Lufax Holding Ltd

NYSE:LU

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Lufax Holding Ltd Third Quarter 2020 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.

[Chen Yu, executive]

Thank you, operator. Hello, everyone, and welcome to our first earnings conference call as a listed company. Our third quarter 2020 financial and operating results were released by our newswire services earlier today and are currently available online.

Today, we have Mr. Ji Guangheng, Co-Chairman and Director of the Executive Committee; Mr. Greg Gibb, CEO; Mr. Y.S. Cho, CEO of our Asia business; Mr. James Zheng, the CFO; and Mr. David Choy, the CFO of our RCF business, on the call.

You will first hear from Greg, who will start the call with a review of our progress and details of our development in the quarter. Afterwards, our CFO, James, will provide a closer look into our financials before we open up the call for questions. In addition, the additional management team -- the entire management team will 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 as we'll be making forward-looking statements. Please also note that we will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under the international financial reporting standard in our earnings release and filings with the SEC.

With that, I'm now pleased to turn over the call to Greg, CEO of Lufax.

[Gregory Dean Gibb, executive]

Thank you, and welcome, everyone, to our first earnings call as a public company. Before I begin, please note that all numbers are in RMB terms and all comparisons are on a year-on-year or year-over-year basis, unless otherwise stated.

We delivered solid results in the third quarter of 2020 with our balance of loans facilitated growing by 21.4% year-over-year to CNY 535.8 billion. Also, the leading indicators for risk performance on our lending portfolio -- or our letting platform returned to their pre-COVID-19 levels. As planned, we also continue to make progress in establishing a more sustainable risk-sharing business model with our funding partners during the quarter.

On the wealth management front, our client assets grew by 7.8% year-over-year to CNY 373.3 billion, amongst which the current product portion grew by 61.6% year-over-year to CNY 346 billion.

From a broader perspective, we continue to observe market concerns across the regulatory landscape for fintech companies in China as well as the tightening of regulatory controls. As such, we remain vigilant and are ready to comply with any new regulatory requirements. I'm sure there'll be more questions on regulation, which we'll be happy to address today in the Q&A session.

On the back of China's economic recovery and adjustments to our product pricing, we maintained growth in our retail credit facilitation business during the third quarter. Our outstanding balance of loans facilitated grew by 21.4% in the quarter, accompanied by a 16.7% increase in cumulative borrowers.

During the third quarter, 74.1% of new loans facilitated were disbursed to our core segment of small business owners, up from 61.3% in the same period of 2019.

We also continue to invest in technology as we rolled out on a wider scale our AI and video loan products, thus enabling our customers to complete their loan applications by simply talking to a robotic agent over the Internet without inputting any text.

We also developed technology in other areas, including customer profiling, client sourcing, loan underwriting and payment collection. As a result, our customer experience and operating efficiency continue to improve as evidenced by our solid operating results in the quarter.

Starting on September 4 of this year and in line with our interpretation of the court guideline for loan primary pricing announced in August, we adjusted our annual percentage rates, or APRs, to ensure that all-in costs for new borrowers remain below 24%. After such adjustment, our new loans totaled CNY 54.8 billion in September, representing an increase of 20.1% year-over-year. Underpinning our September growth was an ongoing shift of our business focus to higher-quality borrowers who tend to organically produce larger ticket sizes in general. Meanwhile, our revenue take rate declined from 10.4% a year ago to 9.4% for this quarter, reflecting the reduction of APRs.

One of our recent focuses has been to restore our loan portfolio quality to its pre-pandemic level by leveraging our strong risk management capabilities. The leading indicator for our loan quality is our monthly flow rate from current loans to those 1 to 88 -- 89 days past due or DPD. In September, for example, this leading indicator was 0.5% for general unsecured loans and 0.1% for secured loans, which was in line with our pre-pandemic levels. To give you some context, this same indicator was 1% for general unsecured loans and 0.7% for secured loans during the peak COVID-19 -- the peak of COVID-19 in February of this year.

In addition, the delinquency rate for general unsecured loans that were more than 30 days past due had improved to 2.5% as of September 30 from 3.3% as of June 30, 2020, while the same metric for secured loans that were more than 30 days past due had improved to 0.9% from 1.4% at comparable times. Importantly, we also saw a similar level of sequential improvement for our loans that were more than 90 days past due.

Meanwhile, as planned, we continue to make progress in establishing a more balanced risk-sharing business model with our funding partners in the period. As of September 30, our outstanding balance of loans facilitated with guarantees by third-party insurance partners decreased to 91.4% from 95.3% a year ago. Moreover, the share of loans directly guaranteed by ourselves increased to 4.5% as of September 30 from 2.5% a year ago. Looking ahead, we plan to make this initiative of continuing to take on more risk on the platform as a key business focus for the remainder of 2020 and beyond.

