NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed HSBC Bank (Panama), S.A.'s (HBPA) Long-term Issuer Default Rating (IDR) at 'A', and Viability Rating (VR) at 'bbb'. The Rating Outlook is Stable. A complete list of the rating actions follows at the end of this release.
KEY RATING DRIVERS
HBPA's IDRs and support rating are driven by the support it would receive form its parent, HSBC Holdings plc., should it be required. Support should be forthcoming for HBPA given its key role within HSBC's regional strategy and significant growth prospects. The bank is considered by Fitch as Strategically Important to HSBC. This classification is based on Fitch's assessment of the role of HSBC Panama in HSBC's strategy as a regional hub for funding and lending in dollars, the reputational risk resulting from the shared franchise and commercial name, the high level of management integration, and the capital and funding facilities provided by its ultimate parent. HSBC is rated 'AA-' by Fitch Ratings, with a Stable Outlook.
HBPA VR reflects its sound franchise, ample funding and liquidity, good asset quality, improving operating environment and growing regional role. Fitch's view of HBPA's intrinsic creditworthiness is tempered by the bank's moderate performance and lower than average capital/reserves cushion.
RATING SENSITIVITIES
The Outlook is Stable. Changes in the bank's IDRs are contingent on its parent's rating actions. HBPA's IDRs could be as high as two notches below the parent's. There is limited upside potential for HBPA's IDRs, since these are already at Panama's Country Ceiling. However, any potential downgrade of the parent will affect HBPA's IDRs in the same magnitude, since these ratings are already two notches below the parent's, which is the maximum uplift in Fitch's opinion. HBPA's support rating could only be affected by a highly unlikely multi-notch downgrade of its parent's IDRs.
HBPA's VR could be pressured if performance declines, asset quality deteriorates, reserve coverage weakens, or capital ratios deteriorate. More specifically, HBPA's VR could be downgraded if its Fitch Core Capital to Weighted Assets and/or Tangible Common Equity to Tangible Assets ratios fall below 10% or 8%, respectively; and/or if operating ROAA is less than 0.7%. There is limited upside potential in the near future for HBPA's VR.
CREDIT PROFILE
HBPA is one of the largest banks in Panama and has the size, resources, and know-how to exploit the multiple business opportunities that arise in the local market. The sale of the Central American operations did not affect HBPA's franchise.
Having a dominant position in Panama and a strong first name, HBPA enjoys a wide, low cost and quite stable deposit base that fully funds its loan portfolio. In addition, the bank holds a good liquidity cushion.
HBPA's asset quality remains good, albeit NPL portfolio is not fully covered by reserves. The bank's reserves coverage is below historic average and compares poorly to what similarly rated banks have; this is in part mitigated by the bank's sound credit and risk management policies and the high level of collateral. Asset quality should improve given the sale of the Central American operations, generally riskier, and the favourable economic prospects for Panama.
HBPA is consolidating as a hub for regional funding and lending in dollars, operating in a dollarized, stable economy with ample access to dollar funding and sizable balance sheet; this explains a significant part of its loans growth since 2008.
HBPA's performance lags behind that of regional players in the same rating category. Financial performance is moderate, albeit improving, due to modest margins, better efficiency ratios, and moderate loan loss provisions (mostly from the Central American operations).
HBPA's capital is below average when compared to some regional players; this is the result of a centralized capital management policy that has a proven track record of stepping in to cover unexpected losses and to restore capital whenever the need arises. In Fitch's opinion, there is a high probability that HSBC could inject fresh capital, should it be required.
HSBC Bank (Panama), S.A. (HBPA) was incorporated in 1972. HBPA is 100% controlled by HSBC and is the third largest bank in Panama in terms of assets, with a market share of 8.42% as of September 2012 (excluding the Central American and Colombian operations). The bank serves consumer, middle market, and corporate customers through a network of 46 branches and 263 ATMs in Panama.
Before December 2012, HBPA consolidated the operations of HSBC in El Salvador, Costa Rica, and Honduras that accounted assets for $4,324.3 million and net income for $32.6 million as of June 2012. Currently, HBPA consolidates the operations of HSBC in Colombia; however, in May 2012 agreed to sell them to the Colombian Banco GNB Sudameris, S.A. The sale is expected to be completed in the first half of 2013, once approved by local regulators.
Fitch has affirmed HBPA's ratings as follows:
International ratings
--Long-term IDR at 'A'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability Rating at 'bbb';
--Support Rating at '1'.
National ratings
--National Long Term Rating at 'AAA(pan)'; Outlook Stable;
--National Short Term Rating at 'F1+(pan)'.
Additional information is available on www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 5, 2012).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
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