Bank of Nova Scotia, Canada’s third-largest lender by assets, is seeking to boost annual profit contributions from its Thai unit by 38 percent in three years as it absorbs an acquisition.
Thai contributions could rise to C$200 million ($193 million) by 2015 from C$145 million for the year ended Oct. 31, 2012, Brendan King, a senior vice-president of international banking at the Toronto-based bank, said in an interview in Singapore yesterday. Scotiabank seeks to increase return on equity from its Thanachart Bank unit to the “mid-teens” in three to five years from about 11 percent to 12 percent now, he said.
Scotiabank bought a stake in Bangkok-based Thanachart in 2007 and increased it to 49 percent in 2009. The next year, Thanachart paid C$2.2 billion to purchase Siam City Bank Pcl, the integration of which is not yet complete, King said. The purchases were part of an expansion strategy that has given Scotiabank businesses in 14 Asian countries and territories.
“In Thailand, we’re really focused on putting in the infrastructure platforms, processes and technology to optimize the Siam City acquisition,” said King, who is also Thanachart’s deputy chief executive. “We’re really focused on maximizing that opportunity for the next two years before we put our head up and look around again.”
Contributions from Thanachart to Scotiabank’s profits should grow to at least C$180 million for the year ending Oct. 31, King said. That excludes a one-time gain of C$150 million from the sale of Thanachart’s life insurance subsidiary to Prudential Plc, announced last November. Scotia’s net income attributable to common shareholders for the year ended Oct. 31, 2012, was C$6 billion.
Scotiabank rose 0.2 percent to C$58.95 at 4 p.m. in Toronto. The shares gained 2.6 percent this year, outpacing the 2.4 percent advance of the benchmark Standard & Poor’s/TSX Composite Index.
Scotiabank will look at expanding in Vietnam, Indonesia and the Philippines “very seriously in 2014,” King said. While the lender is known more as a wholesale and trade finance bank in Asia, it wants to expand in retail banking in those countries, he said. The bank has a representative office in Vietnam and no presence in the other two, King said.
Entry into these countries will be directly by Scotiabank, which will probably open a representative office first, he said. The lender may then partner with local banks and consider acquisitions, he said.
The Philippines is predicted to grow 6.81 percent this year, the fastest in Southeast Asia, followed by Indonesia and Vietnam at 5.3 percent, and Thailand at 3.11 percent, according to International Monetary Fund forecasts. The U.S., the largest economy, and Canada are expected to grow by 1.56 percent and 1.61 percent, respectively, the data show.
“We really focus globally on high-growth markets where the population may be under-banked or population demographics are supportive and you see the middle class growing and developing,” King said. “Markets in Southeast Asia certainly fit that bill.”
About 63 percent of Canadian companies operating in the region became profitable within three years, according to a survey released today by Singapore’s United Overseas Bank Ltd. and the Asia Pacific Foundation of Canada. The cost of doing business in the region makes it a “compelling location for businesses seeking expansion opportunities,” said Ian Wong, a managing director in the international banking division of UOB.
King said he expects the anticipated creation by 2015 of an economic zone in Southeast Asia modeled after the European Union will encourage more Thai banks to expand outside their home country, especially into neighboring Cambodia, Laos and Myanmar. Thanachart may be the vehicle through which Scotiabank gets into these countries, he said.