VW finance arm's profit up on higher demand for diesel cars

Volkswagen's financing arm expects to post record earnings in 2016, it said on Friday, thanks to increased demand for diesel cars, a sign that the company's emissions-cheating scandal has not deterred customers.

Operating profit at Volkswagen (VW) Financial Services may exceed 2 billion euros ($2.1 billion) for the first time, after the division previously indicated it expected earnings to match last year's 1.92 billion, Lars Henner Santelmann, head of the unit, said.

"Even in the challenging business year 2016 we have been able to continue our successful growth course of past years," Santelmann told reporters late on Thursday in remarks embargoed to Friday morning.

He cited cost cuts, recovering demand in southern Europe and lower-than-expected refinancing costs.

"We have sold more diesel vehicles in Germany this year than a year earlier and at a higher price than a year ago," Santelmann said.

Braunschweig-based VW Financial Services handles dealer and customer financing and the German group's banking and leasing business. Its operations exclude the Scania and Porsche brands and the Porsche Holding Salzburg distributor.

The finance arm of Europe's largest automaker has increased its portfolio of new contracts 10 percent to 7.44 million contracts from 6.76 million in 2015.

(Reporting by Andreas Cremer; Editing by David Holmes)