Moody's downgraded the ratings of Hongkong & Shanghai Banking Corp. Ltd. and Hang Seng Bank Ltd. after downgrading Hong Kong government's long-term issuer rating to Aa3 from Aa2.

The rating agency on Jan. 21 said it lowered the long-term foreign currency bank deposit ratings of Hongkong & Shanghai Banking and Hang Seng Bank to Aa3 from Aa2. In addition, it revised the outlook on the banks' long-term foreign currency bank deposit ratings to stable from negative and overall outlook on the banks to negative (m) from negative.

The two banks' foreign currency deposit ratings are constrained by Hong Kong's deposit ceiling, Moody's said. While the two banks' ratings are unlikely to be upgraded given the negative outlook, their outlook could be revised to stable if they maintain their strong asset quality and profitability. On the other hand, the banks' ratings could be downgraded if sustained deterioration in operating conditions lead to a weakening in their asset quality and profitability, the agency added.

Hongkong & Shanghai Banking and Hang Seng Bank are units HSBC Holdings PLC.