00:01 Good day, and welcome to the CNFinance Second Quarter and First half of twenty twenty one Financial Results Conference Call. [Operator Instructions] 00:31 Please note this event is being recorded. I would now like to turn the conference over to Ms. [indiscernible]. Please go ahead.

00:40 Good morning, and good evening, and welcome to the CNFinance second Quarter Twenty twenty one 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 Vice President of Capital market Department, Matt Lou Smoothly. After that, we will have a Q&A section. 01:05 Before we start, I’d like to remind you that this conference call contains forward-looking statements, within the meaning of Section twenty one E of the Securities Exchange Act of 1934 as amended, and as defined in the U.S. Private Securities Litigation Reform Act of nineteen ninety five. This forward-looking statement can be identify by terminology such as will, expect, anticipate, future, intends, plans, believes, estimates, project, going forward, outlook and similar statements. 01:39 Such statements are based upon management's current expectations on current markets and operating conditions and relates to events that involves 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. 02:06 Further information regarding this 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. Bin Zhai.

02:33 [Foreign Language] 02:54 Thank you, operator, and thank you everyone for joining us in the conference call. On today's call, we will introduce company's financial and operational results of second quarter and the first half of twenty twenty one followed by a Q and A section. 03:14 [Foreign Language] 03:55 [Following our first quarter] (PH) the loan facilitation volume increased again in second quarter. After adding another Rmb billion of origination loans in the second quarter. The total loan facilitation reached Rmb billion in the first half of twenty twenty one representing an increase of one hundred percent and one hundred and [thirteen] (ph) percent respectively to the same period of last year. 04:25 The net income in the second quarter and the first half of the year was Rmb fifty five million and Rmb one hundred and fifty million dollars respectively. Both increased significantly comparing to a net profit of twenty five million dollars at a net loss of Rmb forty point five million in the same period last year. 04:48 [Foreign Language] 05:02 We not only delivered solid operational results in the second quarter, but also in the first six month of twenty twenty one. The long facilitation volume even reached a new high since the infection of collaboration model. The reasons of our success are threefold. 05:21 [Foreign Language] 06:14 The huge demand in the second quarter, as China's GDP grew seven point nine percent the [vital] (ph) business operations of over eighty million, micro and small enterprises in China led to a huge demand for working capital. However, MSE’s in China are user risk covered with small scale and a stable cash flow. 06:42 This culture of MSE’s difficult to meet the approval criteria at banks. Their demand for working capital cannot be satisfied by transitional financial institutions. In this market environment, we call ourselves the last [indiscernible] to build a network of an exclusive inclusive financial system in China. In the past two years, we have ordered loan services to over forty thousand in China. 07:16 [Foreign Language] 07:32 On the other hand, home equity is still one of the best interest bearing assets in the market. As we witnessed first transition increase of property price in major cities since the second half of twenty twenty. 07:49 [Foreign Language] 08:13 Since the inception of collaboration model, we have built a national worldwide consistent of 50 branches in forty cities. By collaborating with over two thousand [indiscernible] across China. With this network, we are able to establish a wide market coverage and serve MSE owners financing needs in a timely manner. In the first half of twenty twenty one, we facilitated loans with the total amounts of Rmb billion, representing a year on year growth of one hundred and eighteen percent from Rmb billion. The company's growth is back on a fast track. 09:07 [Foreign Language] 09:28 The collaboration model has been well recognized by the market as we kept refining operation in the past two years. To secure partners loyalty to our platform we have been optimizing our service [provided by] (ph). 09:44 [Foreign Language] 10:03 First, we have been consistently adding talent to our professional management team. We also offer training programs for our sales partners to help them to help their team members gain deep understanding of the products and risk control criteria of the trust company partners. So that they serve MSE owners efficiently. 10:27 [Foreign Language] 10:57 Second, we optimize the data processing and storage of our online system to make it more efficient and visible to users. We hope [Technical Difficulty] MSE owners in time and cut our own costs at the same time. The drastic increased in low origination volume, was a proof to the capacity and efficiency of our own processes system. Based on our internal assessment, our current system is capable to support an annual capability of Rmb thirty two fifty billion in the loan origination volume. 11:38 [Foreign Language] 11:50 We delivered strong results in the past two quarters, but at the same time, we also noted some challenges to our future growth, including. 12:06 [Foreign Language] 12:35 [Funding pressure] (ph) we are highly dependent on trust companies at funding partners. Since the beginning of twenty twenty one the regulation on trust companies loan products were tightened. As a result, trust companies reduced our funding quarter. We also suffer from a subsequent rise of financing costs. We do not expect this regulation to loosen up in the rest of twenty twenty and therefore, our loan origination, will possibly be affected. 13:08 [Foreign Language] 13:49 We have noticed the uncertainties of property price and liquidity due the government policies in controlling property prices, and impact from the COVID-nineteen pandemic. In twenty twenty one, the government actively initiated measures to control property price. Including announcing adjusted prices to [second-hand] (ph) property in multiple cities, as well as tighten mortgages, due to slowdown down property transactions. 14:20 The management believes that such uncertainties negatively affect the loan origination volume, and MPL disposal. 14:28 [Foreign Language] 15:03 Under the collaboration model, sales partners bear risks. However, due to the business structure agreed upon with the trust companies, we had a holder of subordinated units in the trust plan. As a result, we have to consolidate on our financial statements. We streamlined company with heavy assets where our revenue is generated from interest brands. The balance sheet cannot represent our true business model which is in fact an asset-light loan [alternation] (ph) platform. At the meantime, the look of the balance sheet is auto countries, when we reach out to new funding partners. 15:49 [Foreign Language] 16:13 In order to consistently to grow our business and serve MSE owners in changing markets we plan to further refine the current platform model and introduce a new Platform by taking the following measures. 16:30 [Foreign Language] 16:47 Transferring our assets and risks to any investor with preferences in high-risk and high-return asset- back by property. Our company will focus on online and offline loan origination and post-loan management surveys. 17:06 [Foreign Language] 17:55 Collaborating with different types of funding partners to serve MSE owners with different collaborating. Other than strengthening our collaboration with trust companies, we have actively successfully reached out to financial institutions. 18:11 We hope by introducing more diversified loan products, MSEs could enjoy the benefits of more affordable loans. We have signed collaboration agreement with commercial banks, including [indiscernible], Blue Ocean Bank and [indiscernible] Bank with a possibility to issue ADS. We believe that creating a broader financial channel will help us bring diversification of our loan products and offer more choices to MSE owners. 18:47 [Foreign Language] 19:20 We will continue to improve our service to MSE owners. First, we will further expand our network national-wide. The current network has fifty branches across forty cities, penetrating into markets, and discovering the financing need of MSE owners. Other than that we will prioritize technology development to improve the loan measurement system capability installing data. And to increase efficiency in overall process to satisfying the financial needs of MSE owners. Also, with the goal to reduce operating costs of our company. 20:06 [Foreign Language] 20:37 To achieve our mission of make finance more human and follow the government policy of developing an inclusive finance system we will leverage our advantage gained from years of dedicated work in industry, and be a service platform that is asset-light, turnover-high, and scale large. We will proactively work with funding partners to push out diversified loan products, consistently to provide MSE owners with affordable accessible and efficient financial services. 21:13 [Foreign Language] 22:01 At last today, we announced our CFO, Mr. Li Ning, with step down from CEO position in November. I want to take the time to thank Mr. Li’s years of hardwork. Mr. Li has served as our company’s CFO since twenty ten. In the past eleven years, he made significant contributions in leading finance, CNFinance to become a leading home equity loan service provider in China and put dedicated work in transformation from a privately held company into a NYSE listed company. 22:38 On behalf, all of us here in CNFinance, I would like to thank Mr. Li Ning for his leadership, dedication and professionalism. I wish him best of luck with his future endeavors. We have already commenced the search for new CFO. 22:58 [Foreign Language] 23:09 With that, I would like to hand the call over to Ms. [indiscernible], the Vice President of the Capital Market Department, who will walk us through the second quarter and the first half financials.

