Warm welcome to everyone here in warm and sunny Santiago, Chile, and to those joining us on our webcast around the world. My name is Phil Thomas. I'm the Head of Investor Relations for Scotiabank. On behalf of our entire management team, we're very excited to have you here in Chile, and we appreciate you taking the time to travel such a long distance for this event, and we certainly appreciate your support. Before we begin, I want to briefly introduce our program and note a program change. The Minister of Finance will be presenting tomorrow morning. We'll have a minor change in the order of our program. Dan Rees of Canadian Banking will be giving his presentation this afternoon.
Please note that we'll be running the program continuously, which means that the scheduled times in the agenda are approximate, with the exception of start times at the beginning of the morning or afternoon programs, or after breaks. If we are ahead of schedule during the course of the program, we will simply continue. Over the course of the next day and a half, you'll be hearing from 22 speakers covering all major divisions of the bank, our major corporate functions, and importantly, our six core markets. Our program has been designed with three components. The first is context. We'll be providing economic, market, and financial information as context for the presentations which will follow. The second is strategy. We will be presenting detailed explanations of the growth strategies of each of our major business lines and core markets.
These will include greater detail on our businesses, their focus areas of growth, and their medium-term objectives. Lastly is insight. Throughout the course of the event, we'll hope to provide further insight into all of our business, including our core markets in the Pacific Alliance countries, with presentations from the Minister of Finance for Chile, and for those of you with us in person in Santiago, a round table this evening featuring leading CEOs from the Pacific Alliance countries. Our goal at the end of the event is for you to have a more complete appreciation of our core markets, their growth opportunities, our competitive position, and consequently, a fuller understanding of the earnings power of the repositioned Scotiabank for 2020, 2021, and beyond. Before we begin, I would like to provide our caution regarding forward-looking financial information and statements, which appears on the screen in front of us here.
With that, I'd like to introduce Scotiabank's President and Chief Executive Officer, Mr. Brian Porter.
Good afternoon, everyone. I wanted to echo Phil's welcome and extend my thanks to each of you for joining us in person and via webcast. It's great to be here in Santiago, and the city looks fabulous. It's a visible demonstration of Chile's resilience. Special thanks to Chile's Minister of Finance, Mr. Ignacio Briones, for joining us at Investor Day tomorrow. Over the next day and a half, you will hear from many of our leaders who are responsible for executing the bank's growth strategy. All of our sessions will provide you with important updates on our progress to date and our growth opportunities. The underlying message from each presentation is the same: We are operating from a position of strength, and we have significant opportunities for growth. In Canadian Banking, we are improving our business mix.
We are also enhancing our products, our digital banking platform, and our branch network. Our Global Wealth Management business is well-positioned to grow in Canada and across our Americas footprint. Our repositioned Global Banking and Markets business line has experienced strong growth here in Latin America, with further growth opportunities across the United States. Our International Banking continues to deliver an outstanding performance, benefiting from stronger economic growth fundamentals of the Pacific Alliance region. It's worth noting when we held our International Banking Investor Day in Mexico City in 2016, just four years ago, International Banking's net income was CAD 2.1 billion. Today, that figure is CAD 3.2 billion, an increase of 52%.
Our scale and competitive advantages in each of our core six markets, Canada, the United States, and the Pacific Alliance countries of Mexico, Peru, Chile, and Colombia, is a culmination of years of disciplined focus and frankly, heavy lifting. Taken together, we are confident in our future as a leading bank of the Americas. There are three main principles that unite our leadership team and guide our efforts. Firstly, our focus. We are clearly focused on our six core markets here in the Americas. Secondly, our customers. We are committed to understanding our customers' expectations and creating a more personalized banking experience. Thirdly, our team. We built a winning team, and you will see the quality and depth of our leaders over the course of the next two days.
I want to begin with our focus on the Americas because the changes we have made to simplify our footprint and operations have been substantial. Six years ago, the bank operated in more than 55 countries. Today, we are considerably more focused. Our six core markets represent 85% of our earnings. If you include our refocused Caribbean and Central American operations, that number rises to 95%. Our focus footprint is a strategic differentiator, and we are uniquely positioned as a hemispheric bank. We are the only bank with a significant presence in Canada, the U.S., Mexico, Peru, Chile, and Colombia. These are high-quality, stable democracies with strong institutions, open economies, and importantly, free trade agreements, which are essential to their long-term growth and prosperity. With regard to the U.S., unlike many of our competitors, we are not in the crowded P&C banking business.
Our Americas footprint provides optionality for capital deployment, as well as diversification in markets with a higher return on equity. Looking at the slide behind me, you can see the Pacific Alliance countries and Canada are delivering a much higher ROE for their banking sectors than the United States, Asia, and Europe. These numbers illustrate that we have chosen our core markets well. In the Pacific Alliance countries, the middle class is expanding and thriving, and the standard of living is rising rapidly. As you can see on the slide behind me, this is driving significant growth in consumption, which is helping to fuel economic growth. Compared to Canada and other advanced economies, consumption is a much more important driver of growth in the Pacific Alliance countries. Further, as consumption grows, the demand for banking services also grows.
Today in the Pacific Alliance, only half the population of 225 million people has a bank account, creating huge opportunities for growth. The transformation that has taken place in the region is one of the greatest success stories of the modern era, with tens of millions of people having been lifted out of poverty. Here in Chile, poverty has fallen from 40% of the population in 1990, with the end of military rule, to approximately 8% today. That's not to say there haven't been bumps along the road, but as Nacho Deschamps will discuss tomorrow, the Pacific Alliance countries have demonstrated that they are inherently resilient. The growth and long-term attractiveness of the region is undiminished by one-off events or negative headlines. We have a long history and proven track record of earning through short-term challenges to produce long-term results.
We have achieved significant scale in each of our core markets. As the slide beside me shows, we have considerable room to grow. In banking today, scale is critical to enhancing profitability, driving growth, and indeed, creating efficiencies. When a bank has scale, it can invest consistently, diversify appropriately, and grow. Tomorrow, Francisco Sardón, our country head here in Chile, and Miguel Uccelli, our country head in Peru, will provide examples of how we have leveraged scale to drive returns. Chile is a perfect example of a market where we have increased our scale and improved ROE while diversifying. Six years ago, we failed to cover all market segments and weren't delivering a full set of products to our customers. As such, our ROE was stuck in low single digits. In 2015, we acquired the credit card business from Cencosud, one of Latin America's largest retailers.
That transaction made us a much more competitive buyer when BBVA Chile came up for sale a few years later. Through prudent management and increased scale, we have driven down our productivity ratio and tripled our return on equity. This is our template. We see further opportunities to grow and drive greater returns across each of our core markets. Maintaining our focus on the Americas has had other critically important benefits, including higher quality earnings and lower operational and credit risk. Tomorrow, Daniel Moore, our Chief Risk Officer, will speak in greater detail about the bank's risk culture and profile and how we successfully combine global oversight with local strength. For now, let me say that our decision to exit certain jurisdictions and businesses was not only necessary, it was the right thing to do. In some instances, we lacked scale.
The markets may have been too small, or they had unfavorable operating environments. Among the entities we divested or exited, the average credit loss ratios were meaningfully higher and more volatile than the all-bank ratio. Take Puerto Rico and El Salvador, for instance. By exiting these two jurisdictions, which represent 0.3% of our assets, we reduced the bank's gross impaired loans by 10%. Our risk profile was also improved by exiting other high-risk jurisdictions such as Egypt, Haiti, Turkey, and Russia. At the same time, we thoughtfully redeployed CAD 9 billion in our core markets. We moved capital from low or shrinking growth, low return P&C markets into higher growth, higher return P&C and wealth management businesses. We are confident that our divestitures and acquisitions have positioned the bank for a better future. Moving on to our enhanced business mix.
Global wealth management is a critically important business where we are focusing on growth. As you will hear from Glen Gowland tomorrow, since 2014, assets under management have doubled for the bank. We now have acquired scale and products to further build our wealth management businesses throughout the Pacific Alliance markets. Our recent decision to report wealth management as an independent business line reflects the greater breadth of our business, as well as our confidence in our ability to grow it. In fact, in the near future, we are targeting our wealth management businesses to generate approximately 15% of the bank's overall earnings. We are very pleased with the performance of our three big acquisitions, Jarislowsky Fraser, MD Financial, and BBVA Chile. They have generated earnings and delivered cost and revenue synergies in line with our expectations while profitably growing market share.
Later today, Raj Viswanathan will be providing additional commentary on our targeted business mix and the financial impact of our acquisitions and divestitures. As I noted at the beginning of my remarks, the second principle guiding us on our journey to build a better, more focused bank has been our unwavering commitment to our customers. Our significant technology investments have enabled us to better manage data and develop a deeper understanding of our customers' expectations and their financial goals. A good example is our network of digital factories. Today, we have five digital factories in our core markets, including here in Santiago. The talented teams in Toronto, Santiago, Lima, Bogotá, and Mexico City continuously collaborate with one another, sharing best practices and new innovations.
They are developing software that our customers want to use and providing them with experiences tailored to their local market, as you will see in our technology demonstrations tomorrow. Everywhere we operate, digital and mobile banking is growing quickly. We aspire to be the best in this space and offer a great experience to our customers. Just last year, we were recognized in Canada for having the top banking app in the J.D. Power Mobile App study. While we are proud of this recognition, for our investments in technology to be truly successful, they must pay financial dividends. As Shawn Rose and Michael Zerbs will explain tomorrow, our technology strategy is focused on business impact. Put another way, it must deliver lower unit costs, a better customer experience, and faster service. The best evidence of a digital dividend is satisfied customers and a lower productivity ratio.
You will see several examples of our digital dividend during your time here in Chile. Building a winning team is a third and most important guiding principle. I believe a strategy is only as good as the team that's implementing it. In recent years, we have made a considerable effort to cultivate and develop our people while attracting a number of industry leaders to the bank. From my perspective, our team is stronger than it has ever been. It is well-aligned and brings energy, confidence, and commitment to delivering high quality, consistent, and predictable earnings to our shareholders. Over the course of your time in Chile, we will be showcasing many of our business leaders, some of whom will be newer faces and others you will know well. Here in the Pacific Alliance countries, we have a strong team with a very deep knowledge of their respective markets.
Francisco Sardón leads our Chilean business. He and his team have done a tremendous job integrating Scotiabank and BBVA Chile, and today we are running the third largest private bank in the country. Miguel Uccelli has overseen the terrific growth of our Peruvian operations to become a market leader. Adrián Otero, who joined us from BBVA, has managed the significant upgrades to our core banking system in Mexico and driven important growth in our capital markets business. Lastly, Jaime Upegui leads our business in Colombia, a country of almost 50 million people where we see tremendous potential for growth over the medium and longer term. You have been generous with your time and attention, so let me close with this.
