Scotiabank has announced plans for international
expansion, particularly in Mexico where it aims to establish a
consumer finance business and wants to nearly double its branch
network in the next three years. It also plans to broaden its
traditional mid-market segmentation strategy, writes Douglas

Scotiabank, Canada’s third-largest bank by assets, has said that
it will open 100 new branches in the buoyant Mexican market next
year, adding to its nearly 550 existing branches. It hopes to boost
the total to 900 locations in the next three years. It will also
set up a consumer finance business in Mexico, in an attempt to
target Mexican customers who have typically borrowed their money
from retailers.

Scotiabank, Canada’s self-styled ‘most international bank’, has
operations in India, China, Thailand, Malaysia, the Caribbean and a
number of Central American and Latin American countries. It held
its annual investor conference in Peru in mid-October to highlight
its global credentials. Scotiabank’s international division
contributed 31 percent of the bank’s C$3.55 billion ($3.5 billion)
profit last year, compared with 19 percent in 2000.

The bank has also announced plans to broaden its segmentation
strategy, having traditionally focused its efforts on three
segments: mid-market personal banking, corporate and


According to Rob Pitfield, the bank’s executive vice-president
international banking: “We have expanded this to three others –
consumer finance, small business and the affluent – and will now
attack the marketplace through six different segments. We will run
each segment as a business line with its own operating metrics,
profit plans and financial reporting. The affluent segment for
example, is not one that we have really turned our mind to in a
serious way – we will do that now and it represents an excellent
opportunity for us.”

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Scotiabank has been working on a consumer finance strategy for
Mexico for the past year and has drawn on the experience gained
from its acquisition of consumer finance banks in Peru and El
Salvador. It has been speaking to Mexican retailers about setting
up alliances and believes that the consumer finance model will
attract customers who might otherwise be intimidated by visiting a
bank branch.

Anatol von Hahn, the chief executive officer of Scotiabank Mexico,
said at the investor conference: “The first step is let’s get in
with credit cards, small credit amounts, a lot of lessons to be
learned, hopefully good and bad, and then fix the bad. Having a
partner that has some experience helps us, because we can short cut
some of those lessons.”

Optimistic about Mexico

With a banking penetration rate in Mexico of only 36 percent
(compared to over 90 percent in Canada), a growing economy,
inflation converging to US standards and country risk at a low
rate, Scotiabank is optimistic about future growth in Mexico.

In the past five years, its Mexican operation has achieved 21
percent CAGR in loans, reported a 34 percent CAGR increase in
profits during this period and reduced its cost-income ratio from
76 to 57 percent.

“With 105 million people, the population [of Mexico] is more than
three times that of Canada and more than half the population is
under 25 compared with less than one-third in Canada. A growing
middle class, which we define as households with monthly earnings
above $1,300 per month, has resulted in more than 11 percent credit
growth to the private sector in the past two years and will
continue above 10 percent for the foreseeable future,” said von


The consumer finance sector, which the bank now intends to target,
is defined by Von Hahn as workers who earn between $280 and $1,280
a month.

“We’re not doing it to just do a loan for a fridge or a toaster or
a suit, we’re doing it for a relationship. This segment represents
30 percent of Mexico’s spending power and constitutes 52 million
people and 12 million families, or 49 percent of the population,
and presents excellent growth prospects for Scotiabank. We’ve been
working on a strategy, and sizing the prize,” he said.

The bank will also continue to expand its traditional distribution
strategy. One successful example is its telesales operation, which
opened 160,000 new credit card accounts last year (70 percent of
total new accounts).

As regards the branch expansion plans, von Hahn said: “We’ve proven
that we can open good branches in good locations and get good
results. Now we’re pushing full-throttle ahead to grow with these
new branches. Our plan is built on organic growth [but] if any
inorganic opportunities present themselves, we’d take a look at

Grupo Scotiabank reported that its personal lending book including
credit cards rose by MXN836 million ($75.52 million), or 5 percent,
year-on-year to MXN18.57 billion in the second quarter of 2007.
Credit quality remained stable, but there was a slight increase in
delinquency in the bank’s credit card portfolio.


