Hong Kong, December 17, 2019 -- Moody's Investors Service has affirmed The Hongkong and Shanghai
Banking Corp. Ltd's (HSBC HK) and Hang Seng Bank Limited's
deposit ratings at Aa2/P-1.
At the same time, Moody's has affirmed HSBC HK's Baseline
Credit Assessment (BCA) and Adjusted BCA at a1, and affirmed all
of the bank's other ratings and assessments. Moody's
has also affirmed all ratings and assessments of The Hongkong and Shanghai
Banking Corp. Ltd. (Sydney), The Hongkong and Shanghai
Banking Corp. Ltd.(Singapore), and The Hongkong and
Shanghai Banking Corp. Ltd (NZ).
Moody's has also affirmed Hang Seng Bank's BCA and Adjusted
BCA at a1, deposit note/CD program rating at (P)Aa3, Counterparty
Risk Ratings at Aa1/P-1, and Counterparty Risk Assessment
at Aa1(cr)/P-1(cr).
The outlooks on HSBC HK, The Hongkong and Shanghai Banking Corp.
Ltd (Sydney), The Hongkong and Shanghai Banking Corp. Ltd
(Singapore), The Hongkong and Shanghai Banking Corp. Ltd
(NZ) and Hang Seng Bank have been changed to negative, given pressure
on the banks' standalone credit profiles.
A full list of affected ratings and assessments is shown at the end of
the press release.
RATINGS RATIONALE
— BCA and Adjusted BCA
The affirmation of HSBC HK's a1 BCA and adjusted BCA takes into
account its sound asset quality, track record of prudent risk management,
strong capitalization and very good liquidity. Nevertheless,
the change in the bank's outlook to negative from stable(m) takes
into account a more difficult operating environment in Hong Kong and the
rest of the region amid a slowdown in economic growth. Recurring
protest in Hong Kong is undermining consumption and inbound tourism.
Meanwhile, elevated trade tensions between the US and mainland China
have led to increased economic uncertainty in the region. Both
developments will put pressure on the bank's asset quality and profitability,
and weigh negatively on Moody's assessment of the bank's BCA.
The affirmation of Hang Seng Bank's a1 BCA and adjusted BCA takes
into account its well-established market position, sound
capitalization, good asset quality, above-peer profitability
and strong deposit-gathering franchise. The change in Hang
Seng Bank's outlook to negative from stable(m) also takes into account
the more difficult operating environment amid the slowdown in economic
growth in Hong Kong, and the expected impact on the bank's
asset quality and profitability.
That said, both HSBC HK and Hang Seng Bank retain exceptionally
strong asset quality metrics. HKBC HK and Hang Seng Bank reported
problem loan ratios of 0.5% and 0.2% respectively
as of end-June 2019. Lending to the small and medium sized
enterprises in the retail, restaurant and hospitality sectors,
which are most impacted by the protests, account for a relatively
modest proportion of the two banks' overall lending in Hong Kong.
The Hong Kong government's relief measures, which include
credit insurance on small and medium enterprise (SME) lending, will
partially mitigate the pressure on the banks' asset quality.
More than half of both HSBC HK and Hang Seng Bank's overall Hong
Kong lending are to the real estate sector, and credit risks on
such lending are low due to conservative loan-to-value ratios
and good credit profile of borrowers. Outside of Hong Kong,
the highly geographically diversified nature of HSBC HK's lending
renders its asset quality less susceptible to deterioration in any particular
market.
HSBC HK's dominant deposit franchise in Hong Kong underpins its very strong
liquidity and funding. The bank's franchise is supported by its
extensive network and its status as one of the three note-issuing
banks in the territory. Hong Kong accounted for more than two-thirds
of HSBC HK's customer deposits as of the end of June 2019. The
bank had around 30% share of the local deposit market in Hong Kong
on a consolidated basis. HSBC HK has been a beneficiary of depositor
flight to quality during times of stress. The bank maintains a
deposit-led strategy across the region, under which customer
lending in each country is largely funded by local customer deposits.
Hang Seng Bank's well-established market position in Hong
Kong and its loyal retail customer base also bolster its liquidity profile.
The bank is primarily funded by customer deposits, which accounted
for 82% of total liabilities at end-June 2019. The
bank's liquid assets are well in excess of its market-based
funding.
Rising interest rates contributed to HSBC HK and Hang Seng Bank's profitability
in recent years. Both banks' profitability benefits from
strong contributions from fee-based income and low credit costs.
