Moody’s changes outlook of HSBC’s China, Hong Kong units to negative as protests, trade war threaten profits
- ‘Recurring protests in Hong Kong are undermining consumption and inbound tourism [while] elevated trade tensions between the US and mainland China have led to increased economic uncertainty in the region,’ Moody’s said
- Louis Tse Ming-kwong, managing director of VC Asset Management, said Moody’s decision was ‘short-sighted’ as long-term growth was still assured
Moody’s Investors Service has changed its rating outlook for HSBC Bank China from “stable” to “negative” after doing the same to its parent earlier in the week, as the bank faces a difficult operating environment amid civil unrest in Hong Kong and the US-China trade war.
The change to negative means the ratings on HSBC units are unlikely to be upgraded, Moody’s explained in a statement released on Thursday.
However, it said there is no change to the A1 rating of HSBC China’s long-term foreign and local currency issuers and deposit ratings. It said these enjoyed a “very high level of affiliate support from the parent in times of need, and are aligned with the parent’s baseline credit assessment (BCA).
“Therefore, any changes in the parent’s ability to provide support to the bank, as reflected by a change in the parent’s BCA, could negatively impact the bank.”
Moody’s on Tuesday changed the rating outlook of the Hongkong and Shanghai Banking Corp, the wholly owned subsidiary of HSBC and the largest lender in Hong Kong, from “stable” to “negative”. It did the same to its subsidiary Hang Seng Bank, which is also a large retail bank in Hong Kong.
The rating agency, however, kept both banks’ deposit ratings at Aa2/P-1 citing their sound asset quality and prudent risk management. But it changed their outlook to negative because of the challenging operating environment in Hong Kong and the rest of Asia, which contributes most of HSBC’s profit.
“Recurring protests in Hong Kong are undermining consumption and inbound tourism. Meanwhile, elevated trade tensions between the US and mainland China have led to increased economic uncertainty in the region,” Moody’s said in a statement. “Both developments will put pressure on the bank’s asset quality and profitability, and weigh negatively on Moody’s assessment of the bank’s BCA.”
