LexinFintech Q2 2025 Earnings Report

LexinFintech EPS Results

• Actual EPS: $0.40
• Consensus EPS: $0.20
• Beat/Miss: Beat by +$0.20
• One Year Ago EPS: N/A

LexinFintech Revenue Results

• Actual Revenue: $500.62 million
• Expected Revenue: $500.62 million
• Beat/Miss: Met Expectations
• YoY Revenue Growth: N/A

LexinFintech Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 7:00AM ET

LexinFintech (NASDAQ:LX) Holdings Ltd., through its subsidiaries, provides online consumer finance services in the People's Republic of China. The company operates Fenqile.com, an online consumption and consumer finance platform that offers installment purchase and personal installment loans, as well as online direct sales with installment payment terms; and Le Hua Card, a scenario-based lending. It also provides technology-driven platform services for financial institution customers and partners to increase revenues, manage financial risks, enhance operating efficiency and service quality, enhance collections, and reduce overall costs; Maiya application, a location-based services shopping experience with buy-now and pay-later options; and Juzi Licai, an online investment platform. In addition, the company offers technical support and consulting, software development, financing guarantee, and financial technology services. The company was formerly known as Staging Finance Holding Ltd. and changed its name to LexinFintech Holdings Ltd. in March 2017. LexinFintech Holdings Ltd. was founded in 2013 and is headquartered in Shenzhen, the People's Republic of China.

LexinFintech Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q2, total GMV reached RMB 52.9 billion (+2.4% Q/Q), revenue rose to RMB 3.6 billion (+16% Q/Q), and net profit hit a 14-quarter high of RMB 511 million (+19% Q/Q; +126% Y/Y).
• Positive Sentiment: Asset quality continued to strengthen as day-one delinquency fell ~2%, 90-day delinquency declined ~6%, and first-payment defaults (over 7 days) dropped ~5% Q/Q.
• Positive Sentiment: The board increased the cash dividend payout ratio from 25% to 30% and launched a $60 million share repurchase plan to enhance shareholder returns.
• Positive Sentiment: Installment e-commerce GMV surged 80% Q/Q (117% Y/Y) and gross profit rose 71% to RMB 97 million, driven by upgraded supply-chain partnerships and personalized merchandising.
• Negative Sentiment: Tighter funding supply under new loan facilitation regulations led to higher funding costs and slight collection-rate fluctuations, prompting a shift toward the capital-heavy model to mitigate impact.

Presentation

[Operator]

Thank you for standing by and welcome to the Lexion Fintech Holdings Limited Second Quarter twenty twenty five Earnings Conference Call. All participants are in listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Wilhelm. Please go ahead.

[Wei (Will) Tan, Head - Capital Markets at LexinFintech Holdings]

Thank you, operator. Hello, everyone. Welcome to our second quarter twenty twenty five earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on overall performance and strategies of our business. Our COO, Mr. Arvind Zangwun Chao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zeng, will discuss our financial performance.

[Wei (Will) Tan, Head - Capital Markets at LexinFintech Holdings]

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. Last, please note that all figures are presented in renminbi terms and all comparisons are made on a quarter over quarter basis unless otherwise stated. Please kindly note Jay and Arvind will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvind's AI based voices. With that, I'm now pleased to turn over the call to Mr. Jay, Wenjie Xiao, Chairman and CEO of Lexin. Please.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

Thanks for joining us today for our second quarter twenty twenty five earnings call. We're delighted to report another quarter of high quality growth. Company has successfully executed the transformation towards a business model driven by data analytics, risk management and refined operations. Despite macroeconomic uncertainties, our prudent strategy has led to continued profitability recovery and sustainable growth. In the second quarter, total GMV reached RMB52.9 billion, a quarter over quarter growth of 2.4%.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

Revenue increased by 16% to RMB3.6 billion. Net profit reached RMB511 million, representing quarter over quarter growth of 19% and year over year growth of 126%, a record high in the past fourteen quarters. The excellent quarterly results are driven by the sustained improvement of asset quality and resilient growth across our business ecosystem. The management has always placed great emphasis on shareholder returns and remains committed to improving shareholder returns through various means. Starting from the second half of this year, our cash dividend payout ratio is raised from 25% to 30%.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

