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Hongkong and Shanghai Banking Corp. Ltd (The) -- Moody's places The Hongkong and Shanghai Banking Corp. and Hang Seng Bank's ratings on review for downgrade

Rating Action: Moody's places The Hongkong and Shanghai Banking Corp. and Hang Seng Bank's ratings on review for downgradeGlobal Credit Research - 09 Mar 2021Hong Kong, March 09, 2021 -- Moody's Investors Service has placed The Hongkong and Shanghai Banking Corporation Limited's (HSBC HK) and Hang Seng Bank Limited's (Hang Seng Bank) Aa2 long-term deposit ratings, a1 Baseline Credit Assessment (BCA) and a1 adjusted BCA on review for downgrade.Moody's has also placed all other long-term ratings and assessments of HSBC HK, The Hongkong and Shanghai Banking Corporation Limited (New Zealand), The Hongkong and Shanghai Banking Corporation Limited (Singapore), The Hongkong and Shanghai Banking Corporation Limited (Sydney), and Hang Seng Bank on review for downgrade. Moody's has affirmed the banks' short-term ratings and assessments.For a detailed list of the affected ratings please refer to the end of this press release.RATINGS RATIONALEThe review for downgrade on HSBC HK's a1 BCA takes into account the bank's high interconnectedness with its parent HSBC Holdings plc's operations in other parts of the world. On 8 March 2021 Moody's placed on review for downgrade the a2 notional BCA of HSBC Holdings plc; see press release entitled Moody's places HSBC Holdings' A2 senior unsecured debt ratings on review for downgrade published on 8 March 2021 (https://www.moodys.com/research/--PR_441600).The review for downgrade on Hang Seng Bank's a1 BCA reflects the bank's close relationship with its parent HSBC HK and the review for downgrade on the latter's BCA. The review also takes into account the decline in Hang Seng Bank's profitability in the aftermath of the coronavirus pandemic.During the review period, Moody's will assess the extent to which challenges confronting HSBC group will extend the time required to achieve the group's profitability to levels close to its peers. Moody's will also continue to take into account HSBC HK and Hang Seng Bank's strengths, which include their well-established retail and corporate franchises, strong capital and liquidity, and strong deposit-gathering capability. Given the high interconnectedness between HSBC HK and the rest of the group's operations, a potential weakening in HSBC Holdings' financial profile could weigh negatively on HSBC HK, and in turn on Hang Seng Bank.In February 2021 HSBC Holdings presented a strategic update. In the next three to four years the group will continue to grow in the Asian market, invest in fee-generating businesses (in particular wealth management), reduce "business as usual" costs, increase investments in technology and exit underperforming businesses in Europe and the US. HSBC HK's plans to grow wealth management and other fee-generating businesses, particularly in China, will entail execution risks.HSBC HK and Hang Seng Bank's profitability in 2020 was depressed by a narrowing in net interest margins and increase in credit costs. Current low interest rate environment has weighed negatively on the banks' net interest margins in light of their liquid balance sheet, while weak economic growth led to increases in their loan impairment charges. Moody's expects the two banks' profitability to recover moderately in 2021 as credit costs recede. However, a gradual and uneven economic recovery in Hong Kong and the rest of the region will likely lead to further moderate increase in their problem loans.HSBC HK and Hang Seng Bank are subject to Hong Kong's Financial Institutions (Resolution) Ordinance and Moody's considers Hong Kong an operational resolution regime. Moody's has performed the Advanced Loss Given Failure (LGF) analysis for HSBC HK and Hang Seng Bank on a combined basis, and applied the same LGF notching outcome to both banks.The review for downgrade on HSBC HK's Aa3 issuer and senior unsecured ratings and Hang Seng Bank's (P)Aa3 long-term deposit note/CD Program rating, the two banks' Aa2 deposit ratings, Aa1 Counterparty Risk Rating, Aa2(cr) Counterparty Risk Assessment, and HSBC HK's A2(hyb) junior subordinate debt rating reflects the review for downgrade on HSBC HK and Hang Seng Bank's a1 BCAs.Moody's advanced Loss Given Failure analysis for HSBC HK and Hang Seng Bank continues to indicate that HSBC HK and Hang Seng Bank's depositors and senior unsecured creditors will face very low to low loss-given-failure respectively, leading to depositors and senior unsecured debt to be rated two notches and one notch respectively above the banks' BCAs.The banks' deposit, senior unsecured, and deposit note/CD program ratings also take into consideration moderate likelihood of support from the Hong Kong Government and no government support uplift for the ratings.