Good morning, and a warm welcome to all of you joining us today in person, and to those of you who are with us on our global webcast. I'd like to begin by recognizing that we are on Treaty Thirteen, which is home to many nations, and that across Canada, we acknowledge the traditional territories of the First Nations, Inuit, Métis, the people who call these lands home. Scotiabank is committed to reconciliation and further trust-based relationships with Indigenous communities across our footprint. It's great to see so many familiar faces, and for those of you who I've not met, my name is John McCartney. I'm Head of Investor Relations here at Scotiabank. On behalf of the entire management team, we're very excited to have you with us today as we share with you the details of our renewed bank strategy, our New Way Forward .
A few housekeeping items before we begin. The presentation materials will be available on our Investor Day page at the Scotiabank website after each presentation. We'll be serving lunch in the foyer directly outside in the atrium. We'd like to also invite you to stay with us for a casual reception following our formal agenda. Lastly, please remember to turn off or put your phones on silent. We look forward to your questions throughout the day. During our Q&A sessions, kindly raise your hand, and Patricia or Clancy from our communications team will bring you a microphone. Please introduce yourself by name and by organization before asking your question. To begin the day, you'll hear from Scott Thomson, our President and CEO, who will provide insight into our strategy review process and go-forward strategic plan.
Scott will be followed by our Chief Financial Officer, Raj Viswanathan, who will discuss the financial metrics and capital implications of our plan, as well as detail our medium-term financial objectives. Scott and Raj will please to then take your questions. Through the balance of the day, you will hear from each of our four business line group heads: Aris Bogdaneris, Jacqui Allard, Francisco Aristeguieta, and Jake Lawrence. Q&A sessions will follow the Canadian Banking and wealth presentations this morning with Aris and Jacqui, and again this afternoon, focused on our international and Global Banking and Markets business with Francisco and Jake. Phil Thomas, our Chief Risk Officer, is also here to participate today. Phil is a 25-year Scotiabank veteran with deep experience in data analytics, digital, and retail risk, and will join the business line Q&A sessions.
Also here and pleased to join the conversation, our Group Vice Chairman, Glen Gowland, former head of our wealth management business, and Michael Zerbs, our Group Head of Technology and Operations. As today's presentation contains forward-looking statements, on behalf of each presenter, I refer you to the disclaimer regarding forward-looking statements, which appears on the screen in front of us. With that, we will kick off the day with a short video, after which President and CEO, Scott Thomson, will share with you Scotiabank's New Way Forward .
Over 190 years ago, we started. A bank built with ambition, with purpose, and with progress. For the next two centuries, we aim to push the possibilities of banking ahead, which brings us here. It's time to unlock our potential, and we're taking a new path with a vision to be our clients' most trusted financial partner and a relentless focus on everything else that matters most: our clients, our shareholders, our communities, and each other. The road ahead is clear. We're going to move with intent and precision to earn more primary client relationships. We'll grow and scale in priority markets, and we'll make it easy to do business with us. We've done the work. Now it's time to deliver, and we're going to do it as one team.
We're almost 90,000 Scotiabankers strong across the globe, ready for what's ahead, and you can count on all of us. Our plan is in place. Our job is execution, together every single day. This is the New Way Forward , and it starts now.
Good morning, and welcome to our 2023 Investor Day. It is great to have so many of you from the investment community here with us. I have valued the opportunity to engage with many of you since taking on this role, and your feedback has been important as we develop the strategy we will share today. I would also like to acknowledge our team of Scotiabankers for their leadership and commitment as we developed our New Way Forward . That includes those who've taken part in our strategy development, as well as those who committed to deliver for our clients through this period of change. Their ongoing commitment and dedication to our bank, our clients, and one another throughout this period of transition has been a true highlight of the past year for me.
Determining our New Way Forw ard has been a highly collaborative and inclusive process across our bank's broader leadership team and has been endorsed by our board of directors. The engagement and alignment demonstrated by leaders has given me confidence that we will successfully execute on our ambition, execution that is already underway. Today, we will provide a clear picture of how we will position and manage the bank to deliver profitable and sustainable growth and maximize total shareholder return. But before outlining where we're going, it's worth reflecting on where we've come from. Scotiabank has many competitive advantages and a strong foundation on which to grow. We have powerful client franchises in the markets in which we operate. Many of these businesses have grown and scaled in recent years and enjoy top-tier competitive positioning in their markets.
We are a highly recognized and trusted brand from coast to coast in Canada, a top 10 foreign banking organization in the U.S., a preeminent bank in the Caribbean, and a scale player in the Pacific Alliance countries.
Our franchises throughout our footprint are important institutions in their markets, both for the financial services they provide, but also as significant and recognized employers of choice. We have a strong balance sheet. This year, we took deliberate and meaningful steps to strengthen the bank's liquidity, funding profile, and capital position as we laid the necessary groundwork to support our strategy. This prudent positioning will help to ensure that we have a solid foundation as we grow the bank, while navigating through the current uncertain economic backdrop. Our bank has demonstrated a strong capability over time to manage enterprise risk effectively across products and geographies. We have a robust risk culture and an enterprise risk framework that has protected the bank in the face of increasing non-financial risks and periods of economic stress and volatility. We've made significant progress on our digital journey, exceeding many of our five-year targets.
All bank digital sales increased from 28% of all transactions in fiscal 2019 to 51% today, and active mobile users are up 81% to 8 million clients in that same period. Of course, Tangerine is Canada's leading digital bank, with 97% of all sales completed digitally, an impressive stat even among global digital banks, where the average is 16 points lower. Our unique footprint also allows us to apply learnings from our international markets, where digital adoption is ahead of financial institutions in Canada. For example, since 2019, we've increased retail digital sales volume to approximately 90% in Chile. By comparison, our retail sales volume in Canada is less than 30%, highlighting the significant opportunity to leverage best practices in digital delivery from our international businesses. We are also driving leadership and sustainability.
Just last week, Scotiabank was named to the North American Dow Jones Sustainability Index for the sixth year in a row. Our S&P Global ESG score for 2023 ranks Scotiabank in the top 4% of global financial institutions and the highest-rated bank in North America. Our commitment to diversity and inclusion is brought to life by the Scotiabank Women Initiative, which has deployed CAD 8 billion in capital in Canada to support women-owned and women-led businesses. Fulfilling our purpose of creating value for every future is a source of pride for Scotiabankers and a key reason why we are a compelling employer for diverse talent, which ultimately makes us a stronger bank. Also important to where we are today are the actions the bank has taken over the past decade to sharpen our geographical footprint.
We have exited approximately 25 higher-risk geographies while expanding our domestic wealth business by investing more than CAD 3 billion in acquisitions. These efforts serve to strengthen the bank, resulting in approximately 80% of our earnings now coming from North America, which includes Canada, the United States, Mexico, and the Caribbean. However, we also invested approximately CAD 7 billion through premium-priced acquisitions to build scale in our Pacific Alliance markets, acquisitions that have not yet met our return expectations. Although work has been done to reposition the bank, it is important to acknowledge that we have lagged our peers in financial metrics that are key drivers of shareholder value creation. The returns on our capital deployed have not measured up in the last 10 years, and as a result, Scotiabank's total shareholder return has underperformed its peers. There are clear realities that have impacted our relative performance.
First and foremost, we are behind in winning primary relationships, with approximately 16% of our clients using Scotiabank for their day-to-day banking needs. We define primary clients in our retail businesses as individuals who are digitally engaged and have an active day-to-day transaction checking account, as well as a payment or investment product with Scotiabank. Our loan-to-deposit ratio is the highest among our peers, indicating a greater reliance on rate-sensitive wholesale funding and resulting in more volatile margins and earnings. We have lagged peer profitability in our Canadian Banking segment. We are under-penetrated across most products, except mortgages and autos. We have fewer clients per branch, our deposits per branch are below peers, and the return on equity has lagged peers. Our current business mix in Canada is biased towards secured lending and retail and investment-grade corporate and commercial lending, a profile that generates lower returns.
At the same time, we allocated significant capital in international, International Banking . We had been overly focused on market share and volume metrics in our International Banking retail franchise, targeting monoline clients with obvious implications to relationship depth, deposit profile, and returns. Credit experience in monoline consumer finance portfolios have resulted in retail risk-adjusted returns that have been subpar. And in GBM LATAM, our focus on market share leadership has resulted in an asset-heavy and a lower-yielding overall portfolio in markets where the ancillary fee pools are not as large as in more developed markets. We are confident in our ability to address these challenges and energized about what our bank will achieve in 2028 and beyond. Through our updated strategy process, we've been guided by several core principles and beliefs. First, client profitability.
We have historically overemphasized business volume as a key determinant of our success. We are now moving to more of an emphasis on value. In other words, deeper, more meaningful, and intentional primary client relationships, a greater share of the client wallet, a pivot from monoline strategies towards a multi-product emphasis, and a value proposition enhancement within higher return target segments. This is a significant change in mindset, moving away from balance sheet-led strategies to a relationship focus that incents wins that drive long-term client profitability and primacy. Second, a strong balance sheet. You've already witnessed the beginnings of a discipline and rigor between deposit and asset growth that will be fundamental going forward. Third, balanced risk and return. We are in the business of taking risk, so long as we are generating sufficient risk-adjusted returns on our capital.
A disciplined approach to risk-adjusted margins is key to evaluating the attractiveness of each of our business segment opportunities. We know that primary client relationships with affluent clients in International Banking generate higher risk-adjusted margins and lower write-offs over time. And our data confirms that our domestic primary retail clients have delinquency rates more than 50% below non-primary clients. Fourth, connectivity across our platform. We are differentiated from our peers as the only Canadian bank present throughout the North American corridor, and we are uniquely positioned to serve clients operating across Canada, the U.S., Mexico, and the Caribbean. Finally, a disciplined approach to operational excellence. Execution will be paramount: better, faster, and at a lower cost, with a continuous focus on productivity, process simplification, and a relentless effort to build a culture that will give us a competitive advantage.
Key to this will be consistent transparency in providing updates on our progress to our stakeholders, even when it is difficult. 2023 has been a year of transition. We have been focused on strengthening our foundation to improve our resiliency and prepare the bank to execute on our profitable growth aspirations, and we've made good progress. As I mentioned, we've materially strengthened the balance sheet with both capital and liquidity metrics that steadily strengthened through the year, and we are well ahead of regulatory requirements. Our plan is built with a foundational assumption that we will maintain these strong balance sheet metrics. Our deposits outpaced our loan growth this year, delivering early success in our long-term commitment to achieve a lower cost, more stable funding profile.
We have also added to our allowances for credit losses this year to ensure we are well-positioned to manage through what could be a more challenging period for the economy in the near term. Earlier this year, we launched our strategic review process. We performed a comprehensive internal review, including establishing our enterprise-wide focus areas, conducting a detailed data-driven portfolio assessment, evaluating trade-offs, and conducting risk-return analysis, all of which you'll hear about today. Our strategy represents our leadership team's collective vision for the bank. We have worked to improve our cost structure. In October, we made some necessary decisions regarding our workforce to help optimize operations as we take a longer-term, enterprise-wide view to build a more resilient and efficient bank. Our productivity agenda is a key component of our new strategy as we work to become leaner and create the capacity to invest in our strategic growth initiatives.
Our focus will be on reducing inefficiencies and duplication as we build deeper connectivity and synergies across our growth markets and drive greater productivity through a standardized model across jurisdictions. Finally, we put an emphasis on culture and have strengthened our leadership team to implement our new strategy across the bank. This year, we have welcomed seasoned executives to Scotiabank's senior leadership team who have deep global banking experience. I am thrilled to have each of Jacqui on global wealth, Aris on Canadian Banking , and Francisco on International Bankin g speaking with you today. Jacqui brings 30 years of financial services experience, both in Canada and abroad. She has successfully built and managed businesses at scale that deliver exceptional client experiences in wealth management. In addition, her deep Canadian retail expertise is a welcome addition to my leadership team.
Aris has a proven 25-year history of delivering growth at scale in retail banking in some of the most complex markets in the world. He comes to us with deep knowledge and experience in client service across all channels, bringing world-class digital expertise and a track record of organic execution success. Francisco brings more than 30 years experience as a seasoned and transformational leader, leading multiple business segments in a wide range of international markets, including Latin America. Collectively, they have operated globally with world-class banking organizations, successfully leading business segments for which they now have responsibility for here at Scotiabank. Our new leaders complement the tremendous experience and deep organizational expertise we already have with our existing, experienced, and extremely capable senior executives.
With this strengthened senior leadership team in place, I am highly confident in the execution plan and future success we will have as a bank. We are a united team focused on driving results for you, the owners of our business. To do this, our team has set a bold new vision: to be our clients' most trusted financial partner, with the outcome being sustainable, profitable growth and outsized shareholder returns. It is important to me that our entire bank has a clear vision of where we are going, our North Star. Our new framework will clearly guide our decision-making and organizational goals, while also aligning our key stakeholders on Scotiabank's overall strategic direction. Our vision is centered on what we aim to achieve as an organization and creates a picture of future success. It defines our collective ambition, which we develop together as a leadership team.
We aim to be the most trusted bank wherever we operate. We earn trust by honoring our commitments to our clients, shareholders, communities, and each other. Banking is a relationship business, and trust is the basis of any relationship. The New Way Forwar d rests on four strategic pillars. First, we will grow and scale in priority businesses, leveraging connectivity across clearly identified businesses and geographies where we are competitively advantaged. Second, we're going to earn more primary clients across the bank's portfolio. I spoke about value over volume. What we are working to build are deeper, more meaningful client relationships, measured on profitability rather than on transaction count. Third, we want to make it easy to do business with us, improving client experiences and streamlining and digitizing processes.
Finally, to win as one team, we are bringing the entire bank to our clients and building and strengthening a culture where all Scotiabankers can thrive. At the core of our new strategy is a disciplined capital allocation approach, where there's a meaningful, albeit different, role for all of our businesses. This is a fundamental shift in strategy, allocating incremental capital increasingly towards stable, high-return markets in North America, while moderating capital allocation to our lower risk-adjusted return businesses. We will allocate approximately 90% of incremental capital to our priority businesses of Canada, the U.S., Mexico, and the Caribbean. Our immediate focus will be on allocating a greater share of capital to Canada, as well as recycling capital from our GBM LATAM businesses to our U.S. corporate business, where we see greater opportunity.
In International Banking , we will prioritize capital consumption, favoring the higher return priority businesses in Mexico and the Caribbean and optimizing capital in other businesses. In these businesses, we will enhance franchise value with a focus on growing client primacy and driving productivity improvements. We are committed to improving returns in International Bankin g. We will also put emphasis on accelerating our less capital-intensive businesses, such as Global Wealth Management. This is one of the initiatives through which we will aim to grow fee income at the bank by more than 35% over the medium term. Our organizational focus and success growing our global wealth business continues to be a significant opportunity to drive our non-interest revenue higher. As an example, investment fund sales in our own retail branch network are a significant opportunity for us. We expect double-digit growth going forward domestically and continued growth internationally.
International Wealth is a highly accretive return on equity business, sustainably in the thirties. In GBM, we are much more disciplined with the balance sheet, ensuring we are biased to markets and client segments where the ancillary fee opportunity is significant. We've been building out the product capability to execute for our clients in our advisory and capital markets origination businesses with solid progress. Finally, through our ongoing efficiency and productivity initiatives, we aim to bring our productivity ratio to approximately 50% over the medium term. The bank has a long history of strong cost discipline, and that is not changing. However, we can and we will do a better job of reducing costs in areas that aren't aligned strategically with our North Star and investing in areas we intend to grow. And it is also about deploying our human capital in alignment with our strategic priorities.
Overall, we are building capacity to make the necessary investments that will enable our go-forward strategy. Our objective is to get to positive operating leverage in 2024, despite materially increasing our investments in our North American business to drive profitable growth. As part of our strategic process, we reviewed more than 100 business units to determine which were the highest performing. We established a target range for acceptable returns on risk-weighted assets and a hurdle rate to use as a benchmark to make more disciplined and informed capital deployment decisions. As a reminder, return on risk-weighted assets is a measure of net income over risk-adjusted balance sheet assets. We also considered factors such as market attractiveness, capital management, financial impact, competitive positioning, client-level profitability, and risk profile.
Our overall focus was on identifying areas where we could grow, but at acceptable levels of returns, given the increased cost of capital. This slide provides a sense of historic performance of our businesses. It highlights the need to ensure our Canadian Banking business is sufficiently resourced to grow, and the opportunity to accelerate the success of our global wealth business and Tangerine. It is also interesting to note the relative returns in GBM, which clearly highlights our opportunity to reallocate capital from LATAM to the U.S. in the coming years. This capital reallocation and client prioritization is already underway in our GBM business. As we look forward, each business will have a different role and growth target in the portfolio to deliver sustainable and profitable growth. In our priority businesses, we have a target to allocate approximately 90% of incremental capital over the medium term.
Our go-forward approach of disciplined capital allocation to the businesses where we have the highest return means focusing on Canada, expanding our wealth operation, and building capital to continue to pursue growth in North America. Wealth, as a capital-light business, supports our ambition to increase earnings quality, maximize profitable growth, and drive higher fee income. Not surprisingly, our commercial and Canadian personal segments are well-placed within our global footprint, with an attractive industry structure and a solid economy supported by immigration-driven growth. Our go-forward approach will focus on increasing our competitiveness in our Canadian P&C businesses in regions such as Quebec and British Columbia, and key target segments such as small business, credit cards, and Tangerine. We will also be focusing on select target commercial segments in which there is a clear opportunity to win across the footprint while continuing to improve the returns and share of wallet.
We will enhance our value proposition for the commercial business through a more targeted client management approach. We also see a larger connected commercial business and a significant multinational opportunity throughout North America, in many cases, with clients with whom we already do business with. Our managed growth businesses provide us an opportunity to grow and enhance franchise value for shareholders while optimizing the capital already deployed in these businesses. This will be achieved largely through a combination of business mix shifts and discipline in managing the cost structure. Our leaders in these businesses have a clear objective: recycle the significant capital in their businesses to focus on building primacy with clients in higher credit quality segments, and implement a regional operating model that will allow us to grow revenue faster than expenses and close the return on equity gap with local competitors.
It is important to note that more than 60% of the earnings growth in the International Banking markets plan is from our efficiency initiatives. These are extremely important businesses to us, and the capital deployed will be more than sufficient to allow for value creation through operating gains and capital optimization efforts. Their objectives are clear and aligned with their incentives, and they know the commitment to growing primary clients will allow them to compete more effectively in market and ultimately enhance the value of their franchises. Finally, our turnaround businesses represent examples where we need to improve results and will not allocate capital to do so.
While this is a long-term strategy, and the best outcomes for these businesses would be to improve profitability and cost efficiency, if we are not able to achieve the appropriate risk-adjusted returns in these businesses, then we'll be prepared to redeploy capital to other businesses in relatively short order. The senior leaders of these businesses have been key to determining their positions and are galvanized to deliver results. Our strategy is centered around creating connectivity across North America. The trading and commercial opportunities within the North American corridor are enormous, particularly in light of the growing trend towards nearshoring. Our existing strong presence in Mexico allows us to serve clients from across our lines of business that are operating throughout one of the world's largest free trade zones. We are the only Canadian bank with this level of pre-existing connectivity, and this is a key differentiator.
Our Mexican business is already a top five bank in that market, so we have scale with a strong team and technology platform. Mexico and Canada are both deeply integrated into the U.S. economy, where we have a significant presence as one of the largest foreign banks by assets. The U.S. represents the largest export market by far for both Mexico and Canada, accounting for about a quarter of all U.S. trade, with some $1.6 trillion in annual trade flows between Canada, the U.S., and Mexico. We see the opportunity to grow over the next five years in a $2 trillion deposit market across U.S. corporates and all segments in Canada and Mexico.
Clients responsible for approximately 30% of our Canadian business banking revenues have operations in the U.S. or Mexico, and more than 15% of our commercial clients in Mexico have operations north of the border. In the U.S. market, we've been building upon the success of our long-established corporate banking franchise, and have in recent years, created a much more comprehensive wholesale banking offering. We will continue to organically build out our wholesale product suite in the U.S. and deepen our focus on bringing more multinational clients to our platform. And we are working on enhancing our cash management capabilities in the U.S. and Mexico to assist our commercial and corporate clients who operate across North America.... In our global wealth business, we are well on our way to capitalizing on the unique opportunity to export our asset management expertise and total wealth solutions model outside of Canada.
We have great momentum in the high-growth local mutual funds markets in both Mexico and Chile, and we are increasingly delivering offshore solutions to high-net-worth clients in LATAM. Together, these are driving earnings growth in International Wealth that is highly accretive to the overall wealth business. You have heard us discuss our ambition to build organically or acquire more capability on the wealth side in the U.S., in order to offer more holistic solutions to the clients that are primary us today, to us today in Canada and our international markets. That agenda has not changed. Creating a more robust U.S. platform over time will be essential to taking full advantage of the North American opportunity we envision for the bank.
You will hear more about the exciting work going on in our Canadian and international businesses from Aris and Francisco later today, where you will see that earning deeper primary client relationships across our portfolio is critical to delivering on our strategy. Our primary clients have deposit balances that are two times the average, generate twice as much revenue, and have increased engagement, loyalty, and profitability. We will narrow the gap on client primacy across our footprint by delivering insightful, actionable, and measurable client segmentation to effectively engage clients throughout their lifecycle. This includes creating winning multi-product value propositions tailored to each client segment, to deepen relationships and drive more non-lending revenue. Through existing programs like Scene+ in Canada, we are building strong brand loyalty with our retail clients, and in turn, driving client primacy and multi-product relationships.
Over the medium term, we are targeting greater than 2 million primary clients and an additional CAD 200 billion in personal and commercial deposits by 2028. Importantly, greater client primacy leads to significantly better credit outcomes. Simply put, we know that client better. Data and analytics allow us to onboard the right clients and then sense challenges and stress earlier than with monoline clients. We recognize the massive opportunity to simplify, digitize, and streamline the way we do business, to create efficiency across our bank, improve employee productivity engagement, and make it easier for our clients to do business with us. This includes building industry-leading experiences across physical and digital channels, enabling clients to seamlessly interact with the bank, how and when they want. We will continue to deliver better advice through best-in-class advisor tools and more specialist advisors across our platforms.
And we are leveraging the power of cloud and artificial intelligence to deliver more for our clients. For example, through our Scotia Smart Investor and our contact center's virtual chatbot. We are committed to quickly getting to the cloud, and we firmly believe investments in AI will pay dividends by both reducing costs and enhancing revenue. We are also streamlining and digitizing our processes. This includes building a leaner, more agile organization that invests in the right technology and innovation to compete more effectively for client primacy. Operational excellence and efficiency will underpin our businesses to improve delivery time, reduce complexity, and free up capacity. Our medium-term objectives are to achieve top Net Promoter Scores in retail, and to deliver a productivity ratio of approximately 50%. Our fourth pillar is about building our talent and culture to win as one team.
Fundamental to this is being able to work together to bring the whole bank to our clients. We are focused on breaking down silos to deliver the bank's holistic offer of products and services across our businesses. We will structure and align our incentives to promote a client-centric approach across our business lines. We are targeting CAD 15 billion-CAD 20 billion in referrals in Canada across retail, wealth, and commercial annually over the medium term. At the same time, our people are our most important differentiator, and we will become the employer of choice.
We will continue to grow our focus on acquiring and retaining diverse high performers and investing in areas to enhance and improve the employee experience. I am committed to creating a psychologically safe environment where we all belong, leading with a shared purpose and enabling every Scotia banker to bring their best selves to work every day.
In my experience, this is fundamental to delivering results. A key catalyst will be a common set of cultural and leadership behaviors that will be non-negotiables for senior leaders across the bank. How we execute will be an essential ingredient in allowing us to achieve our objective of profitable, sustainable growth. We are already making progress in executing against our strategy. We have identified areas essential to enabling our strategy, our must-win priorities, which you'll hear about repeatedly throughout the day. We have rigorous tracking and monitoring in place against an established set of KPIs to provide us with the information we need to course-correct early and often. We've established a transformation and delivery office to drive the implementation of our strategic priorities. We are acutely aware that our credibility is dependent on strong execution against our objectives each and every quarter.
Our ambition is to create a North American bank with a differentiated value proposition, driving outsized shareholder returns.... Our plan allows us to make the investments to reposition our businesses while maintaining positive operating leverage and delivering near-term earnings growth. Our plan contemplates the full potential impact of the more stringent regulatory capital requirements we will face, and builds capital flexibility to fund a more aggressive growth agenda over the medium to long term. A focus on client primacy and International Banking , and a reallocation of capital from developing to developed markets, will ensure our earnings are not only higher over time, but also less volatile and more sustainable. Our vision is ambitious, and our plan is achievable. I am confident we will exceed the medium-term objectives we are reviewing with you today. Before I pass the floor to Raj, I want to reiterate a few key points.
Overall, what I've outlined this morning, and what you'll see throughout the day, is a meaningful shift in how we plan to position and manage the bank going forward. We are accelerating growth in our Canadian franchise and allocating capital increasingly towards stable, high-return markets in North America. This will allow us to more fully develop and leverage the strong capabilities and client franchises that are already in place. We offer clients a regional presence and a connectivity that is unique at a time when the North American corridor is in the early stages of what we believe will be a very long-term acceleration of capital flows and investment. We will be relentless in our effort to be the most trusted financial partner to our existing clients and seek out new relationships where we see that same opportunity.