At our International Banking Investor Day four years ago in Mexico City, we made a number of bold commitments. In almost every case, we have met or significantly exceeded the commitments we made. While we still have work to do, we are pleased with the progress we've made. We have radically simplified the bank's operations, removed distractions, and focused on the Americas. Today, we are a highly competitive player in each of our core markets with multiple avenues for growth. Execution has required alignment and discipline. I'm very proud of the leaders who have executed on our key priorities. Over the course of the next two days, our team will be updating you on our medium-term objectives. We are confident that our investor day, in four years' time, we will be able to demonstrate the same degree of success. Let me once again thank you for being here.
We hope you enjoy your time in Chile. Thank you.
Thank you very much, Brian. We'll now move on to the next part of our program, which is the economic outlook and the implications for banking. This is meant to provide a context on the presentations which follow. We'll be introducing two speakers. The first is Jean-François Perrault, who is the Chief Economist for Scotiabank, and the second is Mr. Jorge Selaive, who is the Chief Economist for Chile. JF?
Thanks, Phil. Thanks very much for being here. As Phil indicated, we're going to try and provide you a little bit of context for our operations in the region and globally, and hopefully you'll come out of this with a pretty good understanding of how important this market is for Scotia. In fact, for any bank, given how dynamic it is and how important a source of economic activity it is. To do that, we're going to spend a bit of time walking you through our core markets, talking about our key macroeconomic views, and hopefully provide you some degree of comfort about the environment that we're operating in.
At a very high level, 10,000 ft, key features are of our view, we don't think a recession is likely, whether that's in the U.S., whether it's in Canada or other parts of the world. That is behind us. We think Canadian fundamentals remain pretty solid, and I'll explain why that is, especially compared to our peers in the Pacific Alliance. This is a very large market, will continue to grow much more rapidly than advanced economies while continuing to demonstrate the resilience shown over the last decade. With the rapidly growing middle class, as Brian indicated, and generally underbanked population, the alliance represents tremendous opportunity from a banking perspective. From an investor perspective, one of the dominant questions over the last year is whether or not there's going to be a recession, what that means for interest rates.
Are we going to go in a negative interest rate world? What are the fundamental worries and causes of a recession? Most of that is explained by the chart you see here. For the last 18 months or so, the dominant question facing investors has been: Where is U.S. trade policy going? What does that mean for the world? How damaging is that? What's the end game? As you can see from this chart, last fall, there was a very significant increase in uncertainty, led by some disillusionment with respect to whether or not the U.S. and China were going to have a trade deal. That disillusionment, that increase in uncertainty led to an inversion of the curve, let people start thinking about a recession, increasingly pricing a recession. In our view then, and our view now is, those worries were overblown.
That it was clear from the very beginning that Trump and the Chinese were going to get a deal at some point, that the increased uncertainty we saw over the last year was an overreaction to some real-time negotiating on part of both countries, and the reality has been that we have seen since last fall, a very significant fall in uncertainty. Remains high, but a very significant fall in uncertainty. As we saw over the last week or so, a proof point is the China and the Americans have, in fact, agreed to a phase one trade deal, a very significant marker. That uncertainty, though, comes at a cost. Clearly, it increases odds of recession. I'll show you a chart in a couple of seconds on that.
Also, there is very tangible evidence that the uncertainty that we've seen has reduced economic activity in the U.S., Canada, and the rest of the world. By our estimates, U.S. activity is about three quarters of a percentage point lower in the current quarter relative to what would've been the case had there not been some uncertainty. In Canada, it's about a half a percentage point. These are very significant impacts. It means in part that as this uncertainty gets unwound, you can expect to see some of that recover. On the next chart, this is kind of a concrete demonstration of what this uncertainty has led to. Recession probability models, as you've seen here, they're all the rage now. They're based on the yield curve.
These are things that help you predict whether or not there's going to be a recession, and they're based on the yield curve. Yield curve is a very powerful indicator of future economic activity. With the uncertainty that occurred last year on the trade side, we saw an inversion of the yield curve that led to, among other things, folks pricing in the probability of a recession. The chart on the left is a measure of recession probability comes out of the U.S. In fact, it's calculated by the U.S. Federal Reserve, largely based on the U.S. yield curve. That suggests right now that odds of recession are about 20% in the U.S. Pretty low. Even at that level, we think those odds are exaggerated. They're exaggerated for the following reasons. Not inversions of the yield curves are the same, right?
An inversion of the curve that occurs because there's a small movement in long-term treasuries is not the same as movements in the yield curve in the past that were much more significant in terms of their amplitude and the reduction in long-term interest rates, which is generally the kind of movements that we've seen that have led to inversions. We're not in that world now. At the same time, yield curve inversions that were prompted by a very significant increase in short-term interest rates are clearly not the environment that we're in now, where the Fed increased interest rates relatively modestly over the last, well, they've stopped, but over the last couple of years. Even the curve inversion that we saw last year is atypical from a historical perspective.
That leads us to believe that even this signal, even this 20% signal coming from these models is an exaggeration. In the Canadian context, it's much the same. The model on the right is the probability of recession in Canada, which we calculate in-house. It's based on the probability of recession in the U.S. It's based on the Canadian yield curve. It's also based on consumer confidence in Canada. That model indicates about a 25% chance of recession in Canada. Again, as in the U.S., we think that's exaggerated. Importantly, when you think about it from a fundamentals perspective, and this is true in Canada and the U.S., there are no significant macroeconomic imbalances that need to be worked out, which is typically a driver of recession, right? You go into a recession, there's a problem needs to be addressed.
That's not the case in the U.S., and it's not the case in Canada right now. Moreover, from a Canadian perspective, there has never been a recession in Canada without there being one in the U.S. first. Now, I should add that we spend a tremendous amount of energy on the empirical side. Since I've started at the bank four years ago, we invested heavily on the empirical capabilities of the economics team. I toot our own horn. I think we have the best kind of modeling ability on the street, certainly in Toronto. That's paid off in a number of ways. It's paid off in terms of our ability to come up with these models, but it's paid off, for instance, a little more recently, in 2017, for instance, where we were identified by Focus Economics as the best forecaster globally for U.S. interest rates.
That's a survey done of about 1,000 global banks by Focus. It's a pretty comprehensive thing. Just one of the demonstrations of our ability on the economics side. Let me switch to the rate environment. We don't think dramatic cuts are necessary. Obviously, if we don't think a recession, we don't think rates are going to go down that much. We certainly don't think we're going to go down to negative rate territory. We do think rates are going to go down a little bit more. In the U.S., we anticipate 25 basis points more of easing by the summer. That's essentially because U.S. inflation is still running a little bit below the Fed's objective. They need a little bit more of a monetary boost to get it there. It's basically fine-tuning. From a Canadian perspective, things are a little bit more complicated.
Canadian growth remains solid. We've been going through a weak patch in the fourth quarter. There's no question about that. Growth was about zero. There's a bunch of special factors that account for that, but the Canadian economy has slowed in the fourth quarter, which means downward pressures on inflation are a little bit stronger than we would've thought six months ago. Of course, risks to the global outlook remain, whether they're U.S.-based, foreign based, they apply to Canada just as much as everybody else. As a result of that, we do think the Bank of Canada has got a little bit of easing left to do, 50 basis points by the end of the summer.
Bank of Canada just released a monetary policy report this morning, which kind of nudged things in our direction, thankfully, because we have been a bit of an outlier on that for some time. Now, it's not to say, one of the challenges over the last year, certainly from an analyst perspective thinking about banks, there have been a lot of questions as to where rates are going to go. In a recession world, are we talking about negative rates in the U.S.? Are we talking about negative rates in Canada? As you know, there are negative rates in large parts of the advanced world. We don't think that's likely at all. Obviously, the conjuncture doesn't merit it at this point in time, but even if it were to merit it, Canadian policy and Canadian U.S. policymakers think about monetary and fiscal policy very differently than they do in Europe.
In Europe, for the last 10 years, they basically been running very tight fiscal policy. Overly tight fiscal policy that's led the central bank to accommodate that and run excessively loose monetary policy. The U.S. is clearly not running a very tight fiscal policy. In Canada, we have a tremendous amount of space on the fiscal policy side to do something if needed. Both Powell at the Fed and Poloz at the Bank of Canada have indicated pretty clearly that they see a lot of downside to moving forward with negative rates. That, in fact, fiscal policy is going to be the main lever to manage a recession if there is one. The negative rate issue from our perspective is very much off the table.
Switching to the growth outlook, this is likely the most important chart for understanding how things are going in Canada relative to everybody else. It's very much underplayed, but it points to a very specific and peculiar Canadian dynamic, which is population growth in Canada is extremely strong. Population growth in 2019 is as strong as it's been in 30 years. You can see from this chart that our population growth has been accelerating since 2015, whereas it's been on a downward trend for every other advanced economy. Right. To put this in context, relative to the U.S. in 2019, Canadian population growth is three times that of the U.S. That's a fantastic accomplishment. What's even more impressive from that perspective is for the last 20, 25 years, one of the key challenges policymakers in advanced economies have been dealing with is population aging.
Along with that, what's going to happen to the economy when population growth slows as folks get older? That remains a key policy challenge for most countries. It is becoming less and less of a challenge for Canada. One of the very direct consequences of this very strong population growth is you have these folks are coming into the country. It is largely immigration. Coming into the country, they are employed, they buy goods, they borrow, and they buy homes. 60% of immigrants in Canada are homeowners. As a result of what we call this human stimulus, our economy has been doing very well. If we can switch sides, please. The country is experiencing phenomenal job growth. 2019, we created 320,000 jobs. The second highest since 2007. Best labor market in generations. Again, a little bit of a point of reference here.
If we compare that to the U.S., where in the U.S., there were 2.1 million jobs created last year. President Trump talks about this as a miraculous achievement, which actually, it's not a bad achievement. You scale it at 320,000 U.S. levels, we're about 3 million jobs created. Just to give you an indication of how strong the labor market's been in Canada. Despite the strength, there are about 560,000 vacancies in Canada right now. Almost record levels. Firms are looking for people. The number one challenge, the number one constraint on business activity in Canada right now, and actually it's been true for the last eight or so months, is lack of available workers. That's the number one thing firms complain about. Can't find enough workers. Obviously, these workers, this strength in the labor market is leading to wage increases.
Wages are rising about the highest pace in about 10 years. That's fantastic. It means that labor income is rising pretty strongly. It means that confidence is high, and it means that folks have got money to spend. The rise in population growth, along with strong employment, along with the labor income increases, along with the fall in long-term interest rates that we've seen over the last 18 months or so, has led to a very significant rebound in the Canadian housing market. The first part of 2019 wasn't all that great. It was policy-induced slowness. A number of measures were put in place at the federal, provincial, and municipal levels to try and cool the housing market. That worked. The market has roared back in the second part of last year.
