Q+A-What's going on in Venezuela's bank sector?
CARACAS - The closure of four ailing Venezuelan banks, and threats by President Hugo Chavez to nationalize more, have unsettled the South American nation's financial sector and made investors jittery.
Amid the rhetoric and rumors swirling round Venezuela's banks, how serious is the situation?
WILL CHAVEZ NATIONALIZE OR JUST CLEAN BANKS?
* Despite the problems at the four small banks and Chavez's warning he has others on his radar, analysts say the big institutions -- 10 large banks control 70 percent of deposits -- are well capitalized and possibly even set to benefit if savers flee the weaker institutions.
* The biggest danger now is that rumors about particular institutions and Chavez's plans may spark a bank run, despite the relative health of the system.
* Though the bank sector remains one of the few major areas of the economy not targeted for large-scale nationalization, analysts say that is not necessarily Chavez's agenda right now. Rather, he wants to clean up the sector and purge some unscrupulous bank owners, even if they are close to his rule.
* President Hugo Chavez's administration is not planning on taking any more aggressive steps to nationalize the banking sector despite market fears to the contrary, EurasiaGroup analyst Patrick Esteruelas said. He said the state's interventions this week were probably a result of an internal power struggle and clumsy settlement of accounts.
* On the other hand, Chavez has made it clear that he reserves the right to nationalize banks -- or the whole sector -- if he sees fit. What we might be seeing is a nationalization of the system little-by-little, said Boris Segura, senior Latin American analyst for RBS.
WHY ARE VENEZUELANS SO NERVOUS ABOUT THEIR BANKS?
* Many remember bitterly the financial debacle in 1994, when the implosion of Venezuela's second largest bank, Banco Latino, sparked a crisis that saw half the nation's banks fold and cost the government about $11 billion.
* Many ordinary depositors lost their life's savings, while tales spreading of corrupt bankers escaping on private jets with suitcases full of cash. Venezuelans' confidence in their banks has never quite recovered. It was no surprise that this week's news that four small banks would close brought hundreds of depositors onto the street, many assuming they had lost everything, despite government assurances to the contrary.
HOW DID THE LATEST SITUATION COME ABOUT?
* Having nationalized large swathes of the Venezuelan economy during his decade in power, Chavez took aim at the bank sector in a speech at the weekend, saying he would not hesitate to take over institutions flouting the law or putting personal enrichment before national development. For details see [ID:nN29403303]
* The next day, before bank opening hours on Monday, Finance Minister Ali Rodriguez announced the closure of four small banks the government had seized earlier in the month because of violations of solvency regulations and unexplained capital increases. The four banks, Banco Provivienda, Banco Canarias, Banco Confederado and bolivar Banco, account for only 6 percent of the South American oil-producing nation's deposits.
* Intriguingly, they belonged to a wealthy businessman, Ricardo Fernandez Barruecos, with close ties to the government, including supplying food to state shops and using his trucks to help Chavez break a strike in 2003. Barruecos was arrested.
* Chavez repeated his threats on Wednesday, saying his government had its radar on another group of banks.
* These events, analyst say, may be just the tip of the iceberg in a complicated web of graft, cronyism and mismanagement in the bank sector over the last decade.
* Venezuela's economic slump, with a recession acknowledged earlier this month, may have also made some banks more vulnerable and it made it harder to respond to political pressure on them to extend credit.
WHAT'S THE POLITICAL IMPACT?
* Chavez critics are licking their lips at the prospect of an unseemly fight over banks -- and other lucrative institutions such as insurance companies and brokerages -- between influential factions within government. They say a new breed of Bolibourgeoise, a mocking reference to the socialist Chavez's idol and independence hero, Simon Bolivar, has grown up in Venezuela, milking the system for rapid, personal gain.
* Chavez, however, knows that he faces important legislative elections in September next year, and will not want to wash his dirty linen in public or risk a bank run. Rather, he may present a clean-up campaign as a positive factor.
* Chavez says opposition leaders are hypocritical to denounce a new mafia, reminding them of rampant corruption before he came to power and accusing his foes of trying to stir up a run on banks.
HOW ARE MARKETS REACTING?
* Investors are nervous, and wondering what's coming next.
* Venezuela's benchmark global bond due in 2027 VENGLB27=RR closed 2.687 points lower to a bid of 69.563 on Wednesday, for a yield of 13.903 percent. It was the biggest one-day percentage fall in the price of the bond since August 26.
* The cost to insure Venezuela's debt annually against default climbed to about 27 percent of face value on Wednesday compared with about 25 percent the day before, according to data from Markit on benchmark five-year credit default swaps VEGV5YUSAC=MP, the highest level since the end of July.
* The bolivar currency fell in the parallel, non-official market to about 5.80 against the U.S. dollar on Wednesday, from 5.50 for the days before, its weakest rate for weeks.
(See [ID:nN02425746] for a factbox on Venezuelan banks and for a Q. and A. on the nation's recession ) (Editing by Frank Jack Daniel and Padraic Cassidy)
© Copyright Thomson Reuters 2024. All rights reserved.