August 21, 2006
Banking on revolution: Spread of oil money creates magnet for Venezuela's bankers

(Financial Post) - "Bankers traditionally face firing squads in times of revolution. But in Venezuela , they are having a party. Diran Sarkissian, president of the local subsidiary of Stanford Bank, a U.S. bank with offshore operations based on the Caribbean island of Antigua, is proud of his rapidly lengthening list of high-net-worth customers who are enjoying President Hugo Chávez's self-styled 'Bolivarian Revolution.'

'As far as growth is concerned, we're very happy,' Mr. Sarkissian says. That might be an understatement. Deposits have increased by 600% to US$106-million in the year since the boutique bank opened for business in Caracas.

Stanford Bank 'black' credit cards now post the highest month-end balance of all MasterCards issued in Venezuela, even though it has issued far fewer than other banks, he adds. 'We've aimed at the top end of the market.' (...)

But so far, rather than nationalize banks, the 'revolutionary' distribution of oil money has spawned wealthy individuals who are increasingly making Caracas a magnet for Swiss and other international bankers. And it is not just private bankers who are banking on the revolution.

Francisco Faraco, a banking consultant, says local commercial banks are enjoying their most profitable times ever under Mr. Chávez: 'Venezuelan banks have not seen a contraction during a single quarter since 2003.'

In 2002, when oil prices were low and the economy was in deep recession, the Chávez administration issued billions of dollars' worth of high-yielding domestic debt that was lapped up by the banks. Double-digit interest rate margins justify the country's banks among the most profitable in Latin America.

But as oil prices have since soared, the economy has grown rapidly -- by 17.9% in 2004 and 9.3% last year. Spending and exchange controls have led to a big expansion of liquidity and stoked demand for credit.

During 2005, bank assets rose from US$29.3-billion to US$39.8-billion and the consumer loan portfolio has increased by about 200% over the past two years. Banks have begun to lend cash aggressively for even the most unlikely services, such as cosmetic surgery.

Oscar García, president of Banco Venezolano de Crédito, says that since late 2005, a group of Venezuelan banks has also benefited from government-backed currency arbitrage trades involving Argentine sovereign dollar bonds.

In recent months the government has bought US$3.6-billion of Argentine bonds, the bulk of which it has sold at the official bolivar exchange rate to local banks to absorb excess liquidity. In turn, the banks resell the bonds and profit by buying bolivars at a tolerated, higher black market rate.

How much the banks earn from the arbitrage trades is unclear, as short-term operations do not appear on their balance sheets. But some economists estimate that for some banks they could represent the largest item of income(...)".