So if you take, let’s say, unsecured loans written prior to 2023, versus the total, which includes also unsecured business generated post January 1 this year, secured business, consumer finance business, that old book is roughly about half of our outstanding today. And by the next 12 months out that that percentage will drop to low double digit. So we have a situation where that the old runs off the new is performing in line with expectation, productivity for the direct sales has been lifting consistently in both Q2 and Q3. So we think that the right sizing things that we have done in terms of the front line are now largely completed. And it’s really just now to sort of work through the remaining part of the old book, continue to improve our mix and needs to be prudent in our new loan growth.
And we think that with those steps, I wouldn’t say that we are at the end of all challenges at this point, but we’ve certainly worked through a large part of it. And we think we’ve right sized for our future steps.
Operator: Thank you. Next question comes from Alex Ye with UBS. Please go ahead.
Alex Ye : Good morning. Thanks for taking my questions. I have two questions. First one is on asset quality. So, where are we in terms of the legacy as equity risk, did the company see any early indicators that the asset quality on this part could actually improve? And what driver will be needed for that improvement? And second, regarding your PAOB, can you also share some color on that including any initial thoughts on the future strategy on that bank? For example, what kind of growth prospects should we be expecting? How is it profitability now and when to expect it to breakeven and also any color on the asset quality of SME loan book? Thank you.
Gregory Gibb: Sure. On asset quality for the domestic Puhui branded SBO business. As we’ve highlighted, the C-M3 ratio, which is that lead indicator still remains at an elevated level. So for Q3, it was at 1.1% versus about 1% in Q2. So it has remained at an elevated level. But if you factor in that are this is a numerator denominator issue when you met through the ratio. Actually, the denominator, for example, has shrunk about 16%. If you look at just a quarter on quarter change. So if you were to factor that in, you would actually start to see gradual improvement. And we look through the overall book because that old business, written prior to 2023, as I said, is now approaching to be about half of the total portfolio and that will continue to decline over the next 6 to 12 months.
So the absolute loss that comes from the old book will continue to decline. And then what will drive these signals going forward is the portion of the overall portfolio which is coming from new business. And the performance of that part is in line with our expectation. I think YS has outlined that if you look at the quality of new business written since January 1 of this year, it is actually better than new business written in 2022 and 2021. It’s not back to 2019 levels, because we would expect an improved quality because we are focusing on a higher quality customer base, we’ve narrowed our focus on to the best credit quality groups. But we do see that it is generating a profitable outcome, we believe that the new business that we are doing today through its lifetime will be a positive contributor to the company in 2023 and beyond on a per account basis.
So we think the asset quality well, it is still challenging, the environment is still challenging, we are seeing a gradual improvement. One other indicator that we’ve seen recently is that the amount that were able to recover post indemnity, post 90 days, where it’s been charged off, that recovery is actually gradually improving as well, this year and in the third quarter, so that we believe will bring some room going forward. So I don’t think it’s time to celebrate that everything has returned to normal. But I think it is time that we know that we probably have seen the worst and we will see gradual improvement in overall quality going forward. In terms of POB, the digital virtual bank license in Hong Kong, we’ve actually, Lu Holdings has been looking at this market for some time, when the initial licenses were issued at eight of them back in 2019, we did consider at that point, looking into it, but then didn’t pursue it for other reasons.
Given the opportunity to fully acquire this license today at roughly about 1.2 1.3 times book value, we think is actually quite a good medium term growth options, a very affordable, medium term growth option for us. If you look at POB, in the context of the eight virtual banks in Hong Kong, by loan assets and total assets, it’s roughly ranked third. And if you look at its relative profitability, it actually has the least losses of any player in the market and the focus of POB, while it’s still relatively small, of about 1.8 billion Hong Kong outstanding loans, a majority of those backed by the Hong Kong SME government guarantee program, it’s quite low risk, if you look at the losses that it incurred last year is about 160 million Hong Kong.
And we would expect losses this year to be in that range. We would expect to grow the business in the context of Hong Kong, on the loan side diversifying its products a little bit more, diversify its acquisition channels a bit more, taking our experience in technology risk and salesforce deployment in bringing those into the mix. And we will also look at opportunities. If you look out over the next one to two year, in addition to lending opportunities which may extend into the Greater Bay, we have to continue to watch the policy on that closely. But we do think that is the general direction that people want to go. We’ll also look at non-lending businesses, where the bank has the ability obviously beyond deposits to also do a number of other products and so those are areas that we will look to develop.
