Lufax Holding Ltd (LU) Q2 2021 Earnings Call Transcript

Lufax Holding Ltd (LU 0.66%)
Q2 2021 Earnings Call
Aug 09, 2021, 9:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holdings Ltd second-quarter 2021 earnings call. [Operator instructions] Please note, this event is being recorded. Now I'd like to hand the conference over to your speaker host today, Mr. Yu Chen, the company's head of board office and capital markets.

Please go ahead, sir.

Yu Chen

Thank you very much. Hello, everyone, and welcome to our second-quarter 2021 earnings conference call. Our quarterly financial and operating results were released by our newswire services earlier today and are currently available online. Today, you will hear from our chairman, Mr.

Ji Guangheng, who will start the call with some general update on our achievements, share our thoughts on recent regulatory developments and industry dynamics and provide our plan for future business. Our co-CEO, Mr. Greg Gibb, will then provide you of our progress and details of our development in the quarter. Afterwards, our CFO, Mr.

James Zheng, will offer a closer look into our financials before we open the call for questions. In addition, Mr. Y.S. Cho, our co-CEO; and Mr.

David Choy, CFO of our retail credit facility business will also be available during the question-and-answer session. 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. I will be making forward-looking statements. Please also note that we will discuss nonIFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the international financial reporting standards in our earnings release and filings with the SEC.

With that, I'm now pleased to turn over the call to Mr. Ji, Chairman of Lufax.

Guangheng Ji -- Chairman of the Board and Chairman of Lufax Executive Committee

[Foreign language]Hello, everyone, and thank you for joining our 2021 second-quarter earnings call. I will start with some general updates on our achievements in the first half then share our thoughts on recent regulatory developments and industry dynamics before providing our plans for future business.[Foreign language]First, update in the first half. Generally speaking, all the Chinese data ADR stock prices have seen increased volatility recently due to changes in macro policies and market conditions. At Lufax, we managed to deliver improvements in our operating performance, regulatory compliance, and corporate governance in the first half.[Foreign language]First, we achieved high-quality growth in our core business.

For the first half, our total income increased by 17% year over year and net profit increased by 33% year over year. Later in the call, Greg and James will elaborate more.[Foreign language]Second, we responded to regulatory costs by phasing out our peer-to-peer product in a smooth and compliant manner. In the second quarter, we substantially completed the run-off legacy peer-to-peer products and further strengthened our regulatory compliance.[Foreign language]Third, we continuously enhance our corporate governance by restructuring our board of directors and establishing committees in key focus areas, including risk management, consumer protection, and ESG. We've also been actively advancing the establishment of our ESG system.[Foreign language]Fourth, on May 24, 2021, our company announced USD 300 million of share repurchase.

As of June 30, 2021, we have substantially completed the repurchase. In addition, our senior management purchased $5 million worth of shares using their personal funds.[Foreign language]While there are still uncertainties in the market, our stable profitability, strong operating cash flow, abundant cash reserves, and the actions we took to pivot our business based on our understanding of regulatory requirements, all give us strong confidence about our future prospects.[Foreign language]As such, I'm pleased to announce a new share repurchase program of 700 million over the next 12 months, bringing our total program to $1 billion. [Foreign language] In addition, we are actively evaluating other options to return shareholder value going forward.[Foreign language]Second, the analysis of regulatory development and market dynamics.[Foreign language]Since our Q1 earnings announcement, the Chinese government has continuously tightened supervision of technology platform companies. These include the direct sharing of borrowing information by online loan facilitators and co-lenders with financial institutions, mitigating an all-in-cost ceiling of 24% for consumer loans and publishing the draft version of the amended cybersecurity view measures for public consultation.[Foreign language]Lufax has always been close and in constant dialogues with regulators to fully grasp with the latest regulatory trends, intentions, and requirements and make sure relevant authorities are fully aware of our business model and development in key areas.[Foreign language]I'm pleased to report that so far, we have maintained open communication lines with all levels of regulators with satisfactory frequency and results.[Foreign language]Despite recent influx of new regulations and policy integrations, our business has not been materially affected.

