Banks lose weight as credit managers

The Venezuelan government is going ahead with a structure where private banks will decide no more their borrowers; they role will be limited to mere depositors.

This current year, banks must give the agricultural sector around USD 2.3 billion in new loans. However, the government will ultimately sort out the beneficiaries.

Under the plan, announced by President Hugo Chávez, in order to grant credits, banks will deposit the sum of money in a fund administered by the Executive Office; in exchange, they will get sovereign bonds.

Therefore, the government is to assess the risk of each farmer and the amount of the loan. In addition, it will be responsible for collection of accrued interests and the principal amount of each granted loan.

"Theoretically, we cannot hand over the credit management;" conceded a banker, preferring not to be identified by name.

If the government fails to efficiently rate the credit risk and it turns out that it cannot recover the loan, private banks will not record losses; the State will have to take on them.

The numbers of the Banks Superintendence show that, on average, all banks have troubles to recover the money lent to the agricultural sector. Nonetheless, this is another story for the State-agency.

Ending last year, bad debts in the Agricultural Bank of Venezuela accounted for 11.61% of the total amount; in June 2011, they climaxed to 24%.

Last year, through a decree, the government ordered private banks to raise by 30% the number of farmers eligible for loans, and Minister of Agriculture and Lands Juan Carlos Loyo handed them over a long roster of applicants.

Financial sources related that in visiting farmers, some hurdles emerged, including no guarantees, no contact telephone number and/or no technical advice in order to lessen the risk of nonpayment.

Queried bankers affirm that if the government is to open the doors of loans amidst the election campaign without making an effective risk analysis, a large sum of money will not be recovered.

Terms and rates

Banks deem it important that interest rates to be received on account of the bonds will be tantamount to the interest rates on the loans granted to the agricultural sector, that is 12%; otherwise, there will be an impact on the earning capacity.

Consider also that the term of bonds should fit in the terms of credits, or facilities should be set up so that the government can repay the credits ahead of their maturity date in the event that any bank will need liquidity.

In this connection, precedents are not good. The government earlier implemented the scheme of bonds with quite a few loans compulsorily extended to the mortgage sector in 2011; yielded interest rates on securities are as low as 2% yearly.

While these bonds were unprofitable, banks had to invest USD 1.39 billion in them.

vsalmeron@eluniversal.com

Translated by Conchita Delgado