Also, in July, the company announced a $60,000,000 share repurchase plan to be executed within the next twelve months. These measures will further raise the company's shareholder returns above the industry average level. Now let me introduce the specific business progress we have made in the second quarter. First, our unique business ecosystem has sustained strong growth, which has enhanced our competitiveness and strengthened our operational resilience. Our installment e commerce business focuses on the essential consumption needs of young customers.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

In the second quarter, we comprehensively upgraded our supply chain and partnered with dozens of top tier brands to expand our product matrix. Also, we fully tapped into users' diverse consumption demands through two merchandising categories, high quality offerings and factory outlet products. In addition, based on our user insights, we developed and optimized our haper personalization approach to customize operation and risk strategies for different segments of customers. During the June eighteen Shopping Festival, our e commerce GMV increased by 139% year over year, putting this business firmly on a rapid expansion path. For offline inclusive finance business, we strengthened localized operations and expanded our business into lower tier cities.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

By adopting customized risk management and differentiated competition strategies, enhancing our service capabilities and improving our efficiency to serve small and micro business owners, the profitability of inclusive finance business achieved steady sequential growth. For online consumer finance business, we accelerated its development by partnering with multiple leading platforms to secure a favorable market position, laying a solid foundation for future growth. For our Tech Empowerment business, we leveraged our standardized systems and risk management expertise to help partner banks efficiently connect with major platforms, enhancing their data driven risk management capabilities and have gained wide recognition from our partner banks. During the quarter, the business saw significant increase in business volume and number of users, maintaining robust growth momentum. For Overseas Business, we continue to strengthen mid and back capabilities, making notable progress during the quarter.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

It delivered substantial quarter over quarter growth in both business volume and revenue for multiple consecutive quarters. Second, we strove for product service excellence to drive the growth of quality user in our online credit business. In the second quarter, we expanded our product portfolio, offering users competitive terms and flexible repayment options to meet their product and service needs throughout the full life cycle, significantly increasing user engagement. For Prime customers, we launched a product with more competitive pricing, upgraded Lejing card, catering to their demands for on demand borrowing and repayment with daily interest calculation. The product has been well received since its launch.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

For qualified small and micro business owners, we partnered with banks to introduce products with flexible terms, further reducing financing costs and precisely meeting the needs of the segment. Third, AI further enhanced our business quality and efficiency. Our locally deployed large AI models have been deeply applied in most business scenarios. For example, in post loan management, the intelligent data driven platform has achieved full process end to end AI support, ranging from case allocation and collection operations to customer operation and repayment strategies, effectively improving the post loan collection rate. The company's self developed AI agents have also made significant progress with 50 AI agent roles currently deployed in key business areas such as operational strategy generation, credit strategy review and automated monitoring, greatly enhancing our operational efficiency.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

The company adheres to a user centric philosophy and strives to enhance consumer satisfaction and trust by optimizing user service and experience and responding to user needs efficiently. We remain focused on the top level design and long term mechanisms for consumer rights protection governance, integrating consumer rights protection into all business processes. Also, we have built a proactive consumer rights protection system to advance the high quality development of consumer rights protection. During the quarter, we increased technology investment in consumer protection and have refined over 50 digital and model based tools to improve service response and user satisfaction. Looking ahead, we will maintain stable business scale, further reduce risks and sustain profit growth in the third quarter.