Moreover, our business model operating results have remained resilient.[Foreign language]Now I will address a number of questions that attracted recent attention. The first topic is the sharing of data by law facilitators and co-lenders directly with financial institutions.[Foreign language]Recent media reports speculated that the CBIRC will prohibit online product facilitation platforms from sending directly to their partner financial institutions forward data, including personal information voluntarily submitted by borrowers, data generated as part of the platform's process and other borrowing information provided by third-party vendors. Our interpretation is that it aims to regulate the consumer credit scoring process emphasizing that credit assessment data from Internet platforms must be transmitted solely through licensed credit agencies.[Foreign language]Lufax has been utilizing its license guarantee company to conduct its retail foot facilitation business and perform credit assessment authorized by our partner banks in full compliance with the banking sector, financial institution, and financial guarantee company business corporation guide, we refer potential clients to our banking partners, transmit the guarantee company's approval results and share timely updates on post-origination repayment status. As such, every aspect of our business cooperation is done in accordance of the current guide and that's different from an unlicensed company's loan facilitation model.[Foreign language]In the meantime, we will have constructive dialogues with the regulatory authority to seek their feedback and guidance.

We are also prudently exploring the viability of applying for a credit scoring license or cooperating with third-party credit scoring companies.[Foreign language]Because the mandatory completion of credit scoring reform is set to the end of 2022, there should be sufficient time for both regulatory authorities and market participants to test new models and make adjustments. Based on currently available information, we believe corporate with third-party credit scoring companies will not materially impact our business model or profitability.[Foreign language]The second topic relates to consumer borrowing costs. At the end of July, some media reported that regulatory authorities would require financial institutions, including consumer finance companies and banks to implement an all-in-cost ceiling of 24% for personal lending. From our perspective, we think that this new requirement has crystallized the direction of loan pricing and eliminated potential uncertainties.

Since September 2020 we have been pre-emptively implementing an all-in-cost ceiling of 24% for all new loans we facilitate. Going forward, we'll continue to follow regulatory direction leverage technology to broad and small micro-business owners access to cost-effective financing and maintain our own profitability by improving our operating efficiency.[Foreign language]The third topic I would like to discuss is cybersecurity.[Foreign language]Since July, regulatory authorities have been come back [Inaudible] several Internet platforms in accordance with cybersecurity measures demonstrating the nation's heightened attention to cybersecurity and data safety.[Foreign language]To ensure full regulatory compliance of our data processing business operations, we promptly conducted decreasing seminars and performed internal reviews. Lufax achieved the internationally accredited ISO 27001 certification for information security management and the level three registration certificate from the Ministry of Public Security of China. Going forward, we'll continue to strictly adhere to policy requirements and into regulatory compliance in all key aspects of our operations, such as network equipment and service procurement, critical data reviews, and many others.[Foreign language]The fourth topic is market development and competitive dynamics.[Foreign language]In recent years, a number of Internet platforms and traditional financial institutions have jumped into the foray of serving small macro business financial needs.

Some platforms have started to copy the auto business model that we pioneered.[Foreign language]On the one hand, this validates the attractiveness of our business segments and the effectiveness of our O2O model. On the other hand, intensifying competition challenges Lufax to perform even better.[Foreign language]Over the past 16 years, we have built a highly effective off-line sales and service team, a comprehensive management system, and a proven risk management model stress tested over multiple market cycles. Such combination serves as high barriers to entry and precludes peer replication within a short period of time. At the same time, increasing competition also motivates us to work harder, ensure regulatory compliance, innovate with prudent advance our technology and fortify our industry leadership.[Foreign language]Development plans for the future.

Based on our analysis of regulatory intentions and industry dynamics, we believe competitive focus will gradually shift from volume growth to quality growth. Consequently, we are committed to uphold the following principles to keep our operations fully compliant to create value to society and to advance our technology.[Foreign language]First, we shall keep our operations in full regulatory compliance and strict policy adherence. As an organization with financial DNA, we have always prioritized regulatory requirements and operate this new compliant manner. Based on our principle pre-emptive diagnosis and swift operational adjustments for timely optimal results, we plan to continue enhancing our communication with regulatory authorities so that we can keep a close tab on a course of regulatory development and timely execute our policy requirements.[Foreign language]Second, we shall keep creating value to the society by providing quality financial services to small micro business as well as the middle class.[Foreign language]As of June 30, 2021, Lufax has cumulatively provided credit facilitation services to more than 15.5 million borrowers with an outstanding loan balance of more than RMB 600 billion.

