JENS ERIK GOULD
ARCAYA & ASOCIADOS
VENEZUELA IN THE INTERNATIONAL PRESS /
15 June 2007
In marathon speeches peppered with quotes from Marx and accolades to Che Guevara, President Hugo Chavez repeatedly vows to do away with capitalism in Venezuela. But it turns out that Mr. Chavez's economic policies have been generating a boom for those most capitalist of institutions -- Venezuela's banks.
Record public spending, fueled by high oil prices, is flooding this flourishing economy with cash. Government currency controls are trapping much of that money in the country. The extra cash, in turn, is increasing consumer spending. The banks are taking advantage of that by handing out scores of loans, advertising on flashy billboards across Caracas.
And with interest rates lower than the rate of inflation, ''you would be stupid not to take out a loan right now,'' said Richard Francis, a director of sovereign ratings at Standard & Poor's.
As a result, bank profits grew 33 percent last year, led by increases of more than 100 percent in credit card loans and 143 percent in automobile credit, according to Softline Consulting, a financial analysis firm here. The banking and insurance industries' contribution to the gross domestic product 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 office tower in the Caracas business district of El Rosal, the bank has seen its revenue in Venezuela grow fourfold, and its credit portfolio nearly tripled last year.
Still, the banks may be thriving too much for the government's liking. Mr. Chavez warned last month that the state could take over the industry if it did not offer low-cost financing to Venezuelan businesses. Among the institutions that would be affected by such a move are Citigroup and the Spanish banks Santander and BBVA, which control lucrative outlets here.
Venezuelan private industry is well aware that the president is not afraid of nationalizing. He made similar threats before the government bought out American companies' stakes in the largest private electric and telephone utilities this year. Venezuela also took over operation of multibillion-dollar oil projects in May.
Bankers do not dismiss the possibility of an eventual takeover in their business, but they do not expect such a move in the short or medium term. ''The government needs private investment in banking,'' said Diran Sarkissian, president of the Stanford Bank in Venezuela. ''Ask them if they have the personnel to manage 50 financial institutions.''
Oscar Garcia Mendoza, president of the locally owned Venezolano de Credito and one of the few bankers openly critical of the Chavez government, said that the threat could be seriously intended but that ''it would be a disaster that would affect millions of Venezuelans who trust the banking system for their savings.''
The expanded use of credit is apparent in upper-middle-class Caracas neighborhoods like Altamira, where Gabriel Jimenez was getting ready to drive his new black Mercedes-Benz C200 sedan off the lot. Mr. Jimenez had bought the same model without financing in 2000, but this time he chose a 48-month loan to pay off most of the cost at 19 percent interest. The Venezuelan-owned Banesco approved his loan in only 72 hours. ''The process is really easy,'' said Mr. Jimenez, a divorce lawyer, before hopping into the driver's seat, 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 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 banks 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.
They say that the surge in the use of credit reflects growing consumer power and access to banking services for the country's poor, many of whom do not have bank accounts.
A burgeoning number of state-financed development banks have increased access to microcredit loans for low-income Venezuelans. Yolanda Vera, from the lower-class area of Propatria in western Caracas, said one such institution, a women's development bank called Banmujer, has given her a series of loans totaling $2,500 over the last three years for a start-up business that produces table linen.
''It has been a great push,'' said Ms. Vera, 50, 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 they bought from the Venezuelan government in 2005 and 2006 at the official exchange rate.
Then they 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 of Caracas.
This year, banks earned commissions as intermediaries for $7.5 billion in bonds issued by the state oil company Petroleos de Venezuela, the largest corporate bond sale in the country's history.
But bank directors say these advantages and current revenue are more than offset by government regulations that are making the sector more vulnerable. Banks are required to commit 32 percent of their loans to specific areas of the economy, including agriculture, housing and microcredit. Coming changes in the country's banking law may increase that percentage, said Ricardo Sanguino, president of the National Assembly's Finance Commission.
''Here, the norms change,'' Mr. Sarkissian said. ''Every day they give us more news, a new regulation. That is constant.'' The central bank, which has lost most of its autonomy from the government, announced in April that it would force private banks to double the amount of cash they deposit in their reserves, to 30 percent, in an effort to curb inflation. In the same week, Mr. Chavez ordered Fogade, the country's bank deposit protection fund, to transfer all its assets to the government, which would then distribute the cash to the poor.
Critics also say that Venezuela's inflation rate of more than 19 percent, the highest in Latin America, could force the government to raise interest rates. That, in turn, could make it more difficult for borrowers to pay back their loans.
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 energize consumption.
After all, these days Venezuelans can get financing to buy silicone for plastic surgery at their local pharmacy. At a Locatel drug store in eastern Caracas, eight people a day request loans administered through a Banesco credit card for implants.
''Lots of people come, especially during Christmas, Easter and graduation season,'' a saleswoman, Solsyret Delgado, saidas customers lined up at her register to inquire about the credit card offer. ''We've given them to almost everyone.''