[Jay Wenjie Xiao, Founder, Chairman & CEO at LexinFintech Holdings]

Although the new regulation of loan facilitation, which is to take effect in the fourth quarter, may bring some changes to the industry, we believe it will foster the healthy development of the industry, particularly benefiting platforms like Colosseum that place high importance on compliance. We will strengthen our business ecosystem synergy to build a unique competitive advantage and ensure continued business growth. As such, we maintain our full year guidance of achieving significant year over year profit growth. Now I would like to give the floor to our CRO, Arvind.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the second quarter. In the second quarter, while the macroeconomic and industry environment remain complex and uncertain, we took swift action to address the potential impacts and maintain the downward trend in risks. Specifically, we focused on identifying customers vulnerable to industry fluctuations and taking measures to mitigate potential risks. Also, we adopted interactive re offers to drive the increase of high quality asset volume.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

In addition, we leveraged large models to upgrade our risk management capabilities, improving the efficiency of risk decision making and the accuracy of pricing and credit line strategies. Thanks to the initiatives we've taken, risks of both new and overall assets continued to decrease. Leading risk indicator for new loans, first payment default, FPD, over seven days of the second quarter declined by about 5% compared to the previous quarter. On total loan portfolio, day one delinquency ratio decreased by about two percent and ninety days delinquency ratio decreased by 6% quarter over quarter. I will introduce in detail the key initiatives we've taken for the second quarter.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

First, in terms of risk identification, we continue to optimize data models in the second quarter, focusing on identifying customers who are vulnerable to industry fluctuations and mitigating potential risks. Based on the accumulated data on time series changes of credit risk across multiple credit cycles, we employed causal inference techniques and scenario simulations to develop a risk identification model that assesses customers' risk sensitivity to environment changes. The model has proven to be highly effective. Among customers of the same risk rating, those who are identified as highly sensitive exhibit 1.5 times risk level of low sensitivity customers in the current environment. In addition, we focused on using data that shows greater stability features such as customer profiles, job stability and personal asset status to enhance our predictive capability for long horizon risks, thereby providing more reliable credit services to high quality customers.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

Second, we continue to strengthen risk management through preventive and proactive approaches. For customers identified by our model who are vulnerable to external environment changes and show higher risks, we've promptly taken measures such as reduction or suspension of their credit lines in order to mitigate the potential impacts of industry risks. Meanwhile, we continue to enhance the competitiveness of offers for quality customers. In the second quarter, we launched a mechanism for customers to supplement credit enhancement documents, conducted personalized real time reoffering, which combines machine review and manual review and launched a braided Lejin card, a new financial product featuring higher credit amount and lower fee rate. These measures helped drive the asset volume of prime customers and number of active customers to increase quarter over quarter.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

In the third quarter, we will continue to strengthen the risk management strategy that combines preventive and proactive approaches to sustain the risk reduction trend while expanding high quality assets and customers. Third, in terms of e commerce, we further upgraded the risk management system for e commerce, which is an independent system from online consumer finance business. Specifically, we established millisecond level real time risk decision making capabilities across key processes, including search recommendations, offer matching, credit approvals and reoffer, etcetera. This ensures we meet customers' diverse consumption needs while maintaining risks well under control. Based on the independent risk management system, the risk identification capability of e commerce platform improved by over 30% compared to the previous quarter.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

Approval rates for credit application and order placement of platform users, especially quality users, have significantly increased, which has promoted the rapid growth of e commerce business. Last but not least, we continued to strengthen the development and application of intelligent risk management tools. Leveraging the latest AI large models, we have developed and implemented the credit line robot and pricing robot, which has delivered favorable results. The credit line robot has improved the efficiency and effectiveness of credit line decisions, while the pricing robot significantly improves the volume growth from pricing reduction by establishing price curves based on experimental data and dynamically optimizes pricing strategies. In the future, we will continue to explore the application of large models in risk management, advancing our capabilities from quantitative risk management to intelligent risk management and building a leading edge in risk management capabilities.

