Photo: Reuters, retrieved
To understand the depth of Venezuela’s economic collapse, you have to stop for and second and fathom the fact that the Banesco intervention, the country’s largest commercial bank, has practically no impact on the financial system, not because it is robust and can absorb whatever happens, but because it’s so wrecked that no one can tell the difference.
Last Thursday, the government announced the intervention of Banesco for 90 days, and the arrests of several of its top officers. They will appoint an ad-hoc board to run the bank and, although the intervention can only be legally renewed once, you can bet this will be permanent.
But the real news is that this is no news.
A bank run will probably not occur because hyperinflation has already wiped out the savings of those Venezuelans who had no option but to save in bolivars. Most people only have the equivalent of less than five dollars in their bank accounts, which are spent as fast as possible. The privileged ones with access to dollars only change small amounts periodically for everyday expenses, and companies who once held large amounts of bolivars have already written them off from their financials, using them to buy anything that doesn’t lose its value at a 8,900% rate.
Setting aside the devastating effects to the families of those arrested in a charade, and the illegal seizing of property, most people won’t see a difference in their already hellish day-to-day quest.
A decline in customer service? Most people already spend hours in line to withdraw less than a dollar a day in cash, from all banks. They also experience a collapsed point of sales platform. Massive default on loans? Credit is long gone as a leveraging source because hyperinflation and government regulations make it impossible (and suicidal) to lend money at fixed two digit interest rates, with a four figure inflation rate. Most credit card limits are under five dollars and the government-approved cap on mortgages won’t buy you Barbie’s dream house.
To give you some perspective on the real market value of a Venezuelan bank, you have to consider facts like the country’s monetary base (it amounts to $40 million, which won’t even buy you Kim Kardashian’s mansion); Banesco’s net worth, according to its financials, is $3.9 million. Its net profits during 2017 were $ 1.6 million.
So: most banks in Venezuela are virtually worthless. They only keep going with the hope of a regime change.
Setting aside the devastating effects to the families of those arrested in a charade, and the illegal seizing of property, most people won’t see a difference in their already hellish day-to-day quest to buy something to eat. There’s no real intention from the government to make people’s lives easier with this intervention, which is probably an ill-advised attempt to get a hold of the remittances sent from abroad, from which the bolivar part is mostly paid through Banesco. Chances are this won’t work, and the country will remain bankrupt.
That’s not something to cheer for. We’re experiencing the effects of a banking crisis without going through one: banks in Venezuela were stripped from the possibility of performing their core functions, storing savings and lending money. It turns out that to have a banking crisis, you actually needed a functioning economy first.
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