Lufax (LU) Q3 2026 earnings review
Lufax stabilizes its loan book, but credit and tax losses widen
Lufax, a Chinese lender to small businesses and consumers, nearly stopped the drop in its loan book while its losses widened. Total income fell 5% from a year ago as older business loan fees shrank, while consumer finance grew to 42% of all loans by our math. Chief executive Xiang Ji noted that Hong Kong share trading resumed, but a rebound in early loan delinquencies and a RMB773 million tax charge pushed the net loss to RMB1.49 billion.
| Total income | RMB 6,180M -4.6% from a year ago |
|---|---|
| Net loss | RMB 1,494M RMB 380M loss a year ago |
| Total loan balance | RMB 167.1B -11.9% from a year ago (-0.1% from Q2) |
| Early delinquency flow rate (C-M3) | 1.2% up from 1.0% in Q2 |
⚖️ Verdict: 🔴 Bearish
The story got worse because early loan delinquencies turned back up and the tax asset risk hit the income statement. Last quarter's improvement in newly overdue loans reversed, lifting credit losses to 73% of income, while a write-down of deferred tax assets and dividend taxes multiplied the net loss. On the positive side, consumer lending stabilized the total loan balance and overhead cuts saved 13%.
The question now is whether fast growth in consumer loans can outrun defaults and tax write-downs on the older small business book. One view is that consumer finance will soon return the total loan book to growth with lower credit costs; the other is that rising early delinquencies and RMB7.6 billion of remaining tax assets will keep Lufax in the red. Fourth-quarter delinquency flow rates and year-end tax adjustments will decide.
🐂 Bull Case
Consumer Finance Stopped the Loan Book Drop
Lufax is shifting its lending away from small business owners and toward everyday consumer finance loans. Chief executive Xiang Ji said consumer finance remained the main growth driver, and this quarter its growth nearly halted the sequential shrinkage in the total loan book.
- New consumer finance loans: RMB39.7 billion, up 25.2% from a year ago
- Consumer finance loan balance: RMB70.5 billion, up 19.8% from a year ago to 42.2% of all loans by our math
- Total loan balance: RMB167.1 billion, down 0.1% from last quarter by our math
- Consumer finance non-performing loan ratio (loans overdue 91 days or more): steady at 1.3%
This matters because Lufax cannot grow its income while its total loan balance shrinks by RMB6 billion a quarter, as it did earlier this year. Consumer finance also carries a much lower default rate than the small business book, so its rising share helps stabilise net interest income, which grew 10.3% from a year ago to RMB3,677 million.
What to watch: total outstanding loan balance in the fourth quarter. A sequential increase above RMB167.1 billion would prove that new consumer lending now outruns the runoff of older business loans.
Hong Kong Trading Resumed and New CFO Joined
After a two-year reporting gap and a multi-year accounting restatement, Lufax spent the past year working to restore its governance and stock exchange compliance. This quarter brought the second consecutive on-time earnings report, a new finance chief, and the return of share trading in Hong Kong.
"Trading in our ordinary shares on the Hong Kong Stock Exchange resumed on September 24, 2026," Ji said. Lufax also appointed Jia Liu as chief financial officer, filling a seat that was vacant last quarter, and added Ji to the board's internal control committee. Having two consecutive timely reports and active trading on both exchanges removes the listing compliance risk.
What to watch: the annual audit report for 2026 early next year. An unqualified audit opinion with no material internal control weaknesses would show the governance cleanup is complete.
Operating Cost Cuts Cushioned the Revenue Drop
As Lufax shrinks its older lending operations and uses artificial intelligence tools to screen borrowers, Liu said the lender maintained cost discipline across its daily operations. Operating expenses excluding credit losses, finance costs and other gains or losses fell 13.4% from a year ago to RMB2,262 million, dropping by 3.7 percentage points of total income by our math.
Sales and marketing expenses (costs to acquire borrowers) fell from 15.1% of income to 13.6%, while operation and servicing expenses (loan processing and collection costs) dropped from 14.2% to 12.5%. General and administrative overhead also declined from 7.4% of income to 6.8%. These savings cushioned the 4.6% drop in total income, though rising loan defaults still pushed total expenses higher.
What to watch: operating expenses excluding credit and finance costs in the fourth quarter. Staying near RMB2.2 billion would show these overhead savings are permanent rather than one-off reductions.
🐻 Bear Case
Early Delinquencies Worsened and Lifted Credit Losses
Lufax now bears the default risk on 95.8% of its total loan book, up from 87.3% a year ago. While bearing that risk lifted its retail credit take rate (annualised revenue as a share of loan balance) from 13.0% to 14.0%, it leaves the lender directly exposed when borrowers miss payments. Ji said Lufax "exited certain high-risk customer segments, and adjusted our post-loan collection approach" during the quarter.
