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TORONTO (Reuters) - Bank of Nova Scotia (BNS.TO) has applied to re-establish a presence in Cuba and a report says rival Royal Bank of Canada (RY.TO) is considering a similar move in the wake of Cuban reforms and a thawing of the country's icy relationship with the United States.
Both banks were players in the country before the 1959 revolution in which Fidel Castro took power. The revolution ushered in an era of communism and U.S. sanctions that has made it difficult for companies with a U.S. presence to do business there.
But U.S. relations with Cuba have thawed somewhat under U.S. President Barack Obama and after the aging Fidel Castro handed over power to his liberalizing younger brother Raul, encouraging the banks to take initial - if tentative - steps back into the country.
"I think a lot of people are looking at the regime changes and the age of Castro and his brother and thinking it's only a matter of time before Cuba basically opens up," said Lawrence Booth, a finance professor at the University of Toronto's Rotman School of Management.
Scotiabank, Canada's No. 3 lender, said it has applied to the Central Bank of Cuba for a representative office license.
"A representative office will allow Scotiabank to reacquaint ourselves with the Cuban market, which will provide a strategic window into the marketplace and enable us to acquire in-depth local knowledge and build relationships," the bank said in a statement.
The office would aim to expand the bank's trade-finance business with Cuba, but would not conduct any local transactions or direct banking services, Scotiabank said.
RBC, Canada's biggest bank, is also considering a move back into the country, the Financial Times reported.
Jim Westlake, head of RBC's international operations, met with the Cuban ambassador to Canada this month with a view of "trying to gauge how they are feeling about business generally coming to Cuba," the paper reported.
However, the bank is concerned that it not run afoul of U.S. sanctions, the paper said.
An RBC spokeswoman would not confirm Westlake's comments.
While RBC agreed earlier this year to sell its U.S. retail bank, it still has a sizable capital markets presence in the United States that could leave it exposed to U.S. sanctions.
Under the 1996 U.S. Helms-Burton Act, officers of Canadian companies that operate in Cuba can be barred from entering the United States.
However, the act focuses on companies that deal with property that may have been expropriated from U.S. citizens following the Cuban revolution, so it may not apply to banking operations being started from scratch, observers say.
"The question is simply whether the Cuban government wants (the banks) in and whether they can go in in a way that doesn't alienate the Americans too much," Booth said.
Establishing a presence early on in the reform process could give the Canadian lenders a head start if Cuba's financial sector opens up.
Canadian banks escaped the financial crisis in relatively good shape, and have been pushing to expand their global presence, taking advantage of hard-hit U.S. and European banks eager to unload assets.
If RBC and Scotiabank do return to Cuba, they will join National Bank of Canada (NA.TO), which entered the country in 1995 and runs a small trade-finance operation.
National has few operations outside Canada, and so has not had to fear that it would be sanctioned by the United States, said a person familiar with the matter.
Setting up shop in Cuba would mesh nicely with Scotiabank's extensive operations in Latin America. RBC also has a Caribbean operation that spans eight countries.
Reporting By Cameron French; Editing by Peter Galloway