Lufax Holding (NYSE:LU) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

Access the full call at https://dpregister.com/DiamondPassRegistration/register?confirmationNumber=10211235&linkSecurityString=104a7ebdba9

Summary

Lufax Holding reported a 4.6% year-over-year increase in new loan sales for Q2 2026, driven by a 27.6% rise in consumer finance, despite a 15.5% decline in total income due to weak small business demand.

The company has completed audits for previous years and strengthened internal controls, regaining NYSE compliance but still facing trading suspension on the Hong Kong Stock Exchange.

Strategically, Lufax is focusing on lower-risk borrowers, AI-powered operations, and expanding its consumer finance segment to complement its traditional small business lending.

Regulatory pressures are impacting short-term growth and profitability, but management believes tighter regulations will benefit the industry long-term and enhance Lufax's competitive position.

Management emphasized a disciplined approach to cost structure optimization and internal compliance, with a focus on returning to profitability and potentially revisiting dividend policies.

Full Transcript

OPERATOR

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 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 host today, Ms. Shin Yan Liu, the company's Head of Board Office and Capital Markets. Please go ahead.

Shin Yan Liu, Head of Board Office and Capital Markets

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 on 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 Holding. Please.

Ji Xiang, Director and CEO

Thank you, Hsin. 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 Holding. 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's 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 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 identified 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. D. Ki Yip, 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 which we're building across the organization. We're 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 Hong Kong Stock Exchange, a matter we continue to work through with the Hong Kong Stock Exchange.

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. Qinghong Business School SME Development Index fell month over month during the quarter and dropped below the 50-point boom-bust line in July.

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 and policies since 2025 covering a wide range of things such as collection practices, data security, and personal information protection. Oversight now spans the full value chain from pricing and customer acquisition through risk management, post-loan operation, and data governance.

Combined with continued interest rate compression and 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 maintaining 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're now focused on customer segmentation and on deepening our relationship with our existing customer base.

We launched our Industry Plus product, which deploys differentiated product and operational priorities tailored to local industries and customers across different regions. So basically the plus is Industry plus region or even at a county 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—small business owner—customer base.

Moreover, we're 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're also improving our customer management model, moving from single product sale towards full life-cycle account management. Leveraging our direct sales team's 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 51.1 billion RMB. This was up 4.6% year over year and up 4.8% from the fourth quarter. This growth was driven by consumer finance, where new loan sales grew 27.6% year over year to 36.9 billion RMB. We continue to gain share in a pretty contracting market. Our total outstanding loan balance was 167.3 billion RMB 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 prioritized 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. This effort delivered an 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 1.0% and secured loans was 0.9%, as compared to 1.2% and 1.0% respectively in the first quarter.

DPD30 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 loans was 1.3%, as compared to 1.4% as of 03-31-2026. 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, flat sequentially and up slightly year over year.

The average pricing of consumer finance loans was 19% in the second quarter. On funding, we continue to optimize our cost. We leveraged 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 the broader downward trend in interest rates.

All right, now let me briefly discuss the key business drivers behind our second quarter result. On the top line, total income declined by 15.5% year over year, driven primarily by a 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, the recorded net loss for the quarter continued 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 the 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 Holding. Again, we very much appreciate your continued support, and this concludes our prepared remarks for today. Operator, we're now ready to take any questions.

OPERATOR

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'd like to remind you to please mute yourself after stating your question. Thank you. The first question today comes from Richard Hsu with Morgan Stanley. Please go ahead.

Richard Hsu, Analyst at Morgan Stanley

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. Now, new loans returned to positive in the second quarter. Obviously the consumer finance accounting for a rising share of business—is this sustainable?

There are still a lot of policies trying to influence the growth in this area's pricing. And under the new strategy, what should be the long-term balance between consumer and, I guess, the SME loan portfolio? Thank you very much.

Ji Xiang, Director and CEO

Thank you, Richard. Thank you for your questions. So basically the first question is around strategy, right? Over the next two to three years our top priorities are pretty clear. 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's basically a new customer segment we want to broaden; and salaried employees. Through consumer finance we see some good momentum. I want to see that continue, increasing the proportion of mid- to low-risk customers, build a more diversified product matrix, deepen refined operations of the customer segment, and achieve improvement in risk and profitability. So that's basically the top-line priority. Second priority: with all the pricing compression and credit costs 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 the business to optimize customer acquisition, risk, operating cost, and create more room for improved profitability while we're lowering the price. Third, strengthening internal controls and compliance. It's, you know, like what Hsin said, it's been two years we haven't been able to talk to you. So we want to strengthen internal control and compliance, strictly implement regulatory requirements, to achieve long-term sustainable development.