Now turning to our wealth management platform. During the quarter, our ongoing transformation in this business segment remained on track as our total number of active investors grew by 8.3% year-over-year to 13 million. Meanwhile, our total client assets grew by 7.8% year-over-year to CNY 378.3 billion, amongst which the current product portion, excluding legacy products, increased by 61.6% year-over-year to CNY 346 billion. As of September 30, 2020, legacy products made up just 8.5% of total client assets versus 39% a year prior.

During the third quarter, our wealth management take rate for current products increased by 6.4 basis points year-over-year to 36.6 basis points. However, when including legacy products, the total rate -- take rate for our wealth management platform decreased to 56.6 basis points from 88 basis points in the same period of 2019. One of our management team's core focus -- or core focuses remains on the improvement of our product mix, which underpins the quality of these take rates.

As we continue to improve our customer analysis and insight capabilities during the quarter, we were also able to not only improve our product and service offerings, but also tailor them to each individual investor's preferences. As a result, our 12-month investor retention rate remained high at 95.2% as compared with 91.6% in the same period of 2019.

In addition, the contribution of our total client assets from customers with investments of more than CNY 300,000 on our platform increased to 77.5% as of the quarter end from 73.1% a year ago, which once again validated our chosen set of focus for the wealth management business.

In summary, during the third quarter, we continued to transition our business model while proactively addressing our product prices in sync with market requirements. By leveraging our strengths in data analysis and risk management, we've continued to optimize our funding mix, reduce our funding costs and improve our credit quality.

Looking ahead, we expect to deliver solid results for the full year of 2020, with total income to be in the range of CNY 51 billion to CNY 51.5 billion and net profit, excluding the nonrecurring charges for the C-round convertible note restructuring to be in the range of CNY 13.2 billion to CNY 13.4 billion. Although the recent changes in the regulatory environment have not directly affected our operations to date, we remain extremely vigilant. Should either new or more sweeping regulatory requirements be introduced, we are prepared to quickly make necessary changes and ensure our businesses grow in a compliant, sustainable and profitable manner for the long term.

I will now turn the call over to James Zheng, our CFO, to go through the financial details.

[Xigui Zheng, executive]

Thank you, Greg. I will now provide a closer look into our third quarter financial results. Before I begin, please note that all numbers are in renminbi terms, and all comparisons are on a year-over-year basis, unless otherwise stated.

We delivered strong financial results in the third quarter of 2020. During the period, our total income was CNY 13.1 billion, up by 10.5% year-over-year, while our net profit was CNY 2.2 billion, down by 36.8% year-over-year.

Excluding one-off charges of CNY 1.3 billion related to our C-round convertible loans restructuring, our adjusted net profit was CNY 3.5 billion in the third quarter, an increase of 2% year-over-year. We achieved these solid financial results during a period in which we were dealing with the residual impacts of COVID-19, transitioning our business to a more balanced risk-sharing model and adjusting our annual percentage rates, or APRs, to keep the all-in costs for our new borrowers below 24%. Our strong performance in spite of these changes is a testament to both the resilience of our business model and also the stability of our earnings.

Now let's take a closer look at our financial metrics for the third quarter. While our total income increased by 10.5% year-over-year, our revenue mix changed with the evolution of our business model. As we increased funding from the consolidated trust plans that offered lower funding costs, the related income was recognized as net interest income, which increased to 18.5% of our total income in the third quarter of 2020 from 6.5% during the same period last year.

As we gradually took on more credit risks through our guarantee companies, our guarantee income as a percentage of total income increased to 1.3% during the third quarter from 0.8% a year ago. As a result, our retail credit facilitation service fees contributed to 72% of our total income in the third quarter as compared to 84.6% a year ago.

What affected our near-term income growth relative to our underlying business growth were a number of transitory factors, including the impact from borrower early payoffs, the reduction in retail credit facilitation fees recognized from loans previously certified P2P, and reduced wealth management income due to the run-off of legacy products. These temporary headwinds will subside as we alleviate the early payoff impacts by changing how we charge our borrowers as well as by taking out our legacy products.

While we sustain our revenue growth, we also exercise prudence in our expense control. Although our total expense increased by 32.3% to CNY 9.5 billion during the third quarter of 2020, our expenses excluding the nonrecurring charges for our C-round convertible notes restructuring increased only by 13.7% year-over-year to CNY 8.1 billion. Our expenses excluding credit impairment losses and financing costs only increased slightly by 6.6% to CNY 6.9 billion from CNY 6.4 billion during the comparable period.

