HSBC Continues to Streamline Operations
HSBC Holdings plc’s (HSBC) wholly owned subsidiary, HSBC Bank plc, is set to vend its unit in Kazakhstan. The company entered into an agreement with the country’s second largest lender JSC Halyk Bank to sell 100% share capital of its unit holding.
Although the net asset value of the holding is $160 million, HSBC will receive $176 million in cash once the transaction is completed. The deal expected to close in fourth-quarter 2014, subject to regulatory approval and other customary closing conditions.
What prompted the divestiture?
In the present economic scenario, where financial organizations are struggling to counter soaring expenses, this U.K based leading bank managed to record a 10% decline in operating expenses in 2013. Now, this is no magic and did not happen overnight.
Since 2011, HSBC has been restructuring its business in an attempt to cut costs and increase focus on its core business. The aforementioned divestiture is part of the streamlining process that involved closure or divestment of more than 63 operations across the globe since the beginning of 2011.
HSBC began operating in Kazakhstan in 1998. The oil-rich Kazakh economy was a lucrative profit avenue at the time. However, with volatile commodity prices and drop in oil production since 2009, the terms of trade turned against the country thereby decelerating the impressive growth process.
The financial backbone of the economy was the worst hit, which is now characterized by a large proportion of nonperforming loans, inadequate loan loss reserves, a weak capital ratio and poor credit quality. Moody's Investors Service, the credit rating business of Moody's Corp. (MCO), has maintained its negative outlook for the country banking system since 2008.
Moreover, the transition from Basel II to Basel III framework with higher capital and liquidity requirements is likely to trigger further consolidation of banking sector in the Kazakh economy. Therefore, going forward, foreign banks like HSBC are expected to face increased challenges from consolidation of banks in the domestic space.
HSBC currently carries a Zacks Rank #4 (Sell). However, some better-ranked foreign banks include Hang Seng Bank Ltd. (HSNGY) and Shinhan Financial Group Co. Ltd. (SHG). Both of these stocks sport a Zacks Rank #1 (Strong Buy).
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