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With its exit from Central America and Colombia, Scotia Bank follows the trend of international banks withdrawn in the midst of the costs and risks of compliance.
The Scotia bank has officially left retail banking services in Panama, Costa Rica and Colombia, marking the last decision of a large international lender to play in the region. The agreement, which gives SCOTIABANK a 20% participation in Banco Davivienda in exchange for its retail operations, highlights a wider trend as increasing costs of compliance, disintegration pressures and changing profits priorities push world banks to rethink their presence in Latin America and the Caribbean.
The release of Scotiabank also fulfills a promise that the CEO of Scott Thomson made in 2023 to refocus in more profitable North American markets. The decision marks the end of an expansion of more than a decade which initially challenged the trend of disintegration. In 2012, Scotiabank played a bold game for the growing financial sector of Colombia, acquiring majority participation in Banco Colpatria for $ 1 billion. He continued his thrust in the region in 2016, buying Citibank’s retail operations in Costa Rica and Panama for $ 360 million.
But while Scotiabank developed, many world banks already reassembled their footprint on high -risk markets.
“As large international banks that provide payment services to the region, are facing stricter compliance measures, many have made a cost-benefit decision that significant compliance costs do so far over the advantages,” said Adrian Stokes, CEO of Quantas Capital in Jamaica. “Consequently, it is wise to stop ceasing to offer banking services corresponding to regional banks.”
The change has accelerated in recent years, because the outgoing banks have cited a combination of the increase in compliance costs and concerns concerning money laundering money laundering (LMA) and the fight against financing of terrorism regulations (CFT). The American Treasury, the European Union and the Intergovernmental Financial Action Working Group (GAFA) have deemed certain high -risk markets, which makes operations more expensive. Increased capital requirements, introduced after the 2008 financial crisis to prevent rejuvenations funded by taxpayers, also contributed to the trend of disintegration.
Latin America and the Caribbean were the hardest affected, the first losing an average of 30% of its corresponding banks, according to a 2020 report from the Bank for the international colonies. The Bahamas, Belize, Dominique, Jamaica and Saint-Vincent and Grenadines have all lost at least 40% of their corresponding banks between 2011 and 2020, with Trinidad and Tobago Landing just below this threshold.
Economic consequences
Banking has limited access to international finances and credit in regions strongly dependent on funding, worth 20% to 27% of GDP in Central America, and tourism, which represents up to 90% of GDP in certain Caribbean nations. In 2022, tourism provided 1.8 million direct jobs and generated around $ 62 billion for the Caribbean: almost half of the $ 136 billion in GDP Estimates from the International Monetary Fund for the Region for 2024.
A corresponding banks of banks reduces access to international finances and credit, increases the cost of transaction of cross -border payments and delays innovation, such as hotel attempts to go without cash. For customers, the effects can range from access to trade funding, problems with compensation checks and foreign money transactions and increased dollar supply problems in certain countries.
During the decade since HSBC was sentenced to a fine of $ 1.9 billion for laundering cartel in Mexico, other banks are still the subject of a survey, including Wachovia and TD Bank, which were sentenced to a fine of $ 3 billion last October by the American Treasury Department Creation Network.
“The same problems on the central and Latin American markets are amplified in the Caribbean,” explains Christopher Mejia, sovereign analyst of emerging markets at T. Rowe Price. “Operating costs must include natural disasters in a more difficult environment than in Central America, and [with] much smaller profits to make. Banks are now taking into account the risk of reputation for laws and rules of privacy, especially after Panama newspapers [scandal]. “”
Dis-Insking also had an impact on money transfer organizations (MTOS) such as Moneygram, Paypal, Western Union exchange. Many have made decisions similar to the deactivation of the region.
While Scotiabany will retain its commercial banking operations in Colombia, it mainly serves as a relation of relations management for large private companies in search of international banking advice.
“This is a significant change in the way we allocate capital,” Thomson told a round media table in December 2023, referring to the scotiak plan to focus on the more profitable North American markets. “The return profile of the International Bank was not proportionate to the risk, and this was a guardian of overall yields.”
Fill the gap
For Customers of the Caribbean and Latin America, the quarter of work is of location or domestication because the operations of international banks are removed by local banks or by large conglomerates in the region.
Bancolombia and Grupo Aval, who are together Banco de Bogotá and the BAC group in Central America, were one and two on their local market until the Scotiabank and Banco Davivienda agreement. They have developed considerably in Central America, after having acquired Banco Reformador (Grupo Financierro Reformador) in Guatemala for $ 411 million in 2013. The same year, Bancolombia acquired 40% of Banco Agromecantil, also in Guatemala, for $ 217 million.
“Colombian banks know the operational environment in Central America very well,” explains Mejia. “Colombian customers do business in Central America, so they really have scale savings in these markets.”
By coincidence, the Scotia bank announced that in some of the Caribbean markets on which it remains active, the profitability of banks in 2024 was the highest in a decade. In the Bahamas, the net profit of $ 70 million was 46% year -round year compared to 2023. And the Scottish group Jamaica declared before tax profits of $ 164 million last July, also 46% higher than the previous year.
In a difficult environment, complicated by a new American administration, what does the region need in terms of banks? “Niche players who are ready to work with regulators,” suggests to Mejia “the region needs disruptors who are ready to work in regulatory executives. Once these creators are, there is room so that more niche players are emerging. »»
However, the solutions to disintegration that would maintain world payers in the region are not obvious. For world banks pinning their hopes on technology as a solution to operational costs and regulatory problems, blockchain and fintech are always faced with the same problems as traditional banks. The Neobanks have made a strong push in Mexico, in particular the Nubanque of Brazil, as have non -traditional financial institutions such as free and Ualá Mercado in Argentina. The latter are part of 50 companies awaiting verification by the National Banking and Securities Commission (CNBV); The process can take at least 12 months and is known for delays.
The Caribbean find its own potential solution in stable parts at Central Banking, such as the digital currency in the East of the Caribbean. But laws are always implemented through the assortment of jurisdictions and defensive countermeasures by the region with cyber attacks are always insufficient. Cyberattacks are always emerging in the region, so users have not faced the volume of other parts of the world. A second concern is a brain flight in the region, an international survey on the information certification consortium of the information system in 2021, suggested that Latin American needs 530,000 additional cybersecurity professionals. “There is no miracle solution for the challenges of compliance with which the region is confronted,” says Stokes. “The only lasting way to solve this problem is that the region works in unison to improve controls around LMA / CFT problems.”
Certain governments of the region blame the tendency of derision on inconsistency and regulatory changes by the American Treasury, the FATF and the EU. To these questions, the discrepancy between countries adopting the laws – which banks then comply – and the delay in the withdrawal of the surveillance lists for months after. Some Latin and Caribbean countries say that this is equivalent to intimidation by more developed countries.
Last fall, President José Raúl Mulino of Panama and others warned that countries in countries that did not update their tax shelf lists would not be taken into account for state contracts. Since the $ 6 billion railway project at $ 8 billion, the Panama-David railway project is to be offered, is not an empty threat.