Over the past five years, we have effectively satisfied small micro business owners on SME by facilitating nearly RMB 2.3 trillion worth of loans.[Foreign language]Recently, we launched special assistant plans for small micro companies, mainly aimed at supporting companies in labor-intense industries such as retail hospitality, restaurants, and manufacturing, creating a significant number of employment opportunities. For small micro agriculture businesses, we are working with the China women's development foundation to distribute our farmers' assistance fund to rural female entrepreneurs and cooperative leaders. As a result of this work, we are making meaningful contributions to the economy of rural areas.[Foreign language]Going forward, Lufax will provide more products and services catering to the needs of small micro business owners, leverage technology to reach customers more effectively, simplify loan application process, improve efficiency in reviewing and improving online loan applications, fulfill our commitment to financial inclusion and support the nation's economic development agenda.[Foreign language]In our wealth management business, Lufax operates as an information and empowerment platform to help the Chinese middle class manage the well. Lufax will continue to provide a variety of financial products, optimized product matrix composition enhance customer experience, improve service quality and efficiency and contribute to our clients' wealth preservation and growth goals.[Foreign language]Thirdly, we shall empower our business development and quality improvements through technology.[Foreign language]In adherence to our principles O2O integration, multi-service offering and customized solution we have continuously advanced our technology in big data, artificial intelligence, and others.[Foreign language]In retail product facilitation, we have launched an AI-powered smart loan solution named Xingyun.

In wealth management, we are promoting an intelligent customer service solution aimed at improving user experience. All these solutions demonstrate our ability to enhance our financial service's efficiency by leveraging technology.[Foreign language]In conclusion, although our road ahead is not without challenges, we are confident that we will be able to lay our own unique path to long-term sustainable success by maintaining operational compliance, generating social value and continuing technology advancement.[Foreign language]With that, I will now turn the call over to Greg, who will share our business updates for the quarter.

Greg Gibb -- Co-Chief Executive Officer

Thank you, Chairman Ji. Although the regulatory environment continues to transform and some uncertainties remain, our business performance is sound. Let me get straight into the key figures, noting that all numbers are in RMB and all comparisons are on a year-on-year basis unless otherwise stated. Profits in the first half reached 9.7 billion, up 33.4% versus a year ago.

Our second-quarter profit was 4.7 billion, up 53.2% versus a year ago. Our second-quarter revenues of 14.8 billion grew 17.3% versus last year. Our second-quarter total operating expenses of 7.1 billion decreased by 1.7% for the same period. As a result, our net margin reached 31.9%, a 7.5 percentage point improvement over the second quarter last year, driven by ongoing improvements in operations and technology.

We are confident that profit growth levels in the first half will be sustained throughout the balance of this year. On the back of this solid performance, it is important to note our strong balance sheet and cash position. As of June 30 of this year, our net assets reached 91.1 billion, of which approximately 42 billion are liquid assets maturing in 90 days or less. Our net cash flow has increased by 9.6 billion in the last 12 months.

This strong position allows us to do several things. First, it provides us with a resilient ability to meet any new capital requirements may come from regulatory changes. We believe that in lending facilitation, all platforms Regardless of business model or customer segment will ultimately be required to bear 20% to 30% of related credit risks with a capital leverage of no more than 10x with a portion of shared risk. In the second quarter, excluding the consumer finance subsidiary, we bought credit risk around 16% of all new loans facilitated and we have more than sufficient capital to meet increased levels of needed.

Second, our strong profitability provides multiple avenues to generate value for shareholders. Today, we announced that we will extend our corporate buyback program, initiating a new plan to repurchase USD 700 million of shares over the next 12 months. We continue to explore other avenues to return more value to shareholders over time. Third, our resources allow us to continue to invest in and enhance our unique business model.

For the sake of general understanding, I'd like to highlight three aspects of our business model and the developments currently underway. First is our unique O2O direct sales force business model, which allows us to unlock the unmet borrowing needs for China's small and micro business owners. In the second quarter, excluding the consumer finance subsidiary, 77.6% of new loans facilitated which is small business owner segment. We continue to find that our direct sales force of more than 58,600 professionals is the key to reaching the small business owners and building the required levels of trust serve their larger and long-term lending needs and being able to match an array of unsecured and secured products to their diverse business and industry purposes.

In the second quarter, new loan sales reached 152.7 billion, growing 11.1% versus a year ago, in line with prior guidance. During the quarter, new loan sales from other channels slowed down a little. However, the increased fee loan volume from our own direct sales teams has offset the weakness in other channels thus demonstrating the resilience and flexibility of our direct sales team as well as the strength of our O2O business model. Furthermore, with continued technology upgrades, we have greatly improved the productivity and efficiency of our direct sales team.

In the second quarter, 6.5% of new loans facilitated were in a new secured auto lending product, demonstrating the ability of our O2O direct sales to capitalize on changing market conditions and customer relationships. The productivity of our direct sales force increased 10% over the last 12 months. We continue to invest in new risk, data, industry insights, and technology tools to further enable our unique O2O sales force to tap this hard-to-reach segment, which we believe could not be efficiently served through a pure online model. A second unique aspect of our business model is how we deploy our licenses.