We are taking a disciplined, enterprise-wide approach to capital allocation, with a clear objective to drive sustainable, profitable growth. Through our new ambition, and with our vision and pillars as our guide, I am confident we will deliver a much better outcome for you, our shareholders, over the long term. And as we do, I'm committed to being transparent with all stakeholders, starting with the investment community, and including our clients, our regulators, and our employees. To build trust, we need to consistently share our progress in an honest, open, and respectful way. Thank you for joining us today. I look forward to chatting with you over the course of the day and engaging fully with you in the future to share our progress on our New Way Forward . Thank you very much.
Great. Thank you, Scott. Now we'll hear from our Chief Financial Officer, Raj Viswanathan, well known to many of you here in the room, who will provide an overview of the financial components of our plan and detail our medium-term financial objectives. Raj is a long-tenured Scotiabank executive. Prior to taking on the CFO role, Raj has held senior roles in finance and accounting, including Head of Capital Management, as well as Chief Accountant of the bank. Raj?
Good morning. It's great to see everyone, and thank you for joining us today. I'll spend some time providing an update on how we performed compared to our 2020 Investor Day objectives. From there, I'll build on the strategic framework that Scott laid out and talk about how this translates to the bank's medium-term financial objectives. While many of you may already be familiar with these results, I would like to briefly revisit them, as it is an important starting point for our go-forward strategy. On this slide, you can see the medium-term financial objectives we set ourselves in 2020. Since we shared these objectives, the world has changed dramatically with the global pandemic and an interest rate situation that is quite extreme. Against this backdrop, some of our assumptions have not materialized.
The macroeconomic environment that is playing out both in Canada and in our international markets was not what we expected when we built this plan, and some of our portfolios yielded more punitive results in the downturn than we anticipated. Our earnings per share growth has been challenged, particularly during 2023, when we made the strategic decision to strengthen our key balance sheet metrics. As capital and liquidity strength are becoming increasingly important and regulatory capital requirements have been growing over the last 2 years, we believe that a strong balance sheet will be key to succeeding in our future strategic growth plans. When we began our enterprise-wide strategic assessment, we first evaluated where we were on a relative basis to our Canadian peers on some key metrics. We narrowed the drivers for the underperformance to 3 key areas: non-interest revenue growth, return on risk-weighted assets, and risk-adjusted margin.
We determined that being focused on improving client profitability and allocating our capital to the most profitable relationships should improve all three of these metrics. Non-interest revenue growth has lagged peers at an all-bank level, specifically in our P&C businesses, even though our performance in fee-generating businesses such as wealth has been strong. We know that we need a deeper focus on growing fee income across all our business lines if we want to shift away from a balance sheet-led approach. While our risk-adjusted margin has led our peer group, what this shows us is that the capital associated with generating higher risk-adjusted margins has not translated into better earnings. This was supported by an analysis of return on risk-weighted assets. It is important that each business generates returns commensurate with the capital they consume.
This has become more relevant as the Basel III rules have evolved and capital has become more scarce. As a leadership team, we believe that these factors are key to the success of our go-forward strategy and the ability to exceed our medium-term financial objectives. Our plan incorporated return on risk-weighted assets and risk-adjusted margin as foundational metrics in evaluating where we want to allocate our capital going forward to drive sustainable and profitable growth. We took important steps to strengthen our balance sheet metrics in 2023. Strong balance sheet metrics will help ensure that we have a strong foundation as we navigate through the current uncertain macroeconomic backdrop and support our plans to grow the bank. As you have heard us speak about this past year, deposit gathering has been an enterprise priority.
We grew our deposits by over 9% this year, faster than our peers, and as a result, improved our loan-to-deposit ratio from 116% to 110%, and reduced the wholesale funding ratio by 100 basis points to 20.6%. We also increased our allowances for credit losses by approximately CAD 1.1 billion over the year, of which over 75% were performing ACLs to improve our coverage ratios. We intend to continue building on this momentum. Our belief is that our frontline bankers should be focused equally on growing lending, deposits, and everyday banking relationships in order to deepen client relationships. Overall, the metrics on this slide reflect the decisive actions we took to improve balance sheet metrics. I also wanted to highlight the evolution of the Common Equity Tier 1 ratio over the last two years.
We built approximately 70 basis points of capital since Q4 2021, when OSFI lifted capital distribution restrictions, to prepare us to meet the additional capital requirements driven by the floor and the Fundamental Review of the Trading Book. We did this by focusing on risk-weighted asset optimization and deselecting clients that were not profitable under the higher capital requirements. Looking forward, the key message will continue to be capital optimization. Basel III reforms are a key driver of changes for the sector and the most important part of our capital allocation decisions. Our plan has taken into consideration the fully phased-in floor impact and other upcoming changes to ensure a decision today is still the right decision in 2026 and onwards, when the floor of 72.5% is reached.
Our normal risk-weighted asset deployment is between 15-20 basis points per quarter, but more recently, we have curtailed it to 8-10 basis points as we become more deliberate on allocating capital to more profitable relationships. We have adjusted our capital allocation decisions and criteria so that our internal capital generation can result in a capital level that allows us to operate comfortably above regulatory minimums while supporting our clients and profitably growing our businesses. We intend to continue to take decisive actions where we believe we can optimize our risk-weighted assets and capital as we absorb the additional floor impacts in 2025 and 2026. We are comfortable operating above our desired payout range, the dividend payout range, while our 5-year plan contemplates returning to within the range of 40%-50% payout ratio in the latter half. Moving on to the go-forward strategy.
In the first three columns, I'll talk about the key factors and foundational elements that we expect will help us deliver on our medium-term financial objectives. The first is balance sheet strength. Our plan assumes that we will maintain a strong liquidity coverage ratio of around 130% and a net stable funding ratio between 110% and 115%. We are focusing on the NSFR as a key metric, as it's important to differentiate that all deposits are not treated equally from a liquidity perspective, and we need to grow and maintain deposits that contribute to stable funding. Second is purposefully allocating capital.
As you heard Scott say, we expect to allocate approximately 90% of our incremental capital over the next 5 years towards our priority businesses in North America, which are expected to generate higher and more stable returns. To be clear, this is considered alongside other key factors, such as the client's contribution to stable funding, the size of the market opportunity, the competitive positioning, and the ability to use the growth to build capabilities that can then be leveraged in multiple parts of our global footprint. At an all-bank level, as we shift our loan portfolio towards North America and improve our funding mix, we expect to see an improvement in our risk-adjusted margins and expect them to be consistently above 2% over the medium term. Moving to the third pillar. In addition to driving revenue growth, we intend to improve our productivity ratio through continued expense discipline.
We expect that the 2023 restructuring charge will generate meaningful bottom line benefits in fiscal 2024 and reach full run rate benefits of over CAD 350 million, starting in 2025. Our plan assumes continued focus on cost efficiency through automation and digitization.... We expect that approximately half of the savings from these initiatives will fall to the bottom line in the coming years, while we intend to reinvest the remaining to support growth. We believe that achieving this, combined with strong capital and liquidity ratios, should generate appropriate risk-adjusted returns and help us achieve our medium-term objectives. As I mentioned previously, how we allocate capital going forward is gonna be different.
I will focus on incremental capital that is more meaningful, as the overall portfolio mix will take longer to shift simply because of the size of the balance sheet today. So this is truly a long-term commitment to a strategy we believe will deliver better risk-adjusted returns. Scott touched on the details, so I will be brief. We expect strong incremental earnings contributions of 90% from these North America priority businesses, earning through the approximate 40% headwinds from the incremental capital floor. For our managed growth and turnaround businesses that consume approximately 10% of incremental capital, we expect to improve returns through targeted clients and segments that are more profitable and through productivity initiatives. Let me now address how we are thinking about risk and return going forward that is different from our historical approach.
We expect to maintain strong ACL coverage as we grow our portfolios, or said another way, appropriate allowance built for the portfolio growth and macroeconomic changes, something we already demonstrated in this most recent quarter. Our incremental capital allocation decisions are focused on redeploying capital to higher return businesses in developed markets and skewed towards building deeper client relationships. We believe this will result in a better write-off experience and deliver higher risk-adjusted margins. We are aware that this will require investments to manage both financial and non-financial risks, and these have been built into our plans. A few of the areas where we expect to invest to support business growth and keep our clients and bank safe include collections, data analytics, fraud, cyber, end-to-end automation, and improving risk management talent.
Both Aris and Francisco will talk about the focus on primacy that provides the bank with richer data, allowing us to better manage risk while providing better advice and service. We expect this will result in better risk management and improve our risk-adjusted margins to grow and exceed 2% over the medium term. Let me now talk about how our ongoing strategic productivity initiatives, including the 2023 restructuring charge, will support our must-win priorities while protecting the bank. Expense management is a cornerstone of this bank, and we intend to continue to manage our expense growth in line with growing revenue and prioritizing our investments to protect and grow the bank. As I previously mentioned, we expect to have an excess of CAD 350 million of run rate productivity savings by 2025 from the 2023 charge.
In addition, our plan contemplates an ongoing focus on efficiency initiatives that will support our investments in the must-win priorities listed on this slide. With about half of the savings falling to the bottom line, we also expect to deliver a productivity ratio of approximately 50% and generate positive operating leverage starting fiscal 2024. Over the medium term, we are projecting robust EPS growth in excess of 7%. Throughout the day, our business line heads will walk you through the strategies that underlie their individual growth expectations, but let me touch on a few of the highlights. Consistent with our capital allocation strategy, Canadian Banking is expected to deliver greater than 9% earnings growth, materially higher than our previous commitments, through a combination of growing client primacy, business mix changes, and prudent expense management.
As we thoughtfully recycle our capital in certain international markets, we expect this will result in moderate growth of approximately 6% from International Banking . The first 2 years will be spent on transforming the business to pivot toward more client primacy and regionalization of operations, with a focus on becoming more efficient. This will position the business to grow high single digit in the latter part of the 5-year plan. We expect our Global Wealth Management franchise to lead the bank in earnings growth over the medium term, with approximately 10% earnings growth. In the last 3 years, this division has grown earnings in both Canadian Wealth Management and International Wealth , while prudently managing expense growth. Our GBM business is expected to deliver approximately 7% earnings growth, earning through the Basel III capital headwinds.
This will be done through improving fee revenue and thoughtfully redeploying capital to more profitable relationships, with a focus on further growing our U.S. business. I also wanted to give some additional context on the Other segment and how it is expected to evolve over the plan period. In 2023, the higher loss of CAD 1.4 billion was driven by significantly higher funding costs and lower investment gains. Over the medium term, we expect improvement in the Other segment results. This segment's results can be broken down into three main components: treasury results relating to funding and managing liquidity, investment gains, and corporate costs. The variability in this segment generally comes from investment gains that can be lumpy, and more recently, due to higher funding costs, including the cost of higher liquidity ratios.
In 2024, we expect the loss in this segment to be in line with 2023, but improve starting 2025, specifically as it relates to net interest income from central bank rate reductions as the rate curve normalizes, loans repricing at higher rates with the largest cohort of Canadian fixed rate mortgages renewing in 2025 and 2026. And lastly, as we continue to make progress in our strategy to reduce reliance on wholesale funding and the liquidity costs become more embedded in the business line results. Investment gains, which were muted in 2023, are expected to improve but trend lower than our historical levels. Based on the earnings growth objectives for our business lines and the improvement in the Other segment , we expect to deliver greater than 7% earnings per share growth over the medium term, despite the higher liquidity and capital requirements.
This slide details how we expect to achieve the return on equity objective, earning through the approximately 10% higher capital requirements driven by the implementation of the Basel III reforms. The gray bars in the middle reflect the 2028 return on equities of the businesses, adjusted for the full 72.5% floor, a higher, higher attributed capital at 11.5% level, and the impact of the fundamental review of the trading book rules. As you can see on this slide, we expect our business line return on equity to improve by between 150 and 500 basis points through our revised approach to capital allocation, business mix changes, and our focus on efficiency initiatives. At an all-bank level, by 2028, we expect our capital allocation decisions to result in an ROE in excess of our medium-term objective.
Now that I've walked you through all the components that build up to achieving the plan objectives, I'll bring it together from an earnings perspective. As we discussed in our Q4 earnings call, we expect to deliver marginal earnings growth in fiscal 2024. We enter 2024 with a challenging macroeconomic backdrop of slower economic growth and the expectation of higher for longer interest rates that is reflected in our outlook. This slower growth environment will allow us time to take the continued investments necessary to execute on the key strategic pillars that Scott laid out. The benefits of these investments and repositioning will contribute to the expected 5%-7% growth in 2025, and accelerate from there to generate earnings growth in excess of our objective of 7% over the plan period.
We want to highlight our commitment to strive to exceed our medium-term objectives, all while absorbing higher capital requirements and maintaining strong balance sheet metrics. Specifically on capital, our plans contemplate operating above 12% with a buffer to exceed regulatory minimums at all times. We expect a significant capital build through 2028, providing optionality for deployment, the benefits of which have not been factored in these planned numbers. In addition, we've included three strategic metrics: productivity ratio, risk-adjusted margin, and dividend payout ratio, which we think are key to achieving these medium-term financial objectives. In closing, we are committed to maintaining a strong balance sheet metrics, purposefully allocating capital to improve client profitability, aided by productivity initiatives to deliver on our medium-term financial objectives. And now, I'll ask Scott to join me back on stage for Q&A. John will join to moderate. Thank you very much.
Great. Thank you, Raj. Okay, first question at the back of the room, Sohrab.
It's Sohrab Movahedi, BMO Capital Markets. Appreciate the effort and the details. Raj, in 2022, I think you had a slide up that the bank made about CAD 10 billion in earnings. When you think about the objectives and the plans that you've laid out, when do you think the bank will make CAD 10 billion again in earnings?
Yeah. I think, to put it in perspective, 2022 CAD 10 billion earnings was aided by a lower PCL ratio as we're coming off the big build that we had relating to COVID. So normalizing for that, which has happened in 2023 from a PCL ratio perspective, we think we'll get there towards the middle part of the five-year plan, Sohrab. You know, we are closer to CAD 8 billion now. It's going to continuously grow. 2024, I pointed out, will be slightly better than 2023, but not significantly better. From there, if we start growing between 5%-7% in 2025 and then beyond that 7%+, I see that happening somewhere between late 2025, if you want to, you know, quarterize an earnings number to an annualized number, but definitely in 2026.
Okay. If I can just have one follow-up, I appreciate the targets specific to return on risk-weighted assets and the conservatism in assuming the floors have been met. Have you translated that into what sort of a return on asset? that would imply, and is that something you could share with us?
No, absolutely. I think return on assets is also a key metric we focus on, particularly when we're going to move away from being balance sheet dependent and more fee income growth. Our return on assets has always been sub 1% for the longest time, right? It's not new information over there. Our plan contemplates that our return on assets, specifically in the Canadian Banking business, which is a big consumer of our balance sheet, will be in excess of 1%, closer to 1.2% in the Canadian bank. That's what we expect to achieve. Through a lot of the initiatives that you'll hear Aris speak about later this morning, and we are bringing it together, but ROE is certainly a big component of achieving our medium-term objectives, which is the earnings growth and the ROE growth.
Okay. Ebrahim.
Thank you. I guess maybe just so the numbers make sense, I guess the question is, as you pointed out, Raj, you've fell short on all the targets over the last three years. I guess the question is the lack of fee revenue growth, the risk... Is this all about, oh, we were not paying attention to the right things, or are there significant amount of investments required in technology and personnel in order to achieve that?
Yeah, listen, I think there's a real benefit of having a North Star, right? And so when we think about the importance of primacy, client primacy, and having the whole organization mobilized around that, that does set the agenda. And, and I think frankly, without changing incentives, which we have now done, without actually having the investment in the cash management, which we now have done, you still saw 9% deposit growth, right? And so, when you move an organization and point it at an objective, things happen. And so I think that's point one. Point two, there will have to be some investments for sure, and that's why this productivity initiative and what we did in October was so important because we needed to create the capacity to fund the investments. And so what we said today was the commitment to cloud.
You know, we've committed with the board to get to cloud quickly, and we'll make those investments to do it, and we will still get positive operating leverage in this plan. So undoubtedly cash management would be another example. You know, we've recently reorganized the cash management to take a much more global approach under Francisco, and having that cash management capability across our network is gonna be critically important to driving primacy. So there's another example of something from a technology perspective that will be helpful, particularly in Mexico and the U.S. In Canada, we're in actually really good shape from a cash management perspective, but in Mexico and the U.S., we're gonna have to continue to enhance those capabilities to drive the type of primacy that we want.
Just one follow-up on the deposit growth. We structurally could be in a higher rate environment versus the last decade. I think the concern from an investor standpoint is these are rate-sensitive deposits. We're paying up to bring them. Why is that the wrong way to think about it?
Yeah
A nd why can you actually grow sticky relationship core deposits?
So let me start, and then you correct. I mean, I think we've proved this year that we didn't focus on paying up for deposits. You saw the NIM expansion in the plan, and you saw the deposit growth. So this wasn't about price. This was actually about the hard work of getting the day-to-day deposits and making progress. So I guess that would be point one. The second thing I would say is, it's loan to deposits, right? And so we have both focus on both sides of the balance sheet, and the commitment here is to grow both at the same time, right? And we're not gonna have outsized growth on the asset side without actually having the deposit side.
That philosophical change, which you saw get a lot of traction this year, is gonna continue for the, you know, the next 10 years.
I also think, Ebrahim, it's a trade-off for us between even if it's a term deposit, which is what you call about being priced deposits and wholesale funding. So that's an easier trade for us because we're coming from a wholesale funding ratio, which we want to improve. We've already improved 100 basis points, but we want to continue to improve it. And that to us, as long as you can deploy profitability, profitably on the other side, either through client primacy or any other product which has got a better return, that produces a better risk-adjusted return for us. So the deposit focus will continue. It's not gonna be 9% every year. I want to be very clear, right, over there. But to Scott's point, we wanted to grow in line with our loans.
That's the discipline on both sides of the client relationship that I briefly touched on, and that's what you'll hear a lot of our business line leaders talking about.
Okay. Gabriel? Oh, sorry, is that Lemar? I can't-
Yeah.
Yeah, Lemar. Sorry, Gabe.
Thanks. Gabriel is a little taller than me, I have to admit. So maybe for Raj, in your slides, yeah, the slower earnings growth in 2024 and 2025, what assumptions are you baking in for those, turnaround or exit operations?
Yeah. I think it's not a meaningful contributor because Colombia is, you know, close to zero as far as NII contribution goes. So anything, let's call it, you know, CAD 10 million, it's not meaningful to the, to the improvements that we are seeing at the all bank level. They're going to get better. There's no doubt, right? We already demonstrated how we can use the expense lever to improve the Colombian operations in Q3, Q4. The biggest contributors come from... When I think about 2025, more than 2024, because 2024 is kind of similar to 2023, we're not assuming massive rate cuts, Lemar, to be clear. We are only assuming 2 rate cuts in Canada and 3 rate cuts in the US in Q3 and Q4 2024, and then we are, you know, assuming another 5 rate cuts in 2025.
So the rate situation is a contributor, which is very important to this bank, but we're still assuming conservatively that the rate position will be around 3.5%, both in Canada and the U.S. And likewise, for our international locations, we've already seen rate cuts happening in Chile and so on, which is definitely helpful. The biggest contribution comes from our priority businesses, the first two pillars that we talked about, and the others, which you'll hear Francisco talk about, which is, you know, Peru and Chile, where the productivity initiatives is going to be key to transforming those businesses to becoming more profitable. That's built into 2024 and 2025, but the biggest benefit of that, we'll start seeing towards the latter part of 2025 and 2026 in these numbers.
Generally, I would characterize all the assumptions we have used as quite conservative as we went through this profit plan.
I think the business mix transition too, right, is important. As you look at 2024 reallocation of capital, I'm using one example, out of GBM LATAM into GBM US, you know, slows down the growth of that GBM LATAM business, and then takes a little bit of time to get the earnings growth from the GBM US business. So that business mix transition that you're seeing, just takes a little bit of time to start to get some traction.
Bottom line then, you don't foresee us having an investor day two years from now, we're explaining, you know, the earnings loss from disposed operations. That's not a reasonable assumption?
Yeah, I, I wanna make it really clear, Chile and Peru, although they're in the managed column, are extremely important franchises to us. We are the third biggest bank in both of these businesses. We've got an unbelievable team, we've got an unbelievable opportunity in front of us, but we have to run those businesses differently. We have to close the gap between best-in-class, and they've got sufficient capital to do it. You know? We have focus on primary clients, allow them to build deeper relationships, equal focus on the deposit and the loans, and get after this regional operating model, which you'll hear more about from Francisco, will have a significant impact on the earnings growth. Now, in terms of the turnaround or exit businesses, we're gonna be decisive on those businesses.
They've got a plan, they're executing on that plan, but we will determine whether to continue on that plan or redeploy capital in relatively short order. What Raj said, though, is they are not meaningful contributors to the NIAT of this bank, and so that is not something that you should worry about as shareholders from a, a impact on the overall projections that we've put forth.
Great. Gabriel?
I thought I was gonna ask about the LATAM businesses, but actually, the US is what's sticking out to me here in the 90% of the core businesses. It's 9% of your lending, 11% of your profits. The lending, unless I'm mistaken, is primarily corporate-
Yes
W hich is one of the categories, major categories, I guess, that, that's created the issue with the, the output floor there. So that begs the question, if you're allocating more capital to that market, where are you allocating that capital? How are you allocating that capital? And, you know, what's the difference in the growth strategy in the U.S., given there's possibly, quite possibly a constraint on the, you know, expansion of the corporate lending book because of the rules?
Yeah, let me start, and then you can add in, Raj. So a lot of people don't recognize is 10% of the bank's earnings are from the U.S. right now. And I think we're the tenth largest foreign bank in the U.S.
Eleven.
11%. There you go. Thank you. So that's... it's a key contributor already to the bank. The first port of call in terms of that capital reallocation will be Canada, then it will be the US, and then it will be Mexico, in that priority, and that's because the allocation opportunity in the US is not as big as it is in Canada, and we're also very thoughtful about some of the political issues in Mexico that, you know, I think we'll get confidence in over time. So point two. Point three is, we have done a great job in the US on building out that franchise beyond the balance sheet, and you'll hear about that from Jake today.
But from a DCM capacity perspective, from an FX perspective, we've brought a lot of capabilities from a relationship advisory perspective to build beyond the loan. And then third, I do think we have a additional opportunities there. You know, as you think about Jacqui's business, we've got a great Canadian wealth platform and a great International Wealth platform, but we need some US connectivity, and we can do that organically, or we could look at doing it inorganically. We've looked at both, and that's gonna continue to be part of the plan. And then longer term, you know, I think there's commercial connectivity across the platform as well. But to be clear, in that plan, there's no inorganic assumptions around the US. We've got an opportunity in front of us, to build out what we already have.
If inorganic opportunities come about at some point, we'll have the capital to do it, but right now, we're focused very much on the organic opportunities in Jake's business and Jacqui's business to build that connectivity further.
Okay, and then, well, I guess I will, excuse me, ask about LATAM. And I've been to a few of these events over the years, and in the past, the message was quite different. You know, Chile's great, Peru's great, and, you know, obviously, things have changed in the world. I'm wondering, you know, not to get, you know, too far ahead into the, the presentations later today, but, you know, is it the capital rules changed and what used to be a, a, you know, a great return market isn't anymore, or are the markets structurally different, i.e., worse post-COVID, than they were, and, you know, that's just, them's the breaks? What's the, what's the-
No, it's, it's a fundamentally different philosophy on how to create value for shareholders. And my view is we're gonna create that through value, profitable growth. There will be volume growth, but it'll be value, as opposed to a focus on driving volume through the balance sheet. And you see that very clearly in the GBM business, where we've been driving that GBM LATAM business hard, asset heavy, low yield in smaller pools, where we've got a great opportunity in the US to actually drive greater return on risk-weighted assets. So I'm glad you noticed it's a fundamental change, 'cause it is a fundamental change, but it does come down to a view on what's gonna reward shareholders.
I believe the value, profitable growth, is gonna reward shareholders more than a view on balance sheet-heavy, you know, heavy asset growth, and a volume-based market share approach.
Okay, thanks.
Yes, sir.
Hi, Nigel D'Souza, Veritas Investment Research. I wanted to touch on your medium-term objective for ROE. Fourteen percent, I believe, is your medium term, and then I think you outlined 15% by 2028. And when I look at your historical ROE pre-2020 on an adjusted basis, you've exceeded 14% and 15%, I think, multiple times. So, you know, two-part question here. Given the improvements you're outlining, are they structural reasons? You've highlighted the new capital framework and the rules that are gonna limit ROE going forward. And the second part of that is, I think 14%-15% is the floor, but what would you see as the ceiling once you fully optimize your ROE? 'Cause it looks like there's more room here to improve on that.
Yeah, I'm gonna start again, 'cause I actually, I agree with you. I think there is more room to do better here. But the 14%, we have to recognize that the capital floor has increased. It's increased meaningful. And so even though 14% was our medium-term ambitions three or four years ago, getting to 14% now is more difficult in light of those capital rules. That being said, the plan that we've laid out actually builds capital through the piece. And the plan also shows, as you see on Raj's place, page, something that's greater than 14%. So I am very confident, I said that in my prepared remarks, I am very confident that we will exceed those medium-term objectives. But it's so important for the credibility of this team that we do what we say we're gonna do.