We think it's going to keep going, and it's going to keep going for a very simple reason. The housing market in Canada remains undersupplied. There aren't enough homes for the amount of people in the country. With population growth accelerating, builders are not able to keep up. They're not able to keep up for a bunch of reasons. Labor constraints on one side, but provincial and municipal regulations, which make the development of housing a little bit harder. As long as there's this dynamic where supply growth is faster, sorry, population growth is faster than supply growth, you're going to have a very robust and active housing market in Canada. The downside risks are pretty low.
From a headline perspective, and perhaps from your perspective, a key element of the policy debate or the popular debate over the last year or so has been household debt in Canada. As you can see from this chart, it's about 170% of income. It's close to a record high. It's important to have a bit of perspective on that. This is not as bad as people make it out to be. First, if you look at the bottom chart and you go back five years or 10 years, 15 years, at any one of those points in time, you would've said household debt's at the highest level in history is a problem. Clearly, that wasn't the case.
More importantly and more fundamentally, when assessing the strength of households, and you guys know this, you're bank analysts, and we're bankers, we don't just look at the liability side. We look at the balance sheet. You get a very different story. While debt to income for households is 170% in Canada, household net worth income is 850%. The increase in household net worth from 2010 to now is greater than the current stock of household debt in Canada. With these strong balance sheets, it's enabled households to manage, for instance, the rise in debt and the rise in debt service costs associated with that pretty well. Debt service costs in Canada are about 15% of income, highest level on record. Chart on the right suggests that's not a problem at all. Default rates on various types of financial instruments are basically at historical lows.
That is proof of the resilience of households. Now, to recap before passing this over to Jorge, the main risk of the outlook in our mind remains trade uncertainty. That's going to be a feature of the Trump presidency. You can't get around that. We do think, however, the market-based measures of recessions are significantly overestimating the risk of a downturn. We do think negative rates are unlikely, even though rates are going to come down a little bit more in Canada and the U.S. The Canadian consumer households remain resilient, and Canadian growth is expected to remain reasonably solid as we go from here to the next contraction in a number of years, certainly not imminently. With that, I'll pass it over to Jorge, and we'll be on stage for some questions and answers after that. Thank you.
Thank you for giving us the opportunity to speak to you about the Pacific Alliance. This part of representation will take to the attractiveness of the block, the previous economic and financial performance, how we see the future, and finally, the economic resilience to external shocks of this group of countries. The Pacific Alliance, formed by Mexico, Peru, Chile, and Colombia, is a group of countries that decided in April 2011 to increase economic and financial ties. These countries wanted to become a platform for world trade integration. It constitutes a group of 225 million people and a GDP of about CAD 4.25 trillion, twice the size of Canada's and a quarter of U.S. They share several attractive aspects for foreign investment, such as relatively consolidated inflation targeting regimes, floating exchange rate regimes, increasing financial openness, independent central banks, stable currencies, and fiscal responsibility. More importantly, they have mature democracies.
Additionally, when it comes to doing business, these economies not only share similar institutions in the process of improvement, but also share the same language and legal similarities. Following the social unrest and political crisis in Chile, and with lower intensity in other Pacific Alliance countries, a series of political and social measures have been taken by the governments, all of them with the intention of improving the welfare of the less favored social classes. In the case of Chile, a new pension reform that will increase minimum pension by 50%, and also a new constitution that will represent the interests of a large majority. In Peru, universal access to healthcare, availability of medicine, and a national plan of infrastructure and competitiveness were announced by the government. In Colombia, a tax reform, and in Mexico, an anti-corruption agenda.
We believe these measures will contribute to a better and more fruitful economic environment by achieving social peace and less inequality. Is less inequality an ingredient for growth, and because of that, for a robust and solid growth of the banking sector? The most common indicator for measuring income inequality is the Gini coefficient, for which the lower the coefficient, the more equal is the income distribution in a country. Just as a reference, the Gini coefficient is around 31 for Canada, and it is above 40 for all Pacific Alliance countries. On your left-hand side, you see the relationship between inequality and GDP per capita for a large group of countries, cross-section of the last five years of available data. Clearly, countries with better income distribution are also countries with higher per capita income.
That only proves that such a relationship exists, but not necessarily a virtuous circle between more equality and per capita income. Is it a good public policy to foster less income inequality for economic growth? On your right-hand side, you see the growth in per capita GDP and the change in income inequality, taking data for the last 20 years. What we see there is that countries that were able to lower inequality were also countries that experienced better economic performance. In fact, almost 70% of the countries are in a virtuous circle of growth and income distribution. Moreover, a gain of one point of better income distribution is associated with 1.5 percentage point of additional GDP per capita. In the previous context, we are certain that the structural reforms intended to improve income distribution will also benefit economic growth and consequently, the banking industry in the Pacific Alliance.
The Pacific Alliance is the sixth largest economy in the world. It is true that among the Pacific Alliance countries, there are important differences that also become opportunities. As a whole, they position themselves better than many other emerging economies. One aspect that is relevant to the banking sector is economic growth. Taking consensus expectations, each of the Pacific Alliance countries is among those expected to have the best economic performance during the next years after China. In fact, the Pacific Alliance is the fifth on the list of contributors to economic growth during the next five years. These countries have low household debt compared to their respective GDP per capita, with the capacity to grow to the levels observed in developed economies like U.S. or Canada. Moreover, their levels of public debt are controlled and in better position relative to other emerging economies or OECD countries.
This creates attractive prospect for foreign investment and public infrastructure. It is not coincidence that their credit ratings over the years have improved in line with advances in their economic and social indicators. In contrast, other developing economies have seen deterioration and volatility in their creditworthiness. Concerning their economic structure, the service sector still has a lower share of GDP in these economies compared to the U.S. or Canada, and it is reasonable to expect it to grow over time as the economies mature. Mostly developed economies receive these goods, with North America receiving a significant proportion. We see ample room for growth in manufacturing export and diversification that should come along with the recent signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP, by Canada, Chile, Mexico, and Peru. The Pacific Alliance countries are mainly commodity exporters striving to become developed economies.
Mexico has a diverse portfolio of exports, whereas Chile, Colombia, and Peru have one resource constituting at least 50% of their exports. Mexico has the advantage of being more integrated with global supply chains. As a bloc, however, these economies have a reasonably diversified portfolio of exports. The role of investment, particularly foreign direct investment, is regarded as one of the most important contributors to economic growth. The past quarter-century has witnessed remarkable growth in FDI flows all over the world. This is due to the fact that many countries, especially developing economies, see FDI as an important element in their overall strategy for economic development. The Pacific Alliance receives a lot of foreign investment from the developed world, in particular from the U.S. and Canada.
Renewable energy is attracting increasing amounts of foreign investment and is turning the region into a more sustainable hub, while automotive has been a key sector in manufacturing. Their competitiveness in services shows good prospects, which is also reflected in a large share of FDI coming into the service economy. That is thanks to the growing human capital, better infrastructure, and logistics. One of the main concerns about these economies refers to the current account deficits. First, we need to understand that as strong, permanent receivers of foreign investment in their respective primary sectors, these economies are able to sustain long-run current account deficits. Second, all of these economies have deficits at sustainable levels.
Moreover, when we see the share of the current account deficit financed by FDI, which is considered by all measures the most stable and economy-fostering investment, we observe a better position with respect to other emerging markets. We can see in the graph all Pacific Alliance countries have enjoyed stable and permanent inflow of FDI that has more than financed their respective current account deficit during the last 10 years, being Chile the most remarkable case. One characteristic of this group of economies is their openness to world markets. These are economies connected to financial markets with growing external trade. They have more free trade agreements than the Mercosur, conformed by Brazil, Argentina, Uruguay, and Paraguay, and during the last 10 years have continued expanding their free trade agreement with some quite significantly, such as Peru and Colombia.
Additionally, a high share of their exports goes to the big global economies, we see opportunity for portfolio diversification. The Pacific Alliance has improved its financial risk measures. Its credit default swaps have decreased notably over the past decade, signaling a better valuation in international markets and better access to debt. The correlation of CDS spreads of Pacific Alliance countries against those of emerging markets in a long-term perspective shows investors have differentiated and rewarded the strong PAC fundamentals over other economies. The Pacific Alliance countries have transformed in a hedge against other emerging markets economies based on their better economic resilience. An attractive middle class looks set to continue expanding.
Despite the fact that the size of middle class in the bloc is much smaller than that of Canada or U.S., and even with respect to other emerging markets, which are very influenced by European countries, it has been expanding considerably during the last decade. This can be seen by the average income held by the middle class and the CAGR during the last 10 years. We are witnessing a continuous and permanent enlargement of a richer middle class in the Pacific Alliance with respect to other emerging economies. This bloc of 225 million consumer is and should be firmly in our radar. The internet has grown to be a significant part of our lives. It is impossible to imagine a world without instantaneous access to information. This also applies to the banking industry, which is more and more connected and dependent on internet connectivity.
In this sense, Pacific Alliance countries still have room for growth. The use of digital and online banking is still low, excluding Chile, but the significant rise of technology in banking services in the Pacific Alliance shows an opportunity exists there. Technology, in conjunction with a more educated population, will contribute to the growth of the banking industry. Demographics is another factor that works in the Pacific Alliance favor. The bloc has 45 million people currently aged under 14 years old, close to 24% of the population, which over the coming decade will emerge as a significant consumer group. The Pacific Alliance median age is lower than other developed economies and almost 30% lower than Canada's in fact. In fact, Pacific Alliance countries have observed much more population growth versus the developed economies over the past few years.
There is ample space to increase labor participation, which also represent a great opportunity for banking penetration. In fact some of these countries are undertaking reforms in that regard. Labor participation averages 72% in these youthful countries, whose population will grow during the next 20 years, about 20% more than Canada's. As I said, there is plenty of room for growth in banking services. It is interesting to note that Chile, which has the deepest credit market in the region, is also the country with the highest number of accounts at financial institutions among the Pacific Alliance region. This also explains why Chile has the highest credit card ownership among this group of countries. The Pacific Alliance as a whole is still far behind Canada and the U.S. in the use of these cards, which represents a big opportunity for credit card providers to expand in these countries.
