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The main reason for the downgrade is a decrease in interest collections in order to make timely payments to senior certificate holders of the bank's residential mortgage-backed securities (RMBS), according to the report.
The report also said that there was a general deterioration in asset quality of the mortgage pool, which is reflected in rising credit delinquencies which will act to gradually increase the long-term credit risk.
HSBC Mexico's past due loans and real estate owned (REO) assets increased by 12.4% in the 12 months up to September 2011.
The Moody's report also said that HSBC Mexico had demonstrated adequate REO strategies, which is important as these revenues are currently being used to make interest payments to certificate holders.