CORRESP 1 filename1.htm

 

CNFINANCE HOLDINGS LTD.

 

44/F, Tower G, No. 16 Zhujiang Dong Road

 

Tianhe District, Guangzhou City, Guandong Province 510620

 

People’s Republic of China

 

November 13, 2020

 

VIA EDGAR

 

Mr. Michael Henderson

Mr. Marc Thomas

Division of Corporation Finance

Office of Finance

U.S. Securities and Exchange Commission

100 F Street, NE

Washington, DC 20549

USA

 

RE: CNFinance Holdings Ltd. (the “Company”)

 

Form 20-F for Fiscal Year Ended December 31, 2019

Response dated September 15, 2020

File No. 001-38726

 

Dear Mr. Henderson and Mr. Thomas:

 

This letter sets forth the Company’s responses to the comments contained in the letter dated September 15, 2020 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019 (the “2019 Form 20-F”) and the Company’s report on Form 6-K for the second quarter and first half of 2020 unaudited financial results (the “2020 Form 6-K”). The comments are repeated below in bold and followed by the responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2019 Form 20-F and 2020 Form 6-K. 

 

Form 20-F/A for the Fiscal Year Ended December 31, 2019

 

Notes to the Consolidated Financial Statements

 

Note 2 Summary of Significant Accounting Policies

 

Charge-off policies, page F-22

 

1.We note the response to comment one. In accordance with ASC 310-10-35-4, an impairment loss shall be recognized when, based on all available information, it is probable that a loss has been incurred based on past events and conditions that existed at the date of the financial statements. Further, under ASC 310-10-35-41, credit losses shall be deducted from the allowance for credit losses and charged-off in the period deemed uncollectible. Please address the following:

 

●tell us the charge-offs recorded due to the death of a borrower in each period presented;

 

 

 

 

●tell us the charge-offs recorded due to fraud in each period presented;

 

●tell us the recoveries and charge-offs recorded as a result of legal proceedings in each period and the average timeframe for these court proceedings to be settled and the monies recovered;

 

●address if you wait until the court proceedings are concluded before determining whether a charge-off is required; and

 

●provide us with additional information as to the collection efforts which must be exhausted before a charge-off is recorded. 

 

Charge-offs recorded due to certain uncollectable conditions in each period presented in Form 20-F:

 

The Company respectfully advises the Staff that due to recent development in collection practices, in actual practices the Company considers loans principal, interest and financing service fee receivables meeting any of the following conditions as uncollectable and should be charged-off: (i) death of the borrower; (ii) identification of fraud, and the fraud is officially reported to and filed with relevant law enforcement departments; (iii) sales of loans to third parties; (ⅳ) settlement with the borrower, where the Company releases irrecoverable loans through private negotiations with the borrower where the borrower cannot repay the loan in full through self-funding or voluntary sale of the collateral; (ⅴ) disposal through legal proceedings, including but not limited to online arbitrations, judicial auctions and court enforcements; or (ⅵ) other conditions in which the Company concludes that the loans are uncollected. The Company undertakes to continue to update its charge-off policies in future filings to better align with its actual practices.

 

The Company respectfully supplements the tables below for the charge-offs recorded due to the reasons as specified above as of December 31, 2018 and 2019 for the Staff’s reference:

 

   As of December 31,
   2019  2018
   RMB
Sales of loans to third parties    192,567,069    1,582,288 
Settlement with the borrower (1)    8,719,736    6,933,586 
Disposal through legal proceedings (2)    16,175,498    1,918,738 
Death of the borrower    39,280    332,233 
Identification of fraud    498,006    284,538 
           
Total    217,999,589    11,051,383 

 

(1) “Settlement with the borrower” refers to the release of irrecoverable loans through private negotiations with the borrower where the borrower cannot repay the loan in full through self-funding or voluntary sale of the collateral.

 

(2) “Disposal through legal proceedings” includes, among other things, online arbitrations, judicial auctions and court enforcements.

 

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Recoveries recorded as a result of legal proceedings in each period presented in Form 20-F and the average timeframe for these court proceedings to be settled and the monies recovered:

 

The Company respectfully advises the Staff that (1) the amounts received on the loan from legal proceedings were RMB66.9 million as of December 31, 2018 and RMB73.5 million as of December 31, 2019; (2) the average timeframe for the legal proceedings to be settled is approximately 1.5 years; (3) the average timeframe for the monies to be recovered is approximately three months after legal proceedings are concluded; and (4) the Company has not received any proceeds after the uncollectable loans are charged off as a result of legal proceedings, and thus has recorded nil in recoveries as a result of legal proceedings in each period stated in the table above.

