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Fitch Affirms KAS BANK at 'A-'; Outlook Stable
December 16, 2016 / 3:19 PM / 7 months ago

Fitch Affirms KAS BANK at 'A-'; Outlook Stable

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(The following statement was released by the rating agency) PARIS/LONDON, December 16 (Fitch) Fitch Ratings has affirmed KAS BANK N.V.'s Long- and Short-Term Issuer Default Ratings (IDRs) at 'A-' and 'F2', respectively. The Outlook on the Long-Term IDR is Stable. At the same time the agency has affirmed its Viability Rating (VR) at 'a-'. A full list of rating actions is available at the end of this rating action commentary. KEY RATING DRIVERS VR AND IDRs The ratings are driven by the franchise of KAS BANK as a post-trade securities services provider to institutional investors, mostly Dutch pension funds and insurance companies, and by its low risk appetite. KAS BANK has an established franchise in its core business in the Netherlands, but the bank's monoline business model and geographically concentrated customer base are rating constraints. The ratings also reflect a high, albeit well-managed, exposure to operational risk and some earnings volatility. The bank has sound risk-weighted capitalisation but a small capital base for its rating level. KAS BANK is a niche player, with an established franchise concentrated mainly in the Netherlands. Its independent status and primary focus on the specific needs of its fairly narrow customer base differentiate it from its larger, global, competitors. Fitch expects it to maintain critical mass in its core asset administration business. Its knowledge of local reporting and regulatory requirements enables it to provide tailor-made value-added reporting services to its customers. Management is experienced and has a track record of coherent strategy. Transparency and independence, combined with a low risk profile, are important values for the bank. Fitch views KAS BANK's risk appetite as low. The bank's credit risk is very low and stems mainly from its intraday collateralised settlement-related facilities. Exposure to operational risk is high, reflecting the bank's reliance on efficient IT systems, although we believe it is well-managed. KAS BANK outsources its mainframe and has recently decided to transfer further IT services to its main outsourcer. We view this positively given that KAS BANK's small size would not enable the bank to develop state-of-the-art systems on its own. Outsourcing agreements are tight and comprehensive controls are in place, and further client on-boarding and upscaling will be more cost-efficient. In addition, further process improvement and automation are reducing operational complexity and enhancing system efficiency. Profitability is suffering from weak efficiency, which became more burdensome recently due to a decrease in revenues, and the bank only broke even in 1H16, recording a minimal net profit of EUR0.9m compared with EUR15.3m in 2015. We expect the strategic focus on asset administration and reporting services, combined with accelerated cost efficiency measures, to gradually improve earnings generation, but it will likely remain a rating weakness for the foreseeable future. KAS BANK's common equity Tier 1 ratio was 26% at end-June 2016, reflecting management's aim to maintain the bank's regulatory capital ratios well above regulatory requirements. Capitalisation needs to be viewed in the context of the bank's high exposure to operational risks. In addition, its small equity base makes it vulnerable to shocks. Leverage is fairly high, with a tangible equity/tangible asset ratio of around 4% at end-June 2016, and fluctuates in line with customer deposits as the balance sheet is liability-driven; however, assets are generally very short-term. SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating of '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 in the event that KAS BANK becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks 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. RATING SENSITIVITIES VR AND IDRs Upside to the ratings is limited due to KAS BANK's fairly limited franchise and monoline business model in a global context - as reflected in Fitch's assessment of the bank's company profile - and its small equity base compared with similarly rated peers. The ratings are primarily sensitive to significant operational loss event that could cause reputational damage and pressure business volume and revenue. A failure to restore and improve profitability would also be rating-negative. SUPPORT RATING AND SUPPORT RATING FLOOR KAS BANK's Support Rating and Support Rating Floor are primarily sensitive to legislative changes at national and European levels, increasing the propensity of sovereigns to support institutions such as KAS BANK. While not impossible, this is not expected by Fitch. The rating actions are as follows: Long-Term IDR affirmed at 'A-'; Outlook Stable Short-Term IDR affirmed at 'F2' Viability Rating affirmed at 'a-' Support Rating affirmed at '5' Support Rating Floor affirmed at 'No floor' Contact: Primary Analyst Olivia Perney Guillot Senior Director +33 144 29 91 47 Fitch France S.A.S. 60 Rue de Monceau 75008 Paris Secondary Analyst Konstantin Yakimovich Director +44 20 3530 1789 Committee Chairperson Bjorn Norrman Senior Director +44 20 3530 1330 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016641 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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