Our sales and marketing expenses increased by 14.3% to CNY 4.3 billion during the third quarter from CNY 3.8 billion a year ago. Our borrower acquisition expenses, which are a major component of our sales and marketing expenses, increased by 28.9% to CNY 2.8 billion from CNY 2.2 billion during the comparable period. Borrower acquisition expenses mainly represent the expenses we incur in order to facilitate loans on our platform and to generate credit facilitation fees. Those loans that contributed to borrower acquisition expenses include both new loans facilitated during the third quarter of 2020 and also old loans facilitated in prior years, whose remaining balance and obligation duration have not yet lapsed. During the third quarter, our borrower acquisition expenses related to loans facilitated in 2020 increased by 11%, while the same expenses recognized in this quarter related to loans of prior vintage increased by 38%.

Our investor acquisition and retention expenses decreased by 24.1% to CNY 198 million during the third quarter of 2020 from CNY 261 million in the same period 2019, mostly due to the efficiency improvement in our investor acquisition process.

Our general sales and marketing expenses, which mainly represent marketing staff payroll and related expenses, brand promotion costs, consulting service fees, business development costs as well as other marketing and advertising costs, decreased by 1.7% to CNY 1.32 billion during the third quarter from CNY 1.34 billion a year ago.

Our general and administrative expenses decreased by 3.7% to CNY 642 million during the third quarter from CNY 667 million a year ago, mainly due to our ongoing execution of cost optimization initiatives.

Consistent with our loan balance growth, our operations and servicing expenses increased by 5.4% to CNY 1.6 billion during the third quarter of 2020 from CNY 1.5 billion a year ago, while our outstanding balance of loans facilitated grew by 21.4% to CNY 535.8 billion as of September 30, 2020, from CNY 441.2 billion as of September 30, 2019.

Moreover, an increase in our loan repayment volume led to an increase in our payment processing expenses during the third quarter, which was partially offset by a reduction in costs due to our utilization of AI technology to improve the efficiency of our loan approval and collection process.

Our technology and analytics expense decreased by 9.1% to CNY 482 million during the third quarter from CNY 530 million a year ago, mostly due to a decrease in personnel-related expenses. Our credit impairment losses increased by 125.6% to CNY 952 million during the third quarter from CNY 422 million during the same period last year.

More specifically, credit impairment losses from loans to customers and financing guarantee contracts increased to CNY 454 million from a credit of CNY 88 million during the comparable period as we started to take on more credit risks as part of our business model transition.

Credit impairment losses related to accounts and other receivables and contract assets increased to CNY 479 million from CNY 163 million during the comparable period, mostly due to the natural increase in off-balance sheet loans as well as the residual impacts of COVID-19.

Our finance costs increased to CNY 1.7 billion during the third quarter from CNY 297 million a year ago, mainly driven by the nonrecurring expense of CNY 1.3 billion for our C-round convertible notes restructuring.

Our net profit was CNY 2.2 billion during the third quarter of 2020 as compared to CNY 3.4 billion during the same period of 2019. Our adjusted net profit, which excluded the aforementioned restructuring expense, was CNY 3.5 billion in the third quarter of 2020 as compared to CNY 3.4 billion in the same period of 2019.

Our basic and diluted earnings per ADS were both RMB 1.01 in the third quarter of 2020 as compared to RMB 1.58 in the same period of 2019.

Our adjusted basic and diluted earnings per ADS were both CNY 1.62 in the third quarter of 2020 as compared to CNY 1.58 in the same period of 2019.

As of September 30, 2020, we have CNY 14.4 billion in cash at bank as compared to CNY 7.4 billion as of December 30, 2019.

Looking ahead into our full year results, we expect new loan sales to be in the range of CNY 558 billion to CNY 568 billion; year-end client assets to be in the range of CNY 395 billion to CNY 420 billion; total income to be in the range of CNY 51 billion to CNY 51.5 billion; and adjusted net profit, which excludes the nonrecurring C-round convertible notes restructuring expense, to be in the range of CNY 13.2 billion to CNY 13.4 billion. 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're ready to take questions.

[Operator]

[Operator Instructions] Your first question comes from the line of May Yan from UBS.

[Meizhi Yan, analyst]

Congratulations on a steady result in a very challenging regulatory and interest rate environment. Okay. I have 2 questions. One is, can you let us know the IRR in the -- or effective API in the third quarter and leasing trends in October to November? And for the new loans as well as the average, if you can give us a bit of unit economics breakdown of the loans. And what's the trend for funding and CGI cost? Sorry, this is a long question with all these operating data.

