Qfin Holdings Q2 FY26 earnings call QFIN

China's consumer finance industry faced significant pressure in Q2 FY26, with short-term household consumer loans falling by over RMB 660 billion and regulatory oversight tightening across pricing, marketing, funding, collections, and payments. An unexpected industry event in late June triggered a liquidity crisis, leading to a structural shakeout and increased risk aversion among financial institutions. Qfin Holdings maintained prudent operations, prioritizing compliance and risk management amid these challenges.

Qfin prioritized risk optimization, expanding its base of high-quality users and refining pre-loan, in-loan, and post-loan strategies. The C2M2 ratio declined 17% sequentially to 0.66%, and the 30-day collection rate improved to 88.1%. However, August saw a sharp upward swing in C-M2, with early-stage indicators (FPD 3 and FPD 7) up 20% month-over-month, and C-M2 expected to rise 25% sequentially, prompting further tightening of risk strategies and underwriting standards.

The company optimized its funding mix by increasing ABS contribution to RMB 5.5 billion (up 90% sequentially) and scaling back marginal assets, resulting in a 10 basis points sequential decline in overall funding costs. ABS issuance costs also decreased by around 20 basis points. Despite these efforts, funding conditions are expected to remain tight in H2, with potential cost increases. Capital allocation priorities shifted to risk mitigation, cost reduction, and safeguarding long-term stability, with a cautious approach to shareholder returns.

Qfin advanced its "One Core, Two Wings" strategy, with the tech solutions business seeing loan volume enabled reach RMB 10.5 billion (up 515% YoY) and outstanding balance at RMB 16.1 billion (up 313%). The company secured two AI agent development projects with banks covering marketing growth and credit risk management, demonstrating growing recognition of its AI capabilities in real-world financial environments. This progress aligns with the evolving regulatory framework for AI in financial services.

Qfin is pursuing long-term growth opportunities in overseas markets, refining risk models and localizing operations in Europe and Latin America, where early results are encouraging. In Southeast Asia, licensing efforts, partnership exploration, and team building are underway. The company adopts a disciplined approach, balancing risk and capital deployment, with small-scale testing and plans to bring in external funding as capabilities are proven, viewing overseas expansion as a long-term endeavor.

Management expects industry adjustments and the exit of weaker platforms to continue, leading to market consolidation and increased concentration among leading players. While short-term pain is anticipated, Qfin believes it will emerge better positioned for sustainable, high-quality growth in a healthier, more predictable regulatory environment. The company's near-term focus remains on strengthening business fundamentals, improving customer and channel mix, and enhancing funding efficiency.