Fitch has cut HSBC Bank Middle East's viability rating (VR) one notch because of asset quality concerns, while keeping its long-term default rating at 'AA-', one notch below the main HSBC group.
Fitch said on Monday that HBME, the Middle Eastern arm of HSBC, had reported "a substantial rise in renegotiated loans as well as faster than previously anticipated new non-performing loan (NPL) formation". It cut the VR rating to bbb from bbb+.
While the bank's NPL ratio remained near flat at 9.6 percent at the end of 2011, Fitch said this was despite improved loan recoveries and the reclassification of large NPLs in the United Arab Emirates as performing. It also said NPLs would continue to rise in 2012, albeit at a slower pace.
HSBC declined to comment.
Fitch also said revenue growth at HBME would be challenging in 2012 due to reduced lending in the UAE and new regulations on retail lending in a number of markets in which it operates.
HSBC has been restructuring its retail banking business in the Middle East since late last year, making Dubai a regional hub and scaling back its presence in other markets.
So far this month, it has received approval to merge its Omani operations with Oman International Bank to create HSBC Bank Oman - in which it has a 51 per cent stake - while the deputy chief executive of Turkish group Isbank told Reuters it would buy HSBC's branches in Pakistan.