That's why you've got the 14% number up on the page.
Any comments, sorry, on a fully optimized ROE? I know it's longer term than five years, but if you fully execute on your end game here, what is the potential ROE this bank could generate relative to peers or just as a ceiling?
I think the success that we're going to have over the next five years will determine how high we can go. You know, Scott talked about the E. The E is, as best as we know today, how it's going to evolve and how we want to operate as a bank. But fundamentally, if you have a strong balance sheet metric, the way we've laid out over here, how we are going to lend, who we are gonna focus on, client profitability, and the most important aspect of the R is the continuous drive to efficiency. Our business is going to be challenged everywhere. I'm talking about as an industry, not Scotiabank. Over there, the more efficient we become, the more profitable we will always be. And that's also about thoughtful allocation of capital. We want to allocate capital to the most profitable relationships.
Once you see us executing through that, I agree with you, this has to be greater than 15%, but it comes down to execution and discipline.
Is that Mike?
Hi, Michael Rizvanovic, KBW Research. For Scott, just wanted to touch a little bit on the deposit strategy, and it sounds like you've had some success over the past year on those core deposits. What I'm trying to understand better is, when you talk about market share gains in core deposits, what you're really saying is you're going to, you know, take share from established relationships with your competitors. And I'm wondering, what's the big driver that makes that happen? Is it just capital allocation, more capital, more front client-facing staff? Like, what is it that sort of drives that?
Because it does seem like in some cases, you know, you could, you know, get some early gains, and then it gets a lot harder over time because you've got entrenched relationships with the other big six banks, with those same clients that you're chasing.
Yeah, Mike, you raise a great issue. I mean, this is all about execution, right? And we're in an execution game in our Canadian business. So as we reallocate capital back, we're gonna have to take share from others to meet those primary client objectives. But I think what you'll feel today from Aris, when you hear him speak, is the execution plan is robust. And with the focus of the organization, with reallocated capital, you're gonna see actually a doubling in the Canadian business in terms of the capital that we allocate to that business. You're gonna see a change in incentives that we've implemented between Jacqui's businesses and Aris's business.
You're seeing, actually the traction of Scene+, which is something we didn't have before, which has gotten a lot of traction, I think 14 million members. And you've seen some success in the new to Canada market as well, and so we recognize it's execution, we recognize it's quarter- by- quarter, we recognize it's a game of inches. But if we keep that consistency, you're gonna see results. And, you know, I think this year was a good first step. It becomes harder from here. I agree with that. But when you have that North Star and everyone focused and mobilized on it, I think we'll make results.
Just really quickly for Raj, just on the dividend, not to harp on this, I know it's a longer term strategy to get that back to the 40%-50% target range, but should we be thinking about the dividend in a sense that maybe you just don't grow it because you're waiting for that bit of catch-up? I think you're north of 60% now. Is that a fair way to look at it, or do you just... You know, should we just think that maybe, maybe the bank doesn't really care so much about being a bit above target for an extended period of time here?
I think we're comfortable operating above the target, Mike. There's no doubt over the next couple of years, 'cause we know we have to reposition the business, reallocate capital, and then the earnings are going to follow the way I talked about. The dividend payout ratio is actually a philosophical conversation. The 50% comes in saying, "Okay, we want to invest half back into the business so that we continue to grow the business." We're quite comfortable the way we have looked at our plan between capital liquidity and how we want to reinvest in the business, that we're not short-changing anything, although we might be operating, like you pointed out, a little over 60% for the next two years. The eventual philosophy is we want to grow dividend in line with our earnings growth.
So the moment it gets to about 7%, we'll get back to our traditional growth of 6%. But even through 2024 and 2025, we expect our dividend to grow modestly in this plan. So it's not about not growing dividend, growing modestly lower than we would normally like to, in line with the earnings. But that also ensures that we have sufficient capital retained in the business to continue to grow and invest in all those initiatives, like cloud and so on. It requires a lot of investment. So it's a balanced approach, I think. The dividend payout ratio will fall in place, like in the second half of the plan, the way I see it.
Okay, next question.
Hi, Paul Holden, CIBC.
Hi, Paul.
First question is with respect to capital allocation. Assuming the plan's drawn up based on current minimum required CET1, despite the reprieve we got last Friday, not an insignificant probability that CET1 requirements go up over time. We can run the math on that, so my question is not so much related to the ROE, but rather, if CET1 requirements continue to push higher, is there a reason to accelerate this plan or push even, like, the internal capital generation to more of those core markets even more than you have in the current plan?
Yeah, I think so. I'll call out a little bit about how this plan was built. It was obviously built before December 8th, right? So it was done with the assumption that we will run closer to 12.5% and beyond, including the impact of the capital flow that I talked about. So I believe those returns over there are clearly reflective of a higher capital ratio, if that were to become the reality, whether later in 2024 or beyond. The more important decision for us is: how do we deal with the DRIP soon enough before we determine how much more capital we want to put into these priority businesses?
We know we'll keep the DRIP in this plan through to 2024, but our intention is to say, once we know how our capital generation activities happen, and we eventually determine where the capital rules might lead us to, all that has been baked into this plan. So we feel quite comfortable, even if the domestic stability buffer goes up, it shouldn't impact any of our plans. And frankly, when we start generating more capital, like I said, which is more around the 15-20 basis points per quarter, which this bank has to generate, which will start happening sometime in 2025, it gives us a lot more flexibility to even increase our investment in the priority businesses that has not been factored into this plan. So I think there's more upside than not.
Second question is with respect to the ROE, and Raju focused on risk-adjusted margins a couple times. But when I look at this plan and re-emphasis on Canada, a little bit of a de-emphasis on LATAM, not only do you see a higher ROE ceiling, but also, I would say, a better risk-adjusted ROE. Maybe you can adjust or... Sorry, maybe you can sort of speak to that point in terms of how you're thinking about the risk to earnings given the reallocation of capital.
Yeah, no problem. I can start, and maybe Scott, you might want to add a few things. The return on equity for this year, 2023, was 11.7%. The easy math will tell you once the rate situation, you know, normalizes in line with the plan that I put in there, that's about CAD 1 billion of earnings. It takes us well past 13.5% if you did the simple math, right? So that's where it's really our starting point. To, to answer even Nigel's question, that's why 14% is kind of there once the rate situation evolves and it happens. The priority businesses to us, like you rightly pointed out, is all about risk-adjusted margin. As long as we get paid for the risk, we think it's the right decision.
That's how we built this whole plan, you know, the 100 units that Scott talked about, that we analyzed in great detail to understand through the cycle, not necessarily if it's a good cycle or not, what is the risk-adjusted return that we should be earning on the capital that's deployed? And that's how we identified these are our priority businesses. Obviously, there is a slant towards North America. So risk-adjusted margin is the way we've tried to disclose even in the last four to six quarters, rather than focusing on net interest margin and PCL ratio separately. The two have a great relationship, and that's how we'd like to run our businesses going forward. Risk-taking, I think Scott pointed out in his prepared remarks, is part of the business. We just want to ensure we get paid appropriately for the risk we take.
We appropriately provide through the ACL coverage that we want to maintain on the balance sheet. Yeah, you could have a black swan event where everybody will get impacted. That's not what we put in this plan, but it's appropriately providing for on the balance sheet, therefore, generating risk-adjusted margin in excess of 2%, like I called out in my prepared remarks. That, I think, is easily achievable with the assumptions that we have made, and I believe there are some, you know, some tailwinds which has not been factored into this, frankly.
Just a couple of comments. What I like about this plan so much is, if you think of where we were in international, back to Gabe's question, a volume-based approach, in LATAM, which meant that you attracted a lot of monoline customers, in non-credit quality, high credit quality segments, which then impacts your volatility and your PCLs and your write-offs. This reversion back to primary clients and high credit quality segments, with less of a focus on volume and more of a focus on value, one, drives higher profitability, but it's also a lower risk proposition from a net write-off perspective. And so the combination of that in international with the reallocation back into developed markets of the capital, makes for a more profitable and more sustainable and lower risk proposition for investors, in my mind. Darko?
I think we have to do something special. Can you hear me now? Oh, here we go. Thank you. My questions are all directed at Scott. My first question, Scott, is: a year ago, you came into this role from the outside, essentially, as from a director position to the CEO. I didn't hear anything mentioned in your presentation today about forward succession plans. Can you give us an idea of how you're laying the groundwork for the future CEO?
Yeah, it's a great question, Darko. So one, I think it's important to recognize that we have very strong and capable team at the bank. And, you know, this shift here from volume to profitable growth isn't a comment on actually the people and the capabilities in the bank. It's a philosophical shift in terms of how you run that bank. It's point one. Point two, you think about some of the people that we have at the EVP level, the SVP level, and even around my table, they've been at the bank for a long time. They've got a massive runway. They've moved around in different verticals, and there's an opportunity for them to continue to grow. We have brought in some senior leaders from global institutions who have seen it and done it before.
But they're also, you know, at the end of their career in terms of experience. In the case of Aris and Francisco, they've done it before in various industries. In the case of Aris, I actually brought him out of retirement to do this job. So thank you very much. And they have the opportunity to actually mentor the next generation, to, you know, lead the next generation, to actually then lead the bank. And so this has been a very intentional way that we've reworked this team to be able to provide the opportunities for the senior leaders within the bank to continue to develop and grow within the bank.
But there's been... Sorry, just to follow up on that, there's nothing fundamentally changed about the process that would disallow somebody from the outside or, or there's no fundamental core process now that says, "The next CEO of Scotiabank's coming from within?
Listen, it would be a failure on my part if I did not have the next CEO from within the ranks of the bank. I made that a massive priority at my last job, was very successful in doing it, and that will be a legacy that I will leave at this job.
Great. Thank you. That's an excellent answer. My next question, following along Gabe's sort of line of questioning, when I think of the three surprises that I'm hearing here today, we can debate whether it's USA or moving away from developing to more developed markets. I don't know if one or two. But the third surprise is actually the Caribbean, and I'm interested in why the Caribbean has been lumped in with an area where you would actually throw more capital at. I've seen other banks suggest that they want to exit the Caribbean. It seems to be up and down. Is it just a function of the fact that it's there, and it's not going to receive a lot of capital, or is there actually an intention to throw a lot of capital at the Caribbean?
Yeah, I think it's not a-- it's in the priority business, but it wasn't in the accelerate growth category. So it is a business that grows at GDP, and there's no... We're not trying to confuse anybody with that. But as we went through this process, I think you really have to look at competitive advantage. Like, where do you have a competitive advantage where you know you can win? We have 30% of the deposits in the Caribbean at the Bank of Nova Scotia. We are more trusted than the governments in these regions. As we went through COVID, we saw deposits come into the business, right? Sorry, not through COVID, through SVB. Sorry, through SVB, when we went through that disruption where a lot of banks were worried about deposits.
Actually, the diversified platform of this business, in our international bank, we saw incoming deposits. In the Caribbean, we saw incoming deposits. And so I know we haven't talked a lot about the Caribbean, but it's a massive competitive advantage for us, and it also- it does fit in North America. You know, it is part of that North American flow. So, so it is gonna be highlighted more going forward for sure.
Thank you.
Okay. Next question. Okay, any other questions for this session? Okay, so we'll take our first break, and we'll be back in the room just shortly after 11:00 AM., for the Canadian Banking presentation. Thank you. Great, welcome back. On to the Canadian Banking presentation for the day. Presenting our Canadian Banking story today is our new Group Head, Aris Bogdaneris. As Scott mentioned, Aris is a 25-year veteran of the retail business and a truly global leadership banks across the world. Aris, over to you.
Good morning, everyone. It's great to be with you here today. My name is Aris Bogdaneris, and by way of introduction, I grew up in Montreal before leaving to study abroad. Since then, I spent my career working outside of Canada, most recently at ING in Amsterdam, where I led their global retail banking business, a 38 million strong customer franchise operating across Europe, Turkey, and Australia. Coincidentally, the first direct bank ING ever launched was right here in Canada, known at the time as ING Direct. It's still here, and it's now called Tangerine, having grown for more than a decade under Scotiabank's management. Although I've only been at Scotiabank for a few months, I already feel at home here as I make my way around the business and spend time with our teams across the country.
While there are several unique aspects of Canadian Banking when you compare it to other markets, a lot of the challenges and opportunities I see look very familiar to what I faced during my time at ING and at other banks around the world. I'm thrilled to be back home with the opportunity to transform Scotiabank Canada into a high-performing bank that rewards its shareholders more consistently. All the high-performing banks I ever worked in, regardless of where they operated, had one thing in common: They were excellent in delivering a set of core capabilities that drove operational excellence from front to back. These high-performing banks were excellent with clients in branches, mobile, contact centers, especially when it came to digitizing key client journeys. They were highly effective at deploying data and advanced analytics to ensure high levels of client engagement. They also had highly sophisticated pricing capabilities.
They were also obsessed with driving process improvement, especially in underwriting and loan servicing. And finally, they had a winning setup with an efficient head office, a healthy ratio of client-facing staff to service and support functions, and teams working agile to drive execution speed. As I embark on this new journey in what is my new but still familiar homeland, I intend to draw upon all my experiences to further embed these marks of excellence deeper in our Canadian business, so we can deliver the key elements of the strategy Scott just talked about efficiently, sustainably, and profitably. So what is our strategy? We want to become a data-driven leader and Canada's most trusted bank, with more client primacy to drive higher sustainable returns. We intend to double down on our Canadian business by allocating more capital and investment for growth....
Higher levels of primacy should provide us with more resilient business, with a healthier mix of volumes sourced from third parties and business that we generate in our own branches and digital channels. There will be a better balance between NII and fee income, and a greater share of everyday banking and low-cost deposits. More primacy will also help us punch close to our weight in commercial and SME banking and generate higher returns. We also plan to increase investment in the business and devote more resources to our branch network to ensure our sales advisors are even more effective with clients, capturing the full relationship, not just volumes, while we continue supporting them with higher levels of digitization. We'll also be much sharper in setting priorities on a fewer number of impactful initiatives while scaling up agile delivery beyond the limited number of cross-functional squads we operate with today.
I will try to cover all of this for you now in a bit more detail. This is a snapshot of our Canadian bank today. Despite our size and relatively strong balance sheet growth, our historical earnings performance has been patchy. In fact, ROE in the Canadian bank actually fell 450 basis points since 2018, due partly to COVID, higher PCLs, and margin compression on the lending book. We can and plan to do better. The 2% revenue growth in our retail banking segment hit us particularly hard, as this business line holds more than 80% of the loans and 52% of the total deposits of our entire Canadian business. Clearly, there was an overreliance on volume and higher cost deposits at the expense of margins, and it showed up on the revenue side.
2023 revenues have come in much stronger, however, due to strong deposits and everyday banking growth, improved margins, and growing primary clients. Clearly, we have momentum as we pivot to the strategy of primacy. But our Canadian bank is certainly not lacking for resources, as the left-hand side of this slide shows, with a vast array of both physical and human assets at our disposal. But as this picture also shows, being big in banking does not guarantee anything unless we can deploy that size and scale effectively, and that's what we now aim to do. Clearly, we have opportunities to create more value in our Canadian bank. We are known and have a great track record as a lending organization.
We are Canada's leader in automotive finance and a 2023 J.D. Power winner in automotive lending in our category, and we continue to support our industry-leading OEM relationships and their retail consumer financing needs. These relationships provide us with a steady flow of high-value, high-credit quality borrowers and allow us to deepen relationships across the whole bank with our corporate relationships with OEMs and our commercial and wealth relationships with our dealers. We also have a very successful mortgage business, a key anchor product for clients at a key life moment, and we will continue to support it with a greater focus on building client primacy through deeper relationships versus mortgage-only acquisition. However, we still punch below our weight in everyday banking and other products like credit cards, mutual funds sold through branches, and even insurance, all high ROE contributors.
Despite our strong recent growth, business banking is still near the bottom of the rankings in both scale and reach. There is clearly room to improve our position in primary clients, digital penetration, Tangerine's business mix, in the efficiency and effectiveness of our channels, and even in the way we work. Here, our benchmark will not necessarily be our Canadian peers, but the best we see and know is achievable globally. While we still have much work to do, we already see good progress in several important areas that are key to our current strategy. We continue to do well in attracting retail deposits, CAD 34 billion over the last 24 months, and are showing strong gains in attracting more primary clients and everyday banking flows.
Thanks to our refreshed Scene+ program and a new product bundling strategy with mortgage brokers, where 70% of recent brokers, or bookings, excuse me, have included an additional product. We also saw credit card acquisition and cross-referrals with wealth achieving record numbers. As positive as these recent developments are, we're not about to take a victory lap. There's still more we need to do to make these recent successes stick. Our Canadian business benefits from a unique set of differentiators, like Tangerine, our leading challenger bank, which I'll come back to in a bit later. We also have Scene+, our loyalty program with 14 million+ members, which provides us with attractive cross-sell opportunities off its growing base. And we also enjoy productivity advantages, thanks to the highly scalable operation platforms we have in International Banking that today support our Canadian business.
We also plan to increasingly tap into the advanced digital expertise that we have in our retail businesses there, especially around mobile delivery. These levers are unique to Scotiabank, and we will continue to make full use of them in the days, months, and years ahead... As I mentioned earlier, a strong set of core capabilities drives operational excellence in banking. And it is wholly essential enabler for us to deliver on our strategy. These core foundational capabilities are shown in the red boxes on the left. We intend to deepen each of these across the entire Canadian bank to help us build more scale, earn more primary relationships, and make it easier for our clients to do business with us. It's all laid out in the strategic framework on the right, with the key objectives articulated underneath.
When it comes to investment, we also intend to put our money where our mouth is. As Scott mentioned earlier, more capital and investment dollars will be directed to Canada, increasing by more than 50% to more than CAD 500 million over the next 12-18 months. We plan to deploy these additional resources in a very focused manner, with 60% of total spend going to initiatives to directly increase primacy, improve sales effectiveness, and accelerate the digital transformation of our business. A good part of the increased funding is expected to come from productivity savings that we're generating internally, so we can increase investment and still aim to achieve positive operating leverage in F 2024. As Scott and Raj mentioned earlier, in the past, we over-relied on volume in our mortgage and auto businesses, and this adversely impacted our margins and risk capital.
We know that primary clients provide higher risk-adjusted margins, lower net write-offs, and provide more data, more connections, and more of an ability for us to proactively support them in their times of stress. Looking ahead, we will continue to focus on attracting higher quality primary clients as we reposition this portfolio, shifting the mix slightly to more unsecured, but with clients we already know, thanks to our focus on primacy to drive higher risk-adjusted returns. Thanks to the additional investment and our focus on primacy and on those core capabilities I spoke about earlier, we expect to generate a revenue CAGR about 8%—above 8% through to 2028, and an earnings CAGR above 9%. We also plan to continue growing deposits faster than loans, further reducing our loan-to-deposit ratio while aiming to continue to improve both risk-adjusted margins and our overall productivity ratio.
We expect all of this to help boost our ROE each year to reach 24% by 2028, as the benefits from more investment and our sustained efforts to create a more balanced, scaled, and efficient Canadian operation start to take hold. Let's now turn to our specific business lines, starting with retail banking. In retail, we intend to add 1 million primary clients over the next 5 years and over CAD 85 billion in deposits and funds originated from our branch network, two areas where we've historically underperformed. Higher fund sales in branches will be driven by continued investment in our advisor network, including growing the number of investment advisors using leading-edge financial planning tools like Smart Investor. Of course, we will also continue strengthening our already strong collaboration with wealth management, something Jacqui will talk about more in a bit.
Growing primary clients is core to this strategy because we already know that primary clients hold more products, generate more revenues, 1.7 times more, engage with the bank more actively, especially via digital channels, and are far more loyal, ultimately delivering higher long-term value to the bank. As I said earlier, our goal is to boost the number of primary clients by 1 million by 2028 to about 35% of our client base, up from 28% today. We intend to do this by acquiring new primary clients early in their tenure and deepening relationships with the clients we already have. We're already making progress. Over the last 2 years, a more robust client acquisition engine has helped us acquire more than 400,000 new primary clients, thanks to competitive new-to-bank offers and segment-driven value propositions.
One good example of our segment-driven value proposition strategy to drive more primacy is our focus on being the bank for physicians, dedicated to delivering advice and solutions to doctors and their households. You'll again hear more from Jacqui about our success and plans for physicians a bit later today. We're even starting to make inroads with new-to-bank lending clients by improving cross-buy through more personalized insights and highly tailored recommendations early in their tenure with the bank. We will, of course, also continue to engage many clients who are already with us, who are near to primary in their product take-up and behaviors, through more personalized, data-driven nudges to reward them for activation and for deepening their everyday banking relationship and loyalty. Now, let's talk about where we're focused when it comes to acquiring new primary clients.
We have been historically very successful driving client acquisition through lending. Now, it's our intention to expand new client acquisition in everyday banking as a foundational primary relationship product. Let me give you a few examples of this, starting with new-to-Canada clients. We've been successful with this segment in recent years, with the growth of our new to Canada, new-to-Canada clients outpacing immigration by 30% since 2021. This is in thanks in part to our attractive offering for newcomers through our StartRight program , our pioneering Scotiabank Student GIC Program , and our international credit bureau solution called Credit Passport, in partnership with Nova Credit. In fact, we were the first to offer this program in the market, which makes credit histories portable from abroad, helping solve a major pain point for new Canadians who need financing.
We also continue to add new value propositions supported by pre-arrival partnerships, including Moving2Canada , Venngo, and Prepare for Canada, all launched in 2023. Another promising area for acquiring new primary clients is Scene+, which we launched in August 2022. Since then, we've seen a 44% growth in Scene+ membership to more than 14 million members, while generating more than 1.2 million Scotiabank Scene+ payment products from its growing membership base. Over time, we intend to leverage this payment data to continue deepening the relationship we have with these clients.
So to sum it up, over the next five years, we aim to be the bank of choice for new Canadians, with a plan to generate more than CAD 15 billion in new balances, while we continue to leverage the potential of our growing Scene+ membership to further drive loyalty, primary client growth, and growing everyday banking balances. Now, we know if you want to stay relevant in people's lives, we need to keep developing our capabilities on mobile, because that is where people engage with their friends, their family, do their shopping, and increasingly manage their lives. But being mobile-led does not mean mobile only. There are many interactions we hope to continue, even encourage, to have person to person, be it for someone's first mortgage, wealth, or financial planning.
In fact, most of our clients still prefer to have these interactions face to face, but we want to give them the possibility to start any product or service journey on mobile and perhaps connect with an advisor, even virtually, along the way. In my experience, up to 90% of service and sales journeys can actually begin on mobile. When that happens, we will enjoy more traffic, collect more relevant data and insights, and have greater opportunities to engage with our clients. This flywheel effect on mobile will help us deliver on our ambition to double the number of products we plan to sell on mobile, while tripling revenues generated on this increasingly important channel compared to current levels. As we further develop more self-service capabilities on mobile, we can expect a smaller number of inbound calls, which we will increasingly handle by automated assistants powered by AI.
This should help us free up our agents to focus on what I call high assist or more complex interactions, even including sales. This will help us achieve higher levels of agent productivity. Let's talk about branches. With around 950 locations across Canada, we aim to ensure that every inch of branch real estate is used in the most productive and profitable manner. For this reason, we plan to continue to upskill our sales advisors, improve sales practices and tools, and add capable staff to smaller client advisory centers, free of any servicing tasks. Thanks to this and our efforts to take more low-value transactions out of the branch, we can expect to see higher client loads per advisor, an improving ratio of sales to non-sales staff, and ultimately a 25%-30% lift in sales volume per advisor.
All these initiatives should improve the quality, effectiveness, and productivity of our branch advisors and will be part of a comprehensive sales force effectiveness program we intend to launch early in 2024, covering the entire network. This program will not only focus on driving more consistency around daily sales routines, but will also address incentives, technology, tools, data analytics to improve the quality of sales leads. In my experience, a rigorous sales force effectiveness program is a key productivity play and should help us lift revenue per FTE significantly. Our ambition is set at an increase of 30%-40% over time, while also improving client experience and loyalty. I know this can be done because I've achieved similar uplifts before in market after market, and I am confident that we can achieve the same here at Scotiabank. Let's now turn to commercial banking.
With considerable focus and some important investments, the team has made meaningful progress over the past few years. Commercial has grown its sales force considerably, particularly in those markets where we were under-penetrated, while more than doubling referrals to our partners in wealth. We have also invested in new platforms to improve client targeting, workflows, and pricing. Now it's time to make all these investments work harder for us. Commercial banking is a relationship business, and we're focused on making meaningful business model changes to give our RMs more time to spend with their clients. Today, face time is extremely low, less than 30% of total working time.
That's why increasing RM productivity will be a major area of focus, and why we also plan to launch a sales force effectiveness program here as well, to drive more consistent habits and practices while identifying and reducing non-value-added work and manual processes that can further be digitized or eliminated altogether. When it comes to relationships, we already know that NPS scores are higher for clients who have a deeper relationship with Scotiabank, whether in commercial banking or more broadly across the bank. So for a commercial client who also does business with our wealth team, we're seeing NPS scores that are 10-15 points higher. That is why bringing these parts of the bank even closer together is so important to not only drive more business by increasing referrals, but also to make our clients stronger advocates for the bank.
