based on market conditions to achieve balanced growth.

The next question comes from Emma Xu with Bank of America. Please go ahead.

Thank you. Thank you for the opportunity to ask the question. I have two questions. The first one is about the regulation. Following recent stress amongst the smaller online lending platforms, has management observed any tightening in institutional funding or borrower refinancing conditions, and how will you deal with this? The second one is about the capital return. Given the large free cash balance and improving operating trajectory, what level of capital do you consider is necessary to support this business under the full guarantee model? Once sustainable profitability is restored, should investors expect the existing 30%-40% payout framework to remain the base policy? Under what conditions would you consider additional capital distribution? Thanks.

Yeah. Thank you for the question. Basically, first of all, talking about the regulation. As well, the sizable players in the market, we fully welcome the tightened compliance regulation, et cetera, right? Strengthened compliance across the industry is inevitable trend. Recent policy changes are aimed at comprehensively strengthening compliance requirements, protecting consumer rights, and promoting the healthy and sustainable development of the industry. We will continue to implement the adjustment in line with regulatory requirements at our full strength. The tightened regulatory requirements will bring some pressure to our business in the short term, for sure. We will accelerate our selective customer strategy, strengthen cost management, optimize cost structure, and improve capital efficiency, among other measures, to continue optimizing customer acquisition, risk, and operating costs. This will further create room to lower pricing while ensuring stable profitability.

Nevertheless, over midterm to long term, this trend will help healthy growth of the industry. Compliant leading platforms, such as Lufax, will benefit from further optimization of the industry landscape and gain market share. In short-term, we do feel pressure, in terms of our business performance. But we are also optimistic around midterm and long-term performance because a more compliant market will benefit players such as us. You also have a question around capital return, right? Management believes our current cash position is appropriate relative to the scale of our business. It reflects both the capital requirements and the applicable financial regulations, and the need to maintain a buffer to support future growth. Management is focused on executing our strategy, right? Our top priority is returning to profitability as soon as possible in order to create long-term value for shareholders.

Our dividend policy, once we achieve our profitability target, management will review the dividend policy together with the board and to decide whether we should have payout per month.

The next question comes from Alex Ye with UBS. Please go ahead.

Hi, many thanks for taking my question. Two questions from me. First one is regarding our unit economics. Now with our transition to the full guarantee model largely complete, can you give us more color about underlying profitability of the new loans and what is the expected net rate for this new full guarantee business? Second question is on asset quality. We have seen some early indicators, including CM3 and consumer finance NPL ratios improved quarter-on-quarter in Q2. Some of the lagging indicators still remain elevated. We have also seen there has been some risky banks across the smaller platforms in the industry since the end of Q2. Could you comment a little bit on the latest asset quality trend? Thank you.

Sure. This is first time that I talk to our shareholders, investors, analysts. However, the new strategy has been implementing, I would say, since the earlier beginning of the year. With the new strategy, we have seen improvements in the asset quality of new Rongyi loans enabled in 2026. We believe our overall profitability will continue to improve as we continue to implement the new strategy. What I can see for this call is the new loans we have issued over the first half of the year have improved profitability over the assets we have accumulated in the year of 2025. That leads us to asset quality. Since the start of this year, we have upgraded our risk control measures. We actually take a very prudent approach. We also refined our risk strategy and enhanced our risk models.

On the post-loan side, we have broadly rolled out collection models reforms and expanded the use of AI-powered collection. All this initiative has delivered initial positive results with sequential improvement in asset quality in the second quarter. Asset quality has been gradually worsening since the second half of last year. However, as you can see, in the second quarter, our CM3 flow rate declined notably compared to the first quarter. The management is expecting the trend to continue over the second half of the year. Thank you.

The next question comes from You Fan with CICC. Please go ahead.

Okay. Thanks management for taking my questions. This is You Fan from CICC. I also have two questions here. The first one is about customer communication. We noticed that the secured loans of Rongyi price around 17%. Do the credit characteristics of these customers qualify them for bank loans? For the relatively high-quality customers, how does the company compete with banks or other lower price channels? The second question is about Hong Kong trading. I just wonder how is the processing of the resumption of our trading in Lufax Hong Kong sales, and could you share, is there any better visibility on the trading resumption timeline? These are my two questions. Thank you.

Yeah. Thank you. First of all, we don't see ourselves competing head-to-head with most of the banks, right? Our Rongyi product targets small business owners and individually owned businesses, a customer base that different from typical bank customers. Why I say different? Many of these customers either cannot access bank loans or cannot obtain sufficient loan amount from the bank. Basically, Rongyi fills this supply gap and complements bank rather than competing head-to-head. Rongyi and bank products are priced differently, which allows the two to complement each other well. Our products differentiated advantage, including higher loan amounts, a more convenient process, and typically take less than a day, and flexible repayment terms, which better meets customer supplementary and emergency financing needs. On refined operation, we launched our Industry+ initiative, which is tailored to the distinct operating characteristics and financing needs of different regions and industries.