This has become an increasingly important factor in the tightening environment to satisfy both regulatory and funding partner needs. All new loans that we facilitate today either flow through our guarantee companies or our consumer finance license. Our guaranteed companies with operations all over the nation except Tibet, Ningxia, and Yunnan provinces allow us to share credit and process data flows with our more than 65 national and local funding partners under well-established legal frameworks. The deployment of these licenses together with successful happening at the ABF and interbank ABM market has helped the ongoing optimization of funding costs through the first half of this year.

We are now actively exploring new collaborations to meet expected credit rating license usage requirements will come into the effect by the end of next year. A third unique aspect of our business model is that we seek to serve our customers across a full range of financial services, not just lending. While our wealth management platform is a smaller contributor to total company revenues today, the China wealth management market is witnessing substantial new growth as customers and providers are adjusting to full implementation of the new asset management regulations and a new framework for cross-border investing between China's Greater Bay and Hong Kong. Our domestic wealth and insurance serving primarily the affluent -- the emerging affluent continues to grow with client assets of $421.1 billion as of June 30, 2021, expanding 12.4% versus a year ago, and expanding by 28.8% if excluding legacy TP assets, which have now been substantially run off.

Our platform in Hong Kong is currently entering new partnerships in preparation for the rollout of Greater Bay policies. In the third quarter of this year, we will merge our online client interface for all borrowers and investors to keep in services to all customers across small business owner lending, consumer finance, wealth management and protection and pension insurance. Company analysis assessed many of our small business owners are middle class and emerging affluent customers and a notable proportion of our well customers are small business owners. With the rapidly changing operating environment, we believe our capital strength and unique business model, combined with our deep financial credit experience and commitment to compliance will allow us to remain resilient.

Before turning over to James to go through the detailed operating and financial performance and second-half guidance, I would like to highlight one final figure. We have continued to make progress in bringing down APR to our borrowers with the second quarter APR for the overall portfolio reaching 24% and versus 26.7% a year ago. This reduction has been executed without negatively impacting our net margins. In the medium term, we will seek to lower APRs but keep our net margin steady by driving down relevant operating credit insurance and funding expenses.

I will now turn over the call to James Zheng, our CFO.

James Zheng -- Chief Financial Officer

Thank you, Greg. I will now provide a closer look into our second quarter operational and financial results. Before I begin, please let me remind everyone that all numbers are in RMB terms and all comparisons are on a year-over-year basis, unless otherwise stated. Our second-quarter 2021 results are characterized by strong business growth, continued operations improvement, and expanded profit margin.

Our total income increased by 17.6% to 14.8 million, while our core basic income, excluding investment income grew by 19.1%. Our net profit increased by 53.2% to 4.7 billion, exceeding our earlier guidance of 2.7 billion to 3.9 billion. Our net margin reached 31.9% in the second quarter, a 7.5 percentage point improvement from the second quarter of 2020. For slide, our continued growth and profitability are key factors.

First, we further optimize the unit economics in our retail credit facilitation business even as we reduced our all-in cost. Our loan balance APR declined by 2.7 percentage points to 34% in the second quarter of 2021 from 26.7% in the second quarter of 2020. While our take rate based on loan value improved to 9.7% from 9.5% and our net margin also expanded over the same period, this achievement is a result of four initiatives. First, we continue to increase our number of banking partners and diversify our funding sources, which has allowed us to obtain cheaper funding from partners with better asset quality.

Second, the credit insurance premium on our loan portfolio has also been reviewed as our insurance partners took better credit and the customer quality into consideration to lower their pricing and without a greater portion of credit risk. Third, the early payoff effect decreased significantly because we have changed the way we charge our customers. Fourth, we achieved significant efficiency gains in our sales and marketing as well as our operations. As a result, we are confident that even if we released our APR further into the future, we should be able to maintain the stability in our take rate and net margin in the regional credit participation.

Second, we maintained a strong pace of loan volume growth, coupled with business mix improvement. On the retail credit side, we grew our mid loan sales by 11.8% to 152.7 billion during the second quarter of 2021, in line with our previous guidance of 145 billion to 155 billion. At the same time, we continue to focus on service more business owners and improving the risk profile of our borrowers. In second quarter excluding our subsidiary, 77% of new loans facilitated were refers to more owners, up from 72.6% for the same period of 2020.

High-quality borrowers, defined as G1 to G3 borrowers by our own internal system, contributed 63.7% of the new general unsecured loans facilitated in the second quarter, compared to 59.4% for the same period of 2020. On the side, our total client assets increased by 12.4% in to 451.1 billion as of June 30, 2021, exceeding our previous guidance target of 12.1% growth for 420 million. Site asset contribution from mass affluent customers who invest more than 700,000 further increased to 18.2% as of June 30, 2021, up from 76.3% as of March 31, 2021. Third, we continue to make progress in executing our plan for a more sustainable risk model.

