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Rating Action:

Moody's downgrades Hongkong and Shanghai Banking Corp. and Hang Seng Bank's deposit ratings to Aa3 from Aa2 following review; outlook stable

09 Jun 2021

Hong Kong, June 09, 2021 -- Moody's Investors Service has concluded the review on The Hongkong and Shanghai Banking Corp. Ltd (HSBC HK) and Hang Seng Bank Limited and downgraded the two banks' long-term deposit ratings to Aa3 from Aa2. Moody's has also confirmed HSBC HK's long-term senior unsecured, issuer, and CD program ratings at Aa3/(P)Aa3, confirmed Hang Seng Bank's CD program rating at (P)Aa3, and affirmed both banks' short-term deposit ratings at P-1.

Moody's has also downgraded HSBC HK and Hang Seng Bank's baseline credit assessments (BCA) and adjusted BCAs to a2 from a1, downgraded their long-term Counterparty Risk Ratings (CRR) to Aa2 from Aa1, and confirmed the two banks' long-term Counterparty Risk Assessments (CR Assessment) at Aa2(cr). The banks' short-term CRRs and CR Assessments are affirmed at P-1 and P-1(cr), respectively.

The downgrade of the banks' BCAs and deposit ratings reflects the downgrade on HSBC Holdings plc's BCA and senior unsecured ratings, given high interconnectedness between HSBC HK and its parent group. The downgrade for Hang Seng Bank also takes into account its designation as a material subsidiary of HSBC HK in the two banks' resolution plans.

A full list of the affected ratings and assessments is provided at the end of this press release.

Following the conclusion of review, Moody's has revised the outlook on the banks' deposit and senior unsecured ratings to stable from ratings under review.

This action completes the reviews for downgrade that Moody's initiated on 9 March 2021.

RATINGS RATIONALE

The downgrade on HSBC HK's BCA and deposit ratings takes into account the bank's high interconnectedness with its parent HSBC Holdings plc's operations in other parts of the world. On 8 June 2021, Moody's downgraded HSBC Holdings plc's notional BCA to a3 from a2; see press release entitled "Moody's downgrades HSBC Holdings' senior unsecured debt ratings to A3 from A2 (https://www.moodys.com/research/--PR_446570). Challenges confronting HSBC group in the US and Europe, amid an extended low or negative interest rate environment, weigh negatively on the group and also have an adverse impact on HSBC HK's credit profile.

The downgrade on Hang Seng Bank's BCA and deposit ratings takes into account that the resolution authority of Hong Kong SAR, China considers Hang Seng Bank a material subsidiary of HSBC HK in the two banks' resolution plans.

Both HSBC HK and Hang Seng Bank have seen declines in their profitability due to narrowing margins in the aftermath of the coronavirus pandemic. Persistent low interest rates will weigh on both banks' profitability in 2021 and 2022. Both banks also saw uptick in their problem loans during 2020, although the banks are likely to report improvements in their asset quality metrics in 2021 amid a gradual economic recovery in Hong Kong (China) and the rest of the region.

HSBC HK's a2 BCA takes into account its financial strengths, including its good capitalization and strong liquidity. The bank has well-established retail and corporate franchises across the region. The bank is investing heavily to strengthen its wealth management business across Asia-Pacific, which will reduce its reliance on net interest income, but the investment also entails execution risks. The bank is also investing heavily in technology and digital capabilities to improve customer service. Although increased technology spending will lead to higher expenses in the near term, they should help improve the bank's operating efficiency over time.

Hang Seng Bank's a2 BCA takes into account its financial strengths, including its good capitalization and strong liquidity. The bank has a strong deposit gathering franchise in Hong Kong, which help provide it with low cost of funding under normal interest rate conditions. The bank's deposits consist primarily of low cost current and savings deposits. Hang Seng Bank leverages IT resources from its parent HSBC HK, which contributes to its good cost efficiency.

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 has performed the Advanced Loss Given Failure (LGF) analysis for HSBC HK and Hang Seng Bank on a combined basis, and applied the same LGF notching outcome to both banks, as both banks are part of the same resolution group.

Moody's advanced LGF analysis indicates that the banks' depositors and senior unsecured creditors will face very low to low loss-given-failure respectively, leading to the banks' deposits and senior unsecured debt/CD Program to be rated two notches and one notch, respectively above the banks' BCAs.

The banks' deposit, senior unsecured, and deposit note/CD program ratings also take into consideration moderate level of support from the Hong Kong Government, leading to one notch of further uplift for the banks' senior unsecured and/or CD program ratings.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

HSBC HK's BCA and deposit ratings could be upgraded if the parent HSBC Holdings' BCA is upgraded.

