(Source: Info-Prod Research (Middle East))trackingMoody’s Investors Service has today downgraded the standalone bank financial strength rating (BFSR) of HSBC Bank A.S. – Turkey from to D+ to C- (now mapping to Baa3 on the long-term scale from Baa2 previously). At the same time, Moody’s affirmed the bank’s A3 long-term global local-currency (GLC) deposit rating and downgraded the bank’s National Scale Rating (NSR) to Aa1.tr from Aaa.tr. The rating agency also affirmed the Ba3 long-term foreign-currency deposit rating, Prime-2 and TR-1 short-term GLC deposit ratings and NSR. The outlook for the foreign-currency deposit rating is positive, while the outlook on the remaining ratings is stable. This concludes Moody’s review on the bank’s ratings, implemented on 16 December 2010. Moody’s says that the downgrade of the standalone BFSR was triggered by a combination of (i) poor asset quality, whereby expansion strategies adopted before the 2008 global financial crisis resulted in the current weak asset-quality indicators; (ii) the continuing contraction of the bank’s market share in loans (since 2006) and in deposits and total assets (since 2007); and (iii) its moderate profitability and efficiency ratios. Moody’s believes that the D+ BFSR and its stable outlook is supported by the bank’s overall moderate consumer and commercial, and strong credit card and corporate franchise, sound capitalisation and liquidity; and an improving asset quality and deposit-funding base. Additionally, it reflects the long-term challenges that the evolution of HSBC — Turkey’s franchise faces in the form of the strong competition from other domestic banks. This includes banks with strong retail and commercial franchises that have also pursued network expansions. The share of revenues from retail operations has been declining as the recent poor performance of the bank’s retail portfolio constrained the bank’s ability to effectively commercially leverage its pre-2008 branch expansion. The assigned rating also reflects the bank’s moderate efficiency indicators, at a time of increased importance of efficiency and economies of scale due to the lower net interest margin environment the Turkish banking system is faced with. As the stable outlook assigned to the bank’s D+ BFSR reflects, there is currently no upward pressure on the rating. There could be downward rating pressure, that could prompt Moody’s to either consider the remapping of the D+ BFSR to Ba1 (from Baa3) on the long term scale; or a downgrade of the BFSR, if (a) the profitability and efficiency indicators weaken; (b) asset quality deteriorates; (c) the bank’s retail revenue generation declines or (d) the growth rate of the credits exceeds that of the high quality stable deposits increasing the bank’s reliance on wholesale funding – reversing the improving trend in the bank’s funding base. HSBC — Turkey’s long-term GLC deposit rating incorporates parental support from HSBC Holding Plc, (Aa2, with negative outlook, standalone credit strength of Aa3). This provides three notches of rating uplift to HSBC — Turkey’s GLC deposit rating. Despite the downgrade of HSBC — Turkey’s BFSR, the high parental support assumption and the high rating of the parent compared with that of HSBC — Turkey, results in the affirmation of the HSBC — Turkey’s A3 GLC deposit rating. Despite the negative outlook on the parent’s rating, the stable outlook on the GLC deposit rating is under pinned by a combination of (i) the stable outlook on the HSBC — Turkey’s BFSR; and (ii) the high rating of the parent’s rating compared with HSBC’s BFSR. Any pressure on the parent’s rating is unlikely to result in the reduction in the level of parental support incorporated in the HSBC — Turkey’s GLC deposit ratings. HSBC — Turkey’s NSR was downgraded to Aa1.tr from Aaa.tr, the lower of the two NSR mapping of the A3 GLC deposit rating, due to the downgrade of the bank’s BFSR leading to higher parental support rating uplift incorporated in the its GLC rating. The affirmation of the bank’s short-term GLC deposit rating resulted in the affirmation of the bank’s short-term NSR of TR-1.
Originally published by Info-Prod Strategic Business Information.
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