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BCI: A Port of call for LATAM (or Miami) investors?

Base on 9M17 data, BCI revealed a steady financial profile, in terms of profitability, efficiency, asset quality, liquidity, and capital adequacy.

Diversified and recurring operating income streams, a low NPL ratio, cost controls and a balanced portfolio mix have helped support operating results.

More than 60% of the loan book are commercial loans and borrower concentration is low.

Funding is diversified, underpinned by a robust customer deposits base at home. BCI also has a financing foothold in international capital markets.

Liquidity management is very satisfactory as BCI meets a Basel III liquidity coverage ratio in excess of 100% and assets and liabilities tenor matching is a key priority.

BCI's tangible common equity ratio is relatively high and has improved since the 2015 purchase of City National Bank in Florida. (Risk-weighting rules under Basel I are strict in Chile).

BCI's has recently agreed to acquire TotalBank at a price of USD528 million. Totalbank has $3.04b in assets, $2.17b in loans, $2.18b in deposits and 17 branches in southern Florida. Going forward, synergies and efficiencies come into play regarding the Florida franchise. BCI will fund the transaction with a capital increase of USD365 million to maintain a reasonable Tier 1 capital ratio after the transaction is completed. The US assets will represent about a quarter of BCI's total base. There is always an execution risk.

BCI's growth profile is a combination of organic and acquisition which encompasses defensive qualities as well as a somewhat aggressive stance.

In Chile, a 100-bp interest-rate cut in the past year has put pressure on margins. Higher loan growth and fee income are thus under the microscope to offset declining yields. Results for banks in Chile will thus depend on higher margin consumer lending (not without risk) and fee income as well as technology improvements offsetting the effects on lending of slowing inflation given that credit growth is quite modest, the economy is expanding moderately, and credit costs are on the rise.

The regulatory transition to Basel III capital requirements poses a challenge to the Chilean system. Regarding capital, the key will be the introductions of market and operational risk weighted assets plus deductions such as positions in other assets. These changes to the Chilean General Banking Law are expected to support the sustainability of the system in general.

Chilean/Canadian Banks

Scotiabank says its offer to buy a sizable stake in BBVA Chile for $2.9-billion has been accepted.

The Canadian bank says BBVA agreed Tuesday to sell its 69.19 per cent stake in BBVA Chile and its interests in certain subsidiaries.

Scotiabank says it intends to merge BBVA Chile with its existing Scotiabank Chile operations, subject to regulatory approvals.

Chile's Said family, which owns 31.62 per cent of BBVA Chile, has waived its right of first refusal to acquire the share being sold to ScotiaBank, but is willing to spent up to $650-million to own up to 25 per cent of the combined business once Scotiabank Chile and BBVA Chile are merged.

When the deal was initially announced last week, Scotiabank said the transaction is in line with its goal of increasing scale within the Chilean banking sector and the Pacific Alliance countries.

The acquisition will double Scotiabank's market share in Chile to approximately 14 per cent and make Scotiabank the third largest private sector bank in the country.

2.1x Book Value and a PE of 18x does not look a bad deal at all for Scotiabank given the bank’s ROE of 11.9%. The deal assumes a ROE of 11.7%.