Loans were net account for 16% of new loans facilitated in the second quarter, up from 4.4% in the same period of 2020. New loan facilities account for 76.3% of new loans facilitated in the second quarter, down from 89.1% a year ago, while our funding partners bought risk for 4.8% of new loans facilitated in the second quarter. As of June 30, our outstanding balance of loans facilitated with guarantees from third-party credit enhancement partners had decreased to 84.3% from 94.3% a year ago. All of the aforementioned operating metrics exclude those of our consumer finance subsidiary.

At the same time, we continue to focus on improving our asset quality. In the second quarter, our C2M flow rate for or facilitated was 44% versus 0.5% a year ago. The 30-day past-due delinquency rate for all loans facilitated was further improved to 1.9% as of June 30, 2021, from 2% as of March 31, 2020. The 90-day past delinquency rate for the total loan facility stabilized at 1.1% as of June 30, 2021, on par with 1.1% as of March 31, 2021.

All of the aforementioned operating methods exclude most of our consumer finance history and the mediation product which will represent roughly 1% of the total loans tax. Fourth, we substantially completed the runoff of legacy P2P products in our wealth management business. During the quarter, current assets from legacy P2P products were reduced to 44 million from 4 billion in the previous quarter, effectively completing our business transformation. Meanwhile, our take rate for the segment was 31.8 bps increasing by 3.6 bps from the previous quarter.

These improvements were primarily driven by our continued development in standard wealth insurance products offset by a decrease in deposit products. Now let's take a closer look into our second-quarter financials. During the second quarter, our total income increased by 17.3%, and our core business income, excluding investment income grew by 19.1%. On the back of this growth, our business and risk-sharing model continues to evolve, driving a change in the revenue mix of our retail credit facilitation business.

For example, during the quarter, while the platform service fees decreased by 8.8% to 9.2 billion, our net interest income grew 98.7% to 3.2 billion and our guaranteed income grew by more than 800% to 891 million. In addition, other income, which is directly linked to delivering services to our financial partners, increased by 205.1% to 1.1 billion. As a result, our retail credit presentation platform service fee as a percentage of total revenue decreased to 62% from 79.8%. In addition, as we continue to utilize consolidated trust plans, which provides lower funding costs in funding operations.

Our net interest income as a percentage of total revenue increased to 21.8% from 12.9% a year ago. Moreover, as we continue to bear more trend risk, we generated more guaranteed income causing our guarantee income as a percentage of total revenue to reach 6% as compared with 0.7% a year ago. By expanding our services to our credit enhancement partners in account management, collections, and other value-added services. Our other income as a percentage of total revenue increased to 7.2% from 2.8% a year ago.

Our investment income decreased by 83.2% to 37 million in the second quarter from 220 million in the same period of 2020, mainly due to losses from the change in fair value of assets. On the wealth management front, our platform transaction and service fees increased by 39.9% on to 407 million in the second quarter from 291 million in the same period of 2020. This increase was mainly driven by the increase in fees generated from our current products and services. Now moving now to our expenses.

In the second quarter, total expenses grew by 2.2% to 8.5 billion. However, excluding credit impairment losses, financial costs, and other losses, total expenses actually decreased by 1.7% in the second quarter, underscoring the steady improvement of our operating efficiencies across most business areas. Our sales and marketing expenses, which include expenses for borrowers and investor acquisition as well as general sales and marketing decreased by 6.3% to 4.3 billion in the second quarter. As a result of our efforts to further optimize our sales productivity and sales commissions as well as the higher base in the second quarter of 2020 due to nonrecurring expenses, our borrower acquisition expense, which are a major component of our total sales and marketing expense decreased by 19.5% year over year to 2.6 billion.

In addition, our investor acquisition and retention expenses also decreased in the second quarter, mostly due to our optimization of investor acquisition channel costs. Our general sales and marketing expenses, which are mainly comprised of payroll and related expenses for marketing personnel, brand promotion costs, consulting fees, business revenue costs as well as other marketing and advertising costs increased by 33.8% to 1.5 billion in the second quarter from 1.1 billion a year ago. This year-over-year increase was largely due to the lower base in the second quarter of 2020, resulting from the social security relief during the COVID-19 outbreak in the same period. Our general and administrative expenses increased by 21.1% to 798 million in the second quarter from 659 million a year ago.

