Incoming Scotiabank CEO sees room to refine international operations
Returns from the bank’s international strategy haven’t matched the risks, Scott Thomson says
Incoming Bank of Nova Scotia chief executive Scott Thomson says returns from the bank’s international strategy haven’t matched the risks and that he sees an opportunity to refine the business line going forward.
“We deployed a lot of capital into the international markets over the last 10 years, and the returns on that capital have not been commensurate with the risk that we’ve taken,” Thomson said during a fireside chat at the RBC Capital Markets 2023 Canadian Bank CEO Conference on Jan. 9. “There’s a lot of reasons for that … a lot of geopolitical reasons, a lot of macro reasons, a lot of execution reasons, but that’s something that we need to be really thoughtful about going forward.”
Thomson, who assumed the role of president of Scotiabank in December and will become the chief executive in February, commended the work outgoing CEO Brian Porter and Scotiabank’s international banking head Ignacio “Nacho” Deschamps had done on the international business line, including “strengthening that portfolio, narrowing that portfolio and building up the earnings quality.”
Thomson said there had been challenges in the unsecured international retail banking operations throughout the COVID-19 pandemic, but that performance had since improved. Unsecured lending is bank speak for loans that don’t require collateral. Credit card lending is a prime example of unsecured lending since the client can borrow without an asset as security to pay back the debt.
Thomson emphasized that the unsecured part of its international portfolio made up a relatively small portion of the bank’s operations.
“So, what I’m really talking about here — and it’s really important that people focus on this because our international business gets so much attention for sometimes the wrong reason — 2.5 per cent of the bank’s (net income after taxes) is in unsecured retail in Peru,” he said.
Thomson added that given its lagging performance during the COVID pandemic, Scotiabank is selling one of its businesses there to reduce the unsecured mix further.
“We really need to align on how we’re going to run that unsecured retail business, and I do think there’s an opportunity to make that important in the context of it only being 2.5 per cent, but you can get higher rounds in that business if it’s done right,” Thomson said.
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He pointed to successes in the Mexican market as a model to be emulated.
“I take Mexico as a shining example of where we should try to get to, you’ve got a great franchise there,” he said, adding there was an eight-per-cent market share and a return on equity greater than 20 per cent. “So, there’s an example of a great platform that we should aspire to have, and then great connectivity back to the Americas when you think about Canada and the U.S. So, that’s an example of what we’re trying to do.”
Questions about whether Thomson would alter Scotiabank’s international strategy, which has frequently been blamed for the bank’s lagging share price, have swirled since he was first announced as its next leader.
“We have to assume that change will be coming,” Canadian Imperial Bank of Commerce analyst Paul Holden wrote at the time, noting that Thomson had been characterized as an “agent for change” during his time at Finning International Inc.
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