MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of HSBC Mexico (HSBCM) as follows:
--Long-term Issuer Default Rating (IDR) at 'A-';
--Short-term IDR at 'F1';
--Long-term local currency IDR at 'A';
--Short-term local currency IDR at 'F1';
--Viability rating at 'bbb';
--Individual rating at 'C';
--Support rating at '1';
--Long-term national-scale rating at 'AAA(mex)';
--Short-term national-scale rating at 'F1+(mex)';
--Long-term national-scale rating for local senior unsecured debt issues at 'AAA(mex)';
--Long-term national-scale rating for local subordinated debt issues at 'AAA(mex)'.
The Rating Outlook is Stable.
HSBCM's IDR and Support ratings are driven by the potential support that the bank would receive from its ultimate parent, HSBC Holdings plc (HSBC; long-term IDR of 'AA' with a Stable Outlook by Fitch), should it be required. These ratings will likely remain driven by sovereign and/or country ceiling considerations, unless the propensity/capacity of HSBC to provide support to HSBCM decreases significantly, which Fitch currently considers very unlikely.
In turn, the Individual and Viability ratings reflect HSBCM's robust franchise and sound funding and liquidity profiles, while its relatively weaker profitability and asset quality metrics continue constraining these ratings, although both have been improving recently. These ratings could be negatively affected if HSBCM were not able to sustain the recent improvements in profitability and asset quality metrics, and/or by material deterioration in its sound funding profile or its capital ratios, the latter being already tighter than most rating peers. Over time, these ratings could benefit from sustained improvements in efficiency and overall profitability; proven capacity to resume lending growth coupled with improving asset quality; and/or stronger capitalization.
Since 2008, HSBCM's profitability has been negatively affected by a confluence of factors, especially the rapidly growing credit costs during the recent economic downturn and the impact of declining interest rates on its margins. Positively, underlying trends are improving rapidly on the back of HSBCM's aggressive approach to rapidly absorb the higher credit costs, strengthening its earnings prospects over the near future.
HSBCM has maintained a sound track record of its commercial and corporate portfolio. Problem loans were concentrated in past years within the retail portfolio, especially in credit cards. The bank's corrective actions were aggressive, but these have proven effective, as credit costs have declined significantly. HSBCM's asset quality metrics continue underperforming most of its closest peers, but the gap is narrowing rapidly.
The slowdown in lending and a capital infusion received in late 2009 prevented further deterioration of capital ratios, but these remain relatively low and challenged by its still weak internal capital generation. The bank is somewhat reliant on hybrids (core capital at 8.8% of risk weighted assets as of June 2011).
Given its sound franchise, HSBCM has access to a broadly diversified and stable customer deposit base. In addition, liquid assets (cash plus deposits with banks and marketable securities) are sizable. The loans-to-deposit ratio was a robust 68% at the second quarter of 2011.
Additional information is available at www.fitchratings.com
Applicable Criteria and Related Research:
-- Global Financial Institutions Rating Criteria (Aug 16, 2010);
-- Short-Term Ratings Criteria for Corporate Finance (Nov. 2, 2010);
-- National Ratings Criteria (Jan. 19, 2011);
-- Treatment of Hybrids in Bank Capital Analysis (July 11, 2011).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Short-Term Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
Treatment of Hybrids in Bank Capital Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641269
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
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