And secondly, on the regulation development, what would be your response for the CBIRC recent criticism about bundling of Ping An's insurance products plus the high interest rate charge in your partnership with Industrial Bank? What will be the approach that you try to resolve those?

[Gregory Dean Gibb, executive]

Great. Thank you, May. It's Greg here. What I'll do is I'll take your second question first, and then we'll come back to the details on the first here as we pull the numbers together for you.

On the question of the regulatory issue, as you know, what was highlighted really was the question on whether or not there was any "bundled sales." And we've investigated that carefully. From a legal perspective, there's actually no clear definition of that, but the regulators may have a different interpretation. And nonetheless, what we have done in recent weeks is to adjust that process so the customers have clear choice. And so that there is clearly now on the platform no issue around the bundled sales question, and customers do have a choice -- or the right to choose which insurer or guarantee that they deploy.

I think that there's an important subquestion in there, which other people may also have, which is there was some highlights around the APR itself. And our understanding really in the broader market environment, really since post the court guidelines issued in August, that the current view very much is the funding is coming from financial institutions, that the acceptable rate is 24% or below. And we think that's not something that is likely to change in the near term. And it's something that really has been backed up by many court cases in the last couple of months as people have gone to see if they can actually get their funding reduced or their interest rate reduced, and that's been backed up so far at 24% below.

Having said that, one of the things that we mentioned in the course of the road show, looking forward, we will take every opportunity where we can optimize operating costs and funding costs to pass on lower rates to customers while protecting our net profit margin. And so that remains a continued focus that we will work on in the future as needed. But again, I really -- I don't believe that the 24% number itself will see significant change in the near term.

With that said, I'll turn it back over to Y.S. Do you want to go through the...

[Yong Suk Cho, executive]

Yes, absolutely. Let me answer your first question, and then I may want to supplement about the questions as well. The first question is about our IRR trend. If you look at our third quarter, our average APR to unsecured loans was 26.5%. But I believe you want to know about what's the APR level actually reduced by now to 24%, what we were past September 4.

So if you look at our new loans in October, referring to October number, our current average price of unsecured loans is 22.4%. And that's why the funding cost remained unchanged at 6.7%. And the CGI premium decreased a lot because now we are switching target markets to our better product to our client segments. So CGI segment directly now at 6.5%. So those are key numbers to answer your second question.

[Gregory Dean Gibb, executive]

First question.

[Yong Suk Cho, executive]

First question, sorry. And the questions about the recent notice by the state council, CBIRC. Then it was our -- it was about our past, the accounts we booked in May 2019. And then I see that there are basically a few points. The first is bundled space. And as Greg said, we believe this is not bundled sales, but no matter what, we're following CBIRC's window guidance. We already changed our sales targets from October. So we let our borrowers choose insurance companies from their application.

And second point is about 1% guarantee. There, as we shared during our IPO road show, we already have a plan to gradually increase our shared risk proportion from 1% to 20% by the end of first half next year. And then if you have a look at the October number, it's already 10%. So this is not something new for us.

And then lastly about the price, again, this is a secured loan that we booked May last year with 22% APR. And then for secured loan, as of today, our price is 70% on a loan and also unsecured with greatly reduced price down to less than 24% following -- strictly following CBIRC's window guidance starting from September.

And then also, if you look at the recent court decisions, that we are monitoring about more than 4,000 court cases. And more than 90%, it's very clear, they use 24% as a standard -- as a basis to make a decision on financial lending institutions beyond the APR dispute. So it's very clear that 24% is becoming a market standard for financial institutional lending.

And then if you look at any further information from CBIRC about the pricing, so we don't have any plan to further reduce price in the short time.

[Operator]

Your next question comes from the line of Winnie Wu from Bank of America.

[Winnie Wu, analyst]

Just want to clarify, maybe I didn't get it very clearly. What's the third quarter versus September funding cost CPI premium and EPO? Sorry, could Y.S. please repeat that? That's the first part of the question.

Secondly is I think there are investors concerned about recent U.S. regulations or regulators talking about tightening the standard on the ADR. I just want to ask management plan or sort on the potential risk of ADR delisting and the scenario of coming back to Hong Kong either for a secondary listing or possibly dual primary listing.

[Yong Suk Cho, executive]

Okay. The first question, the funding costs remain unchanged from second quarter to third quarter. It's at 6.7%. While credit insurance premium charged by insurance partners decreased from about 9% down to 6.5% level. And EPO -- if you look at -- if you measure the EPO by the asset amount divided by the beginning loan balance, it's around 8% every quarter. It has been very steady second quarter. Third quarter, I don't see any change.

