{"text":[[{"start":6.84,"text":"This article only represents the author's own views."}],[{"start":10.28,"text":"China’s private fintech lenders and loan facilitators have had a tough run for the last six or seven years, coming under near-nonstop pressure from growing regulatory scrutiny over that time. But just when it seemed like many were adjusting, the group is quickly learning that things can get even worse."}],[{"start":27.32,"text":"The latest financial results from Qifin Holdings Inc. (QFIN.US; 3660.HK), formerly known as 360 DigiTech and Qifu, serve as a fresh reminder of this predicament for the rapidly contracting sector. Challenges for the group, most of them loan facilitators between banks and borrowers, are multifaceted. Following two high-profile scandals this year, they are facing a liquidity squeeze as banks pull back from providing capital for them. At the same time, the regulatory scrutiny just keeps growing, a familiar theme for them."}],[{"start":61.16,"text":"Qfin’s revenue dropped 32% year-on-year and 9% sequentially to 3.57 billion yuan ($491 million) in the second quarter, according to its disclosure last week. Its net profit took an even bigger hit, plunging 77% year-on-year and 54% quarter-on-quarter to 401 million yuan, dragged down by reduced loan origination, tighter interest margins and a one-off tax-related expense of about 500 million yuan."}],[{"start":90.44,"text":"The latest downturn for Qfin and its peers stems from a double blow to industry credibility this year. The first hit traces back to a May crisis after major player CreditEase suspended both principal and interest distributions for 30 billion yuan of fixed-income wealth management products issued by its Heritvest subsidiary. That scandal triggered an immediate regulatory dragnet targeting shadow-banking channels and non-bank credit facilitators. China’s sluggish economy also continues to make it difficult for lenders to boost loan growth without taking on greater risks."}],[{"start":123.28,"text":"Regulators clamped down after the CreditEase scandal with cross-agency audits and forced wind-downs of shadow wealth products. That pushed risk-averse commercial banks to pre-emptively tighten credit lines and demand more payment guarantees and security deposits from online loan brokers. This dual pressure squeezed Qfin in two ways. First, it was forced to drastically cut its margins to keep panicked bank partners on board. Second, it had to scale back overall loan facilitation and origination volumes."}],[{"start":154.04,"text":"Making matters worse, in late June, Juzi Digitech, a niche online loan facilitator targeting subprime consumer borrowers, was found to have diverted user loan repayments into an illicit capital pool, leaving its partner banks empty-handed and exposing nearly 30 billion yuan in non-performing assets. This led commercial banks to curtail their collaboration with loan facilitators even more, dealing a further blow to everyone, including Qfin."}],[{"start":180.96,"text":"On its earnings call, Qfin CEO Wu Haisheng noted that the late-June liquidity shock forced the company to take drastic measures. It slashed customer acquisition spending in the second quarter, and consequently, its total loan facilitation and origination volume shrank by a quarter year-on-year. As a result, its outstanding loan balance at the end of June was about 23% smaller than a year earlier."}],[{"start":204.58,"text":"\"In the second quarter, we navigated a challenging market environment marked by continued industry contraction, tighter regulatory oversight, and a sudden industry-wide liquidity shock in late June,” he said. “Looking ahead, we expect industry adjustments to continue, with funding conditions and risk management likely to remain under pressure. In response, we will adopt an even more prudent approach to growth, risk, and capital allocation to preserve our resilience through the cycle.\""}],[{"start":205.08,"text":"Fintech winter"}],[{"start":232.42,"text":"Reflecting this grim outlook, Qfin said it expects its non-GAAP net profit to drop by up to 73% year-on-year to 360 million yuan in the third quarter. It also trimmed its semi-annual dividend."}],[{"start":243.64,"text":"Rival LexinFintech (LX.US) also felt the full impact of the liquidity shock, delivering a second-quarter performance this week that marked a severe break from its recent recovery trajectory. Its quarterly operating revenue fell 11% year-on-year to 3.19 billion yuan, while its net profit tumbled 80% to 101 million yuan. Like Qfin, Lexin’s outstanding loan balance shrank, and it canceled its semi-annual dividend. Worse yet, Lexin warned that it expects to plunge into the red in the third quarter."}],[{"start":277.28,"text":"Apart from taking a major hit from the funding environment’s sudden deterioration, Qfin also continues to grapple with a weak macroeconomic climate that is causing more borrowers to default. The ratio of its loans overdue for 90 days or longer jumped 86 basis points to 2.83% at the end of June from a year earlier. It also boosted provisions for loan receivables by 20%."}],[{"start":301.56,"text":"Unsurprisingly, Qfin shares have tanked since the release of its second-quarter report, losing nearly a quarter of their value in three days. They now trade at a rock-bottom price-to-earnings (P/E) ratio of just 2. Its peers are also under pressure, with Lexin fetching an even lower P/E ratio of 0.72 after its shares lost a quarter of their value in the two trading days following the release of its latest report."}],[{"start":326.76,"text":"As things stand now, no investor would see these low multiples as bargain-hunting opportunities. Rather, such low valuations reflect deep market skepticism about whether Chinese online loan facilitators can navigate the current squeeze on multiple fronts and emerge unscathed. With bank partners pulling back funding, credit risks rising and regulators tightening their grip, platform operators really have no other choice but to shrink their operations."}],[{"start":353.2,"text":"Qfin can try to rebuild its business by developing low-risk technology services for state-backed institutions. But this area is already quite competitive, as large banks are developing their own digital capabilities as well."}],[{"start":365.8,"text":"Qfin and its peers should be used to this kind of chilly climate by now, so this latest winter blast isn’t really anything they haven’t seen before. But with no signs of a spring thaw on the horizon, the group will continue to suffer. And then there’s always the very real possibility that another scandal or other regulatory tightening could make the current bone-chilling climate even colder."}],[{"start":391.67,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1788341146_4804.mp3"}