XYF Q2 2025: Loan Originations Surge 71%, Asset Quality Tightens Amid Strategic Shift
XYF delivered standout loan origination growth and rising profitability, but leadership is now pivoting toward asset quality over volume as regulatory complexity intensifies. This quarter’s results highlight disciplined execution, robust borrower demand, and operational leverage, yet guidance signals a deliberate moderation in growth as macro and compliance headwinds persist.
Summary
- Asset Quality Emphasis: Management is prioritizing credit performance over loan growth for the remainder of 2025.
- Profitability Leverage: Operating margins and return on equity improved even as borrower acquisition spend increased.
- Regulatory Navigation: Evolving policy landscape in China is shaping near-term strategy and compliance investment.
Performance Analysis
XYF’s Q2 results were defined by exceptional loan origination growth, with RMB 38.99 billion facilitated, up 71.4% year over year and 10.9% sequentially. This surge was supported by a 73.7% increase in active borrowers and a 70.8% rise in total loans facilitated, demonstrating robust demand and platform scalability. Net revenue climbed 65.6% year over year, reaching RMB 2.27 billion, driven by higher origination volumes and expanded loan facilitation services.
Profitability was equally strong, as non-GAAP adjusted net income rose 58.3% year over year and operating margins held near 30%, underscoring disciplined expense control and operating leverage. Return on equity expanded to 27.9%, reflecting both earnings growth and capital efficiency via share repurchases. Notably, asset quality improved: 31-60 day delinquency rates dropped to 1.16% and 91-180 day rates fell to 2.91%, a 33% reduction from the prior year, signaling effective underwriting and borrower engagement.
- Loan Volume Acceleration: Origination and borrower growth outpaced the industry, but management now signals a pivot to asset quality over pure scale.
- Margin Resilience: Profitability gains were achieved even as borrower acquisition costs increased, indicating strong unit economics.
- Capital Return Commitment: Share repurchases and dividends remain a priority, with $47.7 million deployed YTD and a new $100 million authorization in place.
While the quarter’s numbers reflect robust execution, the forward tone shifts to cautious growth, with guidance for Q3 originations moderating to RMB 32-34 billion as management balances risk and regulatory adaptation.
Executive Commentary
"We are very pleased with our continued momentum in 2025. In the second quarter, we facilitated RMB 38.99 billion in loans, a 10.9% sequential increase and a strong 71.4% growth year over year. This was another standout quarter for Originations, supported by robust borrower demand and the continued advance in risk management... Our team remained committed to expanding market opportunities through both new partnerships and the deepening of existing relationships, further strengthening our technology platform and underwriting models to drive probability and scalability."
Ken Lee, President
"Non-GAAP adjusted net income for Q2 reached RMB $593.2 million, US dollars $82.8 million, up significantly by 58.3 percent year-over-year, reflecting a strong core probability driven by prudent expense control and high-quality loan growth... Our liquidity remains robust, giving us the flexibility to fund strategic growth initiatives, invest in technology and borrow acquisition, and return capital to shareholders, primarily through our ongoing share repurchase program."
Frank Fuya Zheng, Chief Financial Officer
Strategic Positioning
1. Asset Quality as the Central Pillar
Management is now explicitly prioritizing asset quality over headline growth, despite the record originations in Q2. This shift is rooted in both internal credit discipline and the evolving regulatory environment. Delinquency rates have materially improved, and borrower screening remains at the forefront of operational focus, with leadership emphasizing that “asset quality has always been our priority.”
2. Operational Leverage and Technology Investment
XYF’s ability to scale loan volume without margin erosion is tied to ongoing investments in technology, particularly in AI-driven borrower management and collections. The company is already using AI to automate customer service and collections, with plans to deepen these capabilities to further drive cost efficiencies and enhance risk controls.
3. Capital Allocation Discipline
Shareholder returns are a clear priority, as evidenced by aggressive share repurchases and a semi-annual dividend. The company fully utilized its prior $15 million buyback and quickly authorized a new $100 million program, signaling confidence in capital generation and long-term value creation. Dividend continuity further supports the shareholder value narrative.
4. Regulatory Adaptation and Compliance Investment
China’s regulatory environment remains in flux, with recent guidance emphasizing responsible lending and consumer protection. XYF is proactively aligning with these standards, viewing compliance not as a burden but as a foundation for sustainable growth and industry leadership. Management’s tone suggests a willingness to moderate growth to remain fully compliant and resilient.
Key Considerations
This quarter’s results underscore the dual mandate facing XYF: balance rapid growth with prudent risk management and regulatory alignment, while preserving profitability and capital returns. The company’s near-term strategy is shaped by these realities, with several factors warranting investor attention:
Key Considerations:
- Growth-Quality Tradeoff: The company is deliberately moderating loan growth in Q3, emphasizing credit quality as macro and regulatory risks rise.
- AI-Driven Cost Efficiency: Continued investment in artificial intelligence for borrower management and collections is expected to further reduce costs and support margin stability.
- Shareholder Capital Return: The expanded buyback and dividend policy reinforce management’s commitment to returning excess capital, even as growth moderates.
- Regulatory Headwinds: Compliance costs and operational adjustments are likely to persist as China’s financial regulatory landscape evolves.
Risks
XYF faces several material risks, including potential regulatory tightening in China, which could impose new compliance obligations or restrict certain lending practices. Macroeconomic volatility and shifts in borrower creditworthiness may pressure asset quality. Additionally, the company’s rapid expansion in borrower acquisition could expose it to adverse selection risk if underwriting discipline lapses. Management’s guidance for moderated growth suggests a proactive stance, but execution risk remains elevated as the company navigates these crosscurrents.
Forward Outlook
For Q3 2025, XYF guided to:
- Loan originations of RMB 32-34 billion, a deliberate reduction from Q2’s record levels
For full-year 2025, management maintained its expectation of approximately 30% loan book growth, reiterating focus on asset quality and profitability over pure volume expansion.
Management highlighted several factors that will shape the next quarters:
- Continued emphasis on disciplined underwriting and borrower engagement
- Ongoing investment in technology and AI to support operational efficiency
Takeaways
XYF’s Q2 demonstrates that high-velocity growth is sustainable only with rigorous risk controls and regulatory agility. The shift from growth-at-all-costs to quality-first signals a mature approach as the industry landscape evolves.
- Credit Discipline Over Volume: Management’s pivot to asset quality is timely, given macro and policy headwinds, and is supported by improving delinquency rates.
- Efficiency and Capital Returns: Strong operating leverage and aggressive buybacks signal confidence in the business model and capital generation.
- Regulatory Adaptation Required: Investors should monitor regulatory developments and their impact on growth, compliance investment, and platform evolution in coming quarters.
Conclusion
XYF delivered a quarter marked by robust origination growth, expanding profitability, and improved asset quality, but is now signaling a strategic pivot toward risk management and compliance as regulatory and macro uncertainties rise. The focus on capital returns and operational leverage positions the company well, but investors should expect moderated growth and continued adaptation in the near term.
Industry Read-Through
XYF’s results and strategic pivot offer a clear read-through for China’s fintech and consumer lending sector: rapid origination growth is achievable, but sustainable profitability and regulatory alignment are now the gating factors for long-term value creation. Competitors will likely need to follow suit, prioritizing credit quality, technology-driven efficiency, and proactive compliance investment to weather regulatory scrutiny and economic volatility. This approach may slow industry-wide loan growth, but should support more resilient business models and improved sector stability over time. For investors, the sector’s winners will be those that can balance scale, risk, and adaptability as the landscape continues to evolve.