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00:09 Good day and welcome to the CNFinance Fourth Quarter and Fiscal Year 2021 Unaudited 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, today’s event is being recorded.

00:09 I’d now like to turn the conference over to Matthew Lou. Please go ahead..

00:48 Thank you. Good morning and evening. And welcome to the CNFinance fourth quarter and fiscal year of 2021 financial results conference call. In today's call, our CEO, Mr. Zhai, will walk us through the operating results followed by the financial results from our acting CFO, Ms. Li. After that, we will have a Q&A section.

01:09 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 U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminologies such as will, expect, anticipate, future, intends, plans, believes, estimates, targets, going forward, outlook, and similar statements.

01:44 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.

02:10 Further information regarding these and other risks, uncertainties, or factors is included in the company's filing 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.

02:31 Now, please welcome our CEO, Mr. Zhai Bin..

14:24 [Foreign Language] 14:49 First of all, we will co-operate with venture investors. Our goal is to bring in third-party investors to subscribe to the subordinated units of new loans facilitated. Such plans was sent to our Trust Company Partners and has already entered the stage of admission.

We're also working closely with the insurance companies to finalize the terms. 15:17 [Foreign Language] 15:46 Second, we will diversify our loan products to cover more customers.

We will continue to facilitate the current Class B trust products and expand our partnership with commercial bank Going forward, our product combination will consist of four differentiated products on Class B to Class A+ to serve the needs of borrowers with different risk preferences and reduce our funding costs.

16:14 [Foreign Language] 16:41 Third, we will adopt digital and smart technology in our platform. We will refine the automatic valuation and the approval of loan application by increasing the capacity of data storage and the efficiency of data analysis. 16:58 We expect to better manage our process and make it more efficient.

We also expect to better coordinate the loan applications we receive and the funding we obtain. We will also continue to maintain and upgrade the sales partner service platform [indiscernible] to users.

17:19 [Foreign Language] 17:32 We will keep communicating with regulators at all levels and make sure our operation and business model are in full compliance. 17:42 [Foreign Language] 18:46 The year of 2021 was very important in our history. We’ve faced many challenges and scored many achievements. In 2021, our service system was refined.

Our management was more efficient. We stay true to our mission, not providing affordable, accessible, and efficient financial services to MSE owners, and we are now more confident in the meaning of our work.

As I have introduced on many occasions, CNF and many other enterprises like us have formed an important part in China's exclusive financial system. 19:28 In 2022, we will keep refining our model and growing our business while restore more responsibilities to provide MSE owners with financing services that are more convenient and with solid fee cut.

19:43 [Foreign Language] 20:00 Now, I would like to hand the call over to Ms. Jing Li, the Acting CFO of the company, and she will walk you through the fourth quarter and fiscal year of 2021 financials. Thank you..

first, the fact that the company transferred loans under the traditional facilitation model to third parties in bulk during the fourth quarter of 2021 and the allowance of such loans was reversed; second, the higher loss given default under the current expected credit loss model, which takes into account the company's historical data of actual loss in the past few years, partially offset by; third, the lower probability of default under the current expected credit loss model, which takes into account the outlook of a more positive economy growth of China in the fiscal year of 2021 as compared to that of the same period of 2020 under the impact of COVID-19 pandemic.

26:44 Other gains, net was 50 million, compared with 20 million. When a loan defaults and the sales partner chooses to repurchase such loan in installments, the company would charge certain percentage of the loan as the fund possession fee.

The increase in other gains for fiscal year of 2021 was mainly due to the fact that there was a larger number of cases where delinquent loans were repurchased by the sales partner in installments, which led to an increase in fund possession fee received by the company.

27:21 Total operating expenses decreased by 15% to 381 million, as compared to 449 million. Income tax expense decreased by 40% to 29 million, as compared to 48 million, primarily due to the decrease in the amount of taxable income. Net income decreased by 43% to 65 million as compared to RMB115 million.

27:50 Total outstanding long during the quarter was 10 billion as of December 31, 2021, as compared to 10 billion as of December 31, 2020.

As of December 31, 2021, the company held cash and cash equivalents of 2.2 billion, compared with RMB2 billion as of December 31, 2020, including RMB1.5 billion and [RMB1 billion] [ph] from structured funds, which could only be used to grant new loans and activities.

28:30 The actual delinquency rate for loans originated by the company increased to 24.1% as of December 31 from 22.6%.

Under the collaboration model, the actual delinquency rate for first lien loans increased to 29.1% as of December 31, 2021 from 18%, and the actual delinquency rate for second lien loans increased to 19.5% as of December 31, 2021 as compared to 15.6%.