 

If the Company waits until the court proceedings are concluded before determining whether a charge-off is required:

 

The Company respectfully advises the Staff that the Company will wait until the court proceedings are concluded before determining whether a charge-off is required.

 

Additional information as to the collection efforts which must be exhausted before a charge-off is recorded:

 

The Company respectfully advises the Staff that the following collection efforts will be exhausted before a charge-off is recorded:

 

Within three to five business days past due, the Company will contact defaulting borrowers through SMSs or by phone to understand reasons for the nonpayment and inform them of past-due penalties. The Company’s late payment penalty is up to 0.2% of outstanding loan principal per day.

 

After a loan is past due for over six days, the Company will arrange a site visit to further assess the situation and to understand reasons for overdue and recoverability of payments. If agreeable with the defaulting borrower, the Company will arrange for quick disposal plans including sales of loans to third parties in exchange for proceeds upfront, or disposal of collateral voluntarily by the borrower and repay the defaulted loans with the proceeds. Meanwhile, the Company will conduct an online judgment search against the defaulting borrowers and a lien search against the collateral.

 

Once payment is past due for over 30 days or at any time upon the occurrence of unusual situations (such as possible forfeiture of the collateral), the Company will initiate private negotiations with the borrower and request the borrower to repay the loan through self-raising of money or voluntary sale of the collateral. If payment overdue cannot be settled through negotiations, the Company will accelerate the execution of quick disposal plans, or if no quick disposal plan was agreed to, initiate judicial proceedings against the defaulting borrower or resort to online or offline arbitration and foreclose the real property collateral. If no quick disposal plan has been submitted, the Company will pursue a judicial disposal plan at the same time and the Company may ask for the assistance of external lawyers.

 

2.We note the response to comment two. Please provide us with a breakdown of the allowance for credit losses for each of the aging categories provided in the response for both the December 31, 2019 and June 30, 2020 timeframes by loan type.

 

The Company respectfully supplements the tables below for the more specific breakdown of the allowance for credit losses for each of the aging categories provided in the previous response submitted on September 15 for both the December 31, 2019 and June 30, 2020 timeframes by loan type for the Staff’s reference:

 

    As of December 31, 2019
    Total current   1-30 days past due   31-89 days past due   90-179 days past due   180-269 days past due   270-359 days past due   >360 days past due   Total loans   Total non-accrual   ≥90 days past due and still accruing
    RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB   RMB
First lien     64,759,203       55,144,955       60,943,793       46,812,663       54,874,702       71,665,979       56,666,149       410,867,444       230,019,493       -  
Second lien     93,634,680       77,249,160       86,065,326       77,208,166       115,358,191       142,349,972       105,345,490       697,210,985       440,261,819       -  
Allowance for credit losses     158,393,883       132,394,115       147,009,119       124,020,829       170,232,893       214,015,951       162,011,639       1,108,078,429       670,281,312       -  

 

   As of June 30, 2020
   Total current  1-30 days
past due		  31-89 days
past due		  90-179 days
past due		  180-269 days
past due		  270-359 days
past due		  >360 days
past due		  Total loans  Total
non-accrual		  ≥90 days past due
and still accruing
   RMB  RMB  RMB  RMB  RMB  RMB  RMB  RMB  RMB  RMB
First lien    205,327,120    30,707,997    65,387,812    70,496,319    32,377,330    38,890,024    164,461,046    607,647,648    306,224,719    - 
Second lien   307,156,120    46,765,440    88,130,658    100,518,201    66,948,646    60,704,565    297,495,153    967,718,783    525,666,565    - 
Allowance for credit losses    512,483,240    77,473,437    153,518,470    171,014,520    99,325,976    99,594,589    461,956,199    1,575,366,431    831,891,284    - 

 

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3.In addition, provide us with a rollforward of activity in the allowance for credit losses during the interim periods of fiscal 2020. The information provided should address the activity for both first and second liens during the periods.

 

The Company respectfully supplements the tables below for allowance for credit losses of first lien and second lien respectively during the first quarter and second quarter of fiscal 2020 for the Staff’s reference:

 

