LexinFintech Holdings Ltd (LX) (Q2 2026) Earnings Call Highlights: Navigating Industry ...

Negative Points

• LexinFintech Holdings Ltd ( NASDAQ:LX ) experienced a material impact on loan facilitation operations due to industry-wide funding tightening and suspension, leading to a 4.3% sequential decline in loan origination volume to RMB55.43 billion.

• The company's net income decreased significantly by 49.7% quarter-over-quarter to RMB101 million, driven by revenue decline, increased provisioning, and cost pressures.

• Risk indicators are expected to worsen, with day one delinquency ratio rising 9.5% quarter-over-quarter and 90-day plus delinquency ratio increasing to 3.6%, with further deterioration anticipated in Q3.

• The company expects to record a net loss in the third quarter of 2026 due to continued revenue contraction, higher credit costs, and one-time severance expenses from organizational optimization.

• LexinFintech Holdings Ltd ( NASDAQ:LX ) has adjusted its dividend policy from semi-annual to annual distribution, delaying potential shareholder returns and signaling reduced near-term capital returns.

• The company faces limited visibility on when funding supply will normalize, with revenue expected to further decrease and credit risks and costs trending upward in the near term.

Q & A Highlights

Q: What is your take on the recent risk events in the industry, how have they affected your business, and what steps are you taking in response? A: (Jay Wenjie Xiao, Chairman and CEO) The events involving certain peers triggered a crisis of confidence among funding providers, causing a broad-based tightening and even suspension of funding across the industry. While these are isolated cases, we expect the adjustment period to last longer than initially expected. We have always operated in strict compliance and don't have the issues seen at those institutions, but we are not immune to the broader trend. Our loan facilitation business took a significant hit in July, with new originations contracting notably. We are responding by accelerating our diversification strategy, driving cost efficiency (expecting management costs to come down by 30% to 40%), and deepening AI integration across operations to stay lean and agile.

Q: How do you expect the risk trend to evolve in the third quarter? A: (Arvin Zhanwen Qiao, Chief Risk Officer) Following the industry events in late June, we saw volatility in risk indicators driven by a sector-wide liquidity shock. Looking ahead to Q3, with funding supply tightening further and new loan originations declining materially, we expect the existing portfolio risk to remain under upward pressure sequentially. Compounded by a further contracting loan balance, the 90-day plus delinquency ratio is expected to rise further. On the collection side, due to higher compliance requirements for loan collection practices, our collection rate will also see a decline. However, with our prudent risk approach and adequate provisioning, we have the capability to manage an orderly wind down of existing risk assets.

Q: Given the impact of recent industry risk events, how should we think about the financial performance for the second half of the year? A: (James Zheng, CFO) Market visibility remains limited, so we are not providing specific financial guidance. We expect Q3 performance to be under pressure due to a material impact on new loan originations, which will weigh on the top line. Additionally, credit costs will rise due to increased default risks in the existing portfolio, and we will incur one-off severance-related costs from organizational streamlining. Factoring all this in, we expect the company to record a net loss in the third quarter. For Q4, we will update guidance as we get more clarity on the regulatory front.

Q: Following the change to your dividend policy, how should we view your long-term plans to return value to shareholders? A: (Company Representative) The Board decided to change our dividend distribution from a semi-annual to annual schedule to maintain ample liquidity and financial flexibility during the industry adjustment. Our commitment to creating and returning value to shareholders has not wavered. As the industry gradually recovers and business performance improves, the Board will actively evaluate a range of shareholder return options, including share buybacks, based on our specific circumstances at that time.

Q: Can you provide more details on the performance of your FinTech empowerment business and installment e-commerce business during the quarter? A: (James Zheng, CFO) Our FinTech empowerment service bucked the overall trend with continued growth of 8% quarter-over-quarter, and the combined loan volume contribution from FinTech empowerment and e-commerce has now reached 45%. The installment e-commerce business maintained stable loan volume at RMB2.3 billion, but more importantly, gross profit for this segment reached RMB329 million, a 58.7% increase, with gross profit margin expanding from 9.4% to 14.1%. These diversified businesses are serving as reliable stabilizers and valuable revenue drivers for our broader portfolio.

Q: What is the current state of your cash position and how are you managing liquidity during this period of funding supply tightening? A: (James Zheng, CFO) We currently have a cash position of RMB2.5 billion, which provides a financial buffer to help us navigate industry volatility. We are prioritizing cash flow management while optimizing operational efficiency, including staff reductions to safeguard our core business fundamentals. We are also maintaining dialogue with our funding partners to reinforce mutual trust, ensuring we are well positioned to resume normal funding supply as soon as market conditions permit.

Q: How is AI being utilized in your risk management operations, and what results have you seen? A: (Arvin Zhanwen Qiao, Chief Risk Officer) Our continued investment in AI-driven risk control is yielding meaningful results. In credit approval, our credit assessment agent has evolved from assisting human reviewers to making autonomous decisions. Its risk detection capability is 3x that of manual review for autonomous rejection and 1.2x for review recommendations. We are also building an internal risk control agent expert platform that has boosted the outward efficiency of general risk models and routine strategies by over 5x, positioning us well for future tech empowerment and risk solution offerings to the industry.

Q: What is your outlook on the regulatory environment and when do you expect funding supply to normalize? A: (Jay Wenjie Xiao, Chairman and CEO) We don't expect the regulatory and funding environment to ease anytime soon, and recovery will take time. The risk events involving certain peers have triggered heightened regulatory scrutiny, and we wouldn't be surprised to see more regulatory measures follow. In the near term, we will stay disciplined and ensure an orderly wind down of risk assets. Over the medium to long term, we will accelerate the transition to a tech-empowered model by empowering financial institutions with our technology solutions, positioning ourselves for long-term sustainable growth under the new regulatory landscape.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .