Moody's places HSBC Hong Kong, Hang Seng Bank on review for downgrade

Moody's on March 9 placed the Aa2 long-term deposit ratings, "a1" baseline credit assessments and "a1" adjusted baseline credit assessments of Hongkong & Shanghai Banking Corp. Ltd. and Hang Seng Bank Ltd. on review for downgrade.

The review for downgrade on HSBC Hong Kong's "a1" baseline credit assessment takes into account the bank's high interconnectedness with the overseas operations of parent company HSBC Holdings PLC, whose "a2" notional baseline credit assessment was also recently placed on review for downgrade.

Meanwhile, the review for downgrade on Hang Seng Bank's "a1" baseline credit assessment is based on the lender's close relationship with its parent HSBC Hong Kong, the review for downgrade on the latter's baseline credit assessment, and the decline in the bank's profitability due to the COVID-19 pandemic.

During the review period, the rating agency will assess the extent to which challenges hounding the HSBC group will extend the time required to achieve the group's profitability to levels close to that of its peers.

Moody's expects the profitability of HSBC Hong Kong and Hang Seng Bank to recover moderately in 2021 as credit costs shrink, while the banks' problem loans are likely to further increase moderately owing to gradual and uneven economic recovery in Hong Kong and the rest of the region.

The rating agency also placed on review for downgrade all other long-term ratings and assessments of HSBC Hong Kong, HSBC New Zealand, HSBC Singapore, HSBC Sydney and Hang Seng Bank, and affirmed the banks' short-term ratings and assessments.