[Arvin Zhanwen Qiao, Chief Risk Officer & Director at LexinFintech Holdings]

In the third quarter, while external uncertainties and industry fluctuations remain, we will continue to strengthen our capabilities in automated high risk asset screening and resolution, further refine credit approval and lending management and enhance customer onboarding and transaction management while swiftly addressing high risk assets. In the meantime, we will further optimize credit approval and credit line granting strategies to better meet the needs of quality customers, improve user experience and foster continued quality assets growth. These efforts are aimed at ensuring that key risk indicators remain on a downward trajectory. Next, I will hand over to our CFO, James, to provide a review of the company's financial performance for the second quarter.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Thanks, Severin. I will now provide a detailed overview of our second quarter financial results. Please note that all figures are presented in revenue terms and all comparisons are made on a quarter over quarter basis unless otherwise stated. We are pleased to announce another quarter of solid financial performance marked by robust revenue growth, sustained profitability and expanding margins. We are on track on our profitability recovery trajectory.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Revenue recorded $3,600,000,000 in the second quarter, representing a 16% increase quarter over quarter. Net income grew strongly by 19% quarter over quarter and 126% year over year to reach 11,000,000. Our net income margin increased to 14.3% from 13.9% last quarter. Net income take rate, calculated as annualized net income divided by the average loan balance, increased 34 basis points to reach 1.92%. The net income, net income margin and net income take rate kept reaching record highs for the past fourteen quarters, laying a solid foundation for good profit expansion.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

This set of financial results underscore our ability to turn around and drive sustainable growth in dynamic market conditions. To gain a clearer understanding of our business growth dynamics, let's take a holistic view of our financial results. First, if we add up Credit Facilitation Service income and Tech Empowerment Service income, net of credit costs, including the provisions and the fair value changes, and the funding costs, we come up with the net revenue of the credit business. The net revenue provides a more accurate reflection of our credit business performance as it absorbs the impact of a different accounting treatment for capital light and capital heavy business, as well as the shifting mix across quarters. In the second quarter, the net revenue of our credit business increased by 10% or $183,000,000 to 2,000,000,000 The net revenue of our e commerce business, defined as the e commerce revenue net of cost of inventory sold, increased by 71% or RMB 40,000,000 to RMB 97,000,000.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

So the total net revenue added up to 2,100,000,000.0. Operating expenses, including sales and marketing, research and development, general and administrative expenses, processing and servicing costs, tax and others increased by 9.8 or $142,000,000 to $1,600,000,000 So, if we deduct total expense of US1.6 billion dollars from the total net revenue of US2.1 billion dollars we get a net income of US511 million dollars increased by 90% or $81,000,000 quarter over quarter. Driving the second quarter's strong financial performance are the following three business highlights, namely the flexible volume shift between business models, continued improvement in asset quality alongside sufficient provisioning and a robust growth in our e commerce business. Now, let me elaborate more on the three business highlights. First, flexible volume shift between business models highlights operational resilience, driving stable growth in volume, revenue and net profit.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

From unit economics perspective, net income take rate achieved 1.92% this quarter. The 34 basis point improvement quarter over quarter is mainly driven by a 82 basis point increase of revenue take rate of credit business, which is calculated by dividing the net revenue by the average loan balance. During the quarter, the net revenues take rate of credit business increased from 6.69% to 7.51. The increase was mainly driven by the increase of APR of capital heavy model, which increased to 23.2% in the second quarter from 22.6% last quarter. And also the stabilization of early payoff impact happened during the last quarter, partially offset by the increase of funding costs.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

The improvement of net revenue take rate reflects our business resilience in a dynamic and a complex environment. In the second quarter, we have observed a reduction in the supply of funds for capital light business due to the fluctuation related to the new regulation, leading to higher funding costs for both capital light and capital heavy models. To offset the impact, we proactively adjusted our business mix, switched more loan volumes from capital light model to capital heavy model. In second quarter, the capital light model accounted for 20% of GMV, decreased from 27% in the first quarter, mainly driven by the decrease of loans from ICP model, which only accounted for about 15% of GMV, decreased from 24% in the first quarter. The proportion of capital heavy model increased to 80% from 73 in the first quarter.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

As you know, the borrowers from capital light model typically have lower typically have relatively higher risk profiles. To reflect this risk premium, the average APR of new loans and the capital heavy model increased. At the same time, the provision increased due to the increase of loans and the capital heavy model. The smooth switch was supported by our enhanced risk management capability, which equipped us to accurately assess borrower risk, enabling risk pricing and product offering to optimize profitability and volume growth. Second, asset quality sustained the improvement trend and the provision remained prudent and sufficient.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Our asset quality has continued to improve for four consecutive quarters. In the second quarter, ninety day delinquency ratio declined by 16 basis points to 3.1%. FPD seven of new assets further came down by about 5%. Day one delinquency rate of total assets also decreased by about 2% quarter over quarter. Also, our provision remains prudent and sufficient.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

