MONTERREY, Mexico & NEW YORK--(BUSINESS WIRE)--Fitch Ratings has today affirmed the international and national scale ratings of the Mexican bank HSBC Mexico, as well as the national scale ratings of its local brokerage unit, HSBC Casa de Bolsa. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.
Key Rating Drivers
HSBC Mexico's support rating and Issuer Default Ratings (IDRs) have been affirmed due to the strong propensity of its ultimate parent; HSBC Holding plc (rated 'AA-' with Stable Outlook by Fitch) to provide support to HSBC Mexico, if this were needed. In Fitch's opinion, Mexico is a priority growth market for HSBC Holdings, and HSBC Mexico is a strategically important subsidiary, which explains why HSBC Mexico's 'A+' rated local currency IDR is the highest among the Mexican banks rated by Fitch in Mexico. HSBC Mexico's 'A' foreign currency IDR is capped by Mexico's country ceiling. The Stable Outlook on the IDRs reflects the cushion arising from the relatively high rating of the parent of HSBC Mexico.
Given Fitch's perception of HSBC Mexico's strategic importance to the group, its IDRs could be as close as one notch below HSBC Holdings' IDR, although HSBC Mexico's IDRs are also limited by sovereign and/or country ceiling considerations.
The viability rating (VR) has been affirmed as the bank has sustained its major strengths, namely its sound funding and liquidity profile, and robust franchise. Asset quality has gradually been improved in the past few years, but the recent deterioration of some of its top obligors, mostly homebuilders, has affected HSBC Mexico's creditworthiness. Profitability is improving; a trend that Fitch expects HSBC will continue and strengthen further.
Capital metrics have remained stable in view of moderate loan growth. A new capital injection (USD500 million in January 2013) strengthens HSBC Mexico's capitalization levels and places the bank in a better position to continue growing its base of productive assets, franchise and business scale.
HSBC Mexico's national scale ratings were affirmed at 'AAA(mex)' and 'F1+(mex)', since its IDRs are above those of the sovereign, and national-scale ratings are relative rankings of creditworthiness within a certain jurisdiction.
HSBC Casa de Bolsa is perceived by Fitch as a strategically important affiliate of HSBC Mexico and fully integrated into its operations and franchise. In addition, the local holding company of both operating entities, Grupo Financiero HSBC, is legally enforced to provide support to its subsidiaries. Therefore, the national scale ratings of the brokerage unit are aligned with the bank's ratings.
The ratings of HSBC Mexico's subordinated debt reflect Fitch's opinion that support from HSBC holdings, if needed, would extend to any outstanding debt in the local market, in order to prevent negative effects on its reputational risk and overall funding costs. Coupled with the relatively high IDR of HSBC Holdings, the subordinated debt rating is equal to that of HSBC Mexico's senior unsecured debt.
Rating Sensitivities
There is limited upside potential on HSBC Mexico's local currency IDR, since this is already one notch below HSBC Holdings' IDR. It could only be upgraded by the confluence of upgrades in both the parent and the sovereign ratings. Similarly, the foreign currency IDR could only be upgraded in the event of a similar action on Mexico's country ceiling.
Conversely, any downgrade in HSBC Holdings' IDRs or in Mexico's sovereign ratings could negatively affect HSBC Mexico's IDRs. These ratings could also be affected if Fitch eventually perceives a diminished strategic importance of HSBC Mexico to HSBC Holdings.
HSBC Mexico's VR could be negatively affected if the bank fails to sustain recent improvements in profitability metrics and loss absorption capacity. In turn, it could eventually be upgraded if the bank sustains its robust funding and liquidity profile, while recording earnings, capital and asset quality metrics closer to peers. In Fitch's view, the VR could be upgraded if HSBC Mexico achieves and sustains Operating ROAA ratios higher than 1.5%, Fitch Core Capital ratio above 12%, and an adjusted impairment ratio (12-month average impaired loans + charge-offs in last 12 months / 12 moving average total loans pre charge-offs) close to 3%.
HSBC Mexico's and its brokerage unit national scale ratings could only be negatively affected by a multi-notch downgrade of HSBC Holdings' IDRs, or a change in the propensity of the latter to support its Mexican subsidiaries.
Given Fitch's criteria for rating bank hybrids and the non-performance risk of these securities, the subordinated debt rating could be affected by a downgrade of HSBC Holdings' viability rating, even before such downgrade could affect the national scale issuer and senior unsecured debt ratings, and/or the IDRs of HSBC Mexico.
The following ratings have been affirmed:
HSBC Mexico, S.A.:
--Long-term IDR at 'A';
--Long-term local currency IDR at 'A+';
--Short-term IDR at 'F1';
--Short-term local currency IDR at 'F1';
--Viability rating at 'bbb';
--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.
HSBC Casa de Bolsa, S.A. de C.V., Grupo Financiero HSBC
--Long-term National scale rating at 'AAA(mex)';
--Short-term National scale rating at 'F1+(mex)';
The Rating Outlook is Stable.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
-- Global Financial Institutions Rating Criteria (Aug 15, 2012);
-- Rating Financial Institutions Above the Sovereign (Dec 12, 2012);
-- Rating FI Subsidiaries and Holding Companies (Aug 10, 2012);
-- Assessing and Rating Bank Subordinated and Hybrid Securities (Dec 5, 2012);
-- National Ratings Criteria (Jan. 19, 2011).
Applicable Criteria and Related Research:
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Rating Financial Institutions Above the Sovereign
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696373
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=799470
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