July 31

President Chávez announces nationalization of Banco de Venezuela
Venezuelan President Hugo Chávez reported on July 31 during an obligatory simultaneous broadcast the steps taken by the government to nationalize Banco de Venezuela, property of Spanish financial group Santander.

The head of state said that the entity's stakeholders had no intention to sell the operation in Venezuela, but the government was interested indeed in buying the institution. As a result, it would proceed with nationalization.

In the banking sector, rumors were spread about banker Víctor Vargas, the owner of Banco Occidental de Descuento, having talks since a few weeks ago to procure the Banco de Venezuela. However, no agreement had been reached so far. Chávez confirmed the information.

August 1

Govn't to become the major player in banking sector
In an unequivocal measure to consolidate a model where the government is the lynchpin of economy, Hugo Chávez announced the nationalization of Banco de Venezuela, the local branch of Spanish banking giant Banco Santander.

"I am interested in buying. We are going to nationalize Banco de Venezuela," said Chávez in a country-wide compulsory radio and television broadcast. 

The Venezuelan Head of State said emphatically that Spain's Grupo Santander, which bought Banco de Venezuela from the government in 1996, had agreed to sell the bank. The Spanish group had asked the Venezuelan government for permission to sell the bank to a private investor, but Chávez refused to authorize the operation.

Grupo Santander confirms talks to sell Banco de Venezuela
Spain's Grupo Santander Central Hispano confirmed on August 1 that it is "holding talks" with the Venezuelan government regarding the sale of branch Banco de Venezuela.

Grupo Santander explained in a press release that it tried to sell Banco de Venezuela to a Venezuelan private investor but the sale did not materialize.

Subsequently, the financial Spanish group became aware that the Venezuelan government was interested in nationalizing Banco de Venezuela. Therefore, they decided to hold talks with Chávez's government.

Meanwhile, the Spanish government said "it would not intervene" in the operation. Spanish Deputy Prime Minister María Teresa Fernández de la Vega conceded that Spain's Grupo Santander was interested in selling its subsidiary in Venezuela, adding that "there is no particular problem about it," AP reported.

Venezuelan bonds fall on Banco de Venezuela takeover move
Venezuelan bonds extended their losses on August 1, after the government announced it would nationalize Grupo Santander's subsidiary Banco de Venezuela, in a takeover calculated to drain over a billion dollars from the country's finances.

On July 31, President Hugo Chávez said he would nationalize Banco de Venezuela, his latest buy in an oil-funded series of purchases that has already included crude oil projects and one telecom firm, along with steel and cement plants, Reuters reported.  

Venezuela's debt returns, calculated on bonds prices and coupon payments, fell 0.67 percent on Friday, following a 0.33 percent drop on Thursday, according to Morgan's Emerging Markets Bond Index.

 "Venezuela has opened a new front on its quest for socialism and nationalization with the targeting of Banco de Venezuela," according to a report published by IDEAglobal. "We sense that the credit will again lose support." 

Ex central bank director questions efficiency following Banco de Venezuela takeover
The fact that the Venezuelan banking is likely to come under virtually full state control once the Venezuelan government purchases Banco de Venezuela from Spain's Grupo Santander is igniting concerns among customers, said former director of the Central Bank of Venezuela Domingo Maza Zavala. 

"Venezuelans do not have a good opinion of the government management of the economy, as a whole," Maza Zavala said, adding that "some people are afraid because the financial system is the heart of the circulatory system in a country," the expert in economic policy said to a group of reporters after President Hugo Chávez announced the eventual nationalization of Banco de Venezuela.  

This perception stems from the fact that after its recent nationalization, the oil industry is not managed efficiently and the same goes for basic industries, and utilities that have been taken over by the government and "have begun to tumble," said Maza Zavala.

Central Bank: "Venezuelan financial system is sound and safe"
The Central Bank of Venezuela (BCV) said on August 1 that the financial system "is sound and safe," following President Hugo Chávez's move to take over Banco de Venezuela, the local branch of Spain's Grupo Santander.

The BCV issued a press release reporting "that the financial system is sound and safe," adding that it was supplying "enough liquidity to the financial system, thus ensuring availability of the means of payment for the normal operation of the economy."

The bank also underlined that "it has enough reserves of coins and bills to keep the flow of cash in banks, thus providing the necessary means of payment for production, distribution and consumption activities within the country."

Chávez amends Banking Law
President Hugo Chávez issued a decree to amend the law governing the Venezuelan banking and financial system, according to the Official Gazette published on Friday, a day after he announced the nationalization of Banco de Venezuela, the branch of Spain's Grupo Santander in Venezuela.  

The reform was declared in the government's Official Gazette on Friday, but details of the law were not included and a spokesman said its content would not be published for days, Reuters reported.

The imminent banking reform was included in a package of 26 laws rushed through in the last hours before the end of a period of special presidential powers allowing the socialist leader to write legislation without Congressional approval.

Government, Santander Group start discussing purchase of Banco de Venezuela
Venezuelan Vice-President Ramón Carrizalez Rengifo met on July 31 evening with Banco de Venezuela CEO Michel Goguikian, in addition to Minister of Economy and Finance Alí Rodríguez Araque, the Vice-President of state-run oil holding Petróleos de Venezuela (Pdvsa) Asdrúbal Chávez, Banks Superintendent María Elena Fumero and the director of Central Bank of Venezuela José Félix Ribas, to discuss the terms and conditions on procurement of the financial entity, as announced by President Hugo Chávez.
 
The news was given in a press release from the Vice-President's Office, which ratified an announcement made by Minister of Communication and Information Andrés Izarra.

The communiqué stressed the government decision to buy Banco de Venezuela, reported state-owned news agency ABN.

Banesco feels that the private sector will prevail in Venezuelan banks
The private sector "has shown an enormous ability to compete" in the banking business; therefore, it will keep a high profile even after the nationalization of Banco de Venezuela, said on Friday Banesco CEO Juan Carlos Escotet.

"The state has decided to buy a bank that was on sale in order to compete and have a larger installed capacity, which, in my opinion, is plausible," said Escotet. "Of course, the big challenge for the state thereafter will be keeping the usual high-quality standards characteristic of the Venezuelan banking sector."

Nationalization should not make an impact on account holders
Following the announcement made by Venezuelan President Hugo Chávez on his intention of nationalizing Banco de Venezuela, the speaker of the National Alliance of Users and Consumers (Anauco), Roberto León Parilli, said that such decision should not directly affect domestic stakeholders.

He commented that the measure will not be effective all of a sudden. Instead, multiple agreements should be first reached by the government and the owners of Santander Group.

"This should not affect or make a direct impact on customers; let alone because some weeks ago, it was known that Santander Group was interested in selling its Venezuelan subsidiary," said León Parilli.