Moody's Investors Service, ("Moody's") takes rating action on HSBC Middle East Limited
Limassol, October 02, 2017 -- Moody's Investors Service has today downgraded HSBC Bank Middle
East Limited's (HBME) long-term deposit ratings to A3 from
A2 and short-term deposit ratings to Prime -2 from Prime
-1. The bank's adjusted baseline credit assessment
(BCA) was downgraded to a3 from a2 and its BCA was affirmed at baa2.
HBME's long-term deposit ratings and adjusted BCA incorporate
two notches of uplift from its baa2 BCA, reflecting Moody's
assessment of a very high probability of affiliate support from the bank's
parent, HSBC Holdings Plc (HSBCH LT senior unsecured A2 negative)
in case of need. This reflects the strategic importance of HBME
as the main operating vehicle for the Middle East operations of the HSBC
group.
The action on HBME follows the action taken by Moody's on the parent
company HSBC Holdings PLC on 27 September 2017. For full details
please visit the following link:
http://www.moodys.com/viewresearchdoc.aspx?docid=PR_372701
A list of affected ratings can be found at the end of this press release.
RATINGS RATIONALE
The downgrade of HBME's deposit ratings and adjusted BCA reflects
the weakening capacity of HSBC Holdings to provide support, as reflected
by the assignment on 27 September 2017 of an a2 notional group Baseline
Credit Assessment (BCA), one notch lower than the previous a1 intrinsic
financial strength assessment. HSBC Holdings' lower BCA reflects
deteriorating operating environments in key markets in which it operates
including the United Kingdom (Aa2 stable) and Hong Kong (Aa2 stable) as
well as other strategic markets such as China, Mexico, Canada
and the Middle East. Please see Moody's separate press release
on HSBC Holdings PLC for further details. http://www.moodys.com/viewresearchdoc.aspx?docid=PR_372701
The affirmation of HBME's BCA at baa2 reflects its (1) solid margins
and profitability supported by a strong and diversified franchise,
and (2) good funding and liquidity. These strengths are moderated
by the bank's (1) weak asset quality driven by high levels of credit concentrations;
(2) high operating costs and (3) lower capital levels than its regional
peers. These rating drivers have not been affected by the rating
action on the parent.
Rating outlook
The outlook on HBME's long term deposit ratings has been changed
to stable from negative. The outlook reflects Moody's view
that the parent entity capacity to provide support to HBME when needed,
as indicated by its a2 notional BCA, is likely to remain stable
underpinned by the group's healthy asset risk profile, as
well as its strengthened capital position, and good funding profile.
The stable outlook also reflects Moody's expectation that the financial
fundamentals of HBME are likely to remain in line with current levels
given the supportive operating environment in HBME's key markets.
What could move the ratings up/down
Upward pressure on HBME's ratings could develop in the event 1)
improved financial position for HBME's parent resulting in upgrade
of its BCA, (2) material reduction in HBME's single-name
borrower concentration and continued diversification across the Gulf Cooperation
Council (GCC), (3) material improvement in its asset quality,
and (4) sustained strengthening of its capital base.
The ratings could come under pressure from a combination of one or more
of the following: (1) any further deterioration in the BCA of HBME's
parent, (2) significant deterioration in HBME's asset quality,
(3) significant weakening in its regional franchise, and (4) deterioration
in its capitalisation levels.
LIST OF AFFECTED RATINGS
Issuer: HSBC Bank Middle East Limited
Downgrades:
....LT Bank Deposits, Downgraded to
A3 from A2, Outlook Changed To Stable From Negative
....ST Bank Deposits, Downgraded to
P-2 from P-1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to A3 from A2, Outlook Changed To Stable From Negative
....Senior Unsecured MTN Program, Downgraded
to (P)A3 from (P)A2
....Subordinate MTN Program, Downgraded
to (P)Baa1 from (P)A3
....Adjusted Baseline Credit Assessment,
Downgraded to a3 from a2
....LT Counterparty Risk Assessment,
Downgraded to A2(cr) from A1(cr)
Affirmations:
....Baseline Credit Assessment, Affirmed
baa2
....ST Counterparty Risk Assessment,
Affirmed P-1(cr)
Outlook Actions:
....Outlook, Changed To Stable From
Negative
Issuer: HSBC Bank Middle East Limited (UAE Branch)
....LT Bank Deposits, Downgraded to
A3 from A2, Outlook Remains Stable
....ST Bank Deposits, Downgraded to
P-2 from P-1
Outlook Actions:
....Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The Local Market analyst for these ratings is Ashraf Madani, +971.4.237.9542.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain 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 certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain 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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Nondas Nicolaides
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
