Moody\'s Investors Service has upgraded The Hongkong and Shanghai Banking Corporation\'s (\"HKBK\") bank financial strength rating to \"B+\" from \"B\". In line with this rating action, the bank\'s foreign currency issuer rating, local currency long-term deposit rating and long-term debt ratings were upgraded to \"Aa2\" from \"Aa3\", and its foreign currency subordinated debt rating to \"Aa3\" from \"A1\". This rating action concludes the review announced on December 21, 2005. The bank\'s A1 foreign currency long-term deposit ratings and \"P-1\" short-term ratings, which were not on review, are not affected. The outlooks for all ratings are now stable.

\"The upgrade reflects HKBK\'s demonstrated ability to weather the volatility of the Hong Kong market, underpinned by its seasoned management team, substantial and resilient franchise in Hong Kong, and which Moody\'s believes will allow it to withstand future shocks. HKBK also benefits from its diversification into several other Asian countries. The bank is likely to continue to show strong financials,\" says lead analyst Leo Wah.

As with most other banks in Hong Kong, HKBK\'s balance sheet was largely unscathed during the past 10 challenging years. Moody\'s believes the bank\'s management track record and experience, honed during this difficult period, will allow it to respond to the new challenges ahead.

The bank has been and should continue to be further strengthened by the support of its ultimate parent, HSBC (Aa2/P-1). As it is an important element of HSBC group\'s Asia strategy, Moody\'s is confident that parental support in all aspects would be provided, if warranted. Its substantial franchise (largest market share in Hong Kong at about 30%), proven and outstanding track record, and status as a HSBC subsidiary allow it to benefit from any \"flight to quality,\" if the operating environment becomes volatile.

HKBK\'s pre-provision profit is strong, at 3.8% of risk weighted assets in 2005, well above the peer group median of 2.6% for \"B+\" financial strength rated banks worldwide. Equally important is the fact that its PPP return of risk-weighted assets has been stable over the past few years because its substantial low-cost retail deposit base (estimated at about 45% of total funding) has helped provide competitive products, while protecting interest margins against the backdrop of interest rate volatility. HKBK\'s impaired loan ratio was just 0.7% at end-2005, below the already-low 1.1% for its \"B+\" counterparts. It has managed to contain asset quality in not only Hong Kong but elsewhere in Asia, with the latter\'s impaired loan ratio at just 0.8%.

\"In view of the solid operating environment in the region, HKBK may increase its investment in personal finance services (\"PFS\"),\" says Wah, a Moody\'s Assistant Vice President/Analyst, adding, \"However, Moody\'s expects the risk and return profile for the additional business to be reasonable. Given HKBK\'s proven risk management strategy, a disproportionate deterioration in asset quality due to its further expansion into PFS is unlikely.\"

In view of promising long-term prospects in countries such as China and India, HKBK will gradually achieve greater geographical diversification with growth outside its home base of Hong Kong.

The Hongkong and Shanghai Banking Corporation Limited, headquartered in Hong Kong Special Administrative Region, is a wholly owned subsidiary of UK-based HSBC Holdings PLC. The bank had consolidated total assets of HK$2,673 billion (US$ 344 billion) as of December 31, 2005.