Bloomberg’s Alex Cuadros has a thoughtful profile of Venezuelan banks. While it lays down the facts without sounding shrill, the facts are alarming enough in themselves. In the end the article can’t help but be a brutal indictment of a corrupt industry.
His basic point? Banks make money for nothing. In telling the story, he makes billionaire banker Juan Carlos Escotet the focus.
Venezuelan banks’ average return on equity is an astonishing 53 percent as of October, according to the government. How do they do this in the midst of a “socialist revolution”? Lending to Chávez, of course.
The money quote:
Investing in government bonds is profitable for banks because of Venezuela’s high borrowing costs — the second- highest among major developing nations, according to JPMorgan Chase & Co. Banks charge even higher rates to consumers, who are motivated by 18 percent annual inflation to buy goods such as washing machines and cars on credit. That more than compensates for the subsidized lending Chavez mandates for areas such as agriculture and housing.
The public spending boom also has generated a flood of Venezuelans bolivars that are mostly trapped in the country due to currency controls. Because of that, banks can offer near-zero interest rates on deposits, according to Ricardo Villasmil, an economist at the Universidad Catolica Andres Bello in Caracas who advised the opposition in the October elections.
Venezuelan banks are not making this amount of money because they are efficient, as any Venezuelan customer would know. They don’t make it because they aggregate value. Hell, their main job right now is to make ordinary Venezuelans’ lives miserable.
They make their money by providing the rapacious Chávez government with the money it needs to take over the country.
There is a name for an industry where there are high returns, retail outlets are crowded, where service is the pits, where prices for everything are fixed and nobody really competes, and where close ties to a corrupt government are the norm.
It’s called a cartel.
The piece reads to me like a fair assessment. Read it, it’s terrific.