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe Hongkong and Shanghai Banking Corporation Limited (HSBC HK)HSBC HK's ratings upgrade is unlikely given the current review for downgrade. The bank's BCA and ratings could be confirmed if HSBC Holdings' ratings were confirmed.HSBC HK's BCA and long-term deposit ratings could be downgraded if HSBC Holdings' ratings were downgraded. A sustained deterioration in the operating conditions in Hong Kong and across the region, leading to a weakening in the bank's asset quality metrics and profitability, could also lead to a downgrade in the bank's ratings. Elevated tension between the US and China that lead to a less-favorable operating environment in Hong Kong could also weigh negatively on the bank's credit profile.Hang Seng Bank Limited:Hang Seng Bank's ratings are unlikely to be upgraded given the review for downgrade. The bank's BCA and ratings could be confirmed if HSBC HK's ratings were confirmed.Hang Seng Bank's BCA and long-term deposit ratings could be downgraded if Moody's assesses that there will be persistent pressure on the bank's profitability and asset quality.The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The Hongkong and Shanghai Banking Corporation Limited is headquartered in Hong Kong and reported total assets of HKD9.4 trillion at the end of 2020.Hang Seng Bank Limited is headquartered in Hong Kong and reported total assets of HKD1.8 trillion at the end of 2020.LIST OF AFFECTED RATINGS/ASSESSMENTS..Issuer: The Hongkong and Shanghai Banking Corporation Limited.... Baseline Credit Assessment, Placed on Review for Downgrade, currently a1.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently a1.....Long-term Deposit Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa2, Outlook changed to Rating Under Review from Negative.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1.....Long-term Senior Unsecured Regular Bond/Debenture (Foreign Currency), Placed on Review for Downgrade, currently Aa3, Outlook changed to Rating Under Review from Negative.....Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Placed on Review for Downgrade, currently (P)Aa3.... Long-term Issuer Rating, Placed on Review for Downgrade, currently Aa3, Outlook changed to Rating Under Review from Negative.....Long-term Deposit Note/CD Program (Local Currency), Placed on Review for Downgrade, currently (P)Aa3.....Other Short Term (Foreign Currency), Affirmed (P)P-1.....Short-term Commercial Paper (Foreign Currency), Affirmed P-1.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa2(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1.....Long-term Junior Subordinated Regular Bond/Debenture (Foreign Currency), Placed on Review for Downgrade, currently A2(hyb)....Outlook, Changed To Rating Under Review From Negative..Issuer: The Hongkong and Shanghai Banking Corporation Limited (New Zealand).....Long-term Senior Unsecured Regular Bond/Debenture (Local Currency), Placed on Review for Downgrade, currently Aa3, Outlook changed to Rating Under Review from Negative.....Long-term Senior Unsecured Medium-Term Note Program (Local Currency), Placed on Review for Downgrade, currently (P)Aa3.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa1(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1....Outlook, Changed To Rating Under Review From Negative..Issuer: The Hongkong and Shanghai Banking Corporation Limited (Singapore).....Long-term Senior Unsecured Regular Bond/Debenture (Local Currency), Placed on Review for Downgrade, currently Aa3, Outlook changed to Rating Under Review from Negative.....Long-term Senior Unsecured Medium-Term Note Program (Foreign Currency), Placed on Review for Downgrade, currently (P)Aa3.....Other Short term (Foreign Currency), Affirmed (P)P-1.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa1(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1....Outlook, Changed To Rating Under Review From Negative..Issuer: The Hongkong and Shanghai Bank Corporation Limited (Sydney).....Long-term Deposit Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa2, Outlook changed to Rating Under Review from Negative.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1.....Long-term Senior Unsecured Medium-Term Note Program (Local Currency), Placed on Review for Downgrade, currently (P)Aa3.... Long-term Issuer Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa3, Outlook changed to Rating Under Review from Negative.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa1(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1....Outlook, Changed To Rating Under Review From Negative..Issuer: Hang Seng Bank Limited.... Baseline Credit Assessment, Placed on Review for Downgrade, currently a1.... Adjusted Baseline Credit Assessment, Placed on Review for Downgrade, currently a1.....Long-term Deposit Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa2, Outlook changed to Rating Under Review from Negative.... Short-term Deposit Rating (Foreign and Local Currency), Affirmed P-1.....Long-term Deposit Note/CD Program (Local Currency), Placed on Review for Downgrade, currently (P)Aa3.... Long-term Counterparty Risk Assessment, Placed on Review for Downgrade, currently Aa2(cr).... Short-term Counterparty Risk Assessment, Affirmed P-1(cr).... Long-term Counterparty Risk Rating (Foreign and Local Currency), Placed on Review for Downgrade, currently Aa1.... Short-term Counterparty Risk Rating (Foreign and Local Currency), Affirmed P-1....Outlook, Changed To Rating Under Review From NegativeREGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. 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