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Venezuela Banking Snapshot

02 Apr 2020 Venezuela Banking & Financial Services

Key View

• Venezuela's banking sector, like the rest of nation's economy, will likely remain an unfavourable investment
destination over the coming years, given our core view that the Partido Socialista Unido de Venezuela will remain in
power, continuing the country's economic and political crisis.
• We do not expect this to change, barring a sustainable and widely trusted shift in macroeconomic policies, which is
only likely following a change in government.
• A new regime would implement more orthodox macroeconomic policies over the course of several years, greatly
increasing the profitability and attractiveness of the sector.

Latest Trends And Developments

• The banking sector has effectively ceased to function as it no longer efficiently allocates capital given highly limited
investment opportunities and extremely negative real interest rates. Loan and deposit growth will continue to
decline substantially in real terms in 2020, in line with the broader collapse in economic activity in the country.
• That said, recent economic liberalisation will benefit the sector on the margins. For example, the Venezuelan
government has allowed banks to store foreign currency for large clients, providing a new base of deposits.
• US sanctions on the banking sector and a reputation for corruption have significantly hampered operations, as
correspondent banking activities now typically require multiple layers of review. That said, we note that Mastercard,
Visa, American Express, Western Union and MoneyGram International were granted waivers allowing them
to continue operating in Venezuela as of March 2020, though only for transactions with certain large financial
institutions.
• Opposition leader Juan Guaidó named an ad hoc board for the state-run Banco de Desarrollo Económico y
Social de Venezuela in November 2019, in response to alleged mismanagement under the Partido Socialista
Unido de Venezuela. We maintain our view that Maduro will retain effective control over Venezuela's institutions for
the foreseeable future, limiting the impact of the opposition's policies towards the banking sector.
• The government of Venezuela announced in March 2019 that it was suspending its nationalisation of Banesco
Banco Universal, the largest private bank in the country, after a nine-month intervention. Despite this step, we
expect the intervention, as well as other developments such as the government's unilateral decision to convert
public pension payments into the state-controlled Petro cryptocurrency, will raise serious concerns about future
government involvement in the sector.
• Statistics for the Venezuelan banking sector have been distorted by the government's expansive fiscal and monetary
policy which, combined with currency controls, have fueled hyperinflation. The sector has seen non-performing loan
ratios fall to historic lows and profitability indicators rise to astronomical levels. Bank profitability has likely collapsed
in real terms, due to deeply negative real interest rates.

Data Distorted By Hyperinflation

 Venezuela - Total Banking Assets (2018-2029)

f = Fitch Solutions forecast. Source: Sudeban, Fitch Solutions

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