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

Van Lanschot Kempen NV

30/07/2019 17:10

(The following statement was released by the rating agency)


Fitch Ratings-Paris-July 30: 

Fitch Ratings has affirmed Van Lanschot N.V.'s Long-Term Issuer Default Rating 
(IDR) at 'BBB+' with a Stable Outlook, Short-Term IDR at 'F2' and Viability 
Rating (VR) at 'bbb+'. A full list of rating actions is at the end of this 
rating action commentary.

Key Rating Drivers

IDRS, VR AND SENIOR UNSECURED DEBTThe ratings of Van Lanschot reflect its focus 
on low-risk wealth and asset management as well as its niche merchant banking 
franchise. This, combined with the continued run-off of its legacy corporate 
loan book, drives the bank's adequate and gradually improving asset quality. The 
ratings also factor in the bank's sound capitalisation, good funding and 
liquidity profile, conservative risk appetite and our expectation that the 
bank's adequate profitability will gradually improve.Van Lanschot is a 
well-established mid-sized private bank operating principally in the 
Netherlands. It repositioned its business model to focus on wealth management 
after a strategic review in 2013. Its strategy is aimed at growing assets under 
management (AuM) organically and through acquisitions and improving cost 
efficiency through digitalisation and data-driven client solutions. The bank's 
asset quality is adequate, with an improving impaired loan ratio (i.e. IFRS 9 
stage 3 loans) of 3.9% at end-2018, which is still weaker than that of more 
diversified Dutch banks. This is partly due to its legacy corporate loan book, 
which exhibits a high share of impaired loans (30% at end-2018 with low coverage 
by loan loss allowances due to availability of collateral). However, after 
several years in run-off, the corporate loan book has been reduced to a 
manageable EUR0.5 billion at end-2018, equivalent to 6% of the bank's gross 
loans. The quality of the core private banking loan book is good, with an 
impaired loan ratio of 2.3% at end-2018. Van Lanschot's profitability is average 
compared with private banking peers', but we expect it to improve in the medium 
term. Given industry-wide pressure on margins in asset management, the bank's 
capacity to steadily increase its AuM and maintain adequate pricing will be key 
to meeting the bank's profitability objectives. In 2018, Van Lanschot had a 
second consecutive year of net AuM inflows in private banking (EUR0.5 billion) 
and a third consecutive year of net inflows in asset management (EUR0.4 billion, 
albeit mostly in less remunerative fiduciary mandates). We expect the additional 
fees and commission income from AuM inflows to mitigate the pressure on net 
interest income arising from the shrinking legacy loan book.Van Lanschot's sound 
fully loaded CET1 ratio of 21.4% and good fully loaded leverage ratio of 6.9% at 
end-2018 compare well with private banking peers' and large universal Dutch 
banks'. Our assessment of capitalisation takes into account the bank's 
above-average exposure to unreserved impaired loans in relation to 
capital.Deposits fully fund the loan book, and Van Lanschot's reliance on 
wholesale funding is now limited. The bank has reasonable access to wholesale 
markets, in recent years mostly through covered bonds as the shrinkage of its 
loan book has limited its funding needs. Liquidity is sound, underpinned by a 
large buffer of highly liquid assets well in excess of wholesale funding 
maturities through end-2020.Van Lanschot's Short-Term IDR of 'F2' is the lower 
of the two options mapping to a 'BBB+' Long-Term IDR. This is because our 'a-' 
assessment of the bank's funding and liquidity is below the minimum 'a' expected 
for a Short-Term IDR of 'F1'.SUPPORT RATING (SR) AND SUPPORT RATING FLOOR 
(SRF)The SR and SRF reflect Fitch's view that Van Lanschot's senior creditors 
cannot rely on receiving full extraordinary support from the Dutch sovereign if 
the bank becomes non-viable. This reflects the bank's lack of systemic 
importance in the Netherlands, as well as the EU's Bank Recovery and Resolution 
Directive and Single Resolution Mechanism. These provide a framework for 
resolving banks that is likely to require senior creditors participating in 
losses, if necessary, instead of or ahead of a bank receiving sovereign 
support.TIER 2 SUBORDINATED DEBTVan Lanschot's Tier 2 subordinated debt is 
notched once off the bank's VR to reflect this debt class' higher-than-average 
loss severity.

Rating Sensitivities

IDRS, VR AND SENIOR UNSECURED DEBTA positive rating action could arise from 
successful implementation of the private banking and asset management strategy. 
We would expect in particular a sustainable strengthening of the bank's 
profitability from a track record of steady and sizeable AuM inflows. A rating 
upgrade would also hinge on significant progress in reducing the bank's stock of 
non-performing corporate loans. The ratings could be downgraded in case of 
significant deterioration of asset quality, particularly if this results in a 
weakening of the bank's capitalisation.SR AND SRFAn upgrade of the SR and an 
upward revision of the SRF are contingent on a positive change in the 
Netherland's propensity to support its banks, as well as a significant increase 
in Van Lanschot's systemic importance. While not impossible, this is highly 
unlikely, in Fitch's view.TIER 2 SUBORDINATED DEBTThe Tier 2 subordinated debt's 
rating is primarily sensitive to the same factors as the bank's VR, from which 
it is notched.

Van Lanschot N.V.; Long Term Issuer Default Rating; Affirmed; BBB+; RO:Sta

; Short Term Issuer Default Rating; Affirmed; F2

; Viability Rating; Affirmed; bbb+

; Support Rating; Affirmed; 5

; Support Rating Floor; Affirmed; NF

----senior unsecured; Long Term Rating; Affirmed; BBB+

----subordinated; Long Term Rating; Affirmed; BBB

----senior unsecured; Short Term Rating; Affirmed; F2

Contacts: 

Primary Rating Analyst

Andreea Playoust, 

Director

+33 1 44 29 91 71

Fitch France S.A.S.

60 rue de Monceau 

Paris 75008

Secondary Rating Analyst

Romain Levasseur, 

Associate Director

+33 1 44 29 91 76

Committee Chairperson

Patrick Rioual, 

Senior Director

+49 69 768076 123

 

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: 
peter.fitzpatrick@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Bank Rating Criteria (pub. 12 Oct 2018)

https://www.fitchratings.com/site/re/10044408

Short-Term Ratings Criteria (pub. 02 May 2019)

https://www.fitchratings.com/site/re/10073011

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https://www.fitchratings.com/site/pr/10084389#solicitation

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https://www.fitchratings.com/regulatory

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