As Hurricane Carlotta began dumping rain over the southwestern coast of Mexico, weather scientists were watching the storm’s every move. And in Canada, a small group of bankers were also closely tracking the situation.
The storm earlier this summer had sent vacationers in Acapulco indoors, and fishermen in the seaport city of Salina Cruz scrambling. But as the rain began to pour, Bank of Nova Scotia faced an acute problem of its own – what to do if flash flooding and mudslides suddenly knocked out dozens of its branches.
It’s a scenario that Canada’s third-largest bank faces often. With operations spread across more than 50 countries, Scotiabank is more exposed to inclement weather than any other Canadian lender – both operationally and financially – and the past 12 months have been a particularly tumultuous year.
That means hurricane season, which began last month and runs through November, has the bank on alert. On Monday, for instance, Tropical Storm Ernesto in the western Caribbean Sea was forecast to be hurricane force by the time it hit Mexico’s Yucatan Peninsula.
“We’ve learned from other past catastrophes,” said Brian Porter, head of international banking at Scotiabank. “Generally every one is different, but you try to plan for the different contingencies.”
A small team inside Scotiabank known as the Emergency Management Team, whose job is to keep branches functioning when disaster strikes, kept tabs on Carlotta as the storm eventually passed with minimal impact to the bank.
But the past year has otherwise been a major test for the group, which bank officials say is made up of “a handful of people” from a variety of levels, including senior decision makers such as Mr. Porter.
Even before hurricane season got underway, the bank was still working to get its operations in Thailand back to full capacity after devastating floods hit the country last fall. And every time a major weather event hits, there is potential that it could impact the next few quarters.
As recently as March, about 10 per cent of Scotiabank’s 668 branches in Thailand were still closed due to flooding. In the four months since then, those operations have all reopened – a faster-than-expected recovery – and the bank has been counting itself lucky.
“A significant part of the country was under water and you know what water damage is like. If your branch is under four feet or 10 feet of water, your systems go. Lots of things have to be replaced,” Mr. Porter said.
“We have customers over there that had to send divers into their manufacturing facilities to retrieve certain things, because the water was high for a prolonged period of time.”
Once the rain and flooding from a major weather disaster recedes, the impact on the business is only starting to be felt. So far, the bank hasn’t disclosed a dollar figure on the impact of the Thailand floods.
Each disaster has a cycle, which the bank has come to learn.
After the worst of an event is over, it tends to lead to an uptick in banking activity in successive quarters. The area may shut down, and demand for banking may plummet in the aftermath of a storm or flood, but when the rebuilding begins, business inevitably picks up. Loans are always needed to fix what’s damaged.
In Thailand, for example, where Scotiabank is a partner in Thanachart Bank, consumers need to replace vehicles that were lost or damaged in the flood. “We’re starting to see the revenues come back [with] car loans for instance, which is a big part of our business,” Mr. Porter said. “Their volumes have returned to the late-2010, early-2011 levels. So that business is performing very well.”
It usually takes a quarter or two for the recovery to begin. There is always an initial surge in loan losses, since most people are unable to make payments in the weeks after a disaster. In some situations, the bank will put payments on hold as the area recovers.
To deal with a crisis directly, Scotiabank has also created business resumption sites, which include backup equipment for operating a full bank branch, along with stockpiles of fresh water and other emergency goods, which can be brought in to the branch during a disaster.
In the event the entire network of branches in a particular country is affected, such as in a small area like the Cayman Islands, Scotiabank has contingency plans to operate from the nearby Turks and Caicos Islands. Such decisions are made by the team back in Toronto.
As a safeguard, Mr. Porter said the bank also builds branches to Canadian standards, no matter what country it is operating in. This includes putting generators on rooftops, rather than in the basements, which helps protect the power supply from events such as floods.
“We’ve been through it before. I’m not saying it’s like clockwork, but we’re pretty good at adapting,” Mr. Porter said. “We know what we’re doing.”