Venezuela Liquidates Two Banks, Closes Two Others for Banking Law Infractions

The Venezuelan government announced it will liquidate two small banks and indefinitely close two others after investigations revealed the banks had failed to comply with the credit issuance quotas, carried out illicit transactions amongst each other, and accumulated capital whose origins could not be explained.

By James Suggett - Venezuelanalysis.com

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Finance Minister Ali Rodriguez (center left) and Planning Minister Jorge Giordani (center right) (YVKE)
Finance Minister Ali Rodriguez (center left) and Planning Minister Jorge Giordani (center right) (YVKE)
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Mérida, December 1st 2009 (Venezuelanalysis.com) – The Venezuelan government announced it will liquidate two small banks and indefinitely close two others after investigations revealed the banks had failed to comply with the credit issuance quotas, carried out illicit transactions amongst each other, and accumulated capital whose origins could not be explained.

The four banks are part of the Bolivar Financial Group, which controls less than 10% of Venezuela’s financial market. The government took over the administration of the banks on November 20th, but they were allowed to remain open to the public until this Monday.

Reading a formal statement, Finance Minister Ali Rodriguez said the investigations over the past ten days showed that the banks’ “negative behavior” had “severely jeopardized their solvency,” making their closure and liquidation, in accordance with the General Law on Banking and Other Financial Institutions, “inevitable,” in order to “contain what had already become a hemorrhage.”

The state’s Deposit Guarantee and Banking Protection Fund (FOGADE) will secure the deposits of 95% of the 750,000 clients of the two banks that are to be liquidated, Canarias and Banpro, at an estimated cost of 1.5 billion bolivars (US $700 million), according to FOGADE President Humberto Ortega.

Depositors will have the choice of withdrawing or transferring their money to another bank, or by default their money will be transferred to the state-owned Bank of Venezuela, the country’s third largest bank.

The other two banks, Confederado and Bolivar, committed infractions that caused “relatively minor damage,” so it is possible that they may be “recuperated and rehabilitated” depending on the results of further, closed-door investigations, Rodriguez said.

Meanwhile, the principal stockholder in all four banks, businessman Ricardo Fernandez, who is famous for having lent his trucking fleet to the government for food distribution during the oil industry shutdown of 2002-2003, was arrested on November 20th and remains in police custody. Sixteen other banking executives who are suspected of involvement in the crimes are prohibited from leaving the country.

Rodriguez promised that “an exhaustive investigation is being carried out to determine who is guilty... wherever they are, they will be located and brought to justice.”

“You can be sure that a government exists that is revolutionary, responsible, and willing to profoundly transform this system,” Rodriguez continued. “We are correcting the blight of the capitalist financial system.”

The minister also said the incident “demonstrates the existence of a private sector that seeks enrichment at any cost without consideration of the damaging effects it may bring on the rest of the community.” This shows the need to “deepen and accelerate the process of transformation,” he said, referring to the government’s drive toward what many call 21st Century Socialism.

The minister’s words echoed those of Hugo Chavez, who said on Sunday that the government is in a “moment of great rectifications,” and that the government will nationalize private banks that break the law.

“Banks are not to make a minority rich; they should be to collect funds, savings, and then to help the development of the country by making loans and giving housing credits,” Chavez said on his weekly Sunday talk show, “Alo Presidente.”

The president also criticized and ordered an investigation of the state-owned bank Banfoandes for depositing more than 1.4 billion bolivars (US $650 million) in private banks, including the four banks that were closed by the government on Monday, according to recently released records.

“Instead of giving credits more quickly to people everywhere,” the bank kept the funds “in a private bank, earning interest,” Chavez said.

The government purchased the Bank of Venezuela from the Spanish Santander group in May of this year. It also took over the Venezuelan branch of the Stanford Bank in February after its owner’s assets were frozen on fraud charges.

Rodriguez was accompanied during his announcements on Monday by the planning minister, Jorge Giordani; the president of the Deposit Guarantee and Banking Protection Fund, Humberto Ortega Diaz; and the president of the Superintendent of Banks, Edgar Hernandez.

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