But among that, starting September, we greatly changed our target market. For those new segments, we have to wait and see how they perform differently from sort of the EPO behavior that we have more income.

[Gregory Dean Gibb, executive]

Okay. On the question of the recent -- let's term this the Kennedy bill in the U.S., obviously, this is an expected item going back a number of months now. If you look at that deal itself, obviously, it is laying out a 3-year period in which you have to comply with the disclosures. What we would note is that at least the initial response that you see in the media from the CSRC is trying to, I think, proactively be ready to address it. So I think in the broader context, we do believe that a solution will be found.

Having said that, there is also, we believe, some statements that will appear from our understanding of the process with the SEC that is looking to create terms around a co-audit process. So for example, if your auditing firm is a global firm that has a China team, it also has a U.S. national team. What would happen under this co-audit setup is the national U.S. team will have to review the results and be accountable for whatever working papers are done by the China team. So this co-audit process is something that we think will also potentially be put forward by the SEC in the near future.

But just to reemphasize, whatever outcome, whether it's the Kennedy bill or any changes that are further refined by the SEC, we do have a 3-year period, which gives us more than ample time to make any other preparations in terms of other listing options down the road. We don't have any immediate plan for a different listing, but obviously, we have a fair bit of flexibility there.

[Operator]

You your next question comes from the line of Elsie Cheng from Goldman Sachs.

[Haiwen Cheng, analyst]

Congratulations on the solid quarter. I have 2 questions here. First is with regard to the macro and regulatory environment in China currently. I know we just talked about the recent CBIRC comment. And looking forward, what do you see are the potential risks as well as opportunities to Lufax? And could you also share a little bit more in terms of what's your business expansion plan in this environment? Any changes versus 2 months ago?

And the second question is really about our customer strategy following the updated pricing and customer strategy implemented in September in addition to the APR trend we just talked about. Could you also share with us more on how has it been working out on the sales efficiency front? Any trends we're observing there?

[Gregory Dean Gibb, executive]

Okay. I think on the regulatory side, although there has been really no specific announcement or no specific requirement issued by any regulator to date, what we do understand is that the regulators are clearly -- if you look at the draft that's come out for the micro finance, right, the real focus here is on platforms that are cooperating with banks to have more skin in the game, to bear more risk and to have sufficient capital to back up that risk. That is clearly the main focus.

And while that has been clearly stated for the micro finance model how it would apply to other business models in the market, including our own, to be honest, there is no clear statement yet. But as we disclosed when we are going through the IPO process, we are -- as Y.S. highlighted, by the first half of next year, we would hope for all new loans that we will be taking 20% in the mix. Whether that 20% could be changed, and some people have asked, will the 20% become 30%, that's something that we will have to monitor. If it were to be slightly more from 20% to 30%, we have more than adequate capital to handle that, even -- not even -- including the recent IPO. So we think it'll take a little bit of time for the regulators to really form a clear view for the industry as a whole across business models. We understand regulators are working very hard on this issue. We also hope that there'll be an answer in the near term, but we're also reasonably well prepared for any eventuality. Maybe on this question for regulation, I'll ask Ji -- Chairman Ji to also make a few comments.

[Guangheng Ji, executive]

[Interpreted] So this is Chairman Ji speaking. Given I think that regulatory will be a great concern for many analysts and investors and you may ask further questions, I will now provide a systematic overview of what we think of the regulatory environment is and our responses.

Firstly, due to the unseen event, we think there has been a sudden turn of the regulatory direction post that [indiscernible]. And there's too many changes. And the first is the tightening of the overall regulatory environment. And the second is a comprehensive and go through to the detailed level of the regulation.

In the past, we have seen a lot of tolerance for innovation, which now today, the regulators are a lot more cautious. Before the IPO, our biggest challenge was probably to deal with the 4x LTI rules. And post-IPO, today, our biggest challenge is to get a clear view of what the regulations are having and what the regulators are currently thinking about. No doubt, the 4x LTI at the time of our IPO and today's regulatory changes are the biggest uncertainty we are thinking in our business.

Because of the uniqueness in China -- while we're talking about regulators, usually, we don't necessarily just mean the PBOC, the CDR and CBIRC. We have to take into consideration the state council of the government. And as you can see, the 4x LTI was not a rule set up by the traditional national regulators such as the PBOC and the CDI and CBIRC. It was issued by the Supreme Court. So this is what the major changes we are currently seeing at the various regulatory bodies today.

