x Abu Dhabi, UAETuesday 25 July 2017

Moody's puts HSBC under review

A weakening economy and concerns over HSBC's parent company could lead to a downgrade.

Moody's has put HSBC Middle East under review for a possible downgrade, based on a weakening UAE economy and worries over the bank's parent company. "The parent company's negative outlook... in tandem with increasing concerns about the UAE and the fact that 70 per cent of their activities are in the UAE was enough to put them under review," said John Tofarides, an analyst at Moody's. He also said the "potential of rising delinquencies in the next 12 to 18 months was significantly enhanced". On March 9, Moody's changed the outlook for HSBC Holdings, the global parent company, to negative from stable, and downgraded HSBC Bank, the group's European operations. In a similar decision on Tuesday, Standard & Poors put the long-term counterparty rating of four UAE banks on "credit watch" with negative implications. The banks are Mashreqbank, Emirates Bank International, National Bank of Dubai and Dubai Islamic Bank. Regional banks have suffered from a shortage of liquidity following the outflow of money last autumn. This has left many banks hesitant to lend as their loan-to-credit ratios far exceed the required rate of 100. In addition, there are growing worries that customers may default on loans and mortgages. The fall of property prices and widespread job losses have made matters worse. Funds are still hard to find, which further aggravates an already slowing economy, the latest Central Bank data show. The assets of 24 national banks and 28 foreign units fell 1 per cent to Dh1.48 trillion (US$402.94 billion) at the end of January from December. Until then, they had increased monthly. Two weeks ago, Youssef Nasr, the chief executive of HSBC's regional operations, said he expected bad loans "to continue to go up". At the time, HSBC Middle East also said it had seen a "notable deterioration of credit quality" last year paired with a "material increase in loan impairment charges". Total non-performing loans in the region rose to $321 million from $274m a year earlier, as the bank raised its impairment charges to $378m. uharnischfeger@thenational.ae