Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) or Scotiabank is known to be Canada’s most international bank. Specifically, it generates about 56% of its earnings in Canada, 21% in Pacific Alliance countries, 8% in the Caribbean, and 7% in the U.S.
The quality bank has made a number of advances in the last year, which should lead to longer-term growth and an increasing dividend.
Advancing in its business expansion
Scotiabank made some key acquisitions this year. It became the third-largest Canadian active asset manager when it acquired Jarislowsky Fraser (JF), which had $40 billion in assets under management on behalf of more than 500 institutional and high net worth clients
This acquisition expanded Scotiabank’s wealth and asset management businesses along with the bank’s acquisition of MD Financial Management (MD), which had 110,000 customers and $49 billion in assets under management and administration.
Scotiabank isn’t expanding blindly. With the JF and MD acquisitions, Scotiabank is aiming for its wealth management segment to contribute about 15% of its earnings over the next five years.
It has also chosen to exit almost a dozen non-core geographies, and has primarily focused on the countries in the Pacific Alliance region: Chile, Colombia, Mexico, and Peru.
Over the past four years, it has increased its earnings by more than 70% in the region. Management believes there’s lots of growth potential from the Pacific Alliance countries because of their young populations with a median age of 29 compared to Canada’s median age of 42. Furthermore, only about half of the citizens there are believed to hold a bank account.
Scotiabank further strengthened its position in two of the four Pacific Alliance countries this year. It doubled its market share and became the third-largest private bank in Chile when it acquired BBVA Chile, which added 500,000 customers and $29 billion in assets to its portfolio. It also acquired Citibank’s consumer and small and medium enterprise operations in Colombia.
Advancing its processes
Scotiabank has made significant progress in improving its processes across the bank. In fiscal 2018, with a focus on re-engineering its processes, it managed to deliver more than $1 billion of run-rate savings — far exceeding the target of $550 million for the year. Other than cost reduction through process optimization, it’ll also focus on enhancing revenue.
Advancing in technology
Scotiabank continues to invest in technology. This year, it invested $3.3 billion or about 11% of revenue on technology, which aligns with its global peers’ spending.
The bank has applied automation, machine learning, and artificial intelligence with the goal of reducing costs, enhancing productivity, and reducing error rates.
Scotiabank has also shifted its software development to the Cloud. Specifically, it has a Cloud-based development, deployment, and production platform, PLATO, which has allowed it to deploy software quickly.
For example, in Mexico, Scotiabank used PLATO to develop a new insurance offering, which drove a 180% increase in conversion rates of insurance quotes and doubled the percentage of digital sales from 8% to 16%.
Investor takeaway
Scotiabank achieved earnings-per-share and dividend-per-share growth of about 7% and 6%, respectively, in the past few years. Its recent return on equity of 14.9% was decent.
A lot happened at Scotiabank this past year. In the near term, the international bank will be working on digesting its acquisitions. It’s good to see the bank improving its processes, reducing cost, and making technological advancements.
If the bank executes well, it can experience higher growth. In the meantime, investors can grab the stock at a meaningful discount for a safe yield of about 4.7%.
