New York, April 26, 2012 -- Moody's Investors Service today affirmed HSBC México,
S.A.'s ratings including its C- (C minus) standalone
strength (BFSR), the A2/Prime-1 global local currency (GLC)
and the Baa1/Prime-2 foreign currency deposit ratings. The
bank's A2 GLC senior debt rating as well as the provisional (P)
subordinated and junior subordinated debt ratings of A3 and Baa1,
respectively, were also affirmed. At the same time,
Moody's de Mexico affirmed the bank's Aaa.mx/MX-1
Mexican National Scale ratings. HSBC Mexico's senior and
subordinated debt ratings of Aaa.mx/MX-1 were also affirmed.
All these ratings have stable outlooks.
HSBC Mexico's C- standalone strength maps to baa1 on Moody's
long term global scale.
RATINGS RATIONALE
In affirming the ratings with stable outlook, Moody's cited
the bank's improving asset quality and adequate capitalization (Tier
1 capital of 11.85%) that should support its plans for loan
expansion within the existing customer base. Moody's noted
that management's efforts to deal with legacy poor performing consumer
loans resulted in a cleaner balance sheet and improved asset quality metrics
overall with delinquency ratio declining to 2.7% as of December
2011, from 5% in 2009, and coverage ratio reaching
214.5%, from 131.6% in the same period.
Improvements in asset quality also include better quality loan vintages
and the significant 42% reduction of write offs in 2011 relative
to 2010. However, Moody's said that HSBC México's
exposure to large single-borrowers, particularly to large
corporate groups and the Mexican government, still pose an ongoing
asset quality challenge.
Moody's cited the bank's challenges in boosting core earnings
as a main constraining factor for future rating movements. HSBC
Mexico's core earnings ratio still compares poorly to the system's,
with risk adjusted pre-provision profits at roughly half that of
the average of Mexico's six largest banks. Accordingly,
HSBC Mexico's return on equity of 1.81% is way below
the average of 11.6% reported in average by its closest
Mexican peers. HSBC México's diminished earnings power
relative to peers is indeed a consequence of the reduction in business
volumes and change in loan mix, as part of its risk management revamping
efforts.
Management's growth strategy is focused on increasing banking business
with existing customers, which Moody's views as providing
the opportunity for better managing credit and operating costs,
while limiting the effects of ever increasing competition.
HSBC México's solid funding base, which positions it
as the fourth largest in the system, also supports the expansion
plans, although margins may tend to narrow because of (a) the persisting
environment of low interest rates, (b) a high funding cost relative
to other large Mexican banks, and (c) the gradual increase in lower
yielding loan products (e.g. loans to SMEs) along with measured
appetite for high growth in high-yield consumer loans such as credit
cards. Robust and stable earnings generation, in turn,
will contribute to the pace of internal capital replenishment.
HSBC Mexico is headquartered in Mexico City. As of December 2011,
it reported Mx$ 486.1 billion in assets.
The last rating action on HSBC Mexico was on October 19, 2009,
when Moody's downgraded the bank's standalone financial strength
to C-, from C.
The 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: Global
Methodology published in March 2012. 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 Methodology published
in March 2011 entitled "Mapping Moody's National Scale Ratings to
Global Scale Ratings".
The Local Market analyst for this rating is David Olivares-Villagomez,
+52 (55) 1253-5705.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com..
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.
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.
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
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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.
Jeanne Del Casino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Maria Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms HSBC Mexico's A2 local currency deposits and C- financial strength
