It will shift its focus away from Latin America following poor returns
The Bank of Nova Scotia (Scotiabank) has plans to refocus its business on North America, following poor returns from its Latin America operations, as reported in an article by Bloomberg.
Scott Thomson, Scotiabank’s chief executive officer, stated that Scotiabank has established a new office that will be deliver better productivity. It will also be straying from a volume-based approach on customer acquisition in favour of an approach that aims to garner profit.
“There are clear realities that have impacted our relative performance,” said Thomson.
“We are behind in winning primary relationships, with approximately 16% of clients using Scotiabank for their day-to-day banking needs,” he explained.
Following the changes in its strategy, the bank will allocate 90% of its incremental capital to the priority businesses of Canada, the US, Mexico, and the Caribbean. Thomson said that there was an opportunity to tap into the $1.6 trillion in annual trade flows among Canada, the US, and Mexico. The three countries also have higher fee pools which the bank intends to utilize as it aims to reach more capital markets businesses in those areas.
A change in strategy
The Scotiabank CEO said that the bank has lagged behind its competitors when it comes to shareholder returns in the past decade because its loan-to-deposit ratio has been too high. This has meant that it has needed to rely on wholesale funding, which has been more costly.
At the same time, it also had a lower market share compared to its rivals in most product lines other than mortgages and auto loans. It also had fewer deposits and clients per branch.
While it was the Canadian bank with the largest international footprint, its businesses in Latin America had too many clients with only one banking product. Its capital-markets businesses were also declining because of the lower fee pools in the region, the report stated.
Its new strategy entails selectively allocating capital to its businesses in Peru and Chile while either turning around or exiting its operations in Columbia, without allocating any more incremental capital.
“If we don’t see a path to improvement, we’re going to redeploy that capital as fast as we can,” clarified Francisco Aristeguieta, the group head of international banking. “But we’ve got to give a chance for these plans to happen,” added Aristeguieta.
The bank will also be considering exiting its operations in Central America as well as international consumer finance, which has heavily leaned towards single-product customers.
Scotiabank is aiming to bring its productivity ratio to 50% over the medium term and intends to get to positive operating leverage in 2024. It also wants to increase its personal and commercial deposits by $200 billion by 2028.
