Bank of Nova Scotia predicts that its Latin American operations can continue to churn out rising profits in the coming years, as the bank works to assuage concerns about the region’s civil unrest and slower economic growth.
Canada’s third-largest bank played host to a two-day presentation for investors in Santiago this week. The gathering, originally scheduled for October and postponed after Chile was rocked by widespread violence and protests calling for social reforms, offered a chance to reassure investors.
Scotiabank is emerging from its own period of reform after buying and selling a series of businesses since 2018, doubling down in key markets such as Chile and Colombia, bolstering its wealth-management arm, and pulling out of high-risk countries. Yet just as the volatility in the bank’s earnings that accompanied those changes was showing signs of dying down, new reasons for uncertainty have emerged to challenge its forecasts for international banking in 2020.
On Wednesday, chief executive officer Brian Porter said there have been “bumps along the road” in Scotiabank’s core markets outside North America: Mexico, Peru, Chile and Colombia. But he said those setbacks will be outweighed by the demographic potential of the bank’s chosen bloc of countries, which have a combined 225 million people, a growing middle class and scores of people who don’t yet have a bank account.
Scotiabank now makes 85 per cent of its profit in Canada, the United States and those four Latin American countries, and international banking operations are vital for their potential to grow faster than the mature Canadian banking market. Annual profit from international banking was $3.2-billion in 2019, up from $2.1-billion in 2016 – a compound annual growth rate of 13 per cent, compared with 6 per cent in the Canadian banking arm.
“The growth and long-term attractiveness of the region is undiminished by one-off events or negative headlines,” Mr. Porter said.
On Thursday, Chilean Minister of Finance Ignacio Briones Rojas painted a more complicated picture. He said the violence and protests that flared up in October had “shocked all of us," and that while the country is returning to “normality,” the upheaval has taken a toll.
The government has promised billions of dollars in new spending to support reforms to pensions, health care and other social priorities, adding to its national deficits. And the country’s GDP fell 2.6 per cent in 2019. “This is huge, this is massive,” he said. “However, our prospects for 2020 are better than that.”
At the same time, Mexico’s GDP increased by less than 1 per cent last year, Peru has been without a Congress since the President dissolved it four months ago, and Colombia is gradually returning to stronger growth after a three-year slowdown that culminated in 2017.
“The macroeconomic environment has changed, yes, but this is not the first period of increased uncertainty that we go through," said Adrian Otero Rosiles, country head for Scotiabank Mexico.
As part of Scotiabank’s efforts to sharpen its international focus, it also sold most of its 49-per-cent stake in Thailand’s Thanachart Bank Public Co. Ltd., and will give up about $350-million in annual profit after taxes as a result.
Even so, Mr. Porter has promised more stable international earnings, after pulling out of countries from Egypt to the Caribbean that generated a disproportionate share of the bank’s impaired loans. Scotiabank set a target to boost international profit after taxes by 9 per cent annually in the coming years, excluding the impact of lost revenue from divestitures, and faster still in most of its Latin American divisions.
Executives also outlined plans to expand in capital markets and wealth management in Latin America. But its ambitions hinge on the region sustaining a rapid economic expansion.
“All the reforms you’re seeing here are supportive of investment and supportive of consumption," said Phil Smith, the bank’s head of investor relations. "And consumption marches on across all these countries.”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.