Fitch cut HSBC Bank from AA to AA- on Friday, mirroring a downgrade of its parent, HSBC Group, because the rating agency considers that risks involved in the group’s expansion into higher risk markets will outweigh benefits from its business and geographic diversification.

The Issuer Default Ratings of HSBC Bank are aligned with those of HSBC Holdings because Fitch considers that they share a common overall risk mainly due to operational and strategic integration and management along four global business lines, and because the group can redeploy capital within the group.

The rating agency downgraded HSBC Holdings from AA to AA-, and revised the outlook from negative to stable. It took the same rating actions on the long term issuer default ratings (IDRs) of HSBC Bank, the Hongkong & Shanghai Banking Corporation, and HSBC Latin America Holdings (UK) Limited.

“Fitch considers the risks attached to the group’s expansion into higher risk markets, including mainland China and intensifying competition in Hong Kong, which were the key drivers behind the downgrade of HKSB’s VR (Viability Rating) to ‘aa-’ from ‘aa’ in March 2012, are no longer sufficiently mitigated at the HSBC Group level,” said the rating agency.

The rising cost of managing the group’s diverse operations will neutralise the benefit previously awarded to its business and geographic diversification, according to Fitch.

The rating agency on Friday also cut the VR of HSBC Bank, from aa- to a+, and said that this also contributed to the IDR downgrades.

“The downgrade to a+ considers the headwinds facing it in terms of conduct and regulatory risk, particularly in terms of performance,” said Fitch, “as well as the focus of its business in the UK and the euro-zone, both of which continue to suffer from negative macroeconomic pressures.”

Asset quality and performance are likely to deteriorate or at best stay muted for longer than previously anticipated over the medium term, it said.

However, it noted that HSBC Bank’s VR remains among the highest in Europe, reflecting the sound liquidity profile of the bank and its strong funding franchise, which has kept to below 100% the loan to deposit ratios in most of the countries it and its subsidiaries operate in.