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Bank of Nova Scotia is Canada’s most international bank, with operations in more than 50 countries.The Globe and Mail

Bank of Nova Scotia is often lauded for its bold expansion into Latin America, having completed major acquisitions in Colombia and Peru. But when it comes to Venezuela, the bank has done little for the past 15 years – primarily because the government of President Hugo Chavez has been hostile to large-scale foreign investment.

Mr. Chavez's death this week has spawned questions about whether Venezuela will open its arms to more capital from outside its borders to help revive a troubled economy. If that should happen, Canada's third-largest bank would be poised for expansion: it owns a 27-per-cent stake in the country's seventh-largest lender, Banco del Caribe, which it purchased in 1998.

But it doesn't necessarily mean Scotiabank would move quickly.

The government transition now taking place in Venezuela, with long-time Chavez ally Nicolas Maduro serving as acting president, underscores the risks of operating in Latin America. Like many of the other emerging-market countries where Scotiabank does business, the political sands can often shift unexpectedly. Already, there is much speculation about whether a new government to be formed after elections will embark on reform, or dig in further on the nationalist policies Mr. Chavez championed after taking power in 1999.

Scotiabank executives have been through this before. The bank's strategy has been to spread its bets among numerous Latin American countries. Sometimes, those bets go sour: Argentina's default more than 10 years ago led to significant losses for the bank when the government unexpectedly nationalized foreign-held banking assets. But they have been successful in places like Colombia and Peru, where the bank made small investments at first, and then patiently waited for the chance to go bigger with a major acquisition.

In Venezula, that wait continues.

"We're still a long way from knowing how [Venezuela] ends up," said Rob Sedran, an analyst with CIBC World Markets. "Even if it feels like maybe there are some reforms coming, I think they want to see a little bit of evidence of that actually taking hold before they start deploying too much capital.

"Scotia's got to the point, sizewise, where they can afford to make a small bet, but before they deploy any meaningful capital into a region they want to know that they're going to be there for the long term."

The best example of this slow approach has been seen in Scotiabank's Colombian business. In 2011, Scotiabank purchased a majority stake in Colombia's Banco Colpatria for about $1-billion. The purchase, which was part of nearly $3-billion the bank has spent around the world on international acquisitions in the past six years came only after the bank's executives became comfortable that Colombia was well on its way to stabilizing itself politically and economically.

"Columbia is a good example," Mr. Sedran said. "Colombia started to turn a corner from a security perspective, and from an economic growth perspective, and so Scotia stepped in with their initial acquisition. Colombia is far from being a developed economy, and far from having all their problems fixed, but they are on the right trajectory."

For now, Scotiabank executives are saying little about aspirations for Venezuela. A spokeswoman for the bank said Wednesday that, as a minority owner of the Venezuelan bank, it is letting its partner in Banco del Caribe handle government relations. In addition to Scotiabank's 27 per cent stake, Banco del Caribe is 51 per cent controlled by the wealthy Dao family of Caracas, with the remainder of the shares publicly traded. Like many prominent business owners under the Chavez regime, the Dao family is believed to have been supportive of the previous government, and well aligned with the acting President.

Banco del Caribe has about 5 per cent market share and113 branches. Scotiabank said this week that its exposure to Venezuela is only about $188-million, up from $142-million a year ago. Most of that – about $182-million – is tied up in the investment in Banco del Caribe.

It also operates a representative office in the country, which it opened in 1978. Such representative offices serve as place holders of sorts for Canadian banks in several Latin American countries, including Cuba. While they don't serve as branches, they often facilitate lending for Canadian companies operating in the region. But they also allow the bank to keep a stake on the ground, learning the market and the government for future expansion.

As a sign of Scotiabank's attention to the politics in Latin America, the bank recently took analysts through Peru and Colombia to meet with its executives there, and to see the operations. It also arranged meetings with high profile politicians, including the Colombian president, who was supportive of the Canadian bank's investments.

"The fact that so many high-level political figures took the time to meet with the contingent of visitors from Canada underscored two key points to us. Number one, it speaks to the efforts that BNS has made to ingrain themselves into the framework of the countries in which they operate," Macquarie Capital analyst Sumit Malhotra said. "Number two, it shows that the politicians want their visitors to leave with the message that their countries are open for business."

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