Scotiabank May Find Path to Exit Thanachart in Thai Bank Merger

(Bloomberg) -- A bank merger in Thailand may finally give Bank of Nova Scotia a path to retreat from the Southeast Asian nation after three years of trying.

Thai lenders Thanachart Bank Pcl and TMB Bank Pcl are in talks to merge in a deal supported by Thailand’s government. Such a transaction could give Canada’s Scotiabank -- which owns 49 percent of Bangkok-based Thanachart Bank -- the opportunity and motivation to downsize or even exit its investment, according to National Bank Financial analyst Gabriel Dechaine.

“It’s an asset that makes sense for Scotiabank to dispose,” Dechaine said Monday in a phone interview from Toronto. “It’s tough to manage far-flung operations, and anything that makes you less complex is generally a good thing.”

While Scotiabank’s involvement in Thai consumer banking goes back more than a decade, the Canadian lender has been reviewing a sell-down or exit for three years as Chief Executive Officer Brian Porter focused his attention on Latin America’s four Pacific Alliance nations: Mexico, Chile, Peru and Colombia. Scotiabank, Canada’s most international bank, has been paring back its overseas operations, including its recent plans to exit nine Caribbean nations, in favor of Latin America.

‘Makes Sense’

“Strategically it makes sense for Scotia to look for the exit and concentrate its international focus on a smaller footprint, namely the Pacific Alliance region, where they have more scale and geographically more linkage,” Dechaine said. “The catch is, Thanachart is a money-making operation, and how do you replace those earnings?”

Thanachart represents about 3 percent of Scotiabank’s earnings, according to Dechaine.

Scotiabank bought 25 percent of Thanachart Bank for about C$225 million in July 2007 ($216 million at the time) and two years later spent an additional C$270 million to boost its stake to 49 percent, the regulatory limit for a foreign bank in Thailand. In 2010, the Toronto-based lender contributed about C$650 million in capital to Thanachart Bank as part of a takeover of Siam City Bank that year.

The Thanachart stake had a carrying value of C$2.96 billion on Scotiabank’s balance sheet at the end of October, according to Scotiabank’s latest annual report. Thanachart Bank had annual revenue of C$1.87 billion and net income of C$590 million, with total assets of C$39.9 billion and total liabilities of C$34.3 billion, Scotiabank said in the report, citing the most recent available financial statements.

Scotiabank representatives declined to comment on the Thai merger or plans for the stake.

The Thai government is encouraging domestic banks to consolidate to improve competitiveness. Thanachart Bank is the sixth-largest bank in Thailand and is 51 percent owned by Thanachart Capital Pcl, a publicly traded company in Bangkok. TMB Bank is the seventh-largest bank in Thailand, and its largest shareholders are the Thai government and Amsterdam-based ING Groep NV.

Merger talks should be finished before Thailand’s elections, due in February, and final terms need government approval, Prapas Kong-Ied, director general of the ministry’s State Enterprise Policy Office, said in an interview last month.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;David Scanlan at dscanlan@bloomberg.net, Daniel Taub, Steve Dickson

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