Banks have supported the growth of the service economy and the acquisition of durable goods. We anticipate that it will continue on in the foreseeable future. All this happens in a context where we observe ample space to grow in private credit. In fact, total credit as a percentage of GDP is at healthy levels in the Pacific Alliance, but is still far behind developed economies, which represents an opportunity for increased banking penetration. One of the favorite measures to evaluate growth opportunity for the banking industry is the potential of long-run GDP growth. As you can see, each country is among the top countries in terms of long-term growth in a stable and consolidated economic environment, with an average potential GDP around two times greater than that of the developed world. That is the case of the Pacific Alliance countries and also for other Latin and Caribbean economies.
The recent social unrest observed in Chile shouldn't change this. To sum it up, the Pacific Alliance has huge potential for economic development due to several features that make it a very attractive block for the banking industry. It has had a healthy long-run macroeconomic performance. Its indicators show persistent improvement in well-being. It compares favorably to other developing economies and has demonstrated solid macro and financial improvement in recent years. All these aspects represent ample space for growth in banking services, which in turn is a great opportunity for Scotiabank to capture market share in the region. Thank you.
Okay, we have a little bit of time now for Q&A, if there is any. For the benefit of the people tuning in on the webcast, if there is questions in the room, if you could ask your question, I will repeat it, so those people on the phone or listening over the internet can hear the question, and we can happily have them addressed to either J.F. or Jorge.
Just one.
Yeah.
In every case, the Pacific Alliance countries growth for the next five years is projected to be better than the last 10. How much of that is commodity-based improvements? If the commodity outlook is the same as it's been for the last several years, does that mean the growth is going to look more like the past than what the projection suggests?
Okay, the question related to the outlook for the growth in the Pacific Alliance countries relative to historical growth, and whether that is being driven by an improvement in commodity prices, or whether there are other factors at work in driving that growth.
In our baseline scenario, we are not assuming or considering a strong recovery of commodity prices, oil prices, or copper prices, or the same levels you observed during the previous decade. In the case of copper, our baseline scenario considers our copper price slightly above the current level. Our driver of recovery is basically structural reforms and a continued development in the middle class of these economies. It's not based on an assumption on commodity prices.
Hi, Gabriel Dechaine, National Bank. You had one slide with a list of reforms in each of the Pacific Alliance countries. Can you maybe flag a few that you're excited about that might have potential to help the business, and why? Thanks.
Well, if you see all the reforms in the Pacific Alliance countries, all the reforms are intended to increase the income of the middle class. A pension reform, an increase in the minimum wage. Pensions are intended to improve healthcare, education quality, free education. All of these reforms are social reforms that we are convinced that will enlarge the middle class. By doing that, we consider, under our scenario, will improve our scenario for the banking industry.
Hello. Those reforms, I assume, cost money so the debt-to-GDP ratios are going to change.
Yeah
In a few years, and nothing to an alarming level, I don't think?
If you see the level of debt of Peru over GDP, 23%. If you see the level of sovereign debt in the case of Chile, over GDP, 27%. If you compare that with the average of the country, we have plenty of space to increase debt. Of course, we are going to run fiscal deficits during the coming years. We don't see risk to the sovereign debt. You can check that as well if you see the credit default swap of these economies. The highest credit default swap is 79 points, 79 basis points for the case of Peru. We have low CDS, as in the case of Peru and Chile, 44 basis points.
Okay, we have some mic runners, so if you have a question then they can pass the mic around.
Hi. Mine is for Jean-François. You had a slide talking about Canadian households' balance sheets being in better shape than is often discussed. A lot of us have spent some time in the last few months asking about looking at the uptick in consumer insolvencies in Canada, which seems to be at odds with what we've seen.
Yeah
On the unemployment front. Maybe we'll shift it over to you from an economics perspective. What do you think is responsible for that increase, and does it eventually make its way into the credit metrics of the banks on the consumer front?
Well, a couple of things. These insolvency measures are real time, right? They're measured. By that I mean there isn't a lag between when they're reported and when banks see them hit, in a sense. Right? There is no question the puzzle of why these things are going up as fast as they are, and it's not really showing up in any of the data. Right? It either speaks to the small magnitude of these things on average, or it speaks to some issue with the statistics. Now, in terms of why they're going up as fast as they are, for sure, debt service costs are high in Canada, at their highest level ever. They're not problematically high, but they're high.
That's created an environment in Canada where as you know every week, every couple of weeks, there's a headline somewhere in one of the papers talking about financial stress or a survey that was released by some debt workout firm talking about how consumers have CAD 20 or less to spend on various things. We think a large part of that is marketing. That it is these workout firms are very aggressively courting business, and it's working because folks are sensitive to this message that's being put out there that you're having a bit of a hard time. The reality is, from a banking perspective, it's not just true for our books, it's true for the others as well, you're not seeing that translate into any kind of significant movement on the default rates. It's obviously something we're watching.
I think as you know, if you're worried about defaults in banks, the variable to worry about is the unemployment rate, and that remains incredibly low, and that's not likely to move up. We've got 560,000 job vacancies in the country. As I said, number 1 concern for firms is not enough labor. There will be later reporting if we go into a soft period, as we saw in the last downturn. Even the unemployment rate is not likely to move a whole lot if we go through an unexpected soft patch, and that should keep defaults reasonably low still.
Jean-François, you paint a very strong picture of the Canadian economy, and you highlight population growth and also wage growth. The question is, why isn't that translating into higher rates of inflation? It seems like it's pushing up home prices and not much else.
Inflation is at the Bank of Canada's target. It's two. Unit labor costs are going up. Profit margins remaining stable. The reality is that, if you step aside from housing for a second, consumption growth hasn't been all that strong over the last year. It's been a bit of a puzzle, right? Strong wage growth, strong employment growth, consumption hasn't been as robust as anybody's anticipated. There are some underlying drags on the economy that are keeping inflation down. The other thing to consider is inflation is driven, to a very large degree, by the difference between actual levels of activity and potential levels of activity, right? The Governor of the bank will talk about the output gap or potential output. That's been running at a higher level than we currently are.
Excess supply, and again, this was highlighted by the Governor this morning in the monetary policy report back home, excess supply is rising in Canada because while there's growth, it's not as fast as potential. It's creating a little bit of downward pressure on inflation, even though wage growth is very high and you've had some pass-through effects. We're not anticipating, as you can tell obviously, significant bump up in inflation. We think rates are going to go down in part to keep inflation where it is because some of these factors that have been keeping it up, house prices in particular, are temporary and policy induced.
We have time for one more question in this section. Go ahead.
Back to Jorge, if I could. The emergence of the middle class in the Pacific Alliance has obviously been a big theme for Scotiabank for some time. Looking at one of your slides that showed income share held by middle class, showed it over a 10-year period, looks like it's only moved about a point. I guess the question is there a point at which you start to see that accelerating a bit more noticeably?
That's true. If you see the number of people that was in the middle class according to the World Bank, for the whole Pacific Alliance, we're talking about 30 million people in 1990, and now we're talking of 71 million people. There is a significant amount of people that has become or has been part during the last years.
Just to add to that. This is a demographic factor as well. 1%, 0.1% as you accumulate that, 0.2, these are actually quite sizable numbers, even though they don't look like they're gigantic numbers when you're thinking about it in terms of 1% or a fraction of a percent.
All right. Good afternoon, everybody. I'll take a few minutes and a few slides to provide a financial update that'll cover the bank's earnings profile, the net impact of repositioning that we have done over the last two years to the 2020 financials, and talk a little bit about our medium-term objectives, including the 2020 numbers that we shared with you on the Q4 call. On the next slide, our objective remains unchanged, and it's actually very consistent with what we have done for a pretty long time in this bank. That's to deliver high quality, consistent earnings to meet our medium-term objectives that have also remained largely unchanged for a few years. On the next slide, many of you may be familiar with these statistics, but I think it's worth restating as we set the context for this presentation.
We're a top 10 bank in the Americas as a whole, continue to grow at a healthy rate, and we have delivered a very consistent return to our investors for a very long time. The next slide talks about certain charts. These illustrate the bank's diversified operations and earnings power that supports our objective to provide high quality, sustainable earnings. You'll hear that a few times as I speak about the past and as I speak about the future. Why is this possible? It's possible because most of our income is derived from the stable P&C businesses across our footprint, and it's nicely complemented from our market-facing businesses, which is Global Banking and Markets and Global Wealth Management.
You'll see with the repositioning in the GBM business, which again, we've been at it for a few years, and the investments we have made to grow the wealth businesses, we actually now have scale across the various banking operations. In line with our strategy, we've increased our target earnings distribution to improve the contributions mix from our more stable P&C businesses to approximately 70%. Meanwhile, we expect to continue to invest to generate higher earnings contributions from our GBM and wealth businesses. This enables us to deliver the entire bank to our retail, commercial, and corporate customers across the bank's footprint. As you can see from these charts, we've always been focused on the Americas. We've been generating about three-quarters of our earnings from this region.
With the enhanced focus on our core markets, we've increased our contribution from the Americas to approximately 85% since 2013- 2019. This is in line with our strategy to grow in the six core markets really of Canada, the U.S., and the four Pacific Alliance countries. You'll hear more from my colleagues on their strategies and medium-term plans to grow in all these key markets over the next day or so. You heard from Brian earlier. We expect the contribution from these six core markets to remain largely consistent around the 85% level, which we are at now. Our core Caribbean operations, which is the Dominican Republic, Jamaica, Trinidad, et cetera, contribute the bulk of the remaining 15% of the earnings contributions. Turning to medium-term objectives.
As you can see from this slide, the bank has performed well against its medium-term objectives over the last three years. It is important to point out that we have delivered on these targets while repositioning the bank through significant acquisitions, exiting many non-core markets and businesses while we are continuing to grow organically, and of course, increase our investments in digital and technology along the way. I will talk more about the repositioning in the next few slides. You heard from Brian earlier again, that the bank's strategic repositioning is substantially complete. It is a journey that the bank actually undertook under Brian's leadership way back from 2013. At a high level, we decided to reposition the bank to grow in markets that have three features. We want to be in markets which are higher growth rates, where we could achieve scale, and of course, operate well within our risk appetite.
We achieved our objectives on the three bullets that I pointed out there on the slide. We have simplified the bank significantly. We've improved the earnings quality of the bank as a whole. Along the way, we've also improved asset quality. In summary, we now conduct business in markets where we can earn an appropriate risk-adjusted return. This slide, I just want to recap. With our repositioning substantially complete, let me summarize the corporate actions that we've taken over the last two years so it sets in context when you look at the financials. On the left-hand side, our acquisitions that we have listed have all closed, and their operations are substantially integrated within our existing operations or businesses in these markets. During 2018 and 2019, we've achieved our estimated cost and revenue synergies from these key acquisitions.