23:21 Thanks, Mr. Zhai. And thanks again to everyone joining us today. I will walk you through our second quarter and first half of twenty twenty one financials. We believe our year over year comparison is the best way to review our performance. Unless otherwise it states all percentage changes I'm going to give will be on that basis. Also, unless otherwise to say all number I'm going to give within R and D. 23:52 We will go for the figures for the second quarter of twenty twenty one first and followed by that for the first half. As of June 30 twenty twenty one, total outstanding loan principal increased to eleven point six billion compared to nine point seven billion RMB as of December 31, 2020. Total loan origination volume was three point eight billion increased one hundred and three percent from point nine billion in the same period of twenty twenty. 24:28 Interest and financial service fee on loans was four forty nine million a slight decrease of zero point two percent primarily due to the combined itself eight increase of average daily outstanding loan principles and (b) lowered interest rates on loans facilitate to comply with the rules and regulations issued by relevant PRC regulatory authorities. 24:57 Interest expense was one ninety five million compared to one eighty seven million dollars primarily due to the increase in the principals of borrowings from the trust companies. 25:10 Collaboration costs for sales partners increased to one hundred and seven million for second quarter of twenty twenty one, compared to one hundred four million dollars in the second quarter of twenty twenty, primarily due to the high outstanding loan balance was originate under the new collaboration model. 25:32 Provision for the credit losses was fifteen million dollars, a decrease of seventy four percent from fifty seven million in RMB in the same period of twenty twenty. The was mainly attributable to the combined effect of (a) the increase in outstanding loan principle under the model that was guaranteed by credit risk litigation position put up by the sales partners, and (b) lower probability under the current expected credit loss model, which takes into account a more positive outlook for the Chinese in the second quarter of twenty thirty one as compared to that of the same type of twenty twenty under the impact of COVID-nineteen pandemic. And (c), the company received recoveries in the quarter after charged down loans that one hundred eighty days due to net realizable value. 26:34 Total operating expenses were eighty seven million dollars, a decrease of thirty four percent compared one hundred fourteen million dollars in the same of last year. Income tax expense was eight million a decrease of forty six percent from the RMB sixteen million in the same period of twenty twenty. This is primarily due to the decrease in the amount of capital income. 27:03 And net income was 65 million in this quarter, an increase of one hundred fifty nine percent from twenty five million dollars in the same period of twenty twenty. 27:17 Now, we are moving on to our financials to the first half of twenty twenty one. Total origination volume was six point seven billion compared to three point one billion in the same period of last year. 27:32 Interest and financing service fees on loans was eight seventy one million dollars, a decrease of seven percent, primarily due to the combined effect of (a) increase of our daily outstanding loan principal and (b) lower interest rate of loans facilities and efforts to with the rules and regulations issued by relevant PRC regulatory authorities. 28:01 Interest expenses was three hundred and fifty one million, compared to three hundred and eighty eight million in the same period of twenty twenty, primarily due to the decrease in principals of borrowings and guarantee and repurchase. 28:22 Collaboration costs for sales partners increased to two hundred and five million for the first half of twenty twenty one compared to one hundred and ninety eight million in the same period of twenty twenty, primarily attributable to the increased loan balance under the collaboration model. 28:42 The provision for credit losses was a recovery of three million dollars while there was a provision of two seventy seven million dollars in the same period of twenty twenty. This is primarily due to the result of, a, the increase in outstanding loan principal under the collaboration model that was guaranteed by the credit risk mitigation position put up by the sales partner, and, b, the lower probability of default under the current expected credit loss model which takes into account more positive outlook for the Chinese economics in this year as compared with that in last year, the same period under the impact of COVID-nineteen pandemic, and c, company received recovery in the first half of twenty twenty one, after charged down loans that are 180 days past due to net realizable value. 29:51 Total operating expenses were one hundred and eighty two million a decrease of sixteen percent compared to two fifty million dollars in the same period of last year. Income tax expenses was thirty eight million an increase from one million in the same period of twenty twenty, primarily due to the fact that we record an income before income tax expense for the first half of twenty twenty one, as compared to a loss before income tax expenses for the same period of twenty twenty. 30:32 Net income was one hundred and fifteen one million compared to a loss of RMB forty one million in the same period of twenty twenty. As of June 30, 2021, the company had cash and cash equivalent of one point six billion compared with two billion as of December 31. 2020. 30:59 The actual delinquency rates for loan origination by the decreased to eighteen point nine as June 30, 2021 from twenty two point six percent as of December thirty one twenty twenty. 31:18 The actual MPL rate for loan origination by the company decreased to eight point six as of June 30, 2021 from eleven point seven as of December 31, twenty twenty. With that, we now like to open up the floor for Q&A. Operator, please begin.

