Why are they making such profit in a country that seems to have reached the point of no return?
The two biggest banks in Venezuela, Banesco Banco Universal and Banco de Venezuela, occupied the 6th and 7th rank on The Banker’s top 200 Latin American Banks 2016. The entities displayed a vast capital growth of 80.49% and 129.4%, respectively. Other Venezuelan banks showed considerable growth as well.
How is this possible?
A revolutionary military member called Hugo Chavez took Venezuela under his wing under the premise of using the nation’s vast oil reserves for the good and freedom of its people. He had a strong anti-elite, anti-American speech that gained sympathy from the lower social classes.
Venezuela dwelled with a deep inequality problem that led to unprecedentedly low levels of education among its people and Hugo Chavez was well informed on the matter. His first two actions in power were to increase government spending in form of subsidies and to dislodge multinationals while privatizing profitable companies.
As a result, the public reacted positively. Chavez granted the former marginalized communities a better lifestyle; quality goods were now accessible. A substantial increase in government spending expanded the size of the economy and boosted Venezuelan interest rate, factors that made the Bolivar a leading currency in the region. The majorities were happy at last. Hugo Chavez’s strategy consisted of taking the capitalist economy he seized and restricting it through the reduction of international commerce replacing it with government expenditure directed to his people.
Suddenly, global crude prices started to fall dramatically. As consequence, the remaining Venezuelan investors sprinted to more stable economies such as Panamá and Colombia. Money was now leaking in two different directions in the hopes to maintain the nation’s stability. The government was forced to give away higher quantities of crude to maintain the social benefits its people had become used to. Meanwhile, it also had to compensate for the planned investment loss that came as consequence of higher interest rates.
The South American economy was reaching a point of no return; the then current level of spending was sending the nation into bankruptcy. It was the Central Bank’s turn to intervene by printing money in the hopes for people to start saving and investing before the raise of prices; Venezuelans took little to no action when it came to shielding their savings.
Most Venezuelans started taking out large amounts of loans, buying essentials in the black market, such as toilet paper, and then wait for the inflation to strike again canceling out the debt. It was that or lose all material possessions. This system started benefiting banks so well that they even started lending money at the same rate, or even lower, than the Central Bank as money was presumed to flow across Venezuela. This became such a phenomenon that even the Inter-American Development bank devoted a report on it back in April 2017.
After analyzing Banesco Banco Universal and Banco de Venezuela’s balance sheets from 2016 it is evident that the largest amount of current money inflow comes directly from ongoing credits which means that their prosperity lays on the need of a large population to obtain usable currency for daily operations.
The reason the big Venezuelan banks are making such profits it's not because they’re greedy, it’s a result of more than 15 years of questionable decisions and lack of strategic planning from the Venezuelan individuals.
Latin American Post | David Eduardo Rodríguez Acevedo
Copy edited by Susana Cicchetto