Good day, and welcome to the CNFinance Holdings Ltd Second Quarter and First Half of 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event being recorded. I would now like to turn the conference over to Matthew Lou, IR Manager. Please go ahead.

Thank you, Kate. Good morning, and evening, and welcome to the CNFinance second quarter and first half of 2023 financial results conference call. In today's call, our Director and Vice President, Mr. Jun Qian 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 session. Before we start, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. And as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminologies such as will, expects, anticipates, future, intends, plans, believe, estimates, 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 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 Mr. Jun Qian.

[Foreign Language] [Interpreted] Thank you for taking the time to join this conference call. We will discuss CNFinance second quarter and first half of 2023 operating and financial results and followed by a Q&A session. During the second quarter and first half of 2023, the company achieved year-over-year growth in major performance indicators. In the second quarter of 2023, the total loan origination volume was RMB4.5 billion, representing a year-on-year increase of 45%. Total interest income was RMB430 million, representing a year-on-year increase of 5%. Net income came in at RMB44 million, representing a year-on-year increase of 142%. In the first half of 2023, total loans originated was RMB8 billion (ph), representing a year-on-year increase of 43%. Total interest income was RMB885 million, representing a year-on-year increase of 7%. The net income was RMB93 million, representing a year-on-year growth of 52%. In the first half of 2023, we focused on achieving high-quality development and accomplished the following tasks. First, we continued to promote commercial bank partnership. Since the launch of commercial bank partnership model, it has gradually gained recognition of the market and our partners given this competitive price and high-quality borrower base. After deepening the cooperation with private banks in the second half of 2022, the Commercial Bank partnership started to scale and has become an important part of the company's business and source of income. In the first half of 2023, we originated loans of RMB3 billion under the commercial bank partnership, accounting for 40% of the overall loan origination volume and the associated net revenue was RMB50 million. Second, we continued to reduce funding costs and achieved a breakthrough in the scale of funds risk to support sales partners who are obliged to repurchase delinquent loans. Under the current market condition, the company continued to maintain dialogue with funding partners on lowering the cost and optimizing the financing structure and made positive progress. As of the end of the second quarter of 2023, the accumulated amount of funding risk to support sales partners default repurchase was RMB700 million, which has helped to ease their liquidity pressure and has provided strong support to further expand their business. Third, we continued to refine our credit decisioning mechanism. Since the beginning of the year, we have optimized our borrower assessment. We analyze influential factors of historical defaulted borrowers and started trial run of a risk control model procured from a well-established commercial bank. At the same time, we have strengthened the evaluation of collateral value by applying the property rating system. As of June 30 of 2023, the delinquency rate of loans originated by the company was approximately 15% down from 18% as of the end of 2022. Currently, there are still uncertainties associated with China's economy and the downward trend of the real estate market has not been reversed. However, we believe that with China proposing to give full play, the role of both aggregate and structural monetary policy tools and to vigorously support scientific and technological innovations, the real economy as well as the development of SMEs, China includes the financial position (ph) will continue to be in the period of strategic opportunity. Against this backdrop, in order to overcome the challenges and seize the opportunities. We will continue to pursue high quality development by coordinating growth of scale asset quality and ensuring compliance, our plans include. First, we will focus on growth. In order to reach a wider range of borrowers, we will continue to improve our product mix, launch differentiated products with low interest rates and leverage technology to empower sales. Second, with the refined credit decisioning mechanism and optimize asset quality, we will continue to shift our business to core areas in first-tier and new first-tier cities. In credit decisioning process, we will thoroughly evaluate quality (ph) of borrower, collateral and the sales partners introduced such borrower. We will better manage sales partners and evaluate collateral to reduce the delinquency rate and continue to help sales partners release pressure. Third, we will continue to invest in science and technology to empower our business. We are developing a big data model to enhance our capability to evaluate borrowers. We are working on making the risk control model procured more suitable to our business using historical loan data we have accumulated in the past two decades. Our developers have completed the preliminary research and are working on developing the system. At the same time, we are also looking for opportunities to collaborate with or invest in other fintech companies whose advantages could be synergistical with our business. Fourth, we will strengthen compliance inspections and audits to further randomize (ph) compliance risks by means of routine inspection, case audits and compliance training. Now, I would like to hand the call over to Ms. Jing Li, who will walk you through our second quarter and first half financial results.

Thank you. Now I would like to [Technical Difficulty] second quarter and first half financials results. Please note the currency in use is RMB [Technical Difficulty] otherwise for the second quarter of 2023 total increase in fee income increased 5% [Technical Difficulty].

