As oil price woes weigh on banks, Scotiabank turns to Latin America

TORONTO – Declining commodity prices — particularly oil — are dampening the domestic growth prospects of the Canadian banks, but Scotiabank says at least one area of its business is still poised for expansion.

At its two-day investor event in Mexico City, the bank (TSX:BNS) touted its Latin American operations as one of the bright spots in its business.

“The countries that we have focused on, they are able to still generate growth not withstanding the softening in prices,” Dieter Jentsch, the bank’s group head of international banking, told reporters during a conference call Tuesday.

“And that’s because they have diversified economies and in many cases the reduction in energy costs is a net benefit.”

Canadian banks are grappling with a number of challenges on their home turf, including rock-bottom interest rates, which hurt the banks’ lending margins, and slowing loan growth amid debt-laden consumers.

Meanwhile, the oil price shock is expected to lead to higher loan losses both among companies in the oilpatch and consumers in Western Canada.

But internationally, Scotiabank is forecasting earnings from its operations in Latin America will grow by nine to 11 per cent a year over the next three to five years, citing demographic factors such as an expanding and a relatively underbanked middle class.

Scotiabank derives roughly a quarter of its earnings from its international banking division, which is highly concentrated in the Pacific Alliance countries of Mexico, Peru, Chile and Colombia.

The Pacific Alliance region is also poised to benefit from the Trans-Pacific Partnership trade deal, said Jentsch.

“The bank is supportive of the overall trade agreement,” he said. “It just opens the markets even more and provides more opportunities into the Asian markets for Latam countries.”

Follow @alexposadzki on Twitter.