Source | Laser Finance (leishecaijing)
China Merchants Union, a leading licensed consumer finance institution, disclosed its latest half-year results, showing clear signs of adjustment.
Financial report data shows that Merchants Union Financial achieved revenue of 9.366 billion yuan in the first half of 2023, a year-on-year increase of 11.29%; net profit was 1.862 billion yuan, a year-on-year decrease of 3.87%; total assets were 173.24 billion yuan, a year-on-year increase of 21.17%.
Regarding the decline in profits, China Merchants Union Financial responded that in the first half of the year, faced with the complex situation, China Merchants United Financial took the initiative to look forward to risks, continued to operate steadily, strengthened the optimization of the overall asset structure, promoted cost reduction and efficiency management upgrades, and achieved scale, efficiency, and Balanced development of quality.
Comparing the performance of the same period in the past three years, China Merchants Union Financial's revenue and profit growth continued to decline, and even experienced negative profit growth. Behind the performance adjustment, on the one hand, growth is relatively difficult due to the large overall size; on the other hand, it may be that asset quality has declined, and credit impairment losses have offset profits.
While adjusting its performance, China Merchants Union Financial is also seeking more business growth points to support continued upward breakthroughs in volume. "Laser Finance" exclusively learned that China Merchants Union Financial has increased its investment in high-quality customer groups and launched China Merchants Union small wallet products that do not require credit checks and are interest-free for small amounts. Use the interest-free method to attract more new high-quality users.
In addition to consolidating the basic base of online self-operation and loan assistance, China Merchants Union Financial has also launched offline business expansion, recruiting offline agent channels in many places across the country, promoting salary loan products through channel power, and penetrating into high-quality offline customer groups.
Multiple sources revealed to "Laser Finance" that China Merchants Union Financial's offline business has two cooperation models: CPS profit sharing and fixed income bottom line, both of which require agency channels to pay deposits. The offline target customer group is working-class customers, mainly targeting high-quality units in eight major industries.
People close to China Merchants Union Finance said that China Merchants United Finance has been exploring offline business in the past two years. Last year, offline cooperation channels were adjusted. Now it is looking for new breakthrough points in the business and expanding user coverage.
From this point of view, China Merchants Union Financial's performance adjustment may also be related to trying new businesses. With the entire consumer finance industry in a predicament of asset shortage, testing new businesses, increasing customer acquisition channels, and strengthening service reach are also inevitable moves for consumer finance companies to maintain volume and grow.
Why have profits fallen?
As the leading licensed consumer finance company, China Merchants Union Financial’s performance has set a benchmark for the industry. However, this time the profits have declined mainly due to China Merchants Union itself.
"Laser Finance" learned from a number of leading consumer finance companies that the performance growth in the first half of the year was relatively stable, with both revenue and profit increasing. This also shows that in the first half of the year, as the cost of the liability side continued to decline, the entire consumer finance market developed The environment is stable, and the fact that China Merchants Union increased revenue but did not increase profits is mostly due to its operations.
Dismantling the performance indicators of China Merchants Union Financial can reveal clues of adjustments.
Judging from the performance of China Merchants Union Financial over the same period in the past three years, the growth rate has continued to decline. In the first half of 2023, China Merchants Financial's revenue growth rate was 11.29%, and its net profit growth rate was -3.87%; in the first half of 2022, China Merchants United Financial's revenue growth rate was 14%, and its net profit growth rate was 26%; in the first half of 2021, Merchants Union Financial’s revenue increased by 22.7% year-on-year, and its net profit increased by 166.7%.
In horizontal comparison, although the revenue growth rate of China Merchants Union Financial has been declining, it has always maintained positive growth. The profit growth rate in the previous two years has also maintained positive growth. Why did the profit growth rate suddenly turn negative in the first half of this year? The reason is not that spreads have narrowed, but that fees have increased.
Due to the limited income statements and asset statements disclosed by consumer finance companies, it is impossible to directly calculate each company's net interest margin level from net interest income and interest-earning assets. However, considering that the business model of consumer finance companies is relatively simple, the revenue is mainly composed of net interest income (accounting for more than 95%), and the assets are mainly loan allocations, so it can be estimated from the rate of return (revenue/assets) Net interest margin level.
For example, from 2021 to 2022, Merchants Union Financial achieved net interest income of 16.232 billion yuan and 17.904 billion yuan respectively, and net fees and commission expenses were 366 million yuan and 465 million yuan. Compared with the revenue data for the same period, the net interest income far exceeded Revenue was offset by fee and commission expenses.