You'll hear more from my colleagues about the success of our integration efforts tomorrow. The right-hand side of the slide lists the major divestitures that we have announced more recently. All the major divestitures have closed, as we have listed out there, and we are awaiting final regulatory approval for El Salvador, which should close shortly. The divestiture of profitable operations creates a short-term impact to the bank's earnings growth in 2020 when you compare it to 2019. Over the next few slides, I'll try to summarize the financial impact from our recent corporate actions. There are three major categories of items that we think will help offset some of the 2020 versus 2019 earnings gap. Strong contributions from acquisitions that we closed in 2018 being the first and probably the most significant one.
On the next slide, I'll go through the expected contributions to the bank and the business line earnings from these acquisitions. Second one, organic earnings growth. Organic earnings growth will always be a key driver to offset our earnings gap, more particularly in 2020, as we deploy capital, like I mentioned, in higher growth countries such as Chile and Peru, and higher growth wealth management businesses in Canada. This is in the context of we're also exiting countries that either have low single-digit NIAT growth over the last few years, or in some cases negative too. This should positively contribute to the bank's growth rates for many years to come, not necessarily 2020. Finally, the impact of the share buyback program through 2018 and 2019.
Many of you know we've been active in the share buyback market, and we have repurchased approximately 25 million shares, which is about three-quarters of the shares that we issued on the Jarislowsky Fraser and the MD Financial Management acquisitions combined in 2018. I now want to spend a few minutes on slide 10, which summarizes the numbers we have talked about in various quarterly calls around the impact of our corporate actions. I'll go from left to right. As we indicated before, the acquisitions were expected to contribute about CAD 250 million to net income available to common shareholders after NCI and so on in 2019. I'm pleased to confirm that we achieved our ambitious estimate in 2019 from an international banking and the wealth acquisitions.
With the additional CAD 125 million in earnings contribution, we will deliver on our previous estimate of approximately CAD 0.15 in EPS accretion from these acquisitions in 2020. This is after absorbing the short-term headwinds caused by the events in Chile, which we think is a one-quarter event in 2020. Now, moving to the divestitures. The 2020 versus 2019 earnings gap from our announced divestitures are estimated to be approximately CAD 500 million, all of which is in international banking, and about two-thirds of it is from Thanachart Bank. As we previously discussed, the contributions from Thanachart Bank can be volatile. There are a lot of moving parts, which we pick up as an equity accounted investment.
The remaining CAD 150 million of divestiture impact on our 2020 earnings compared to 2019 relates to the other divestitures, which is Puerto Rico, El Salvador, and these divestitures that I mentioned in the previous slide. As I mentioned earlier, these were profitable operations that have been growing at very slow single digits, and in some cases had a negative CAGR over the last three years. That leaves a gap of approximately CAD 375 million, or about CAD 0.30 per share when you compare 2019- 2020. Offsetting the benefit from 2019 share buyback, which we bought back about 15 million shares in 2019, is roughly about CAD 0.10 impact to the 2020 earnings. It's about 3% of earnings growth if you compare it to the 2019 reported EPS. Before finishing off my overall outlook from 2020, I want to spend a few minutes on capital on this slide.
The bank's Common Equity Tier 1 capital ratio is essentially where it was before all the M&A activities commenced in fiscal 2018 at 11.5% level. At which time, we had the highest capital ratio in Q4 2017 amongst our peers, and we still are at the middle of the pack on a pro forma basis once the divestitures close in Q1. We managed our capital prudently, and we have continued to maintain strong capital ratios through this period while repositioning the bank for faster growth in the future. This is possible due to the bank's strong internal capital generation and really the choice of capital deployment options the bank has had over the last two years, all contributing to maximizing shareholder value.
We've remained focused on investing in our existing operations by investing approximately 50% of the internal capital generated in organic growth activities and the remaining on strategic options, M&A, which is in high growth operations, and of course, buying back stock. Continued strong internal capital generation is expected to continue in 2020. That provides the bank with multiple options to deploy this capital to increase shareholder returns. In summary, with strong capital ratios, we believe the bank is positioned for stronger long-term sustainable growth. Now, turning to the 2020 outlook. The left-hand side of the slide lists the key objectives for the bank in 2020 that many of you are familiar with by now, so I'm not going to repeat that.
On the right-hand side of the slide, as we indicated on the Q4 2019 conference call, we expect the bank to grow at mid-single digits on an organic basis in 2020. All the items that we included in our January press release relating to the additional loan loss scenario that we introduced, the derivative valuation adjustment driven by methodology changes, and of course, the software write-off will be adjusted from our reported results in Q1 2020. Adjusting for the net impact of M&A activities that I spoke about in the previous slide, which is about 3%, we expect the bank's EPS to grow at approximately 2% in 2020. Finally, our medium-term objectives. Our medium-term objectives remain unchanged.
As we look forward to 2021 and beyond, we expect EPS growth to be at or above 7%, mainly from higher contributions across the businesses with higher growth, such as Wealth and, of course, the Pacific Alliance countries. We expect that our growth beyond 2020 will exceed our medium-term targets as international banking, which is about 30% of the bank, grows at a more normalized level of 9% plus, and the wealth management contribution reaches 15% of the bank's earnings. Secondly, ROE. We expect the ROE to exceed 14%, the target we set ourselves as we prudently manage our capital deployment options and, of course, improve contributions from our fee-based businesses, wealth management, as well as capital markets operations. Thirdly, achieve positive operating leverage. We're going to achieve it by prudently managing expense growth, which has been the DNA of this bank for a long time.
It's going to take its cue from revenue growth, as we have spoken about previously, and of course, we are continuing to prioritize our spend to be in line with our strategic objectives. Finally, maintain strong capital ratios. We intend to continue to invest in our organic growth businesses and also finish buying back the remaining nine million shares, which we issued on the two acquisitions, which we expect to do in 2020. In summary, we're confident that the bank is well positioned to grow and meet its medium-term objectives starting 2021. Thank you for your attention, and I'm happy to take any questions.
Hey. Well, now we have about 15 minutes for Q&A targeted. The first question, if we could have a microphone, please. Right here in the middle.
Thanks. Just a real quick one. Gabriel Dechaine, National Bank. Thanks for the layout here. I'll look at it in my room tonight. The impact of acquisitions, that slide I'm talking about while you were going through that, you also mentioned something about one-time impact of events in Chile during Q1. Could you expand a little bit on that, please?
Yeah. Chile, with all the events that has happened, is going to have low growth in Q1, as you've seen now yourself. The city is normal. The country is coming back to normality. Actions need to be taken by the government and so on. We expect Chile earnings to be flat if you compare Q1 to Q1. In a normal scenario last year, you remember Chile grew 14% as a country. We have better growth opportunities coming out of Mexico, which had a challenging year in 2019 once you exclude some tax benefits and so on. Of course, we are having Peru, which is doing really well, which reflects the power of the Pacific Alliance rather than one country.
I referred to Chile specifically because we did do this acquisition in Chile, and we expect it to grow a little more than the CAD 125 million we put in over there, and that's why I referred to Chile.
Okay. I guess a bigger picture one. You've shown the evolution of your earnings mix 2013-2019, I guess.
Yep.
Is there any consideration, this is an older vintage question, I guess, but the maximum level of earnings you'd want to generate outside of Canada, if it gets to a certain level, maybe it triggers more attention to the regulators or alternatively, because your international is getting bigger, but it's in more concentrated positions. That's the risk mitigant, I guess.
No, it's a question we get asked quite often. It's not unusual to be asked that question. If you go back and look at it and the pace at which we grow our Canadian operations and so on, and we run scenarios for our board as we look at strategic plans and so on. The Canadian contribution is always above 50%, more in the 55% range. Also, when we grow our wealth businesses, particularly with the investments we have made in Canada in the wealth businesses, we see most scenarios, if you look as far ahead as, say, five years, which is typically what we do, the international business contribution happens to be in the 30%-35% range. I think that mix will remain largely consistent with what you're seeing.
Question over here.
Hi there. It's Dean Highmoor from Mackenzie. I just had a question. You put on your slide that you have 2% earnings growth net in 2020 with all those moving parts. What would be your internal capital generation for 2020? How much higher would it be in 2021 should you kind of return to your kind of trend growth of 7%?
Thank you, Dean. That's a great question. 2020, our normalized internal capital generation after dividends and what we do for what we call organic RWA growth used to be in the 10- 15 basis points range. You have some moving parts simply because pension can move and those kind of factors each quarter. It's about 50- 60 basis points or 40- 60. In 2020, we think it'll be more like the 20- 30 basis points contribution from internal capital generation. That's because of the lower growth as well as the impact of the 3% on the divestitures. 2021 and beyond, we fully expect it to be back to the 10- 15 basis points range per quarter.
Question over in the far right.
Yeah, thanks, Sohrab Movahedi, BMO Capital Markets. I think it works with Dean's question right now. You had a slide that over the last couple of years. I think you started at 11.5% CET1. You ended at 11.5% CET1, and you did 20% of the capital was towards buybacks, 50% towards organic growth, and the 30% or so, I guess, M&A. When you think about the next two or three years, can you give us a sense of the proportion of how the capital is going to be deployed? I don't know if the view is there's going to be more M&A over the next couple of years, for example. If not, how will that capital get plowed back into the business, organic versus buybacks?
I'll give you, typically our capital deployment options are three parts if I exclude the dividend growth, which we expect to grow in line with our earnings. In the net internal capital generation, we could either continue to grow organically. The 50% you look at, if you look as far back as, say, five years, the contribution, sorry, the utilization of organic RWA growth will be more in the 60%-70% range of what we generate. As we expand in the Pacific Alliance plus the Canadian Banking businesses, these are going to continue to grow at that rate rather than the 50% that we used up in these last two years. Buybacks will always be an option for this organization. At a minimum, we'll buy back everything that comes through option dilution, which is a normal course offset we have.
If we find the capital deployment option is attractive, depending on price, market, and so on, absolutely it's a tool in the toolkit as we've said before. Finally, acquisitions. M&A activity is the DNA of this bank. We always will look at options. We operate in great markets as you've heard from some of our economists over here. Opportunities will come. We evaluate more than we buy. As many as we have bought in the last two years. We get offered a lot because we had a strong franchise in many of these economies and they want us to be the buyer. We continue to evaluate. 2020's certainly not anything in the annual as we build back our capital to the levels which we like. As we look forward, acquisitions will always be part of our capital deployment options.
Is that strong capital levels? Is 11.5 considered strong enough on a acquisition scenario? You would go lower than that?
I think, for the good acquisition always we don't look for certain constraints which we're not comfortable with, right? Many of these assets as we have spoken about whether it was MD Financial or Jarislowsky or even BBVA for the matter, you work on it for a long time. You'd always don't control the timing of acquisitions. The real picture what I wanted to paint in that slide is you build up those capital because then when the option comes along you're ready. The 11.5%, like I mentioned, we had the highest capital ratio in Q4 2017 amongst all our peers. That gives you the ability to buy and we manage capital throughout. We are never below 11%. The divestiture certainly helped. We've also been active in buying back.