As mentioned above, in the second quarter, our total credit cost, including three provisions line items and the fair value changes of financial guarantees derivatives increased by 13.6% quarter over quarter, despite improved asset quality and a decreased loan balance. It is important to note that due to the net accounting policy we have adopted for change in fair value of financial guarantee derivatives and loans at fair value account, the amount was partially offset by guarantee income and recorded as a net value in our P and L. As such, it only represents part of the actual full provision. As another indicator of the sufficiency of our provisioning, our provision coverage ratio remained ample at 270%, up by two percentage points quarter over quarter, and reached the highest level in the last four quarters. Third, e commerce business gained further traction.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Our e commerce business is deeply integrated into our ecosystem, creating strong synergies and therefore becomes a unique competitive advantage. E commerce business not only generates gross profit by selling merchandise, but also creates interest income by providing installment services to customers. Around 97% of e commerce customers choose to finance their consumption with our installment service. In the second quarter, e commerce GMV witnessed a substantial quarter over quarter growth of 80% and year over year growth of 117. E commerce business gross profit recorded RMB97 million in the second quarter, up 71% quarter over quarter.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Going forward, we continue to expect a strong sequential GMV growth for the e commerce business. Next, I'll go through some specific financial statement items. For our income statement, on the revenue side, total revenue reached $600,000,000 representing a growth of 16% quarter over quarter. Credit facilitation service income amounted to $300,000,000 up 4% quarter over quarter, driven by the increase of loan volume and the capital heavy model, higher APRs and partially offset by the higher funding costs. Tax empowerment service income increased by 33% or US205 million dollars to US830 million dollars mainly thanks to the release of provisions of revenue and ICP model, reflecting better than expected asset quality performance and increased income from our referral services.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

E commerce platform service income increased by 69% to million, driven by increased GMV. On the cost and expense side, total operating expenses, which include processing and servicing costs, sales and marketing, research and development expenses, general and administrative expenses, by 10% to billion, mainly driven by the increase of sales and marketing expenses and processing and servicing costs. For balance sheet items, as of June 30, our cash position, which includes cash, cash equivalents and restricted cash, was approximately RMB4 billion. Shareholders' equity remained solid at about billion. Looking ahead, despite ongoing market uncertainties and evolving operating environment, the management maintains its full year guidance of achieving a significant year over year growth in net income.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Furthermore, we remain committed to enhancing shareholders' value as demonstrated by our recent $50,000,000 share repurchase program and $10,000,000 CEO share purchase announced in July. The Board has approved a cash dividend of dollars per ADS for the 2025. The share repurchase program, together with our dividend policy, boosted our total shareholder return to above industry average level. Going forward, we will continue to evaluate opportunities to ensure we deliver optimal value to our shareholders. This concludes our prepared remarks for today. Operator, we're now ready to take questions.

[Operator]

Thank you. Your first question comes from Emma Xu with BofA Securities.

[Emma Xu, Research Analyst - Banks & Fintech at Bank of America Merrill Lynch]

So congratulations on the good result amid a challenged environment. So I have two questions. The first one is about the new regulations. So as the new regulation alone facilitation has been rolled out for a few months, What impacts has the company observed? And what measures will you take to address the impacts?

[Emma Xu, Research Analyst - Banks & Fintech at Bank of America Merrill Lynch]

The second question is about the ecosystem. So the ecosystem has developed rapidly in the second quarter. So could you share more on the development strategy and outlook of your ecosystem business?

[Moderator]

So this is a translation from Jay Zhuangzi. Thanks for your question.