Combining the revenue and asset data of China Merchants Union Financial in 2022 and the first half of 2023, it can be calculated that China Merchants Union's return rate in 2022 is approximately 10.65%, ranking among the top licensed consumer finance companies, while its return rate in the first half of 2023 is approximately 11.1%. The difference between the two is not obvious.
Therefore, from the perspective of net interest margin, consumer finance companies have entered a stable pricing state after two years of interest rate reductions. At the same time, the cost of funds has declined, which has kept interest margin levels stable. China Merchants Union Financial's claim that the fee reduction and profit margin has increased is questionable, at least from the perspective of financial report data.
The direct cause of the decline in profits is likely to be an increase in credit impairment. This can be seen from the operating net interest rate indicator. Merchants United Financial's operating net interest rate in the first half of 2023 was 19.88%, while the operating net interest rate in the first half of 2022 was 23%, a significant decline.
Operating net interest rate (net profit/operating income) reflects the profitability of consumer finance companies. Generally speaking, the lower the net interest rate, the weaker the profitability, and there may even be situations where revenue increases without increasing profits. Fluctuations in the level of net interest rates are mainly caused by credit impairment losses and changes in operating cost control of various consumer finance companies.
Among them, credit impairment losses accounted for the main reason. Credit impairment losses account for the vast majority of the operating expenses of consumer finance companies, often several times the management fees. For example, China Merchants Union Financial's credit impairment losses will reach 11.383 billion yuan in 2022, accounting for 83.28% of operating expenses.
Regardless of provisions and profit reserves, the increase in credit impairment losses is determined by the decline in asset quality. As far as China Merchants Union Financial is concerned, its asset quality has shown a downward trend. Calculated according to the standard of including non-performing loans that are 60 days overdue, China Merchants Union’s non-performing rates from 2020 to 2022 are 1.78%, 1.83% and 2.22% respectively, rising year by year.
Looking at the overall overdue rate level, China Merchants Union Financial's overdue rate in 2020 is 2.83%, and the overdue rate in 2021 is 3.46%. In 2022, China Merchants Union's overdue loans were 6.729 billion yuan, accounting for 4.01% of the total loans and advances issued, a year-on-year increase of 0.56 percentage points.
China Chengxin International pointed out in the 2023 China Merchants Union Financial Tracking Rating Report that since overdue loans are more likely to be converted into non-performing assets when the economy weakens, they may have an impact on the company's asset quality, and they still need to be paid attention to in the future.
The increase in overdue rates has put pressure on asset quality, which in turn has increased provisioning, resulting in increased provision for losses and weakening profit levels. This is the main reason that may cause China Merchants Union to increase revenue but not profit.
What’s the solution to growth anxiety?
Compared with declining profits, consumer finance companies have been under greater pressure and anxiety in recent years due to shrinking their asset balance sheets. Interest-earning assets are the fundamental support for the performance of consumer finance companies. Only when the market size and asset quality are under control can the performance of consumer finance companies achieve sustainable growth.
As the consumer finance company with the largest assets in the licensed consumer finance industry, excluding Ant Consumer Finance, China Merchants Union Financial’s scale expansion pressure has gradually become more prominent in recent years. However, in the first half of this year, China Merchants Union Financial's total assets have grown at a remarkable rate. Behind the growth, in addition to the contribution of existing compound loans, we can also see China Merchants Union Financial's attempts to acquire new customers.
China Merchants Union Finance is an early beneficiary of the Internet traffic dividend and is one of the few licensed consumer finance institutions with strong self-operated capabilities. It mainly conducts business through self-operated customer acquisition, shareholder collaboration and third-party cooperation channels. As of the end of 2022, the balance of loans from China Merchants Union's self-operated customer acquisition and shareholder collaboration channels accounted for about 80%.
Judging from the characteristics of customer acquisition channels, the main advantage of China Merchants Union Finance lies in online, but with the full penetration of the online self-operated network, China Merchants Union has to open up new customer acquisition channels to alleviate the pressure of online self-operated channels. There are two ways to alleviate the pressure of acquiring customers. One is to expand the loan assistance business of the traffic platform, and the other is to seek to increase offline business and penetrate into high-quality offline customer groups.
In terms of offline channels, China Merchants Union Financial has successively tried agency and direct operation models since last year. After adjustments, it is now expanding its offline business through the agency model again.
"Laser Finance" has previously disclosed the offline business of China Merchants Union Consumer Finance. At that time, China Merchants Union was vigorously deploying the offline market. The main product was long-term loans, and the purchase standards were relatively small and micro loans. The target customer groups were mainly legal persons and shareholders. . But then the business pass rate plummeted, causing the agent team to flee and offline salespeople to shrink significantly.
