FINANCIAL PERFORMANCE

Despite economic turmoil in Asia, the Bank’s International Banking division did well in 1998, with earnings of $255 million. The decline of 41% from 1997 was due to the credit of $290 million (after-tax) last year from the reversal of $500 million of the country risk provision established in prior years. With this excluded from the 1997 figures, there was an increase of $111 million or 77% in earnings between the two years. Fiscal 1998 was another very good year for the Bank’s operations in the Caribbean and Central America. In this region, where the Bank opened its first branch in the 1880s, it conducts mainly a local banking business. Earnings have tripled since 1992, from the growth of existing operations, from new offices and from expansions into Costa Rica and El Salvador.

Financial results, International Banking

* including Banco Quilmes and Ahorromet Scotiabank

In 1998, the Caribbean Region had earnings growth of 28% from 1997. Almost all of the major markets in the region did well. Average assets increased from $9 billion last year, to almost $12 billion in 1998.

The Bank’s Asia/Pacific Region did not achieve its profitability goals as a result of the unfavourable economic conditions in several countries. However, credit losses in the region were below the 1997 level, because the Bank reacted quickly to the economic downturn in the region. Average assets were little changed from 1997. Notwithstanding the region’s recent difficulties, the Bank has enjoyed many years of profitable expansion in the Pacific, and it continues to view the area as having above average long-term potential.

In Latin America, the Bank is laying a strong foundation for future growth. The Bank has had offices in the Spanish-speaking Americas since opening its first branch there in 1906, and is adding to its network by making strategic acquisitions. These new investments have been generating modest returns while the Bank upgrades credit processes, technology and productivity methods. However, this network is expected to provide good earnings growth in the near future.

BUSINESS PLANS

As part of its strategy to build a multinational financial services network, diversified by region, country and line of business, Scotiabank is developing new, high-value local franchises in key Latin American and Asian markets. The Bank now owns or has interests in banks, most of them recently acquired, in markets with more than 80% of the gross domestic product of the Spanish-speaking Americas.

These investments are building on the Bank’s long record of success in retail and commercial banking in the Caribbean, and on its many accomplishments in Canadian banking. They enhance the Bank’s position as one of the world’s most multinational banks, providing a broad array of local financial services as well as access to a worldwide network.

Among the larger of the recent investments are Banco Quilmes in Argentina, and Grupo Financiero Inverlat, which owns Banco Inverlat, in Mexico. Together, these banks have a very extensive network of 450 branches.

The Bank increased its holdings in Banco Quilmes from 25% to 100% during fiscal 1998, and has made good progress in strengthening credit processes, training for sales and service, and streamlining operations.

The Bank owns 10% of the common shares of Grupo Financiero Inverlat, with an option to acquire another 45% from the government of Mexico in 2000. It has been managing the company on the government’s behalf since 1996, during which time it has greatly strengthened credit processes, made major strides in reducing costs and working out problem credits, and upgraded branches and revenue streams.

The Bank will also continue to develop its interests in other affiliates and subsidiaries in Latin America and Asia. In Latin America, the network includes Banco Sud Americano in Chile (28% equity interest), Banco Sudamericano in Peru (25%), Banco del Caribe in Venezuela (27%), Ahorromet Scotiabank in El Salvador (53%), and Scotiabank de Costa Rica (80%). In Asia, the network includes Bank Arya of Indonesia (48%) and Solidbank of the Philippines (40%).

The Bank is now also developing plans for offices to be opened in Bangladesh and Sri Lanka, and is starting up ScotiaFinance, a non-bank financial institution in India.

In the Caribbean and Central America, the Bank is building on its sales and service culture. Branch operations are being streamlined, alternate delivery channels are being expanded, and front-line staff are being given the tools to support revenue generating activity.

OUTLOOK

In 1999, Caribbean operations are expected to continue their good growth in volumes and earnings. The Asia/Pacific Region’s performance is expected to improve, as the economies in the region begin to recover and as loan losses decline. In Latin America, the earnings contribution from the recent investments is anticipated to increase gradually. While the pace of economic recovery in the emerging markets continues to be uncertain, International Banking should provide an increasing share of overall net income in future, as a result of the investments of recent years.