Secondly, I want to talk about our responses and what we're going to do about it. We think the major areas of concern for the regulators are in the 7 following areas. The first is overall cost of borrowing. Secondly, this bundled sales. Third is our leverage. And fourth is operating within the industry or across different industries. Number five, the amount of time for funding providers that they play in the sales process while they do their own underwriting or they outsource it to others. And then the use of proceeds from the loan -- the borrower. And the seventh and last point, the consumer protection. And this is mainly reflecting the number of complaints and what we're doing about those complaints.

And here is what we're going to do with these concerns. First and foremost, we need to try to understand the regulators' intention and/or the intent to do it. And so 1 month after we did our IPO, we have been engaging -- having very frequent dialogues with different regulators to try to understand the intent. And not only the Lufax management. Ping An's senior management level is also involved in this process. We were hoping to get a clear steer from the regulators while they are heading that, especially any impact to our business model and profitability model.

So far, various regulatory bodies are still discussing on what they're going to do next. We have -- we do believe that our business model differ from them, and there are special recognitions from the regulatory bodies on that point. So I think they've been discussing. We are not 100% clear on what exactly they're going to do next. So all we can do is, again, anticipate the future direction and adjust our business model accordingly before [ we pick it up ].

Despite not knowing exactly what the future rules may be, we are now reasonably clear of their intent. And therefore, we will be repositioning our businesses accordingly so we are prepared when the rules are finally out. But so far, we believe we have an efficient line of communication with regulators, and we think the impacts are friendlier. This is all we can say at the moment, and we'll continue to do these communications.

And thirdly, I want to say, our communications to the capital markets, including our investors, we have a principle, the management will always be open, transparent and honest with the capital markets.

So this is all we have, and I have shared everything I have with you today. And if there are more development, rest assured, we will be the first and foremost to let you know. We do think the regulatory environment has actually tightened and it's changing rapidly. Therefore, we'll remain vigilant in watching the space.

[Gregory Dean Gibb, executive]

Y.S. on the second question, do you want to make a comment?

[Yong Suk Cho, executive]

Yes. Yes. Let me answer this question by providing a few numbers. So since we shifted our target market from September 4 with a lot lower APR, then the results are somewhat positive for our new sales. If I share October-November, we see too much numbers. October, despite we have 10 days holidays, our new sales volume was more than CNY 45 billion a month. And in November, we close CNY 50 billion a month. So YTD November, our total new loan sales is about CNY 530 billion, which is surely ahead of our target. And as a result, our sales cost was increased by about 9% from second quarter to third quarter. And while our channel mix stayed -- remains unchanged at 50% from direct sales, 40% live agents and 10% from telemarketing and online. So, so far, it's very promising, our sales volume delivery.

[Operator]

Your next question comes from the line of Binnie Wong from HSBC.

[Wai Yan Wong, analyst]

Congrats, management, on the third quarter and also successful IPO in the first quarter as a public company. My -- there's 2 questions we have here. One is actually on the credit risk exposure. We understand that management commented that you guys will increase the credit risk exposure to 20% level, as communicated during the IPO. Is there any plan you think that we need to also step up further to 30% to be just in line with the requirement under the co-lending in the trust resolutions? If so, how do you think that will change -- impact the take rate for the credit facilitation business? That's question number one. How should we see that would impact -- say maybe any magnitude you can give in terms of how the increase in the credit risk exposure will translate into the increase in the take rate.

And then the second question is that if you look at the recent notice by the CBIRC on the -- saying that the 22% of the APR loans arranged by Lufax and Industrial Bank has appeared to be quite high. I understand that we are lowering the APR of all new loans to below 24%. So if the statements from the CBIRC will put further pressure to lower the ADR further in the near future, what is the plan that we have been thinking of so far? And I mean, how does that impact take rate?

[Xigui Zheng, executive]

Okay. Yes. So before I talk about credit exposure, I think I want to share the ultimate number because it kind of -- if you look at -- if we focus on the number, the -- our position is very clear. So the -- for the full year sales volume, our sales guarantee portion already are up to 10%. We talked about 1 month new sales volume. And then Ping An P&C, the CGI portion decreased greatly from about 90% down to 77% and -- while the rest, 13%, are taken by partner banks directly. So our motivation is very clear, I just want to correct. And as Greg said, open trust plan, we want to achieve 20% sales proportion by the end of first half next year for new loans. And then whether we can increase this further to 30%, we don't know yet. We haven't decided yet.

