Venezuela banks profit under Chбvez
In marathon speeches peppered with quotes from Marx and accolades to Che Guevara, President Hugo Chбvez repeatedly vows to do away with capitalism in Venezuela. But it turns out that Chбvezs economic policies have been generating a boom for those most capitalist of institutions - the banks in Venezuela.
Record public spending, fueled by high oil prices, is flooding this flourishing economy with excess cash. But government currency controls are trapping that money in the country. So the banks are using it for loans, as advertised on flashy billboards across Caracas.
And with interest rates lower than the inflation rate, “You would be stupid not to take out a loan right now,” said Richard Francis, a director of sovereign ratings for Standard Poors.
As a result, profits for the banking sector grew 33 percent last year, led by a jump of more than 100 percent in credit card loans and a 143 percent increase in automobile credit, according to Softline Consulting, a financial analysis firm based here. The banking and insurance sectors contribution to gross domestic product - the measure of all goods and services produced in the country - 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 own office tower in the Caracas business district El Rosal, the bank saw its revenues grow fourfold and its credit portfolio nearly triple last year.
Still, the banks may be thriving too much for the governments liking. Chбvez warned last month that the state could take over the sector if it did not offer low-cost financing to domestic industries. Among the institutions that would be affected by such a move are Citigroup, which is based in the United States, and the Spanish banks Santander and BBVA, which control lucrative outlets here.
The private sector is well aware that Chбvez is not afraid of nationalizing. He made similar threats before the state bought out American companies stakes in the countrys largest private electric and telephone companies earlier this year. The government also took over operations of multibillion dollar oil projects in May.
Bankers do not dismiss an eventual bank takeover, but they do not expect such a move in the short or medium term. “The government needs private investment in banking,” said Dirбn Sarkissiбn, president of Stanfords commercial bank in Venezuela.”Ask them if they have the personnel to manage 50 financial institutions.”
Oscar Garcнa Mendoza, president of the locally owned bank Venezolano de Crйdito and one of the few bankers openly critical of the Chбvez government, said the threat could be sincere, but that “it would be a disaster that would affect millions of Venezuelans who trust the banking system for their savings.”
In the meantime, consumers have been taking advantage of the expansion in credit. Betzaida Guerra, for example, said she discovered in a newspaper advertisement last year that a bank could finance the operation she had long wanted but could not afford. Within weeks, she secured credit for the nearly $5,000 surgery to enlarge her breasts with silicone.
“I was excited,” said Guerra, an accountant from a Caracas suburb, who has nearly finished paying off her 12-month loan. “I saw the advertisement and thought, The way out has arrived. ”
The consumer spree driving credit growth is apparent in upper-middle class Caracas neighborhoods like Altamira, where Gabriel Jimйnez was getting ready to drive his new black Mercedes Benz C200 sedan off the lot. Jimйnez bought the same model without financing in 2000, but this time he chose a 48-month loan to pay off most of the $65,000 car at 19 percent interest. The Venezuelan-owned bank Banesco approved his loan in only 72 hours.
“The process is really easy,” said Jimйnez, a divorce lawyer, before hopping onto a drivers seat still covered with plastic, smelling the new cars scent and playing with its gadgets. “Before, interest rates were so high that it wasnt worth it.” The Altamira Mercedes Benz 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 banking sector 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. Even with the expansion of loans, credit levels are relatively low. Domestic credit was 17 percent of GDP last year compared with nearly 28 percent in Colombia, according to Standard and Poors.
