How will Scotiabank's recent acquisition of Citigroup's consumer and commercial banking operations in Costa Rica and Panama affect your own operations?
The primary reason we went forward with the acquisition is because it is complimentary to our business considering the segments in which Scotiabank is growing and is often the market leader. In terms of personal banking, Scotiabank is primarily engaged in secured lending for mortgages and cars. By comparison, Citibank's operation was focused on credit cards, which is an unsecured business with higher margins. The businesses complimented each other and the acquisition created a more balanced sheet for Scotiabank. Our market share for credit card operations before was 4%, while now it is closer to 15%. We also acquired a significant amount of strong talent, so the organization's talent pool has grown in an important way, which is something that we are always looking for. Here in Costa Rica, around 80% of our lending is in US dollars and only 20% is in Costa Rican colón, which is not unusual in the private banking industry. The reverse ratio was occurring at Citibank because credit cards are largely used in the local market and thus most transactions take place in colón. Another advantage of the acquisition was also to reduce the weight of dollars on our balance sheet in Costa Rica. The acquisition also more than doubled our customer base with the 240,000 new customers that we gained.
How is Scotiabank ensuring a smooth transition for previous clients of Citibank?
Clients are at the center of what we do. We are taking our time and not rushing the transition process. We announced the acquisition in July 2015, waited for the regulatory approvals, and then we took control in February 2016. It may take anywhere between 28 and 36 months before we completely merge the entities. This length of time will allow us to build the infrastructure for the call centers and to support the credit cards. We have to build a new software platform because what we have at Scotiabank today is not robust enough to take over the significant volume we have gained from Citibank's operation. We also need to manage the ecosystem. We are doing everything in an organized and incremental manner. Scotiabank has done over 25 integrations over the last 15 years, so we have the experience to do this successfully for our clients. We want Scotiabank's existing customers to see improvements to the levels of service they receive, and we want our new customers to have a great experience with us through this process.
What were some of the main challenges that Scotiabank had to face when entering Costa Rica over 20 years ago, and what opportunities did you foresee?
We entered the market by purchasing a small bank that was focused on car lending, which was an industry we knew well. We currently have 110,000-115,000 personal clients, and about 1,000 commercial and corporate clients here. Our total portfolio amounts to about $1.5 billion in the retail segment and $750 million in the commercial segment. Our corporate clients include all of the large multinationals with operations in Costa Rica. The main challenge when we entered the market was to expand the value proportion of the bank. The challenge grew when the decision was taken to buy Banco Interfin; we were a small bank buying a big bank. The challenge was to integrate two cultures and systems into a third model, and we went through a rough ride between 2007 and 2009. It took us two years to transfer everything over, and it was a challenge to maintain our market share while going through such a significant transformation. The real opportunity was the market, as it was booming. Unfortunately there was a sudden drop in 2008-2009, which compounded the challenges of integration and expansion. The challenge for us today is to push the bank more into local currency lending. We have a high-quality portfolio, as risk management is one of our key strengths, and we are trying to focus on customers. Securing market share is an important game. However, we need to balance growing our market share with maintaining primary customers.
What CSR initiatives does Scotiabank have in Costa Rica?
Scotiabank is an organization that gives back to the societies in which it operates; therefore, we have a strong CSR focus. We focus primarily on youth, sports, and the environment. We do have huge global sports sponsorship arrangements, but our primary in sports focus is again on kids. We measure this not so much in terms of the amount of money the bank invests, but in terms of the time our staff invests. One of the CSR projects that we are proud of is the La Sabana Park Rehabilitation Project in San Jose. Costa Rica's primary airport was on this site many years ago, and after it closed eucalyptus trees were planted here, which are not native to Costa Rica. The eucalyptus trees were preventing other plants and bird life from thriving in the area. In 2008, we started a huge project supported by a variety of entities to cut down the eucalyptus trees and replace them with native trees. The birds are starting to come back as a result, and the aim is eventually to have La Sabana reflect the biodiversity of the country.
What are your medium-term projections for Costa Rica's banking sector, and how does Scotiabank fit into this outlook?
What has changed is the exit of other international players, namely HSBC and Citibank. This has opened the door to the arrival of strong Colombian groups. I would tier our banking system into four groups. The first group consists of state banks, which enjoy an unlimited government guarantee. The second tier would be of large private banks, which includes Scotiabank and two Colombian banks. There are also regional players, which are smaller entities than the two Colombian banks and ourselves, but they have operations all over the region. The fourth tier is comprised of the smallest banks that are just now coming into the market. They usually operate just in Costa Rica and maybe one or two other countries, but no more than that. Each of these four tiers offers a different value proposition. The task for us is to ensure that we leverage our position as the only international bank here. We also need to leverage our global network and knowhow while remaining relevant in all of the different market segments in which we operate. We are focusing the organization on the customer and on ensuring that we make it as easy as possible for customers to deal with us. This is our common framework, and it is part of maintaining our competitiveness in the market. Scotiabank has been making digital investments across the world, and this is a milestone moment for the group globally.