A bank merger in Thailand may finally give Bank of Nova Scotia a path to retreat from the Southeast Asian nation after three years of trying.
Thai lenders Thanachart Bank Pcl and TMB Bank Pcl are in talks to merge in a deal supported by Thailand’s government. Such a transaction could give Canada’s Scotiabank — which owns 49 percent of Bangkok-based Thanachart Bank — the opportunity and motivation to downsize or even exit its investment, according to National Bank Financial analyst Gabriel Dechaine.
“It’s an asset that makes sense for Scotiabank to dispose,” Dechaine said in a phone interview from Toronto. “It’s tough to manage far-flung operations, and anything that makes you less complex is generally a good thing.”
While Scotiabank’s involvement in Thai consumer banking goes back more than a decade, the Canadian lender has been reviewing a sell-down or exit for three years as Chief Executive Officer Brian Porter focused his attention on Latin America’s four Pacific Alliance nations: Mexico, Chile, Peru and Colombia. Scotiabank, Canada’s most international bank, has been paring back its overseas operations, including its recent plans to exit nine Caribbean nations, in favour of Latin America.
“Strategically it makes sense for Scotia to look for the exit and concentrate its international focus on a smaller footprint, namely the Pacific Alliance region, where they have more scale and geographically more linkage,” Dechaine said. “The catch is, Thanachart is a money-making operation, and how do you replace those earnings?” Thanachart represents about 3 percent of Scotiabank’s earnings, according to Dechaine.
Scotiabank bought 25 percent of Thanachart Bank for about C$225 million in July 2007 ($216 million at the time) and two years later spent an additional C$270 million to boost its stake to 49 percent, the regulatory limit for a foreign bank in Thailand. In 2010, the Toronto-based lender contributed about C$650 million in capital to Thanachart Bank as part of a takeover of Siam City Bank that year.
The Thanachart stake had a carrying value of C$2.96 billion on Scotiabank’s balance sheet at the end of October, according to Scotiabank’s latest annual report. Thanachart Bank had annual revenue of C$1.87 billion and net income of C$590 million, with total assets of C$39.9 billion and total liabilities of C$34.3 billion, Sco-tiabank said in the report, citing the most recent available financial statements.