Hong Kong, September 27, 2017 -- Moody's Investors Service has today downgraded The Hongkong and
Shanghai Banking Corp. Ltd's long-term deposit,
senior unsecured, and issuer ratings to Aa3 from Aa2, its
long-term CD and senior unsecured MTN program ratings to (P)Aa3
from (P)Aa2, long-term counterparty risk assessment to Aa2(cr)
from Aa1(cr), and junior subordinated notes rating to A2(hyb) from
A1(hyb). At the same time, Moody's has downgraded the
bank's baseline credit assessment (BCA) and adjusted BCA to a1 from
aa3. The bank's short-term bank deposit and commercial
paper ratings are affirmed at P-1, short-term counterparty
risk assessment at P-1(cr), and other short term rating affirmed
at (P)P-1.
The outlook on the bank's long-term deposit, senior
unsecured, and issuer ratings has been revised to stable from negative.
For a full list of affected ratings please refer to the end of this Press
Release.
RATINGS RATIONALE
Moody's downgrade of the Hongkong and Shanghai Banking Corp.'s
BCA and adjusted BCA takes into account increased macro risks in several
of the countries the bank operates across the region. Specifically,
rises in corporate and/or household leverage in recent years in major
markets for the bank increase these economies' and borrowers'
sensitivity to negative shocks, which pose risks for the bank's
asset quality.
In Moody's view, increased corporate and household leverage
also heightens the sensitivity of the bank's credit profile to adverse
shocks. While Moody's does not anticipate a material economic downturn
across the region in the short term, the tail risk represented by
increased corporate and household sector indebtedness becomes a material
consideration in the context of the bank's very high ratings.
The Hongkong and Shanghai Banking Corp has reported resilient performance
in recent years. The bank reported a modest increase in its problem
loan ratio while maintaining good profitability, sound capitalization
and very strong liquidity profile. Moody's expects the bank
to continue reporting relatively good performance over the next one to
two years.
Nevertheless, in many markets across the region including in Hong
Kong, the bank's home market, banking system credit
growth has outpaced economic growth in recent years, leading to
increases in corporate and household indebtedness. Ample liquidity
conditions have also driven up property prices relative to household income.
The rise in corporate and household indebtedness increases macro risks
in these economies, and potential decline in housing prices from
current elevated levels when the economic and credit cycles turn could
exacerbate and extend a future downturn.
Moody's has lowered the macro profiles of several countries in which
the bank operates to account for such risks over the past two years,
including the macro profiles for Hong Kong, China, Australia,
Singapore, Taiwan and Malaysia. Macro profiles represent
Moody's assessments of the macro environment within which banks
operate. The lowering of the Hongkong and Shanghai Banking Corp.'s
BCA takes into account Moody's assessment of the increase in macro
risks in the bank's major markets across the region.
The Hongkong and Shanghai Banking Corp.'s deposit,
senior unsecured and issuer ratings factor in one notch of Hong Kong government
support, given its systemic importance and large market share in
Hong Kong. The one notch lowering of the bank's BCA leads
to a corresponding one notch downgrade in the bank's deposit,
senior unsecured and issuer ratings.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The Hongkong and Shanghai Corp. has one of the highest standalone
assessment among all Moody's-rated banks. There is
a limited potential for the bank's financial assessment to be adjusted
higher, as the bank's strong franchise and financial positions
are already incorporated in its standalone assessment. We could
upgrade the bank's ratings if the bank can maintain its very strong
financial profile while macro risks decline, for example,
via a gradual deleveraging and deflation of property prices in the bank's
main markets.
The bank's ratings may be downgraded if rapid asset growth leads
to a material weakening in its capitalization. A deterioration
in the operating environment in the bank's main markets, leading
to an sizable increase in the bank's problem loan ratio, may
also trigger a review for downgrade in the bank's ratings.
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 Hongkong and Shanghai Banking Corp. Ltd is headquartered in
Hong Kong and reported total assets of HKD7.67 trillion at end-June
2017.
AFFECTED RATINGS
Downgrades:
..Issuer: Hongkong and Shanghai Banking Corp.
Ltd (The)
....Adjusted Baseline Credit Assessment,
Downgraded to a1 from aa3
....Baseline Credit Assessment, Downgraded
to a1 from aa3
....Long Term Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
....Long Term Deposit Rating, Downgraded
to Aa3 from Aa2, outlook changed to stable from negative
....Long Term Issuer Rating, Downgraded
to Aa3 from Aa2, outlook changed to stable from negative
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Aa3 from (P)Aa2
....Senior Unsecured Deposit Program,
Downgraded to (P)Aa3 from (P)Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2, outlook changed to stable from negative
....Junior Subordinated Regular Bond/Debenture,
Downgraded to A2(hyb) from A1(hyb)
..Issuer: Hongkong and Shanghai Banking Corp Ltd (NZ)
....Long Term Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Aa3 from (P)Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2, outlook changed to stable from negative
..Issuer: Hongkong & Shanghai Banking Corp.(Singapore)
....Long Term Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Aa3 from (P)Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2, outlook changed to stable from negative
..Issuer: Hongkong & Shanghai Bank.Corp.
(Sydney)
....Long Term Counterparty Risk Assessment,
Downgraded to Aa2(cr) from Aa1(cr)
....Long Term Deposit Rating, Downgraded
to Aa3 from Aa2, outlook changed to stable from negative
....Long term Issuer Rating, Downgraded
to Aa3 from Aa2, outlook changed to stable from negative
....Senior Unsecured Medium-Term Note
Program, Downgraded to (P)Aa3 from (P)Aa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Aa3 from Aa2, outlook changed to stable from negative
Affirmations:
..Issuer: Hongkong and Shanghai Banking Corp.
Ltd (The)
....Short Term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Short Term Deposit Rating, Affirmed
P-1
....Other Short Term Rating, Affirmed
(P)P-1
....Commercial Paper, Affirmed P-1
..Issuer: Hongkong and Shanghai Banking Corp Ltd (NZ)
....Short Term Counterparty Risk Assessment,
Affirmed P-1(cr)
..Issuer: Hongkong & Shanghai Banking Corp.(Singapore)
....Short Term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Other Short Term Rating, Affirmed
(P)P-1
..Issuer: Hongkong & Shanghai Bank.Corp.
(Sydney)
....Short Term Counterparty Risk Assessment,
Affirmed P-1(cr)
....Short Term Issuer Rating, Affirmed
P-1
....Short Term Deposit Rating, Affirmed
P-1
Outlook Actions:
..Issuer: Hongkong and Shanghai Banking Corp.
Ltd (The)
....Outlook, Changed To Stable From
Negative
..Issuer: Hongkong and Shanghai Banking Corp Ltd (NZ)
....Outlook, Changed To Stable From
Negative
..Issuer: Hongkong & Shanghai Banking Corp.(Singapore)
....Outlook, Changed To Stable From
Negative
..Issuer: Hongkong & Shanghai Bank.Corp.
(Sydney)
....Outlook, Changed To Stable From
Negative
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.
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
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
