Follow the money
Scotiabank is lagging behind its big rivals, RBC, TD Bank, and BMO. And it wants to do something about it quickly. The bank is making a major strategic shift and will reduce its exposure to Latino countries that have delivered poor returns.
Customers in Brazil, Venezuela, Peru, and many other South American countries will soon be seeing less of the Scotiabank footprint as a result.
Bank of Nova Scotia now plans to go after a larger share of customers’ wallets in Canada and USA, as it refocuses its business on North America, shifting capital away from operations in Latin America
Bloomberg reported that Scotiabank has established a new transformation office to deliver on strategic priorities that include better productivity and moving away from a volume-based approach to customer acquisition in favor of one aimed squarely at profit, Chief Executive Officer Scott Thomson said during an investor day briefing.
He pointed out that “there are clear realities that have impacted our relative performance. First and foremost, we are behind in winning primary relationships, with approximately 16% of clients using Scotiabank for their day-to-day banking needs.”
Thomson, who became CEO in February and has spent the months since then formulating the fresh approach and recruiting new leaders for key divisions, outlined why he believes Scotiabank has lagged behind its peers on shareholder returns over the past decade.
In Canada, the bank’s loan-to-deposit ratio is too high, meaning it has to rely on costlier wholesale funding, he said. Meanwhile, the lender has less market share than its rivals in most product lines, other than mortgages and auto loans, and it has fewer deposits and clients per branch.
The company is the Canadian bank with the largest international footprint, but businesses in Latin America — particularly Peru, Chile and Colombia — have too many clients with only one banking product, Thomson said, and its capital-markets business there is flagging due to relatively lower fee pools in the region.
The bank will now allocate 90% of incremental capital to the “priority businesses of Canada, the US, Mexico and the Caribbean,” the CEO said. The lender’s Mexican business is a top-five bank in that market, Thomson said, highlighting the opportunity to tap into $1.6 trillion in annual trade flows among Canada, the US and Mexico.
The bank said it wants to increase its personal and commercial deposits by C$200 billion by 2028. It also wants to go after more businesses in the large provinces of Quebec and British Columbia and target more small-business and credit-card customers. The lender’s online bank, Tangerine, will be part of that strategy, Thomson said.
Big banks rivalry and TD, RBC response
Catching up might not be easy to do. TD bank has made U.S. growth a key priority as it deals with a saturated market in Canada and had pinned its hopes on $13.4 billion bid for regional lender First Horizon in May 2023.
Royal Bank of Canada (RBC) plans further expansion in the United States following its earlier $5 billion acquisition of Los Angeles-based City National.
How Scotiabank executes its latest strategy will determine its ranking and long-term standing. TD and RBC are neck to neck on the charts. BMO and Scotiabank are also in a tight race for 3rd and 4th position. Here are the Big Five banks ranked in terms of net revenue:
- Royal Bank of Canada (RBC) — $48.99 billion.
- Toronto-Dominion Bank (TD) — $46.17 billion.
- Bank of Nova Scotia (Scotiabank) – $31.42 billion.
- Bank of Montreal (BMO) — $33.71 billion.
- Canadian Imperial Bank of Commerce (CIBC) — $21.83 billion.