   As of March 31, 2020
   Allowance for
loans which
are
collectively
assessed		  Allowance
for loans
which are
individually
assessed		  Total
   RMB
As of December 31, 2019    437,797,117    670,281,312    1,108,078,429 
First lien    180,847,951    230,019,493    410,867,444 
Second lien    256,949,166    440,261,819    697,210,985 
Impact on initial application of ASC 326    23,827,169    -    23,827,169 
First lien    4,910,017    -    4,910,017 
Second lien    18,917,152    -    18,917,152 
As of January 1, 2020    461,624,286    670,281,312    1,131,905,598 
First lien    185,757,968    230,019,493    415,777,461 
Second lien    275,866,318    440,261,819    716,128,137 
Provision for credit losses    98,362,724    122,476,883    220,839,607 
First lien    47,341,505    52,754,727    100,096,232 
Second lien    51,021,219    69,722,156    120,743,375 
Charge-offs    (3,873,321)   (36,791,781)   (40,665,102)
First lien    (2,379,580)   (13,473,421)   (15,853,001)
Second lien    (1,493,741)   (23,318,360)   (24,812,101)
Loss recoveries    119,956,920    18,143,571    138,100,491 
First lien    48,154,611    8,349,970    56,504,581 
Second lien    71,802,309    9,793,601    81,595,910 
As of March 31, 2020    676,070,609    774,109,985    1,450,180,594 
First lien    278,874,504    277,650,769    556,525,273 
Second lien    397,196,105    496,459,216    893,655,321 

 

   As of June 30, 2020
   Allowance for
loans which
are
collectively
assessed		  Allowance
for loans
which are
individually
assessed		  Total
   RMB
As of March 31, 2020    676,070,609    774,109,985    1,450,180,594 
First lien    278,874,504    277,650,769    556,525,273 
Second lien    397,196,105    496,459,216    893,655,321 
Provision for credit losses    (12,802,687)   69,334,840    56,532,153 
First lien    (7,448,174)   31,656,878    24,208,704 
Second lien    (5,354,513)   37,677,962    32,323,449 
Charge-offs    (13,071,820)   (59,179,021)   (72,250,841)
First lien    (3,734,948)   (23,866,388)   (27,601,336)
Second lien    (9,336,872)   (35,312,633)   (44,649,505)
Loss recoveries    93,279,045    47,625,480    140,904,525 
First lien    33,731,547    20,783,460    54,515,007 
Second lien    59,547,498    26,842,020    86,389,518 
As of June 30, 2020    743,475,147    831,891,284    1,575,366,431 
First lien    301,422,929    306,224,719    607,647,648 
Second lien    442,052,218    525,666,565    967,718,783 

 

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Form 6-K filed August 24, 2020

 

Exhibit 99.1, page 1

 

4.In regard to the continued increases in impaired and nonaccrual loans in the interim periods of 2020, please specifically address the reasons for the significant decrease in the provision for credit losses which occurred in the quarter ended June 30, 2020 (RMB 56,532,000) compared to the quarter ended March 31, 2020 (RMB 220,840,000).

 

The Company respectfully advises the Staff that the decrease in the provision for credit losses in the second quarter of 2020 as compared to the first quarter of 2020 was due to the decrease in the total outstanding loan amount, which was caused by the smaller loan origination volume given the slower economic growth under the COVID-19 pandemic. Further, due to the impact of the COVID-19 pandemic in the first quarter of 2020, some borrowers’ business operations suffered and had difficulties repaying the loans, and the Company was unable to carry out usual debt-collection procedures. As a result, the total amount of loans overdue has increased by approximately RMB813.6 million at March 31, 2020 as compared to December 31, 2019, among which the loans overdue for less than 90 days have increased by approximately RMB584.5 million and the NPL balance has increased by approximately RMB229.1 million.

 

As China has been recovering from the COVID-19 pandemic in the second quarter of 2020, the borrowers have gradually resumed the capabilities to repay debts and the Company was able to turn back to normal debt-collection procedures. As compared to the end of the first quarter of 2020, the overall overdue loan amount in the second quarter decreased by approximately RMB177.8 million, among which loans overdue for less than 90 days have decreased by approximately RMB343.3 million, and the NPL balance has increased by approximately RMB165.5 million. Despite the increase in NPL balance in the second quarter of 2020, the increase is lower than such increase in the first quarter of 2020. As a result, the amount of impairment losses accrued in the second quarter has decreased in the second quarter of 2020.

 

The Company respectfully supplements the table below for the amounts of loans overdue by December 31, 2019, March 31, 2020 and June 30, 2020 for the Staff’s reference:

 

   December 31,
2019		   March 31,
2020		   June 30,
2020		 
   RMB
(in millions)		   RMB
(in millions)		   RMB
(in millions)		 
Total amounts of loans overdue    2,470.2    3,283.8    3,106.0 
Less than 90 days    837.3    1,421.8    1,078.5 
Over 90 days    1,632.9    1,862.0    2,027.5 

 

Additionally, the Company acknowledges that:

 

●the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

 

●staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

 

●the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

 

If you have any additional questions or comments regarding the 2019 Form 20-F or the Company’s other filings, please contact the undersigned at ir@cashchina.cn.

 

  Sincerely yours,
   
  CNFinance Holdings Limited
   
Date: November 13, 2020 By: /s/ Ning Li
    Name:  Ning Li
    Title: Chief Financial Officer

 

 

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