Last checked at 
(Alliance News) - Moody's Investor Service on Tuesday affirmed the long-term deposit ratings of HSBC Holdings PLC's Hong Kong unit and its 62%-owned Hang Seng Bank Ltd at Aa2, but lowered their outlook to Negative.
The credit ratings agency revised the outlook for the foreign-currency long-term deposit ratings downward to Negative. The outlook for local-currency bank deposits remains Stable.
The outlook for Hongkong & Shanghai Banking Corp Ltd, or HSBC HK, and Hang Seng Bank have been revised downwards following Moody's changing the outlook for the Hong Kong region to Negative from Stable on Monday.
"HSBC HK and Hang Seng Bank's Aa2 long-term bank deposit ratings are at the same level as the Hong Kong government's rating," explained Moody's.
Moody's noted that HSBC HK and Hang Seng Bank could see its deposit ratings downgraded if Hong Kong sees a downgrade in rating.
"Hong Kong's local-currency deposit ceiling is Aaa, while the foreign-currency deposit ceiling is Aa2. A downgrade of Hong Kong government's rating to Aa3 from Aa2 would likely lead to a corresponding change in Hong Kong's foreign-currency deposit ceiling. The negative outlook on HSBC HK and Hang Seng Bank's foreign-currency bank deposit ratings stems from the likely lowering of Hong Kong's foreign-currency deposit ceiling if the Hong Kong government's rating is downgraded to Aa3 from Aa2," the credit ratings agency said.
Explaining the cut to Hong Kong's outlook, Moody's said: "The change in outlook to Negative reflects the rising risk that the ongoing protests reveal an erosion in the strength of Hong Kong's institutions, with lower government and policy effectiveness than Moody's had previously assessed, and undermine Hong Kong's credit fundamentals by damaging its attractiveness as a trade and financial hub."
Moody's said the standoff with protesters remains "highly uncertain", which increases the risk of a response from Chinese authorities, which would "tighten the institutional linkage" between Hong Kong and China. This would, Moody's believes, "signify a diminution of the predictability of Hong Kong's own governing and judicial institutions".
"Hong Kong's Aa2 rating rests in part on the strength of its economy and institutions. The two are closely related, and the ongoing stalemate between the Hong Kong authorities and protestors has increased the downside risks to both since Moody's last rating announcement on Hong Kong in July 2019. The longer the stalemate persists, the greater the risk that these strengths are revealed to be eroding," added Moody's.
Shares in HSBC were 0.8% lower in London on Tuesday at 613.70 pence each. Hang Seng Bank closed 0.9% lower in Hong Kong on Tuesday at HKD175.80.
