20-F: Lufax Holding Ltd Faces Net Losses Amid Business Model Shift

Lufax Holding Ltd reported net losses for 2024 and 2025, reflecting a significant increase in credit risk exposure due to a business model transformation and ongoing market challenges.

Summary

• Lufax Holding Ltd experienced net losses in 2024 and 2025, with a net loss of RMB 3.6 billion in 2024 and RMB 1.7 billion (US$0.2 billion) in 2025.
• The company's business model shifted in Q4 2023, with its financing guarantee subsidiary now guaranteeing nearly all new loan transactions, increasing its credit risk exposure from 39.8% as of December 31, 2023, to 91.4% as of December 31, 2025.
• Total income decreased from RMB 34.3 billion in 2023 to RMB 24.5 billion in 2024, but recovered to RMB 27.1 billion (US$3.9 billion) in 2025.
• Sales and marketing expenses decreased significantly, from RMB 9.9 billion in 2023 to RMB 4.0 billion (US$0.6 billion) in 2025, reflecting cost control measures.
• Impairment losses increased by 31.6% from RMB 12.6 billion in 2024 to RMB 16.6 billion (US$2.4 billion) in 2025, primarily due to increased actual losses and provisions on loans.
• The company acquired Ping An Digital Bank (International) Limited in April 2024 for HK$933 million (US$131 million) to diversify its operations.
• The company is addressing material weaknesses in internal control over financial reporting, including issues with control environment, financial reporting processes, and management review controls.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the reported net losses in consecutive years, increased credit risk exposure, and significant increases in impairment losses, despite some positive operational adjustments and acquisitions.

Positives

• Net interest income increased by 7.2% from RMB 12.3 billion in 2024 to RMB 13.2 billion (US$1.9 billion) in 2025, driven by the expansion of the consumer finance and microloan business.
• Guarantee income increased by 53.5% from RMB 3.6 billion in 2024 to RMB 5.5 billion (US$0.8 billion) in 2025, due to an increase in the average off-balance risk-bearing loan balance.
• The company acquired a nationwide microloan license in July 2024 and issued approximately RMB10.6 billion in loans under this license by the end of 2025.
• The company acquired Ping An Digital Bank (International) Limited in April 2024, expanding its digital banking operations in Hong Kong.
• The company has implemented a strategy to rebalance its customer base, service valued customers, innovate its sales model, upgrade risk management infrastructure, and improve profitability.

Negatives

• The company incurred net losses in 2024 (RMB 3.6 billion) and 2025 (RMB 1.7 billion or US$0.2 billion).
• Impairment losses increased by 31.6% from RMB 12.6 billion in 2024 to RMB 16.6 billion (US$2.4 billion) in 2025, indicating a deterioration in loan portfolio quality.
• The company's credit risk exposure increased significantly, with 91.4% of outstanding loans having credit risk exposure as of December 31, 2025, up from 39.8% in 2023.
• Technology platform-based income decreased by 31.5% from RMB 8.2 billion in 2024 to RMB 5.6 billion (US$0.8 billion) in 2025, primarily due to a decline in retail credit and enablement service fees.
• The company identified three material weaknesses in its internal control over financial reporting, which have not been remediated as of December 31, 2025.

Risks

• The company's business model transformation, which increases its direct exposure to credit risk, may not be successful.
• The company's access to sufficient and sustainable funding at commercially attractive costs cannot be assured.
• Changes in PRC laws and regulations, particularly those related to internet-based businesses and financial services, could adversely affect the company's operations and corporate structure.
• The company faces risks related to the enforceability of its contractual arrangements with consolidated affiliated entities.
• The company is subject to risks associated with the PRC legal system, including uncertainties in the interpretation and enforcement of laws and regulations.
• The company's ADSs may be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act (HFCAA) in the future if the PCAOB is unable to inspect auditors in China.
• The company has been subject to an independent investigation and supplemental investigation into certain transactions, which resulted in significant expenses and potential legal and regulatory actions.
• The company has identified material weaknesses in its internal control over financial reporting, which could lead to inaccurate financial reporting or fraud.

Future Outlook

The company is focused on prudent growth, prioritizing quality over quantity in its loan portfolio, while growing its consumer finance business. It aims to attract higher quality borrowers, optimize its sales channels, revise products and pricing, and enhance risk management capabilities to ensure business resilience and long-term profitability. However, the company incurred net losses in 2024 and 2025, and its ability to achieve future profitability depends on several factors, including the effectiveness of its credit risk and capital management, the evolution of its business model, and operational efficiency.

Management Comments

• We believe that our relationships with banks and trust companies are sustainable as our ability to help them generate interest income by enabling loans from our high quality borrowers makes us a valuable partner to them.
• We are strategically focused on prudent growth, prioritizing quality over quantity in our loan portfolio while growing our consumer finance business.
• We believe that our ability to properly and efficiently mobilize our sales channels to acquire high quality borrowers is essential to strengthen the resilience of our business through economic cycles and sustain our long-term growth and profitability.
• Our management is committed to maintaining an effective control environment, high ethical standards, and financial reporting integrity. This commitment will be communicated to and reinforced with all employees led by our Internal Audit department.