Pardon me, everyone. Please hold on for the speaker line to be reconnected. We have the speaker line rejoined. Please go ahead.

Thank you, Kate. Sorry, now please welcome Ms. Jing Li to continue with the financial results of CNFinance.

Total interest and fees expenses decreased by 3% to RMB182 million compared to RMB187 million, primarily due to lower funding cost from trust companies. Net interest and fee income was RMB250 million, representing an increase of 12% from RMB223 million. Net revenue under the Commercial Bank partnership model represented same charge to commercial banks for surveys, including introducing borrowers, initial credit assessments, facilitating loans from the banks to the borrower and providing technical assistance to the borrower and bank. Net of PayPay (ph) to third-party insurance company and commissions paid to the sales channels was RMB29 million as compared to RMB0.7 million. The company has been collaborating with commercial banks since 2021 and such collaboration grow in scale in the second half of 2022. The outstanding loan principle under the Commercial Bank partnership were RMB4.5 billion as of June 30, 2023, as compared to RMB0.3 billion as of June 30, 2022. Collaboration cost for sales partners was RMB83 million as compared to RMB77 million, primarily due to the increase of loans recommended by sales partners under the commercial bank partnership. Net interest and fee income after collaboration cost was RMB196 million, representing an increase of 33% from RMB147 million. Provision for credit losses representing provision for credit losses under the trust lending model and the expected credit losses of guaranteed under the Commercial Bank partnership model in relation to certain financial guarantee arrangement, the company entered into with a third-party guarantor, who provides guarantee surveys and commercial bank partners decreased by 26% to RMB51 million from RMB68 million, primarily due to the decrease in outstanding loan principles of delinquent loans resulting from our constantly improving credit risk control mechanisms. Realized gains and scales of investments net, representing realized gains from the sales of investment securities of RMB12 million as compared to RMB8 million, the increase was primarily due to effective fine management. Other gains net decreased by 97% to RMB0.8 million from RMB30 million, primarily due to the decrease of credit risk mitigation position fortified sales partners as a result of our refined management and staff partners. Total operating expenses increased by 8% to RMB99 million compared with RMB91 million. Employee compensation and benefits were RMB51 million as compared to RMB49 million, primarily attributed to an increase in the performance based bonus base as a result of an increase in loan organization volume during the second quarter of 2023. Other expenses base increased by 26% to RMB36 million from RMB29 million, primarily due to the increase in fees paid to local channels for introducing sales partners to the company. Net income increased by 142% to RMB44 million from RMB18 million for the first half of 2023. Total interest and fee income increased by 7% to RMB885 million from RMB827 million. Interest and financing service base on loans increased by 5% to RMB807 million from RMB766 million, primarily attributed to the increase of average selling outstanding loan principles in the first half of 2023 as compared to the same period of 2022. Interest income charged to SaaS partners increased by 18% to RMB66 million from RMB56 million, primarily due to the fact that the company allow more SaaS partners to repurchase the default to loans in installments to help those partners use their pressure on cash flow in the first half of 2023. Total interest trade and sales expenses decreased by 6% to RMB366 million from RMB388 million, primarily due to lower finding cost from trust companies in the first half of 2023. Net interest and fee income was RMB518 million representing an increase of 18% from RMB439 million. Net revenue under the commercial bank partnership model was RMB50 million (ph) as compared to RMB0.9 million. Collaboration cost for sales partners increased by 6% to RMB166 million from RMB156 million in the same period of 2022, primarily due to the increase of loans recommended by sales partners under the commercial bank partnership. Provision for credit reserves increased by 136% to RMB130 million from RMB55 million. The increase was a combined effect of the increase in expected credit loss of guarantee under the Commercial Bank partnership model as organization volumes grew and scale rapidly in the first half of 2023 and a reversal of allowance in the first quarter of 2022 due to the fact that the company disclosed the remaining loans under the traditional facilitation model to third parties and the allowance of such loans were reserve. Net losses on sales of loans was RMB4 million as compared to RMB42 million in the same period of 2022. The net losses in the first half of 2022 was primarily attributed to the fact that the company is paying the remaining loans under the traditional facilitation model, which were all facilitated prior to 2019 to third-parties in bulk during the first quarter of 2022. Other gains net decreased by 65% to RMB17 million from RMB48 million in the same period of 2022, primarily due to the decrease of credit risk mitigation position forfeited by the sales partners as a result of our refined management and sales partners. Total operating expenses increased by 5% to RMB179 million compared with RMB171 million in the same period of 2022. Employee compensation and benefits increased by 4% to RMB95 million from RMB92 million in the same period in 2022. Other expenses increased by 14% to RMB60 million from RMB53 million, primarily due to the increase in fees paid to local channels for introducing sales partners to the company. Net income increased by 52% to RMB93 million from RMB61 million in the same period of 2022. As of June 30, 2023, the company had cash and cash equivalents and restricted cash of RMB1.9 billion compared with RMB1.8 billion as of December 31, 2022, including RMB1.3 billion and RMB1.2 billion from structured funds as of June 30, 2023 and December 31, 2022, respectively, which could only be used to grant new loans and activities. The delinquency ratio, excluding loan cost of sales for loans originated by the company decreased from 18.3% as of December 31, 2022 to 15.2% as of June 30, 2023. The NPL ratio, excluding loans held sales, the loans originated by the company increased from 1.1% as of December 31, 2022 to 1.4% as of June 30, 2023. Now, we would like to start the Q&A section.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from William Gregozeski of Greenridge Global. Please go ahead.

