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A Scotiabank location in Toronto.Deborah Baic/The Globe and Mail

Bank of Nova Scotia has made its first major investment in Colombia, but the $1-billion deal to buy a majority stake in Banco Colpatria is only the first step in a larger expansion designed to take advantage of the country's growing economy.

Scotiabank has been eyeing a significant move into Colombia for several years, hoping to take advantage of its economic rejuvenation after decades of political turmoil. Improved governance, security and infrastructure have helped to turn Colombia into the fourth-largest economy in Latin America, a trend that is now attracting foreign investment.

The deal on Thursday to buy 51 per cent of Banco Colpatria for $500-million (U.S.) in cash and with 10 million common shares, gives it effective control of Colombia's fifth-largest bank.

That deal comes after Scotiabank, which is Canada's most internationally focused lender, waded into the Colombian market last year, buying a small collection of wholesale lending assets worth about $64-million from Royal Bank of Scotland. That move gave Scotiabank a presence in financing the country's energy and mining sectors.

Brian Porter, group head of international banking at Scotiabank, said the strategy now is to expand further. With a large footprint across Latin America, Scotiabank sees the mountainous country as its next frontier in the region.

"The Colombia banking system has been through one round of consolidation and there will be other opportunities on the acquisition front, we feel, going forward," Mr. Porter said. "Colombia is a country that we had our eye on for a number of years, in terms of expansion. It's a logical footprint for us to expand."

The stake in Colpatria came on the block after General Electric Co. sold its 49-per-cent stake in the bank back to its Colombian partner, Mercantil Colpatria, last year as the U.S. company began divesting some of its global banking assets.

Scotiabank plans to meld the wholesale banking assets it purchased last year into the partnership.

The deal gives Scotiabank a majority share in a network of 175 branches in Colombia. Banco Colpatria also holds 9 per cent of the mortgage market and 19 per cent of the Colombian credit card market, a business that Scotiabank figures it can expand to other countries in the region.

The bank has operations in a wide range of countries from Mexico, Belize and El Salvador to Panama, Costa Rica, Peru and Chile.

Banco Colpatria has $6.2-billion of assets and $4.2-billion of deposits. The price of the deal is about three times book value. Mercantil Colpatria, which owns the other 49 per cent of Banco Colpatria has the option to sell the remainder to Scotiabank in seven years.

Scotiabank gains the right to choose several key executives, including the deputy chief executive officer, the chief financial officer, chief risk officer and auditor. Scotiabank will also be able to name four of the seven board members at Banco Colpatria.

The deal is subject to regulatory approval and is expected to close by the end of this year, Scotiabank said.

"This dovetails quite nicely with [Scotiabank's]Latin American presence, adding retail exposure just over a year after it made its initial foray via a wholesale acquisition," analyst John Aiken at Barclays Capital said in a research note.

Mr. Porter said Colombia's population of 45 million people is young, mainly urban and provides ample room for the bank to grow. Divided by mountain ranges, Colombia has no national railway system or highway grid, but the government has announced plans to build out its infrastructure in the coming years.

Recent trade deals, such as Colombia's free-trade agreements with Canada, the European Union and the United States, indicate the country is taking a bigger role on the international stage and seeking foreign investment.

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SMALLER DEALS ADD UP

Bank of Nova Scotia chief executive officer Rick Waugh has yet to strike a blockbuster takeover. But if you add up the biggest acquisitions he has made, they amount to almost $7-billion:

BANCO COLPATRIA, COLOMBIA

Value: $1-billion (U.S.)

Year: 2011

Result: Scotiabank acquires 51-per-cent ownership to create large retail banking presence in Colombia.

DUNDEEWEALTH, CANADA

Value: $348-million initially, then $2.3-billion

Years: 2007 and 2010

Result: Scotiabank scooped up an 18-per-cent position in 2007, and bought remaining portion last year.

CI FINANCIAL, CANADA

Value: $2.3-billion

Year: 2008

Result: Scotiabank beefed up wealth management by picking up Sun Life's 37-per-cent stake in CI.

BANCO DEL DESARROLLO, CHILE

Value: $1.03-billion (U.S.)

Year: 2007

Result: Made Scotiabank the sixth-largest bank in Chile, adding 74 branches and 24 business centres.

Tim Kiladze