Fitch Affirms HSBC Bank (Chile)'s IDRs at 'A'; Outlook Stable
NEW YORK -- August 1, 2013
Fitch Ratings has affirmed HSBC Bank (Chile)'s long-term foreign and local
currency Issuer Default Ratings (IDRs) at 'A' with a Stable Outlook. A full
list of the rating actions follows at the end of this release.
KEY RATING DRIVERS
HSBC Bank (Chile)'s IDRs reflect the potential support from its parent
company, HSBC Holdings Plc. (long-term IDR 'AA-'/Stable), even though is
considered by Fitch to be of limited importance for its shareholder because of
its small size within the group and in its local market. HSBC Bank (Chile)'s
long-term IDRs are two notches below the parent's. Fitch does not assign a
Viability Rating (VR) to HSBC Bank (Chile), as it does not view the company as
a standalone entity.
The bank's '1' Support Rating reflects Fitch's belief that potential support,
if needed, remains strong for this subsidiary. The bank's National Long-Term
ratings of 'AAA(cl)' reflects the relative position of creditworthiness within
the Chilean market.
HSBC Bank (Chile) focused on trading and financial operations, investment
banking and corporate banking, benefitting from the size, diversification and
credit quality of the parent, as well as important commercial, technological
and risk management synergies. At the end of 2011, the entity divested the
emerging personal banking business, and realigned its local activities with
the global strategy designed by the HSBC group. According to HSBC group, Chile
is considered as a network market, considering that the existing level of
connectivity permits to develop Commercial Banking (CMB) business and Global
Banking and Markets (GB&M) business, mainly with international clients. The
strategy in Chile considers increase the participation in current capital and
commercial flows, operating mainly in large Chilean companies, global
corporate and financial institutions segments.
HSBC Bank (Chile)'s performance was negatively affected by the heavy cost
structure needed to develop a personal finance project that was disposed late
2011 but has improved in recent years. However, it is now once again subject
to the historical and natural volatility of the income from financial and
treasury operations. During 2012 and 2013, financial income has been limited,
due to the lower business opportunities that offer the stability in interest
and exchange rates, as well as the difficulties to estimate the rate of
inflation. Loan loss provisions, though significantly lower, have been higher
than projections due the credit risk deterioration of two particular debtors.
Among the most important challenges for the bank, is continuing with strict
operative expenses control and significantly increasing the revenues from
financial intermediation in order to improve the bank's cost efficiency and
profitability ratios. During 2012-2013, the entity has reinforced its global
products team, as well as the clients and sales traders and balance sheet
management team. The local subsidiary is seeking to fulfill the guidelines of
HSBC group for 2014: 12% to 15% of ROE (vs. -2.8% ROE as of May 2013), and 48%
to 52% in gross operative expenses/gross income ratio (vs. 83.7% as of May
As a result of its niche strategy in the corporate segment, the bank's client
base and its funding are highly concentrated on institutional investors, banks
and big local companies. Loans are concentrated on big companies and on
foreign exchange operations.
HSBC Bank (Chile)'s assets are mostly liquid and of good quality. The asset is
mainly composed of fixed income securities issued by the Central Bank and the
State of Chile (18.4% of the assets as of May 2013), local and foreign banks
(18.2%), loans to companies (17%), positive fair value from derivatives
(16.2%) and operations pending of settlement (29.7%). Loan portfolio quality
is sound with past-due loans (+90 days) of 1.7%, and loan loss reserves of
4.9% of total loans. The main derivatives counterparts are HSBC group
(international level), other banks, institutional investors and large
Market risk is moderate thanks to the bank's conservative internal and
regulatory limits and the risk management and governance systems that are
aligned with the standards of HSBC Group. Funding is highly concentrated in
short-term deposits from corporate and institutional investors (40.2% of
liabilities and equity). This risk is mitigated by high liquidity and good
asset quality. The liquidity of the local entity is also complemented by the
good access to the inter-banking market, the repos from Banco Central de
Chile, as well as the support from the parent.
HSBC Bank (Chile)'s capitalization is strong, with a Fitch Core Capital ratio
of 18.3% as of May 2013 (19.3% as of December 2012). Fitch expects the bank to
continue to maintain adequate capitalization levels relative to the risks
assumed. As of March 2013 total regulatory capital (100% basic capital)
represented 19.56% of risk weighted assets, and 14.47% including credit and
HSBC Bank (Chile)'s IDRs would move in line with those of its parent. The
national scale ratings could be affected by a downgrade of HSBC.
Fitch has affirmed the following ratings of HSBC Bank (Chile):
--Foreign and local currency long-term IDR at 'A'; Outlook Stable;
--Foreign and local currency short-term IDR at 'F1';
--National long-term rating at 'AAA (cl)'; Outlook Stable;
--National short-term rating at 'N1+ (cl)'.
Additional information available in 'www.fitchratings.cl' or
Applicable Criteria and Related Research:
--Global Rating Criteria for Financial Institutions (Oct. 10, 2012);
--Rating of Financial Subsidiaries and Banking Holdings (Sept. 24, 2012);
--Corporate Governance Assessment (March 15, 2013);
--National Ratings Criteria (Jan. 19, 2011).
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Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Pedro El Khaouli
Primary Analyst (National Ratings)
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