Global Arab Network | UAE: Moody's downgrades Dubai-based HSBC Bank Middle East

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UAE: Moody's downgrades Dubai-based HSBC Bank Middle East

Global Arab Network - - George Haddad

Thursday, 10 June 2010 19:00

UAE (Dubai) - Moody's Investors Service has today downgraded the bank financial strength rating (BSFR) of HSBC Bank Middle East Limited (HBME) to C- from C and the long-term local and foreign currency deposit ratings by one notch to A1 from Aa3.

Similarly, the foreign currency senior unsecured debt rating and the foreign currency subordinated debt rating of HBME under its MTN programme are downgraded to A1 and A2, from Aa3 and A1, respectively. The downgrade in HBME's ratings affects the deposit ratings of HSBC Bank Middle East Limited (UAE Branch) and the senior unsecured trust certificates rating of HBME Sukuk Company Ltd. All ratings carry a stable outlook. This rating action concludes the review initiated by Moody's on 15 December 2009.

Today's downgrade reflects a weakening in HBME's standalone strength as a result of ongoing credit issues in the Dubai corporate sector as well as specific troubled exposures within the Gulf Cooperation Council area, which have impacted the bank's asset quality metrics. In addition, retail exposures have also been hit from the economic slowdown in Dubai.

However, the bank maintains good coverage levels through its conservative provisioning policies, which despite lowering profitability in 2009, have created buffers to sustain losses in the future.

Looking forward, the rating agency expects further impairments in 2010, but these can be easily replenished given HBME's strong core income-generating ability. The bank is expected to improve its profitability in 2010 and 2011, although increased competition for deposits in the UAE may exert pressure on funding costs.

The new BFSR of C- maps to a baseline credit assessment (BCA) of Baa1. The three-notch uplift from this BCA to the A1 long-term debt and deposit ratings reflects Moody's continued assessment of a very high probability of support for HBME from its parent in case of need. HBME is a wholly owned subsidiary of HSBC Holdings plc, registered in the Channel Islands, with operations in the Middle East.

The current ratings are as follows:

HSBC Bank Middle East Limited

- BFSR: C-

- Long-term deposit ratings: A1

- Short-term deposit ratings: Prime-1

- Long-term senior unsecured notes (foreign): A1

- Long-term subordinated notes (foreign): A2

HSBC Bank Middle East Limited (UAE Branch)

- Long-term deposit ratings: A1

- Short-term deposit ratings: Prime-1

HBME Sukuk Company Ltd

- Senior unsecured trust certificates: A1

The previous rating action on HBME was implemented on 15 December 2009, when Moody's placed all ratings on review for possible downgrade.

The principal methodologies used in rating this issuer are "Bank Financial Strength Ratings: Global Methodology", and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", which can be found at www.moodys.com in the Rating Methodologies subdirectory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Dubai, UAE, HSBC Bank Middle East Limited reported total assets of US$39.17 billion as at 31 December 2009.

Global Arab Network

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