VÍCTOR SALMERÓN
EL UNIVERSAL

As soon as oil prices overtook the barrier of USD 60 per barrel, President Hugo Chávez implemented an expansion plan, including thus far, procurement of telecommunications company Cantv, electric utilities, food suppliers, iron and steel industry Sidor, a group of cement makers and, most recently, the government deployment in the financial sector to the extent that it plans to nationalize Banco de Venezuela.

The track record of the petro-state as bank manager is not a happy one. As a matter of fact, the record includes a long list of bankruptcy and inefficiency.

From 1961 to 1983, nine Venezuelan banks were wrecked, including seven in the state hands: Banco Táchira, Banco de Fomento Comercial de Venezuela, Banco de Desarrollo Agropecuario, Banco de los Trabajadores, Banco de Fomento Regional del Zulia, Banco de Fomento Comercial de Venezuela and Banco Comercial de Maracaibo.

While macroeconomic mishaps make an impact on this result, economists Leonardo Vera and Raúl González said in a paper that was awarded by the Central Bank of Venezuela the Ernesto Peltzer Prize, that political-oriented management played a significant role.

"Lack of monitoring allowed granting of unsecured loans to companies and bank directors; in the case of state-run banks, financing facilities for multiple state companies or corporations, mostly for political purposes, were commonplace."

"Concentration of credits in a specific economic sector" and swinging oil prices, which made an impact on the government good standing, should also be considered.

At this very moment, the state financial institution is Banco Industrial de Venezuela, an organization that cannot escape from the standard of losses and poor performance.

Based on the data provided by think-tank Softline Consultores, Banco Industrial has been in the red in five out of the past 14 six-month terms.

Losses account for USD 75.2 million.

The burden
The expenses incurred by Banco Industrial are the highest in the system. Ending the first half, according to the numbers provided by the Banks Superintendence, staff and operational costs amounted to 64.80 percent of the revenues reported in the loan portfolio and investment in bonds, compared with an average of 37.15 percent in other banks.

At the end of 2007, Banco Industrial de Venezuela had a payroll of 3,178 people and 93 branches, that is, an average of 34.1 employees per branch, compared with 20.4 in all of remaining banks.

Paradoxically, the public bank focuses the least on lending. In order to measure this, the Superintendence uses a thermometer called credit intermediation index, which shows how many deposits go to loans.

Ending the first half of this current year, on average, the financial system used 60.99 percent of public deposits for lending. For their part, Banco Industrial and Banfoandes, both in state hands, accounted for 14.33 and 23.68 percent.

A look at the largest four banks in Venezuela shows that Banco Provincial has the highest level of credit intermediation with 79.55 percent, followed by Banesco, 65.81 percent, and, precisely, Banco de Venezuela, 64.29 percent.

The risk assessment ability is doubtful. On average, on June 2008, in the whole financial system, only 1.68 percent of the loan portfolio is hard to be returned, compared with 12.60 percent for Banco Industrial de Venezuela and 7.18 percent for Banfoandes.

vsalmeron@eluniversal.com

Translated by Conchita Delgado