This article first appeared in The Edge Malaysia Weekly on January 24, 2022 - January 30, 2022
THE Bank of Nova Scotia Bhd (Scotiabank) has been winding down its operations and will exit Malaysia before year end, say sources, putting an end to its 49-year history in the country.
The low-key bank is wholly-owned by Canada’s third-largest lender by assets, Bank of Nova Scotia. It commenced operations in Malaysia in 1973 and became a locally incorporated entity in 1994.
“The staff have all been informed,” one source tells The Edge.
Scotiabank CEO and country head Sivadas Menon declined comment when contacted, while Bank of Nova Scotia did not respond to an email seeking comment.
Scotiabank makes mention, however, of the wind-down plan in its latest unaudited financial statements for the first nine months of the financial year ended Oct 31, 2021 (9MFY2021).
“The holding company [Bank of Nova Scotia] has decided to wind down its operations in Malaysia and, in July 2021, the board of directors approved the bank’s wind-down plan. Arising from this, the bank has recognised RM26.26 million of wind-down cost [in 3QFY2021],” it said in a review of its quarterly performance. It provided no further details of the plan.
The wind-down cost comprised a provision for severance payments of RM21.045 million, impairment of property and equipment (RM2.6 million) and other provisions (RM2.615 million).
Industry sources say Scotiabank’s plan to exit Malaysia comes as no surprise, given how its assets have dwindled over the years. The bank, which does mainly corporate banking, is small, with assets of only RM1.28 billion as at July 31 last year compared with under RM5 billion eight years earlier.
Back in May 2017, Scotiabank was to have been acquired by Taiwan-based Cathay Financial Holdings Co for US$225 million, or about 1.15 times its book value then. At the time, Scotiabank’s Canadian parent wanted to sell the Malaysian operation as part of a wider plan to scale back in Asia and focus on its domestic market as well as certain key South American markets.
However, after almost a year of waiting for Bank Negara Malaysia to approve the acquisition, the deal was scrapped. Cathay Financial said through a filing with the Taiwan Stock Exchange in April 2018 that it had terminated the deal because certain terms had not been fulfilled.
Had the deal gone through, Cathay Financial would have been the first financial group from Taiwan to have a banking subsidiary in Malaysia.
Scotiabank had as many as five branches in Malaysia in 2007, when it had a stronger focus on retail banking. Today, it has just one branch in Menara Hap Seng in Jalan P Ramlee, Kuala Lumpur.
Analysts point out that, given its small size, Scotiabank faces an uphill battle trying to grow in Malaysia as it is a highly competitive market. There are currently 26 commercial banks in the country, of which 18 (including Scotiabank) are foreign-owned.
Its planned exit adds to a number of other foreign banks that have recently closed operations in Malaysia. National Bank of Abu Dhabi Malaysia Bhd, which set up operations in the country in July 2012, closed six years later in 2018. And The Royal Bank of Scotland Bhd, a profitable entity, wound down its operations in 2016, ending its more than 120-year history in the country.
Scotiabank reported a net loss of RM47.51 million in 9MFY2021 compared with a net profit of RM5.31 million a year earlier, dragged down by the wind-down cost and higher allowance for credit losses of RM36.01 million compared with RM20.66 million before.
Net income declined to RM33.31 million from RM47.83 million, while operating profit fell to RM14.79 million from RM27.81 million.
Scotiabank’s gross loans and advances stood at RM540.22 million as at July 31 last year, the bulk of which comprised revolving credit (RM282.44 million), bills receivable (RM147.79 million) and housing loans (RM70.7 million). Its biggest customers by loan value were domestic business enterprises (RM248.6 million), while loans to individuals were relatively small (RM65.37 million).
The bank’s biggest exposure was to the manufacturing sector (RM198.6 million), followed by the finance, insurance and business services sector (RM166.26 million) and residential properties (RM71.31 million).
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