BEIJING, January 12, 2021 - S&P Global (China) Ratings today assigned its “AAAspc” issuer credit rating (“ICR”) to HSBC Bank (China) Company Limited (“HSBC (China)”). The Outlook is stable.
We assess HSBC (China)’s stand-alone credit profile (“SACP”) as “aspc+”, three notches higher than the “bbb+” anchor we typically apply to a commercial bank in China. This SACP reflects its strong business franchise, high capital adequacy and good asset quality.
HSBC (China) is the largest foreign bank subsidiary in China. We believe it has made more progress in business localization compared to most of its foreign bank peers. It has 171 branches and subbranches in 57 cities. The wide coverage gives it a geographic diversification better than other mid-sized banks, domestic or foreign.
HSBC (China)’s capitalization is stronger than the industry average in China. Its reported regulatory capital adequacy ratio was 16.72% as of the end of June 2020, higher than the industry average of 14.21%. We expect the bank to maintain strong capitalization in the foreseeable future given its good asset quality and moderate business growth pace.
HSBC (China) has prudent risk management and above-industry-average asset quality performance. HSBC (China)’s asset quality performance has remained good amid COVID thanks to the resilient credit quality of its client base. Its non-performing loans (“NPL”) dropped by 0.9 billion RMB in the first half of 2020, resulting in an NPL ratio of 0.34% as of the end of June 2020, lower than the industry average of 1.94% and the foreign bank subsidiary average of 0.69%. HSBC (China) has a strong reserve buffer in place against any potential asset quality pressure in 2021. As of the end of June 2020, it had a reserve coverage ratio of 438% against its bad debts, much higher than the industry average of 182%.
Hongkong and Shanghai Banking Corp. Ltd. (“HSBC”) has one of the best coverages among its peers in Asia-Pacific, with a presence across 19 regional markets. It enjoys a unique status as one of the three note-issuing banks in Hong Kong. Hong Kong and the Chinese mainland are HSBC’s major markets. In 2019, 67% of its revenue was generated in Hong Kong and 8% from the Chinese mainland. In our view, HSBC has extremely high issuer credit quality equivalent to “AAAspc”.
The extremely high likelihood of group support leads to a four-notch uplift from HSBC (China)’s SACP of “aspc+” to an ICR of “AAAspc”.
Rating Score Snapshot
Anchor: bbb+
Business Position: +1
Capital and Earnings: +1
Risk Position: +1
Funding and Liquidity: 0
Stand-alone Credit Profile: aspc+
Group Support: +4
Issuer Credit Rating: AAAspc
Outlook: Stable
Related Methodologies and Research:
Rating report: HSBC Bank (China) Company Limited, January 12, 2021;
S&P Global (China) Ratings Financial Institutions Methodology, January 31, 2019.
Media Contacts:
Sharon Tang, Beijing, (86) 10-6569-2988; Sharon.Tang@spgchinaratings.cn
Analyst Contacts:
Yifu Wang, CFA, CPA, Beijing; Yifu.Wang@spgchinaratings.cn
Xiaochen Luan, CFA, FRM, Beijing; Collins.Luan@spgchinaratings.cn
Xuefei Zou, CPA, Beijing; Eric.Zou@spgchinaratings.cn