Claude Norfolk, the bank’s senior vice-president sales and
services, disclosed that, group-wide, the bank has work to do to
achieve increased cross-sell rates from its existing 5.2 million
international retail customers. “The mid-market is our traditional
strength and with over 50 percent of our customers under the age of
40, this represents an enormous lifetime opportunity for us. Our
approach is very clear, acquire the right customers get all of
their business and keep them for life,” said Norfolk.

“Of those 5.2 million international customers, 69 percent have a
deposit account but the 31 percent who do not represents 1.6
million people – 38 percent of our customers have loans but only 14
percent have an investment product and 24 percent an insurance
product – a big gap we need to fill. We have plenty of room to grow
with our existing mid-market customer base.

“For every one percentage point penetration in borrowings from this
base increases total revenue by $32 million and each 1 percent
increase in insurance penetration boosts revenue by $5

Increasing cross-sell rates

Norfolk predicted that by 2010, the bank could hope to increase its
international cross-sale rates by 4 to 6 percentage points. “These
are awfully big numbers if you can pull it off and moving these
rates by four to six points is very difficult to do and the
cross-sell rates will still be below our rates in Canada,” he

Scotiabank will target increased market shares by focusing on
customer satisfaction rates; currently, the bank reports that 67
percent of its customers surveyed are satisfied with the service
they receive.

“This is very high by industry standards and in almost every
country we are a cut above the competition by this benchmark but
frankly we are not satisfied with this lead,” said Norfolk.

Norfolk has targeted an increase of 10 percent in customer
satisfaction rates over the next 36 months.

The bank has also broadened its segmentation policy away from the
mid-market, and will now target six segments in the countries where
it operates, including the affluent, small business and consumer
finance sectors.

 “We will be more segment-specific. In Latin America and the
Caribbean alone, we have 2 million small business target customers.
In the affluent segment, there are more than 1 million households
to target with investable assets of more than $250,000 in our
markets. While we have a strong master brand it will be refreshed
and we have already introduced a new sub-brand for the affluent
segment – Scotiabank Scotia Private Client – and are doing the same
for the consumer finance segments,” said Norfolk.

Recent acquisitions

Scotiabank’s main international acquisitions in the past year have
been in Chile and Peru. Last year, it spent $390 million to buy two
Peruvian banks, which it then merged with its existing operations
in the country to form Scotiabank Peru.

It estimates that around 10 percent of its Peruvian consumer
finance customers will graduate each year to become regular bank
customers. It plans to boost its 143-branch network in the country
by adding another 15 spots next year. The Scotiabank Peru brand
launched last year involved a rebranding of all Banco Wiese and
Banco Sudamericano branches and offices and Scotiabank is now the
third-largest bank in the country.

In the Dominican Republic, it will increase to 70 its existing
58-branch network.

In August, it agreed to purchase 79 percent of Banco del
Desarrollo, Chile’s seventh-largest bank, for $810 million, adding
400,000 customers to its customer base. In time, Scotiabank plans
to purchase up to 100 percent of the bank. Combined with
Scotiabank’s existing Chilean subsidiary, Scotiabank Sud Americano,
the merged entity will become Chile’s sixth-largest bank with a
network of 131 branches.

Outside the region, it recently completed the initial purchase of
24.99 percent of Thanachart Bank, Thailand’s eighth-largest bank
with a network of over 150 branches, for C$240 million. Thanachart
Bank, formed from a finance company in Thailand, has announced
plans to launch a credit card business in 2008 and aims to acquire
100,000 customers in the first year. Credit cards will be the
platform the bank uses to cross-sell into other business such as
personal loans and will draw on the experience of Scotiabank’s
expertise in the credit card business.



Rival looks to US

Scotiabank’s investment in Central and Latin America contrasts
sharply with rivals such as Toronto-Dominion Bank, Canada’s
second-largest banking group. It has focused on overseas investment
in the US, where it will become the seventh-largest bank with more
than 2,100 branches following its purchase of Commerce Bank
(see RBI 580).