[Moderator]

Yes, the new regulation on loan facilitation has been brought up for some time, but not yet as bad. We think the industry has been impacted by this. So, initially, in the short term, we did observe funding supply tightness this, which led to an increase in the funding cost of the second quarter. And also, some risk management experienced minor fluctuations, for example, collection rates, they decreased a little bit. So, I mentioned, production rate differs a little bit, but our day one delinquency also decreased, so the impact offset each other.

[Moderator]

Furthermore, leveraging our renewed business before this point of advantages, we have the flexibility to adapt our business model to navigate the challenges effectively. In the long run, the implementation of the new regulation will bring some changes to the industry, but it will focus more standardized, sustainable and healthier industry environment, which dances compliant platforms like Leqi. In the past, we also experienced different several rounds of regulation, and I think we have the experience and flexibility to adjust our business model to navigate the challenges. For Lexin, we firmly support regulators' efforts to supervise and guide the sector and will continue to adhere to our customer centric philosophy, enhance our ecosystem synergies and ensure resilient business growth. As such, we maintain our full year guidance of achieving significant year over year profit growth. And regarding your second question about our development of the business ecosystem, actually, our business ecosystem achieved various progresses.

[Moderator]

For our installment e business, I would like to suggest that Zexxi is the first installment e commerce platform in China and has been developing this business for over a decade. It has been a crucial part of our ecosystem. And as part of our transformation towards a business model driven by data analytics and risk management in the last year, we have built a city tender risk management system for the e commerce business. So you can see in the past several quarters, our e commerce long origination volume has sustained significant growth, particularly in the June, our GMV increased by over 100%. We will continue to expand our business into lower tier cities.

[Moderator]

And just to emphasize that this channel, we target at serving the small and micro business owners And the differentiated advantages of those things is that we have our own proprietary sales development, direct sales team. And in the second quarter, we cooperated with several new partners, helping them to connect with large platforms and banks and improve their digital risk management capability. For our tech empowerment business, leveraging our standardized system and risk management expertise will continue to help them to connect to the large platform and to enhance their customer acquisition capability. For our overseas business, we have delivered quarter over quarter sequential growth in both business volume and revenue for multiple consecutive quarters. And as said, we'll continue to enhance team development in order to sustain healthy and sustainable growth.

[Operator]

Your next question comes from Alex Yeh with UBS.

[Alex Ye, Greater China Financials Research Analyst at UBS Group]

So my first question is on asset quality. So in light of the current uncertain internal environment driven by the regulatory change, how does the Xin's risk management system can help you better respond to potential risk fluctuations? And second question is regarding ongoing improvement. Could you also give us more color on the drivers on the underlying net tariff improvement? Thank you.

[Moderator]

Uncertainty of the industry rate development arising from the new loan facilitation regulation, we actually take proactive measures as early as in April. So we tightened the re approval standards as early as in April for new customers in order to maintain our trend for new rates. And for vintage of existing loans, we improved the early reminders for the loan repayment in order to reduce the day one delinquency. Also, we implemented targeted metrics for customers vulnerable to industry risk fluctuation. For customers identified as high rate sensitive by our models, we've taken from measures such as reduction and suspension of their credit line to mitigate the potential impact of sector wide rates.

[Moderator]

This has helped maintain steadily improving rate performance. Second, we continue to drive high quality asset growth, which will lay a solid foundation for our future high quality development. We leverage advanced AI models in house risk management system. We also refined customized pricing strategies, which has increased the overcompetitive for prime customers while improving the overall user experience, further supporting our high quality asset growth. So overall, we not only reduced the high quality we not only reduced the formation of high risk assets, but also try to drive the growth of high quality assets.

