Barinas, 20th of December, 2010 (Venezuelanalysis.com) – Venezuela’s National Assembly on Friday approved new legislation that defines banking as an industry “of public service,” requiring banks in Venezuela to contribute more to social programs, housing construction efforts, and other social needs while making government intervention easier when banks fail to comply with national priorities.
The Law of Banking Sector Institutions, as it is formally known, is one of a dozen pro-Revolution laws being passed by the current National Assembly before the incoming assembly – and its growing anti-Chavez minority – begins legislating early next year.
The new law protects bank customers’ assets in the event of irregularities on the part of owners, makes it illegal to arbitrarily change banking hours, and stipulates that the Superintendent of Banking Institutions take into account the best interest of bank customers – and not only stockholders, as was the case prior to the new law – when making any decisions that affect a bank’s operations.
The law also requires that banks prepare a factual overview of financial health at the end of each trimester, and mandates the Superintendent of Banking Institutions organize this information for dissemination to the general public through a regular publication to be printed and distributed nationwide.
According to Ricardo Sanguino, legislator from Venezuela’s United Socialist Party (PSUV), the law is born of “a necesity in Venezuela to consolidate a responsible financial sector.”
“With this law we are restricting unregulated speculation… [Now] there is absolutely no chance that a banking institution becomes involved in irregularities, as they have done in the recent past,” said Sanguino.
In an attempt to control speculation, the law limits the amount of credit that can be made available to individuals or private entities by making 20% the maximum amount of capital a bank can have out as credit. The law also limits the formation of financial groups and prohibits banks from having an interest in brokerage firms and insurance companies.
The law also stipulates that 5% of pre-tax profits of all banks be dedicated solely to projects elaborated by communal councils. 10% of a bank´s capital must also be put into a fund to pay for wages and pensions in case of bankruptcy.
According to 2009 figures provided by Softline Consultores, 5% of pre-tax profits in Venezuela’s banking industry last year would have meant an additional 314 million bolivars, or $73.1 million dollars, for social programs to attend the needs of Venezuela’s poor majority.
Reuters on Friday described the law as part of a “package of legislation the Venezuelan government is pushing through to entrench socialism in the South American OPEC member nation.”
According to opposition legislator Juan José Molina, the new banking law is an “attack on economic liberty, on the constitutional right that citizens have to compete freely, to comercial incentives.” In statements made to the European Pressphoto Agency (EPA), Molina concluded that the law was “the first step in the nationalization of banking” in Venezuela.
Opposition economist Alexander Guerrero called the law “a 50 year step backwards” because it “takes away banks’ participation in the non-banking sector, such as stock exchanges, investment institutions, insurance companies, etc.”
In contrast to Molina’s statements, Juan Carlos Escotet, President of the Venezuelan Association of Bankers, recently affirmed that he is, “in total disagreement with such affirmations” and that “in none of the law’s articles does it propose the nationalization of banking as such.”
PSUV legislator Rafic Souki explained that the new law “doesn’t mean that [banks] are going to be nationalized… But yes, if there is an irregular situation, they are now a public utility and the state can proceed to secure the assets to keep services functioning.”
While the Venezuelan government has nationalized hundreds of companies since first taking office in 1998, private banks in Venezuela still play a majority role in the country´s banking industry, managing roughly 70% of assets.
In 2009, the Venezuelan government took over Banco de Venezuela and this year, Banco Federal. Along with other publicly owned banking institutions, these takeovers meant that 30% of the banking industry is now in government hands.
Last week, Venezuela’s outgoing National Assembly passed the banking law, media and internet regulations, as well as a People’s Power Law of Communes. The legislature also granted President Hugo Chavez decree powers allowing Chavez to legislate by decree for the next 18 months.
This week, a new university law, urban property legislation, and controls on internationally-financed NGOs are expected to be approved.