HSBC’s Asia expansion strategy hits a roadblock in China slowdown

Market volatility in Asia is also a concern.

The banking giant’s plan to expand in the world’s largest continent is bound for a rough road, as the slowing economic growth of the big red dragon is compounded by the market volatility in the region.

According to ratings agency Moody’s, although HSBC is well diversified, its assets and earnings are significantly concentrated in Asia.

“Asia accounted for over 60% of pre-tax profits in the first nine months of 2015 and around 78% in 2014, which presents considerable downside risk from a material slowdown in China," Moody’s said.

Moody’s added that the management has taken measures to protect HSBC’s profitability and lower its risk in the region.

"HSBC has reduced its exposure to Chinese financial institutions by more than $30 billion over the last two and half years," Moody’s said. "At the end of September 2015, HSBC's total assets in Mainland China accounted for US$96 billion, of which US$53 billion were gross loans and advances to (mainly wholesale and corporate) customers and banks."

Meanwhile, Moody’s said the bank is more resilient to the weakening operating conditions than local players and other international banks with large operations in Asia due to offsetting factors such as conservative underwriting standards in its core Hong Kong market and its focus on good-quality trade-oriented corporate clients in its other smaller Asian markets.