[Moderator]

Third, we also strengthened proficient in our risk buffer, enhancing our capability to cope with future uncertainties. In the second quarter, we increased proficient by 13.6% to JPY 1,040,000,000.00. The reinforced provision along with improved risk performance drove our provision coverage ratio to rise to 270%. To summarize, we will continue to prioritize high quality asset growth while also enhancing efficiency and maintaining a steadily improving rate performance. In the meantime, we while continuing to strengthen risk identification and management, we will also ramp up the application of intelligent risk management tools to increase efficiency.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Okay. I will take the net profit takeaway question. Almost a year ago, we told the market that thanks to the company's turnaround initiatives, we will be able to gradually improve the business profitability and that this will be reflected in our net profit take rate. And I'm happy to tell you that in the last four quarters, we have successfully delivered the promise of improving 20 to 30 basis points each quarter to reach 1.92% in Q2. We're now on track for the goal by the end of the year.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

As for Q2, really the credit goes to the strong revenue growth from both the credit and e commerce business, as I mentioned in my prepared script. Specifically, the net revenue of our credit business increased by 10% quarter over quarter or about RMB183 million to RMB2 million. As a reminder, as I mentioned earlier, if we add up the credit facilitation service income, the tax empowerment service income, net of credit costs, the provisions and fair value changes and the funding cost, we come up with a net revenue for the credit business. So if you further break down to the next level, the net revenue of the capital heavy model remains stable, driven by the increase of loan volume under the capital heavy model, higher APRs and partially offset by higher credit costs and funding costs. By the way, as Arvind mentioned earlier, the increase of credit cost is mainly driven by our prudent provisioning policy.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

The net revenue of Caption Lite model on the other hand increased by 33% quarter over quarter or about CHF205 million to CHF830 million, mainly thanks to the income from our referral services and from the release of provisions of revenue under the ICP model. This really reflects the better than expected asset quality performance within the ICP. So in addition to the credit business, the net revenue of our e commerce business, defined as the e commerce revenue, net of the cost of inventory, increased by 71% or 40,000,000 to 97,000,000, also contributing to the increase of our profitability. So with the strong increase of revenue offsetting by some increases from the operation costs and expenses, we get the net profit take rate of 1.92%, a 34 basis points higher than the previous quarter. This fully demonstrates the uniqueness and the strong growth potential of our diversified business ecosystem.

[James Xigui Zheng, CFO & Director at LexinFintech Holdings]

Looking forward, for Q3, we continue to expect relatively stable volume, improved risks, strong quarter over quarter net income growth. Therefore, we continue to expect the net income take rate will improve in a similar pace as before.

[Operator]

Your next question comes from Allen Chen with Citibank.

[Alan Chen, VP - Equity Research at Citi]

Thanks for taking my question. This is Alan from Citibank. I just have a quick question on shareholder return. I noticed that in July, you have announced a $50,000,000 share repurchase program. Just wondering management, if you could give us a little bit more color on the thought process and rationale behind the buyback program. And on top of that, if management has any plan to further boost shareholder return in the future? Thanks.

[Moderator]

This is the translation of Jay Songsi. On July 21, we announced a 50,000,000 share repurchase program to be executed over the next twelve months. In addition to that, I plan to purchase up to million dollars worth of shares using my personal funds. If the company's repurchase program is fully executed, alongside the two increases in the cash dividend payout ratio, our total shareholder return would rise above the industry average. With a forward PE ratio below four times, the company has compelling investment values.

[Moderator]

This repurchase program underscores the management's confidence in the company's value and reinforces our commitment to delivering value to our shareholders. In terms of repurchase execution, we will implement program after the second quarter results release and will strictly follow repurchase rules while taking into account market conditions. We will make regular updates on repurchase progress in our quarterly earnings release. As I said, the company values shareholder return and will continue to explore various means to deliver value to our shareholders.

[Operator]

Thank you. That does conclude our question and answer session. I'll now hand back for any closing remarks.

[Wei (Will) Tan, Head - Capital Markets at LexinFintech Holdings]

Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again.

Participants

Executives

• Wei (Will) Tan, Head - Capital Markets
• Jay Wenjie Xiao, Founder, Chairman & CEO
• Arvin Zhanwen Qiao, Chief Risk Officer & Director
• James Xigui Zheng, CFO & Director

Analysts

• Emma Xu, Research Analyst - Banks & Fintech at Bank of America Merrill Lynch
• Moderator
• Alex Ye, Greater China Financials Research Analyst at UBS Group
• Alan Chen, VP - Equity Research at Citi