By Luis Jaime Acosta, Nivedita Balu

BOGOTA/TORONTO (Reuters) -Scotiabank will hand over its operations in Colombia, Costa Rica and Panama to Colombian bank Davivienda, both parties said on Monday, in exchange giving Scotiabank a 20% stake in Davivienda.

It marks Scotiabank's latest move to refocus on its core markets.

Under CEO Scott Thomson, who took charge in early 2023, Canada's Scotiabank has shifted funding to stable, lower-risk countries, making a bet on the North American trade corridor, while holding back on spending in its Latin American markets.

That plan focuses on growth closer to home, from the Canadian province of Quebec to the United States and Mexico.

Scotiabank plans to continue servicing corporate, wealth and global clients in the three countries, it said.

"With this agreement, we advance our execution plan towards sustainable and higher returns across our International Banking markets," Scotiabank head of international banking Francisco Aristeguieta said in a statement.

Scotiabank is the only lender of Canada's big five banks that had made a larger bet on South America over the past decade in a bid to break outside of the saturated market at home.

The lender built its presence through the purchase of a 51% stake in Banco Colpatria in 2012 for $1 billion and $360 million to buy banking operations in Panama and Costa Rica in 2016 from Citibank.

National Bank analyst Gabriel Dechaine noted that a 20% stake in Davivienda is currently worth about C$600 million.

"The deal ticks the box for (Scotiabank) in terms of its strategic plans while it does not negatively impact its earnings outlook, as we believe that contributions from these countries were minimal at best," Jefferies analyst John Aiken wrote.

As part of the deal, expected to close in around 12 months, Scotiabank will receive representation on Davivienda's board of directors.

The Canadian bank will log an impairment loss of around C$1.4 billion ($976.90 million) in the first quarter on the deal, it said, with another C$300 million hit on closing due to foreign-exchange effects.

Shares in Scotiabank ticked up 0.6% on the Toronto Stock Exchange by midday, while Davivienda was not trading due to a holiday in Colombia.

Davivienda's portfolio will jump some 40% in size on the deal, it said, to around $60 billion. At present, Davivienda and Scotiabank have 27.4 million clients in the region, Davivienda added.

($1 = 1.4331 Canadian dollars)