Moody's on Venezuela's banking system
By Miguel Octavio
Moody’s is a credit rating agency from the US that gives independent opinions on the credit risk of private companies and governments. In its July “Bank risk Monitor”, there is an article about the Venezuelan banking system, some highlights:
- The average Venezuelan bank has about five times its capital in government bonds. This is a huge amount of exposure and is one of the reasons why our average bank financial strength rating for Venezuelan banks is an extremely low E+
- At the same time, the average return on equity of Venezuelan banks is, by far, the greatest in Latin America, about 26- to 28 percent.
- Basically, Venezuelan banks have ceased to serve as a normal banking system…The banking system is very weak. The banking system has shrunk by about 60% over the last five years in real terms. This is a banking system that is slowly wasting away.
- The depositor’s money is really just a pool used to make payments. Because the money is mainly in direct demand accounts, the banks use this no-cost funding to purchase up to five times capital in investments in government paper, at relatively high nominal interest rates. …the money never leaves the banking system; it just gets debited and credited to different accounts.
- So, there is a very large and predictable margin there, but it’s not a margin earned by a real banking system, it’s one gained as a payment system or as a transaction system. That is where the impressive profitability is really from, especially when nominal rates are high.
- The Venezuelan Government has indeed shown in the recent past…..the ability and willingness to take political action to support the banking system, if necessary. It has even supported weak banks that are not “too big to fail” in a classic sense.
There you have it! The true face of the “pretty” Chavez revolution “for and by” the poor! Please!
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