Hi. I was hoping you could kind of provide an update on the demand you're seeing from the SME clients in terms of the number of SMEs trying to take out loans, the size, the type, whether it's the trust or the commercial and how does that compare to last year?

[Foreign Language] [Interpreted] So based on the released that as a figure of July, we're seeing the overall loan demand of SME (ph) owners to decrease. So I have a set of data for you here. So the new loans in July, China's new loans in July was RMB528 billion, which has decreased to RMB270 billion as compared to the same period of last year. And among them, new loans issued to the real economy was RMB36 billion, which has decreased by RMB389 billion as compared to the same period of last year. As of CNFinance, so in the second quarter and the first half of 2023, our number of transactions were 60 to 69 (ph) and 11,812 (ph) respectively, which representing a year-on-year growth of 18% and 16%. And the loan origination volume was RMB4.5 billion and RMB8 billion in the second quarter and first half of 2023, respectively, which representing a year-on-year growth of 45% and 43%, respectively. Okay. So as for the split from trust model and bank model, so in the second quarter of 2023, we originated 4,101 loan transactions under the trust lending model. And that number under the commercial bank partnership was 2,167. As for the first half of 2023, the number of transactions under trust lending model was 7,734 and that number under Commercial Bank partnership was 4,074. So I think the reason why we achieved growth when the entire market is going on a downward trend has the two, the reason was two-fold. First of all, in the same period of 2022, our business was under the negative influence of the pandemic control and prevention. So the business number is rather low. And I think the second reason of our growth is that we're still relatively small. And our market share is relatively low. So with our continued efforts to build our sales to push out more products we were able to achieve a growth when the entire market is a downward trend in the first half of 2023. As for the average ticket size, so in the same period of 2022, our average ticket size was somewhere near 600,000 and it has increased in 2023 to around 700,000. So I think the reason behind the increase of average ticket size was mainly due to that we have since the fourth quarter of 2022, to maintain the overall asset quality, we have made a decision to shift our business to the core area of Tier 1 and new Tier 1 cities. So we still believe, despite the overall downward trend and uncertainties associated with the China's real estate market, the assets in the core area of Tier 1 new [indiscernible] City will still maintain its value and even gradually go up. Thank you.

Great. Thank you for all that. Are you guys even with the uncertainty of the economy, do you still think you'll see origination growth over the remainder of the year?

[Foreign Language] [Interpreted] So first off, we are still sticking to the target we made at the beginning of the year of reaching loan origination of RMB20 billion. Secondly, we will still insist on our high quality development, but are not giving in the valuation of borrowers as well as the estimation of collateral value. So as I have mentioned, our market share is still relatively low even though, even given the RMB20 billion origination target. Thank you.

Okay. Thanks. And then last question is regarding the sales partners. The interest on the loans to the sales partners was down this quarter. Is that a sign of just less loans going into defaults or sales partners having more liquidity and what's kind of the how active are the sales partners right now?

[Foreign Language] [Interpreted] So we see this change as a positive indicator. So we believe that means there are less defaults and which indicates that the overall asset quality is improving, which has caused less sales partners that have to repurchase the defaulted loans, and that has caused such number to decrease. And also, I think in the future, if this number keeps going down, it only means that our business is getting better. It means our sales partners are doing better, are performing well. Anything else?

Okay. Thank you.

That concludes the question-and-answer session. I would like to turn the conference back over to Matthew Lou for closing remarks.

Thank you and thank you again for joining us today. If you have any other questions, please feel free to contact us at ir@cashchina.cn. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.