31:45 [Operator Instructions] And our first question will come from William Gregozeski of Greenridge Global. Please go ahead.

32:19 Hi. Congratulations on the big loan origination volume number. Are you seeing a continuation? Or do you expect to see a continuation in that number of growth and also do you have the availability of funds to support that level of demand?

32:40 Hi, Bill. Could you repeat your first question again? We kind of had a bad connection just now.

32:46 Yeah. I just said you had huge loan origination volume growth, do you see that continuing? Is that demand going to continue and do you have the access to the capital to support that demand?

33:00 Okay. [Foreign Language] 33:36 Like CEO just mentioned in his remarks as China's economy growth by high speed we continually to see on the future demand from the MSE owners for Capital. 33:51 [Foreign Language] 34:06 And we had a very established sales network and our system is capable to support our loan to [indiscernible]. 34:17 [Foreign Language] 34:23 So, like I just – like the CEO just mentioned in his remarks too, our system is capable to support annually loan facilitation of thirty to fifty billion. 34:46 [Foreign Language] 34:49 And we believe the huge demand from the owners will continue and carry-through. 34:56 [Foreign Language] 34:58 And our CEO has something to supplement.

0:35:01 [Foreign Language] 35:13 This year so far, we have huge demand for capital from MSE owners and we think this will carry through to the remaining of the year. 35:22 [Foreign Language] 35:38 And the main challenge to us right now is that we are – like, as we are highly depended on the trust companies to support our capital, our funding, but they are facing tightened regulations so that our partner was kind of brought down by the trust companies. 36:01 [Foreign Language] 36:14 And we have taken many measures to reduce the effect of tightened trust company fund, but we will see that to be of our assistant not until Q4, the fourth quarter or the first quarter in twenty twenty two. 36:39 [Foreign Language] 36:39 So that's my answer to your question.

