HSBC Middle East, the regional arm of the global banking giant, is unhappy about its downgrade by Moody's Investors Service last week. Moody's, one of the big three international ratings agencies, reduced its assessment of the bank's financial strength and downgraded its foreign currency unsecured debt ratings on worries about the bank's exposure to Dubai's corporate problems and their effect on the retail banking sector in the emirate. It also cited "specific troubled exposures" elsewhere in the GCC region.
A spokesman for HSBC in the region said: "Despite unfavourable market conditions, HSBC ME remains in good shape. Our diversified business model, conservative approach to risk and access to HSBC's unique global network means we are well positioned to ensure the Middle East remains a key element in the group's emerging market strategy." Privately, HSBC executives are said to be unhappy about the downgrade, especially the suggestion from Moody's that the Middle East business might not enjoy the full financial support of the global group.
The rating's agency said the downgrade reflects a "weakening in HSBC Middle East's standalone strength". An HSBC executive, who asked to remain anonymous, said: "We were unimpressed by Moody's. They didn't seem to understand the business. They had a long time to get this right. We are being judged along with the local banks but that's clearly not the case." The review of HSBC's regional business by Moody's was announced last December. Moody's has recently downgraded Emirates NBD, Commercial Bank of Dubai and Dubai Bank, all on worries about their exposure to corporate problems in the emirate.
HSBC is a big player in the restructuring of parts of Dubai Inc currently under way. It is on the co-ordinating committee (CoCom) of creditors to Dubai World, which recently clinched a deal with most of its bankers over US$23.5 billion (Dh86.31bn) of debts; it is the joint-head, along with Emirates NBD, of the CoCom that is negotiating an extension to repayments of $2.6bn of debt by Dubai International Capital, an arm of Dubai Holding.
HSBC Middle East reported a 74 per cent decline in profits last year to $455 million, mainly because of a fivefold increase in loan impairments, which rose to $1.7bn. HSBC's Middle East division does not include its business in Saudi Arabia or its Egypt operation. The big ratings agencies have been criticised before for their coverage of Dubai institutions. This year, a unit of Dubai Holding, broke off relations with Standard & Poor's after a downgrade.
fkane@thenational.ae
