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Spanish banking giant, Banco Santander SA, will soon find out whether its bid for a federal banking licence in Canada will be approved — but cracking the market will be challenging, says Morningstar DBRS Inc.

In a new report, the rating agency examines the prospects for Santander — which is expecting a decision from regulators on its licence by April 30 — to penetrate the highly concentrated and competitive Canadian banking market.

“If Santander is awarded a licence, it would merely mark the beginning of what could be a long and difficult path,” it said.

To start, the Canadian banking market is highly concentrated with the Big Six accounting for about 95% of total bank assets.

“This represents a material barrier to entry,” the report said.

The Big Six also enjoy strong brand loyalty, it said, noting that it’s common for Canadians to “open their very first bank account with one of the Big Six and remain loyal for decades.”

Large, incumbent banks have access to customer data that enables them to “build better customer relationships, price products and services more effectively, and ultimately enhance their market competitiveness.”

However, the federal government has plans to launch an open banking framework in 2026, which aims to facilitate competition and innovation in the banking sector — a step that DBRS expects “to slowly but surely change the landscape of the Canadian banking sector by providing a somewhat more level playing field for smaller banks, and importantly for Santander, new competitors.”

As it stands, Santander is already one of Europe’s largest players, and it ranks 16th globally, by assets, DBRS said.

“Santander benefits from a strong presence in Europe and the Americas, with 168 million customers worldwide,” it said — adding that it has “largely achieved its goal of building at least a 10% market share or more in each of its core markets…”

If Santander gets regulatory approval in Canada, it will be able to accept deposits — a cheaper source of funding — and enable it to expand its existing auto financing business in Canada into other kinds of products and services.

The bank’s strategy for Canada “is likely to focus on specific niches, leverage Santander’s global expertise in consumer/retail financing, and incorporate significant use of digital technologies, not unlike its current approach in the U.S. and Mexico,” DBRS said.

In those markets, the bank has succeeded by “choosing a niche market in an area of core strength, focusing on it, and leveraging digital banking technology,” it said. “This could well be the path forward in Canada as part of a broader North American strategy.”

“Ultimately, any pursuit of a stronger banking foothold in Canada will require a long-term commitment and realistic expectations,” DBRS concluded.