36:44 Okay. And you mentioned signing up the commercial banks, which seems like a great, you know, a great thing for you guys in the platform and getting that access to capital from that channel, how much availability do you have? I mean are these trials or is it a good amount of capital you're going to have and what's the rate on that? 37:11 [Foreign Language]

37:36 [Foreign Language] 37:45 So, we have already signed collaboration agreements with three commercial banks. 37:50 [Foreign Language] 37:54 So, one being the [indiscernible] bank. 37:55 [Foreign Language] 37:58 One being the [indiscernible] bank. 38:00 [Foreign Language] 38:03 And there is a smaller one comparing to the last two mentioned the Blue Ocean Bank. 38:10 [Foreign Language] 38:19 The main advantage that brought up by collaborating with commercial banks is that we can cover MSE owners with different credit ratings. 38:31 [Foreign Language] 38:41 So, the agreement deal is signed right now, we are just trying to see if we are compatible in our collaborations and trying to see how the system is going. So, yes, that's my answer to the question.

39:00 Okay. So there hasn't been any large scale lending from the banks yet. It's just more in a test run? 39:09 [Foreign Language]

39:12 [Foreign Language] 39:14 Yes, you’re correct.

39:17 Okay. As last question is, on previous calls, you've talked about class A, class B, and class C loan products, you were going to roll out with different rate structures, can you provide an update on those? 39:29 [Foreign Language]

39:47 [Foreign Language] 40:47 So that's our initial ambition. When we said, we are trying to collaborate with commercial banks. Is that we want to cover customers with different ratings with different credit ratings. So we were slowly collaborating with trust companies, the customer we could cover was mainly so in our internal, in our internal classification, the type B and type C customers, but based our past experience, we don't really see that they have two high risk. So by collaborating with the commercial banks, we are trying to cover the Type A customers, but however, we are not sure at this moment if they are really going to be of higher quality than the customers we are serving now because right now in China, the credit system, credit rating system, isn't fully established. So, we really have – we are not really fully sure of whether the Type A customers are going to be by their customers [indiscernible] B and C customers. 41:59 [Foreign Language] 42:14 So, what we're hoping right now is that we could offer the long products with interest with annual interest rates from ten percent to eighteen percent so that we can cover more customers more borrower. That's my answer to your question.

42:34 Okay, perfect. Thank you guys very much.

42:39 [Foreign Language] 42:40 Thank. Thank you for your question.

43:12 [Operator Instructions] The next question comes from Neil Gagnon of Gagnon Securities. Please go ahead.

43:18 Yes. Good afternoon. Can you give us your review on this quarter? How did it live up to your expectations? And what base does it set for your expectations for the second half? Thank you. 43:38 [Foreign Language]

43:53 [Foreign Language] 43:59 First of all, we are seeing sufficient huge demand for the whole year. 44:07 [Foreign Language] 44:18 So, from based on our internal record, the application every month is well over RMB billion. 44:29 [Foreign Language] 44:34 However, we could only facilitate around RMB one billion every month. 44:41 [Foreign Language] 44:45 So, there is a fifty percent gap in between the demand and supply. 44:51 [Foreign Language] 45:01 And since last year, we have seen consistently increase of property price in China. 45:19 [Foreign Language] 45:24 The increase was even over thirty percent in some major cities in China. 45:30 [Foreign Language] 45:36 So those two factors lead us to believe that there is going to be huge demand in the remaining of the year, in the second half of the year. 45:47 [Foreign Language] 45:52 But there are two considerations. 45:55 [Foreign Language] 46:00 First off, is to secure enough – secure access to enough funding. 46:06 [Foreign Language] 46:17 And the second thing is that starting from this June, we have seen tightened regulations on the property price as well. 46:28 [Foreign Language] 46:37 So we tend to be more conservative when doing businesses in those cities where the property price is considered to be too high. 46:47 [Foreign Language] 47:03 But after all we are still very confident to reach our set goal from the beginning of the year to reach RMB ten billion in outstanding loan principal by the end of the year. Actually we already reached that goal at the end of the second quarter. 47:21 [Foreign Language] 47:24 So, we are working on refining our business by this moment. That's our priority. 47:34 [Foreign Language] 47:35 Thank you. Thank you for your question.

47:38 Thank you.

47:42 This concludes our question and answer session. I would like to turn the conference back over Ms. [indiscernible] for any closing remarks.

47:52 This will conclude the conference call today. If you have any further questions, please reach out at ir@cashchina.cn. Thank you.

48:02 The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.