Scotiabank Peru's (SBP) Dec. 19 announcement to acquire Citigroup's retail and commercial banking operations in Peru is a modest step forward to widen the bank's local customer base and increase its market share in credit cards and personal loans, says Fitch Ratings. The acquisition will have limited impact on SBP's financial profile as Fitch estimates that the total assets to be acquired are less than 3% of SBP's total assets. SBP's assets were PEN47.4 billion (approximately USD15.8 billion) as of September 2014.
The acquisition, subject to regulatory approvals, includes eight branches and about 130 thousand Citi retail and commercial customers, according to company disclosures. The move is in line with the Bank of Nova Scotia's history of commitment to Latin America in Peru, as well as to other countries such as Mexico, Colombia and Chile.
SPB has been increasing its share of retail and SME lending in the Peruvian market where it is the third-largest bank with a market share of about 17%-18% by assets. The market share gains have led to better diversified revenues and wider cross-selling opportunities. Retail deposits have grown with lending, contributing to reduced concentrations on both sides of the balance sheet.
Both SBP and Citigroup's retail operations in Peru have demonstrated strong underwriting policies with adequate risk management. Even though SBP is eager to enter every banking market in Peru as part of its diversification strategy, the bank aims to contain the risk of specific sectors by limiting their relative sizes within the loan portfolio. Its sizable microfinance and retail segment exposures are well balanced by the bank's strong position in corporate lending.
The acquisition could lower SBP's common equity tier-one capital ratio by about 50 basis points. Fitch expects SBP's Fitch Core Capital (FCC) ratio to remain above 11%, pro forma for the acquisition. As regulators have tightened capital requirements, SBP's FCC has trended lower, but it should remain above its largest peers following the acquisition.
For Citi, the acquisition is in line with the bank's October 2014 announcement to exit 11 consumer markets outside the US. On Dec. 25, its second such agreement was reached when Citi announced it would sell its retail banking business in Japan to Sumitomo Mitsui Banking Corporation for terms undisclosed.
For Fitch's last comment on SBP, please see "Fitch Affirms Scotiabank Peru S.A.A. at 'A-'; Stable Outlook," available at www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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