For example, I've been to province such as Shandong, such as Guangdong, et cetera. At a county level, they typically have industries which are basically serving the entire nation. Right? For example, cooking wares in a particular county in Shandong and lighting facilities in a particular county in Guangdong. Right? We are basically leveraging our direct sales to penetrate it to county level. This allows us to design dedicated product solutions that more precisely address small business finance needs across different sectors. Right? You also asked a question around Hong Kong trading resumption. We have now completed the receipt of our 2022, 2023 financial statements, the audits of 2024 and 2025, right? With all reports now published and released, we now also completed the internal control review and upgrades with the help of external professionals.

The company is still responding to outstanding questions and comments raised by The Stock Exchange of Hong Kong Limited regarding the relevant fundings. We will keep investor updated on any developments in a timely manner, and will make appropriate announcements as necessary.

Thank you. That concludes our question-and-answer session for today. I will now turn the call back over to our management for closing remarks.

Thank you, operator. This concludes today's call. Thank you for joining the conference call. If you have more questions, please do not hesitate to contact Lufax IR team. Thanks again.

Thank you. The conference is now concluded. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holding Third Quarter 2024 Earnings Call. [Operator Instructions] After the management's prepared remarks, we will have a Q&A session. Please note this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Ms. Liu Xinyan the company's Head of Board Office and Capital Markets. Please go ahead, ma'am.

Thank you very much. Hello, everyone, and welcome to our third quarter 2024 earnings conference call. Our financial and operating results were released by our newswire services earlier today and are currently available online. Today, you will hear from our Chairman and CEO, Mr. Y.S. Cho, who will provide an update of the recent developments and the strategies of our business. Our CFO, Mr. Peiqing Zhu, will then provide more details on our financial performance and the business operations. 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 will be making forward-looking statements. With that, I'm now pleased to turn over the call to Mr. Y.S. Cho, Chairman and CEO of Lufax, please.

Thank you for joining us today for our third quarter 2024 earnings call. During the third quarter, while Puhui loan demand remained weak as small business owners continue to face a complex macro environment, we saw ongoing growth in our consumer finance business. We are hopeful that policy stimulus measures introduced by the Chinese government in late September will help improve the macro environment and have a positive impact on our business performance in the long run. Meanwhile, we plan to stay vigilant and prudent in the execution of our business strategies in light of the increased risk exposure on the 100% guarantee business model. Before we discuss the business details, let me share some updates on the macro environment. In the third quarter, the macro environment remains challenging for small business owners. The SME development index declined by 0.3 points quarter-over-quarter to 88.7 in September. The Business Conditions Index published by the Cheung Kong Graduate School of Business also declined from 49.3 in June to 46 in September, suggesting persistent challenges faced by small business sector. On the other hand, we are encouraged by signs of mild recovery in the consumption sector during the third quarter as the CPI showed improvement from 0.2% in June to 0.4% in September. In late September, we are glad to see that the Chinese government announced a number of new stimulus policies, including measures to help to the recovery of the real estate sector and increase liquidity, such as the cut to reserve requirement ratio and the lowering of existing mortgage rates. Local governments also launched a series of stimulus initiatives relating to real estate and consumption to boost consumer confidence and strengthen the economy. We believe all of these efforts will have a positive impact on SBOs in China. Meanwhile, we recognize it will take time for SBOs to benefit from these measures and improve performance, so we remain prudent as we execute our business strategies in the short term. Furthermore, we also put more emphasis on our non-SBO customers and continue to grow our consumer finance business. This should help us take full advantage of gradual effects of consumption recovery, and we'll be in a solid position for our future growth. Now let's turn to our operating results. First, let's take a look at our loan volume. Total new loans sales in the third quarter were RMB 50.5 billion, flattish year-over-year and improving by 11.7% from last quarter. The quarter-on-quarter growth despite the macro challenges, was mainly attributable to the continued growth of our consumer finance business, which offset the ongoing weakness in Puhui loan demand from high-quality SBOs. New consumer finance loans increased by 27.8% year-over-year and accounted for 52% of our total new loans sales in the third quarter as a result of our continued efforts to roll out smaller tickets and revolving product structures. Balance-wise, our total loan balance stood at RMB 213.1 billion as of the end of third quarter, of which consumer finance loans took up 22%. Turning to asset quality. Our tightened risk control policies and enhanced risk assessment systems have helped maintain stable asset quality. The C-M3 flow rate of Puhui loans remained at 0.9% during the third quarter despite a decrease of total balance as compared to the second quarter. The asset quality of our consumer finance loans also stayed strong, with NPL ratio further decreasing to 1.2% from 1.4% in the second quarter. As loans enabled under the 100% guarantee model kept increasing as a percentage of total loans, our balance take rate rose by 1.9 percentage points year-over-year to 9.7% during the third quarter of 2024. Cost of funds continued to decrease driven by both monetary policy stimulus and our diversified license strategy. As mentioned during our last earnings call, we acquired a nationwide small lending license in July. We started to provide new loans under this newly acquired nationwide small lending license in August. As of the end of third quarter, we have provided more than RMB 1 billion in new loans under this new license. We believe our small lending license has a potential to further reduce our funding costs, diversify our product portfolio and improve our capital management efficiency. Finally, I want to provide an update on Ping An Group's mandatory general offer. On September 27, Ping An Group dispatched offer document and commenced the offer period. If there are no additional requirements from regulators, the offer period will end on October 28. As stated in the offer document, Ping An Group is making the offer solely to comply with applicable rules and has no intention to privatize Lufax. The intention is that Lufax will continue to remain an independent entity listed on the New York Stock Exchange and Hong Kong Exchange. Looking ahead, we seek to continue to deepen our synergies with Ping An Group, leveraging its brand, reputation, technological resources and extensive network to strengthen our market position. I will now turn the call over to Peiqing, who will provide more details on our financial performance and business operations.