This year, China Merchants Union Financial continues to open up offline channels, recruit agents from various regions, and focus on promoting salary loan products. The 2023 offline marketing co-management recruitment materials of China Merchants Union show that China Merchants Union refers to offline agency channels as offline co-management cooperation agencies, which are mainly responsible for acquiring customers through offline marketing of China Merchants Union.
There are two cooperation models, namely CPS rebate model and fixed income model. The CPS rebate model adopts a proportional rebate based on the borrowed amount, specifically 2% of the first borrowed amount + incentive plan, with a total package within 3.5%. The risk assessment of the rebate model is stricter. If the customer's loan is overdue within 2 months, the rebate will be refunded.
In contrast, the fixed income model has higher returns. China Merchants Union only charges 10% of the fixed fee, and the agency charges the product price minus the fixed income portion of China Merchants Union, but this model requires the agency to share risks. The so-called risk sharing is to set up a very strict risk assessment through a bottom-up method and charge a higher margin.
The risk assessment of the fixed income model is that the service fee will be deferred for six months, and the service fee received and will be received in the future will be used to ensure the fixed income of China Merchants Union, and cover the principal and interest of the current loan that is overdue for 15 days +.
At the deposit level, if an agency chooses the rebate model, it needs to pay a deposit of 100,000 yuan to China Merchants Union. In the fixed income model, the agency will pay a deposit of 500,000 yuan to China Merchants Union.
In addition to risk assessment, institutional access conditions and procedures are also very strict. The first is institutional access, which requires the agency’s marketing staff to be at least 30, and its marketing personnel to be employees of the agency; to cooperate with at least one bank or licensed consumer bank in offline marketing business; Jin's cooperation period is longer than one year. In the past year, the cumulative loans to first-tier cities are more than 90 million yuan, to quasi-first-tier and second-tier cities is more than 70 million yuan, and to third-tier and below cities is more than 30 million yuan.
Next is the agency cooperation process. Qualified agencies need to undergo testing first. The testing period is three months. The testing content is for two to three agencies in a single city to compete. After reaching the test goal of lending 10 million yuan or granting credit to 100 people, they will enter Formal signing process. After signing the contract, the agency has the opportunity to enjoy exclusive agency rights.
Compared with the previous focus on small and micro businesses and individual customer groups, China Merchants Union’s offline business expansion has broadened its customer base this time and is targeting high-quality working-class customers.
China Merchants Union divides salaried customers into Class A customers, Class B customers, and Class C customers, corresponding to annualized interest rates of 11.86% to 20.99% respectively. Among them, Category A customers include regular staff of government agencies and institutions, colleges and universities, public hospitals, central enterprises, monopoly industries, Fortune Global 500, China Fortune 500 and other units or enterprises; Category B customers include private tertiary hospitals, formal employees of state-owned enterprises, Customer groups such as the top 500 private enterprises in China; Category C includes non-staff contract workers, front-line employees, private school teachers, and ordinary private enterprise employees.
From the perspective of customer group access conditions, China Merchants Union Salary Products has relatively high customer qualification requirements. Even ordinary private enterprise employees in the C-type customer group have strict conditions such as unit capital injection (more than 2 million) and academic qualifications (college degree or above). limited.
People familiar with the matter said that China Merchants Union Financial’s offline business approval has remained unchanged and is very strict, which may cause it to fail to grow in size. Moreover, the credit market for offline high-quality customers has already become a red ocean. Established offline consumer finance companies and commercial banks are eyeing high-quality customers in eight major industries. Even if China Merchants Union wants to break through through agency channels, it will not be easy.
In order to tap new high-quality customer groups, China Merchants Union Financial has also launched a no-credit, interest-free Merchants Union small wallet at the product level. The entrance is located in the China Merchants Bank App. Product information shows that China Merchants Union Small Wallet is a 1,000 yuan small cash revolving loan product provided by China Merchants Union Financial, and is open to some high-quality customers.
If the user is not an existing user of China Merchants Union Financial and opens the Zhaolian Small Wallet for the first time, he or she can enjoy interest-free borrowing rights, 12 1,000 yuan 30-day interest-free borrowing coupons, cash red envelopes, video membership and other rights. In addition, in terms of credit inquiry, the user's application for opening a small wallet limit does not involve the inquiry of the user's credit report. The credit report will only be reported when the user successfully opens a small wallet limit and uses the small wallet limit to borrow money.
From the perspective of product features, China Merchants Union Small Wallet is a small short-term reserve fund product. China Merchants Union selects high-quality users of the China Merchants Bank platform through interest-free rights and relaxed inquiries, and then retains them in the China Merchants Union Ecosystem and converts large-amount borrowing needs.
From products to channels, from online to offline, it can be seen that China Merchants Union is working hard for incremental expansion.