Ultimately, thanks to all this effort, we plan to reduce the number of lending-only relationships in commercial, capture a greater share of deposits and fees, and drive more referrals to wealth, ultimately drawing, driving higher risk-adjusted returns. Our ambition levels in each of these areas are set out on the slide. The feedback we get from clients is that the best RMs are those that really understand their business and bring ideas and solutions and the full value of the Scotiabank, full value of Scotiabank to the relationship. That's why we plan to continue expanding industry specialization amongst our RMs, as we did for our agricultural clients, to great success. Specialization and leveraging our multidisciplinary coverage model improves the depth and quality of client interactions and advice. As I mentioned earlier, we have invested substantially in technology to build a fully integrated commercial banking platform.
We now plan to harness the full value of these tools this technology provides us with to source quality leads more efficiently. We also plan to continue to add RMs to geographic white spots where we need more boots on the ground to generate new business. Quebec and BC are a priority. We also intend to continue promoting our cash management and payroll capabilities to deliver better solutions to our corporate clients and their employees, along with better advice. Here's a summary of our playbook for commercial, including our ambitions around primary clients. On one hand, it's about deepening the core enablers of the business, like SFE, and deploying data more effectively. And on the other hand, it's about expanding coverage and deepening the expertise of our RMs.
Together, these will help us grow primacy to 30% of the client base and drive higher returns, not only to commercial, but also to other parts of the bank, like wealth. Let's now turn to SME banking. Small businesses are the backbone of every economy, and in Canada, it's no different. SME banking is a unique segment offering large deposit balances and oversized returns. In my experience in other banks, success in SME banking starts with the understanding that this particular segment is fundamentally different from both retail and commercial, and the business model needs to reflect this. When it comes to SME banking at Scotiabank, our starting point is relatively modest, as you can see from the size of our client base and our loan and deposit balances. But the segment, although small, remains highly profitable, with an ROE above 30%.
Our SME strategy is straightforward: It's to scale up, but to do so by building a lighter, digitally led model, especially when it comes to client onboarding and smaller ticket lending, while focusing on specific segments that can be a source of differentiation. We also know that of the Canadians with over 1 million in investable assets, over 50% are small and medium-sized business owners. Here's why our connection with our colleagues in wealth is so important, as referrals with wealth will help deepen that overall relationship. Our plan for SME banking is anchored around improving a handful of core capabilities. We will start, of course, with sales force effectiveness, including the expansion of our virtual sales teams to optimize cost to serve. It's an all-important success factor in this segment. Digital is next.
Here, we intend to deliver first-class client onboarding experience and further digitize core servicing processes, especially those touching the branch network, where manual and paper-based processes can still be very heavy. These important levers remain largely untapped, which gives me a lot of confidence that we can make meaningful progress growing our SME franchise without increasing our risk appetite or increasing our cost base substantially. Of course, all of this will require consistency across the network, focus, and not compromising on our model. Now on to Tangerine, and before I begin, I'd like to show you all a brief video.
The Tangerine brand has always stood out by providing our clients with an approach to digital banking that's as unique as they are. A challenger brand that stands for simplicity, progress, forward banking. Simplicity drives everything we do: complexity-free banking, digital onboarding, and an experience that puts clients in charge of their money. It's why we're the leading digital bank and the most trusted mid-size bank in Canada, ranked sixth largest by personal deposits. But we're not stopping there... We saw an opportunity to deliver more value to Canadians by evolving into a bank that meets their everyday needs. The results speak for themselves: outsized growth, strong partnerships that drive brand awareness and acquisition, and record financial performance. We've made it our mission to help millions of Canadians save billions of dollars, and we've helped them keep moving forward with market-leading credit cards and investment products.
Our clients love our approach, and we're just getting started. A digital bank with a mobile-first mindset. We're driving further innovation and growth and continuing to push the industry through forward banking. This is the New Way Forward for Tangerine.
On the back, on the back of its strong digital pedigree, Tangerine has had a strong run since 2018, with double-digit growth in revenues and strong gains in client and product volumes. But having previously been responsible for, among other things, several of Tangerine's former ING Direct cousins, I can confidently say that Tangerine's best days are still ahead. Tangerine is seen as a very strong challenger bank and an alt- and an alternative for digitally savvy Canadians. It has clear competitive advantages, especially when it comes to its high NPS, superior client experience, and lead in digital/mobile. Tangerine also has some very strong partnership assets, like the main sponsorship with Toronto Raptors and Bike Share, which we're only now beginning to harness. Since 2018, Tangerine has made impressive gains in increasing penetration rates across various products, like daily banking and credit cards.
Still, when measured against the overall market opportunity, the growth opportunity looks very large. For me, this opportunity is reflected by one key metric: only 12% of Tangerine's revenues are generated from products outside its powerful deposit franchise. So part of our strategy going forward is to grow and diversify the business into a more balanced primary bank and not just a digital deposit gatherer. In my previous bank, we proved that digital banks with market-leading NPSs can monetize that high NPS into more value across a broader array of products and services to drive more primacy, clients, and revenues. In one digital bank I oversaw, competing against some of the best banks in the world, more than 45% of its nearly 4.5 million clients had a primary relationship with the bank, while 60% of its revenues were generated from non-deposit, non-mortgage products.
It can be done. We intend to follow a similar playbook for Tangerine by first reallocating some marketing spend to get a larger share of voice, because voice matters for a challenger brand operating without branches. We also plan to offer a fuller array of mobile-friendly value propositions around daily banking, mutual funds, ETFs, credit cards, and insurance. Even making modest steps towards approaching the market averages should yield significant improvements to our business. We also intend to focus the vast majority of our incremental investment to drive more sales and service capability on mobile, because this is where more and more of our clients expect to do their banking. All this effort is expected to translate into revenue growth of 11% per year and faster client growth.
An additional 500,000 primary clients is our ambition, with a much higher proportion of mobile sales and revenues coming from non-deposit products. Greater diversification will give our Tangerine business far more resiliency, especially in any falling rate environment, while our focus on mobile will allow us to stay low cost and highly scalable as we grow. A big bank like Scotiabank has a lot of clients and a lot of assets. The secret is, to leveraging these assets, is to continue to work across business lines, or what I say horizontally, to deepen the strong connections we have already built between our business units and clients who often have multiple needs, like professionals or small business owners, for example, who also need wealth advice.
We have already made good progress on the wealth referral side, but there's still more we can do, whether it's winning more business with the employees of our commercial clients, serving the multiple needs of our small business clients, or working with Francisco and his teams in International Banking to earn more business from our multinational clients across our North American footprint. They expect this from us, and we will work hard to deliver it to them. A big part of our strategy revolves around strengthening the culture of execution and accountability. In fact, this is a big part of the transformation we want to engineer in the Canadian bank.
We intend to break up key elements of our strategy down into several discrete missions, or what I like to call must-win battles, with clear ownership and accountability among our senior teams, with deliverables linked to a very visible set of KPIs that we will track relentlessly. We have also now integrated our digital, data, and analytics organizations directly inside the Canadian bank to ensure these critical core capabilities operate in much closer alignment to the business. As a first point of departure, we will start by executing our sales force effectiveness and pricing programs in early 2024, while we accelerate our investments in digital and data in both Tangerine and the Red Bank. Here is a summary of the key targets of the Canadian Bank.
Much of the initiatives I described around deepening primacy, driving sales force effectiveness, increasing product penetration, growing business banking, deepening data and digital, and driving more productivity, are reflected here in these medium-term financial objectives and strategic objectives. They are ambitious, yet achievable, given the wealth of assets and talent this Canadian bank has at its disposal to support and service our clients. It's now up to us to execute and mobilize the full strength of this bank in the specific target areas that I described, to drive more value for our clients, more value for our shareholders, and for our hardworking staff alike. Thank you very much.
Great. Thank you very much, Aris. And Aris will be back after our wealth session for a Q&A, a joint Q&A with wealth. So on to wealth management, Global Wealth Management. As mentioned earlier, Jacqui Allard is newer to our bank, but a seasoned executive in the Canadian banking landscape, having led successful wealth and P&C businesses at highly regarded competitor organizations. After a brief video, Jacqui will come up and share our global wealth story.
Over the last 5 years, Global Wealth Management has built a winning platform that delivers consistent, reliable growth for Scotiabank shareholders, best-in-class advice and solutions to over 2 million clients across 13 countries. We've built momentum for continued growth in Canada and across our whole footprint. In asset management, we have award-winning investment management capabilities, which we deliver through innovative solutions across a differentiated multi-brand and multi-channel model, with strategies in place to capture significant upside in retail investment fund sales. Through our holistic total wealth approach, we are delivering valuable advice to high net worth clients to win new relationships and deepen existing ones as we deliver the whole bank to clients seamlessly. Internationally, we are taking our successful model to targeted markets with high growth potential.
By leveraging our unique International Banking footprint and infrastructure, we are building and scaling capabilities to deliver investment products and advice to win affluent and high net worth clients across Mexico and our broader international footprint. We have a winning strategy and a winning team. Together, we'll harness our momentum and continue to deliver for our clients, employees, and shareholders. This is the New Way Forward for Global Wealth Management.
Thank you, and good morning, everyone. It is an absolute pleasure to be here in my new role as Group Head of Global Wealth Management. As you know, I've recently assumed this role from Glen Gowland, who's now our Vice Chair of Scotiabank. Glen and I have had the opportunity to work through our transition since I joined the bank back in September, and I've had the chance to see firsthand what's been powering the success of Scotiabank's Global Wealth Management business. I've been impressed with our platform and our strategy, our people, our culture, but I've been even more excited with the opportunity for accelerated growth. I'm gonna take, I'm gonna take you through this over the next 25-30 minutes, and then I'm gonna invite Aris, Raj, and Phil to join me for a joint Q&A.
Global Wealth Management is an attractive business for Scotiabank and our shareholders. With low capital requirements and a diverse earnings mix, we're also a strong growth engine for the bank. Global Wealth Management is a winning platform with differentiated capabilities and a unique footprint compared to our Canadian bank-owned peers. We have substantial opportunity to deliver accelerated growth across our wealth and our asset management businesses, both in Canada and internationally. Let's start with a look at our historical performance. Global Wealth Management is a strong contributor to bank earnings, delivering 2023 revenue of CAD 5.3 billion and earnings of CAD 1.4 billion. We built significant scale with over 2 million clients across 13 countries, managing CAD 317 billion in assets under management and CAD 610 billion in assets under administration.
We drive consistent, reliable growth for the bank and our shareholders, delivering a five-year earnings CAGR of 7%. In fact, we are number one in earnings growth over the five-year period compared to the Big Five banks. We delivered this despite the headwinds that our industry has experienced in both rising interest rates and declining equity and fixed income markets over the past 2 years. We've done that by being thoughtful around expense management, while also continuing to invest in technology and growing our sales force. This has enabled us to grow while also improving efficiency. We have market-leading productivity ratio, the lowest of the Big Five, as well as strong returns for our shareholders, with a return on equity of 14.6%.
This is up 190 basis points since fiscal 2019, while absorbing the costs of goodwill and intangibles from two significant acquisitions: MD Financial Management and Jarislowsky Fraser. Our scale and our disciplined approach enable continued growth in Canada, while also giving us PNL flexibility to fund new growth and investments in targeted international markets. We have built a diversified business that provides us with a well-balanced platform for future growth. From a geographical perspective, this past year, 15% of our earnings came from International Wealth Management. That was up almost 200 basis points year-over-year. From a business mix perspective, we are also well-balanced across our asset and wealth management businesses, and we're a strong driver of Scotiabank's focus to continue to grow fee income, with 84% of our top line coming from non-interest revenue.
We have built leading positions, as you'll see, in Canada, and our international footprint is unmatched. In Canada, for example, we are one of the largest retail mutual fund managers by market share, and we have the largest private investment council business by assets, with specialized brands targeting different high-value client segments. In our international footprint, we're really just getting started, and we are already seeing success and strong momentum, with 19% year-over-year earnings growth coming from our International Wealth business this past year. We're receiving increasing international recognition. Most recently, Global Finance named Scotiabank Wealth Management the best private bank in Peru, the Caribbean, and the Bahamas. Our track record demonstrates that our business model has delivered and can deliver outsized earnings growth relative to our peers.
As you'll see, we have differentiated capabilities that our clients value and are difficult for competitors to replicate in each of our three Global Wealth Management business lines. In Canadian Wealth Management , we have a truly integrated Total Wealth advice model , where the focus is on seamlessly delivering the entire bank to our clients. This is resulting in higher client satisfaction and deeper relationships. In Global Asset Management , we have built strong scale and award-winning active management capabilities, with diversification of sales coming from both internal and third-party channels. And specialized brands such as Dynamic Funds, MD, Jarislowsky Fraser, and Tangerine further extend our reach. And internationally, we have a footprint unmatched by any of our Canadian peers, and we have built foundational capabilities across this footprint, leveraging on our successful Canadian model, and we are now positioned to accelerate our growth.
So with this background, let's take a more detailed look at our path forward. With our unique capabilities and our strategies now in place, we plan to accelerate growth across our wealth businesses over the next five years. Global Wealth Management plans to deliver five-year earnings CAGR in excess of 10%, underpinned by assets under management CAGR of 8%. We expect to continue our industry-leading productivity ratio. Through disciplined organic growth, we expect ROE to improve by 500 basis points to 20% by 2028. Our path forward is well aligned to the bank's strategic priorities, growing in focused areas, including Canadian wealth and asset management, scaling our capabilities to international markets in order to accelerate growth, and continuing to invest in the platforms, capabilities, and teams to build client primary relationships.
Over the next few minutes, I'm going to unpack what this looks like for each of our three lines of business. The first aspect of our accelerated growth strategy is to double down on the momentum and success that we have built in our Canadian Wealth Management franchise, leveraging our Total Wealth advice model . We offer a comprehensive suite of services to meet the complex needs of high net worth investors, families, and business owners, and we do it through a highly integrated team. We were an early adopter of a fully integrated Total Wealth advice model , and we believe that we're doing it better than our competitors. Planning and specialist advice are at the very core of our offering, and we have more specialists per advisor, including planners, trust, and insurance professionals, and this enables our advisors to deliver holistic solutions and build deep client relationships.
Clients with a plan are twice as likely to have a multi-product relationship with us, and they generate 30% more revenue than clients without a plan. The proof of our model is in our results. We have built established leading positions across our businesses. For example, in private banking, we have the highest revenue per client, fully 60% higher than the average of our bank peers as a result of our premium product offering. We have the largest trust and foundation business by revenue, and Aqueduct, our public charitable foundation, is one of the largest grant makers and the 13th largest of 11,500 foundations in Canada. Again, philanthropy is so important to our client base. We also have the largest private investment council business in Canada, as I mentioned, over 50% larger than our next nearest competitor.
In ScotiaMcLeod, we focused on moving upmarket relative to our peers. We have the largest average account size, and we manage more high net worth households per advisor than the industry average. In fact, our average book size per advisor as a result is 25% larger than industry average. Compared to competitors, we've been successful in growing these different advisory channels in a very balanced way. No one channel crowds out the others. Instead, they work together to serve our clients and to grow our collective business. This has helped us to attract and retain top advisors. Our success has not gone unnoticed. We continue to be recognized in the industry for our client-focused approach.
Just this past year, Scotia Wealth Management has been awarded Best Domestic Private Bank in Canada, Best Private Bank for Wealthy Women in North America, and Best Private Bank for Business Owners. We have a winning strategy that drives results. Since 2018, Canadian Wealth Management has nearly doubled earnings and delivered a double-digit earnings CAGR. In addition, our earnings are well diversified across our businesses. Our client Net Promoter Score has increased 12 points since 2018, and since the launch of our Total Wealth strategy back in 2015, it has increased more than 1.5 times. In addition, we almost tripled closed referrals from our retail and commercial partners over the last 5 years. This demonstrates our partners' confidence in referring their very best clients to us.
Last year alone, we closed over CAD 12 billion in two-way referrals between wealth, retail, and commercial in Canada. For every dollar that was referred to us from retail banking, we bring in an additional CAD 1.20-CAD 1.40 of assets and lending from our competitors. Now, a great case study to showcase how our Total Wealth strategy is winning client primacy and delivering results is MD Financial Management. In 2018, we acquired MD, and we bolstered our business with a one-of-a-kind wealth management capability dedicated to the needs of physicians. Since the acquisition, we've maintained and strengthened the brand while significantly improving the operating model. This has allowed us to achieve synergies and strong earnings growth, doubling earnings while improving MD's productivity ratio by 1,600 basis points.
We have also leveraged MD's 50 years of dedicated experience working with physicians to build new tailored solutions and services. For example, we recently launched Medicus, the first and only pension plan in Canada exclusively for incorporated physicians. We see this as a game changer. We believe it will fortify our position as the bank of choice for physicians in Canada. But of course, we didn't just acquire MD for its existing wealth business. MD has also made Scotiabank more relevant with physicians. Together, MD and Scotia have exclusively partnered with 40 healthcare organizations, representing practicing and retired physicians and medical students across the country. Over the last 5 years, we've committed CAD 70 million in support of Canadian physicians' wellness and healthcare innovation in this country through our affinity agreement with the Canadian Medical Association.
Through our Scotiabank Healthcare Plus offering, we're committed to delivering a leading banking experience for our physician clients, and our efforts have achieved incredible results. We have grown the number of physicians banking with Scotiabank by approximately 40% since the acquisition. In fact, of the 135,000 practicing and retired physicians and medical students in Canada, over 50% of them now have a relationship with Scotiabank. These clients are highly valuable multi-product clients that epitomize client primacy, with an average of four retail products each. We believe we still have ample opportunity to drive additional value as we continue to deepen relationships with MD's premier client base. At the same time, Scotiabank has been particularly successful in winning medical students and new doctors, where we have almost 50% market share.
This builds an incredible pipeline for future retail, SME, and commercial banking relationships, as well as wealth management opportunities as those doctors continue to develop in their careers. Finally, I'd say we have learned a lot from MD, and we can apply this experience to scale our model with other high-value professional segments across our Canadian and our international footprint. Now, as successful as we've been in leveraging our Total Wealth approach across our business, we are not standing still. We're advancing and evolving our strategy to unlock the next phase of growth. Demographics are changing, and thanks to medical innovation, lifespans are also getting longer. But at the same time, more Canadian seniors are living with multiple chronic conditions. Based on our research, the potential cost of living longer and living in poor health is the number one concern of high-net-worth investors.
By combining the medical expertise of MD and its network of medical partners, together with our proven Total Wealth strategy, we're in a unique position to credibly help our clients plan for the financial costs and other issues associated with prolonged longevity. We are evolving our Total Wealth strategy to specifically incorporate longevity and personal well-being, and we're investing in financial planning, education, training, and new products to enable our advisors to help clients better prepare for their futures.... We believe this differentiated approach will enable us to continue to drive deeper primary relationships across the bank, as well as to win new clients and new advisors from our competitors, all while delivering better outcomes for our clients. In short, in Canadian Wealth Management , we have unique capabilities, strong momentum, and a proven track record. And we're not standing still.
We're leveraging on our successful foundation, we're building new differentiators as we aim to deliver double-digit earnings growth over the medium term. So let's move on to our Global Asset Management business. Scotia Global Asset Management is a strong contributor to Global Wealth's diverse earnings mix. It is a low capital, high ROE business, and it's an important growth engine for us. Size and scale matters in this business, and Global Wealth Management manages over CAD 300 billion in assets under management. We are also one of Canada's largest retail fund managers. We see our differentiation in this business stemming from three things. First, of course, the strength of our asset management capabilities; second, our innovative product shelf; and finally, our diversified multi-brand distribution channel. I'm gonna touch on each one of these.
Together, they come together to deliver winning investment results for our clients, ranging from mass market all the way through to high net worth, as well as institutional pensions, foundations, and endowments. Let's start with asset management. We have focused in building our capabilities in active management that delivers alpha that clients value and are willing to pay for. We have over 150 investment professionals in our multi-manager team structure. These teams are delivering risk-adjusted performance and value to investors, and they have been recognized with over 200 Lipper and FundGrade A+ awards over the last 5 years. This is more awards over the past 5 years than any other Canadian asset manager. Across our retail and our institutional investment management teams, we're delivering that award-winning investment performance through innovative products, and we're capturing sales in high growth, higher margin asset classes.
For example, we are number one in Canadian liquid alternatives market share, with CAD 4.7 billion in assets. We recently announced the Global Wealth Management private asset platform. This is a partnership and collaboration between Scotia Global Asset Management and Sun Life's private investment management business, SLC Management. We are so excited about this partnership because together, we're gonna bring, we're gonna bring to market a suite of private asset solutions purpose-built for our affluent and high net worth clients. Finally, we have a unique multi-brand, multi-channel distribution model. On the retail side, we're leveraging Scotia Smart Investor to power distribution with licensed advisors across Scotiabank's 950 Canadian branches and our contact centers. While Tangerine allows us to access investors who prefer online investing and who may not otherwise choose to invest with a traditional bank.
We have access to high net worth and ultra high net worth clients through Scotia Wealth Management, while MD provides us with privileged access for physician clients. Through our Dynamic Funds business, we are enabled to capture sales flow through independent financial planners and dealers. Through Jarislowsky Fraser, we have broadened our investment management capability with an experienced institutional investment management team with a robust track record and a well-recognized brand. This filled a gap for us that would have taken decades to build organically. With JF, we have relevance with both institutional and high net worth investors, and we've leveraged this to launch new mandates and products in both Canada and international sales channels. With organic growth opportunities, both in Canada and internationally, in both retail and institutional markets, and through both proprietary and third-party distribution channels, Scotia Global Asset Management is well positioned for accelerated growth.
But for Scotia GAM, our largest opportunity, as you've heard, sits right here within our Canadian retail bank franchise: to further increase the penetration and share of wallet with existing clients of our retail bank. At 10%, we are currently under-penetrated relative to our peers in the percentage of Scotiabank clients who have purchased a mutual fund product with us. As Aris referenced in his presentation, building primacy is a top focus, the top focus for the Canadian retail bank. This represents a lucrative opportunity for us to grow our retail investment fund business. In fact, even a modest increase in penetration and average account size is expected to yield over CAD 200 million in incremental all-bank earnings over the next five years. We will lean into our partnership to deepen penetration of investment advice and solutions with existing retail clients of both Scotiabank and Tangerine.
To do this, we'll pull a number of levers, continuing to build out our specialist investment advisory teams who offer investment advice and financial planning to retail investors. This is a proven model, and we plan to double the size of this team over five years. But we will also support all of our licensed advisors through continued investment in technology to enable them to have more meaningful interactions and advice discussions with clients. For example, you've heard it, our market-leading Scotia Smart Investor digital tool, which we launched just over a year ago.... Smart Investor is a truly differentiated goals-based investing platform. It provides an omni-channel, end-to-end digital or advisor-assisted investing experience.
Clients can set and update their goals, they can open an account, they can access a full range of suitable savings and investment solutions for them, and they can do that through whatever channel they choose: mobile, on the phone, or in a branch. The combination of an expanded sales force and our best-in-class digital platform will enable us to deliver more advice and award-winning solutions to a greater share of Canadian Banking's almost 11 million clients. At the same time, we plan to invest in our highly successful Dynamic Funds business to drive further growth with independent planners and dealers. In short, we believe Global Asset Management is an extremely attractive business, and we expect that the combination of our scale, our capabilities, and our growth strategy will result in outsized growth over the next five years. Turning our attention to our v management business.
In short, we believe that our Canadian market-leading capabilities can be replicated in high-growth, priority international markets. Let me start by giving you a bit of context about what this opportunity looks like. In our international footprint, our target segments, which range from mass affluent through to high- ultra-high net worth, represent over $4.5 trillion in financial wealth. In these markets, the retail mutual fund industry has $380 billion in AUM, and it's projected to grow at 10%-15% CAGR over the next five years. Now, while the market size of mutual funds is currently about 20% of the Canadian mutual fund market, it's growing at two to three times the rate of Canada. Mexico is by far the largest opportunity, representing over 60% of the total industry mutual fund assets across the region.
Scotiabank is uniquely positioned as a globally recognized brand with an established presence in each of our priority markets, benefiting from International Banking 's robust retail and commercial businesses, with with over 1,000 branches and over 12 million clients, including 2.3 million retail clients in Mexico alone. We're gonna leverage our partnership with Francisco and his team to win client primacy and grow market share by continuing to build and strengthen referrals with retail and commercial banking, while also connecting our on and our offshore businesses. As Scott mentioned in his presentation, offshore capabilities are extremely important to these markets. About 40% of Latin American high-net-worth wealth is being held offshore. So how do we expect to capture this industry industry growth? Well, over the past 3 years, International Banking has already been making strategic foundational investments, and they're already paying off.
In fact, from fiscal 2021 to fiscal 2023, we've delivered a 12% earnings CAGR, our ROE has improved by 500 basis points into the mid-30s, and we have been delivering assets under administration CAGR of 13%. Now, in order to build on our momentum, we will invest in both our fund management capabilities to support International Banking , while also driving growth and wealth management by leveraging our Total Wealth advice model . For International Banking 's affluent retail clients, we'll continue to build out our asset management capabilities, and we'll expand our investment fund product shelf, as we've recently done in both Chile and Peru. We'll leverage our common investment platform to scale.
Partnering with Francisco and the team, we're focused on developing our retail distribution capabilities, including digital and mobile platforms, giving us unique access to a growing base of affluent retail clients and the opportunity to benefit from the higher growth expected in these markets. For the high-net-worth segment, where financial wealth is expected to grow between 7% and 8%, we're continuing to roll out our proven total wealth model to grow our client base. Client research that we've done in the region shows us that our total wealth value proposition resonates with high-net-worth individuals, and our global brand further strengthens it. In fact, 75% of high-net-worth investors prefer banks as their main wealth provider, and 89% prefer a wealth management provider with a global presence. We bring both. And we are not reinventing the wheel here. We know how to get this done.
