Credit rating agency Fitch has revised its view of Hongkong Bank to 'negative' from 'stable' yesterday, but retained the bank's long-term default rating.
This comes a day after Fitch revised its view of the bank's parent HSBC to 'negative'.
Hongkong Bank's dominant market position in the city was being challenged by intense competition from mainland and foreign banks and 'defending it may come at a cost', said Sabine Bauer, a director in Fitch's financial institutions team.
'Loan demand and fee-generating activities from outside of Hong Kong, in particular from China, will likely address structural pressure on profitability,' Bauer said.
Fitch is keeping its long-term default rating of HSBC's local lending arm at 'AA'. However, the bank's increased risk tolerance and rapid expansion into emerging markets without an appropriate increase in capital and profitability could lead to a rating downgrade, Bauer said.
Fitch said Hongkong Bank's mainland exposure had more than doubled to exceed US$100 billion in the last two years, adding that the mainland's banking system was overshadowed by corporate governance and risk mitigation issues.