Bank of Nova Scotia is paying $500-million to increase its ownership stake in the bank’s operations in Chile.
Scotiabank is buying an additional 7 per cent of its Chilean arm from the country’s Said family, a minority shareholder. When the deal is complete, subject to regulatory approvals, it will own 83 per cent of Scotiabank Chile, which plays a central part in the bank’s strategy to build its presence in Latin America.
In 2018, Scotiabank bought a 68-per-cent stake in BBVA Chile, then a division of Spanish bank Banco Bilbao Vizcaya Argentaria S.A., for $2.9-billion. That doubled its share of Chile’s loan market to 14 per cent. At the time, the Said family kept a 25-per-cent stake in the business.
Scotiabank expects the deal will reduce its common equity Tier 1 (CET1) capital ratio – a key measure of a bank’s resilience
– by about eight basis points. But the bank has ample capital, with a robust CET1 ratio of 12.2 per cent as of Jan. 31.
The deal is “not a needle-moving transaction” and not financially material to the bank, said CIBC World Markets Inc. analyst Paul Holden, in a note to clients. He predicts it will add three to four cents of earnings per share. Even so, “this is the type of capital allocation that [Scotiabank] shareholders should want from the bank,” he said.
Last year, Chile accounted for 5.3 per cent of Scotiabank’s profits, on an adjusted basis, and 31 per cent of adjusted profits from international banking, according to Mr. Holden.
Scotiabank’s international banking operations are concentrated in four Latin American countries: Mexico, Peru, Chile and Colombia. Though the region faces short-term uncertainty around economic growth as cases of the novel coronavirus have spiked again, Scotiabank sees an opportunity for rapid growth in the region, which has younger demographics than North America and a growing middle class.
The bank aims to generate at least $500-million in quarterly profit from its international banking division by the end of the year. Chief executive officer Brian Porter called Chile “a key pillar” of Scotiabank’s international strategy, in a statement on Monday.
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