HSBC HK's BCA and deposit ratings could be downgraded if HSBC Holdings' ratings were downgraded.

A sustained deterioration in the operating conditions in Hong Kong and across the region, leading to a material weakening of the bank's asset-quality metrics and profitability, could also lead to a downgrade in HSBC HK's ratings.

Hang Seng Bank's BCA and deposit ratings could be upgraded if the parent HSBC HK's BCA is upgraded.

Hang Seng Bank's BCA and deposit ratings could be downgraded if its parent's BCA is downgraded.

A material weakening in Hang Seng Bank's asset-quality metrics and profitability, or a sustained decline in its capitalization, could also lead to a downgrade in the bank's ratings.

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The Hongkong and Shanghai Banking Corp. Ltd is headquartered in Hong Kong and reported total assets of HKD9.4 trillion at the end of 2020.

Hang Seng Bank Limited is headquartered in Hong Kong and reported total assets of HKD1.8 trillion at the end of 2020.

LIST OF AFFECTED RATINGS/ASSESSMENTS

..Issuer: Hongkong and Shanghai Banking Corp. Ltd (The)

.... Adjusted Baseline Credit Assessment, Downgraded to a2 from a1

.... Baseline Credit Assessment, Downgraded to a2 from a1

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Downgraded to Aa2 from Aa1

.... Long-term Junior Subordinated Regular Bond/Debenture (Foreign Currency), Downgraded to A3(hyb) from A2(hyb)

.... Long-term Deposit Rating (Foreign and Local Currency), Downgraded to Aa3 from Aa2, outlook changed to stable from rating under review

.... Long-term Counterparty Risk Assessment, Confirmed at Aa2(cr)

.... Long-term Issuer Rating, Confirmed at Aa3, outlook changed to stable from rating under review

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Confirmed at (P)Aa3

.... Long-term Deposit Note/CD Program (Local Currency), Confirmed at (P)Aa3

.... Long-term Senior Unsecured Regular Bond/Debenture (Foreign Currency), Confirmed at Aa3, outlook changed to stable from rating under review

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1

.... Other Short-term (Foreign Currency), Affirmed (P)P-1

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Hang Seng Bank Limited

.... Adjusted Baseline Credit Assessment, Downgraded to a2 from a1

.... Baseline Credit Assessment, Downgraded to a2 from a1

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Downgraded to Aa2 from Aa1

.... Long-term Deposit Rating (Foreign and Local Currency), Downgraded to Aa3 from Aa2, outlook changed to stable from rating under review

.... Long-term Counterparty Risk Assessment, Confirmed at Aa2(cr)

.....Long-term Deposit Note/CD Program (Local Currency), Confirmed at (P)Aa3

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Hongkong & Shanghai Bank.Corp. (Sydney)

.... Long-term Counterparty Risk Assessment, Downgraded to Aa2(cr) from Aa1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Downgraded to Aa2 from Aa1

....Long-term Deposit Rating (Foreign and Local Currency), Downgraded to Aa3 from Aa2, outlook changed to stable from rating under review

....Long-term Senior Unsecured Medium-Term Note Program (Local Currency), confirmed at (P)Aa3

.... Long-term Issuer Rating (Foreign and Local Currency), confirmed at Aa3, outlook changed to stable from rating under review

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1

.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Hongkong & Shanghai Banking Corp.(Singapore)

.... Long-term Counterparty Risk Assessment, Downgraded to Aa2(cr) from Aa1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Downgraded to Aa2 from Aa1

.... Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Confirmed at (P)Aa3

.... Long-term Senior Unsecured Regular Bond/Debenture (Local Currency), Confirmed at Aa3, outlook changed to stable from rating under review

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

.... Other Short-term (Foreign Currency), Affirmed (P)P-1

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Hongkong and Shanghai Banking Corp Ltd (NZ)

.... Long-term Counterparty Risk Assessment, Downgraded to Aa2(cr) from Aa1(cr)

.... Long-term Counterparty Risk Rating (Foreign and Local Currency), Downgraded to Aa2 from Aa1

.... Long-term Senior Unsecured Medium-Term Note Program (Local Currency), Confirmed at (P)Aa3

.... Long-term Senior Unsecured Regular Bond/Debenture (Local Currency), Confirmed at Aa3, outlook changed to stable from rating under review

.... Short-term Counterparty Risk Assessment, Affirmed P-1(cr)

.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1

....Outlook, Changed To Stable From Rating Under Review

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

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

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, 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 issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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

Sophia Lee, 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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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