This increase was mainly due to the lower base in the second quarter of 2020 and headcount expansion in the second quarter of 2021 to support our new business ramp in initiatives including the development of our consumer finance business. Our operations and servicing expenses decreased by 3.3% to 1.48 billion in the second quarter from 1.53 billion a year ago. This decrease was primarily due to a decrease in post-origination management expenses, driven by our improvements in management collection efficiency and partially offset by the increase in the trust plan management expenses, resulting from increase in usage of consolidated trust plans. As we maintain our commitment to investing in technology research and development, our technology and analytics expense increased by 18.6% to 570 million in the second quarter.

Additionally, our credit impairment losses increased by 133.5% to 1.4 billion in the second quarter from 597 million a year ago. This was due to the continuing evolution of our business model, which led to increased loan-related risk exposure and higher upfront credit impairment losses. It is worth noting that the increase in impairment losses is purely a function of the increase in the proportion of the credit risks borne by us. While the overall credit profile of our borrowers has continued to improve as mentioned earlier.

Our finance costs decreased by 37.4% to 276 million in the second quarter from 441 million a year ago, mainly due to the decrease in our balance of convertible bonds, which led to lower borrowing costs and increase in interest expense resulting for increase in deposits. As a result of foreign exchange rate gains, we booked 301 million in other gains for the second quarter of 2021, while our effective tax rate decreased to 26% from 29% a year ago. Consequently, our net profit increased by 53.2% to 4.7 billion in the second quarter from 3.1 billion a year ago. Meanwhile, our basic and diluted ears per ADS were RMB 2 and RMB 1.9, respectively, in the second quarter of 2021.

As of June 30, 2021, we had a cash balance of 39 billion, compared to 24 billion as of December 31, 2020. Net cash flow from operating activities was 2.1 billion in the second quarter of 2021. Now turning to our guidance for the second half and full year of 2021. For the second half of 2021, we expect our new loan facilitated to be in the range of 324 billion to 240 billion and the client assets to be in the range of 450 billion to 460 billion.

Meanwhile, as we maintain our growth momentum and we continue to improve our operating efficiency, we expect our total income to be in the range of 31 billion to 31.3 billion, our net profit to be in the range of 6.6 billion to 6.8 billion in the second half of 2021. This translates into a year-over-year net profit growth of 32% to 36% for the second half of '21 and a 33% to 34% for the full-year 2021. These forecasts reflect our current and preliminary views on the market and operational conditions, which are subject to change. This concludes our prepared remarks for today.

Operator, we are now ready to take questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Winnie Wu from Bank of America. Please go ahead.

Winnie Wu -- Bank of America Merrill Lynch -- Analyst

Thank you very much for giving me this opportunity, and congratulations for a solid second-quarter results I guess two things. First, in terms of the credit business, can you provide the latest number in terms of the effective APR in second quarter this year, both for the new business and also for the total outstanding loan balance. So the APR and then the breakdown of funding costs. Second question is related to what Jean talked about on the information and credit growing license.

Can you talk about any progress and application if you are applying for the credit license? Any expectation on that? And also with the new regulation restrictions on the usage of credit information, is that going to impact how much data -- credit data in fact is able to access or the scope of data that you're able to leverage on and that are going to impact your credit scoring?

Greg Gibb -- Co-Chief Executive Officer

Thanks, Winnie. I think on your first question, what we have just disclosed for the second quarter on the overall portfolio is that the APR is 24%. And that's down from 26.7% a year ago. We don't disclose the rate for the new loans.

But what you can very clearly calculate is in order for us to go from 26.7% down to 24%, that means that the new loans that we've been issuing clearly have all been below 24%. And at least a couple of hundred basis points below 24% in order to get that overall average of 24%. And so this is something that we've been doing for some time, and we'll continue to execute that.

Y.S. Cho -- Co-Chief Executive Officer

Partly I can add is, if you look at this part, dispose number, if you look at our on-site new -- our APR decreased by almost 6% from one year ago. But two states remain today. And to answer your second question about the data showing we bank or credit license company. The regulation credit tenant, we met PBOC a few times.

And then also, we have probably got two questions. The first is whether we need a credit license. Our view is our current process of data collection and insuring with partner banks we positive within anti business, the approved score. So we think we don't need a credit license if we need, in that all other net companies or other insurance companies who do TJ business, seniors, they all need this credit license there retail to new license on into average as a shareholder.

But so far, the period pay is in confirm whether we need to have this license or not. The second question we have here is what process we would change to follow this regulation. We might need to share our data with our partner to the company who has credit license going forward, and this regulation becomes effective from the end of last year. So we have net next year.

And lower wait on credit national company and then watching the new process. So we can be ready within first half next year and then certainly change went the project, but it's not confirmed yet.

