Qfin goes from fintech stud to dud as new regulations kick in

The online loan facilitator posted weak third-quarter results and was downbeat on the final three months of the year, contrasting with a strong finish to 2024

Key Takeaways:

• Qfin’s revenue slipped 0.2% in the third quarter and its net profit fell 17%, reflecting challenges it faces in a lackluster economy
• The company also issued a bearish outlook for the whole year as new regulations are set to squeeze its online loan facilitation business

By Warren Yang

Quite a lot has changed for online loan facilitator Qfin Holdings Inc. (QFIN.US, 3660.HK) in the last year. For starters, it has taken on a new name. But more importantly, a regulatory tightening and China’s persistently lackluster economy are starting to take a toll on the company, which until recently seemed remarkably resilient in the face of such challenges.

Qfin’s third-quarter revenue slipped 0.2% year-on-year to 5.2 billion yuan ($731 million), its first contraction for that metric in more than two years, while its net profit fell 17% to 1.4 billion yuan, according to its latest quarterly results released last week. The company topped off the tepid report by flagging a rather bearish outlook for the rest of the year, saying it expects its net profit to drop as much as 49% in the final quarter, giving it just a 1% profit rise for all of 2025 in a best-case scenario.

These forecasts are a stark contrast to Qfin’s upbeat mood at the start of this year, when it posted a surge in its profit for 2024 and projected a strong start to 2025. Since then, it has changed its name from Qifu, perhaps aiming to highlight its identity as a fintech company by inserting a “fin” in its designation. The company was originally known as 360 Finance when it made its New York trading debut in 2018, a reference to its ties to security software maker Qihoo 360.

More significant than the regular name changes for Qfin, as well as its peers, was the Oct. 1 implementation of a broad new set of regulations for financial institutions. A key component of the latest rules is a greater emphasis on risk management, which may be a drag on Qfin’s earnings growth as it needs to tighten its criteria for accepting borrowers – at the expense of loan growth – and also increase provisions against potential defaults.

“As a leading player in the industry, we have always held ourselves to the highest compliance standards with no exception this time,” Qfin CEO Wu Haisheng said on the company’s conference call to discuss its third-quarter results. “While these measures may temporarily impact our loan volume and profitability, we believe that prioritizing value for users will eventually strengthen their trust and help us maintain more sustainable and resilient growth over the long term.”

The new rules are just the latest for China’s private financial sector, which has been subject to a regular stream of regulatory changes since the years just before the pandemic. It shows how Qfin and its peers must navigate a constantly evolving regulatory environment for China’s financial industry at large, reflecting regulators’ efforts to protect the country’s economy from risks associated with reckless lending. 

And of course, the current state of the Chinese economy is also making life hard for the country’s lenders, both private and state-owned. As consumers and businesses cut back on spending and borrowing, it becomes more difficult for lenders to grow their business. The country’s aggregate amount of bank loans contracted sharply in October from the previous month, even after Beijing introduced a program to provide interest subsidies for businesses in select consumer-related sectors in a bid to revitalize the economy.

Weakening financial health among borrowers is also boosting default risks, making risk management increasingly important for lenders, regardless of tighter regulations.

Qfin’s third-quarter performance illustrates these difficulties quite clearly. Its total loan facilitation and origination volume increased just 1% year-on-year in the third quarter and shrank 1.4% sequentially. At the same time, the ratio of loans delinquent for 90 days or longer crept up to 2.09% at the end of September from 1.97% three months earlier.

Provision surge

As its situation slipped, Qfin’s provisions against bad loans soared. The company is a middleman between borrowers and banks, meaning it technically shouldn’t be subject to default risks. But in reality, that’s not the case. If there’s a default on a “capital-heavy” loan that Qfin facilitates, the company is obligated to pay the original lender all outstanding interest and principal. Qfin also funds some loans through trusts and a subsidiary, for which it bears all credit risks. Qfin attributed the big jump in its provisions to increases in the volume of both categories of loans.

On the earnings call, Qfin management said the company adjusts the ratio of its capital-heavy loans to loans that don’t carry full-payment guarantee services, depending on economic conditions. It added it will look to increase the proportion of the latter type of loan in the fourth quarter to reduce its credit risk exposure.  

Obviously, Qfin isn’t alone in dealing with all these headwinds. Among its competitors, FinVolution (FINV.US) last week reported a year-on-year decrease in its transaction volume for the third quarter, along with an increase in provisions. But unlike Qfin, FinVolution managed to grow both its revenue and net profit, thanks in large part to the expansion of its international operations – something Qfin has yet to explore.

Qfin still is a highly profitable company that enjoys good margins. Its use of advanced technologies help to lower operating costs. And its services based on AI and data analytics, an area where it can leverage its Qihoo 360 ties, are an attractive proposition for banks, which can give the company leverage in price negotiations with customers.

For example, Qfin is working to integrate an AI credit agent into its Focus Pro platform. The technology can significantly streamline cumbersome loan-approval processes as it can assess borrowers’ risks in seconds based on a massive volume of data and large language-model capabilities. A trial run of the new feature has drawn “very positive” feedback from customers, Wu said.

Regardless, stock market reaction to the company’s latest quarterly report wasn’t so positive, sending its Hong Kong-listed shares plunging some 18% in four days. Qfin’s stock is down more than 50% in Hong Kong this year, hugely underperforming a 32% gain in the city’s benchmark Hang Seng Index. The shares now trade at a lowly price-to-earnings (P/E) ratio of just 2.7, even lower than a similarly depressed 3.3 for FinVolution. That shows investors aren’t particularly upbeat on this group, despite the ability of most companies to remain profitable in a difficult environment.

Qfin has a lot going for it. But its high exposure to regulatory and economic changes are a clear turn-off to investors – realities that look unlikely to change anytime soon.

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