Moody’s downgrades outlook on HSBC, Hang Seng in China to negative

BEIJING - Moody’s Investors Service has downgraded its outlook on the ratings for HSBC Bank (China) Company Limited (HSBC China) and Hang Seng Bank (China) Limited (Hang Seng China) from “stable” to “negative”, a move shrugged off by China’s Finance Minister, Lou Jiwei. Moody’s Outlooks, which provide an opinion on likely rating directions over the medium term, are assigned only to a bank’s long-term deposit, issuer and senior unsecured debt ratings.

In its rationale for the ratings change, Moody’s cited both a “more challenging operating environment for banks in China” and increased risk in the banking system as persistently strong credit growth outpaces underlying economic growth.

“High and growing financial leverage increases the corporate sector’s vulnerability to potential shocks as well as China’s economic slowdown, thereby adversely affecting the banking sector’s asset quality,” Moody’s said. Its report also mentioned Moody’s lack of confidence in China’s abilities to carry out reforms.

China’s Finance Minister, Lou Jiwei, on the sidelines of the China Development Forum in Beijing, said:  “We don’t care much about the ratings.”

Lou said he understood Moody’s concerns, but it had failed to take into consideration China’s efforts to cut overcapacity and to deleverage. Referring to Moody’s move in September to raise its outlook on Greece’s sovereign credit rating from “negative” to “stable”, China Chief Economist, Liang Haiming, said the service “has obviously used double standards”.  www.webershandwick.cn (ATI).