Southern Exposure

Desde as Entranhas dos Labirintos Latinos.

Wednesday, November 05, 2003

The ever shrinking Venezuelan banking system

Interesting article in today's El Universal about the shrinking Venezuelan banking system. A table is presented (barely visible in the Internet version) in which Deposits, Loans, Expenses and profits are compared among various Latin American countries. At the official exchange rate, these were the numbers for Chile, Colombia and Venezuela (all in billions of US$)

Chile Colombia Venezuela El Salvador

Loans 46.7 16.2 5.6 5.9

Deposits 39.6 19.1 13.9 6.7

Expenses 1.14 1.16 1.21 0.18

Earnings .607 .380 .623 .068

What is remarkable about these numbers is that despite the much larger economy than El Salvador, Venezuela only has only twice the deposits of that country and a similar amount in loans. In fact, if the more realistic black market rate of Bs. 2700 per US$ is used (versus the Bs. 1600 per US$ in the article), Venezuela's numbers are much lower. Note the high costs for the Venezuelan banking system, despite its size. Profits are also quite high, although they are much lower than shown if the black market rate were used. What is clear is that our banking system is not fullfilling its intermediation objective, with an almost factor of three difference bewteen deposits and loans. This is due on the one hand to the state of the economy, but it is also influenced by the attractive rates offered by the Government in its bolivar denominated bonds, which are more attractive to the banks than the more riskier loans. This also helps mantain interest rates quite high. Quite perverse all around.


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