- C-M3 flow rate (share of current loans turning bad within three months, excluding consumer finance): 1.2%, up from 1.0% in Q2
- Credit impairment losses (provisions for bad loans): RMB4,511 million, up 10.3% from a year ago and up 9.0% from Q2 by our math
- Credit impairment share of total income: 73.0%, up 9.9 percentage points from 63.1% a year ago
- Delinquency rates: loans 30+ days overdue fell from 5.8% to 5.5%, and 90+ days overdue fell from 3.7% to 3.2%
Although the backlog of older overdue loans shrank, the rebound in the C-M3 flow rate breaks last quarter's improvement and shows fresh defaults are rising again. Because Lufax guarantees nearly the entire portfolio itself, those defaults drove credit losses to nearly three-quarters of total revenue and kept the business unprofitable before taxes.
What to watch: the C-M3 flow rate in the fourth quarter. A reading at or above 1.2% would keep quarterly credit impairment losses above RMB4.5 billion and block a return to profit.
Tax Asset Write-Downs Widened the Net Loss
Last quarter Lufax highlighted a smaller net loss, even though that improvement came entirely from a lower tax bill while its deferred tax assets (past tax credits saved to offset future profits) swelled to RMB7.9 billion. This quarter that accounting risk materialised, as Lufax recorded RMB773 million of income tax expense despite losing RMB721 million before taxes.
Liu attributed the charge to a "reduction of deferred tax assets and recognition of additional withholding taxes" when Chinese subsidiaries paid dividends to cover overseas funding needs. By our math, deferred tax assets on the balance sheet fell by RMB294 million from June, to RMB7,605 million. Because Lufax still holds RMB7.6 billion of these tax assets while operating at a loss, further write-downs remain a threat.
What to watch: deferred tax assets and income tax expense in the fourth-quarter report. Another tax charge on a pre-tax loss would show that more of the RMB7.6 billion tax asset balance is unrecoverable.
Small Business Loans Keep Shrinking
Lufax built its business around enabling loans for small business owners in China, but demand in that segment remains weak and the company is turning away riskier applicants. By our math, new loans outside consumer finance dropped 26.2% from a year ago to RMB18.6 billion, and the outstanding balance of those loans fell 26.1% to RMB96.6 billion.
That contraction pulls down Lufax's fee streams from older off-balance-sheet loans: technology platform-based income fell 24.1% from a year ago to RMB1,055 million, and guarantee income dropped 24.6% to RMB1,020 million. Even the early delinquency flow rate on secured business loans ticked up from 0.9% in the second quarter to 1.1%.
What to watch: new loan volume outside consumer finance next quarter. A further drop below RMB18.6 billion would keep platform and guarantee fees shrinking by more than 20% a year.
Risks this quarter didn't answer
Two standing concerns received no new figures in the third-quarter earnings release.
- Regulatory caps on loan pricing and collection rules: Ji mentioned adjusting collection methods, but the release gave no breakdown of loan yields by product; the conference call or annual filing will show whether consumer finance yields fell below 19%.
- Goodwill impairment risk: goodwill stood at RMB9,156 million despite widening pre-tax losses and tax asset write-downs; the year-end impairment test in the annual report will determine whether a write-down is required.
💲 Other KPIs
Operating cash flow swung to a cash outflow of RMB225 million in the third quarter. That reverses a RMB3,087 million inflow a year ago and a RMB3,644 million inflow in the second quarter. For the first nine months of 2026, operations used RMB801 million of cash as Lufax funded more loans on its own balance sheet.
By our math, total debt — bank borrowings plus convertible promissory notes — rose 10.1% from June to RMB79.2 billion, up from RMB70.0 billion at the end of 2025. Over the same three months, cash at bank and restricted cash increased slightly from RMB36.4 billion to RMB37.1 billion, while customer deposits held steady near RMB11.6 billion.
Investment income nearly doubled from RMB134 million a year ago to RMB261 million, driven by valuation gains on financial assets. Sequentially, it held close to the second quarter's RMB283 million, following a drop from RMB1,021 million in the second quarter of 2025.
❓ Key Questions
Which subsidiary triggered the deferred tax asset write-down?
Lufax still carries RMB7.6 billion of deferred tax assets while recording pre-tax losses. Investors need to know how much of the RMB773 million tax bill came from the write-down versus dividend withholding taxes, and whether further write-downs are likely at year-end.
Why did the C-M3 flow rate rise to 1.2%?
Last quarter management expected early delinquency indicators to keep improving in the second half. Instead, the C-M3 flow rate rebounded from 1.0% to 1.2% across both secured and unsecured loans, raising the risk that credit impairment stays above RMB4.5 billion.
How much overseas cash requires domestic dividend transfers?
Withholding taxes on dividends from Chinese subsidiaries helped push the quarterly tax bill to RMB773 million, and Lufax carries RMB6.58 billion in convertible notes. Clarifying future offshore funding needs will show whether these extra tax charges will repeat.
What are the standalone yields and margins in consumer finance?
Consumer finance now makes up 42% of the loan book and 68% of new loan volume, yet Lufax does not break out its standalone profit or funding cost. Without those figures, investors cannot tell if consumer lending can cover group credit losses.