HSBC deemed less systemically important by global regulators

JP Morgan and Citigroup top regulators’ list of banks posing systemic risk, with ICBC moves up the rankings

PUBLISHED : Tuesday, 22 November, 2016, 9:21pm
UPDATED : Tuesday, 22 November, 2016, 10:56pm

HSBC is no longer considered to be one of the world’s two most systemically important banks in the global economy, according to regulators, which means that the amount of capital HSBC is obliged to hold to absorb losses should a crisis occur will decrease.

On Monday, the Switzerland based-Financial Stability Board (FSB) published its 2016 list of global systemically important banks. The list places banks into five potential categories, called “buckets”, and while all 30 banks on the list are obliged to hold additional capital above minimum regulatory standards, the higher the bucket in which a bank is placed, the more additional capital it must hold.

No banks were placed in the highest bucket this year or last.

HSBC, which was in the second highest bucket in 2015, along with JP Morgan, was moved down a category in this year’s list. It was replaced by Citigroup.

“The changes in the allocation across buckets of the institutions on the list reflect the combined effects of data quality improvements, changes in underlying activity, and the use of supervisory judgement,” said the FSB in a statement.

Banks in the fourth group will have to hold a 2.5 per cent capital surcharge when the rules are fully implemented from January 1, 2019, where as banks in the third group face only a 2 per cent capital surcharge.

At present the change is not of much significance as the bank’s capital levels are already higher than its new requirements
Chen Shujin, DBS Vickers’ China banking analyst

HSBC has been taking steps to shrink its global footprint and reduce its riskier assets. This year it finalised the sale of its Brazilian operations and announced the sale of its activities in Lebanon.

Citi analysts described the change as positive for HSBC. “This further enhances the capital return prospects at HSBC in the long term. We currently model a flat dividend and an annual buyback of US$2.5 billion,” they wrote in a report.

Bank of America, BNP Paribas and Deutsche Bank are in the same category as HSBC.

ICBC was moved up in this year’s list to the second lowest bucket from the lowest last year, a reflection of its expansion of its global presence. Three other Chinese banks, Agricultural Bank of China, Bank of China, and China Construction Bank, are deemed to be systemically important to the global economy, but are in the lowest bucket.

The change means that ICBC needs to hold an additional 1.5 per cent capital buffer over minimum requirements rather than 1 per cent.

“At present the change is not of much significance as the bank’s capital levels are already higher than its new requirements,” said DBS Vickers’ China banking analyst Chen Shujin.

“It might become more significant in the future however, as we expect Chinese banks to show weak profit growth, which might mean that ICBC might wish to dip into its capital buffers.”

The FSB also published a list of nine global systemically important insurers, including Chinese insurance group Ping An.