Thank you, Y.S. I will now provide a closer look into our third quarter results. Please note, all numbers are in RMB terms and all comparisons are on a year-on-year basis, unless otherwise stated. In the third quarter of 2024, our total income decreased by 31.1% to RMB 5.5 billion from RMB 8.1 billion, mainly due to a decrease of outstanding loan balance by 41.8%, partially offset by our increased take rate as loans enabled under 100% guarantee model constitute a higher proportion of our total loan book. Meanwhile, our total expenses decreased by 19.2% to RMB 6.3 billion from RMB 7.7 billion, among which the total operating expenses declined by 35.9% to RMB 3 billion from RMB 4.7 billion. And credit impairment losses increased by 9% to RMB 3.3 billion from RMB 3 billion. Operating efficiency improved, with our operating expenses to income ratio decreasing from 53.8% from 57.8% in the third quarter of 2023. The increase in credit impairment losses was mainly due to increased provision related to our loan book and certain investment assets. As a result, we recorded a net loss of RMB 725 million for the third quarter. Turning to the unit economics of our loan business. Our APR by balance decreased 19.5% from 20.1%. Despite the decrease in APR, our take rate by balance increased to 9.7% from 7.8%, primarily due to the removal of negative impact from high CGI premium to our transition to the 100% guarantee model, and also thanks to the decrease in our funding costs. We expect that the take rate will further increase as the percentage of the loans enabled under the 100% guarantee model continues to increase and that funding cost will continue to decrease as we continue to optimize our funding structure by leveraging our consumer finance and small lending license. On the expense side of the unit economics, while sales and marketing expenses remained stable, credit costs and other operating expenses were a drag on our net margin. Credit costs increased primarily due to the increased risk exposure and provision for our loan book. As discussed before, while we anticipate loans under the 100% guarantee model will be lifetime profitable, it's important to note that these loans may incur accounting losses in the first calendar year due to higher upfront provisions. This accounting treatment affects our short-term profitability but is expected to lead to improved long-term financial performances as the loan portfolio matures. The increase of other operating expenses was primarily due to the contraction of our loan balance and the reduced economies of scale. Now let me highlight a few key P&L items. During this quarter, our technology platform-based income was RMB 1.6 billion, representing a decrease of 49.9%, mainly due to a decrease in retail credit service fees as a result of 41.8% decrease in outstanding loan balance. In addition, it was also negatively affected by cessation of the Lujintong business in April 2024. Our net interest income was RMB 2.7 billion. a decrease of 18.8% from the same period last year. The relatively lower decrease in net interest income was the result of an increase in consumer finance revenue. Meanwhile, our guarantee income was RMB 818 million, a decrease of 13.1%. In terms of revenue mix, technology platform-based income accounted for 29.5% of our total revenue, down from 40.5% in the same period of last year. Net interest income and guarantee income accounted for 48.5% and 14.7% of total revenue in the third quarter, respectively, as compared to 41.1% and 11.7% in the same period of last year. In terms of expenses, our credit impairment losses increased by 9% to RMB 3.3 billion, mainly due to increased provisions related to loans as we applied a more prudent approach in our ECL model to reflect the complex macroeconomic environment in the third quarter as well as increased provision related to certain investment assets. Our total sales and marketing expenses, which include expenses for borrower acquisition costs as well as the general sales and marketing expenses decreased by 49.9% to RMB 1.1 billion, mainly due to reduced loan-related expenses resulting from the decrease in new loan sales and outstanding loan balance as well as the elimination of expenses associated with our Lujintong business. Operation and servicing expenses decreased by 25.8% to RMB 1.1 billion as a result of our continued effort to control expenses and decreased loan balance, partially offset by increased commission associated with the improved collection performance. Our finance costs increased by 48.9% to RMB 59 million from RMB 40 million, mainly due to the decrease of interest income from bank deposits, partially offset by the decrease of interest expenses after repayment of our C-round convertible promissory notes upon the maturity on September 30, 2023. In terms of capital, as of the end of September 2024, our main operating entities remain well capitalized. Our guarantee subsidiary's leverage ratio stood at 2.6x and our consumer finance subsidiary's capital adequacy ratio stood at 14.9% as compared to the 10.5% regulatory requirement. As we deal with the complexity of the broader economic environment, we are now seeing encouraging signs in terms of asset quality and in the growth of our consumer finance business. We will remain committed to our prudent strategy as we seek to build a solid foundation for long-term sustainable future operations, and we'll uphold the commitment to bring value to our shareholders. That concludes our prepared remarks for today. Operator, we are now ready to take questions.

