Bank of Nova Scotia main branch in Calgary, Alberta

Bank of Nova Scotia’s exit from the Puerto Rican market will boost its capital position and accelerate its strategy, says Fitch Ratings.

In a new report, the rating agency said the bank’s decision to sell Scotiabank de Puerto Rico to OFG Bancorp is consistent with its strategy of geographic de-risking and increasing its focus on key markets, such as Canada and certain foreign markets (Chile, Colombia, Mexico and Peru).

Scotiabank will record a loss of $400 million related to the sale in its fiscal third quarter, Fitch noted.

Yet, the deal will also improve its credit quality and will increase its common equity Tier 1 ratio by five basis points, it said.

Along with its other recent divestitures from Thailand and El Salvador, Scotia’s Tier 1 ratio may rise by as much as 36 bps, Fitch notes.

The report also suggested that Scotia’s exit may touch off a trend of other international banks pulling out of Puerto Rico amid strong domestic competition and a difficult long-term operating environment.

Fitch predicted further consolidation in that market, benefiting the larger local banks.