The mix between these three and the organic RWA growth might vary quarter-to-quarter, but 11.5% is probably a good capital ratio to run plus or minus 10 basis points in 2020. Capital is probably one of the topics that we talk about around the bank if not daily, at least as frequently as anything else.
There's a question in the middle here.
Raj, in talking about the pace of buybacks and maybe piggybacking off of these questions, 25 million shares in the last 18 months since these acquisitions were announced. Is it safe to say that that's a faster pace than the bank would typically operate with? I know Brian had made the reference to bridge loans. Once these 10 million additional repurchased, do you take a slower pace on that? Then maybe relatedly, you called it 11.5 pro forma. I think there's some IFRS adjustments too and the announcement earlier this month maybe puts you closer to 11.3. How has your thinking on capital changed as a result of the increases in the Domestic Stability Buffer and is there a higher floor, for lack of a better term that the bank thinks about in terms of external deployment now?
It's a good question. Let me try to parse that question because there's multiple parts to your question. I'll start from the last one. I think Domestic Stability Buffer, if you add all the numbers it's 10.25. The 8 plus the 2.25% that OSFI has put in place now. OSFI has a max of 2.5. Let's call it 10.5. 10.5-11.5, which is 100 basis points of capital for this bank, is over CAD 6 billion of capital to put it in context, right? It's a lot of money that we carry as a buffer and therefore impacts shareholders' returns but it's the right thing to do when your peers are doing it and you want to do the right thing at all times to be comfortable.
I think the capital ratio if I look just close, Q1 2020, you pointed out the items that we announced in January. Those are going to cost us less than five basis points. I've indicated that the IFRS 16 and the securitization rule changes are less than 20 basis points. It's actually closer to 15. The two together is about 20 basis points. That's always been in our capital plans. Not the five basis points which is more recent. Five basis points is an easy number to work with in a bank which generates a lot of capital and we have RWA growth and so on.
Operating at 11.5% at this time, generating between 5 and 10 basis points of good capital, having good stable organic growth across our economies and you heard from our economists these are going to be good for the next three years from our perspective. You would think that this bank is going to create more capital and start building it closer to the 12% rate if you look far. Is 12% the right number or not? This seems to change as quarters go along and people have views on where the economy should be. We feel that buybacks, I mentioned the 9 million shares we want to buy back.
If I want to put a timeframe on it, over the next two quarters, say Q2, Q3, because we seem to be doing 3 million-4 million shares over there. It's still, considering the price at which we issued these shares, on an average, it's about CAD 77. Our buybacks have obviously been much lesser than that. There's always an economic reason why we think it's the right thing to do, and having good capital ratios gives you the ability to do it.
Are there any more questions? Okay, if there are not, we will move on to the next speaker. Thank you, Raj.
Thank you very much.
We'll now move on to our next and last speaker of the afternoon program today of day one. Please introduce Dan Rees, Group Head of Canadian Banking. Dan.
I'm not the Minister of Finance. You figured that out. Thanks for taking me in the final slot here. Good afternoon, everyone. Thank you, Raj. It's my pleasure to be here with you this afternoon to speak about the Canadian bank. With Scotia splitting out wealth management as a separate segment, Glen Gowland will speak with you about wealth management tomorrow. All of my remarks today will be focused on the Canadian Bank proper. What I'd like to do over the next few minutes is to outline our ambitions for the bank in Canada, highlight some of the plans that we have in place in order to achieve those ambitions, and talk a little bit about medium-term targets. Broadly speaking, our ambition for Scotiabank in Canada is to solidify our number 3 position in the marketplace and do that by delivering consistent and reliable, and stable earnings growth.
To achieve that number three ambition, we will pursue a number of opportunities, I'd like to highlight a couple. Number 1, we will continue to increase our market share in certain products and segments where we are currently still underweight. Number 2, we will deepen our penetration with our existing customers, particularly high-value households and their customers. Number 3, we will do more business in certain provinces where we see a higher GDP outlook and where, again, we are slightly underweight today. By focusing on where we are currently under indexed to our peers, we will deliver consistent revenue and earnings growth for 2020 and into the medium term. Before I dive into some of the specifics in the business, I'd like to provide a bit more economic context in addition to J.F.'s remarks today.
I think what you heard from JF is the outlook for Canada is reasonably positive, with a low likelihood either for a recession or for significantly lower interest rates. Good population growth supported by immigration, record levels of unemployment, healthy wage growth. These types of things support consumer confidence, business confidence, and the housing market. Our view in Canada is that this is a healthy backdrop from which to take a growth mindset into our franchise. We start from a very strong position. Consider that one in three Canadians bank with us today. This base is especially important because research shows that two-thirds of Canadians would prefer to have a single financial advisor for all of their financial needs. Our own data supports this view, where we see customer satisfaction rise as the number of products and services used by our consumers increases.
For us, as we look at the opportunities for growth, we see consolidation and deepening as a very efficient path. Customer research also demonstrates that Scotiabank has the credibility to do this. In 2019, J.D. Power recognized us as the leader in the market for retail banking advice. We also, as Brian mentioned, won the J.D. Power Award for the number one mobile app in 2019. We achieved that award before we launched our improved app, which is intended to further increase our sales and service capabilities, as well as improve the customer experience. Let me now turn to business banking, where the outlook is also positive. Scotia Economics is projecting business investment in Canada in 2020 to outpace the U.S. and by a healthy margin. The majority of Canadian businesses expect investment spending to increase over the next 12 months.
In our franchise, we're seeing this confidence translate both into growth as well as into healthy pipelines. For both the retail and the business segments, the confidence that we have and the stability of the economic landscape of Canada is important. In the Canadian bank, as you can see on the slide, we service more than 11 million customers, generate CAD three and a half billion in earnings at a very healthy ROE of 23%. As a result, we will continue to invest thoughtfully in branches, opening select new locations and renovating formats, and do that with four items in mind: a focus on high foot traffic, expanding our multiple mobile sales forces, optimizing the use of our existing square footage, and particularly deploy capital into what I would consider high-profile neighborhoods.
As transactions volumes though continue to move online, it's important to emphasize to you that the face-to-face channel remains critical, both for providing advice, generating revenue, and servicing customers who prefer that channel, and it gives us a face-to-face opportunity to promote the use of the digital channel online. Now, let me turn the slide here to talk a little bit about the balance sheet. Over the past number of years, Canadian Banking has delivered strong mid-single-digit growth across both sides of our balance sheet. At the same time, we also improved the loan-to-deposit ratio over this period by 600 basis points, which compares very favorably to the 300 basis points of our peers. As you know, that meaningfully reduces our reliance on wholesale funding.
As you can see, we've been growing deposits faster than loans, personal deposits at 4%, and a very healthy 10% on the business side. Looking at assets, we've been growing sensibly within our risk appetite with a CAGR of about 5% over the last number of years. Let me now just reinforce for a moment, Scotiabank is the industry leading percent of its retail portfolio that is secured. At 93%, we're the highest in the street, that's intentional, and we're proud of that. Our growth in the card space has and will continue to be with originations with high quality, low risk, and often existing customers. The quality of our originations gives us confidence in the soundness and the stability of our volume growth, even at this stage in the economic cycle.
Frankly, our terrific portfolio of cards now, our strengthened analytic capabilities, and pre-approved offers for lower risk and existing customers is allowing us to grow both balances and revenues at rates higher than the market. Turning now to risk for a moment, where our thoughtful approach, as you know, is ingrained in the way we do business. The bank has a very strong risk culture. A culture that I had a chance to shape and to uphold when I ran the retail risk portfolios for the bank for the six years following the financial crisis. It was that experience that gave me great confidence when landing in this role to judge the health of the Canadian retail portfolios, which in my experience, are very strong. We remain comfortable with the credit quality, the provision for credit loss, and the gross impaired loan ratios in the portfolio.
Another area where I feel we've made great investments in which I've got confidence relates to collections, fraud, our contact centers, and operations globally, which I had a chance to run up until the summer. Over the past four years, our earnings focus in Canada has been on stable and predictable earnings growth. That will continue. However, in fiscal 2019, I would acknowledge that we did see earnings slow due to a change in the environment and some non-recurring items from previous years. Rest assured that as an experienced operator, I have sharpened the team's focus specifically on organic growth and productivity measures to return the franchise through this year into a better earnings position. We at the bank are all confident that the Canadian bank has the fundamentals in place and attractive opportunities to take advantage of those.
Let me now take a minute to talk about productivity. Under Brian's leadership, a number of years ago, we launched what we refer to as the Structural Cost Transformation program. In my previous role in operations, together with the team at Scotia, we worked very hard to drive this program forward and with much success. We implemented tools and capabilities across the franchise that related to zero-based budgeting, lean process design, and what we know to be the industry-leading smart automation program. This program specifically delivered more than CAD 1 billion in annualized run rate savings, and it also, as importantly, created the capacity for growth to fund functional capability improvements as well as improvements in customer satisfaction. Turning to the Canadian bank again, which has been a specific significant beneficiary of the program.
You'll recall early in 2019, we committed to the Street that we would have a productivity ratio of less than 45% in a 3-5 year period, and we reached that level last year ahead of schedule. Personally, I believe that in the Canadian bank, we continue to have cost and productivity opportunities ahead of us. Turning for a minute to the operating leverage ratio. Know that I think of this on a 12-month rolling basis and over the medium term. While some quarters may be negative based on seasonality that's natural in the Canadian franchise, we target positive overall. As Raj said, we want expense growth to take its cue from revenue growth. Turning now to the market positioning of our products and businesses. As you can see, we've made good progress, particularly in areas that we had identified as priorities, most notably credit cards.
You'll see that we've moved up now to number 5 in the market from number 7. We're achieving good relative share growth in both business loans and deposits. We continue to be pleased with our market-leading position in the automotive segment, as well as our capabilities to defend our strong number 3 position, both in mortgages and in the secured lending. In terms of opportunity, we're particularly focused on two areas. Number 1, business banking, which I think is a real opportunity for us because, as I said at the outset, we are relatively undersized. While maintaining our credit origination standards in 2019, we grew assets in the business bank by 9% while maintaining healthy margins. We also grew deposits in 2019 by an industry-leading 13%.