However, Moody's expects declining net interest margins and
rising credit costs to weigh on the banks' profitability in 2020.
HSBC HK's return on average assets was fairly stable at 1.4%
in the first half of 2019, while that of Hang Seng Bank was 1.7%.
HSBC HK's capitalization remains broadly stable, with a Common Equity
Tier 1 ratio of 16.6% as of the end of June 2019.
Hang Seng Bank also maintained very strong capitalization, with
Common Equity Tier 1 ratio of 16.4% at end-June 2019.
Moody's expects the banks to maintain solid capitalization in the
next 12-18 months.
— Deposit and senior unsecured ratings
HSBC HK and Hang Seng Bank are subject to Hong Kong's Financial Institutions
(Resolution) Ordinance and Moody's considers Hong Kong an operational
resolution regime.
Moody's expects the Hong Kong bank regulator to designate HSBC HK
and Hang Seng Bank as belonging to the same resolution group. As
such, Moody's has performed the Advanced Loss Given Failure
(LGF) analysis for the two banks on a combined basis, and applied
the same LGF notching outcome to both banks.
HSBC HK and Hang Seng Bank's deposit ratings are positioned at Aa2,
two notches above their respective Adjusted BCAs. Meanwhile,
HSBC HK's senior unsecured and issuer ratings are positioned at
Aa3, one notch above its Adjusted BCA. The uplifts in the
banks' deposit and senior unsecured ratings take into account Moody's
Advanced Loss Given Failure (LGF) analysis, reflecting Moody's expectation
of very low loss-given-failure for depositors and low loss-given-failure
for senior unsecured creditors. Under Moody's Advanced LGF
analysis, the banks' senior non-preferred debt and
capital instruments are likely to absorb losses before their junior depositors
and senior unsecured creditors, which lowers the loss given failure
for depositors and senior unsecured creditors in the event of failure.
The banks' deposit and senior unsecured ratings also take into consideration
moderate likelihood of support from the Hong Kong Government. The
support assumption takes into account the banks' systemic importance,
despite the government's intention to bail-in creditors and
refrain from using public funds in the event of bank failure. The
moderate government support assumption leads to no government support
uplift in the banks' deposit and senior unsecured ratings.
— CR Assessments and CRRs
The banks' CR Assessment is positioned at Aa1(cr), three notches
above their respective adjusted BCAs under Moody's Advanced LGF analysis.
Under Moody's Advanced LGF analysis, the banks' junior
deposits, senior unsecured debts, and loss-absorbing
capacity instruments are likely to first bear losses in the event of failure
before obligations represented by CR Assessments would be subject to losses.
As such, the large volume of junior liabilities lead to three notches
of uplift for their CR Assessments.
The banks' CRRs are positioned at Aa1, three notches above
their respective adjusted BCA under Moody's Advanced LGF analysis,
reflecting Moody's view of extremely low loss-given-failure,
given the subordination of the their junior deposits, senior unsecured
debts, and loss-absorbing capacity instruments.
— Junior subordinated note
The A2(hyb) junior subordinated notes for HSBC HK rating reflects:
(1) its Adjusted BCA of a1; (2) Moody's Advanced LGF analysis,
resulting in a rating one notch below the bank's Adjusted BCA.
WHAT COULD CHANGE THE RATINGS UP AND DOWN -- HSBC HK
Given the negative outlook on HSBC HK's deposit and senior unsecured ratings,
they are unlikely to be upgraded. Moody's could revise the
bank's rating outlook to stable if it maintains its strong asset
quality and profitability amid the economic downturn in Hong Kong and
uncertain economic outlook in the rest of the region in the coming 12
to 18 months.
Moody's could downgrade the banks' foreign currency deposit
ratings if the Hong Kong government's rating is downgraded,
due to a change in the foreign currency deposit ceiling.
Moody's could downgrade the bank's BCA and deposit ratings if sustained
deterioration in operating conditions in Hong Kong and the rest of the
region lead to a weakening in the bank's asset quality metrics and
profitability.
WHAT COULD CHANGE THE RATINGS UP AND DOWN -- HANG SENG BANK
Given the negative outlook on Hang Seng Bank's deposit ratings,
they are unlikely to be upgraded. Moody's could revise the
bank's ratings outlook to stable if macroeconomic conditions improve
and the bank maintains its strong asset quality and profitability.
Moody's could downgrade the banks' foreign currency deposit
ratings if the Hong Kong government's rating is downgraded,
due to a change in the foreign currency deposit ceiling.
