August 30, 2017 / 1:19 PM / a year ago

Fitch Affirms Van Lanschot at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, August 30 (Fitch) Fitch Ratings has affirmed F. Van Lanschot Bankiers N.V.'s (Van Lanschot) Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlook is Stable. A full list of rating actions is available at the end of this rating action commentary. KEY RATING DRIVERS IDRS, VIABILITY RATING AND SENIOR DEBT Van Lanschot's ratings reflect the bank's established, albeit niche and regional, franchise in wealth and asset management as well as the bank's merchant banking activities. The ratings are underpinned by the bank's solid capital ratios and a fairly conservative risk appetite. The ratings also reflect Van Lanschot's moderate, albeit improving, profitability. Van Lanschot continues to implement its strategy to concentrate on private banking and asset management activities while running down its non-core loan book (commercial real estate and SME loans, 12% of gross loans at end-June 2017). Its impaired loans/gross loans ratio, at 4.8% at end-June 2017, remains high compared with private banking peers' due to the weak quality of the bank's non-core book but also partly because of the continuous reduction of gross loans. The core loan book, which is dominated by mortgage loans, is of healthy quality and we expect it to remain resilient. Van Lanschot's profitability has improved in recent years but operating profit has remained moderate. Improvements in profitability were mainly driven by a sharp reduction in loan impairment charges (LICs), which were negative in 2016 and 1H17. We expect Van Lanschot's profitability to continue to benefit from low LICs, driven by the benign operating environment in the Netherlands and the lower risk profile of its loan book. 1H17 results were further boosted by income from investments in securities and associates, which accounted for around 40% of pre-tax profit, but we do not expect gains of similar size to be sustained. The bank is pursuing an ambitious strategic plan to significantly boost its earnings by 2020. We believe that a medium-term structural improvement is possible but this will depend on the bank's ability to attract new assets under management (AuM) while maintaining costs under control. To date, Van Lanschot has been able to expand its total AuM (by 15% in 2016 and 4% in 1H17) through a combination of acquisitions, strong market performance, and by attracting several large asset management mandates. Net inflows in the private banking division have remained muted. Van Lanschot recorded a EUR0.3 billion inflow in private banking AuM in 1H17 after a EUR0.2 billion outflow in 2016. Van Lanschot's capital ratios are solid, with a fully-loaded common equity Tier 1 (CET1) ratio of 19.6% at end-June 2017, which has improved as the bank has reduced its risk-weighted assets (RWAs). The leverage ratio is strong compared with larger Dutch banks' but in line with private banking peers'. The bank announced that it will distribute at least EUR250 million to its shareholders by 2020, but we expect its capital ratios will remain sound. This expectation is supported by the bank's stated CET1 target of 15%-17%. Our assessment of capitalisation also takes into account the significant amount of unreserved impaired loans (23% of equity at end-June 2017), which makes capitalisation sensitive to fluctuations in collateral values. The bank has a balanced funding profile largely made up of customer deposits. Liquidity is sound, underpinned by a large buffer of highly liquid assets well in excess of wholesale funding repayments in 2017-2018. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating '5' and Support Rating Floor of 'No Floor' reflect Fitch's view that senior creditors cannot rely on receiving full extraordinary support from the sovereign if Van Lanschot becomes non-viable. This reflects the bank's lack of systemic importance in the Netherlands, as well as the recent implementation of the EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism. These provide a framework for resolving banks that is likely to require senior creditors participating in losses, if necessary, instead or ahead of a bank receiving sovereign support. SUBORDINATED DEBT Van Lanschot's Tier 2 subordinated debt is notched once off the bank's VR to reflect higher-than-average loss severity of this type of debt. RATING SENSITIVITIES IDRS, VIABILITY RATING AND SENIOR DEBT A positive rating action could arise from a strengthening of Van Lanschot's franchise, provided the bank has built a track record of significantly improved operating profitability. The ratings could be downgraded in case of significant deterioration of asset quality, particularly if it results in a weakening of the bank's capitalisation, or reduced focus on liquidity. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade to the Support Rating and upward revision to the Support Rating Floor would be contingent on a positive change in the Netherland's propensity to support its banks, as well as a significant increase of Van Lanschot's systemic importance. While not impossible, this is highly unlikely in Fitch's view. SUBORDINATED DEBT The ratings of Van Lanschot's subordinated debt are primarily sensitive to the same factors as the bank's VR, from which they are notched. The rating actions are as follows: Long-Term IDR: affirmed at 'BBB+'; Outlook Stable Short-Term IDR: affirmed at 'F2' Viability Rating: affirmed at 'bbb+' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior debt long-term rating: affirmed at 'BBB+' Senior debt short-term rating: affirmed at 'F2' Subordinated debt: affirmed at 'BBB' Contacts: Primary Analyst Konstantin Yakimovich Director +44 20 3530 1789 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Olivia Perney Guillot Senior Director +33 1 44 299 174 Committee Chairperson Christian Scarafia Senior Director +44 20 3530 1012 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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