We have winning capabilities in Canada that we're leveraging, and we're supporting it with continued investment in talent and sales power, connecting clients to the right value proposition. And finally, we are expanding our offshore services by adding a booking point in the United States to enable more client choice in booking point destinations. At the same time, we'll be focused on our largest, most profitable opportunities. As Francisco is going to outline in his presentation, Mexico is a priority market for International Banking . This is no different in wealth management. For us, Mexico and the Caribbean are our leading growth markets, particularly for high-net-worth and affluent segments, and we're building on our foundation to win.
We have already built a strong wealth management footprint across Mexico and a holistic wealth offering, including a well-established onshore brokerage business with multiple offshore booking points and a small but fast-growing private banking business. For retail investors, we plan to quickly build on our 5% market share in mutual funds in Mexico, and we're investing by establishing an investment solution center in the country. Now, while we're pursuing a Mexico-first approach, we are also selectively applying these same capabilities in other markets where we see opportunities for profitable growth. We've also built a strong franchise in our Caribbean footprint that includes a trust structuring business that has doubled in earnings in 2023, and a private bank, as I said, that was rated best private bank in the Caribbean and The Bahamas in Global Finance this year.
In short, we have an extremely attractive International Wealth business with an ROE in the mid-thirties. Over the next 5 years, we expect to grow earnings here at a CAGR in the mid-teens. We understand that to be successful, our business has to build on a scalable platform that supports best-in-class advisor and client experiences. Across Global Wealth Management, we're continuing to invest in areas that will support advisor and client growth by making it easier to do business with us. This includes ongoing innovation in client digital applications such as Scotia Smart Investor, Scotia iTRADE, and our new generation wealth management client mobile app, which is launching this fiscal year, accelerated investments in platforms and technology to increase advisor productivity and to improve client experience, and continued investment in our people through recruiting, talent management, talent development, and practice management.
As referenced in my earlier comments, our partnerships across the bank represent some of our greatest assets and are a key driver of our mutual success. We are continuing to leverage this advantage in order to expand our retail investment fund business, to grow our client base while delivering the whole bank to clients. We are well positioned to leverage our winning platform to achieve our expected five-year financial objectives of delivering earnings CAGR of 10%+, assets under management CAGR of 8%, a continued industry-leading productivity ratio, and ROE of 20%. In addition, we've identified a number of additional strategic measures that we're tracking to measure our progress. Continued double-digit earnings growth in International Wealth Management, expected, as I said, to be in the mid-teens, led by growth in Mexico and offshore markets.
Recognizing that financial planning creates deeper client primacy and greater revenue, we are also targeting a 25% increase in the number of clients who have a financial plan with us. As a result, in Canadian Wealth Management, we're targeting an additional 10-point improvement in our Net Promoter Score. Lastly, Scott and Aris both referenced this: we expect to continue our strong momentum in referral growth, with another CAD 15-20 billion in annual referrals growth between our Canadian retail, commercial, and wealth over the medium term. In summary, Global Wealth Management has delivered best-in-class results and been a strong growth engine for the bank with low capital requirements. We have built a winning platform, and we're well positioned to accelerate growth by leveraging our differentiated capabilities that are difficult to replicate.
In Canadian Wealth Management, our focus is to unlock the next phase of growth by evolving our already successful Total Wealth advice model . In Scotia Global Asset Management, we expect to drive growth by broadening our retail investment fund distribution and by improving our penetration right here with Scotiabank and Tangerine retail clients. In International Wealth Management, we've made foundational investments, and we have a unique footprint that provides us with a path for accelerated growth. With that, I would like to invite Aris, Raj, and Phil to join the stage, and we'd be happy to take your questions. John will moderate.
You're next. No, that's how it's listed. Oh, come on.
You want to be under your name?
Oops.
I think you should be under your name.
Sorry about that.
I know.
Great job, Jacqui. Great. Okay, questions on the Canadian Bank and the Global Wealth Management business. Sohrab?
Maybe I'll start off with, with Aris. You highlighted retail, commercial, small business, and Tangerine as the four, I guess, vectors. Which one is going to be the easiest, and which one's going to be the hardest when you think about your medium-term plan?
I think, for me, when I look at the businesses, I think when you see the retail business in Canada, the commercial business in Canada, they're very strong. They have the assets, they have the pedigree, they have the history, they have everything they need, as they build on their strategy for primacy. So there, it's about continuing what they started because as I've arrived, there's already great momentum in those businesses as they pivot on this primacy strategy. When I look at Tangerine, they've also been very successful prior to my arrival, but there I see a lot more opportunity to scale up and broaden that business beyond what they do today.
It's not about being more difficult or easy. It's about just, for me, Tangerine is about making it achieve its true potential that I've seen in my time in Europe and Australia. That's how I would answer it.
If I can just have a follow-up on that, Aris, the success of Tangerine will at least be in part dependent on the customer acceptance of digital channels.
Yes.
You've made reference to your experience elsewhere. Where, where do you see the Canadian consumer in adoption of that digital channel versus the best-in-class that you're aspiring?
So if I just go back to Europe, and I think about Europe, Europe's not a monolith. So when you look at Europe, you see the Scandinavian countries. I would include Netherlands in that category, and even places like Poland and Turkey, where they're very advanced in digital. And then you see in other European countries, more in Italy and the South, the take-up is slower. But what is clear for me and what I've seen over the 20 years I've been there, it's an inevitable trend as the demographics, the young population starts to go up, digital is how they live their lives. And so the question is how quickly that trend and that convergence, because I think that consumer behavior is converging all around the world, in Australia, Asia, everywhere.
It's that convergence, and are banks prepared to serve that client who is very digitally savvy and very oriented and wants to do their banking on mobile, for example? So again, I believe, in the bottom of my heart, that it will actually, that behavior will come here. If it hasn't already started, it will come here, and we just have to be ready to provide our clients with that capability as they make that change.
Okay. Ebrahim. Ebrahim,, just in front here, Clancy.
I guess, just sticking with that, we've seen challenger banks generally struggle in North America over the last 3-4 years, the ones that came from Europe. So in that convergence, do you think Tangerine eventually converges with the retail offering? Like, when does the Scotiabank mobile app and Tangerine offer the same thing? Do you see...
My approach and my way of thinking is that Tangerine, to fulfill its potential, has to operate independently to the greatest extent. Different value proposition, different messaging, different. How we get synergies in the back end, we'll look always at synergies, but the value propositions and the look, and the feel, and the experience will be different from the big, full, banks we have in Canada. That's how I believe Tangerine will be successful.
Taking that a step further-
Mm
C an Tangerine then be ported to the United States?
You know, ING's biggest regret is that they had to leave the U.S., you know, that they were very successful in those days. That's not in our—that's not in the thinking. The thinking is there's plenty of opportunity in this country where the population is growing, young population, the market is large for a Tangerine, especially the lack of competitors we see in this space. So I think there's so much more opportunity we still have in Canada.
Maybe I'd add to that too, John. I think Tangerine for wealth management represents a really interesting opportunity. We have only 6%. I mentioned we had 10% penetration within the retail bank. We have only 6% penetration for mutual funds in Tangerine, a huge opportunity for us. In our five-year plan, we're expecting to take that to 12%, which would get us about, you know, CAD 10 billion in assets under management. It's not a huge number. The opportunity there is huge. And to your point about do they converge, I think there are synergy opportunities. I think Scotia Smart Investor is a fantastic example of that. It's a great digital tool. It's a natural for Tangerine's digitally savvy, younger client base, but it also works in Scotiabank and the retail bank, but we'll make it look different for the two.
The investment products that we offer through those two channels will be different and really try to be focused on the client base that we have in each of those franchises. I think it's a one plus one equals more than two by taking the opportunity to actually keep it as a challenger bank and to build on it to provide us with more value over time.
Just to give you an indication, the crossover between the two banks in terms of customers is 2%. It's very low. Different markets, different target markets.
Okay, Darko.
Hi, thank you. It's always delayed for me. I'm not sure. Maybe that's a strategy. Just a couple of questions. Maybe just to finish up on that before I go on to wealth questions. Aris, it certainly sounds to me like Tangerine's not really the vessel, so to speak, to go after new-to-Canada customers. Why is that not the case, as a challenger bank in Canada, to make that a bigger focus?
I didn't talk about it, but it is a very big focus for Tangerine because often, the new-to-Canada customers or people who come from abroad are very digitally savvy already. Yeah, because that's just... In that part of the world, abroad, they're much more advanced digitally and on mobile. So I see them as a natural segment for Tangerine to also approach with their value proposition. So I didn't mention it, but it's a big part of what Tangerine also is looking at.
And yet, if only 2% crossover, and you've had a lot of success with new to Canada, what's Tangerine been doing wrong with respect to the new to Canada?
I think Tangerine was not focusing on primacy to the same extent it will now focus on primacy with a full product offering, yeah, at scale on mobile. So that could be one of the reasons.
Okay. And my question for Jacqui is, when I looked at the metrics, just quickly, when I think of an 8% AUM CAGR over five years, I think the market's gonna give you that.
Mm-hmm.
If you're, if you're looking at 25% growth in your primary clients, what? Are you anticipating some sort of AUM disposals in here? Or is it just Darko's way too optimistic on the market?
Thanks for the question, Darko. I would tell you that in our five-year plan, we have built a very conservative 5% weighted average market return, across our business. I think to your point, I think we will exceed that. But the 8% target that you saw, or 8% CAGR in AUM, is based on an assumption of market CAGR of 5%.
Okay, thank you.
Mm-hmm.
Okay, Paul.
I'll wait for the-
Paul Holden over in the corner here.
Thanks. A question for Jacqui.
Mm-hmm.
You mentioned launching or introducing new product capabilities. You talked about the importance of scale and size. You talked about it getting bigger and international. When I think about some of those things, I think about the potential for acquisitions. Maybe not large acquisitions, but at least the capacity or desire to acquire new capabilities or to get bigger in certain markets. Is that part of the strategy at all?
It's not part of what has been included in our five-year plan, Paul. It is something we would be open to over time, but I don't think it's. It's certainly not something we need to achieve what we've set out in my presentation. In Canada, I don't think it's necessary at all, although we'll always be opportunistic. Where in the US, it could provide us with some potential acceleration to add some additional capability. When we think about the US, though, it really comes down to three things for wealth management. First and foremost, it's our International Wealth business. So again, 40% of high-net-worth Latin American wealth being held offshore. We have fantastic offshore capabilities for those clients in the Caribbean, both Cayman and Bahamas, as well as in Canada.
But we know we need to add a U.S. booking point because that is the booking point of choice for most Latin American clients. So that is going to be important for us to establish, to establish over time. The second thing for us in the U.S. is, is really for our Canadian Wealth Management business. We have some fantastically successful Canadian, wealth managers who are managing money for clients whose lives have a, you know, have cross-border lives. We know so many Canadians, whether it's an expat, professionals, snowbirds, et cetera, have wealth holdings on both sides of the border. We want the ability for our advisors in Canada to be able to serve their clients in the United States. And then thirdly, within our asset management business, I think there's maybe, maybe two things.
Predominantly, we want the opportunity to distribute our institutional capabilities into that market. But we would also be opportunistic around additional asset management capabilities if, you know, if the opportunity presented itself. So we're open to an acquisition in the U.S. I will tell you, it's not built in. There are no assumptions of an acquisition built into our plan. What we assume is, instead is that we can also be the masters of our own fate here, and we can do things organically until the right thing comes along. It's just so much timing and, and opportunity, and we, we're not going to make an acquisition for acquisition's sake. We don't need to do it.
And then second question goes back to the digital and importance of digital-
Mm-hmm
across multiple categories here. But. And it's a similar question. In terms of digital, is it something you need to buy capabilities? Do you develop it in-house? Do you do it through partnerships? Want to get a better sense of how you'll keep ahead of the competition in terms of digital capabilities, again, as it relates to Canadian Banking, wealth, et cetera?
We have the capabilities in the house. We have a digital factory which houses a lot of talented developers and analysts on digital. We have Tangerine, which is, for us, a beta site of where we do digital at scale at a high level. So for us, it's about mobilizing our resources to invest, particularly not only in the front end on mobile, to continue to try and get what I mentioned, sales and service capabilities, much more than we have today. But also to apply that digital end-to-end and to get digital in our processes, take manuality out, take, take all that stuff and paper that I see here out. So that's where we have it. We have the resources in-house. It's, again, mobilization of those resources.
We all pick that up for wealth management. I think in wealth, it's certain we don't need to acquire. What we would typically do in our asset management business or our wealth management business is we'd use best-of-breed, commercially available products. We're already well underway, for example, in implementing a new advisor desktop, which is a combination of cloud-based technologies, a new planning software that we think we will just customize around the edges to make it best in class for us. And you know, of course, books of record, all those other things are commercially available. Scotia Smart Investor was built as a partnership with a fintech, so we'll look at those opportunities to do that when it makes sense for us to. Where we'll focus our internal development would be on two things.
One would be on integrating all of those capabilities together in a seamless way. So our focus with our advisor desktop is to move towards having all of the tools and capabilities that our wealth advisors need to access in order to manage their businesses and to service their clients available through a single desktop. That, that's an integration opportunity that we're doing together with Salesforce. We will also use our internal digital factory to build our client-facing mobile technology that will be integrated. I mentioned it's launching this year and will be integrated with our retail banking app.
You know, we have all the skills that we need in-house to be able to do that, but there's no need for us to reinvent the wheel when it comes to the kinds of tools that advisors expect to use to service their clients.
Okay. Mike?
S tarting with Aris. Just curious if you have any views you'd like to share on open banking. It's something that was talked about. There was that government consultation paper on it, and it seems it hasn't gone anywhere since. It seems like it's a dynamic where Tangerine is very well positioned, but it would potentially result in some fee pressure for Scotiabank. So what are your thoughts on open banking? Is it something that you think will ultimately come to Canada? You have a sense of timing on that, and what does it mean for fee-based revenue growth over the longer term?
What I can tell you, given the short tenure I've had in Canada, I can talk about Europe when open banking came, and we prepared for it, and we tried to make sure we were ready and resilient, and it didn't really materialize. It didn't really, really materialize at all. And, it was like Y2K kind of, and so the whole bank was mobilized, and it didn't really materialize. In Canada, I don't know, Jacqui, if you have thoughts on that or, or any of you on open banking here, but I... If Europe is any gauge, you have to be prepared, but it didn't really impact the banks at all, much to the regulators' chagrin, because they wanted to have more competition, and it didn't really materialize. But that doesn't mean it won't materialize in the future.
But in Europe, it actually did materialize very significantly.
I think given our size and scale, we actually have the opportunity to benefit from open banking, perhaps more so than our peers.
Okay, thanks for that. Then for Jacqui, just wanted to go back to the 40% number that you put up on MD Financial. I'm not sure if that's alluding to core, deep relationships with clients. But now that you've had MD Financial for about, what, five years now, is, has that gotten to the point of saturation, or is there more cross-sell opportunities to be had with respect to that core relationship and transitioning some of those medical professionals into the Scotiabank realm?
Yeah, so let me clarify the 40% point, and then I'll answer your question. So the 40% was referencing the proportion, or sorry, the number, an increase in the absolute number of retail clients that are physicians. So basically, we have grown our physician retail clients by 40% since the acquisition, which I think is quite remarkable. Not all of those new physicians have come from MD's client base. In fact, a number of them are. We've driven tremendous success in retail banking by winning the business, the retail banking business, of new doctors and medical students, providing us with that future opportunity that I mentioned. But we have made progress in cross-selling banking and private banking into MD's client base. We've also expanded other types of wealth services.
I mean, MD has a very consistent ethos, consistent culture with Scotia Wealth Management, in that, we're planning-led. We're, you know, we're trying to wrap all of our capabilities around the client. But for MD, they didn't have those capabilities, when they came to Scotiabank. So we bring, the private banking, we bring the retail banking, we bring some of these other wealth, services to those clients. As successful as we've been in deepening those relationships, doubling NIAT, as I mentioned, over the period, we still have a lot of opportunity. We, we've made, relatively fewer inroads, for example, with small and medium enterprise, partly because of, I think, what, Aris mentioned, that that's a real opportunity for us generally with Scotiabank. Again, when you consider almost 50% market share with new doctors and medical students, what a future opportunity that is.
As they move into practicing physicians and establish their practice, that's a huge opportunity for us in small, medium enterprise and ultimately into commercial and ultimately wealth too, as they develop in their career. So I see a ton of opportunities still in this client base. Ultimately, this is 135,000 clients in Canada, albeit exceptionally valuable clients. I'm also really excited about the opportunity of using these learnings with other high-value professional segments in Canada and in our international footprint.
Great.
Thanks.
Gabriel.
Hi, good morning. Glad I didn't spend too much time on open banking learning about it anyway. I got a question for Aris first, then Jacqui second. Actually, no, I'll start with Jacqui. One of the slides had 10% penetration of the banking clients for mutual funds. That's a number that's familiar because I've seen it in the past. You came from an organization that set the bar for, you know, you call it primacy cross-sell, I guess. How, you know, what did you see in your old organization that you can bring, or even in your personal experience with other products, that you can bring to your new role in order to achieve that one?
Yeah, I'll focus my comments, Gabriel, thank you for the question, on what we're doing here at Scotiabank, what I think the opportunity is. You think about retail distribution in retail banking, retail funds distribution and retail banking, typically, it comes through four different sales channels. So you have digital, you have what I'd call generalists, so basically licensed advisors in the branches. We call them financial advisors here at Scotia. Then specialists, and those specialists could either be planning designated or not. So there are four pretty distinct sales channels. You also have the advice center. At Scotia, what I see is, compared to our peers, not just my previous employer, but to our peers generally, we're relatively underweight in specialists.
So those sort of, whether they're planning designated, designated or not, specialists tend to own client relationships, so they actually have a book of clients that they manage. And people who are relationship managed banks who have a higher proportion of relationship managed investment clients retain more of their assets. So I think that's, number one, something that we absolutely have to close the gap on. And I'd say, in my 100 days so far at Scotiabank, I've probably spent almost as much time with my retail banking colleagues as I've had with my own team, because I see this as such a massive opportunity for us. So first, it's closing the gap on specialists, and I feel that's something we're exceptionally sure-footed in doing.
Most of these specialists will be grown internally from existing Scotiabankers that we train, that we develop, that we retain and move up, giving them a career path into these roles that are highly coveted. We also have a real opportunity with digital. So we've only launched our Scotia Smart Investor tool a year ago, and we're still investing in it. It's already a fantastic tool. I think it is the best tool I've seen. What it does, what makes it different is that it's not just a goals-based conversation tool, which is important. I think that's really valuable. Understanding what your client's goals are, I think is obviously the first step in meaningful discovery to help them meet those goals through long-term investing.
But, you know, it also allows the client to do it by themselves, to do it assisted, to move between channels in a seamless way, to open accounts, full suitability, present you with suitable products that meet your needs and your timeline, whether that's a savings product or an investing product. And then to ultimately, we could see developing that into service transactions. We could see that in changing your PAC or your ongoing investment, things like that. So I feel like we've got now a best-in-class digital tool, and we can quickly close the gap in terms of the specialist sales force. We have a fantastic culture of collaboration in this organization. I'm really confident that we're going to get there.
All right. Thanks for that. Not going to lie, my next question's from, not me. Somebody texted it. Mortgages, although I have a similar one. Mortgages have been flat to declining for Scotia for a number of quarters now. Part of the strategy to improve the loans-to-deposits ratio, I suspect, debanking some single-product customers as well. What's the end line there? Is there a point, you know, where we look at Scotia with a much lower percentage of total loans in the mortgage category? Because there's another motivation there as well, I suspect, tied to the, you know, Basel III output floor.
We really like our mortgage business. It's a big revenue generator. We deploy our distribution where our customers are. We serve our customers. That's the most important thing, and mortgage is a key key moment product for many of our customers and in our broker channel, and in our branch channel. We want to be there for them. More importantly, as we see our mortgage business, we're moving from the monoline lending, and as I gave an example with our brokers, we're actually increasing the primacy and the second products. Actually, 70% of the new flow of originations had another product attached. That's our strategy going forward. We have deep relationships with these brokers. We want to maintain those relationships, but we're aiming for primacy.
And also want to make sure that the monoline product of mortgage, when we do it, that there is a good opportunity to cross-sell and get that client as a primary client. In terms of your question on the balances, of course, every month now, we're seeing a growth in new originations. Probably by the summer, end of next year, the balances will start to pick up. But we're not driven by market share, we're driven by our clients, and where they are, we want to be able to serve them. That's how we see it.
So by mid-next year, you expect balances to start growing again?
Yes.
It's not—it's. There's no analogy, I guess, here to when Scotia bought ING Direct. I don't know, around 2011 or so, there were some CAD 20 billion in mortgages or so. They were effectively run off, replaced with newer—or not newer, but other assets. And-
Yeah
T he bank, it was actually a good period for Scotia. Margin went up quite a bit for a number of years. So I'm wondering if we see somewhat of a repeat of that experience.
I'll try to help you with that, Gabe. No, that's not what it is at this time. You also have to put in context the last 5-6 quarters of negative mortgage balances with the exceptional growth we had between 2020 and 2022. So it's, with the market that has changed, the large growth that we had, the focus on client primacy, like you talked about, loan-to-deposit ratio, we need to rebalance a bit. And that's happened, I would put it, in the past. I think in the second half of 2024, you'll start seeing mortgages grow. But what's more important is the relationship is going to grow. The mortgage is a key product attached to it. The rest of the products within the Canadian bank has been growing, which are higher spread products. That's why you see the margin improving.
When deposits grow, it benefits margin too. So you'll see more balanced growth going forward. Like Aris said, we are not focused only on market share going forward. We want to ensure we have the most profitable clients with multi-product relationships, and that's a journey. It's in the beginning of the journey, you'll see it continue to improve. So we're not looking at specific products, but the mortgage product is a very important one.
Okay, great. Thanks.
Great. Anyone else? I can't see who that is from. Is that Lemar? Lemar.
And, Nigel.
Oh, Nigel. Okay, who wants to go first? Lemar. Who has the mic?
Thanks. Yeah, it's, Lemar Persad from Cormark. Just sticking with, Aris on, on Tangerine, I just want to come back to that for a minute. So how should we think about the stickiness of your deposit base? Because one of the-
P rimary pushbacks I get when I talk about Tangerine is that you guys kind of lead with rates to get deposits in the door. And, you know, is that going to be a concern with deepening primary customer relationships? Because you have people who are shopping around for rates, maybe they're looking for the best credit cards and whatever products you may be looking to kind of introduce.
Right. I think if you even go back to the old ING, how it started also in Canada and the US, it was leading with rates. That was how they started. And over time, in ING, in ING Direct in Europe, as they built out the product set, drove primacy, they actually, it wasn't about rates anymore, it was about the experience. And it was about the experience that when people then shopped at ING, they never went back to their former banks, because the experience was so different and exceptional, as you could expect from a digital experience. If I look at Tangerine today, 50%—we've now grown 50% are daily, everyday banking customers, 50% of our base, of our deposit base. So that's stickier.
That's a difference from previous years as we build primacy, so that everyday banking is 50% of the base now. We also will manage deposits and the pricing, and not go out and try and win monoline deposits. That's not what we're after. We're after primary customers and building out that product set, which will allow us to have that stickier deposit base that we have in Europe now.
Gotcha.
So I'll give you, I'll give you one data point, Lemar, which I think is relevant, is, you know, what we call super savers, the ones you referred to. You know, they, they are interested in better rates. The average life of a super saver since we bought it from ING is over 11 years. So they tend to be very sticky. We give them great service. They like the product, they like the offering that we have, and that's a very important relationship we have. Growing it will be the next step as we make them primary customers across Tangerine as well.
Thanks. And then my next question is for Phil. I think you look a little tired or bored up there, because nobody's asking you anything. So, I don't see a specific risk management section, so I'm just going to throw it out here. So faster growth in Canadian Banking, and wealth management, and a little bit less growth coming from international, what does that mean for PCLs looking forward? And what are you kind of baking into your assumptions?
No, thanks, Lemar. I'm not bored. I'm excited and interested. I'm just trying to maintain my composure here. So appreciate your question. So just going back to maybe some of the comments Scott made earlier and Raj and in line with the two presentations you've just seen, I really like where we're going with the strategy. The moving more capital into developed from developing markets is great. I like and I love the focus on risk-adjusted margins. The fact that, you know, in Aris's business, we're going to continue to increase. We're going to go from 2 to 2.4. That sort of takes the conversation away from focusing on absolute PCL and focusing on, are we getting paid for the business?
Which I think is the right discussion for us to be having at this point, in the bank cycle. You know, as I look at PCLs, because I will answer your question, we're going to be slightly elevated both in CB and IB, just given the macroeconomic headwinds in both markets, and impaired for the next, probably the next twelve-ish months. We're going to continue to look at how we're building out our performing allowances, as well as, you know, we're going to continue focusing on strengthening the balance sheet of the bank. And so, I think I gave my guidance at the last call, so I won't restate that, but it's but we're looking at growing in line with that guidance.
You know, and if tailwinds come from, you know, the, the focus on primary, I think we're going to harvest that, and you'll probably... You'll, not you probably, you will see lower net write-offs going forward from this bank.