29:11 The actual NPL rate for loans by the company decreased to 9.4% as of December 31, 2021 from 11.7%. Under the collaboration model, the actual NPL rate for first lien loans increased to 12.5% as of December 31, 2021 from 6.7%. The actual NPL rate for second lien loans increased to 6% as of December 31, 2021 from 4.6%.

29:49 With that, we would like to open up to the Q&A Section. Operator, please begin..

29:55 Thank you. [Operator Instructions] And today's first question comes from William Gregozeski with Greenridge Capital. Please go ahead..

30:31 Hi.

Can you – with regards to the commercial bank lending, what – can you disclose the amount you went from commercial banks in the fourth quarter? And in regards to your target for the year-end of this year, is that incremental to the trust lending or replacing that amount of trust lending?.

first of all, our main fund – funding providers, which are the trust companies were under tightened regulations throughout the year and we think we'd like to take one-step ahead and expand our funding sources..

32:32 [Foreign Language] 33:02 And our second thought was to just cover more customers with different risk preferences.

As you know, the funding cost with the trust companies are high as compared with little banks and this has limited our ability to reduce our interest rate card in our loan product, which has also limited our customer [indiscernible].

33:33 [Foreign Language] 33:46 And in 2021, we were mainly negotiating with the commercial banks and entering into the stage of admission that the [indiscernible] working in 2021. 33:57 [Foreign Language] 34:01 So, the overall loan facilitation would be [indiscernible] model wasn't at high.

33:57 [Foreign Language] 34:22 Yes, in the first few months of 2022, we have maintained a facilitation [indiscernible] model of over 10 million in each month. 34:36 [Foreign Language] 34:59 To answer your second question, I don't think the bank menu model is going to replace the current trust lending model.

We think in 2022 would be the partnership with trust companies will still, made up the majority of our loan facilitation. 35:17 [Foreign Language] 35:29 So, our most updated estimation is that to make the loans under the bank lending model to up to 10% to 15% of the total outstanding loan principal by the end of 2022.

35:46 [Foreign Language] 35:48 That's the answer to your question. Thank you..

35:53 Okay. Thanks My next question is about the investment in technology and the platform, you talked about on the call.

How much are you looking to spend and is that investment going to change at all depending on how much you do on a share repurchase?.

36:12 [Foreign Language] 36:49 Okay. So, first of all, we have to admit that the investment in technology is on the – I’d say, very small proportion of our expenses at this moment.

37:01 [Foreign Language] 37:10 And I think one of the reasons is that the development of the technology has spread down the overall cost of the information technologies, and no matter it's [hardware or software] [ph].

37:26 [Foreign Language] 37:42 And I think what [indiscernible] and of the current expenses at this moment are the psychological talent. And I think our plan is to cooperate with them in the future.

37:59 [Foreign Language] 38:08 So, I don't expect this to take out a whole lot of our cash, and I don't think the repurchase program is going to interfere with our investment in technology. 38:20 [Foreign Language] 38:21 Thank you..

38:24 Okay, great.

Last question is about the property market, has the uncertainty with that affected your ability to assess borrower risk or facilitate loans? I know loans were obviously up, but is it impacting what you guys are able to do going this year based on how the market is right now?.

38:45 [Foreign Language] 39:22 To answer your question, so starting from the fourth quarter of 2022, we have been rather conservative when it comes to the estimation in – of housing market in China.

39:35 [Foreign Language] 39:46 So, as I have introduced, we disposed of certain legacy loans in bulk during the fourth quarter of 2021 and also to pay more conservative approach too in the evaluation of potential credit losses. 40:05 [Foreign Language] 40:25 Right.

We are [confident] [ph] of the government – we are positive and confident in the government’s ability and anticipation to stabilize the economy and future growth economy. 40:46 [Foreign Language] 40:54 So, based on our estimation, I think the [brands] [ph] of properties and houses will stop the downward churn and remain rather stable in 2022.

41:10 [Foreign Language] 41:36 So, in terms of loan applications and risk assessments, and the evaluation of borrowers, our standards didn’t really change a whole lot in this year. And one of our intention is to roll-out cheaper loan products to the high quality borrowers whose collaterals are also with high quality.

42:06 [Foreign Language] 42:19 So, as I introduced our – one of our goals is to be very customized loan product to each customer depending on the conditions of their collateral, as well as their credit reference. 42:36 [Foreign Language] 42:37 Thank you..

42:39 Okay, great. Thank you. Congratulation on a good quarter..

42:45 [Operator Instructions] And ladies gentlemen, this concludes our question-and-answer session. I like to turn the conference back over to management for any final remarks..

43:03 Thank you, again. Thank you for joining us in today's conference call. If you have any further questions, please feel free to reach us at time at ir@cashchina.cn. Thank you..

43:15 Thank you..

43:17 Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..