UPDATE 1-Moody's warns about HSBC Mexico, eyes credit cards

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MEXICO CITY, July 1 (Reuters) - Moody's Investor Service said on Wednesday it placed the ratings of HSBC's Mexican unit under review, warning that its credit card portfolio could lead to higher-than-expected losses.

Moody's said it could downgrade HSBC Mexico's bank financial strength rating, currently "C," considered adequate, along with other local debt and deposit ratings.

Banks rated "D," the category of ratings below "C," "display modest intrinsic financial strength, potentially requiring some outside support at times," according to Moody's ratings methodology.

"The bank may be more challenged to manage through the current difficult credit environment due to its less robust capitalization and profitability compared to that of similarly rated peers," Moody's said in a statement.

Nonperforming loans accounted for almost 17 percent of HSBC Mexico's total credit card debt as of May, according to the country's bank regulator.

"HSBC Mexico's balance sheet may be exposed to a higher level of stress because management is still dealing with the sharp deterioration in the bank's credit card portfolio," Moody's said.

The Mexico City-based unit of HSBC (HSBA.L) let its capital adequacy ratio slip to 11.93 percent in April from 12.39 percent in the prior month, according to the regulator.

Capital adequacy ratios illustrate banks' capital relative to their risk-weighted assets and show how prepared they are to weather losses.