Okay. Nigel, did you have a question?
Good day, Lemar, and I sit together because I have similar questions as him. So the first is kind of following up on the digital banking side and the emphasis on client primacy. There are two things that might be pulling in opposite directions here, right? The need to invest in digital to spend to acquire market share, as well as to improve your productivity ratio. So could you elaborate on the cadence of that spend versus cost savings? Is the spend or investment in the digital largely in the rearview? Is it more in front of you? Is it front-end loaded? And then how does that ultimately transition into cost savings down the line?
Let me take a crack, and then if there's... So let's talk more broadly about productivity in the Canadian bank. And so we see productivity across three levers. The first is actually, I would mention, sales productivity. So how do we drive more sales from the infrastructure that we have with our sales force? How do we get productivity on that side? The second one, lever of productivity for me is the cost productivity that you kind of alluded to. Digital is clearly one of those levers where you invest in your processes, you invest in your channels to get more throughput, higher STP, and just a better outcome in terms of productivity. That's the second.
And the third I would mention is trying to keep a lid on FTEs and redeploy our FTEs where we can have, again, more, what I would call, a better outcome in terms of being closer to our clients. And so between those three levers we expect to improve, whether it's cost to income, is how you measure it, cost to balances, or actually the number of employees serving customers. Those three ratios is what I look at when I think of productivity. And digital has an important role to play, but it's not the only play you have on the productivity side. I don't know, anything you want to add?
I can add something. I'll front run a little bit what Francisco will probably speak after lunch. You know, our digital offering in the international space, particularly in Latin America, front end, best in class. So we're going to use a lot of it to see how we can help the Canadian bank over here. But both have a requirement to invest in digital, to have it end-to-end digital, which is, you know, everything that supports the front end over there, which is where we're going to invest both, not just in the Canadian bank, we're investing in the international bank as well. The bigger message you will likely hear or you'll take away once you hear Francisco, is how we're going to bring these things together. We've had six digital factories in this bank, if I include Tangerine. Very important, very important early investments to get ahead.
Now is the time to consolidate, which we've already started. So we're going to share a lot of development that has happened in the various countries. Chile, for example, is very advanced in digital. How can we bring more of it to Canada? So it's not a new investment, but we need to invest both in the digital capabilities in the middle and the back end of the operations, which is what we'll be doing. You heard Aris say, right, we're going to invest over CAD 500 million in the next 12-18 months in the Canadian Banking business because we need to invest to support the growth initiatives that they have in plan, and digital is part of it.
Agree. The second question, again, for Aris and Phil, following up on Lemar's line here, is your market share in Canadian Banking, you know, first in auto, kind of behind on unsecured credit cards and commercial. So risk-adjusted margin is one part of the equation, but the other part is the risk weighting of the assets, the leverage that can be applied to those assets that ultimately feed, feeds into ROE. So how do you tie those together? And why is it important or is it important to be first in auto? Is that a better secure lending business than mortgages or commercial? And what is the need to add unsecured, and how does unsecured fit into risk-adjusted margins and capital?
Maybe I can start.
Sure.
Our auto business is a leading business, and it's a steady CAD 1 billion+ revenue provider. I think the auto business for us is also important because it's almost a poster child of what we talked about, bringing the whole bank to our client. So not only do we get high-quality retail paper coming out for the consumers, we work with the dealers for wealth, we work with commercial to do inventory finance, and we have relationships on the corporate side with the top 10 OEMs in Canada. So that whole ecosystem is very important for us. It has a high revenue generation, low cost to income, so very important for us. On, on the... You had the question also, you talked about cards. So how I view cards? Cards is a key product in this primary relationship.
So you start with the everyday banking, and usually it's attached to a card. So our card isn't going to be growing that share from walk-ins, you know, monoline card. That's not what we want. We want that primary relationship where the card will be attached. And then, obviously, when you have that primary relationship, as risk- as, as we talked about earlier, the whole risk approach and the whole information flow that you have is so much different. And so in my time in Europe, because we had such high primacy, we never had to give cards outside. It was always within our own customer base. We could live off that customer base. And of course, when we pushing Scene+, and that's also growing our card business, but again, through the primary relationship channel.
On the risk side, I don't know your thoughts on that, Phil.
Oh, it's a great question, Nigel. Thank you. And, and maybe just to add on to Aris, I love the primary focus from a, as a risk manager because it, it gives me comfort that we're, to, to use Aris' words, we're not out selling monoline credit cards. We're deepening the customers that- with the customers that we know. And the whole strategy around primacy is shown in some of our internal data, that we have less net write-offs with our primary customers, and so we want to continue building on that momentum. I think cards is a great business for Canada. We all- we're obviously punching below our weight. If done properly, it can be very, very successful for us.
And I think from what I've seen, partnering with Aris already, as well as the team that is working with him, I think we've got the right strategy. I would also maybe comment on your comments around digital. In the risk side, we've actually been making significant investments to doing our digital originations tools that are built right into our digital platforms, which will help support some of these things. In addition, I think the other area of comfort I get, we're spending a lot of time on data and analytics right now in the risk space. We're in the process of leading with actually Aris' data and analytics team, trying to drive more treasury risk and finance data into the cloud for use.
The more we have this data that are available at our fingertips, the more we can leverage machine learning, large language models, AI, to be able to really expand knowing the customer, to be able to make not just the right credit decisions, but what is the next best offer for that customer, and how are we really creating deeper, deeper, more meaningful relationships?
Great. Okay, well, that takes us to time. We're right on schedule, 12:50 PM. We'll reconvene in the room after lunch, which will be served out in the atrium here, so we'll see you again at 1:50 PM. Thank you.
Welcome back! Hope you all enjoyed lunch. Give everyone a moment to just get seated. Now, for a detailed look at our international business and go-forward strategy, Group Head, International Banking, Francisco Aristeguieta. Francisco is truly a global leader, with regional CEO experience for some of the world's largest financial institutions, with particularly relevant experience in our own Latin American geography. Welcome to the stage, Francisco.
Good afternoon. Very excited to be here this afternoon to share our vision and ambition for the International Banking business at Scotia. I've met some of you. For those that I haven't yet, my name is Francisco Aristeguieta, like John said. I joined the group in April. I've have a lot of experience internationally, but let me clarify, I am not that old, and I am not retiring. So contrary to what Scott, my partner, friend, and boss said, I'm here to see this through with the whole team, so you can count on my full engagement for a long time to come. Joking aside, making sure that everybody's awake, I do bring quite a bit of experience, relevant experience for the group. I've seen a lot in Latin America, which is my backyard.
Over 20 years of my experience was operating complex businesses, transforming businesses, driving change in Latin America, in the majority of the countries, by the way, where Scotiabank is. But I also led complex businesses, led change in the United States, in Asia, Middle East, and Eastern Europe. Since I joined the group in April, I've traveled extensively throughout our footprint, visiting our markets several times. I spent time with our leaders, our clients, our staff, our regulators, identifying opportunities, learning about our culture, meeting our team, and understanding the idiosyncrasy and philosophy and culture that makes this extraordinary institution. I also invested a lot of my time joining Scott and the team in the strategic refresh exercise. So I am very excited to share with you this strategy this afternoon, because this is our strategy. This is a strategy that I own with the team.
This is not somebody else's. So I am confident that what we're going to share with you today is something we can do and do very well. Couple of housekeeping things. The first is that the numbers I'm going to share with you are in constant FX, and that my numbers include the GBM business, although my partner, Jake, is going to cover that on a global basis after me. So let me begin by framing a little bit of what this journey is about. And if I leave you with anything today, this journey is about value creation. This is about changing the way we operate through powerful execution to create value for our clients and you, our investors. What we're going to do is become client-centric. It is well known that the power of valuable businesses starts and ends with the quality of your client relationships.
Banking is no exception, and we are focused on making sure that we become a powerful, client-centric franchise as a result of this effort. We're going to be very focused on allocating capital to higher-returning businesses. We're going to create a core competency around our efficiency, making sure that we generate scale as an integral part of the way we operate. As you heard Scott and my colleagues speak today, this is very much an execution journey, and our strategy in international is no different. In my experience of driving change and leading complex businesses around the world, culture and talent matter, and matter a great deal, particularly when it comes to execution. So you're going to see us focusing on driving key attributes of execution in our culture.
As we move forward in this process, the management process will be key as well, to make sure that we have the right KPIs and that we drive the right execution on the back of those goals. In this strategic refresh, as Scott highlighted, we looked at every business, and we looked at it objectively. In that process, we looked at our past, and we looked at how we got here. In the next couple of slides, I'm going to share that with you. Looking at our financial performance, what we realize is that it's been challenged, it's been volatile and underwhelming. When we compare our results with the average industry in the Pacific Alliance countries, we see significant underperformance in the key indicators that matter.
What we also see is the opportunity to catch up, is the opportunity to close that gap, is the opportunity to improve performance, because there is value to be created in closing that gap. We need to understand how we got here. It's an important element of fixing the future. In our understanding, a few things are important to share. The first one is that our international expansion was driven by the intent to diversify. Now, the strategy that we drove on the back of that intent was one of size, volume, and market share. That strategy of size and market share resulted in low primacy. We did that with a monoliner lending-first approach. That approach yielded low share of wallet and, unfortunately, volatility when stress came on our PCLs. That higher attrition also was a big contribution to low share of wallet. Sorry. We ran a deliberate, decentralized model.
I call it a federation, a federation of countries, that we ran each one differently, customized for that market. That did not allow us to capture scale, and that's why you see a gap of over 500 basis points in productivity to the average industry in the Pacific Alliance countries. Sorry. We deployed a significant amount of capital, more than $7 billion, to expand in the Pacific Alliance, and that expansion has clearly underperformed. Now, as I said, I've traveled extensively throughout our footprint since April. What I've learned in these travels, there are a few things that I want to share with you that we're going to build upon. The first one is that we are incredibly relevant and of size and enjoy an aspirational brand in each of these markets. That is something that is powerful and very hard to replicate.
We have more than 12 million clients in these countries. We rank top 3 on average in every market that we're in. As I travel in these countries, I also met a lot of our teams and staff. In my experience, talent matters a great deal in emerging markets. We are blessed with the quality of talent we have. In international, we are often the employer of choice. That gives me the confidence that we can retain the talent we want to retain, but more importantly, as we bring out this ambitious strategy, we can bring the skill sets we require to execute. Now, one particular thing that to me is super important, that I've learned over the years, is that when you walk the halls of our organization internationally, you pick up something that is very powerful, which is pride.
You feel that pride of belonging, and that, in my experience, when you have it, enables outstanding results. We also enjoy a presence in the markets that have the right dynamics, the right size, the right flows, and that allows us to think about how we focus more on the multinational opportunity. How do we drive a penetration on the North American market that Scott highlighted earlier today? All those dynamics allow us to think through: how do we create value on top of what we have? And what we have is very hard to replicate. When we look at our way forward, what I want to do is begin by framing our financial ambition. And our financial ambition is something that we can achieve, but it's different than the past. We're going to focus on growing our earnings faster in the future by becoming client-centric.
So when you look at our revenue trajectory, we're going to grow at 7%, and we're going to keep our expenses flat over that period. And those two things are key to sink in because we're going to go through them in detail further in the presentation. Now, in order to achieve those results, we're going to go through a transformational period between 2024 and 2025, in which we go through a process of client deselection and reorganization for scale. And that process also, as Phil guided in Q4, will go through the impact of PCLs that we're still processing through. Beyond that period, you're going to see us growing earnings at a CAGR of 8%, generating higher return on equity, north of 16%, RAM of north of 3.4%, and be a market-leading productivity of 45% or better.
How we're going to do this? We're going to do this growing in priority markets, Mexico first. Mexico first, because for us, Mexico is the pillar for growth in the strategy. But we're going to do it in a way that we will develop capabilities, features, and platforms that we roll out in Mexico first and leverage in the rest of the footprint. That is fundamentally different than the way we've been running a federation of countries, where we develop capabilities for each market that we couldn't leverage anywhere else. That will allow us to improve performance across the international bank as we grow faster in Mexico and capture more share and higher returns across our international footprint. We will turn around the underperforming businesses or redeploy, and I will talk more about that in a second. Primacy is our North Star. It's what we're aiming to do.
All of our client journeys and experiences will be designed, developed, and implemented for primacy. But equally important in this journey for the international bank is client profitability. And you will see us not only striving for primacy, primacy, but driving more clients above the profitability threshold by selecting clients differently and lowering our cost to serve. Operating differently from a federation to a republic, where we not only leverage the footprint we have internationally, but we leverage Canada as a source of scale, operating truly globally with Aris and the team. Identifying opportunities to co-ideate, co-develop, co-invest, and roll out capabilities common that we can scale together is something we have not captured historically that we intend to capture going forward. And as I said, execution is everything in this plan.
The culture needs to reflect that goal, and we're going to create a robust and powerful meritocracy, where career advancement in Scotiabank International will be the result of performance. We're going to have very clear goals that I'm going to share with you later on, and those goals will be shared across the organization, and we're going to have significant accountability to each and every one of those as we go in quarter and sub-quarter. What I'd like to do now is share with you a cool video around Mexico and our international business. Roll it, please.
For the past 30 years, Scotiabank has seen the potential in Mexico. As the country has grown exponentially, so has our presence there. To us, Mexico isn't just a place to do business, it is a unique opportunity to build client connectivity and synergy across our North American platforms, a critical component of our go-forward plan. And at the hub of North American supply chain consolidation, Mexico is poised for outsized growth and regional connectivity, well-positioned to capitalize on the global nearshoring phenomenon.... Growing the bank in Mexico is a priority for us, and our gains have been significant. Since 2019, we've outpaced the market in loan and deposit growth, and in 2023, we became the 5th largest lender in the country. We've done it organically by delivering consistent operational efficiencies and automating our processes, making it easy for customers to do business with us.
We've made investments in digital, technology, and modernized our real estate, increased profitability, and developed a best-in-class team. All of these efforts have been building up to right now. The time has come to leverage our strategic geographical position in North America's economic corridor, connecting across corporate, commercial, and wealth clients. To accelerate our penetration locally and with multinationals present throughout the region. To invest with a Mexico-first approach and leverage these investments across the international bank. To make the most of these opportunities. To become the most trusted banking partner for our clients. This is the New Way Forward for Scotiabank in Mexico and internationally.
Thank you. Mexico, for us, is a unique opportunity. We can look at Mexico as a single market, and you will say, "Well, we have almost 10% of that market already." We have 500 branches, 2.3 million clients, an extraordinary team. We have Adrian Otero here, our CEO, by the way. If you haven't met him, you should spend time with him. Great leader for the bank. But when I see Mexico, I see the potential to capture the power of the North American corridor. I see the unique opportunity to be the Canadian bank that enables that corridor for our clients. So as we capture share in Mexico, we're going to do it in a way that we capture the space of clients that operate within that corridor. 14% of our commercial bank clients in Canada operate in that corridor.
We have the capacity to capture that business in a way that we haven't historically. When you see the dynamic behind the Mexican market, that gives us the confidence to grow in that market as we are saying here, we will. When you see the flows between Mexico and the U.S. are impressive. 15% of all Mexican exports go to the United States. 17% of all United States exports go to Mexico. It's the most important partner for that country. What that translates to is a unique technology transfer investment around nearshoring or allyshoring, like President Biden mentioned it recently. That's how we see demographics around wealth creation and foreign direct investment at record levels. This very year is the second highest year ever for Mexican foreign direct investment, and the government didn't do anything particularly different this year to do that.
This is the result of the focus of the multinationals coming into Mexico, diversifying their supply chains away from China. And we see Mexico at the center of it, but the rest of the international footprint in which we're in will be beneficiaries, too. So connecting these markets on behalf of these clients is the power of our idea. When you see the numbers going forward out of Mexico, you will see us capturing 12% growth in the multinational business in that market. 50% of our commercial bank incremental earnings will come from Mexico, and 50% of the incremental earnings on wealth will come from that market. And Jacqui mentioned that in her presentation earlier today. So Mexico, for us, has a multiplier effect.
That multiplier effect will be reflected in higher returns that we can achieve just because we enable not only Mexico, but the North American corridor. Now, when you see our results going forward, what you will see is that over the next 5 years, more than 70% of our capital in the international bank will be allocated to higher-returning businesses in priority segments and markets. Close to 50% of our incremental earnings, of almost CAD 1 billion, will come from Mexico in that period. Mexico is incredibly important to this strategy. But also, what you will see is that the remainder of the international bank has to improve its performance for these results to come through. And we're going to do that Mexico first. Co-investing, co-development, bringing capabilities to bear, creating scale for investment, and doing things on a common fashion, regionalized, where we can generate scale.
We're going to capture more of the Caribbean market. I love the question about the Caribbean. How is it that you're talking about the Caribbean? Well, we've been in the Caribbean for 200 years! We were in Jamaica before we were in Toronto, as a matter of fact. We have 2 million clients in the English Caribbean. I didn't even know we could have 2 million clients in the Caribbean, let alone we have them. We are an aspirational brand. We are a dominant force in the English Caribbean. You know what? We can do a lot more with those clients than what we do today, and we will. Peru and Chile, powerhouses of franchises. We're top three in each of those markets, over 1 million clients in each one. Enviable position, fantastic talent, great clients.
We need to get better returns out of those franchises because our strategy going in was of size, was of market share, wasn't about higher returns, wasn't about profitability necessarily, it was about diversification. But this journey going on is not about being the number one bank or the biggest bank. This is about higher returns, profitability, and primacy, and we can do that in those two markets, and we already are in that path. We have underperforming businesses in our portfolio. We are the first ones to call it out. Scott did. Colombia, Central America, consumer finance. We have very robust plans to turn around those businesses. I've been there, I looked at those plans, we enhanced the plans, we implemented a management process around those plans to make sure that we can deliver improvement. But let me be as clear as I can be.
If we don't see a path to an improvement, we're going to redeploy that capital as fast as we can. But we got to give a chance for these plans to happen, because if we don't, we miss the opportunity to create value for you. And as we look at heart of this business, objectively, the conclusion is that we can. And I'll tell you, Colombia, for example, which gets disproportionate headlines, I think. This year, 10% inflation in Colombia. Our plan delivered 8% reduction in expenses. We can do it. We just need to focus and deliver. But if we can't because the circumstances don't allow us, we're going to redeploy it. Simple as that. We're committed to it. A significant portion of our plan and delivering the incremental earnings is efficiency, and as I said, it has to become a core competency for the group.
60% of our incremental earnings come from that, our ability to operate differently. This is not about becoming smaller. This is about becoming more efficient. Let's understand the journey. We're not going to go out and shrink. We're going to go out and do it differently. Doing it differently will allow us to reduce by CAD 860 million our expense roll rate by 2028. That will be the result of allowing my partners to support the international business differently. It is not the same to support a federation of countries where we do everything differently in every country, and that I have to be fully deployed in every country. Every role, every function is different.
than saying, "No, no, we're going to serve the same client, we're going to have the same product base, we're going to share the same chassis, we're going to have the same processes and procedures," and that allows you, support function, control function, finance, risk, to do it at scale. That is the power of this change, is regionalizing. And on your minds, you say, "So what? How are you going to compete domestically?" Well, we're going to leave the last mile domestically, where we can partner up for distribution and customize those common chassis for local relevance. I've done that. We did that in Asia for 23 countries that couldn't be more different from one another. It can be done. You just need to decide to do it.
The power behind it is lower cost to serve, faster rollout of capabilities, more capacity to invest, because you're doing it for a larger pool. In that process, we're going to reduce our acquisition cost. Today is unsustainably high, north of CAD 80 per client. We can't sustain that. Has to be much lower, lower than CAD 50. That will allow us to have more clients above the profitability threshold. So this strategy, this journey, is not only about the aspiration of primacy, it is very much about being much more efficient when we do things. We have to talk about risk. We're talking about emerging markets, after all. Scotiabank is very proud, and I am very proud of that legacy. We are known to be conservative risk takers. This plan does not change that, not one bit. Historically, in the international banks, we've been focused on volume and size.
What we're saying here is we're going to do more with clients. We want to know them more. We want to know them better. We want to have better data. As we do that, what we've learned in places like Chile, for example, is that when you have clients that are highly transactional with you or primary in nature, they behave much better than clients that are not in times of stress. That is a fact. So what you're going to see us do is penetrate relationships further, not only in retail, by the way, certainly in the commercial bank as well, where we lead with the balance sheet. We won't going forward.
So what that is going to allow us to do is as we transact in a different way with clients, using credit as an enabler of primacy rather than the enabler of the relationship, that allows us to deal with relationships that perform better over time, the clients that are more loyal and that ultimately allow us to predict cost of credit better going forward with less volatility. Obviously, we're going to continue to invest in AML, in compliance, in cybersecurity, that we've done robustly over the years, and that will be shared at scale going forward. So I feel very confident that the principle that attracts you to Scotia as a conservative risk taker is actually enhanced with this strategy. The retail bank is a fundamental component of our earnings growth. I call it one of the two engines. That's a big one.
We are aiming to grow our revenues at a 7% CAGR with expenses flat. We have, in the international bank, the resources we need, capital and spend. We just need to put it to work harder. In the case of the retail bank, as we refocus our organization during the transformational period of 2 years, where we're going to go through a period of deep selection of clients to ensure that we focus on the clients that we can compete and win for business, what you're going to see us is growing faster and at a higher return than what we have historically been able to generate. We're going to increase the number of primary clients by 1 million, or we're going to grow it, doubling it from 7%-15%...
But you're going to see us improve our productivity dramatically over the five-year plan, from 63% to less than 50% in the retail bank. You're going to see us reduce attrition post the client deselection phase in 2024 and 2025 to a market-leading 5% or less, compared to the average in the industry in the Pacific Alliance. And you're going to see us growing deposits at twice the speed of loans, because we're going to focus on primary, highly transactional relationships, where deposits, payroll, insurance, and transactional lending create the right type of relationship we want. That will help us on the primary front, allow us to segment consistently across all markets in the affluent, emerging affluent, and top of mass. You're going to see us operate consistently in every market, deploying the same segmentation, all that anchored in payroll.
We see primary clients and highly transactional clients generating 6 times the revenue than our clients that don't fall in that category. So you will see in the retail space, that growth will come for the aspirational primacy, but also will come from having more clients being profitable with us. And that means that we're going to change the way we acquire. In our strategy, historically, we were going for size and market share. Basically, every potential prospect that came through the door became a client, and we didn't segment that client. We will going forward. As you come through the door, we're going to segment you and see if you can be a client, and if so, what segment do you belong? So I can deploy the right value proposition for you, day one.
It is known in all retail businesses, ours is no exception, that if I don't cross-sell you in the first 30-90 days, you're becoming a trader. It's a fact. This is no exception. So we need to change our acquisition. The funnel needs to reflect the target client I want, and the moment you come through the door, I need to know who you are, so I can position the right value proposition that drives the right economics for you as a client. That allows us then to adjust the cost of the value proposition I deploy. Today, I deploy the same value proposition across my retail base. For example, in Peru, I give you free ATM transactions regardless of what segment you're in, in third-party ATMs. Why would I do that if you're in a segment that you can't afford to do that, right?
It's basic principles of segmentation that we will apply. We're going to move away from the consumer finance business, monoliner, volatile. I can't penetrate those relationships. I don't have the appetite. That will not be part of our core in the future, and we're going to continue with a balanced risk-taking approach. What that will do is that we're going to have clients that generate 30% more revenue at the end of year 5, and we're going to have 25% more clients with at least 3 products or more at the end of the 5-year plan. Channels are key in all retail businesses, ours is no exception. We've made tremendous progress over the last few years on the last mile of digitization. We are recognized consistently across our markets for being first in the digital space when it comes to the last mile and client engagement.
By the way, we're going to leverage that in Canada, as Eric said. What is important to understand around digital is that will become our primary channel for onboarding and self-service. That channel will be supported with the virtual branch, which we have deployed selectively, where we bring in human interaction on a targeted approach, where we give you support for complex sales and advice. And that has been incredibly well received, and we're going to bring that to scale. And finally, the physical branch role will evolve in this five-year plan. From a channel that today onboards, acquires, sells, and everything, to a channel that focuses on advice, complex sales, and more importantly, deliberately support the commercial bank, wealth management, and SME.
So you're going to see the role of the physical branch change, and therefore allowing us to bring efficiency and savings around our distribution channels. That is the power of a digitized strategy that for us is key in this strategy. Commercial banking is the second engine that we're going to be focusing on. For us, the commercial bank is an extraordinary opportunity that we believe is underserved in the markets that we're in when compared to international banks. We also, through our own data, know that a commercial bank client generates 2.5 times higher returns than a GBM client. For us, it's a no-brainer to focus on the commercial bank, particularly the commercial bank, as you see that space between domestic and multinational.
That allows us to grow our revenue line in the commercial bank business by 5%, and you're going to see us do that, again, keeping expenses flat, because we have the resources we need. We just need to redeploy them and put them to work harder. That will allow us to double the number of primary clients in the commercial bank. But you got to think, the clients that I have today, primarily monoliner lending clients, because we led with the balance sheet, and historically, we really haven't focused on the commercial bank. It's been really a corporate strategy with some commercial focus, particularly in the international bank. So the opportunity is really to change that dynamic and make it a core effort that we can penetrate with all of our offering, not just lending. So you're going to see us grow deposits at twice the pace of loans.
