Banco de Venezuela, the biggest state-owned bank in the South American country, has started to open up ‘community banking terminals’ in some of the most dangerous slum districts in the capital, Caracas, as part of the government’s drive to ‘socialise’ Venezuela’s banking system.
The government, which is headed by the populist left-wing president Hugo Chávez, began to set up the terminals in pharmacies, bakeries and other stores in August last year under a project called 'TBcom'. Local people can deposit up to 500 bolívares ($116) and withdraw up to 300 bolívares at a time. Transactions are free and accounts can be opened up without needing to deposit any money.
Until now, 56 terminals have been set up in shops in slum districts such as Sucre, La Vega, La Pastora and Petare, the latter of which is the biggest and one of the most dangerous shanty towns in Latin America with 680,000 inhabitants. Shop owners and assistants have been trained in the use of the terminals, which instantly connect to the bank’s main operating system. By this April, a total of 9500 transactions had taken place, totalling 2.2m bolívares.
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“Many people in the slums work in the centre of Caracas,” says José Colmenares Carias, vice-president of the social banking division at Banco de Venezuela. “It is too dangerous for them to carry money from the centre to where they live; now they can access their bank accounts locally. The level of bancarisation [extension of banking facilities] in Venezuela is low and the terminals also enable people who have never had bank accounts to access the banking system for the first time.”
He adds that at first the bank was concerned about opening up the terminals in the slums, but says that the local communities are aware of their importance and have put in place all kinds of security to ensure they are not robbed. Banco de Venezuela plans to increase the number of terminals to 200 in slums in Caracas by the end of this year and expects to start opening them in other favelas in other cities next year.
Making banking accessible
Financial inclusion is indeed low in Venezuela; only 45% of the adult population has a bank account. Making banking services accessible to a wider number of citizens has not only resulted in the slums project. It was one of the stated aims used by president Hugo Chávez to justify the nationalisation of a number of banks in 2009.
Mr Chávez has repeatedly declared war on what he refers to as the "bourgeoisie". Much of his political base stems from the very slum districts in which the banking terminals are being opened and he needs to shore up his support ahead of presidential elections in December next year, which could be his greatest political test to date.
As a consequence of Mr Chávez’s policies, Venezuela's banking system has experienced a significant shake-up since December 2009 when the government started to intervene in the management of a number of small and medium-sized banks; it either closed them entirely or nationalised them. In July 2009, Grupo Santander sold Banco de Venezuela to the state for about $1bn, the first nationalisation of a financial institution in the country for more than a decade. And by the end of the year, the management of 11 banks had been subjected to interference. This group included BanPro, Bolívar Banco, Banco Confederado, Canarias, BaNorte, Baninvest, Federal, Bancoro and BanValor. In December 2009, the government announced the setting up of a new state-owned bank, called Banco Bicentenario, by the merger of another public bank, Banco de Fomento Regional de Los Andes, with Bolívar Banco, Central Banco Universal, Banco Confederado and BaNorte.
Poor management
The government says it had to act, as the banks violated solvency regulations and may have engaged in fraudulent activities. At the end of last year, there were 30 private sector banks against 48 in 2009 and the number of public sector banks rose from one to 12 banks.
“The banks were badly managed,” says Humberto Ortega Díaz, the minister of public banks and president of Banco de Venezula. “We had to intervene.” However, analysts say that the government had been keen to nationalise the banks for a long time, as it sees them as one of the cornerstones of the economy.
Banco de Venezuela took on many clients of the problematic banks. Last year, its total deposits increased by 62.9% and the bank assumed 879,000 new clients. It now has a total of 4.4 million clients, an increase of 33.7% from July 2009. Its total lending rose by 38.2% last year to 22bn bolívares.
Despite the nationalisation spree, the private sector still dominates the banking system. Of total deposits in the country last year, 224bn bolívares belonged to private sector banks, while 98bn bolívares were accounted for by public sector banks. Of total bank credit, 148bn bolívares was written by private sector banks and 41.5bn bolívares by state-owned banks.
Deposits increase
According to Venezuela's ministry of finance, the country's banks’ total deposits increased by 21% to 322bn bolívares last year from 266bn bolívares in 2009. Total credit added up to 189bn bolívares last year against 159bn bolívares in 2009, a jump of 19.2%. Last year, sight deposits grew by 40.2% and savings deposits by 20.3%. However, deposits of a fixed term fell dramatically by 56.5%. Total net income amounted to 7.5bn bolívares with 24.9% return on equity.
Following the nationalisations, Banco de Venezuela is now the biggest bank in the country in terms of deposits, which totalled 53.7bn bolívares as of March this year. It is followed by the private sector banks Banesco with 43.5bn bolívares in deposits, Mercantil Banco Universal with 41.4bn bolívares, BBVA Provincial with 40.1bn bolívares and state-owned Banco Bicentenario with 33.3bn bolívares. Venezuela’s four main banks account for 49.5% of the country’s entire financial system.
Mercantil Banco Universal highlights just how profitable banking is in the country: last year, its net earnings grew by 88.5% to 1.36bn bolívares, its return-on-equity ratio was 35.5% against 24% in 2009 and its return-on-assets ratio was 3.3%, up from 2.2% in 2009. Total assets also grew in 2010 by 26.4% to 46.3bn bolívares, net loans grew 31.6% to 26.7bn bolívares and deposits increased 25.8% to 40.3bn bolívares. Loan portfolio quality remained very favourable, with a ratio of past due and non-performing loans to gross loans of 0.9%, compared with 3.4% for the Venezuelan financial system as a whole.
Future nationalisations
The country’s remaining private sector banks remain under the threat of nationalisation. Last December, Mr Chávez said publicly: "If the banks fail to fulfil their responsibilities, I will expropriate them, be it Provincial or Banesco.”
Despite such comments, Venezuela's banking sector is generally a settled one. “Overall, the banking system is very stable,” says Mr Diaz. “This is best demonstrated by the high growth in deposits and lending last year. The banking crisis in which the government closed down or intervened in the running of 11 financial institutions affected up to 2.5 million account holders. However, the crisis was not so severe as the one in 1993 and 1994, in which the then government intervened in 19 banks and up to 6 million Venezuelans were impacted.”
Mr Chávez plans to stand again in the presidential elections next year. The opposition is now more confident about winning the elections, after it gained one-third of the seats in the national assembly in elections last September. Many Venezuelans, including some of the poorest, have become disaffected with Mr Chávez, mainly because of the lack of improvements in the country's economy. Venezuela’s gross domestic product (GDP) declined by 1.4% last year and by 3.3% in 2009.
Despite the sluggish economy, big private banks still remain highly profitable. Venezuela’s economic fate might turn this year as its GDP is expected to expand by 3% to 4% by the end of 2011, according to Goldman Sachs, helped by rising oil prices – the country is the world’s fifth biggest oil-exporting country and owns oil producer PDVSA, of which a growing percentage of profits is taken up in taxes. However, analysts believe the gap between tax revenues and public spending has become unsustainable. The forecasted economic growth might not be enough to fix the country’s problems. It might just be too tempting for the government to now turn its attention to Venezuela’s profitable large lenders, after having nationalised many of the country’s smaller and medium-sized ones.
