Bank consolidation stays at the top of the agenda
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"Latin America represents a tremendous growth platform because all the countries in the region have young populations and the banking penetration as a percentage of GDP in all these countries is quite low"
Peter Cardinal, Scotiabank |
Why is Scotiabank so focused on Latin America?
I worked in Mexico during the early days of the turnaround and certainly that gave us a better understanding of these markets. We’ve been in Chile and in Peru with minority interests, which we ultimately converted into controlling interests. But it’s really been because of the convergence of these countries in economic terms. Most of them, if not all, have trade agreements with other countries, with the US, and also, in terms of their economic management, the way the central bank is regulating the economy. All of these things, as well as the under-banked population, which gives us room to grow more than in other countries or regions.
Where do you see the main business opportunities?
Latin America represents a tremendous growth platform because all the countries in the region have young populations. The concentration is in populations aged 25 to 30 on average, people that are just starting their careers and their families, and the banking penetration as a percentage of GDP in all these countries is quite low.
Are consumer loans going to be one of the big growth areas?
Certainly consumer lending is a big piece of it – car loans, house loans, credit cards, and also business opportunities for commercial small business, right up to corporates, because we cover all segments.
Your CEO has said that he’s planning to open 100 out of 140 new branches in the region in Mexico alone. Why Mexico?
We’ve been in Mexico since the 1960s and we bought a stake in Inverlat when that was privatized in 1994, and then as you probably know, we’ve increased our ownership to more than 99%. And Mexico has done extremely well. The economic fundamentals have been very positive, with falling interest rates, economic stability, the free trade agreement with the US, and also the fact that the banking system is now more or less dominated by foreign banks, although the CNBB is giving banking licences to retailers as well, such as Wal-Mart and other retailers. This is an under-banked country and we have about 6.5% of the market. We want to increase this to 10%. I would point out, however, that in certain strategic segments, such as mortgages and auto leasing, we are market leaders and are well beyond 10% market share.
This year we’ve opened up 85 new branches, in 2008 we hope to open another 100. That will certainly give us a platform to compete against our other foreign competitors there as well as the players in the local market. We need to increase our presence. We are focusing on organic growth because there aren’t any banks for sale.
When you say that there are no banks for sale in Mexico, would you consider a hostile bid?
We’re always looking for acquisitions, but the reality is that there’s very little available at the moment.
In Mexico you’ve mentioned the under-banked population, so will consumer loans be the main focus?
Well we are leaders and have been leaders in mortgage loans for a number of years. We’ve been a leader in auto loans, we’ve been very aggressive on credit cards in the commercial and corporate sector.
In Chile, you’ve just bought Banco del Desarrollo. What’s the thinking behind that transaction?
Chile is a market that needs consolidation, but there are a lot of buyers and very few sellers. We kind of stumbled on the Desarrollo opportunity. Our country head in El Salvador is Chilean and wanted to go back to Chile; we told him: ‘If you can identify any opportunities for us, please let us know’. So he went knocking on doors and when we went there Banco del Desarrollo showed an interest in this deal and it went from there. One thing led to another, Desarrollo expressed some interest, at least in talking. I met with them and we came to an agreement. So we’re very excited about it.
Do you feel that Citi expanding its presence in Chile will have an impact on your strategy there?
No, not really. Citi has struck a deal with Banco de Chile, and is rolling its rather modest operation in Chile into Banco de Chile. It’s a good move for Citi. Banco de Chile is a highly respected bank. But we compete against Citi in several markets, such as Mexico, and we work on distinguishing ourselves from them by our high commitment to service. I think there is room for all of us in Chile, especially as we’re into a different niche through the Banco del Desarrollo platform.
Mexico and Chile are two very stable investment-grade countries. Once Brazil becomes investment grade will it be somewhere that you’ll seek to expand into?
We’re looking at all countries, frankly, throughout central America and Latin America, and some of them that haven’t quite made it to investment grade. It all depends on the opportunity, on the price, and on whether it’s within what we consider our core competencies. So I wouldn’t rule anything out.
But is Brazil somewhere that you are considering?
We have a representative office in São Paulo, and we’ve been there for many years, but there’s not very much for sale. The price of entry into Brazil is very high. If there is an opportunity, it probably would be more with a regional bank. But what we try to do is get to understand a country, we buy something smaller or we buy a minority interest and go up the learning curve. We certainly understand the Brazilian market; it’s just finding the right opportunity.