Greg Gibb -- Co-Chief Executive Officer

But in terms of scope of data, Y.S., that we can access or we need to use doesn't get impacted by this new structure.

Y.S. Cho -- Co-Chief Executive Officer

There's one small point impact. How we create data, there are two types of data before personal information that inflects directly from borrowers. That does not change. And the second is the data syndicating data from TDC does not change, but for the type that other the customer client asset data, insurance data, how we collect dispersion asset data that we have to collect through the company's credit license going forward, that is our understanding.

So in all, it will most impact our business.

Unknown speaker

[Foreign language]

Chen Yu -- Head of Board Office and Capital Markets

So it was Y.S. Cho, our co-CEO, responsible for facilitation lending, who just answered. On top of that, I just want to add that we are maintaining a very active dialogue with the credit score and bureau or the PBOC, all the relevant key decision makers within the bureau. So far, there's no material impact to our business model.

And based on what they've indicated to us, there's no need for us to change now. I think their key focus is on the data or the information you collected, whether you just use it for yourself? Or do you actually pass it on to external parties or in some cases, even monetize on that data. We believe that's their key focus. They're also asking us to our views what I would like to share our data with credit bureaus.

And our response was, look, if there's a PD requirement and everybody is required to do that, we will comply. Again, their key focus is on whether we accumulate the data we accumulated or store is just for self-use or will be passed on to third party. Of course, that's something we'll never do. They also recognize that we run quite a different business model by our guaranteed company.

So so far, that's the communication we've all had. We don't need to make any changes right now. We'll continue to have those conversations and let the market know if we hear otherwise.

Operator

Thank you. Your next question comes from Meizhi Yan from UBS. Please go ahead.

Meizhi Yan -- UBS -- Analyst

OK. Thank you for taking my question.[Foreign language]

Y.S. Cho -- Co-Chief Executive Officer

[Foreign language]

Meizhi Yan -- UBS -- Analyst

[Foreign language]

Y.S. Cho -- Co-Chief Executive Officer

[Foreign language]

James Zheng -- Chief Financial Officer

Yes. Let me just comment on the question number two first, and I will answer question number three. The question number three is about loan rate should be within 24% by June 2022, right? This requirement was given to CS companies. And it's very precise.

What they said is total borrowing cost is little less than 24% for by June 2022 average APR should be less than 20% with a serious time united by June 2024, as wages, and then we believe this will become like a standard of regulation for all. And this is good for us because it brings no impact for us. If you look at our company, as of today, highest is less than 24%. And average is less than 90%.

So we're already there. And then quickly, high data less than 24%. And as of July, our APR is only less than 2%. So basically, we see no impact from this new regulation.

So we are in a very safe position. And the third question, first portion. In August business, our street portion for euros will reach final reached 20% that we are done. In the next step, whether we want to further move up to 3% is we haven't decided yet.

We are in discussion with regulators. But once state demand, we have to go up to 40%, then we can do that very easily with time because our game company, we have already more than 22 billion net asset, which is more than enough to support 40% asset guarantee of portion renewals.

Y.S. Cho -- Co-Chief Executive Officer

[Foreign language]

Meizhi Yan -- UBS -- Analyst

[Foreign language]

Operator

Thank you. Your next question comes from Thomas Chong from Jefferies. Please go ahead.

Thomas Chong -- Jefferies -- Analyst

Hi. Good morning. Thanks, management, for taking my questions. I have a question regarding our wealth management strategies.

I think we have talked a lot about the LCF side. But how about the WM side? I think we are able to talk about some of the upgrades in terms of the product features including integration with LCR in terms of the interface. Can you talk about how we should think about our long-term goal for [Inaudible]? In particular, the progress that I made with our automated AI portfolio as well as any competitive landscape or regulations that we need to bear in mind. That's my first question.

And then a question is about the recent outbreak of COVID. Are you seeing any changes in terms of the fundamentals recently?

Greg Gibb -- Co-Chief Executive Officer

This is Greg. On the wealth side business, as we summarize, through the first half of this year or as of June 30, the growth exclude the P2P portion was about 28%. And so this is a business we continue to want to develop as fast as we can. And we continue to see very good progress on our affluent customers, on our qualified investors across a range of higher-end products, including ongoing development for portfolio services and automated matching which we're doing here in China, but we're also looking into Hong Kong as that market starts to evolve as well.

So this is an area that we will continue to invest. We'll continue to automate. We'll continue to apply more and more data to it to make sure that our middle-class customers are generally bringing good returns, particularly as the market shifts away from fixed income to more variable return products. And this is an area that we continue to invest in.

