DBRS Confirms HSBC Bank Canada, Trends Stable

DBRS has today confirmed the ratings of HSBC Bank Canada (HSBC or the Bank) and related entities, including the Bank’s non-guaranteed Long-Term Deposits and Senior Debt at AA (low) and Short-Term Instruments at R-1 (middle). All trends remain Stable.

DBRS ratings of HSBC are based largely on the relationship the Bank has with its ultimate parent, HSBC Holdings plc (or the Parent), which is one of the largest global banking groups. The Parent’s Issuer Rating – Long-Term and Issuer Rating – Short-Term are rated AA and R-1 (middle), respectively, with Stable trends, by DBRS.

Under DBRS’s “Global Methodology for Rating Banks and Banking Organisations,” DBRS has assigned HSBC a support assessment of SA1, reflecting a strong expectation of timely support from the Parent.

Given the strategic nature of the relationship between HSBC and HSBC Holdings plc, but lack of an explicit guarantee, the non-guaranteed Long-Term Deposits and Senior Debt rating of HSBC has been assigned a rating that is one notch lower than HSBC Holdings plc.

The guaranteed debts of HSBC are rated at the same level as the Parent.

HSBC has good intrinsic strengths, including its low cost-to-income ratio and superior customer service model, somewhat offset by geographic and industry concentrations, higher interest rate risk tolerance and scale issues in its retail banking and wealth management businesses.

The Bank continues to execute on its strategy of growing its Commercial Banking and Global Banking and Markets segments. During the first nine months of 2013 versus the same period in the prior year, commercial loan growth helped to offset some of the decrease in consumer finance balances due to the wind-down of this business. The wind-down of the consumer finance portfolio did help to lower impairment charges. Notwithstanding, the Bank has had to endure headwinds with the low interest rate environment affecting the net interest margin.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2012), and the following criteria: DBRS Criteria: Rating Bank Preferred Shares and Equivalent Hybrids (June 2009), DBRS Criteria: Intrinsic and Support Assessments (February 2009) and DBRS Criteria: Guarantees and Other Forms of Explicit Support (July 2013), which can be found on our website under Methodologies.