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Fitch Affirms Santander Consumer Finance at 'A-'; Outlook Stable
November 17, 2017 / 1:00 PM / a month ago

Fitch Affirms Santander Consumer Finance at 'A-'; Outlook Stable

(The following statement was released by the rating agency) BARCELONA/LONDON, November 17 (Fitch) Fitch Ratings has affirmed Santander Consumer Finance, S.A.'s (SCF) Long-Term Issuer Default Rating (IDR) at 'A-', Short-Term IDR at 'F2' and Support Rating (SR) at '1'. The Outlook on the Long-Term IDR is Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, SENIOR DEBT AND SUPPORT RATING SCF's Long- and Short-Term IDRs are equalised with those of its parent, Banco Santander, S.A. (Santander; A-/Stable). This reflects Fitch's view that SCF is a core group subsidiary of Santander and thus there is an extremely high probability of support by it, should the need arise. SCF is fully-owned by Santander and we view it as a key and integral part of the group, given that it manages most of Santander's consumer finance operations in Europe. Our assessment of support takes into consideration that SCF's operations, risk management and controls, as well as management and corporate culture are highly integrated with those of Santander. Highly fungible capital and liquidity within the group, at least in the eurozone where the largest SCF operations are located, and within regulatory restrictions, is also of high importance in our support assessment. SCF's long and successful track record in supporting the Santander group objectives, the parent and its subsidiary operating in the same jurisdiction, thus being subject to the same regulations, and sharing the same brand also contribute to our overall support assessment. VR SCF's Viability Rating (VR) is driven by its leading consumer finance franchise in Europe, supporting consistently healthy profitability, good asset quality metrics for a consumer lender and satisfactory capitalisation levels. The VR also takes into account its diversified funding, despite the bias towards wholesale sources, and the availability of funding from its parent. SCF ranks among the top three in the core markets where it operates. Northern European countries and Germany together represent about 75% of total loans. Fitch views SCF as a monoline consumer lender, with its product mix heavily weighted towards auto loans. SCF's solid business model and franchise result in strong pricing power and adequate risk pricing; together with low loan impairment charges, this has helped offset earnings pressure from a low interest-rate environment and increased competition in some markets. The bank also benefits from being part of the Santander group from a cost efficiency standpoint. We expect SCF's profitability to remain sound, supported by growing business volumes and improved economic conditions in most of its markets. SCF's asset quality metrics are good for a consumer lender and have proved fairly resilient over the economic cycle, thanks to its exposure to more stable and highly-rated European economies, the large share of secured auto loans, and SCF's tight and consistent underwriting standards across the different subsidiaries. SCF's capital levels are maintained with satisfactory buffers over regulatory requirements, with a fully-loaded Basel III CET1 ratio of 12.1% at end-June 2017. SCF's capitalisation is managed by its parent on a "need-cost optimisation" basis and SCF has limited flexibility to retain earnings. In our assessment of capitalisation, we take into account ordinary capital support from Santander, if needed. SCF's funding structure is stable and more diversified than wholesale-funded non-bank peers', as the group benefits from the ability to take deposits, which accounted for about 40% of total funding at end-June 2017. Wholesale funding, mostly secured and senior unsecured debt, complements SCF's funding profile. SCF's liquidity profile is adequate, with the stock of unencumbered liquid assets accounting for about 7% of the bank's total assets. In our assessment of SCF's funding and liquidity profile, we also incorporate potential ordinary support from the parent. RATING SENSITIVITIES IDRS, SENIOR DEBT AND SUPPORT SCF's IDRs and debt ratings are sensitive to the same factors that might drive a change in Santander's IDRs. While it is not our base case, SCF's ratings would also be sensitive to the consumer finance segment becoming less strategic for Santander or to SCF becoming significantly less integrated within the group, leading Fitch to no longer view it as a subsidiary that is key and integral to Santander's operations. VR Positive rating momentum for SCF's VR could arise if further funding diversification and a longer track-record of funding self-sufficiency are accompanied by improvements in the operating environment, particularly that of Spain, which should be reflected in a Sovereign upgrade. Major business and revenue diversification and sustainable strengthening of the bank's standalone liquidity buffers would also be rating positive. Although currently not expected by Fitch, negative rating pressure could arise from a marked deterioration in asset quality, leading to pressure on earnings and capital pressure; or from a prolonged inability to competitively access wholesale markets. The rating actions are as follows: Long-Term IDR: affirmed at 'A-'; Outlook Stable Short-Term IDR: affirmed at 'F2' Support Rating: affirmed at '1' Viability Rating: affirmed at 'bbb+' Senior unsecured debt long-term rating: affirmed at 'A-' Senior unsecured debt short-term rating and commercial paper: affirmed at 'F2' Contact: Primary Analyst Cristina Torrella Senior Director +34 93 323 8405 Fitch Ratings Espana, S.A.U. Avinguda Diagonal, 601, 2nd Floor 08029 Barcelona Secondary Analyst Arnau Autonell Associate Director +44 20 3530 1712 Committee Chairperson Francesca Vasciminno Senior Director +39 02 879087 225 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com; Pilar Perez, Barcelona, Tel: +34 93 323 8414, Email: pilar.perez@fitchratings.com. 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