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Announcement:

Moody's reviews BFSR of HSBC Bank A.S. (Turkey) for possible downgrade

Global Credit Research - 16 Dec 2010

Frankfurt am Main, December 16, 2010 -- Moody's Investors Service has today placed on review for possible downgrade the standalone C- Bank Financial Strength Rating (BFSR) of HSBC Bank A.S. - Turkey (HSBC-Turkey). At the same time, Moody's changed to negative from stable the outlook of the bank's A3 long-term Global Local Currency (GLC) deposit rating and the Aaa.tr National Scale Rating (NSR). The rating agency also affirmed HSBC-Turkey's Prime-2 and TR-1 short-term GLC deposit rating and NSR. Foreign currency deposit rating and its outlook are not affected.

RATINGS RATIONALE

Moody's said that the review for possible downgrade of HSBC-Turkey's standalone BFSR was triggered by a combination of (i) poor asset quality, whereby expansion strategies adopted prior to the 2008 global financial crisis resulted in the current weak asset quality indicators, (ii) continuing contraction of the bank's market share in loans (since 2006), and in deposits and total assets (since 2007), and (iii) the bank's moderate profitability and efficiency ratios, which is likely to experience further negative pressure in 2011 as Moody's projects lower profitability for the Turkish banking system against the backdrop of anticipated interest rate hikes and increased competition. The rating agency also forecasts lower GDP compared to 2010. (Please refer to Banking System Outlook: Turkey published on 22 November 2010.)

Accordingly, the review of the BFSR will focus on: the bank's credit origination practices and credit risk appetite; the strategic position and direction of the HSBC-Turkey franchise; the bank's profitability on a risk adjusted basis; and the quality of the bank's revenue stream. In general, Moody's regards revenues from the retail and asset management franchise as less volatile, higher quality earning streams. The rating agency therefore will evaluate the continued evolution of the bank's revenue stream as the bank develops and grows its franchise in Turkey.

HSBC-Turkey's long-term GLC deposit rating incorporates parental support from HSBC Holding Plc, (Aa2/Prime-1, with negative outlook, with a Baseline Credit Assessment (BCA) of Aa3) which provides two notches of rating uplift to HSBC-Turkey's GLC deposit rating. This high parental support assumption and the high rating of the parent compared to that of HSBC-Turkey, dampens -- to some extent -- the effect of any potential downward rating movement of the bank's BFSR on its long-term GLC deposit rating.

However, any downgrade of HSBC-Turkey's BFSR, will render its GLC deposit rating more susceptible to any movement in its parent's rating due to the uplift incorporated in this rating. Given the negative outlook assigned to the parent's rating, Moody's also assigned a negative outlook to the GLC deposit rating of HSBC-Turkey. After the ratings review, Moody's does not anticipate that the supported long-term GLC deposit rating of HSBC-Turkey will map to a lower short-term GLC deposit rating and, therefore, Moody's has also affirmed the bank's Prime-2 short-term GLC deposit rating.

HSBC-Turkey's NSR maps directly from its long-term GLC deposit rating in the national scale rating for Turkey. As a result, a change in the bank's long-term GLC deposit rating to negative from stable also resulted in a rating outlook change in the bank's NSR of Aaa.tr. Furthermore, affirmation of the bank's short-term GLC deposit rating resulted in affirmation of the bank's short-term NSR of TR-1.

The last rating action on HSBC Bank A.S. was implemented on 7 October 2010, when the outlook on the Ba3 long-term foreign-currency deposit rating was changed to positive from stable.

The principal methodologies used in rating these issuers are "Bank Financial Strength Ratings: Global Methodology" published in February 2007, "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", published in November 2009. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found on Moody's website.

Headquartered in Istanbul, Turkey, HSBC Bank A.S. had total assets (audited) of TRY13.9 billion (US$9.2 billion) under IFRS at the end of December 2009.

Frankfurt am Main
Arif Bekiroglu
Asst Vice President - Analyst
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Frankfurt am Main
Carola Schuler
MD - Banking
Financial Institutions Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's reviews BFSR of HSBC Bank A.S. (Turkey) for possible downgrade
No Related Data.

 

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