Moody’s Upgrades HK Banking System Outlook to Stable

Moody’s Investors Service Wednesday upgraded its outlook for Hong Kong banking system to stable from negative as stronger global economic growth in the next 12-18 months is expected to benefit banks’ operating environment.

“While high asset prices and private-sector leverage remain key latent risks in the banking system, these factors are mitigated by the ongoing economic expansion and still accommodative monetary conditions over the outlook horizon,” Sherry Zhang, a Moody’s analyst of the Financial Institutions Group, said.  “We expect the strong growth momentum to continue in 2018,” Moodys.com reported.

The credit growth in the next 12-18 months will be aided by continued economic growth and low borrowing costs, the ratings agency said. Asset performance is expected to stabilize going ahead as banks have recovered from a shallow episode of asset deterioration in 2016 with the economic momentum broadening and loan servicing costs remaining low, it said. Hong Kong banks will retain very strong capitalization over the next 12-18 months, supported by strong retained earnings and more stringent regulatory requirements, it added.

However, Moody’s predicted that government support might weaken due to the implementation of a revised resolution regime to minimize bank resolution costs and protect public funds.

Meanwhile, Moody’s has also upgraded the long-term ratings of four Indian financial institutions to Baa2 from Baa3. The four are: (1) Export-Import Bank of India, (2) HDFC Bank Limited, (3) Indian Railway Finance Corporation Limited, and (4) State Bank of India.

In the case of HDFC Bank, Moody’s has also upgraded the bank’s baseline credit assessment and adjusted BCA to baa2 from baa3. And, Moody’s has upgraded the Counterparty Risk Assessment of HDFC Bank and its Hong Kong branch to Baa1 from Baa2; and of SBI, its Hong Kong, London and Nassau branches to Baa2/P-2 from Baa3/P-3. In addition, Moody’s has assigned a CR Assessment of Baa2/P-2 to State Bank of India, DIFC branch.

In addition, Moody’s has changed to stable from positive the ratings outlook for IRFC; EXIM India and its London branch; HDFC Bank, its Bahrain and Hong Kong branches; as well as SBI and its Hong Kong, London, and Nassau branches. Moody’s has assigned a stable outlook to SBI’s DIFC branch.

Moody’s rating actions follow the upgrade of the government of India’s local and foreign currency issuer ratings to Baa2 from Baa3 on November 16.