In terms of the COVID impact, I would say up to now, we've not seen any impact. It's really too early and very, very narrow. I know that there's more headlines about it, but it really hasn't been anything that we've seen in terms of frontline impact.

Thomas Chong -- Jefferies -- Analyst

Got it. Thank you.

Operator

Your next question comes from Katherine Lei from J.P. Morgan. Please go ahead.

Katherine Lei -- J.P. Morgan -- Analyst

Thank you. I think my peers have asked a lot about regulatory risk. And then I'm going to have a follow-up question on the regulatory risk as well. I think just now management saying that the way to maintain a stable profit margin is to control costs, right? So first, can you help to elaborate on what room of have to continue to cut costs so that the overall take rate will be more stable.

The second question I have is on investors' returns. There's already like $1 billion of buyback being announced and executed some of them being executed so far. So what is the assets on the balance sheet that you believe is deplorable for like buyback or maybe in the future dividends in general?

Greg Gibb -- Co-Chief Executive Officer

Y.S., do you want to speak first about the cost optimization areas.

Y.S. Cho -- Co-Chief Executive Officer

OK. I think the team will share more data in the connection, right? But if I give you a lot in the second quarter this year, our average APR was less than 23%, but net margin stayed almost unchanged at around 6%. And then let our components of spending called CGI premium and two impact, you see that those three numbers are obviously imputing meaning decreasing. And going forth, we believe we can further productized by about 2%.

So going forward, even if the overall HR moves out to close to 20%, the reconfidence our net margin will be protected at around 2%. Of course, I'm understanding that no matter how low AR goes can deliver 4% area. I'm not saying that. But as soon as average class is around 20%, we are very confident that margin will not change.

Greg Gibb -- Co-Chief Executive Officer

And in terms of investor returns, as we noted on our balance sheet and cash position, 91 billion overall net assets, 42 billion of relatively liquid assets within 90 days. So the share repurchase, the additional 700 million, taking us to a billion still represents a very small portion of our total capabilities. We will continue to explore other ways to generate returns for investors through all the and we're exploring those structures, and we'll certainly undertake them as soon as it makes sense to do so. But we certainly have a lot of room in which to play.

Guangheng Ji -- Chairman of the Board and Chairman of Lufax Executive Committee

[Foreign language]

James Zheng -- Chief Financial Officer

As Greg mentioned that not only that we have a strong balance sheet. In addition, we have very strong profitability and cash-generating capability. In terms of the question you asked, whether it's buyback or dividend, I can say that we are considering again all means to return value to shareholders. Once there's a decision made, we will be making the right announcement.

The USD 10 billion, which is roughly RMB 7 billion of buyback, it's small compared to what we have on our balance sheet. And let's not forget, by the end of the year, we would have generated another 10 billion-plus of RMB profit, and that will go -- also go into our cash reserves and balance sheet

Katherine Lei -- J.P. Morgan -- Analyst

OK. Thanks.

Operator

Thank you. That does conclude our time for questions. I'll now hand back to management for closing remarks.

Guangheng Ji -- Chairman of the Board and Chairman of Lufax Executive Committee

[Foreign language]

Chen Yu -- Head of Board Office and Capital Markets

Thank you for attending our call today. And as mentioned earlier, the results are available online, and we will be having one-on-one sessions with the sell-side analysts, which we will elaborate more on our messages. Please do have full confidence that we have a very hard-working management team in the current environment, where global capital markets view on China regulations, which caused a lot of volatility recently. Rest assured, not only that the company have heard that, I believe the relevant regulators in China have also heard the market views some front has been telling me that today the biggest factors impacting Chinese ADR stock prices.

No. 1 is regulation; No. 2 industry, company-specific fundamentals come later. Rest assured, the regulators have worked that.

And in the current environment, it is very prudent and it's always been our principle to strengthen regulatory relationships, maintain open communications and make sure we are in the right side of the future direction. Thank you again for joining the call.

Operator

[Operator signoff]

Duration: 81 minutes

Call participants:

Yu Chen

Guangheng Ji -- Chairman of the Board and Chairman of Lufax Executive Committee

Greg Gibb -- Co-Chief Executive Officer

James Zheng -- Chief Financial Officer

Winnie Wu -- Bank of America Merrill Lynch -- Analyst

Y.S. Cho -- Co-Chief Executive Officer

Unknown speaker

Chen Yu -- Head of Board Office and Capital Markets

Meizhi Yan -- UBS -- Analyst

Thomas Chong -- Jefferies -- Analyst

Katherine Lei -- J.P. Morgan -- Analyst

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