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Related Issuers
Rating Action:

Moody's downgrades HSBC AS (Turkey) to Baa1 from A3

Global Credit Research - 27 Jan 2012

Frankfurt am Main, January 27, 2012 -- Moody's Investors Service has today downgraded the long-term global local-currency (GLC) deposit rating of HSBC Bank A.S. - Turkey (HSBC -- Turkey) to Baa1 from A3 and affirmed the D+ standalone bank financial strength rating (BFSR), but remapped it to Ba1 from Baa3 on the long-term scale. At the same time, Moody's downgraded the bank's national scale rating (NSR) to Aa2.tr from Aa1.tr. The rating agency also affirmed HSBC -- Turkey's Ba3 long-term foreign-currency deposit rating, Prime-2 and TR-1 short-term GLC deposit ratings. The outlook for the foreign-currency deposit rating is positive. The outlook on the short-term ratings is stable, whilst the outlook on the other ratings has been changed to negative from stable.

RATINGS RATIONALE

Moody's says that the downgrade of the standalone GLC deposit rating was triggered by a combination of (i) the deterioration in the bank's modest profitability, in risk-adjusted terms (ii) efficiency indicators lagging sector average; and (iii) Moody's expectation of a system-wide economic slowdown in Turkey that will exert further pressure on the bank's asset quality and profitability indicators.

Moody's believes that the D+ BFSR is supported by the bank's overall small consumer and commercial franchise and its modest credit card and corporate franchises, sound capitalisation and liquidity. Additional supporting factors include its moderate asset quality, and improving deposit-funding base. However, the lower remapping of the BFSR and the negative outlook reflect the bank's below sector average profitability indicators -- in risk-adjusted terms -- and the longer-term challenges that the evolution of its franchise faces, namely the strong competition from other domestic banks. This includes banks with strong retail and commercial franchises that have also pursued network expansions.

The share of revenues from retail operations are modest, because the historical performance of the bank's retail portfolio has constrained its ability to effectively commercially leverage its pre-2008 branch expansion. Furthermore, its asset quality could experience higher volatility compared with the sector average, due to the bank's higher exposure to unsecured consumer credits and SMEs, segments that are more vulnerable to economic swings. The assigned rating also reflects the bank's relatively weaker efficiency indicators at a time when efficiency and economies of scale are of increasing importance due to the lower net interest-margin environment within the Turkish banking system. The expansionary mode of the bank's franchise is one of the factors adversely affecting its efficiency indicators and Moody's believes that this metric could improve over the medium term, if the bank's projected higher geographical coverage potentially yields an increased commercial leverage over the medium term.

Moody's downgraded HSBC -- Turkey's NSR to Aa2.tr from Aa1.tr -- the lower of the two NSRs mapping from the Baa1 GLC deposit rating -- due to the negative outlook on the bank's GLC rating. The rating carries a negative outlook due to the negative outlook on the bank GLC deposit rating. The affirmation of the bank's short-term GLC deposit rating resulted in the affirmation of the bank's short-term NSR of TR-1.

POTENTIAL TRIGGERS FOR AN UPGRADE/DOWNGRADE

There is currently no upward pressure on the BFSR, reflected in the negative outlook. Downward rating pressure could emerge if (i) profitability and efficiency indicators weaken further; (ii) asset quality deteriorates; (iii) retail revenue generation declines; or (iv) the credit growth rate exceeds growth in high-quality stable deposits, increasing the bank's reliance on wholesale funding and reversing the improving trend in the bank's funding base.

The bank's long-term GLC deposit rating incorporates parental support from HSBC Holdings Plc, (Aa2, with negative outlook). This provides three notches of rating uplift to HSBC -- Turkey's GLC deposit rating. However, despite the high rating of the parent compared with HSBC -- Turkey's BFSR and our assumptions of a high degree of parental support (in case of need), the combination of (i) the negative outlook on the parent's rating; and (ii) the negative outlook on the HSBC -- Turkey's BFSR underpin the negative outlook on its GLC rating.

RATING METHODOLOGY

The principal methodologies used in this rating were "Bank Financial Strength Ratings: Global Methodology" published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".mx" for Mexico. For further information on Moody's approach to national scale ratings, please refer to Moody's Rating Implementation Guidance published in August 2010 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings."

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following : parties involved in the ratings, and public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Arif Bekiroglu
Asst Vice President - Analyst
Financial Institutions Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Carola Schuler
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades HSBC AS (Turkey) to Baa1 from A3
No Related Data.

 

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