Bank loans in Venezuela: is financing reviving or is it just another mirage?

Bank loans in Venezuela: is financing reviving or is it just another mirage?

Published on 01 Mar 2023

While Maduro's government generates a discourse that makes it seem that entrepreneurs in Venezuela will receive loans from the banks, the numbers of the sector show a completely different picture. Venezuela continues to have the highest legal reserve in the world, and a compressed financial system.

By Ariana Briceño Rojas


When Francisco López heard that credit card amounts were increasing he did not hesitate to log into his online banking account to check if it was true. Since 2018 his credit card had been sitting abandoned in his wallet. “Maybe things are getting better,” he thought as he got his hopes up to go back to shopping with it like he used to. The illusion was short-lived. He was not on the lucky list of those who received an increase in their financing limit. His credit remained at one bolivar, or about 0.1 dollars.


Francisco’s brother-in-law fared a little better. His personal credit limit did increase exponentially: it went from 1 to 300 bolivars, which was equivalent to 40 dollars at the time. His first reaction was to rejoice. She had a credit card she could use, although minutes later she realized that it was no big deal either. He was spending $200 a month on the groceries for his house alone. So what to do with that credit? Buy some shoes. So she did.


This article is part of the deliveries of the Coalición Informativa “C-Informa”, a Venezuelan journalistic team of which El Estímulo is a member.


The situation of bank financing in Venezuela can be a complex and confusing issue. Credit for Venezuelans has ceased to exist several years ago, so it is not an option either for ordinary citizens who once used it to finance their purchases, change their cars or think about owning a house, or for entrepreneurs seeking to reactivate or boost their businesses.


However, in recent months the government has launched a campaign to promote the feeling of a banking reactivation, mainly focused on the entrepreneurial sector, which seeks to create a mirage of an economic recovery that is still far away for a country that has reduced its economy by more than 80% in just 8 years.


If you want to know what is happening with bank loans in Venezuela and why the Maduro government’s discourse on this is misleading, we explain it to you in this timeline.


The speech of the Government of Maduro: credits are announced, but there is no money



Since this year, within the framework of a campaign seeking to create the perception that in Venezuela the economy is doing better, the Government of Maduro has been making announcements and giving statements on the reactivation of bank credit, which in Venezuela has been practically non-existent since 2018.


The first formal announcement about a reopening of bank credit was made in February of this year in an event in which Nicolás Maduro participated, together with the Minister of Finance, Delcy Rodríguez, and in which representatives of the national banks were invited: the legal reserve was reduced from 85% to 73%, while the banks were allowed to lend 10% of the deposits in dollars.


In this meeting, Delcy Rodríguez, assured that they were following three guidelines regarding banking: democratizing credit, expanding credit activity and sustainable economic growth.


“We are going to provide financing to the Venezuelan population that until today had not had formal access to financing”, said the official amidst applause. In addition to being televised, this announcement was replicated on the minister’s social networks.


Following Rodriguez’s statements, public and private banks reported the reactivation of some credits such as the increase of credit card consumption limits, although in most cases these increases did not reach more than US$ 40.


On August 4, in the middle of an event under the name of “Entrepreneurship Engine”, Nicolás Maduro once again stated that financing for entrepreneurs is fundamental and called on public and private banks to grant credits, as if the responsibility of the legal reserve limiting credit activity did not exist.


Only one week after Maduro’s statements regarding credit to entrepreneurs, the Superintendency of Banking Sector Institutions (Sudeban) sent a circular to banks authorizing an increase in the amounts of financing to entrepreneurs through the micro-credit portfolio.


On August 11, in a circular addressed to all banking institutions, the requirements for the granting of financing for the promotion and development of entrepreneurship of natural persons were modified. According to the circular, loans could reach up to US$17,000.


However, this authorization was given without modifying the percentage of legal reserve and with a very repressed banking sector. Beyond the discourse, the percentage of credits destined to this sector did not change.


What is happening with the banking system? There is no credit capacity, and the Government knows it.


The Government of Maduro seeks to create a discourse focused on the reactivation of credit, however, the fall of banking intermediation has been so great that at this moment it is impossible to resume credit to the productive and entrepreneurial sector. But in order to understand why credit to entrepreneurs cannot be resumed by decree, it is necessary to have a context of what has happened with Venezuelan banks in the last few years.