Industry Context

StockSavvy.ai notes that Lufax Holding Ltd's financial performance reflects broader trends in China's fintech and financial services sector, including increased regulatory scrutiny, a shift towards higher credit risk bearing models, and a focus on operational efficiency and profitability amidst economic headwinds. The company's strategic adjustments, such as the business model transformation and the acquisition of a digital bank, indicate a proactive approach to navigating these industry dynamics.

Comparison to Industry Standards

• Lufax Holding Ltd's DPD 90+ delinquency rate for all loans was 4.1% in 2023, 2.9% in 2024, and 3.4% in 2025. While the 2024 figure showed improvement, the increase in 2025 warrants monitoring, especially given the company's increased risk exposure.
• The company's cost-to-income ratio improved significantly from 57.9% in 2023 to 39.8% in 2025, indicating successful expense management and operational efficiency improvements, which is a positive trend compared to industry peers facing margin pressures.
• The average APR for new loans in 2025 was 21.6% for general unsecured loans, 17.0% for secured loans, and 17.2% for consumer finance loans. These rates are generally in line with or slightly above the upper limits permitted by PRC regulations (e.g., four times the one-year Loan Prime Rate), suggesting the company is operating within regulatory bounds but also facing margin compression pressures.
• The company's shift to a 100% guarantee model for new loans (excluding certain products) means it now bears a significantly higher proportion of credit risk compared to industry peers that may still utilize third-party credit enhancement more extensively. This strategy, while potentially increasing returns, also heightens the impact of credit cycles and loan defaults.

Management Changes

Corporate Governance

Legal Proceedings

• A putative federal securities class action was filed in March 2026 against the Company and certain former principal officers, alleging materially false and misleading statements or omissions regarding internal controls and financial results.
• The company may be subject to further regulatory warnings, correction orders, condemnation, and fines regarding its historical microloan business.
• The company may be subject to penalties, including fines, suspension of business, and revocation of licenses, if it fails to comply with cybersecurity, data protection, or personal information protection laws.

Related Party Transactions

• The Group provided technology platform-based income, other income, investment income, and interest income to Ping An Group and its subsidiaries, totaling RMB 1.6 billion, RMB 1.4 billion, and RMB 1.0 billion in 2023, 2024, and 2025, respectively.
• The Group incurred expenses to Ping An Group and its subsidiaries for services such as accounting, data communication, transaction settlement, office rental, technology support, and HR support, totaling RMB 2.1 billion, RMB 1.6 billion, and RMB 1.4 billion in 2023, 2024, and 2025, respectively.
• The Group had significant cash and restricted cash balances held at banks affiliated with Ping An Group, amounting to RMB 10.5 billion (US$1.5 billion) as of December 31, 2025.
• The Group had borrowings due to Ping An Group amounting to RMB 1.5 billion (US$0.2 billion) as of December 31, 2025.
• The Group acquired non-performing assets from Ping An Group subsidiaries through trust plans, incurring losses of RMB 718 million in 2024 and RMB 176 million in 2025.
• A loss sharing agreement was entered into with Shanghai Lufax Fund Sales Co., Ltd. (Lufunds), a related party, to allocate responsibility for historical acquisition of non-performing assets.

Stakeholder Impact

• Shareholders may experience dilution if the company issues additional equity or convertible debt securities to raise capital.
• The company's net losses and increased credit risk exposure could negatively impact investor confidence and the trading price of its ADSs and ordinary shares.
• Changes in PRC regulations or government policies could materially affect the company's business operations, financial condition, and results of operations, potentially impacting all stakeholders.
• The company's reliance on contractual arrangements for its consolidated affiliated entities introduces legal and regulatory risks that could affect the financial performance of these entities and the company as a whole.
• The company's ability to pay dividends is subject to its financial performance and regulatory restrictions, which could impact shareholders' returns.

Next Steps

• Continue to implement remedial actions to address material weaknesses in internal control over financial reporting.
• Monitor and manage the increased credit risk exposure resulting from the business model transformation.
• Focus on attracting higher quality borrowers and optimizing sales channels.
• Continue to innovate sales models and develop diversified new channels.
• Upgrade risk management infrastructure through AI-driven credit approval and other technologies.
• Improve profitability by reducing risks, operating costs, and funding costs.

Key Dates

Recommendation

While Lufax Holding Ltd has made strategic adjustments and acquisitions, the persistent net losses, increased credit risk exposure, and significant impairment losses in 2024 and 2025, coupled with ongoing internal control remediation efforts, suggest a period of continued uncertainty. The company's ability to navigate the evolving regulatory landscape in China and successfully execute its business model transformation remains a key factor. Given these challenges, a 'hold' recommendation is appropriate, pending clearer signs of sustained profitability and effective risk management.

Keywords

Lufax Holding Ltd, SEC Filing, Form 20-F, Financial Results, Net Loss, Credit Risk, Business Model Transformation, Consumer Finance, Microloan, Internal Controls, Regulatory Compliance, Ping An Group, Financial Services