Moody's could downgrade the bank's BCA and deposit ratings if sustained
deterioration in operating conditions in Hong Kong lead to a weakening
in the bank's asset quality metrics and profitability.
The principal methodology used in these ratings was Banks Methodology
published in November 2019. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The Hongkong and Shanghai Banking Corp. Ltd reported total assets
of HKD8.07 trillion on 30 June 2019.
Hang Seng Bank Limited, with its headquarters in Hong Kong,
reported total assets of HKD1.66 trillion on 30 June 2019.
LIST OF AFFECTED RATINGS:
Issuer: Hongkong and Shanghai Banking Corp. Ltd (The)
.... Baseline Credit Assessment, Affirmed
at a1
.... Adjusted Baseline Credit Assessment,
Affirmed at a1
.... Long-term/short-term Counterparty
Risk Assessment affirmed at Aa1(cr)/P-1(cr)
.... Long-term/short-term Counterparty
Risk Rating affirmed at Aa1/P-1
.... Long-term Deposit Rating (Foreign
Currency) affirmed at Aa2; outlook negative
.... Long-term Deposit Rating (Local
Currency) affirmed at Aa2; outlook changed to negative from stable
.... Short-term Deposit Ratings (Foreign
and Local Currency) affirmed at P-1
.... Long-term Issuer Rating affirmed
at Aa3; outlook changed to negative from stable
.... Senior Unsecured Regular Bond/Debenture
affirmed at Aa3; outlook changed to negative from stable
.... Senior Unsecured Medium-Term Note
Program affirmed at (P)Aa3
.... Long-term Deposit Note/CD Program
affirmed at (P)Aa3
.... Commercial Paper affirmed at P-1
.... Other Short Term, Affirmed at (P)P-1
.... Junior Subordinated Regular Bond/Debenture
affirmed at A2(hyb)
Outlook changed to Negative from Stable(m)
Issuer: Hongkong & Shanghai Banking Corp.(Singapore)
.... Long-term/short-term Counterparty
Risk Assessment, Affirmed at Aa1(cr)/P-1(cr)
.... Long-term/short-term Counterparty
Risk Rating affirmed at Aa1/P-1
.... Senior Unsecured Regular Bond/Debenture
affirmed at Aa3; outlook changed to negative from stable
.... Senior Unsecured Medium-Term Note
Program affirmed at (P)Aa3
.... Other Short Term affirmed at (P)P-1
Outlook changed to Negative from Stable
Issuer: Hongkong & Shanghai Bank.Corp. (Sydney)
.... Long-term/short-term Counterparty
Risk Assessment affirmed at Aa1(cr)/P-1(cr)
.... Long-term/short-term Counterparty
Risk Rating affirmed Aa1/P-1
.... Long-term Deposit Rating affirmed
Aa2; outlook changed to negative from stable
.... Short-term Deposit Rating affirmed
P-1
.... Long-term Issuer Rating affirmed
Aa3; outlook changed to negative from stable
.... Short-term Issuer Rating affirmed
P-1
.... Senior Unsecured Medium-Term Note
Program (Local Currency) affirmed (P)Aa3
Outlook changed to Negative from Stable
Issuer: Hongkong and Shanghai Banking Corp Ltd (NZ)
.... Long-term/short-term Counterparty
Risk Assessment, Affirmed at Aa1(cr)/P-1(cr)
.... Long-term/Short-term Counterparty
Risk Rating affirmed at Aa1/P-1
.... Senior Unsecured Regular Bond/Debenture
affirmed at Aa3; outlook changed to negative from stable
.... Senior Unsecured Medium-Term Note
Program affirmed at (P)Aa3
Outlook changed to Negative from Stable
Issuer: Hang Seng Bank Limited
.... Baseline Credit Assessment affirmed at
a1
.... Adjusted Baseline Credit Assessment affirmed
at a1
.... Long-term/short-term Counterparty
Risk Assessment affirmed at Aa1(cr)/P-1(cr)
.... Long-term/short-term Counterparty
Risk Rating affirmed at Aa1/P-1
.... Long-term Deposit Rating (Foreign
Currency) affirmed at Aa2, outlook negative
.... Long-term Deposit Rating (Local
Currency) affirmed at Aa2, outlook changed to negative from stable
.... Short-term Deposit Rating (Foreign
and Local Currency) affirmed at P-1
.... Long-term Deposit Note/CD Program
(Local Currency) affirmed at (P)Aa3
Outlook changed to Negative from Stable(m)
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Sonny Hsu, CFA
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Minyan Liu, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