In order to curb inflation, the Chavista government initiated a monetary policy to restrict the circulation of money in the country through what is known as legal reserve. The reserve requirement is the percentage of money on deposit in the banks that the law requires them to keep and that they cannot lend. This money is kept or “encaje” in the Central Bank of Venezuela (BCV).


By 2002, the reserve requirement in the country was in the order of 15%, a high percentage for developed countries, but in line with the average of middle-income countries, according to the World Bank. By 2012, the legal reserve requirement rose to 20%, but it was not until 2018 when the BCV’s policy was accentuated and a reserve requirement of 31% was demanded, to later raise it to 100% in just one year. At this point banks stopped lending money altogether.


After such a restrictive policy, the banking sector shrank and its activity began to fall, at the same time as the country’s economy did. While in 2012 the credit portfolio in Venezuela was at $32 billion, according to calculations by the financial consulting firm Ecoanalítica, 10 years later the reduction of this portfolio has been 98%.


After a tough year in 2019, in 2020 banking activity remained limited. The Government reduced the reserve requirement to 93% and in 2021 lowered it to 85%, to finally in February 2022 place it at 73%, announcing this as an achievement, despite the fact that it is still the highest legal reserve in the world.


The legal reserve requirement of Venezuelan banks far exceeds the percentages established for neighboring countries. The closest country to Venezuela is Brazil with 25% reserve requirement, while Colombia has a reserve requirement of 11% and Peru only 3%.


It is not only a reserve requirement problem


Minister Delcy Rodriguez assured in February of this year that the reduction of the legal reserve was something that would continue to happen as a policy to boost credit, but, first, this has not happened anymore and second, this would not guarantee the necessary credits either.


Although the reserve requirement is an important burden for the national banking sector, this is not the only drawback. In recent years, the size of the banking sector has shrunk so much that if the reserve requirement ceased to exist, the banks would still not come close to covering the credit demand of the national productive apparatus.


The banking credit portfolio, according to figures reported by Sudeban, currently amounts to only US$ 504 million, which represents only 0.7 points of the GDP.


In the hypothetical and improbable case that the legal reserve would reach zero tomorrow, then the banks would be able to lend US$ 2.33 billion, which in total would represent only 5 points of the GDP. Chile’s loan portfolio, to give an example, represents 88.7 points of GDP.


Moreover, analysts point out that the private sector alone needs around $6 billion, four times more than total bank deposits and 12 times more than what banks are currently lending.


Where is the little credit going? Not to entrepreneurs


One of the Government’s speeches regarding the activation of bank credit is to make people believe that credit policies are aimed at the entrepreneurial sector, when this is actually far from reality.


“I call on the presidents of private banks to expand the credit portfolio for entrepreneurship in Venezuela and to go out together public and private banks in search of people who are dreaming of entrepreneurship”, said Nicolás Maduro in August of this year.


According to data reported by Sudeban, the micro-credit portfolio, which includes personal loans for entrepreneurship, only represents 8.1% of total loans.


Most of the bank’s credits (71.4%) are destined to the commercial sector, the main importer of the country, so this money does not go directly to national production.


How is the industry financed then? The president of Conindustria, Luigi Pisella, points out that 26% of the industry is financed with credits granted by the national banks, 53% with contributions from its shareholders and directors and 21% through brokerage houses or credits acquired outside Venezuela.


In order to activate the country’s industrial engine, the Confederation of Industrialists (Conindustria) estimates that US$ 5 billion are needed. At the moment, only one million dollars are being granted, which represents 0.2% of the already reduced national credit portfolio.


For the economist and banking expert Leonardo Buniak, the crucial challenge for Venezuelan banks is to resume their role as a fundamental factor for the development and relaunching of the economy: “There is no possibility of significant economic growth if bank credit does not return”.


This work is part of the deliveries of the Coalición Informativa “C-Informa”, a Venezuelan journalistic team whose objective is to confront disinformation and is integrated by Efecto Cocuyo, El Estímulo, Medianalisis, Cazadores de Fake News and Probox with the support of the Consorcio para Apoyar el Periodismo Independiente en la Región (CAPIR) and the advice of Chequeado from Argentina and DataCrítica from Mexico.

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