You're going to see us increase the number of commercial bank clients by 30% in the 5 years, and you're going to see us increase the number of commercial bank clients with cash management service by 13,000.... So as we look at how we're gonna do this, we're not gonna service any commercial bank client. We're gonna be very targeted. There are sectors in which we're known to compete and win, where we have the expertise, the knowledge, the industrial expertise that really allows us to be compelling. Those are the ones we wanna work with. But also, we're gonna be looking for these bias towards multinationals. We wanna work with commercial bank clients that operate beyond their country, either because they transact internationally or they have a presence beyond their home market. That, for us, that's the sweet spot.
That's the one that I salivate when I see. That's the one that's gonna say, "Scotiabank is my bank. I don't need a local bank. I need more than that." That's where we come in. And you're gonna see us do that, striving for primacy. This is about the product set, this is not about lending, and this is about a consistent value proposition of service and scale on everything we do around the commercial bank. That is why we're gonna be able to keep our expenses flat while changing the way we operate this business. Remember, we are fully deployed in all of these markets. We already have the branches, we have the knowledge. We understand them like nobody else. We just need to leverage that and focus it on the commercial space. I'm gonna talk about two very important global initiatives. The first one is multinationals.
Multinationals, I'm leading with Jake, and multinationals, for us, is, I think, something that our clients have been asking us. As I meet most of my clients around the world, as I travel, all they will tell me, "I wanna do more with you." As they operate with us in these countries, what they say is, "I don't wanna work with all these local banks. I want a regional proposition. When are you guys gonna offer me a, you know, a package that I can operate with you in all these countries?" That's what the clients want. For me, it's a no-brainer. I grew up in that environment, right? When I see the opportunity to connect all these markets, particularly the North American market, on behalf of our clients, it's such a powerful, compelling opportunity for us, right?
When you think about how we're gonna do this, this is about things that we control. We're going to deploy a different coverage model: parent account manager, subsidiary account manager. We're gonna approve credit centrally for parents and avail it seamlessly to subsidiaries. The power of that is that after I approve credit for a parent and avail it to a subsidiary, I can go to that CFO and treasurer and say, "I'm gonna give you that credit line you want in Colombia, sure, but I want your cash management too." But when I don't do it like that, when I do it desegregated, I don't have the leverage to go talk to the treasurer and ask for that business. We're gonna create a central repository of documentation for AML and compliance, so we don't have to ask for the documents every time they wanna open a subsidiary account.
We're gonna have a differentiated service experience through a centralized service desk that hand-holds these clients as they transact with us and open subsidiary accounts. We're gonna go to a master contract agreement, when the parents sign one contract for all the subsidiaries across all of our footprint, and we can add the services to one contract rather than having hundreds of contracts as they go work with us in different countries. That is the power of a multinational proposition. That is what we're gonna build, and that we're already on our way in that process. That is gonna allow us to capture more of the revenue opportunity, of 2.5 times more revenue coming out of this multinational approach than one that is just domestic.
Capturing our fair share of the 45,000-strong multinationals that operate in this space, and capturing our fair share of the $20 billion revenue pool that is in the multinational space. The second global opportunity, which is key for our strategy and not only for the international bank, and as Scott mentioned, I'm also responsible for the cash management business for the group, recently. The idea here, like with multinationals, is a global business that we're gonna deploy consistently in Canada and beyond. Today, we have a competitive domestic offering in most of the markets that we're in. Receivables, collections, payments, factoring, FX, we do that well domestically today. Canada, too. You heard it from Scott and Aris. We are competitive.
The opportunity, though, is to make that more robust, make it cohesive, make it consistent, run it at scale, but on top of that, do what our clients are asking us to do: "Connect the countries for me." And that's what we're gonna do. We're gonna build an overlay that connects the onshore with the offshore through our treasury management portal. Nothing new, but we gotta build our own. We gotta do that. And then offer offshore cash management connectivity for offshore receivables, trade, paying your vendors, cash pooling, factoring. That is the power that brings us the opportunity to do more with our clients and become primary banks, because you insert yourself in the middle of a value proposition that nobody can replicate. Imagine that in the commercial space, because I know you're thinking, "Oh, well, JP Morgan is there, Citi is there.
How are you gonna compete?" The space is what defines our role. We are uniquely positioned to be the only Canadian bank that enables the North America corridor with those tools. That is the power of this proposition. This is gonna bring 11% higher deposits and 11% higher fees as a result of this. Very excited about the opportunity for the group behind cash management and multinationals. Any change story, in my experience, depends on clear goals and execution. We spent a lot of time as a team in developing the set of goals and KPIs that will drive performance for us. Here we share with you that ambition. By 2028, 70% or more of the IB capital will be in priority segments, higher returning, and priority markets... and those that we need to turn around, we will turn around or redeploy.
You're gonna see us pushing hard on primacy, doubling the number of primary clients in the retail bank and in the commercial bank in that period. But equally important, if not more, is increasing the number of profitable clients we serve. It is a combination of the two that unlocks the true power of value creation here. We're gonna be deliberate in generating efficiency and scale, and we're gonna be market leading with productivities lower than 45%, has to be the outcome. We can. We own all these franchises. We are a powerhouse in these countries and in Canada. We just need to connect the dots for scale, and that's what our planning tells. And our culture will reflect execution, live it and breathe it. That is how we're gonna operate to make sure that these results come through.
Now, as we see this ambition, and it is an ambition, and as I said at the beginning, and I, I was deliberate in the clarification more than waking you up from lunch, is that I'm gonna see this through. I didn't come here for a year or two. I came here to see this through. And this is something that we can do, and that I'm energized with my team to do. We're gonna grow this business at 8% CAGR in terms of earnings or more. We're gonna generate 16% or more ROE. We're gonna generate 3.4% RAM or higher, and we're gonna be as productive as we can be, market leading, with the right-hand side of the page, client dynamics that I already explained. It is ambitious, but we deserve the chance to do this, and we believe we can.
That has been the result of the strategic refresh. So if I leave you with a thought before I invite my colleague, Jake, to present, what you're gonna see is that this is an execution journey that aims at value creation. That is what we're here to do. We're gonna do that by being client-centric, absolutely obsessed with client centricity. We're gonna reallocate, optimize, and redistribute capital for growth and higher returns in the places that we can compete and win. And where we can't, we're gonna redeploy it for higher returns. That is our commitment. Efficiency and scale are critical, and by changing our operating model, we can deliver it in a way that historically we have not focused on. And our culture will be evolving towards execution. That is the power of the value creation journey that we've been working on for the last 10 months.
I'm incredibly excited about the power of this offering and this strategy. The team is all behind it and aligned, not only across the countries that we are in, but also my partners here in Toronto. We're all committed to this. I am personally committed to this. We will do this. Thank you very much.
Great. Thank you very much, Francisco. Our next presenter is Jake Lawrence, well known to many of you. Jake has been the head of our Global Banking and Markets business for the past five years. He's been with the bank for over twenty years, and prior to his current role, managed the bank's U.S. business and held senior roles in group treasury function, as well as IR. We'll roll a quick video, and after that, Jake will take the stage and talk to you about the future of global banking and capital markets.
Over the past five years, Scotiabank Global Banking and Markets has consistently delivered on a strategy to generate strong earnings growth. By increasing client relevance, elevating our product suite, and winning in key markets and sectors, our goal is intentional growth. With that mindset, we've built a solid foundation to support a client-first agenda, to support and drive their future growth, to leverage our differentiated capabilities, and to prove that we can be their most trusted partner. We stand out from the crowd, and we're consistently recognized for our talent and expertise. Though market conditions are evolving, we will change with them. To maintain our strong momentum, we'll leverage deep credit experience and industry expertise to grow across targeted sectors and expand our offering with products like structured finance and capabilities like cash management and multinational banking.
We are shifting our primary focus to North America through expanded client coverage in targeted sectors like consumer, industrial, and retail, and continuing to win in historic sectors of strength like power and utilities, and leveraging our unique footprint across this region. We will defend our strong position in Canada, achieve higher and intentional growth in the US, and focus our efforts on Mexico, where we've selectively added client coverage professionals. We have an unwavering commitment to existing and new clients and profitable, sustainable growth. This is the v for Global Banking and Markets.
Great. John, thanks for the intro. Good afternoon, everyone. I'm quite excited to provide an update on the performance and strategy of Global Banking and Markets, or GBM, as you'll hear me refer to it several times. My slides and comments do include GBM LATAM, as Francisco just noted, and we do that so we can provide a holistic view of our banking and markets business across our footprint. However, for external financial reporting purposes, I want to remind everyone that GBM LATAM is included in the International Banking segment.
Before I begin, I want to start off with three key messages that you will hear throughout my presentation today. First, GBM plans to continue building additional products and capabilities, as well as grow in new segments and industries. These actions are expected to enable the business to attract new clients, while also deepening existing client relationships. Second, you can expect increased capital allocation into North America, with outsized growth in the US. Capital allocation in Latin America, excluding Mexico, will be de-emphasized, as Scott mentioned earlier. We believe the focus on North America will support our multinational banking strategy that Francisco just touched on, and it will further increase our client relevance. And finally, we intend to increase our focus on returns, as well as increase capital velocity versus growth in absolute earnings and growth in the balance sheet.
Specifically, GBM aims to deploy and recycle capital at a faster rate while generating higher returns well within our risk appetite. Private capital, including our collateralized loan obligation platform, is a great example of how we're already starting to do that. With these three messages in mind, I'll begin by discussing GBM's historical financial performance. As you can see, over the past several years, GBM has increased client relevance and expanded our product offerings to serve more than 4,500 clients globally. Since 2018, as many of you will know, the operating environment for GBM has been volatile. This environment has created opportunities for us, opportunities that we've taken advantage of to add talent, to add clients, as well as make money in the markets. GBM NA grew 5% compounded annually to CAD 2.9 billion for this past fiscal year.
While GBM LATAM delivered earnings of CAD 1.1 billion in 2023, as you've heard, we do not believe the returns are commensurate with the risk profile, and this market has lower fee income opportunities. I'll speak more on that point later in my presentation. GBM's strong performance reflects the execution of our strategic goals, as we discussed at the bank's 2020 Investor Day in Santiago. There are three key areas I want to remind everyone from that Investor Day. First, GBM has strengthened its business. As we committed to, we've reached our natural share in Canada. We've grown in the U.S. under Michael Cruz's leadership, who's with us today, and I encourage you to introduce yourself to him. We've also grown in GBM LATAM.
As a result, GBM has increased its league table rankings, we've expanded our structured finance capabilities, and we've generated strong earnings. Second reminder, we increased our client relevance through better cross-sell and greater share of wallet. For example, GBM has narrowed its gap to peers on the metric underwriting and advisory fees as a percentage of corporate loans and acceptances. Finally, we've elevated our products and capabilities in capital markets. You saw some of the awards. We've grown our business in sustainable finance, we enhanced our electronic trading capabilities across multiple asset classes, and we've deployed capital offerings into the market. However, this market environment is evolving, and evolving particularly around the Basel III capital rules. With this evolution, our strategy and our GBM business also need to evolve.
Over the medium term, GBM will build on the momentum I've just talked about with identified growth opportunities while making those necessary business pivots to evolve. As you can see on this slide, the three countries in North America represent our priority markets, and they account for the majority of GBM's loans, GBM's deposits, and GBM's earnings. Since 2018, revenue growth was 4% in Canada, 8% in the US, and an impressive 15% in Mexico. An important takeaway from this slide is the rest of the world. This includes Europe, Asia Pacific, and the GBM LATAM countries, excluding Mexico. This collective region consumed 34% of GBM's lending book, so about a third, but it only generated 23% of earnings and 18% of deposits.
As you'll hear in a moment, this takeaway is an important factor as GBM increases capital allocation in North America to drive our future growth. In North America, we've made strong progress and increased our market share in league table rankings. For example, GBM is now a top three capital markets platform here in Canada. GBM US continues to make good progress in several areas, including DCM. One of the questions I get asked most often is: How are you going to win in the US? We'll get into that a bit more later, but just to give you a stat, in 2023, GBM US was a book runner on about 220 bond deals. That's up 50%. 50% compared to 2022, and we've made progress on league table rankings and improved to 16th. So absolute wins and relative wins versus the competition.
As you heard from my colleague, Francisco, Mexico first. Mexico's made a meaningful increase in rankings, and it's now a top three platform also under Adrian's leadership. This team has also been recognized by external awards. For example, we've been recognized as the best investment bank for the Americas by The Banker, Best Specialist ESG Bank by ESG Investing, and Best Sustainable Finance by Euromoney. Now getting back to the U.S. I want to discuss our strong momentum and why we believe this market is key to our future success. As many of you will be aware, the U.S. is the largest banking market and has the highest fee income pools globally.
Estimates of the corporate and investment banking revenue pool size in the U.S. are 3.5 times, 3.5 times larger than the rest of the Americas, and nearly 6 times larger than Latin America. As GBM increases capital allocation to North America, the U.S. will play a central role in our multinational strategy as the key corridor in the region. As was mentioned earlier, we're a top 10 foreign banking organization in the U.S., and we know how to win. We intend to pursue targeted growth in priority businesses, priority segments, and with priority clients. For example, GBM has successfully increased its league table rankings in our targeted sectors to date. We're now a top 10 bank in REITs, a top 10 bank in power and utilities, as well as investment-grade energy.
As we expand into other core sectors, we expect to establish leadership positions here, too. GBM US has been delivering 8% earnings growth in recent years, and we expect this momentum to continue over the medium term. Our current business has a strong balance sheet, with approximately 80% of loans rated investment grade. This is well above our Canadian peer average. So as many of you know, GBM reports lower credit losses. However, we have a meaningful opportunity to increase fee income and thereby increase returns. For example, as I mentioned earlier, GBM has generated lower underwriting and advisory revenues as a percentage of our corporate loans and acceptances. There's reasons for this. Our strategy has been investment grade-led, and it leads to higher holds in the lending book. It's also paired often with lower fee opportunities from these same clients.
As we move forward, we intend to continue to focus on generating more ancillary fees from our core clients. We're gonna increase our non-lending share of wallet, we're gonna pursue those larger fee pools I referenced in the U.S., and we're gonna attract new clients with greater return profiles. Moving to GBM LATAM, where strong earnings have been supported by double-digit volume growth and market share gains. The business has improved its league table rankings, and today it's a market leader. Going forward, however, additional capital allocation will be reduced to GBM LATAM, excluding Mexico. Our business today has reached scale, and GBM intends to focus on our multinational strategy across North America. As mentioned, the GBM LATAM business does not generate returns commensurate with its risk profile, and fee income opportunities are lower. This slide's a great example.
We're a DCM market leader in the region, but the fees generated on average by the Pacific Alliance countries are roughly one and a half times lower than Canada. They're up to three times, three times lower than what we can get in the U.S. As you've heard from Francisco, and you're hearing it from me, Mexico will remain a priority given the connectivity within North America, and this market has the highest fee income potential among those Pacific Alliance countries. Our renewed strategy is focused on delivering sustainable, profitable growth, driven by disciplined capital allocation, focused on these priority markets. We've set ambitious medium-term financial objectives.
Notwithstanding, GBM will continue investing in pivoting certain parts of the business. Given new capital rules, we expect to deliver earnings growth in excess of 7%, mid-single-digit in loans and deposit growth, and an ROE of roughly 14%. We intend to deliver a productivity ratio of 53% or better. As you've heard today in the earlier Q&A session, North America and the US is a big part of our business, and we expect it to be even bigger moving forward. As we focus on our multinational strategy and grow in North America, we also see significant opportunity from the nearshoring trend. We believe there will be significant capital investment in North America. This is in light of the macro environment, as well as the geopolitical landscape.
Canada, the U.S., and Mexico, they really provide strong complementary resources to each other, like labor, capital markets, raw materials. Underpinning that, we see strong government policies across North America supporting this mega trend. To help everyone understand how we'll win, I want to call out three key areas where GBM provides differentiated capabilities that our clients value today and will value moving forward. First, GBM operates across an attractive footprint and is uniquely positioned to serve cross-border clients with global trade flows throughout the region, including our strong foundation here in Canada, our growing platform in the U.S., and our leading presence in Mexico and across the Pacific Alliance countries. Second, GBM has strong expertise today across these markets and will continue expanding in priority industries such as technology, healthcare, consumer, industrial, and retail....
Finally, our balance sheet is strong, with significant opportunity to generate higher cross-sell and to better support our clients. GBM's deposit gathering capabilities also support our client activity in the all-bank liquidity profile. Now I'd like to discuss our renewed strategy, which has four primary pillars that we've seen today, and obviously, our strategy is aligned with the all bank. First, we intend to grow in scale in our priority markets. We expect outsized growth in the US, along with growth in Mexico. Second, we are increasing primary client relationships today, and we're gonna continue to do it. We're gonna earn the right to more ancillary fees. It's gonna drive more profits, higher returns, and lower capital usage. Next, to support our clients, we should make it easier to do business with us.
For example, this will mean strengthening our end-to-end client lifecycle experience, boosting our time to market with products and solutions, and embracing the benefits of migrating to the cloud, as Phil alluded to earlier, Scott had mentioned. Finally, we're gonna continue to align our people across products and regions to win as one team. The team in GBM has heard me say this: banking is a team sport, and working together, we can deliver the full capabilities of GBM and, frankly, the full capabilities of Scotiabank. Moving on to capital deployment. You've heard this today. You've heard it from me. GBM intends to focus on allocating incremental capital to continue increasing both client relevance and generating higher returns. Over the next five years, we intend to prioritize capital deployment to North America and to provide greater support for cross-border issuances and cross-border flows.
We want to increase core banking relationships with our multinational strategy while enhancing our cash management capabilities that Francisco just alluded to. We expect to strengthen our capital markets and advisory services to further increase share of wallet. Overall, GBM expects to continue to narrow that gap versus Canadian peers on underwriting and advisory as a percentage of corporate loans and acceptances. As mentioned, the priority markets will be those in North America. Our future capital allocation decisions are gonna be driven by discipline, which we believe will require some new products and capabilities. In Canada, GBM has built a strong foundation, and we're expecting to generate 5% earnings growth in this mature market. We plan to focus on defending our strong market position in Canada and really extending that strength into the U.S. and Mexico with clients.
In both the U.S. and Mexico, we expect outsized earnings growth at approximately 10%. Meanwhile, the rest of the world is expected to deliver generally flat earnings growth. Given my comments earlier, I want to be crystal clear, we intend to deploy capital in more profitable markets to support this division's future return profile. Again, relative capital allocation in Latin America, excluding Mexico, is expected to decline. To achieve this division's growth objectives, we plan to expand in our core sectors, which will allow us to acquire new clients and optimize capital to focus on the most valuable relationships. We started this work, and it's making a difference already. As I just noted, our shifting focus to North America is expected to leverage our multinational strategy and increase returns. The U.S. is the key corridor for our clients in Canada and Mexico that have exposure to this country.
We plan to continue investing in the U.S. by following a thoughtful approach in how we allocate capital to enhance capabilities and modernize our platform. Key areas we plan to grow include new sectors by expanding our expertise in healthcare, technology, as well as consumer, industrial, and retail, and also adding in new capabilities and products through investing in U.S. cash management and increasing product expertise and solutions. These new sectors, these new capabilities and products, they're gonna allow us to target existing and new clients to generate higher returns. A good example of how we can grow in the U.S. is the non-investment-grade finance business. We've got great relationships here, and we intend to target existing sponsors in core sectors and priority markets. Growth in this area will be supported by a robust risk management team.
Overall, GBM's US earnings is expected to grow at 9% CAGR through 2028. Okay, heading south to Mexico now. This market directly supports our North America focus and GBM's strong views on nearshoring that I referred to earlier. Here's a great stat: Over the past 30 years, the value of goods manufactured in Mexico has nearly doubled versus LATAM and the Caribbean combined. And Mexico continues to capture a disproportionate share in US imports from other market participants. We believe that our long operating history in the region positions us very well to capture existing trade flows between the US and Mexico. To support our growth aspirations in Mexico, we expect to capture a greater share of wallet in advisory, capital markets, and transaction banking.
We intend to further build out capital market capabilities, including a focus on derivatives across several asset classes, a focus that hasn't been there to date. Similar to the U.S., we believe our cash management capabilities will be key. Francisco talked about cash pooling, factoring. We've got to build the digital channels further to make it more attractive and easier to have GBM as your priority bank. Mexico also plays an important role to support our multinational strategy and increase cross-border connectivity for our clients. We expect Mexico to grow at 10% CAGR on a constant currency basis through 2028. Next, and a bit of this will be repetitive, I want to discuss how GBM expects to leverage our multinational strategy as a competitive advantage and further increase client relevance across our priority markets.
This will be consistent with what you just heard from Francisco. In the U.S., GBM has delivered strong deposit growth, and we intend to extend that momentum into broader cash management capabilities while providing an interconnected and aligned client coverage model. We also expect our platform will increase cross-border products with consistent global onboarding, lending, and reporting practices. By leveraging our multinational strategy, GBM aims to continue winning new clients while growing new segments and sectors in the U.S. and deepening existing relationships. We believe that our new strategy will be executed with thoughtful risk management oversight. GBM has been focused on delivering volume growth while supporting high-quality clients. As you've heard earlier, our investment-grade portfolio is well above the peer average, and we don't expect a material change in this narrative.
We are also a market leader in league table rankings for lending in Canada and the Pacific Alliance region. Compared to pre-COVID levels, GBM has increased its allowance for credit loss ratio by over 1.7 times, providing us with further protection in the event of corporate credit events. GBM has been supported by risk partners within the business, as well as under the leadership of Phil Thomas, who leads our global risk management practice. As we expand into new products and capabilities, the business will continue to ensure that we have the appropriate risk management oversight and are appropriately pricing risk for returns. We will maintain the same discipline around proactively managing risks, and as GBM adds new capabilities to increase client support, we'll focus on those appropriate risk-reward characteristics I alluded to.
We also expect reduced risk for the bank as GBM allocates more capital to North America, obviously a region that has relatively higher credit ratings versus LATAM broadly. Furthermore, we expect our hold levels will be reduced from lower lending exposures. We are investing in more structured finance to assist the business in driving more client relevance, while also providing additional capabilities to manage our risk and underwrite risk. Specifically, GBM is expected to increase capital velocity and recycle capital faster to generate higher returns. GBM will continue to make key investments in technology, fraud, and areas like cybersecurity to protect the bank as well as our clients. We'll make additional investments in digitization and automation. This will obviously enhance the client experience, making it easier to do business with us, but will also reduce our operational risk.
With the renewed GBM strategy, I want to reiterate our commitment for growth over the coming years. We expect an earnings CAGR of at least 7%, an ROE of roughly 14%, and a productivity ratio of approximately 53%. These medium-term financial objectives expand on the momentum GBM has delivered to date while navigating that changing market environment I alluded to. In summary, I'd like to end with 5 key takeaways for GBM. First, as you've heard, we're increasing the focus on returns and how we allocate shareholder capital. We are going through a period of optimization that we believe can see GBM come out stronger and deliver more sustainable and more profitable earnings. Second, we expect to increase GBM's client relevance further to generate higher cross-sell and build those deeper client relationships. Third, we're shifting our focus to North America.
GBM is placing a much greater emphasis on growing in the U.S. market, as well as in Mexico, to drive connectivity with our multinational strategy, while also leveraging that nearshoring mega trend and increasing fee income and exposure to larger fee pools. Fourth, we plan to expand our product suite and capabilities to support priority clients and segments. Priority segments and clients that we expect to bring an even higher level of growth and returns. And finally, we aim to deliver the entire division and bank to our clients in order to maximize our relevance and overall value proposition. With that, thank you, everyone in the room and online for your attention, and I'd like to welcome Francisco, Raj, and Phil back to the stage for Q&A, which will be moderated by John McCartney.
Good job.
Thank you, sir.
Great. Thank you very much, Jake. Is everyone in the right seat? Okay. Okay, Q&A for the International Banking and GBM panel. Sohrab?
Maybe a couple of questions. For Jake, the shift from corporate lending being investment-grade corporate lending to perhaps not investment grade, where there are bigger fee pools. Do you have the capabilities, or does that require some degree of investment?
Yeah. Yeah, good question, Sohrab. It's an important shift. I'll start with a stat. For fiscal 2023 for the Canadian banks, we've got a peer who's top 10 in leveraged loans. We've got another peer who's just outside the top 10. We have another one that's in the 20s or low 30s. So we're way out of position relative to some of the peers, which is leading to some of the returns and fee outcomes that we're looking to solve for. There are two things that are going to be important for us to be successful in this. One you've alluded to: Do you have the right people? Do you have the right talent?
So the answer to that is yes, both in the first line, on the origination side, and also in the second line on the risk side, where we've added in capabilities to make sure we appropriately approach this business. The other side is on the client side. We've had a lot of these relationships for a while, but we've really limited our exposure and business with them to activities that don't generate the highest possible returns. As we go forward, you're going to see a bit of that rebalancing of risk out of LATAM, which currently has a lower percentage of investment grade. The capital comes north into North America, and it'll be deployed into that higher fee pool that I referred to in the US that's available for us today, both larger fee pool and larger returns.
It will be done by the team. We've got the capabilities now. We'll continue to strengthen them as we grow.
So, just for clarity, you're self-funding your plan?
We've already taken some of these hires into 2023, actually. They've joined the bank. They're hopefully listening today and know we support this business.
Okay. And then, Francisco, I mean, lots of exciting growth opportunities I think you talked about. How much incremental capital do you need, or is that capital that's currently deployed within International Banking going to be remixed? And how easy is it to remix that? Or does Raj have to bridge you to, at least, I don't know, for a couple of years before you can deliver on it?