If you look at that tenant loan -- management loan announced by [ CBIRC ], yes, it's that for small loan company joint lending, they take up the 30% credit risk. But that's not for our guarantee company. That's for a small company, which we are not using now. But if 30% -- in case 30% becomes market loan and the new standard for this joint lending no matter you use smaller license, who are insurance license, who are guarantee license, if that happens, we believe we have more than enough capital to support that 30% guarantee. Because as of today, if I'm not mistaken, we have about CNY 11 billion net assets on our guarantee company. And then through organic profit growth, this net asset will increase to CNY 25 billion by the end of next year. So surely, we can take up to 30% credit risk for new loans without having any further capital injection. So we are confident.

And then how this will affect our take rate? It does not affect much. It will rather be positive to pass our take rate because when you take more credit risk, it always comes with more revenue and then more net margin.

And the second question about the price, 22.16%. That was again secured loans we booked in May 2019. And secured loan, our average price as of today is 70%, which greatly reduced. And unsecured, less than 24%. And again, how further we will go down, we don't have any plans to reduce dramatically in the short run because we are not clear about -- we haven't got any further instructions from CBIRC. But open [indiscernible] plan. We plan to reduce our highest APR from 24% further down to 20% within previous time, so our plan remains unchanged.

[Operator]

Your next question comes from the line of Thomas Chong from Jefferies.

[Thomas Chong, analyst]

I have a question about the wealth management business. Can you comment about our competitive edge in automated portfolio and returns versus other providers?

[Gregory Dean Gibb, executive]

I'll just the restate the question so that everyone can hear. It was a bit fading. So the question was on the wealth management side, our competitive advantage in the portfolio services that we offer.

I think I would outline the answer in 2 parts, up until now and in the future. Up until now, as you know, our portfolio services in terms of scale are north of CNY 10 billion, which makes us one of the largest in the market. And the way that we've been able to achieve that is by creating a very transparent means online for customers to understand the benefits they get from a diversified investment program. And we have now designed more than 16 different strategies for different risk appetites in different market environments.

And we have also opened the platform to external providers, securities firms and other fund houses who are also offering the portfolio so that we can match the customer. So I think up to now, what's allowed us to be successful is understanding our customer segments while having strategies that are well positioned against those segments. And also in terms of our online interface with investors, getting them to understand the benefits of doing so and also helping them transition across portfolios as the market environment changes. Roughly on the portfolios, as we played a role in helping design the strategy, the year-to-date return is an average of about 12%. And so that sort of steady return together with the customer interface, I think, has been the key to success up to now.

If we look going forward, what we are doing is continuing to deepen the design on the tech side to really improve the after-investment service so that customers can really understand how their portfolio is performing, how it's being reweighted to accommodate different market environments and how adjustments can be made for them to optimize. So really, the service element in a totally tech-driven environment is something that we are building out very quickly, which I think will maintain a unique position in the market.

The other thing from our discussions with regulators in terms of where they want to go with the advisory business in China, I think where they're starting to come up more and more is they see the advisory business as a business that's best offered to customers that can maybe invest CNY 50,000 or CNY 100,000 or more and so -- because there is where diversification really makes a difference for customers that can invest that minimum amount.

So our ability to bring the technology and then given our customer segment, which is indeed sort of the middle class and emerging affluent, there's a very good match there that we enjoy that other platforms may not enjoy to the same extent. So our advantage up now has been designing it simple, matching the interface to the front end for the customers as well. Going forward, it's about deepening the tech on the post-investment side. It's about creating more portfolios that are increasingly data-driven against the market environment. And then finally, we think that our segment will stand out in our ability to match these sort of services in the market as a whole.

[Operator]

Our next question comes from the line of Richard Xu from Morgan Stanley.

[Richard Xu, analyst]

I have a question on the progress of that actually, may -- banks take risks on their own. I think there's a plan to gradually reduce the P&C insurance guarantees and ask the banks to take more questions -- more risks directly. I just want to know whether there's any progress during the third quarter. Any target for this year and next year? And then maybe second question, do we have any guidance for -- currently for 2021 at the moment?

[Gregory Dean Gibb, executive]

So Richard, on guidance, we will provide guidance as a whole when we report the full year results. So that will be coming soon. I think your first question was really around -- and I'll ask Y.S. to restate it, that -- around the evolution of how much risk we're taking, how much risk Ping An P&C is taking and how much risk is being directly borne by the bank. So maybe, Y.S., you can restate around the trend for September, October.

[Yong Suk Cho, executive]

Yes. If I look at the October number -- because September number is not that arduous. So if you refer to October number, the outlook for [indiscernible], the risk-bearing portion, sharply 10% by Lufax, and then 77% by Ping An P&C. You remember, it is about 90%. So it sharply decreased down to 77%. And the rest, 13%, are mostly taken by -- directly by partner banks. So in our future, the transition direction is very clear. So we want to increase our risk-taking portion up to 20%, and the insurance company will reduce down to about 40%. And the [indiscernible] banks are taking the rest, 40%, with credit loss responsibility. So that is our direction. And there's no associate debt. It's all written by the end of first half next year for new loans.

