Scotiabank Completes Transfer of Colombia, Costa Rica, and Panama Operations to Davivienda Group

The Bank of Nova Scotia operating as Scotiabank (TSX: BNS, NYSE: BNS) and Colombia’s Banco Davivienda S.A. (BVC: PFDAVVNDA) announced on November 24 that all required regulatory approvals have been secured for the completion of the previously announced transfer of Scotiabank’s banking operations in Colombia, Costa Rica, and Panama to Davivienda.

The approvals were received from the financial regulatory bodies in the respective jurisdictions, including the Superintendencia Financiera de Colombia (Superfinanciera), the Superintendencia General de Entidades Financieras (SUGEF) of Costa Rica, and the Superintendencia de Bancos de Panamá (SBP). Following the closure of the transaction, the combined operations of both institutions will function under a new holding company, Davivienda Group (BVC: PFDAVIGRP).

The transfer formalizes an agreement initially disclosed by Scotiabank on January 6, 2025. Under the terms, Scotiabank transfers its banking operations in the three Central and South American nations in exchange for an approximate 20% ownership stake in the resulting Davivienda Group on a pro forma basis.

Following the closure of the transaction, the combined operations of both institutions will function under a new holding company, Davivienda Group (BVC: PFDAVIGRP).

The consolidation is structured to achieve greater operational scale for Davivienda across all three markets. Furthermore, as part of the transaction, Mercantil Colpatria is scheduled to sell its residual interest in Scotiabank Colpatria, its joint venture with Scotiabank in Colombia.

For Scotiabank, the divestiture aligns with its five-year strategy focused on enhancing profitability across its international banking portfolio by streamlining operations in non-core markets. The company stated the transaction reduces operational complexity and helps strengthen its capital focus on its primary growth corridor across North America and select Latin American markets. The sale is considered capital neutral overall, with the potential to contribute to future earnings.

The agreement also stipulates that Scotiabank will receive a combination of newly issued common and preferred shares in the new entity, commensurate with its ownership stake. Scotiabank will also retain the right to designate individual(s) to serve on the Board of Directors of the Davivienda Group’s combined operations.

The two institutions intend to establish a mutual referral agreement to ensure Scotiabank can maintain support for its Corporate, Wealth, and Global Banking and Markets clients across the expanded Davivienda service footprint.

Financial Impact and Accounting

The initial announcement in January 2025 indicated that Scotiabank’s operations subject to the transfer would be classified as assets held for sale for accounting purposes. This classification necessitated the recognition of an after-tax impairment loss of approximately $1.4 billion CAD in the first quarter of 2025. The impairment was projected to reduce Scotiabank’s Common Equity Tier 1 (CET1) ratio by an estimated 10 to 15 basis points.

The company further disclosed that an estimated $300 million CAD in additional losses will be recorded upon closing, primarily related to cumulative foreign currency translation losses.

Upon the transaction’s completion, Scotiabank’s 20% equity stake in Davivienda Group will be recorded as an investment in associate. The reduction in risk-weighted assets from the transfer is expected to result in a commensurate benefit to the CET1 ratio, estimated at approximately 10 to 15 basis points.

Davivienda Group, which originated as Corporación de Ahorro y Vivienda in Colombia in 1972, is a regional banking entity serving roughly 25.6 million customers through a network that includes 653 branches and more 2,807 ATMs, with established operations in Colombia, Costa Rica, El Salvador, Honduras, Panama, and the US. The institutions have stated they will collaborate to facilitate a smooth transition for clients and employees in Colombia, Costa Rica, and Panama.