Venezuela SERVICES
Figure 7. Transportation System, 1990
Banking and Financial Services
Venezuela's extensive financial infrastructure,
distinguished
by the specialized nature of its institutions, displayed
rapid
growth from the 1950s through the 1980s. In 1989 the
financial
services sector consisted of forty-one commercial banks,
twentythree government development finance institutions,
twenty-nine
finance companies, sixteen mortgage banks, twenty savings
and
loan associations, and scores of other related entities,
such as
insurance companies, liquid asset funds, pension funds,
brokerage
houses, foreign exchange traders, and a stock exchange.
The huge
oil profits of the 1970s prompted the rapid expansion of
financial institutions. During the less-prosperous 1980s,
however, several institutions went bankrupt. These
insolvencies
greatly disrupted the financial system and led the
government to
intervene to resuscitate some companies and to force
others to
close down. The most celebrated of these interventions was
the
1982 takeover of the Workers' Bank, which until that year
was the
country's fastest-growing financial institution.
The Central Bank of Venezuela (Banco Central de
Venezuela--
BCV) and the Central Office of Coordination and Planning
(Oficina
Central de Coordinación y Planificación--Cordiplan), with
assistance from the World Bank, sought to modernize,
liberalize,
and consolidate the private financial system in the early
1990s.
One of the main aims of restructuring was to improve the
weak
supervisory authority of government regulatory bodies such
as the
Superintendency of Banks, the Superintendency of
Insurance, the
Deposit Insurance Corporation, and the National Securities
Commission. The same policies sought to redefine and
eliminate
overlapping responsibilities. Financial authorities also
attempted to liberalize the BCV's interest rate policies
and
strict credit allocation provisions, which restricted
financial
markets
(see Monetary and Exchange Rate Policies
, this
ch.). In
addition, policy makers contemplated increased
participation from
foreign banks, which had been limited to a 20 percent
equity
share since 1970, in order to make local financial
institutions
more competitive with international counterparts.
Financial
restructuring also aspired to create new government
mechanisms
for dealing with ailing financial institutions.
The country's forty-one commercial banks and their
hundreds
of branch offices represented the core of the private
financial
system. Commercial banks held about 70 percent of the
total
assets of the financial system in 1989. Bank lending
policies
were generally very conservative, favoring high liquidity
ratios
and emphasizing personal relationships. Banks financed
mostly the
short-term credit needs of the economy, reserving
long-term
financing for government development finance institutions.
The
banking industry was highly concentrated; six major banks,
all
affiliates of the six leading financial groups, dominated
the
industry with ownership of 63 percent of total bank
deposits and
57 percent of total financial system assets. Banco
Provincial,
Banco de Venezuela, Banco Mercantil, and Banco Latino were
the
largest commercial banks in 1989. Fifteen medium-sized
banks
controlled 29 percent of bank deposits, whereas twenty
small
banks held only 8 percent of such deposits. Of the
forty-one
banks present in 1989, thirty were locally owned, private
banks;
two were privately owned with some foreign interests; and
nine
were government-owned banks. Many local banks balked at
the
prospect of outside competition from larger and better
capitalized foreign banks.
The nine public-sector banks that operated as
commercial
entities were the Industrial Bank of Venezuela (Banco
Industrial
de Venezuela--BIV), the Agricultural and Livestock
Development
Bank (Banco de Desarrollo Agropecuario--Bandagro), four
regional
development banks associated with the BIV, and three
subsidiaries
of the BCV (Banco República, Banco Italo-Venezolano, and
Banco
Occidental de Descuento). The BIV, the oldest state-owned
bank,
served as the major lender to the public sector and to
industry.
Like its four affiliated regional development banks, the
BIV held
a great many nonperforming loans. Without continued
capitalization from the central government, these five
banks
likely faced insolvency. Bandagro, also dependent on
renewed
government capital, faced large debts in 1990 despite
several
attempts to restructure the institution during the 1980s.
Nevertheless, Bandagro remained a key lender for
medium-sized
agricultural enterprises. The BCV's three banking
subsidiaries,
also carrying weak loan portfolios, were slated for
privatization
in the early 1990s.
In addition to public-sector banks, the state also
operated
twenty-three development finance institutions. Development
finance institutions typically funded large, long-term
development projects in both the private and public
sectors,
generally projects that were unable to secure commercial
bank
loans. Successive governments also had established
specialized
institutions to propel the development of agriculture,
industry,
urban areas, tourism, and exports. The names and functions
of
these financial institutions, most of which were founded
after
the 1973 oil boom, often changed as successive
administrations
pursued different development objectives.
Finance companies, a common institution throughout
Latin
America, met the society's diverse credit needs, ranging
from
consumer finance to short- and medium-term loans for local
industry and commerce. Some twenty-nine finance companies
with
almost 100 offices in 1989 held about 20 percent of the
national
assets, ranking them as the second largest type of
financial
institution in the private sector. In Venezuela these
companies
tended to be rather specialized, lending primarily to
agriculture, industry, and commercial activities. Given
the local
banking industry's conservative reputation, finance
companies
often lent where banks did not. At the same time, many of
the
country's finance companies belonged to larger financial
groups
affiliated with commercial banks. In addition to finance
companies, the major international credit cards did
business in
Venezuela, thereby supplying another source of consumer
credit.
Sixteen mortgage banks served the country's longer-term
credit needs with more than 100 offices nationwide.
Mortgage
banks, which lent for new construction, home improvements,
and
residential and commercial real estate, contained about 7
percent
of the total financial system's assets. Like the
commercial
banks, mortgage banks faced a serious imbalance of
liabilities
over assets by the late 1980s, principally as the result
of
inconsistent interest rate policies on the part of the
BCV. The
mortgage bank industry was thrown into further disarray in
1989,
when the Venezuelan Congress passed a politically
motivated
Protection Law for Mortgage Owners. As interest rates were
liberalized and rose after early 1989, the Protection Law
for
Mortgage Owners established ceilings on the proportion of
monthly
salary that mortgage holders could pay, usually no more
than 25
percent. This measure aided home owners in the short run,
but
threatened to squeeze mortgage bank credit for future
housing.
Savings and loan associations held about 5 percent of
the
country's total financial assets in 1989 and were the key
to
mobilizing the nation's savings. Twenty savings and loans
provided short- and long-term lending through nearly 300
branch
offices. The weak portfolios of these institutions in the
1980s
required substantial government intervention. The National
Savings and Loan Bank (Banco Nacional de Ahorro y
Préstamo--
Banap) intervened in the savings and loan industry on
behalf of
the government. Banap became the regulator, provider of
capital,
and guarantor of the industry. By 1990 some institutions
owed as
much as 40 percent of their overall liabilities to Banap,
which
itself faced growing financial constraints.
Capital markets constituted the other major component
of the
private financial system. Unlike other financial
establishments,
capital markets were slow to develop and remained quite
weak in
1990. Among the explanations for the slow growth in
capital
markets was the traditional, family nature of businesses
in
Venezuela and the lopsided distribution of income, which
limited
the savings or capital accumulation of the lower classes.
Furthermore, with subsidized interest rates, firms usually
preferred debt financing or family borrowing over the
mobilization of capital through the sale of equity shares.
Investors were also skeptical of inadequate government
regulation
of publicly traded stocks and the state's history of
intervention
in industry.
The Caracas stock exchange, founded in the late 1940s,
was
the country's major capital market. The exchange operated
under
the nation's 1973 capital markets law, but regulatory
changes
expected in 1990 would allow foreigners to purchase shares
on the
Caracas exchange. In 1987, 110 companies were listed on
the
exchange.
Data as of December 1990
|