Venezuelan Banks Profit Under Chavez
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Venezuelan Banks Profit Under Chavez
Via NY Transfer News Collective * All the News that Doesn't Fit
excerpted from VIO Venezuela Daily News Roundup - June 13, 2007.
[The International Herald Tribune reports today on rising profits for
banks in Venezuela, a reminder of the capitalist successes of President
Chavez's "21st Century Socialism." An expansion in credit has driven
higher rates of consumer spending, a fact particularly visible in
upper- and middle-class communities, but which also reflects increased
access to the banking system among poor and previously underserved
sectors. New state-financed development banks such as the Women's Bank
of Venezuela provide microcredit loans to low-income citizens. The
success of these programs, and of the banking system in general, are
indicative of the state of the Venezuelan economy, which the Herald
Tribune calculates grew by 10% last year and 9% in the first quarter of
2007. The Central Bank expects to ease the inflationary pressures that
come from rapid growth by requiring private banks to double their cash
reserves. -VIO]
The International Herald Tribune - June 12, 2007
http://www.iht.com/articles/2007/06/12/business/venezbank.php
Venezuela banks profit under Chávez
By Jens Erik Gould
In marathon speeches peppered with quotes from Marx and accolades to
Che Guevara, President Hugo Chávez repeatedly vows to do away with
capitalism in Venezuela. But it turns out that Chávez's economic
policies have been generating a boom for those most capitalist of
institutions - the banks in Venezuela.
Record public spending, fueled by high oil prices, is flooding this
flourishing economy with excess cash. But government currency controls
are trapping that money in the country. So the banks are using it for
loans, as advertised on flashy billboards across Caracas.
And with interest rates lower than the inflation rate, "You would be
stupid not to take out a loan right now," said Richard Francis, a
director of sovereign ratings for Standard & Poor's.
As a result, profits for the banking sector grew 33 percent last year,
led by a jump of more than 100 percent in credit card loans and a 143
percent increase in automobile credit, according to Softline
Consulting, a financial analysis firm based here. The banking and
insurance sector's contribution to gross domestic product - the measure
of all goods and services produced in the country - rose 37 percent in
2006, the central bank said.
The market looked attractive enough two years ago that the Stanford
Financial Group of Houston put political risk on the back burner to
open a dozen branches here. Now remodeling its own office tower in the
Caracas business district El Rosal, the bank saw its revenues grow
fourfold and its credit portfolio nearly triple last year.
Still, the banks may be thriving too much for the government's liking.
Chávez warned last month that the state could take over the sector if
it did not offer low-cost financing to domestic industries. Among the
institutions that would be affected by such a move are Citigroup, which
is based in the United States, and the Spanish banks Santander and
BBVA, which control lucrative outlets here.
The private sector is well aware that Chávez is not afraid of
nationalizing. He made similar threats before the state bought out
American companies' stakes in the country's largest private electric
and telephone companies earlier this year. The government also took
over operations of multibillion dollar oil projects in May.
Bankers do not dismiss an eventual bank takeover, but they do not
expect such a move in the short or medium term. "The government needs
private investment in banking," said Dirán Sarkissián, president of
Stanford's commercial bank in Venezuela."Ask them if they have the
personnel to manage 50 financial institutions."
Oscar García Mendoza, president of the locally owned bank Venezolano de
Crédito and one of the few bankers openly critical of the Chávez
government, said the threat could be sincere, but that "it would be a
disaster that would affect millions of Venezuelans who trust the
banking system for their savings."
In the meantime, consumers have been taking advantage of the expansion
in credit. Betzaida Guerra, for example, said she discovered in a
newspaper advertisement last year that a bank could finance the
operation she had long wanted but could not afford. Within weeks, she
secured credit for the nearly $5,000 surgery to enlarge her breasts
with silicone.
"I was excited," said Guerra, an accountant from a Caracas suburb, who
has nearly finished paying off her 12-month loan. "I saw the
advertisement and thought, 'The way out has arrived.' "
The consumer spree driving credit growth is apparent in upper-middle
class Caracas neighborhoods like Altamira, where Gabriel Jiménez was
getting ready to drive his new black Mercedes Benz C200 sedan off the
lot. Jiménez bought the same model without financing in 2000, but this
time he chose a 48-month loan to pay off most of the $65,000 car at 19
percent interest. The Venezuelan-owned bank Banesco approved his loan
in only 72 hours.
"The process is really easy," said Jiménez, a divorce lawyer, before
hopping onto a driver's seat still covered with plastic, smelling the
new car's scent and playing with its gadgets. "Before, interest rates
were so high that it wasn't worth it." The Altamira Mercedes Benz
dealership, which opened last year because of rising demand for luxury
cars, has sold 9 of every 10 automobiles on credit this year since it
began advertising the financing option in local newspapers, the
director of operations, Vicente Amengual, said. Last year, only one of
10 was bought with a loan.
Government officials point to the booming banking sector as an
indicator of a healthy economy, which grew more than 10 percent last
year and nearly 9 percent in the first quarter of 2007. Even with the
expansion of loans, credit levels are relatively low. Domestic credit
was 17 percent of GDP last year compared with nearly 28 percent in
Colombia, according to Standard and Poor's.
Officials also say the surge reflects growing consumer power and access
to banking services for Venezuela's poorest residents, many of whom do
not have bank accounts. "I personally think they will be incorporated
more," said Ricardo Sanguino, president of the National Assembly's
Finance Commission.
A burgeoning number of state-financed development banks have increased
access to microcredit loans to poor and low-income people. Yolanda
Vera, from the lower-class area of Propatria in Western Caracas, said
one such institution, a women's development bank called Banmujer, had
given her a series of loans totaling $2,500 over the past three years
for her start-up business that produces table linens. "It has been a
great push," said Vera, who left her job at a cloth factory to open the
business. "I always wanted to have my own company."
Banks have profited as well from Argentine bonds that they bought from
the Venezuelan government in 2005 and 2006 at the official exchange
rate. They then sold the bonds for dollars and profited by buying
bolivars at a higher black market rate. "They were very attractive
earnings," said Miguel Octavio of BBO Financieros, based in Caracas.
This year, banks earned commissions as intermediaries for $7.5 billion
in bonds issued by the state oil company Pdvsa, the largest corporate
bond issue in Latin America's history. But bank directors say these
perks and current revenues are more than offset by a slew of government
regulations that are making the sector ever more vulnerable. Banks are
obligated to dedicate 32 percent of their loans to specific areas of
the economy, including agriculture, housing and microcredits. An
upcoming reform of the country's banking law may raise that percentage,
said Sanguino, the lawmaker.
"Here, the norms change," Sarkissián said. "Everyday they give us more
news, a new regulation. That is constant."
The central bank, which has lost most of the autonomy from the
government it once had, announced in April that it would force private
banks to double the amount of cash they deposit in their coffers to 30
percent in an effort to curb inflation. In the same week, Chávez
ordered Fogade, the country's bank deposit protection fund, to transfer
all of its assets to the government, which would then siphon the cash
to the poor.
Still, even with the ground shifting beneath them, banks expect to keep
prospering, at least in the short-term, as long as high oil prices
continue to drive consumption.
After all, these days, Venezuelans can even get financing to buy
silicone for plastic surgery at their local pharmacy. At a Locatel drug
store in eastern Caracas, about eight people a day request loans
administered through a Banesco bank credit card for implants.
"Lots of people come, especially during Christmas, Easter and
graduation season," said a saleswoman, Solsyret Delgado, as customers
lined up in front of her register to inquire about the credit card
offer. "We've given them to almost everyone."
*
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