HSBC Holdings plc
) wholly owned subsidiary, HSBC Bank plc, is set to vend its unit
in Kazakhstan. The company entered into an agreement with the
country's second largest lender JSC Halyk Bank to sell 100% share
capital of its unit holding.
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Although the net asset value of the holding is $160 million, HSBC
will receive $176 million in cash once the transaction is
completed. The deal expected to close in fourth-quarter 2014,
subject to regulatory approval and other customary closing
What prompted the divestiture?
In the present economic scenario, where financial organizations
are struggling to counter soaring expenses, this U.K based
leading bank managed to record a 10% decline in operating
expenses in 2013. Now, this is no magic and did not happen
Since 2011, HSBC has been restructuring its business in an
attempt to cut costs and increase focus on its core business. The
aforementioned divestiture is part of the streamlining process
that involved closure or divestment of more than 63 operations
across the globe since the beginning of 2011.
HSBC began operating in Kazakhstan in 1998. The oil-rich Kazakh
economy was a lucrative profit avenue at the time. However, with
volatile commodity prices and drop in oil production since 2009,
the terms of trade turned against the country thereby
decelerating the impressive growth process.
The financial backbone of the economy was the worst hit, which is
now characterized by a large proportion of nonperforming loans,
inadequate loan loss reserves, a weak capital ratio and poor
credit quality. Moody's Investors Service, the credit rating
), has maintained its negative outlook for the country banking
system since 2008.
Moreover, the transition from Basel II to Basel III framework
with higher capital and liquidity requirements is likely to
trigger further consolidation of banking sector in the Kazakh
economy. Therefore, going forward, foreign banks like HSBC are
expected to face increased challenges from consolidation of banks
in the domestic space.
HSBC currently carries a Zacks Rank #4 (Sell). However, some
better-ranked foreign banks include
Hang Seng Bank Ltd.
Shinhan Financial Group Co. Ltd.
). Both of these stocks sport a Zacks Rank #1 (Strong Buy).