Venezuelan banks were on top of the world in 2012 in terms of aggregate return on Tier 1 capital. At almost 58%, their aggregate return on Tier 1 capital was almost 14 percentage points higher than second placed Sri Lanka. This is a strong performance from Venezuela, a country subject to periodic liquidity crises and labouring under a dual exchange rate regime. In fact, two Latin American countries feature among the top three banks by this measure, with Argentina recording a 42.4% return.
In both cases, high inflation plays its part, driving up interest rates and generating high returns. Official inflation in Argentina is more than 10% year on year, but a number of economists have been threatened with prosecution for suggesting that the real rate is significantly higher. In Venezuela, meanwhile, consumer price inflation has soared to more than 45% in mid-2013, from 20% at the start of the year. Inflationary pressures are a common theme running through most of the high-return banking sectors worldwide. Inflation rates of 6% or more prevail in all of the top 10 countries except Peru, which keeps price rises to a much more modest 3.3%.