With moderate investment, some of which has already started, we believe that we can continue to grow share in the business segment, and the pipeline looks good. Second, we'll continue to grow our credit card portfolio prudently and using the same analytics that has generated positive returns for us over the last number of years. We will be continuing to position with our improved cards that Scotia's card portfolio should be top-of-wallet option, particularly for our existing high-value customers who we know want to deepen their relationship with us, including with their households. I believe with the market-leading lineup of credit cards now in Canada, we are especially well-positioned to continue to seize that opportunity. More generally, we're looking to anchor our growth strategies in what I would describe as three main levers. Number one, we will continue to acquire new accounts owing in large measure to population growth.
We will improve our retention of our existing customers, and we will double down our efforts to widen the relationship with our high-value customers and their entire households. We have a number of areas with high potential in the Canadian bank, and I'd like to highlight three of those. I'll start with the business bank. This includes, in particular, our commercial franchise, parts of small business, and our specialty Roynat business. All of these segments, all of them generate attractive ROEs, and with sound strategies in place over the last number of months, we are investing responsibly to grow each of them. The second is our focus on good potential opportunities with our existing customers, and I'll expand on that in a moment. Number three, I think we have more opportunity to leverage our unique portfolio of partnerships.
We have a substantial opportunity here. I see lots of low-hanging fruit in terms of organic revenue growth. Let me step now into business bank in a bit more detail. A couple of points on the small business segment, which was a standout year in 2019. We've had success by simplifying the product lineup, by improving the speed of service, which we know is one of the number one reasons why customers choose us, and we've improved the product lineup both in credit cards and otherwise. Thanks to a great partnership with GRM, the turnaround time on credit approvals has also shortened, a key variable for customers when choosing a banking partner. In the commercial segment, we're investing, as I've said, to increase scale, particularly in high-value cities and segments or industries in which we've been traditionally a little bit underweight.
This includes specifically technology, agriculture, and real estate, where we have grown our specialized teams in the last eight months, and we saw good success already in Q4. We're also investing in technology in the commercial segment to improve the productivity of our commercial sales teams by simplifying process, working on adjudication steps, and automating workflow. We're seeing following important step forward in terms of expanding our feet on the street in response specifically to customer demand in some of these high-value markets for greater coverage that we've seen good pipeline build as a result of that step forward. Finally, Roynat Capital, which deserves probably more air time. This is an industry-leading high-return business. It provides specialized financing advice for mid-market companies right across Canada. I'm proud to say it was founded in Montreal, and it has special relationships with private equity firms and the venture capital space.
This business has performed well and continues to have significant potential and look for more results from Roynat. I'd now like to turn the page and talk a little bit about retail banking and how we're going to deepen our relationships with top households. Over the past few years, our focus on acquiring new customers was successful. Here, we're tilting the focus a little bit to placing greater emphasis on retaining existing relationships and deepening those further as an efficient path to growth. This is particularly true when I look at the levels of loyalty and retention and attractive economics of our existing customer base. Let me highlight number 9. The customers with whom we have the deepest relationships have nine times the profitability level than the average.
They're vastly more likely, even with their current product lineup, to purchase more products from us owing to their relationship across retail, into small business, the business bank, and into wealth management. We experience, as you would expect, very low attrition rates from these customers. However, we also know that even those customers hold 30% of their business at the competition, which as you can imagine, represents billions of dollars in investments, loans, and deposits as an opportunity. We know they're interested in consolidating. We have already begun to sharpen our focus and convert conversations with sales teams into consolidating and deepening for a greater share of wallet.
To do that, we've been repositioning some of the analytics work that had been started to develop both proprietary understanding of the switching behavior and the motivations for those customers. Early feedback from the sales teams and customers is positive. Recall when I mentioned at the outset, we believe we've got good credentials here. Remember, in 2019, we were rated by J.D. Power as the number one franchise in Canada for retail advice. Our third focus area in retail involves leveraging our unique partnerships, which we think has an opportunity to bring differentiated value to the franchise. As you can see on the slide here, our association with professional hockey, including the Scotiabank Arena, the Toronto Maple Leafs, several teams and properties in the NHL, is also complemented by our community hockey initiatives.
So far, we've supported more than 1 million children in Canada in local hockey programs. Clearly, being Canada's hockey bank is invaluable to our brand. The recently announced partnership for 20 years with Tangerine and the bank of the NBA champion Toronto Raptors was clearly off to a great start in the spring. Customers' knowledge of Scotiabank's relationship with the Raptors means those customers, existing and new, their propensity to purchase with the bank is up 300%. During the Raptors' tremendous run, just during the playoff period, we added 40,000 new funded accounts, and that momentum continued through the summer. It continued through the fall and into the winter season. In partnership with Cineplex, our Scene Entertainment loyalty program now has over 10 million members.
This program, we believe, is one of a kind because it represents a great entry point for a number of demographic segments to become customers of the bank. I believe we have work to do here to continue to convert Scene members into Scotiabank customers and use that program again to further deepen our customer relationships. Our new partnership with the Canadian Medical Association, doctors right across the country really was born out of the acquisition of MD Financial. This is a partnership that gives us access to exactly the type of households we want to deepen relationships with. There are opportunities in retail, in small business, and of course, in wealth management. In 2019, we also launched The Scotiabank Women's Initiative.
This is a unique program that helps women take their businesses to the next level by providing added access to capital, to mentorship, to education, and support from senior business leaders. Our stated goal, to remind you, is to be considered in Canada as the lender of choice to women-led businesses in 2021. I'm pleased to say we are well ahead of our internal measures towards that overall goal. This portfolio of assets, we believe, is important for supporting our growth, and I believe we've got more opportunities to better connect this ecosystem together. Before we get into the medium-term targets, I just want to touch for a few minutes on the digital aspects of our business in Canada and spend a few minutes on Tangerine. As you know, Tangerine is the market leading, the number 1 digital bank in Canada. It's a real differentiator for us.
It serves more than 2 million customers. It is the fastest growing part of our earnings program in Canada. That reflects important shifts we made over the last couple of years. We've invested, as we've told you, in transitioning Tangerine from a deposit gathering organization into an everyday digital bank. 2019 was the best year yet. According to J.D. Power, that was the eighth consecutive year in which we had market-leading client satisfaction, more than two times the industry average with an NPS of 56. The industry sits around 25. I continue to see Tangerine's growth rate in earnings being a significant driver for the Canadian bank going forward with an ambition to double the earnings dollar contribution in the next few years. Based on the strength of 2019, we're also ahead of that goal.
Digital, as you can imagine, continues to be a very important part of the Canadian bank as customer behaviors and preferences evolve. As you know, digital gives us a number of opportunities to reduce our cost to serve, to generate revenue, and to deliver a better customer experience. As you can imagine, particularly with our market-leading app, the adoption of mobile banking skyrocketed in 2019 and surpassed the online channel as customers' choice for transactions. The online channel itself was already growing at a significant clip. As you'll hear from Shawn Rose, we're making great progress against our all-bank digital targets. In Canada, since 2019, digital adoption has doubled, digital sales are up 27%, and financial transactions in branches have gone from 19% down to 12%.
It's important to underscore that our branches continue to perform important high-value activities, serving customers who often prefer face-to-face, including for important significant transactions. Digital has allowed us, in fact, to process a 25% increase in transactions over that same period since 2019 while maintaining the branch count flat during that same period. We're also very pleased with our progress in digital as it relates to interacting, as Brian mentioned, with a number of the other factories in the ecosystem across our platform. Before concluding my remarks today, I'd just like to spend a quick moment on our medium-term guidance for the Canadian bank.
Based on our call for stable economic conditions, the prudent growth opportunities we have in our businesses, and the potential for further improvements in our productivity ratio, we are committed to consistent and predictable earnings growth of 5%, a productivity ratio below 44%, and generating positive operating leverage as we continue to invest in growth for the business. I want to reiterate that the entire Canadian bank is focused and well-positioned to deliver consistent earnings growth. It's our confidence based on the alignment of the opportunities we see in the market and the customer segments where we have strength and where we're under-indexed, and our ability to execute against those opportunities. To recap, we know that many customers want to consolidate and seek advice to do that. We are rated as the number one retail advisor in Canada.
We know that winning banks have the combination of a digital mindset and successful program, along with an ambition for more efficiency. At Scotiabank, we have both. We know we have good tangible organic opportunities to improve our market positioning in our high ROE businesses and have already started as we see this as an efficient path to growth. I see hundreds and hundreds of opportunities as an experienced Scotiabanker to grow this franchise in Canada, and I'm very excited to see this bank turn that potential into results. I'm happy to take your questions. Thank you.
Okay. Thank you. Thank you, Dan. We now have about 10 minutes for questions. Again, for the people here on location in Santiago, there'll be lots of opportunities to ask questions over the course of the program. If there are any questions for Dan. Far right there, Sohrab.
Dan, you talked a lot about high-value customers.
You want to deepen the relationship with them, you want to retain them, and you want to acquire new high-value customers, I guess. Can you first kind of give us a perspective of what a high-value customer looks like? Maybe number of products.
Yeah.
The profitability, I assume, is high.
Yeah.
How long does it take to get to that profitability level? What is the anchor product for a high-value customer? Is it something on the asset side or is it something on the liabilities side?
Okay, great. I'm glad you asked about product count because this has been a story I've been telling through the late summer and the fall, Sohrab. A high-value customer, we'll talk about households in a minute, at Scotiabank has on average 15 products. Not three, not four, not five as broad industry measures, but three or four or five times the traditional market average. We would have a surprisingly large number of customers with over 20 products. In terms of length of time to get there, sometimes that's life stage, okay, because you can imagine there's a product set on the wealth management side that takes time to accumulate. In my expectation, moving a customer who's in our, call it ninth decile, if tenth is the top, from ninth to tenth would take less than two years. The multiple there is two times.
Nine times the average in total and two times from decile nine to 10. This is important. I think the additive variable of having MD Financial in the picture, Jarislowsky Fraser in the picture, having a Bank at Work Program, which we borrowed from the Latin markets, where we have retail bankers going into commercial operations and introducing through a financial advice opportunity how we can service the employees of that commercial operator opens up a conversation with the CFO and the CEO of that business to see more of their business. Not just 70% share wallet, but 80%. It's a much more efficient way to grow balances than overly tilted on the acquisition channel side. You had a third part I think.
Just use the mic for a moment. Thank you.
Was the anchor product?
Yeah. What do you lead with or what would you like to lead with? I mean, anyone will take money from you, but will everyone give you their money?
I think that the answer to that is usually the customers, right? It's what they want as opposed to what we want. Research would tell you that the mortgage is a big anchor product. Research would tell you that wealth management, the relationship the advisor has with the family, and this is when you step into a household conversation, really begins to take shape when assets begin to get accumulated. Make no mistake, an introductory product is an auto loan, and we have seen conversion off our improved credit cards into mortgages, into auto loans. It's not a single product story.
Maybe move over to the side of the, r ight here.