[Operator]

[Operator Instructions] Your next question comes from the line of Hans Fan from CLSA.

[Hans Fan, analyst]

I've got a couple of questions regarding wealth management segment. So the first thing is that the take rates in the current products actually went up in third quarter. So can you elaborate drivers behind this? And more particularly, we would like to know the product mix. If you can share the product mix change, that will be great among the current products.

Number two is that I think previously, there is a plan for us to apply for a mutual fund investment advisory sort of license. I just want to know what's the progress of acquiring this license.

Number three is about the regulation related on the wealth management segment. We understand that overall regulatory environment for wealth management is actually quite favorable. But recently, there are some rising voice in the media, especially highlighted by one of the CBIRC official, talking about the potential tightening of online distribution of deposit products. So for us, I think this kind of online deposit products on banks accounts for 30% of our current products. So I just want to understand what's the impact for us. And do we have any plan to prepare for this change? Yes, that's all my questions.

[Gregory Dean Gibb, executive]

Thank you, Hans. So the -- on the mix, actually, we have seen a general increase across all products, but we have also seen a lift from more high-end products related to equity-related products and trust products as well. So it is a combination of a lift across the board versus the historical period we're comparing against, but also an improvement in the mix of higher-end and equity-related products.

Going forward, this is something we will continue to emphasize, and we will continue to emphasize around the portfolio advisory services, which we believe will generate higher fees. And I think we mentioned prior, we will take more efforts in building out the insurance product line as well, which will continue to support take rates over time. So this is something that's ongoing, and we will expect to continue to have positive evolution as we look forward in the next 12 months as well.

On the question of the private license and the private license for advisory services, where we believe the regulators are going at the moment is to extend the pilot period and to extend the pilot participants. And we are -- we have made our submission of our license in this regard, and we're hoping that as soon as possible, we will get more clarity on the ability to obtain that license. The actual long-term license for financial adviser group, there was additional hope in the market that maybe the requirements maybe announced by the end of this year will probably go later into the first half of next year. But it's something that we are working very hard on to be ready to obtain. And then the third question...

[Guangheng Ji, executive]

[Foreign Language]

[Gregory Dean Gibb, executive]

Yes. Yes. In the -- Chairman Ji was saying in the process of getting a pilot license -- or lineup in the list of potential participants is improving as we continue our communications and demonstrate our capabilities. So that's something that we're still very hopeful of.

On the third question of deposits and deposit distribution. As of today, the total deposits that we help facilitate is probably about -- it's not quite 30%. If you look at the total AUM today of CNY 370 billion, I think it's about CNY 700 billion plus -- CNY 750 billion thereabout. So it's about 25% of the total AUM.

We anticipate that there will be stricter guidelines coming out probably in the next couple of weeks, at latest in the next month or 2, right? So over the next couple of weeks, we may see more clarity coming for the PBOC. So we believe the market will continue to exist in terms of platforms working with banks. We believe that the regulators will probably provide more guidance on what level of pricing the banks can offer. They will also probably provide more guidance on which types of banks are able to continue to increase their deposits through online platform cooperation, which we think is, if you take a longer-term view, probably a good development because it really makes sure that deposits are flowing quickly into banks that have the right risk structures to bear this. So I think, again, the focus of the regulators here is on managing overall macro risk as a sum of risk.

And so we do think that this market, it'll probably not grow as quickly as it has in the past given these changes. But we also, in anticipation of this, are advancing our cooperation with many of the new bank asset management companies that are in the market. We do believe that the product sets that are in those licenses, in those entities will probably serve as a good replacement, alternative, for the deposit-like products that are out in the market today. So with a combination of maybe optimizing our mix of the banks that we cooperate with, mitigating requirements on disclosure for investors in those products as well as continuing to shift product mix with the advancement of the bank asset management guidelines, we will be able to continue to optimize the mix.

[Operator]

There are no further questions. I'll turn the call back to management for closing comments.

[Gregory Dean Gibb, executive]

Right. Well, thank you. Thank you, everybody, again, for participating in today's call. I think one important point that Chairman Ji made is, obviously, we remain in an environment where there will be new information coming. Where that new information is relevant and material, we will certainly do everything possible to be the first to make it clear with regards to how -- any impact it may have on us. So again, thanks, everybody, for the attendance.

[Operator]

That concludes today's conference call. You may now disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]