OREANDA-NEWS. 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 are underpinned by the bank's established, albeit niche and regional, franchise in wealth and asset management as well as merchant banking, solid capitalisation and a fairly conservative risk appetite. The ratings also reflect weak, albeit improving, profitability.

Van Lanschot's profitability is a rating weakness and will remain under pressure as long as growth of assets under management (AuM) and interest rates remain low. The bank is pursuing an ambitious strategic plan to significantly boost its profitability by 2020. We believe that in the medium term a structural improvement is possible but will depend on the bank's ability to attract new AuM while improving the currently low operating efficiency. Profitability was supported in 1H16 by low loan impairment charges, and we expect the improving Dutch economy, combined with low interest rates, to continue to benefit asset quality.

Van Lanschot continues to execute on its strategy to refocus on core private banking and asset management activities while running down its non-core loan book (commercial real estate and SME loans, 16% of gross loans at end-June 2016). Its impaired loans/gross loans ratio, slightly over 5% at end-June 2016, 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 sound quality and we expect it to remain resilient.

Van Lanschot's capital ratios are solid and improving due to deleveraging. Leverage is strong compared with larger Dutch banks but in line with private banking peers. Our assessment of capitalisation takes into account the significant amount of unreserved impaired loans (28% of equity at end-June 2016), which makes capitalisation sensitive to fluctuations in collateral values.

The bank has a balanced funding profile largely made up of customer deposits and a demonstrated ability to access wholesale funding markets. Liquidity is sound, underpinned by a large buffer of highly liquid assets.

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 of 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 stem from a strengthening of Van Lanschot's franchise, provided the bank has built a track record of significantly improved 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

Any 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 sensitive to the same factors as the bank's VR.

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'