LATIN AMERICA: Venezuelan Banks Grow To Match Country’s Wealth

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Jun 15 1997 (IPS) - The Venezuelan banking system is minute in comparison with that of the big five national banking networks in Latin America.

However, its relative importance is increasing now that foreign financiers believe the oil-rich nation will soon exert banking influence that is more in line with expectations, given its economic strength.

Since Venezuela’s financial sector was opened to global competition in 1996, ten foreign banks have moved into the country. Others will commence operation in the near future. In addition to routine banking operations, foreign firms hope to profit as fund managers, petroleum bankers, and service purveyors for Venezuela’s promising future.

However, a study conducted by Softline Consultants reveals that Venezuela has a small banking base relative to banking activity in Brazil, Mexico, Chile, Argentina and Colombia.

For example, at the end of 1996, the collective assets of the Brazilian banking system totaled 459 billion dollars. In Mexico, total assets were 156.8 billion; in Chile, 76.7 billion; in Argentina, 65.6 billion; and in Colombia, 60.24 billion.

In Venezuela, on the other hand, total assets were only 15.5 billion. Furthermore, by the end of last year, three of Venezuela’s four largest banks were no longer under national control: two are now operated by Spanish interests, and a third is managed by a Chilean company.

The remaining member of Venezuela’s “big banking foursome” was nearly bought out by a Spanish suitor, but a complicated stock plan fell through, bringing about collapse of secret negotiations. The bank is still searching for new partners.

According to Softline president Antonio Grasso, the situation reflects the end of a dramatic banking crisis which beset Venezuela during the previous two years. That crisis was the second greatest banking emergency in the world relative to gross national product.

The Venezuelan banking debacle cost 16 percent of the nation’s gross national product. The only crisis of greater magnitude occurred in Chile in 1981, where bank failures cost the Chilean government more than 7 billion dollars.

Currently, 43 percent of Venezuela’s banking system is under foreign control. However, due to pending acquisitions, mergers and other partnerships, this figure may climb as high as 70 percent in the next few months.

But what, exactly, is the scope of the banking system in question? In comparison with Latin America’s five largest systems, Venezuela’s 33 commercial banks and seven universal banks (a type of bank that only recently began operation in Venezuela) have markedly lower ledgers.

The net worth of Brazil’s banking system is 39.9 billion dollars, whereas Venezuela’s net worth is only 2 billion. To round out the comparisons, Argentina’s net worth is 37.23 billion; Mexico’s is 9.44 billion; Colombia’s is 8.82 billion; and Chile’s is 4.39 billion.

Keeping in mind that all cited figures were current at the end of 1996, the Brazilian banking system’s loan portfolio was 119.36 billion; Mexico’s was 98.8 billion; Chile’s was 43.76 billion; Colombia’s was 38.82 billion; Argentina’s was 37.23 billion and Venezuela’s was 5.47 billion.

Loans as a percentage of gross national product amounted to 60.78 percent in Chile; 47.28 percent in Colombia; 29.13 percent in Mexico; 15.91 percent in Brazil; 13.09 percent in Argentina and 9.28 percent in Venezuela.

If total loans are compared with cumulative deposits, Venezuela ledger is also quite different from other Latin American countries. In Chile, total loans represent 119.6 percent of deposits. In Mexico, the figure is 115.1 percent; in Argentina, 108.5; in Colombia, 103.4; in Brazil 62.2; and in Venezuela, 47.5.

This means that Venezuela’s “brokerage index” – a key measure of banking sector integrity – is very low: the national economy has made only slow progress from the previous year when the country initially embarked the neo-liberal economic course.

Grasso says there is much to be gained through the globalisation of banking, which he believes will result in global competition characterized by a all-out war “of everyone against everyone else”.

Grasso says that in the last 5 months alone there has been ferocious competition to win deposits, lower costs, expand services, and in general be the most attractive purveyor of banking services. This relentless competition will, no doubt, sort itself out over the intermediate term so that only the most efficient banks will survive.

All these changes are taking place in an environment where the cost of money is getting cheaper. However, in 1996, Venezuelan banking suffered from the handicap of interest rates displaying unprecedented negativity, which is to say that while Venezuelan inflation registered 103 percent, interest rates only ranged from 13 to 43 percent.

The three foreign financial service firms which have been most active in Venezuela are Bilbao-Vizcaya Bank which took control of Provincial Bank (Venezuela’s largest and most stable financial institution). Spain’s Santander Bank and Chile’s Infisa also took possession of Venezuela and Consolidado Banks through State- sponsored auctions.

Previously, Ecuador’s Banco Popular acquired Fivenez Bank at auction, and U.S.-based Citibank — the only foreign bank already doing business in Venezuela prior to globalisation — has been involved in feverish expansion.

It should be noted that Dutch giants ING and ABN Amro have staked out sizeable positions in “second story” (i.e., no direct public contact) banking.