All right. I'll take it since it's in my hands. Hi, it's Rob Sedran from CIBC. Dan, I just, I guess, in following up on Sohrab's question, Investor Day a couple of years ago, it was about adding 1 million customers to the platform. It sounds more like it's quality over quantity now. Is it a shift in strategy or is it just a shift in the way you're talking about it?
I'd say it's a modest shift in strategy and it's a meaningful shift in how I'm talking about it. I think acquisition costs are higher in Canada than they were three or four years ago. A lot of people talk about the credit card space in that regard. It's easier for me and more effective for me and stickier for me to introduce a credit card to an existing customer than to service out a single service credit card customer. As I said in one of my remarks, I expect population growth to give me lots of opportunities to acquire customers. I also know that we have an existing customer base that we believe from a mindset standpoint probably isn't getting serviced or advised in the way in which they deserve.
We want to have that deepening conversation now more and more, and we've got better tools in the branches than we would have had a couple of years ago in order to facilitate that conversation.
I asked for progress on that million target. I'm not going to get it today. Is that fair?
Not today. Yeah.
Meny, go ahead.
You can't grow market share without adding customers, though, to be clear, right? Yeah. Meny.
I'm wondering what's the driver of the shift in your business lending strategy? What are you seeing out there that's causing you to change that strategy?
Yeah
A very high pace of commercial loan growth in Canada.
Yeah
Across North America. A lot of people are pointing to the prudent thing is maybe to see that slow down and to be more cautious right now. What's changed when you look out in terms of the business lending landscape?
Well, if I double-click on the commercial lending segment specifically within the overall business segment definition, we've known for a couple of years that our commercial customers would like to do more business with us if they had greater coverage. Part of this kind of incremental add to the Feet on the Street Program is in response to customers asking for it. Often these are customers we've had relationships with for 10, 15, 20 years, or in many cases, multiple family generations. Some of this is in response to customer demand. Also, when I look at the Canadian landscape, the regions are performing at a different rate than they would've been five years ago. We might've been well-positioned in B.C. five years ago. B.C. has been moving in a very healthy manner, and I think the outlook is positive.
We would like to be moving in the commercial space in BC from a number 4 position to a number 3 position, again, in response to customer demand. Some of the industries in which we have expertise have also been growing at above average rates. Some of this is industry mix, at least as it relates to our franchise. Same credit standards. Frankly, I wouldn't want to be outgrowing the market in commercial lending at this point. I think we're kind of within the pack or slightly below, and at the moment, I'm okay with that.
Follow-up, you mentioned BC. I was just going to ask more broadly in terms of high-value markets.
Yeah
What that's referring to. BC, is there any other region, I'm thinking of Quebec, potentially, if you could just expand on that?
Yeah. I think, the asymmetry between the economic performance and outlook for Canada is fairly strong. Those are two large provinces that stand out as having a healthy outlook and for which we're undersized. Those would be two provinces for which we're organizing ourselves differently now with regards to a series of organic opportunities that relate to sales force expansion, sales force productivity, sales force coverage, and frankly, just looking at the market as slightly different than some of the rest. Minor tweaking, but important shifts. Yeah.
Thanks, Manny.
My CAD 0.02, stay out of Quebec, not much going on there.
That was Gabriel for those on the call.
My question relates to the cards business. I think I asked you about this on the Q4 call, but I want to flesh it out a bit more.
Okay.
It's like a few years ago, 2014-ish, there was a pretty big push, phase one of the Scotiabank's card strategy. We saw a lot of growth, we saw a lot of top-line momentum. Fast-forward to today.
Yeah
You talk about cards being a big growth driver for you, and I saw some of the best industry asset or receivables growth last year.
Yeah.
Is it a matter of timing before we see the revenue follow-up, or is there anything different in today's market relative to?
A few years back that is changing that dynamic?
Yeah, I think the relative rate of spend growth on the Scotiabank card in 2019 was two times the industry average. That should translate into revenue growth. The challenge in the card market, and I think the industry's facing this, is people know it's a high-margin business on the sell side, and so customers are asking for more and more rewards. It's become a relatively slightly more expensive place in which to acquire net new customers. Net revenue is a little under pressure, I think, in the industry owing to rewards costs. I expect that trend to generally continue. Interchange has also moved a little bit during that period. That notwithstanding, we would typically show a chart where we're narrowing our NIM to the peer group, and the card improvements have substantially improved that NIM compression.
I expect that to continue on a relative basis. Yeah.
Thank you.
Okay, if we can pass the mic over this way, please. Thank you.
I'll stick with cards maybe. Sorry, Steve Theriault from Eight Capital. We've had some numbers around your card penetration. We periodically hear about what the card penetration levels are for, of course, Scotiabank Bank customers.
Yeah.
Maybe you can update us a little on where that's gotten to. I think if you go back five or 10 years ago, it was around a quarter. I guess just more broadly, into Gabe's question, 46 basis points of market share growth over the last three years and being under-indexed to cards. Are you comfortable with that level? How much faster do you need to gain share to get to being market index versus under indexed in cards?
I have to confess, I don't have the card penetration number at hand. I wouldn't want to misrepresent it. I would've put it in the zone that you described. It's improved a little bit, but not substantially. I'd have to get you a proper number. In terms of the kind of relative growth rate of market share, the math would indicate organic growth will take a long time to get to call it fair share number three in Canada. As you know, we purchased the JPMorgan Chase portfolio. We've got an equity investment in the Canadian Tire credit cards, and we continue, as Raj mentioned, to be approached on occasion to add to the portfolio through acquisition. It would take a long time to sort of chase down the number three position.
Our interest is in further deepening our relationships with our existing customers and using credit cards as part of that overall program. I would like to see the current growth rate continue, but I'm not looking to accelerate that.
Has the Tangerine card been
Yeah
Meaningful in that 46 basis points?
Not in the aggregate, but has been very meaningful to Tangerine. The number one credit card in Canada, period, is the Tangerine credit card. One of the things that's unique about Scotia compared to the peer group is we participate with all three issuers, Mastercard, Visa, and Amex, both globally but also in Canada. Our ability to bring innovation to the marketplace has been really helpful. As many of you would know, those three providers offer significant incentives to participants like us to make things happen. The Tangerine card growth has been a great story for Tangerine and will, over time, contribute to the total in a bigger way.
Maybe just next door there. Steve, thanks.
Hi.
Hi, Dan. It's Dean Highmoor from Mackenzie Investments. Just on the theme of Tangerine, you reference in your slide that you're looking to double Tangerine's earnings over a medium-term objective. What's the level of profitability for Tangerine now and then what is the baseline that you're hoping to double from?
Just secondly, just thinking about this digital transformation.
Yeah.
Just saying, how many checks do you process a year now, and how did that change from five years ago, and what will it look like in five years in the future?
You're talking check processing. That's my sweet spot.
I thought you'd like it.
Let me take that one first, and I'll also talk for a second about cash, because I think there are some myths about the rapid decline of the check business. It's not slipping off as fast as you might think. It's important to bear in mind that as the sophistication of consumers increases, that also increases across all age groups. There are certain major populations in Canada that are simply not comfortable doing e-transfers, at least not yet, and are very comfortable writing lots and lots of checks. The year-on-year decrease in industry check process, I think, is -1%, -2% a year. Cash is actually up 1%. The use of cash and circulation is growing. These things aren't going away anytime soon.
How does that square with Bank of America saying 10% year-over-year declines in their check processing?
They participate in one part of the market, not the aggregate. Yeah. What portion of checks are written retail versus small business? The small business segment is a huge participant in the check-writing process and in the check-receiving process. It's definitely in decline, but in gradual decline, at least from the numbers I've seen in Canada. Yeah. In terms of Tangerine, this has been a discussion, I would say, the management team has had here, particularly for the last number of months, given the success of Tangerine in 2019. What I'm saying is, how much should we be sharing, and how should we be talking about this franchise? I think, Phil, if you're comfortable, my preference would be to kind of come back with a more sort of fulsome description of how we're performing in Tangerine specifically.
What I would say is from a growth rate standpoint, revenue growth in Tangerine is two times the typical industry in a typical bank in Canada. Deposit growth, two times. Earnings growth, well into the double digits. I think we should come back with more particulars on that unless, Phil, you'd like to augment.
Yeah. Obviously, we have put a marker down here for providing medium-term growth objectives for Tangerine. That would obviously create the expectation of greater disclosure around Tangerine. That is, I think, what you can reasonably expect, and we'll have to settle out the timing of that, but that would be to come.
Thank you.
Maybe we have time for one more question. Right in the middle there.
Thanks. Dan, two-parter, since it's the last one. We'll start with just a revenue expense dynamic for you. You talked on the Q4 call about the increase in hiring in your segment over the past year, and it related to commercial bankers and a greater emphasis on the branch.
Yeah.
Wealth isn't directly under your purview anymore, but at least some of the talk from the bank has been wanting to restaff the branch from a wealth sales perspective.
Yeah.
A little bit vague here, but just kind of hoping for in the branch, what exactly are you looking to accomplish, and is wealth a bigger part of it? Second one's hopefully really quick. You had a PCL chart that showed the PCL ratio the last four years.
Yeah.
You were at 28, 29, dropped to 24, then back up to 29. I guess my question is, was last year an indication that credit is getting worse, or was there something special in 2018 that was so low?
Well, I would say, I'll let Daniel speak to this maybe more fulsomely tomorrow as well, from where I sit, 2018 was a particularly productive year on the retail PCL side. The 2019 level is more typical. The delta from 2018 to 2019 was probably the result of 2018 being very healthy in terms of recoveries and so on, the special actions that we would've talked to you guys about at some of the Investor Day previously. In terms of the investment side, it's a shame that Glen isn't here, he's my immediate neighbor. We talk all the time about how these two businesses, while they will be reported separately, need to continue to be partners and integrate.
One of the first things I approved in my role in June was a series of investments into a critical role in the branch called the FA role, the financial advisor role, where frankly, we had seen unusually high levels of attrition, and employee satisfaction wasn't certainly not where I wanted it to be, given that I was going to set a big revenue target for 2020. We made a number of investments in June, and you'll continue to see those expenses flow through that would reduce the attrition in that category.
As we lean into the investment season, which is kind of now in the next couple of months, the performance of that sales force, bear in mind, this is several thousand people, has been spectacular for the past three or four months, and I expect you'll continue to see those results flow under the wealth management side of things. Yeah.
Okay. With that will conclude the formal part of our program and conclude our webcast for today. We'll be resuming at 9:00 A.M. tomorrow Santiago time, 7:00 A.M. Eastern Time for the second day of our investor day program. I would ask just for a moment that everyone in Santiago remain just for a quick announcement after we conclude the program. Thank you.