The previous strategy as 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 strategy we're basically trying to implement. We will further strengthen our dual-engine strategy for small business lending and consumer finance, while also relying on our new selective customer strategy to optimize the customer base, drive growth in the business scale, and improve profitability.

And when it comes to the second question—the consumer finance going up, whether that's sustainable, and what's 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. And 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, and we believe this growth is sustainable. When it comes to 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 as 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.

OPERATOR

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

Emma Hsu, Analyst at Bank of America

Thank you. Thank you for the opportunity to ask the question. So I have two questions. The first one is about the regulations. 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? And 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 necessary to support this business under the full guarantee model once sustainable profit?

Should investors expect the existing 20% to 40% payout framework to remain the base policy? And under what conditions would you consider additional capital distribution? Thanks.

Ji Xiang, Director and CEO

Yeah, thank you for the question. So basically, first of all, talking about the regulation, as one of the sizable players in the market, we fully welcome the tightened compliance. Strengthened compliance across the industry is an inevitable trend. Recent policy changes are made to comprehensively strengthen compliance requirements, protecting consumer rights and promoting the healthy and sustainable development of the industry. We will continue to implement adjustments 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 the mid- to long-term, this trend will help healthy growth of the industry.

Compliant lending platforms such as Lufax will benefit from further optimization of the industry landscape and gain market share. So in the short term we do feel pressure in terms of our business performance, but we're also optimistic around mid-term and long-term performance because a more compliant market will benefit players such as us. And you also have questions around capital return. Management believes our current cash position is appropriate relative to the scale of our business.

It reflects both the capital requirements and applicable financial regulations and the need to maintain a buffer to support future growth. Now management is focused on executing our strategy. 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 to decide whether we should have payout for a month.

OPERATOR

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

Alex Yee, Analyst at UBS

Hi, thanks for taking my question. Two questions from me. First one is regarding our unit economics. So 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 C2, M3, and consumer finance NPL ratios, improve Q/Q in Q2, but some of the lagging indicators do remain elevated.

And we have also seen there have been some risk events 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.

Ji Xiang, Director and CEO

Sure, sure. This is the first time that I talk to our shareholders, investors, analysts. However, the new strategy has been implementing, I would say, since the early beginning of the year. And with the new strategy, we have seen improvements in the asset quality of new Rongyi loans enabled in 2026, and we believe our overall profitability will continue to improve as we continue to implement the new strategy. So what I can say 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.

And 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 model reforms and expanded the use of AI-powered collection, and all these initiatives have delivered initial positive results, with sequential improvement in asset quality in the second quarter.

Asset quality had 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, and management is expecting the trend to continue over the second half of the year. Thank you.

OPERATOR

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

Yu Fan, Analyst at CICC

Okay, thanks, management, for taking my questions. This is Yu Fan from CICC. I also have two questions. The first one is about customer competition. We noted that the secured loans of Rongyi price around 17%. Do the credit characteristics of these customers qualify them for bank loans? And for the relatively high-quality customers, how does the company compete with banks or other lower-price channels? And the second question is about Hong Kong trading.

I just wonder how is the processing of the resumption of our trading in Lufax's Hong Kong shares, and could you share is there any better visibility on the trading resumption timeline? These are my two questions.

Ji Xiang, Director and CEO

Thank you. So first of all, we don't see ourselves competing head to head with most of the banks. Our Rongyi product targets small business owners and individually owned businesses, a customer base that's different from typical bank customers. Why is it different? Many of these customers either cannot access bank loans or cannot obtain sufficient loan amounts from the bank. So basically Rongyi fills this supply gap and complements banks 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 advantages include higher loan amounts, a more convenient process that typically takes less than a day, and flexible repayment terms, which better meet customers' supplementary and emergency financing needs. On refined operation, we launched our Industry Plus initiative, which is tailored to the distinct operating characteristics and financing needs of different regions and industries.

For example, I've been to provinces such as Shandong, such as Guangdong, etc. At a county level, they typically have industries which are basically serving the entire nation—for example, cooking wares in a particular county in Shandong and lighting facilities in a particular county in Guangdong—and we are basically leveraging our direct sales to penetrate to county level. This allows us to design dedicated product solutions that more precisely address small business financing needs across different sectors.

And you also asked a question around Hong Kong trading resumption. We have now completed the restatement of our 2020, 2022, 2023 financial statements, the audit of 2024 and 2025, with all reports now published and released. We 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 Hong Kong Stock Exchange regarding the relevant findings.

We will keep investors updated on any developments in a timely manner, and we will make appropriate announcements as necessary.

OPERATOR

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.

Ji Xiang, Director and CEO

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.

OPERATOR

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.