THE AMERICAS AND EUROPE: Venezuelan bankers get rich from Chávez's revolution

Por Venezuela Real - 21 de Agosto, 2006, 10:32, Categoría: Economía

Andy Webb-Vidal in Caracas
Financial Times
August 2006

Bankers traditionally face firing squads in times of revolution. But in Venezuela, they are having a party.

Dirán Sarkissián, president of the local subsidiary of Stanford Bank, a US bank with offshore operations based on the Caribbean island of Antigua, is proud of his rapidly lengthening list of high-net-worth customers who are enjoying President Hugo Chávez's self-styled "Bolivarian Revolution".

"As far as growth is concerned we're very happy," says Mr Sarkissián. That might be an understatement. Deposits have increased by 600 per cent to $106m (£57m, €84m) in the year since the boutique bank opened for business in Caracas.

Stanford Bank "black" credit cards now post the highest month-end balance of all Mastercards issued in Venezuela, even though it has issued far fewer than other banks, he adds. "We've aimed at the top end of the market."

Venezuela's abundance of usually limitless "black" credit cards would seem to sit uncomfortably with Mr Chávez's fiery anti-capitalist rhetoric and his occasional threats to jail bankers.

"We have to transform the structures of capitalism," he said in a recent speech peppered with quotes from rebel icon Che Guevara.

But so far, rather than nationalise banks, the "revolutionary" distribution of oil money has spawned wealthy individuals who are increasingly making Caracas a magnet for Swiss and other international bankers. And it is not just private bankers who are banking on the revolution.

Francisco Faraco, a banking consultant, says local commercial banks are enjoying their most profitable times ever under Mr Chávez: "Venezuelan banks have not seen a contraction during a single quarter since 2003."

In 2002, when oil prices were low and the economy was in deep recession, the Chávez administration issued billions of dollars' worth of high-yielding domestic debt that was lapped up by the banks. Double-digit interest rate margins left the country's banks among the most profitable in Latin America.

But as oil prices have since soared, government spending has risen by 70 per cent and the economy has grown rapidly - by 17.9 per cent in 2004 and 9.3 per cent last year. Spending and exchange controls have led to a big expansion of liquidity and stoked demand for credit.

During 2005, bank assets rose from $29.3bn to $39.8bn and the consumer loan portfolio has increased by about 200 per cent over the past two years. Banks have begun to lend cash aggressively for even the most unlikely services, such ascosmetic surgery.

Oscar García, president of Banco Venezolano de Crédito, says that since late 2005, a group of Venezuelan banks has also benefited from government-backed currency arbitrage trades involving Argentine sovereign dollar bonds.

In recent months the government has bought $3.6bn of Argentine bonds, the bulk of which it has sold at the official bolívar exchange rate to local banks to absorb excess liquidity. In turn, the banks resell the bonds and profit by buying bolívars at a tolerated, higher black market rate.

How much the banks earn from the arbitrage trades is unclear, as short-term operations do not appear on their balance sheets. But some economists estimate that for some banks they could represent the largest item of income.

"Thanks to some bankers' warm relationship with the government, banks in Venezuela have been doing extremely well, in fact better than what their official balance sheets suggest," says Mr García.

However, analysts are concerned because banks have seen their interest rate margin narrow over the past year since the government set rate ceilings and floors. Loan loss provisions have fallen to 2.4 per cent of total loans, the lowest level since a financial crisis in 1994, when a dozen banks collapsed.

Franklin Santarelli, a director of Fitch Ratings in New York, which last month downgraded several Venezuelan banks, says the profitability of Venezuelan financial institutions could decline for another reason.

"The main risk that is embedded in the negative outlook for Venezuelan banks is related to the possibility of more government intervention," he says.

Inflated by oil money, the public sector has already become the largest single depositor and government bonds make up a majority of many banks' assets.

Legislation that obliges banks to lend at below-market rates to farmers and place micro-credits means that about a third of total loans are now granted because of a government directive, rather than a financial risk evaluation.

Ruth de Krivoy, president of Sintesis Financiera, a consultancy, says the government is also preparing to control fees. "Deposit and lending rates are regulated, and fees are bound to be regulated soon," she says. If Mr Chávez's practice of "21st century socialism" begins to match his rhetoric, Mr Faraco says, the party will be over for the bankers.

"In a socialist economy you assign resources as a result of the will of who governs, but in a capitalist economy resources are assigned as a result of risk analysis," he says. "They are two completely incompatible criteria."

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