Moody’s Mulls Upgrade for Scotia Chile Unit

In the wake of the acquisition, Moody’s changed the rating outlook on Scotiabank Sud Americano to positive from stable. It has a financial strength rating of D+, long-term local currency deposits of A2 and the local currency senior debt is rated A2. “The acquisition of Desarrollo enhances Scotiabank’s franchise value in Chile,” says Moody’s. “Although the transaction will materially impact Scotiabank’s capital ratios, those ratios will remain within expectations at its current bank financial strength rating,” it adds. The acquisition will increase Scotia’s Chile deposit market share to 5% from 2% and almost tripling its branch network and enhance its earnings stability. “Presently, [Scotia Chile’s] franchise is weighted towards corporate banking and its earnings are low, on a risk-adjusted basis, due to a lack of business line diversification and poor efficiency,” says Moody’s. Desarrollo’s portfolio of loans to mid-sized companies and consumers will help diversify and make more granular the asset base, thereby, improving earnings stability, adds the agency.