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Scotiabank Targets More Acquisitions in Latin America

Scotiabank Targets More Acquisitions in Latin America

Posted by PanamericanWorld on January 19, 2016

Bank of Nova Scotia, Canada’s third-largest bank, is looking to Latin America, and in particular Mexico, to drive growth as larger financial institutions shrink their presence in the region.

The bank sees ample opportunity to expand both organically and via acquisitions, undeterred by heightened U.S. regulatory oversight that is leading many banks to scale back in Latin America.

“We have a very strong risk culture—that’s a cornerstone and that’s part of our DNA,” Chief Executive Brian Porter said in an interview Monday. “We’re thoughtful about what we do and we think long-term.”

Opportunities abound for acquisitions in Latin America as larger institutions adjust their strategies to focus on core markets where they enjoy significant market share. And financial institutions of various sizes see a need to narrow their geographical exposure as compliance obligations and costs increase.

International operations supply more than a quarter of Scotiabank’s earnings, with the majority of that net income stemming from operations in four Latin American countries: Chile, Colombia, Peru and Mexico.

The largest of those four markets is Mexico, where Scotiabank has operated since the 1990s. But Scotiabank ranks as Mexico’s seventh-largest bank by loans, with only 5.5% of the market.

Dieter Jentsch, head of international banking for Scotiabank, acknowledged that the bank has underinvested in the Mexican market given the country’s size and potential.

Scotiabank officials said they’re upping their game here and allocating more resources to the country. For instance, last year the Toronto-based bank allotted $180 million to improve its technology platform in Mexico over three years.

“You’ve got to get the big picture here,” Mr. Porter said, raising his arms in a circle over his head as he listed Mexico’s positive attributes, such as a large population and growing middle class.

“Mexico is a great place to invest and we’re happy that we’re here,” he said.

Many of Scotiabank’s recent purchases in Latin America have been incremental, such as the bank’s agreement last month to buy Citigroup Inc.’s retail and commercial banking businesses in Peru for an undisclosed sum.

Mr. Porter said that the bank is prepared to invest in a larger opportunity, should the target fit Scotiabank’s risk appetite and strategy for catering to more consumers in the region.

One way for the bank to decrease its risk is by offering more products to a core client base, so that Scotiabank becomes those customers’ primary bank. “We know that if we’re your number one bank, we’ll get paid back first,” Mr. Jentsch explained at Scotiabank’s annual investor meeting being held this year in Mexico City.

The more transactions and products a customer uses, the better the bank can gauge their ability and likelihood to pay.

Scotiabank’s cautious business strategy has long dictated that risk should be spread among countries and products, meaning that the bank doesn’t strive to be the top player in any given market or business line.

But as financial markets consolidate, many question whether the bank needs greater scale in its chosen markets to be relevant.

“Their lack of aggressiveness is impeding their profitability, potentially,” said John Aiken, an analyst with Barclays Capital Inc. in Toronto.

In Mexico, for instance, the bank has bulked up on consumer loans. It claims 16% of auto loans here, making it the country’s third-biggest financier of car purchases. For mortgages, Scotiabank ranks fifth with close to a 13% market share.

 

 

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