de Volksbank N.V. : SNS Bank renamed ‘de Volksbank’: Evolution over Revolution. BUY recommendation maintained on the Tier 2 2025/20

As from 1st January 2017, SNS Bank is renamed ‘de Volksbank’, the people’s bank in Dutch. This change of name is a symbolic more than decisive step, and draws a line on a name that probably still bears some stigma of the 2013 nationalisation while the bank has undergone significant transformations since. After the EUR500m subordinated debt issued in autumn 2015, We expect Volksbank to return to the unsecured debt capital markets in 2017 or 2018 in order to refinance significant but manageable debt maturing over the year (EUR2.9bn, of which EUR1.7bn being covered bonds) and to start streamlining its liability structure and adapt it to regulatory changes (MREL). - We keep a stable opinion on an issuer that we consider being a good credit, and whose strengths are also its weaknesses: a presence only in the Netherlands, but a strong and resilient economy and operations only in the retail market, a very competitive but low-risk segment. - We initiated the coverage of the issuer early July 2016 with a ‘Buy’ recommendation on the Tier 2 2025/20 securities which has since reported a solid performance (ASW narrowed by 150bp or 40% of its level at coverage initiation), outperforming the Iboxx EUR Banks Subordinated index (ASW tightening of 30% over the same period), market participants and rating agencies acknowledging we believe the strengthening of the bank’s fundamentals. However, we keep our recommendation on the securities, which offers a fair yield (2.44% to the call 2020) but also some further, albeit lower, tightening potential. - >Support Factors - Volksbank solely operates low-risk retail banking in the Netherlands; this business mix provides the bank with relatively stable and recurring revenues, but the lack of diversification also induces some volatility in its profitability.The asset quality of the bank is good and improving, with a balance sheet dominated by a large portfolio of domestic mortgage loans whose quality is supported by strong economic indicators for the Netherlands.Measures taken as part of the nationalisation have significantly increased the bank’s capital, further supported by internal capital generation since 2014; capital ratios (risk-weighted and leverage) are therefore very good even when taking into account the expected substantial impacts of the revision of the Basel rules, and the resumption of dividend payment.Points to Watch - The lack of geographical and operational diversification strongly exposes its performance to that of the Dutch economy and to the demand and profitability of a few banking products, including mortgage loans for which competition from new players (pension funds, insurers) has increased.The low and flat curve environment is unfavorable to the bank's revenue generation, which should announce measures to reduce its cost base; net income remains supported by a very low loan impairment charges (and even write-backs in 1H16).The general elections and likely uncertain outcome in the Netherlands in March 2017 could lead to sovereign and banks spreads widening; however, this should be temporaryThe outcome of Volksbank’s privatisation process (which should not be launched until 2018/2019) creates a form of strategic uncertainty.