/Scotiabank expects ‘high single digit’ growth in foreign business after year of weaker gains

Scotiabank expects ‘high single digit’ growth in foreign business after year of weaker gains

The Bank of Nova Scotia on Tuesday downplayed the toll that recent unrest in Latin America is likely to take on the lender’s business, saying that fallout from protests in Chile is expected to have a limited impact and highlighting that economic growth will be stable or improving in other key markets.

Scotiabank president and CEO Brian Porter said the Pacific Alliance countries of Chile, Colombia, Mexico and Peru — which are a major focus for the lender — “have proven resilient in the past, and we are confident any issues will be resolved constructively.”

“We have over 30 years’ experience in the region and we remain committed to supporting our customers and are very confident in the long-term prospects for the region,” Porter said during a conference call to discuss the bank’s latest earnings.

The Pacific Alliance has recently been hit by protests over inequality in Chile and slowing economic growth in Mexico, which on Monday was revealed to have entered a recession during the first half of 2019. Colombia has also recently experienced anti-government rallies and Peru recently underwent a political crisis after the president there dissolved the local legislature.

These issues affect Scotiabank more than Canada’s other big banks because of its greater presence in the region, with the Pacific Alliance making up 23 per cent of Scotiabank’s adjusted earnings for the year ended Oct. 31, the Toronto-based lender’s annual report showed.

Pedestrians walk past a Bank of Nova Scotia branch in Santiago, Chile.

Ronald Patrick/Bloomberg

The Pacific Alliance countries are attractive to Scotiabank, Canada’s third-largest lender, because of faster economic growth in recent years and their relatively younger and underserved banking populations. Porter said that they are forecasting economic growth of above two per cent on average for the region.

“In the Pacific Alliance, the outlook for 2020 is for an improvement in GDP growth in Mexico and Colombia, stable growth in Peru and a modest slowing of growth in Chile due to local political developments,” the CEO added.

The comments came after Scotiabank reported fourth-quarter financial results that were in-line with analyst expectations, but were affected by global economic turmoil and its recent acquisitions and sales of international assets.

Scotiabank’s net income for the three months ended Oct. 31 was approximately $2.31 billion, up about two per cent from $2.27 billion a year earlier. For Scotiabank’s 2019 fiscal year, which also ended Oct. 31, the lender reported net income of nearly $8.8 billion, an increase of just one per cent over $8.72 billion for its fiscal 2018, “reflecting strong revenue, and expense growth across all businesses,” it said.

The bank’s M&A activity has been considerable over the past two years, as it has bought wealth management businesses in Canada and international banking operations abroad, including in Chile, where it is the third-largest private sector bank.

When adjusted for the effect of all of its various acquisitions and asset sales, Scotiabank’s adjusted earnings per share for its latest quarter were $1.82, an increase over the $1.77 last year and right around what analysts had been expecting.

“From a divisional perspective, weaker performance in Canadian and International banking was offset by solid results in Global Banking and Markets and lower loss at the other segment,” Citi analyst Maria Semikhatova wrote. “We see the results as neutral with the topline and expenses coming in line with expectations.”

Scotiabank’s head of international banking, Ignacio Deschamps, said it is still “early days,” but that they expect events in Chile “to have mainly a one-quarter impact” for the first quarter of the bank’s fiscal 2020, “and to gradually improve during the year.”

“I also expect Mexico, Colombia and Peru to have a good year,” Deschamps said, adding that, on average, “the economies are expected to grow similar or stronger than this year, so we expect earnings to grow at double-digit pace in average. So this will drive (international banking) earnings to high single digits in 2020, excluding divestitures.”

Chile makes up around five to six per cent of Scotiabank’s earnings, Deschamps said, and still had a strong fiscal 2019 for the lender, with earnings growth of 25 per cent and market share that grew by 50 basis points to 14.3 per cent.

Eight Capital analyst Steve Theriault wrote Scotiabank’s international banking operations came in just below forecasts “due in part to Chile,” where earnings were $105 million compared to $118 million a year ago.

“Also, though Chile was weak, the bank appears to be signalling that it expects only one quarter of softness,” Theriault said.

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