Dominion Bond Rating Service speaks approvingly of Bank of Nova Scotia’s latest acquisition, this one in Peru.

“BNS currently owns 35% of Peruvian bank Banco Sudamericano SA, which has a modest market share of 4.2% of loans. The transaction will see BNS acquire the majority of the 65% it does not already own and combine it with Banco Wiese Sudameris, which is currently owned (97%) by Italy’s Banca Intesa SpA. Once all components of the transaction are completed, including recapitalization, BNS is expected to own 80% of the new bank, while Intesa will own the remaining 20%,” DBRS explains in a research note. The operations of the new bank will be run by Scotiabank.

The combined bank will be Peru’s third largest, with almost US$4 billion in assets and an 18% market share in both loans and deposits. “With some asset writedowns prior to the deal, the new bank is expected to have solid asset quality and a strong Tier 1 capital ratio of 12.5%,” it says, noting that the deal is subject to approvals from Canadian, Peruvian, and Italian regulators.

“The transaction is consistent with BNS’s strategy of growing its international operations, which are focused in Mexico, the Caribbean, and other parts of the Americas,” it says.

DBRS notes that it views Scotiabank’s international operations as key components of the bank’s growth strategy.

“While not without risk, this risk is managed through diversification among many different countries. The exposure to Peru after the additional expansion remains manageable, and the growth opportunities it affords are attractive,” it adds.

Scotiabank is investing $390 million in the business, DBRS says. And, the transaction is expected to have a modestly negative impact on its Tier 1 capital ratio of 20 basis points, although this will remain among the strongest of its peers. The transaction is expected to be earnings accretive in the first year.