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HSBC Bank Middle East - Financial strength rating downgraded

Global Arab Network - - George Haddad

Monday, 24 August 2009 15:11

Moody's Investors Service has today downgraded the bank financial strength rating (BFSR) of HSBC Bank Middle East Limited (HBME) to C from C+ and its long-term local currency debt rating and foreign currency deposit and debt ratings to Aa3 from Aa2. The rating outlook is now stable. Today's rating action concludes the rating review initiated on 17 March 2009.

HBME is a wholly owned subsidiary of HSBC Holdings plc, registered in the Channel Islands, with operations in the Middle East. The new BFSR of C maps to a Baseline Credit Assessment of A3. The three-notch uplift from this Baseline Credit Assessment to the Aa3 long-term debt and deposit ratings reflects Moody's continued assessment of a very high probability of support for HMBE from its parent in case of need.

Today's downgrade reflects Moody's expectation that HBME will encounter pressure on its asset quality and profitability in the countries in which it operates and especially in the United Arab Emirates, which accounts for the majority (around 70%) of the bank's operations. They also take into consideration the recent deterioration in HBME's loan book, both in its corporate loans and in its weakening retail banking exposures. Moody's has also stress-tested the loan book for further delinquencies over the next 12-18 months.

"Our stress tests show that HBME's BFSR of C should be able to withstand the deteriorating credit cycle. No further downgrades of this rating from the C level are therefore expected over the next 12-18 months except in the event of continued large corporate defaults that could cause higher-than-anticipated rises in the bank's non-performing loans and loan loss provision expenses," says John Tofarides, Analyst at Moody's Middle East and lead analyst for HBME.

Following today's downgrades, the ratings of HSBC Bank Middle East Limited are as follows:

- BFSR: C

- Global local currency deposit ratings: Aa3

- Foreign currency deposit ratings: Aa3

- Foreign currency debt rating for senior debt obligations: Aa3

- Foreign currency debt rating for subordinated obligations: A1

The bank's short-term local currency and foreign currency debt and deposit ratings remain unchanged at Prime-1.

The ratings of HSBC Bank Middle East Limited (UAE Branch) were also downgraded to the following:

- Global local currency deposit ratings: Aa3

- Foreign currency deposit ratings: Aa3

The bank's short-term local currency and foreign currency deposit ratings remain unchanged at Prime-1.

The last rating action on HSBC Bank Middle East Limited was on 17 March 2009, when Moody's placed its BFSR and long-term ratings -- as well as the long-term ratings of its UAE branch -- on review for possible downgrade.

Global Arab Network

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