OREANDA-NEWS. Fitch Ratings has upgraded Virtual Lease Services Limited (VLS) ABS Primary Servicer Rating to 'ABPS3+' from 'ABPS3'.

The upgrade reflects the continued growth of the primary servicing portfolio managed by VLS, which almost doubled in size by volume and value over the 12 months to end June 2015. Over the same period, there was also significant growth across stand by, block discounting and audit servicing agreements. At the time of review, a number of new mandates were in the pipeline. In Fitch's view, the continued growth and winning of mandates - with greater client diversity - suggests long-term support from shareholders and sustainability of the business.

VLS benefits from the support of Netsol Technologies, the major shareholder and supplier of the bespoke servicing systems. The servicer continues to enhance its technology infrastructure, improving the efficiency of servicing activities through increased automation and integration. Business continuity provisions have been strengthened with the insourcing of key continuity activities and the move to cloud-based technology, although this had not been fully tested at the time of review.

The upgrade also takes into consideration the maturing risk management framework at VLS, with formal compliance reviews and documented governance procedures now in place. This is supported by a structured quality control programme and a high level of management oversight. Fitch views positively the steps taken by the servicer to date. However, some of the initiatives had been in place for less than a full year's cycle at the time of review and so the agency cannot yet give full credit.

VLS is not currently subject to an internal audit programme, as is the case at other rated servicers in the UK. This is somewhat mitigated by the appropriate governance in place and the numerous client and shareholder audits which have been carried out, with no negative feedback received by the servicer. However, Fitch considers regular independent audit to be a key part of effective risk management.

The rating takes into account that VLS has now carried out a full round of annual appraisals and awarded merit-based bonuses to staff for the first time. All employees now have a personal development plan and monthly one-to-one reviews between employee and manager are in place, with the results of quality control checks feeding into the setting of objectives. While Fitch acknowledges the implementation of a formal review process, full credit can only be given once further review cycles have taken place.

At end-June 2015, VLS's primary servicing portfolio consisted of 93,940 loans (June 2014: 47,795) with an outstanding principal balance of GBP293.3m (GBP157.6m). The portfolio was split among small-ticket minimum term agreements (56%), consumer loans (41.1%), finance leases (1.9%), hire purchases (0.5%), commercial loans - block (0.4%), operating leases (0.1%) and commercial loans - companies (0.01%).

Fitch employed its global servicer rating criteria in analysing the servicer's operations and financial condition, with the criteria including a comparison of other UK servicers as part of the review process.