Scotiabank to sell operations in Colombia, Costa Rica and Panama

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The Bank of Nova Scotia has signed an agreement to sell its operations in Colombia, Costa Rica and Panama as it looks to boost efficiencies and reorganize its Latin American businesses.

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The foreign operations will be transferred to Banco Davivienda SA, Colombia’s third-largest bank in terms of assets and profits, in exchange for a 20 per cent equity ownership in the “newly combined entity,” the Toronto-based lender said.

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“With this agreement, we advance our execution plan towards sustainable and higher returns across our international banking markets,” Francisco Aristeguieta, Scotiabank’s head of international banking, said in a statement on Monday. “Through the combined entity, (Scotiabank) will deliver more scale.”

The move seems to be a part of a strategy to allocate more capital to “stable, high-return markets” in North America, which Scotiabank announced in late 2023. The bank is currently looking to allocate a greater share of capital to Canada as well as recycle capital from its Latin American businesses to its corporate business in the United States.

Scotiabank has the largest international footprint among its Canadian peers, but its businesses in Latin America have too many clients using only one banking product, chief executive Scott Thomson said in December 2023.

As part of the bank’s plan, it purchased 14.9 per cent of Cleveland, Ohio-based lender KeyCorp for US$2.8 billion last year.

As a result of the transaction in Latin America, Scotiabank will report an “after-tax impairment” loss of about $1.4 billion in the first quarter of 2025.

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“A 20 per cent stake in Davivienda is currently worth approximately $600 million,” National Bank of Canada analyst Gabriel Dechaine said in a note on Monday.

“(This) compares to the $1 billion (Scotiabank) paid to acquire its 51 per cent stake in the Colombian operation in 2012 and the US$360 million it paid to acquire its banking operations in Panama and Costa Rica in 2016 from Citibank. As a result, (Scotiabank) is recording around a $1.4-billion impairment charge during Q1/25.”

The bank reported net income of $1.7 billion in its previous quarter.

Dechaine said the move was a “vend-in of troubled operations” for Scotiabank and that it was a “modest positive” for the bank.

“Colombia, in particular, had been a drag on (Scotiabank’s) bottom line for several years,” he said. “The 20 per cent Davivienda stake could be more profitable to (Scotiabank) than its current position is, considering that its new partner has existing operations in these three countries that should allow it to extract expense synergies.”

John Aiken, an analyst at Jefferies Inc., said the deal “ticks the box” for Scotiabank’s strategic plan and does not negatively impact its earnings outlook.

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“We believe that contributions from these countries were minimal at best,” he said in a note on Monday.

As part of the transaction, Mercantil Colpatria SA will sell its interest in Scotiabank Colpatria SA in Colombia, the bank said.

The deal is expected to close in 12 months.

• Email: nkarim@postmedia.com

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