Caixin
Feb 03, 2021 06:44 PM
BUSINESS & TECH

Lufax Results Show It Escaped Peer-to-Peer Lending Business Unscathed

Lufax reported its fourth-quarter net profit rose 17.4% year-on-year. Photo: VCG
Lufax reported its fourth-quarter net profit rose 17.4% year-on-year. Photo: VCG

Lufax Holding Ltd. appears to have emerged unscathed from its decision to exit the scandal-prone, regulatory fraught peer-to-peer lending business as it posted healthy profit growth in the fourth quarter.

The fintech player, backed by financial conglomerate Ping An Insurance (Group) Co. of China Ltd., transitioned into a focus on wealth management after electing to exit the troubled peer-to-peer (P2P) lending arena in 2019 and issuing no new P2P loans in 2020, according to company filings.

Fourth-quarter net profit rose 17.4% year-on-year to about 2.8 billion yuan ($433 million), Lufax said on Tuesday in its first report as a publicly traded company.

By contrast, net profits for full year 2020 shrank to about 12.3 billion yuan from 13.3 billion yuan in 2019, according to the report.

Set up by Ping An Group in 2011 as a P2P lending platform, Lufax became one of the biggest players in the sector.

But a string of industry scandals that left millions of investors nursing heavy losses triggered a crackdown by financial regulators. The tightening regulatory environment, and Lufax’s decision to wind down the P2P business and reinvent itself delayed its plan to go public in Hong Kong.

Since retreating from the P2P market, Lufax has transformed itself into one of the biggest wealth management companies in China.

Capitalizing on that success, it started trading on Oct. 30 on the New York Stock Exchange, raising around $2.4 billion and capping a nearly three-year marathon to achieve an overseas listing that it began in 2017.

Lufax said total client assets grew to 426.6 billion yuan at the end of last year, a rise of 23% from the end of 2019. At the end of last year, “legacy products” — services primarily from Lufax’s peer-to-peer business that it historically offered but no longer markets — accounted for 4.5% of total client assets, down from 29.8% at the end of 2019, according to the quarterly report.

Lufax saw a steady growth in its wealth management business. In the fourth quarter, its wealth management transaction and service fees increased by 20.3% year-on-year. The increase was mainly driven by the year-on-year increase in fees generated from its current products, partially offset by the year-on-year decrease in fees generated from the legacy products, it said.

P2P platforms were supposed to serve primarily as an intermediary, matching individuals with money to lend with borrowers who have limited access to bank loans. However, the lack of effective oversight and the high returns promised by some platforms stoked a lending boom in China that attracted both speculators and borrowers without much wherewithal to repay their debts.

The country’s four-year clampdown on the once-booming P2P sector led to a dramatic contraction of the industry, as the surviving operators exited (link in Chinese) the business late last year.

 Read more  
In Depth: Is China’s Once-Booming P2P Sector Facing a Dead End?

Ji Guangheng, chairman of Lufax, said in its report that, “With our advanced technology capabilities, sophisticated management knowhow, strong pricing power, and versatile risk mitigation expertise, we will complete our business transition smoothly and maintain regulatory compliance at the same time.”

At the end of last year, the outstanding balance of loans handled over Lufax’s platforms amounted to 545.1 billion yuan, a 17.9% increase from levels at the end of 2019, according to the report.

The report also disclosed a management shake-up. Li Renjie, who had served as chairman since March 2016, has retired and Ji, who previously was co-chairman, will assume the sole chairmanship of the board. Meanwhile, Yong Suk Cho and Gregory Dean Gibb have been appointed as co-CEOs, with Cho in charge of the company’s retail credit facilitation business and Gibb in charge of wealth management, the report showed.

Tang Ziyi and Luo Meihan contributed to this report.

Contact reporter Timmy Shen (hongmingshen@caixin.com)

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