Well, first, I'm glad that you're excited because I am. I think the first thing to keep in mind is, as you look at international today, we have what we need. We have the capital we need, and we have the spending level we need. What we need to do, however, is reallocate that capital to the segments and markets in which we can compete and win. And that is the process that we already started and will continue certainly over 2024 and 2025, the majority of which will be done in 2024. On the expense side, similar to capital, we don't need to spend more. What we need to do is spend in a different way and bring efficiency into play, because where we're spending is not necessarily the right place.
We're spending a lot as a result of the model that we've chose and the management process that we chose of how to run these countries. So as we begin to consistently operate, standardize our segments, the clients we serve, the products with which we serve them, standardize the processes and procedures, that will allow operations, finance, risk, all the areas to adjust to a model that is consistent, because today they have to serve a country that is completely different than the other. And if you look at it from the investment point of view, we're doing the same investment every time differently, because every country wants different features. So what we're changing is the operating model. So the power of this is that we will always also bring the scale that Canada can generate for us, which historically we haven't.
What you're going to see is a much more intense partnership as we develop digital tools, capabilities, and platforms across cash management, multinational banking, retail banking, and wealth, to a degree that we then make this investment much more leverageable beyond just Canada or IB. This is not about more resources, this is about making them work harder for the strategy and releasing some resources out of IB into higher-returning places, both expenses and capital over time.
Okay, and if I can just sneak one in for Phil. Throughout the day, I think, all of the business segments that at least are lending have alluded to opportunities to go down market a little bit, obviously pick up some better risk-adjusted margins. I'm curious why the bank chose not to include a credit metric as part of the medium-term objectives.
It's a good question. I think the way you should look at it is we have included a credit metric, and we're talking about risk-adjusted margins as one of the key metrics that we want to focus on as a management team to make sure that we're getting paid for the type of risks that we're getting into. And maybe Sohrab would say, I'm very comfortable with the plan, and obviously I've been very engaged with these folks on the stage, as well as the team in the crowd, as we are looking at shifting the business mix, taking capital out of Latin America, redeploying it in developed markets. I really like the focus on primacy because it helps actually reduce the risk.
You know, Francisco and I have been looking at the data, and in Chile, as an example, as we look at primary customers that we've already started to originating, they have two times less net write-offs than the average customer. And so as each one of these elements, whether it's in Jake's business, Aris's business, or in Francisco's business, we're actually de-risking the strategy and de-risking the bank moving forward. You know, Jake, Jake alluded to non-investment grade lending. You know, we're redeploying people, we're hiring new expertise into the New York office, and I don't think Saturday or a weekend goes by where Jake and I are not on the phone talking about a transaction.
We're very, very engaged in this business, which gives me a lot of comfort that I know what's going on, and, you know, there's a tremendous amount of transparency with my business partners.
Gabriel?
Hi, good afternoon, I guess. Question: velocity of capital sounds pretty cool. What does that mean? Is that just conceptually from a business mix standpoint, less corporate lending?... more transactional stuff like trading and investment banking, if I just think of how your business structured, you know, today, historically, and into the future?
Yeah. Good afternoon, Gabe.
Thanks.
Just being clear on the time. Velocity is a concept that really we're tying into our lending business. Today, with 80%+ in the GBM entire portfolio, or 85% in the GBM book ex GBM LATAM being investment grade, that leads to higher holds of loans and, frankly, larger hold sizes. So we're putting a lot of capital, particularly under the new rules that are coming forward.
Mm-hmm
A gainst existing loan books. So it's largely around the lending business. As we move forward, we think of that velocity as showing up as we move into new areas, evolve our risk profile, frankly, being in loans that end up being originated, but more frequently distributed into the institutional market, right? You can also think of products around structured finance. We're going to build a greater capability than we have today, and we already have a good one in securitization. Allows us to originate loans for clients and with clients, then exit them in markets like the term ABS market. The same thing would be the case for the collateralized loan obligation, or CLO business I referred to.
You have the opportunity to accelerate your velocity of your capital because you're financing a portfolio with a manager, and then you're ultimately working with them to churn the warehouse, to distribute and syndicate in the market and create a fee event. You can do that 2, maybe sometimes 3 times a year with a manager. And the good news about that, Gabe, is it's a lot different than originating a 3- or 5-year loan with a corporate that then stays on your balance sheet for that period, and you occasionally will have a fee event, whether it's an equity raise, a debt raise, maybe some risk management solutions around FX or rates. That's what we're really thinking about in terms of tools and velocity of balance sheet. It's really around the corporate side. It's not implying more market risk or trading risk.
So you'll commit to the client in the hopes of getting their banking business, but you might hold less of it through subsequent transactions kind of thing?
For sure, in the investment-grade space.
Yeah.
In the non-investment grade space, there's already high velocity of that balance sheet as it goes into the institutional market through term loan B, term loan B, et cetera.
That segues to my next question, the non-investment grade strategy, 'cause two of your Canadian peers are pretty big in that market-
Mm-hmm
I n the US, and it's either a lending business or an originate-to-distribute business. You know, which one are you pursuing? And how, you know, how do you go... I don't know what level you're at today, if you're ground zero or something close to that, and how do you grow from your current level to-
Sure
Y ou know, something quite larger, presumably, and not you know, pick up a few bumps and bruises along the way?
Yeah. So I, I don't want to imply that we're gonna- there's massive growth in that area for us. I want to leave the room with that understanding. To give a bit of sense of the book today, as I mentioned, GBM today, 85% is investment grade. When we add in the LATAM business, it goes down to 80%. That's still quite high when you talk to other global financial institutions. So, when I answered Sohrab's question earlier, I referred to us being in the 30s and some of our peers down around the top 10 and, and another one in the 20s. We're not looking for massive near-term growth in that space.
Good.
Right? And it does provide velocity of capital, and as I mentioned, we've already started to bring in the talent. We did that over the course of 2023 to position for that business. And so don't expect it to be something... It will be an originate to distribute, may hold small pieces of revolver, but that's going to lead to lower capital required for the business and higher fees that generate those higher returns. So we're getting into a larger fee pool market in the U.S., and we're going to be reallocating some of that capital from a, frankly, a less liquid and a different risk profile market in South America.
Okay. The GBM, well, you know, ex Mexico business, very clear on reducing capital allocation in that business. I'm gonna throw some numbers at you. I was writing them down. Hopefully, I got them right. But that's total GBM international is at CAD 1.1 billion, I believe, and of that, probably CAD 700 million is ex Mexico. And you're saying you'll – I'm trying to interpret here, make sure I got it right, from my note, maybe. You're going to take your capital down but keep the earnings flat. Is that the message?
Yeah. Do you want to start, and I can add in? Or do you want me to tackle it?
No, go ahead, please.
Yeah. So we will. I think Scott mentioned it up front, when we look at those priority business, 90% of incremental capital is going to go to those.
Yeah.
The South American portion of the business wouldn't be captured in that—those priority markets. So we've got a good amount of capital allocated there. When we go forward, we've reached scale. We think we're in a good spot, but some of the metrics I shared around fee pool, with the U.S. being six times larger than what you have in South America, and even some of the data we shared around fees on DCM. We're going to use our scale position to drive higher returns on the existing capital moving forward, generate higher returns, create higher retained earnings, higher capital from that business, but you are going to see that incremental capital come into North America. Canada's got much limited opportunities versus our U.S. platform, as well as our Mexico opportunities.
So for Francisco, kind of dovetailing into that, I guess, reduced capital allocation to GBM LATAM ex Mexico, quite a mouthful there, that doesn't have any real serious implications for your growth strategies, in, you know, the IB bank? 'Cause originally, it had been, it had been like, "Oh, we're gonna, we're gonna bank them commercially, and then we'll bank them, you know, in capital markets, and it'll be all great." But doesn't sound like that'll be too disruptive if you're, you're pulling back a little bit.
No, Jake and I are very aligned on this. The view is the fee revenue-
in the capital markets business is not really south of Mexico. Very limited. What we wanna do, however, is as we redeploy this capital, we will be very mindful on our focus on multinationals, and that's why Jake and I are leading this, to ensure that we have an enterprise lens when we select the clients that we want to protect and the relationships we want to grow. Now, bearing that in mind, that will have no effect on the commercial bank strategy whatsoever because it's, it's very unique. It's a space where we're gonna serve them transactionally, really. It's cash management, it's trade, and enable lending just to build a relationship, not to have the relationship around lending. So I am not particularly concerned of the impact of this decision.
We've actually reflected it in the plan already, so there's nothing new to be reflected in these numbers.
Okay. Phil, you look bored. No, I'm just kidding.
He's not bored. He always looks that way. Mike.
Hi, for Francisco, I guess a two-part question. So when you think about the timing of what would be realistic for businesses that you might decide... I think you made a comment, you know, "If it doesn't work out, we're going to exit." Do you have a timeline? Is it two years, three years, something longer? That's the first part, and then secondly, how does that, I guess, that ambition change if you're sitting on, you know, some pretty sizable carrying values that you can't get through a sale, you can't cover that through a sale? I'm not sure if the resulting reduction in risk-weighted assets would compensate. You know, it could be a capital charge.
What we've seen with Scotia in the past is exiting businesses and reallocating capital has been a bit of an earnings drag versus peers, and that's something that investors have not been happy about. So what are your thoughts on that?
Great, great question, Mike. What I would say is the following: the plans are pretty robust and have very clear goals and targets, and the management teams are held accountable against those targets. I, myself, I'm one of them. What we need to understand is that the timing is something we track every quarter, so this is not something that we're gonna go do it, and let's talk in a year, and then we'll figure it out. The reality is, we're very much on top of this every single quarter. But we need the plans to play through, right? We also need to understand the environments we're in because we're capped by the environment.
So, for example, I'll tell you right now, go out and sell a business in Colombia today, I wouldn't advise you do that because the market right now is at its worst, still in the midst of a recession, political uncertainty around the current administration. Why would you sell if you don't have to sell? And remember, the journey in international is value creation, so we're gonna do this in a way that we create value as we make the decisions we make. Now, Colombia as a market has the right dynamics, has the right size, over 50 million people, very robust commercial segment. We have a strong brand. We're well-positioned. We are changing the way we operate it and see if that change is enough to position us in a different trajectory.
That will also buy us the time to see what happens in that market on the macro basis, right? Remember, this year, only one bank will be profitable in Colombia because the cost of credit has been massive, and by changing the cap rate reference, they killed the profitability of the system this year. So we gotta understand, this is a combination of the environment we're in and our own business. What we're confident on is that the management process we have in place and the plan we have in place should get us to a much better outcome, where over time, we can create value for you. That is where we're sitting on right now. Well, time will tell as we sort of execute, but we're not looking at the very long term. This is something we're managing. We're very tight, short leash. Okay?
As far as-
Uh-
... earnings go... Sorry, I didn't mean to interrupt.
No, no, no, I was gonna tackle the second question. Do you wanna jump in?
Sure. As far as the earnings go, Mike, I think Central America makes about maybe CAD 20 million a quarter, and Colombia, of course, is not contributing at this time. So the drag, if we ended up exiting, is like, you know, CAD 80 million a year. The bank makes CAD 8 billion. In context, it's not as big as some of the divestitures that we did and the earnings impact that we had to the bank, about CAD 650 million. So if we ended up doing that, we will completely look to earn through that.
Yeah. On the divestiture impact, what I would say, in my experience and you know, where I come from, stranded cost is something you have to pursue very aggressively.
Mm-hmm.
One of the benefits of regionalizing and standardizing is that you can tackle stranded costs much more efficiently than you're when you're customized to one business. So, that's one of the benefits that we're looking for, for potential future decisions of divestiture. We can tackle stranded costs directly in a way that that scale will allow you to buffer that and translate that benefit to a lower cost to serve.
Okay. Any more questions for Francisco and Jake? Darko?
Thank you. I'm gonna actually try and involve everyone in this question.
Ooh, that's a challenge.
I don't know if I'm gonna actually phrase it even correctly, 'cause I'm still trying to connect a few dots here. When I think about what the intent here is for Scotia overall, and we think about pulling capital out of low-return businesses into higher-return businesses, and maybe we'll start with Raj on this, and we can dive into the other business heads there as we go. But what would be helpful for me is to better understand where you are on the journey with respect to optimization of risk-weighted assets, and under the new Basel III reform, sort of where you are with each country and each region, and help me connect the dots as to is that driving a significant portion of what we're seeing?
... and what kind of capital benefits can we see in the future as you progress through that optimization program?
Sure, let me start, Darko. It's actually a very good question, but a little bit of what's the journey we've been on for the last 12 months, because we've started RWA optimization at this bank over the last 12-18 months, frankly. The way we did it, and we are continuing to do it, is look at almost by segment and by client, and find out which clients are less profitable compared to the capital that we deploy, and which ones are the ones you know we cannot improve profitability. So there has been a deselection exercise that has actually happened. A lot of it happened within the GBM business. And, you know, we have absorbed the earnings impact it should, because we can actually deploy the capital differently, or we expect to deploy it differently.
The return on risk-weighted asset is a simple metric, as you said. You know, capital constraints are here to stay for a long period of time. We have determined, you know, a certain threshold, I think it was in one of Scott's slides. We didn't call out the number, but we want to be something greater than 2% return on risk-weighted asset because it translates to greater than 14% ROE and so on, mathematically speaking. As far as the capital goes in International Banking , we have today about CAD 19 billion of capital in International Banking as a whole. Okay? And if you want to spread it by the Pacific Alliance countries, Mexico has a little over CAD 3.5 billion. It's like 3.7. Peru has about CAD 2.5 billion of capital.
Chile has a little higher than $6 billion of capital, and Colombia has about $1.2 billion. That's the split. So when we look at that, obviously, Colombia is a work in progress, like Francisco talked about. Peru and Chile, for us, is a value creation proposition, to use Francisco's term. How can we make that capital work harder for us? Which means we need to make choices. The GBM business in these two countries, very good, very powerful. They actually had a great run for the last two years. You know, GBM LATAM last quarter or in Q3, made over $300 million. We know that it comes at a return on risk-weighted asset of about 1.6%, GBM LATAM as a whole.
So obviously, if we want to be above 2% for the bank, we need to figure out how do we improve that 1.6%. You can do it with the existing clients, or you can move the capital elsewhere, like the United States, like Jake has talked about. So that process we've been through. As far as the retail business goes over there, Francisco talked a lot about client primacy and the single product relationships we have, specifically when you get to the consumer finance business. They tend to be volatile. We have consumer finance business both in Chile and in Peru as well, and a little bit in Colombia.
So we've been looking at those too, saying, "These are the businesses that we want to operate to see how we can make it more profitable under the new capital rules, or what do we do beyond the stage where we think we cannot make it to a level where it's an acceptable return for the capital that we have deployed?" But in general, RWA optimization has got multiple components to it. The new capital rules requires a lot of data. Better data gives you a better capital treatment. For example, in Jake's business, we have a different capital treatment if you have external ratings. So a lot of it, we did not source external ratings because it didn't make a difference to how we attributed capital under our models-based approach. We've gotten better data.
It's actually improved with the capital and therefore improved with the returns for the capital that we've deployed over there. So a lot of it is management action to see where it's not profitable, to see how we can redeploy it. The others are: How can we improve data? And of course, we did like synthetic risk transfers, those kind of things. One transaction we did, which tools are always available. The intent is for the $19 billion, we have an IB specifically, it's not growing much. If I look forward, it's probably growing, you know, somewhere less than 10% is the number we quoted out there. So call it $21 billion over 5 years. But the return profile, like Francisco called out, is going to be about 16%. So that should tell you that similar amount of capital, we expect to generate better returns.
Part of it is optimization, part of it is client deselection, and part of it is increasing the share of the wallet. That's how I put the International Banking story together.
Very well said. And, Darko, I think good examples are, in Chile, we have a partnership, a consumer finance partnership. We have a large chunk of our RWA deployed into that. Those are monoline clients that I cannot penetrate because I don't own the relationship. So I rather take that capital, deploy it in the Chile franchise, and grow primary relationships, and improve my returns in Chile. So those are the trade-offs that we analyze as a team in the strategic refresh exercise and say, "Given all these options, where is the best place to have this capital working for us?" And that is one of many other examples that were looked at and that are reflected in the plan.
Darko, maybe on the GBM business, some of this activity's been happening in plain sight. So if you look at the Q4 2022 RWA for GBM reported, it's just a tick above 120. We finished Q4 of this year just below 100. So you've seen a 20%-ish reduction in RWA towards this business. You haven't seen a linear decline in the overall returns for the business. We're down kind of mid-single digits, just over that this year in terms of earnings. So we've been doing a bit of this in plain sight of where we've tried to optimize capital within our business. It's good, healthy practices to look at your profitability, look at your profitability of your clients and take the appropriate action. Can you grow that profitability? Can you win more business? How would you do that?
Is it worth the investment? Are you not executing correctly? I'll give you a bit of a flavor. I talked about when we did the geographic discussion earlier, about a third of our loans are sitting in that LATAM or the rest of the world, excuse me, and it's generating about 23% of earnings. That's not the congruency we're looking for. That's out of alignment at the end of the day. And so I'm using a balance sheet and an income statement item, but it demonstrates the challenge. So what we've been doing in GBM, and I'll give you some rough numbers. We've got. When we look at our overall client set, we've identified, call it, high single-digit number of clients that are using roughly 15% of our RWA.
A nd they're producing mid-single-digit revenue for us. Again, you've got that discrepancy between where you're putting your scarce resources as a bank, capital and liquidity, and the returns those are generating for our shareholders. And so we gotta make sure we get the right balance, whether it's in my business or frankly, my partners, whether it's Aris, whether it's Jacqui, whether it's Francisco, we get it to the right spot to get that higher return, that sustainable, profitable growth that Scott started with at the end of the day. And I think if you go back to Scott's presentation, the bubble chart, I don't have a better way to describe it, really, really shows what we're solving for here, which is to close that gap and get the businesses that generate the highest returns, the capital to do so.
I really appreciate everybody piping in here. That's great. Thank you. Jake, maybe just to follow up on that, just to really push the envelope here a little bit on what I'm trying to get at, and it's gonna require a lot of follow-up, Raj, sorry. But let's take that one-third LATAM, where you have one-third of the capital there. There's no possibility, essentially, to optimize that RWA, is there? Is that what I'm hearing?
Oh, no, there is, and, and we will do that.
Okay.
But what I'm trying to point out is the fact that we've underexposed ourself to the largest fee market in the world, the U.S., and we've underexposed ourself to higher fee opportunities, also the U.S., in terms of the actual rate. And so we will definitely optimize the capital in the GBM LATAM business. You've hopefully heard that, and we're going to put it in the best home, whether it's in the U.S., could be in Canada. Do you want to add anything, Raj, or?
I think that's the way to say it. I mean, I gave you the number, it's 1.6%, return on risk-weighted assets.
Yeah.
That's obviously an average, right? Certain clients being well in excess of 2%. That's where the client deselection comes in.
Mm-hmm.
So you leave it with the people who actually are paying you for the capital that we are deploying over there, take away the remainder of the capital, client deselection is the term I've used, and they can deploy it back in the U.S., where we do earn superior returns even today with the footprint that we have, or bring it back to Canada or to the other businesses. That's what we own.
Thank you.
Okay.
One more question here for this panel. Yeah. Nigel?
Yeah. Yeah, so just some finer points on comments previously made. The first is on the improvement of the credit risk experience driven by multi-product clients versus monoline. And I was wondering if you could perhaps quantify that. What is the expected benefit of credit losses? 10% reduction, 15, 20? And how much of that is baked into your risk-adjusted margin expectations for international?
I can start. I mean, if I look, Nigel, just with some of the real data that we have today, and I made reference earlier, we're seeing lower net write-offs on these primary customers by about two times. Particularly in some of our Latin America markets. It's even better in Canada. We've been very conservative with the outlook. So we don't have all of these this data baked into the current plan. Obviously, I'm very thoughtful about the current macroeconomic environment in Chile, Peru, Colombia particularly. And so we're being very thoughtful in terms of, as you saw last quarter, we built a lot of performing allowances to make sure we're being thoughtful about the balance sheet moving forward.
But we have evidence that suggests, and with our own data, that deriving this primary relationship creates this better credit quality experience. I also think one of the biggest opportunities for us is we shift away from focusing on selling a credit card to you, and that's your only product, to capturing your deposit accounts. Having the flow and understanding the data from those customers allows us to make better credit decisions, I think I said it earlier, actually allows us to make better sales decisions ultimately as well. And in Latin America, it's even that much more important. So having someone's payroll is extremely important as we look at how we get more and more comfortable with the type of credit that we're giving to these customers.
Yeah, the message there would be, we were very conservative in modeling that benefit in the five-year plan-
Mm-hmm
B ecause we want to see more data play through, for us to begin to incorporate that more specifically. So there's upside in the model.
Great. And then another follow-up for you, Francisco. When you look at the ROEs in the Pacific Alliance, they're quite different. Chile, 20% plus, mid- to low teens in Peru, and... Sorry, Mexico is 20%, Peru and Chile is mid- to low teens, and then Colombia is single-digit ROE. So could you comment on how much of that is structural and macro, those differences in ROEs, and how much of that is just suboptimization by Scotia? Because the International Banking ROE objective is about 250 basis points improvement, and I assume that's not evenly distributed across each region. So where is the pickup coming from, region by region, and how much of it is just a structural ceiling?
Yeah. I think Chile is a thinner market in terms of margins than the rest, Peru to some extent. But I think what you will see in the course of the five-year plan is that the change of the mix of business that we'll do will generate higher returns by definition. For example, our concentration on our mortgage portfolio in Chile is 77%. So 70% of my exposure in retail Chile is mortgages. Mortgages in the context of a monoline, because I haven't really been able to penetrate those relationships beyond mortgages. So that, by definition, is generating lower returns than if I were to deploy that same amount of RWA in primary relationships that are multi-product. Peru has less of a share of mortgages, but a higher share of payroll loans. Payroll loans, very low risk, very narrow returns.
Right? Very hard to grow, sell, be so beyond that, too. So what you will see is on the top line aspect and returns, our business mix is driving a ceiling on returns, and that's what this, over time, will change. The other element that we bring to the table is a higher cost to serve. Because the way we are deployed, when you put on top of our full deployment in country, plus the cost of bringing the oversight from Canada to a higher regulatory standard and a higher control standard, well, you're even rendering yourself competitive in some of the segments that we're working for. So in my view, the power of this value creation journey is by changing the business mix and changing the operating model, you can generate significantly higher returns, even within a restricted macro environment.
That comes to what clients do you onboard, how do you onboard them, what are the value propositions you put in front of them? All of that will generate a completely different dynamic when it comes to serving these clients.
Great. Thank you, Francisco. Frank, thank you, Jake. Scott's gonna join us now, with Phil and Raj, if there are any final all-bank questions, before Scott closes us out for the day here. Oh, here's Gabe.
Yeah.
Yes, yes, Gabe.
Just a quick one, 'cause of, you know, the Fed commentary today. Can you remind me, you got marginal earnings growth, you know, messaging for 2024 and then 5-7 2025. What are your rate cut expectations on under that?
Comments, the comments today were helpful.
They were. Oh, yeah, yeah, yeah. Oh, yeah, that's what I'm getting at.
What we have built in the models today, Gabe, 2 rate cuts in Canada, Q3, Q4-
Mm-hmm.
3 rate cuts in the U.S., so exactly what the Fed has announced in 2024, and then a further 4 rate cuts in the U.S., and 4 rate cuts in Canada in 2025.
4 and 4 in 2025?
That's correct. So bringing it down to 3.5% from 5% in Canada and 5.5% in the US. So it's very consistent with what the market is expecting, and I think that's quite conservative, and we've left it at 3.5% for the remaining period, through to 2028.
Thank you.
Great. Okay. Anything else to finish up at the all-bank level? Any other questions in the room? Okay, great. We'll hand it to Scott. Just a reminder, we do have a reception, hors d'oeuvres and drinks on your way out. Hope you will certainly stay and join us for that. Back to you, Scott.
Thanks, John. Well, first, I wanna thank the Scotiabankers across the global footprint who are delivering against our vision to be our clients' most trusted financial partner. And for those in the room, I don't think you appreciate there's 6,000 Scotiabankers listening today, which is, I think, a comment on the conviction, the enthusiasm, the passion that the 90,000 Scotiabankers have for this bank. And to all of you listening and all of you at the bank, just thank you for your conviction, your commitment, and your passion to our success. Today has been a significant moment for us as a bank and as a senior leadership team as we shared our new strategy with you. This has been the culmination of nearly a year of intensive collaboration across the bank to better understand our business and unpack the many opportunities ahead of us.
Through this work, it has become clear to me that we have a unique opportunity at Scotiabank. The New Way Forward will see us build the preeminent financial institution in North America. We plan to do that in a deliberate and thoughtful way, and in a way that results in higher returns for all of our shareholders. As I said at the beginning of the day, execution will be key, and the how will be as important as the why. With our vision and pillars as our guide, I am confident in our ability to execute and to drive profitable and sustainable growth. Today, we embark on an important journey for the bank. A journey that we'll all reflect on ten years from now as the defining moment that will change the bank's course for the future.
The beginning of an upwards trajectory that will see Scotiabank drive the profitable and sustainable growth that our clients, employees, and shareholders deserve. The future starts now. Thank you very much, and look forward to seeing you at the reception.