Strong economic expansion, consumption in 2011 bode well for Scotiabank

Monday, February 7, 2011

Robust economic expansion and domestic demand expected for 2011 should spur consumer credit growth in Uruguay and in turn bode well for Canadian bank Scotiabank's (NYSE: BNS) acquisitions of number four private sector player Nuevo Banco Comercial (NBC) and the country's third largest consumer finance company Pronto!, Fitch analyst Santiago Gallo told BNamericas.

"With NBC and Pronto!, [Scotiabank] has access to all market segments. Consumer lending is growing strongly on the back of a vibrant economy and it is expected to keep expanding," he said.

While Uruguay's central bank BCU does not break down loan growth by segment, private sector banks' net lending rose 17% to 202bn pesos (US$10.3bn) last year.

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In 2010, Uruguay's economy expanded by 8.5% thanks to vigorous growth in domestic demand and exports in the context of strong growth in partner countries, high commodity prices, ample global liquidity and low international interest rates, according to the IMF.

The entity is expecting Uruguay's GDP expansion to slow down to 5% this year, with real consumption growing 7% from 6.3% last year.


Gallo also said Scotiabank should have no major trouble in cleaning up either company's balance sheet since asset quality is at very healthy levels, also helped by the good performance of the economy over the last few years.

According to the IMF, non-performing loans (NPLs) in Uruguay are at record low levels under a regulatory regime in line with international best practices.

The banking system's asset quality kept improving last year, with the NPL ratio improving to 0.90% as of December 31 from 1.01% a year ago, according to BCU.

However, the IMF said that strong domestic demand and the risk of inflation becoming stuck above official targets call for a continued measured normalization of the country's monetary stance.

Last week, Scotiabank said it closed the transaction to purchase Pronto!, which was announced together with NBC's acquisition on December 6, 2010.

With 600 retail points of sale and 37 branches, Pronto! has some 200,000 clients and is the market leader in personal loans, according to Scotiabank.

Terms of the agreement are not financially material to Scotiabank group and were not disclosed, but analysts believe the purchase of NBC and Pronto! came in at some US$250mn-300mn.