Mérida, December 4, 2009 (venezuelanalysis.com)– As part of the government’s effort to reshape the financial sector, Venezuelan President Hugo Chavez announced the nationalization of two small banks on Thursday.
Confederado and Bolivar Bank encompass 2.8% of the total financial market and serve 170,000 depositors. They have been under national investigation for a series of banking law infractions, along with two of their partner firms, Banpro and Canarias, which the government decided to liquidate earlier this week. All together, the four banks, which make up the Bolivar Financial Group, serve almost 750,000 depositors and encompass less than 10% of the financial market.
The government’s Deposit Guarantee and Banking Protection Fund (FOGADE) will secure more than 95% of the deposits. In accordance with the General Law on Banks and Other Financial Institutions, FOGADE will guarantee up to 10,000 bolivars (US $4,650) to each depositor in an initial phase, and will announce further guarantees once the banks’ assets are re-evaluated.
FOGADE President Humberto Ortega Díaz said the fund is prepared to pay out between 1.3 and 1.6 billion bolivars (US $600-740 million), the estimated amount that is required to secure all deposits in the four banks.
All deposits were temporarily transferred to Venezuela’s third largest bank, the state-owned Bank of Venezuela, which began processing depositors’ withdrawal and transfer requests this week. Eugenio Vásquez, the president of the Bank of Venezuela, said the bank aims to attend to every depositor by the end of the year.
President Chavez encouraged depositors in the nationalized and liquidated banks to open new accounts in the Bank of Venezuela, which the government purchased from the Spanish Santander group in May.
The president offered incentives, including an increase in the interest rate on savings accounts from 12.5% to 14%, promises of generous government credits to come, and “possible restructuring” of their debts.
“I recommend that you leave [your money] in the Bank of Venezuela… it is more secure there than the reserves in the Orinoco [Oil Belt],” said Chavez, referring to Venezuela’s vast extra-heavy oil reserves.
Chavez said that in contrast to previous governments, his administration is cracking down on irresponsible banking by prosecuting banking executives. As of Friday, the Attorney General’s Office had issued ten arrest warrants for bankers suspected of involvement in the crimes and prohibited nineteen other bankers from leaving the country. The principal stockholder in the Bolivar Financial Group remains in police custody.
Meanwhile, on Friday, Finance Minister Ali Rodriguez announced that the Superintendent of Banks will initiate new investigations, and temporary closures, of three other small banks: Central Banco Universal, Baninvest, and Banco Real.
Re-Orienting Public Banking
The recent interventions in the banks are part of the government’s plan to strengthen and re-orient the public financial sector to give further impetus to national production, including food and energy production as well as manufacturing.
For more than half a century, oil has dominated and produced imbalances in Venezuela’s economy. Currently, the fossil fuel accounts for more than 90% of export earnings and 38% of the national budget, while the country imports most foods and other basic items.
In addition to the recently nationalized banks and the Bank of Venezuela, the state also controls Banfoandes, Banco del Tesoro, the Industrial Bank (Banco Industrial), and the Agricultural Bank (Banco Agricola). These account for 24% of all deposits in the country as well as 22% of the banking workforce, almost 16,400 workers, according to the Venezuelan daily El Universal.
Chavez said the government would also intervene in the administration of a series of food production and distribution companies that held significant deposits in the Bolivar Financial Group. “These companies must be secured, we must draw up a timeline for intervention and a profile for each one,” he said.
The president urged Venezuelans not to believe the “alarmism” of opposition leaders and some private media outlets that have attempted to create panic among depositors by spreading spread false information about the bank measures and implying that there is an impending crisis.
“Nobody should be fooled by the alarmism of some sectors that will always be conspiring against the country,” said Chavez. “Not only the government, but the banking system will emerge stronger from this, and the people’s confidence will increase,” he said.
Private Bankers say Measures Are “Appropriate and Necessary”
In a joint statement released on Wednesday, two major private banking associations, the National Banking Council and the Banking Association of Venezuela, said the government’s measures are “appropriate and necessary” and that the financial system as a whole is in good shape.
“The National Banking Council and the Banking Association of Venezuela have supported and will support all those measures directed toward correcting and sanctioning the conduct which is unconnected to the best banking practices,” the groups stated.
“We believe that these measures will contribute in a positive way to guaranteeing that the Venezuelan financial sector as a whole, which is characterized by health and prudent administration, will not be affected by any situation related to the measures adopted by the executive,” the statement continued.
In the past, the Communist Party of Venezuela has repeatedly called for the complete nationalization of the private financial sector, but Chavez and his United Socialist Party of Venezuela have not heeded the call.
On Thursday, Victor Gil, the president of the National Banking Council, told the press, “The private banking sector does not fear nationalization because the president of the Republic has been very clear… that he would not hesitate to nationalize any bank that does not fulfill its obligations according to the Banking Law.”
With regard to the several thousand employees in the two liquidated banks, the government said it will uphold all labor laws concerning severance pay and other benefits, but it did not specify how many of these employees would lose their jobs and how many would be incorporated into the public sector.
Chavez announced the nationalizations during a ceremony for the graduation of the eighth class of students in the Ribas Mission, a social program that grants high school degrees to adults who had dropped out of or never attended high school.