Monday morning, Scotiabank announced the exchange of its operations in Colombia, Costa Rica and Panama for a 20% stake in Davivienda, Colombia's second largest bank. The transaction is expected to close in 12 months, subject to regulatory approvals.

National Bank notes that a 20% stake in Davivienda is worth $600 million, which compares to the ~$1 billion Scotiabank paid to acquire its 51% stake in the Colombian operation in 2012 and the US$360 million it paid for its banking operations in Panama and Costa Rica in 2016 from Citibank. As a result, Scotiabank is recording around a $1.4 billion impairment charge during the first quarter.

Analyst Gabriel Dechaine has a constructive view of this transaction. "Colombia, in particular, had been a drag on BNS' bottom line for several years," he notes. Although no timeline has been provided, Dechaine believes the 20% Davivienda stake could be more profitable to Scotiabank than its current position is, considering that its new partner has existing operations in these three countries that should allow it to extract expense synergies.

The transaction is neutral to Scotiabank's CET 1 ratio, with a hit of 10-15bps from the impairment loss offset by a 10-15bps boost from the reduction of risk-weighted assets.

Scotiabank is rated Sector Perform, with a $78 target.