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.