[Operator Instructions] The first question today comes from Betty Li with CLSA.

So I have two questions. The first one, could you kindly express what will be the impact of the new policy stimulus on your business? The second is, could you share more about the business outlook for this year and beyond?

Thanks, Betty. About stimulus policy, it is surely a positive impact, I think, on our economy and in our SBO segment as well. But knowing small business owners in general are in difficulty now, it will take more time for them to benefit from these measures and improve performance. So in the near term, we remain prudent and put asset quality over quantity for SBO lending. But at the same time, we’ll take full advantage of the gradual recovery by putting more emphasis and focus on non-SBO segments and expedite small- and medium-sized ticket loan growth using our CF license, consumer finance license, and the newly acquired small lending license with their funding cost advantage and customer experience advantage of our guarantee model. And then about your outlook question, so our volume guidance of RMB 190 billion to RMB 220 billion and loan balance of RMB 200 billion to RMB 230 billion, that remains unchanged. On a single account basis, we know that due to the upfront provision of the 100% guarantee model, so profitability is under pressure in the very first calendar year. But going forward, we know and we believe the overall lifetime profitability will surely improve than before.

The next question comes from Judy Zhang with Citi.

I have two questions. The first question is regarding asset quality. I understand that Lufax has been derisking the loan book for some time, which is bearing fruit in the recent quarters. Could management share a bit more color on our latest asset quality performance? And how has our low rate delinquency rate been trending since 3Q? And second question is, does management have any plan to announce another round of special dividend this year or any other measures that you are considering to boost the shareholders' return?

Okay. Thanks, Judy. The asset quality indicators remained stable in the third quarter, with C-M3 flow rate of our Puhui loans remaining at 0.9% despite decline on balance. So while our consumer finance NPL ratio continued to improve from 1.4% to 1.2%, knowing that our loan balance reduction will come to an end a few months later and the portfolio account mix in terms of account vintage, that mix will continue to optimize, so I believe we’ll be able to demonstrate more obvious asset quality improvement measured by net flow not before long. So in that, we have confidence. About shareholder return, we do not have any specific plan yet after our special dividend this year, but the management team is committed to provide long-term shareholder returns as always, and we consider all positive ways to return value to shareholders going forward.

The next question comes from Yada Li with CICC.

My first question is regarding the credit impairment loss. Could you please share a little bit more about why the credit employment losses increased this quarter, while the risk indicators remained stable? And secondly, I was wondering, what is the trend of the funding costs going forward? That's all.

Thank you, Yada. I’ll try to answer the first question. The increase is mainly to the provision associated with our loans and certain investment assets. Increase of loan provision was driven mainly by the upfront provision of loans under 100% guarantee model, as we discussed, right, and also the prudent approach in our model to reflect our conservative forecast based on the macro environment in the third quarter. We’re still seeing some uncertainties in the macro economy. And as to the second question, I know you’re interested about our funding cost trend, right? And our funding costs further decreased in the third quarter, thanks to the favorable monetary policy and our diversified license strategy. And also we try to spend more time to work with our partners and try to cut down some of the funding cost in terms of different products. And also, we expect funding costs will further decrease as we continue to optimize our funding structure by leveraging our consumer finance and small lending licenses.

That concludes our question-and-answer session for today. I will now turn the call back over to management for closing remarks.

Thank you. This conference is now concluded, and thank you for joining today’s call. If you have any more questions, please do not hesitate to contact our IR team. Thanks again.

Thank you. The conference has now concluded. You may now disconnect.