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

Now that China's takeover of oil giant Nexen Inc. has been approved by Ottawa, all eyes in the banking sector are turning to Bank of Nova Scotia.

Canada's third-largest bank has been trying for more than a year to close a $719-million deal to buy nearly 20 per cent of Bank of Guangzhou. But the proposed transaction has languished since last September with few explanations.

Speculation has circulated for months that the Scotiabank deal was in limbo while the Chinese government waited for Ottawa to decide on its state purchase of Nexen for $15.1-billion (U.S.). The approval of that oil transaction could bode well for Scotiabank's deal now – but the truth is, no one knows for sure.

Scotiabank executives told analysts on a conference call Friday that they continue to negotiate in China to close the deal. However, the proposed acquisition of a minority stake of 19.99 per cent in Bank of Guangzhou has been on hold for so long that the terms may now need to be updated or renegotiated.

"Given that this was announced a year ago, we're going to have to go back and do some due diligence work on the basis that the transaction will proceed to make sure that we're comfortable with the asset quality and the earnings of the bank and those type of things," Scotiabank president Brian Porter said.

Mr. Porter said Scotiabank executives were in China about two months ago to discuss the proposed transaction. "We're making headway," Mr. Porter said. "We're spending time with them. I think we're in good stead with the CBRC, the regulator over there. So I'm not going to speculate on timing; as I said before these things take time in China."

Though market watchers have long speculated that Scotiabank's deal was linked to Ottawa's determination on the Nexen deal, a spokeswoman for Scotiabank said Friday night that the bank does not see Ottawa's approval as having an impact on its proposed transaction.

Mr. Porter told analysts that government changes in Guangzhou, a city of more than 10 million people roughly two hours by car from Hong Kong, are one reason for the delays. "There has been a major change in government in the municipality of Guangzhou, at the mayor, the vice-mayor level. These are important people, and very influential in the transaction," Mr. Porter said.

Though Scotiabank is confident the deal will go ahead, Mr. Porter said he can't forecast whether it will be approved in the second quarter, or the fourth quarter. Though Scotiabank is going to take a close look at the terms of the deal, agreed to last September, he doesn't expect an overhaul of the agreement. "I don't expect that you would see significant change in commercial terms," he told analysts.

Scotiabank has been operating in China for 29 years in various capacities, and has five of its own branches there, along with other assets involved in commercial lending and wealth management. It owns a minority stake in Xi'an City Commercial Bank, which it purchased for $162-million (Canadian) in 2009. Under government rules in China, foreign companies are not allowed to own more than 19.99 per cent of a Chinese bank.

Scotiabank also owns a one-third stake in a fund management company that is a joint venture with Bank of Beijing, however that asset doesn't fall under Chinese ownership rules.

Canadian banks have been looking to China as a way to expand their operations internationally. In August, Bank of Montreal closed a deal to purchase a 19.99 per cent interest in Cofco Trust Co., a state-owned investment firm that manages $5.7-billion in assets. BMO is the only Canadian bank to be locally incorporated in China.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

SymbolName% changeLast
BMO-N
Bank of Montreal
+0.07%93.92
BMO-T
Bank of Montreal
+0.05%127.17
BNS-N
Bank of Nova Scotia
-0.22%49.69
BNS-T
Bank of Nova Scotia
-0.24%67.28

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