DBRS Morningstar Changes Trend on HSBC Bank Canada’s Ratings to Negative from Stable

DBRS Limited (DBRS Morningstar) changed the trend on all ratings of HSBC Bank Canada (HSBC Canada or the Bank) to Negative from Stable, including its Long-Term Issuer Rating of A (high). This follows DBRS Morningstar’s trend change on the Long-Term Issuer Rating of the Bank’s parent, HSBC Holdings plc (the Group; rated AA (low) by DBRS Morningstar), to Negative from Stable on February 27, 2020. HSBC Canada’s Support Assessment (SA) of SA1 reflects the implied strong and predictable support from the Group, if required.

KEY RATING CONSIDERATIONS
As a supported rating with an SA1 designation, the Bank’s ratings typically move in tandem with the Group’s Long-Term Issuer Rating. DBRS Morningstar recognizes the Bank’s important position within its parent’s global franchise and expects continued support from the Group. As a result, HSBC Canada’s long-term ratings are one notch below the Group’s ratings, reflecting that it operates in a different jurisdiction than its parent. On an intrinsic basis, the Bank enjoys a strong local franchise with well-established relationships.

DBRS Morningstar could revert the trend on the ratings to Stable if the Group’s credit profile remains more resilient than currently anticipated amid a deteriorating operating environment in Hong Kong and mainland China, combined with evidence of a successfully implemented new restructuring plan. Conversely, the Group’s ratings could come under downward pressure if the Hong Kong and China economies suffer extended economic weakness, resulting in a severe deterioration in the Group’s profitability and asset quality metrics. The emergence of major hurdles to executing the restructuring plan could also pressure the ratings.

RATING DRIVERS
Positive rating pressure would likely be linked to improvement in the Group’s long-term ratings. Alternatively, a downgrade of the Group’s ratings would also likely negatively affect HSBC Canada’s ratings. In addition, any indication that potential support from the Group has reduced or is not sufficiently reliable could affect DBRS Morningstar’s SA and potentially have a negative impact on the Bank’s ratings.

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

The principal methodology is Global Methodology for Rating Banks and Banking Organisations (June 2019), which can be found on our website under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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