Scotiabank prioritizes Canada, Mexico in growth plan, eyes Colombia exit

The Bank of Nova Scotia, or Scotiabank, signage is pictured in the financial district in Toronto, Friday, Sept. 8, 2023. THE CANADIAN PRESS/Andrew Lahodynskyj

TORONTO — Bank of Nova Scotia CEO Scott Thomson unveiled a new strategy for the Canadian lender on Wednesday, focusing on growth at its Canadian, Mexican and Caribbean units while it could exit underperforming regions such as Colombia.

The bank said it plans to reallocate capital from developing to developed markets to ensure earnings are less volatile and more sustainable.

Thomson said the bank could either exit Central America and Colombia, two of its underperforming businesses or turn around the business.

The bank will also allocate about 90% of incremental capital to prioritize businesses in North America.

"We are accelerating growth in our Canadian franchise and allocating capital increasingly towards stable, high-return markets in North America," Thomson told analysts and investors at bank headquarters in Toronto.

Thomson, addressing investors for the first time since taking charge in February, is tasked with reinvigorating Scotiabank's Latin American operations, where the lender was expected to take advantage of the largely under-banked landscape.

As for its international banking segment, Scotiabank said it was focused on improving returns as it prioritizes capital consumption, while favouring high-return businesses in Mexico and the Caribbean.

"We're going to go through a transformational period between 2024 and 2025," Francisco Aristeguieta, the bank's head of international banking, said.

Aristeguieta, who was hired earlier this year to head the unit, said the focus would be Mexico, making the most of the North American corridor and increasing revenue from Scotiabank's clients in the region with operations in Canada and the U.S.

"Mexico first, because for us, Mexico is the pillar for growth in the strategy," he said, adding that the region would contribute 50% of its commercial bank and wealth segment's incremental earnings.

Its Latin American unit, marred by economic challenges and political instability, has shown some signs of weakness. For fiscal 2023, Scotiabank's adjusted earnings growth from international banking was about 3%, compared with 32% in the prior year.

"If they want to grow they have to explore the international opportunities," Verecan Capital Management CEO Colin White said.

The newly announced strategic initiatives also include earning more on primary clients across its portfolio, expanding and scaling priority businesses and digitizing processes.

Investors have been waiting for Thomson to unveil his plan to boost growth at Scotiabank's businesses at home and abroad after the lender reported dismal results for fiscal 2023.

Thomson added Scotiabank's loan-to-deposit ratio is the highest among its peers, "indicating a greater reliance on rate-sensitive wholesale funding and resulting in more volatile margins and earnings."

The lender, like its peers, looked for growth in overseas markets by tapping under-banked regions. Since 2014, the bank has spent about $7 billion (US$5.16 billion) in mergers and acquisitions spanning regions in its Pacific Alliance markets.

At home, it has faced challenges including tough competition in Canada's saturated and highly regulated banking industry, rising expenses and a series of central bank rate hikes that have dampened loan growth.

(Reporting by Nivedita Balu in Toronto, Manya Saini and Pritam Biswas in Bengaluru Editing by David Gregorio and Matthew Lewis)