KUALA LUMPUR (March 10) : Moody’s Investors Service has placed HSBC Bank Malaysia Bhd (HSBCM)’s A1 long-term local and foreign currency deposit ratings on review for downgrade.

In a statement today, the international rating agency has also placed the HSBC's A1 adjusted baseline credit assessment (BCA) on review for downgrade.

Moody’s added that at the same time, it also affirmed HSBCM’s BCA with a rating of Baa1.

It said the review for downgrade on HSBCM follows Moody's decision to place the ratings of its parent, The Hongkong and Shanghai Banking Corp Ltd (HSBC HK, Aa3 RUR, a1 RUR), on review for downgrade on March 9, 2021.

“HSBCM's A1 deposit ratings and A1 Adjusted BCA incorporate a three-notch uplift, reflecting Moody's assessment of a very high likelihood of support from HSBC HK in times of need.

“Therefore, a downgrade of HSBC HK's BCA will result in a downgrade of HSBCM's ratings,” it said. 

The rating agency also said the assessment of a very high likelihood of affiliate support takes into consideration the strong operational, financial and management ties between HSBCM and HSBC HK.

As such, Moody’s views that there is a strong correlation between the two, given that HSBC HK sees Malaysia as one of its priority markets in Asia-Pacific.

Meanwhile, it also said that the affirmation on HSBCM’s BCA with a rating of Baa1 reflects the bank's robust capital and liquidity, supported by its competitive advantage in trade finance and transaction banking.

“While HSBCM's asset quality and profitability will remain under strain due to the ongoing impact of the pandemic, Moody's views the bank's capital and liquidity buffers as sufficient to absorb the financial stress, which in turn will support the recovery in its financial performance, as economic activity recovers,” it added.

Separately, the rating agency also highlighted that HSBCM's A1 deposit ratings also incorporate Moody's assessment of a high likelihood of support from the Government of Malaysia (A3 stable) in times of need.

“The ratings, however, do not benefit from any further uplift because the bank's Adjusted BCA, which includes affiliate support from HSBC HK, is already higher than Malaysia's sovereign rating,” it said.

Previously, in January this year, Moody’s affirmed the Malaysian government's local and foreign currency long-term issuer and local currency senior unsecured debt ratings at A3, and kept its outlook at stable.

Moody's said the rating affirmation was based on its expectation that Malaysia's medium-term growth prospects will remain strong – underpinned by its diversified and competitive economy and supportive demographics – while its macroeconomic policymaking institutions will continue to be credible and effective, which provides resilience to the sovereign credit profile.

The rating agency also expects the government's fiscal deficit to remain wider than pre-coronavirus in 2021, at around 5.5% of GDP, only narrowing marginally from 6% in 2020, compared with an average of 3.3% of GDP over 2014-2019.