Volkswagen Applies For UK Banking License

German car manufacturer Volkswagen (VW) has confirmed it is in the process of applying for a U.K. banking license that will enable it to continue providing financing to car buyers after Britain leaves the EU.

According to the news published by the Financial Times on Thursday (Nov. 2), the company is in talks with the Prudential Regulation Authority for a full banking license, noting it was part of “contingency planning by the group to protect against potential post-Brexit regulatory risk.”

“Discussions with the U.K. regulators, in particular the PRA, may result in [Volksawagen Financial Services] VWFS making an application for U.K. banking license,” said David Maloney, chief executive of Volkswagen Financial Services U.K. “Should we pursue this path and establish a U.K.-regulated retail bank, it would diversify our funding sources whilst helping to alleviate post-Brexit uncertainty and ensure we continue to provide lending products.”

A growing number of European car companies have been providing their own financing for consumers, with Volkswagen’s U.K. Financial Services division currently using its German parent’s banking license to make car loans. The combined lending by VW, Mercedes-Benz owner Daimler, BMW and Renault has more than doubled to €400 billion since the financial crisis.

Additionally, according to the article, more than 80 percent of U.K. cars buyers use a personal contract purchase, in which the automaker commonly provides financing in exchange for taking back control of the vehicle after approximately three years. Volkswagen’s loan book in the U.K. is currently £15 billion, more than any other carmaker’s in-house financing arm.

But, depending on the terms on in which the U.K. leaves the EU, the ability to accept deposits and lend across U.K.-EU borders may be hindered. If VW, which also includes brands Audi, Porsche, Skoda and Seat, opens a U.K. banking division, the group expects customer deposits to make up less than 10 percent of total funding.

Both Ford and Renault already have U.K. banking arms providing some of the financing for their consumer loans.