Latin Finance - November 2008 - 50

of the 2008 Minding the Business enezuela’s government may meddle in the banking sector, but Mercantil Banco Universal –one of the country’s biggest financial institutions – continues to grow. However, a global economic slowdown threatens continued expansion. The Chávez regime has brought government intervention in banks to a new level. Among other things, it has forced banks to direct more than 50% of all loans to agriculture, housing, tourism, and microfinance at preferential rates, and capped consumer lending rates, says Patrick Esteruelas, LatAm analyst with Eurasia Group, a political risk research and consulting firm. However, he adds that “banks still posted handsome profits” because these measures were imposed during a time of high government spending and growth both in consumption and credit. But as expansion slows, he warns, so will government spending and “the straightjacket will get tighter.” Mercantil’s assets as of June 30 add up to about 25.2 billion Bolívares, up from 19.6 billion Bolívares on the same month of the previous year, the bank says. Although the bank’s positive performance cannot be denied, it is not the largest Venezuela bank in terms of assets. The leader in that category, Banesco, reports assets of 30.9 billion Bolívares as of June 30, up from 20.6 billion a year before. Between December 2007 and March 2008, Mercantil expanded many of its services, company information reveals. For instance, points of sale increased to 33,324 from 32,278. And for the past two years more than 1.2 million of the bank’s clients do banking over the internet on a regular basis, according to Mercantil. Mercantil is the largest subsidiary of holding company Mercantil Servicios Financieros, accounting for 60.2% of the holding’s assets. V Venezuela Best Bank - Mercantil Banco Universal Mercantil’s deposits jumped to 22 billion Bolívares in June 2008, from slightly more than 17 billion Bolívares in June 2007, the bank’s financial records show. That compares to Banesco’s 26.0 billion Bolívares in June 2008 and 24.3 billion Bolívares in June 2007. Mercantil is the largest lender to the tourism industry, offering 19.2% of loans in the system. It is also the largest mortgage lender, with a 16.7% stake of loans, it says. When it comes to agriculture, Mercantil says it has a 14.3% share of loans. It has an 11.9% stake of microfinance. While Mercantil’s loan portfolio is growing, non-performing loans (NPLs) remain a very small part of it. As of June 2008, NPLs accounted for only 0.9% of all loans at Mercantil, while the system average is 1.7%, the bank says. Banesco reports that its NPLs made up 1.15% of its loan portfolio. The bank says its NPLs have been below 1% since 2004. As of December 2007, Mercantil says its NPLs accounted for 0.6% of the total portfolio, compared to the system average of 1.1%. ROA and ROE are also on a roll at Mercantil, which looks good versus its biggest competitor. Between June 2007 and June 2008, bank data shows that ROA increased to 3.6% from 2.5% and ROE to 37.8% from 28.1%. Banesco, meanwhile, reports that as of June 2008, ROA stood at 2.4% and ROE at 28.4%, compared with ROA of 3.0% and ROE of 36.1% in June 2007. For the system as a whole, ROA averaged 2.6% in June 2008, up from 2.5% a year before and ROE averaged 28.7%, up from 28.4% a year before. It remains to be seen how further government intervention will impact Venezuela’s banking industry. But Esteruelas believes the government will not go on a nationalization spree in the sector, even though earlier this year it did take over Santander’s Banco de Venezuela, the third largest bank in the country, before Santander was able to sell it to another bank. Sifon-Arevalo also says it is hard to tell if Chávez will nationalize any more banks. “At this point we haven’t heard of more plans to nationalize banks, but we weren’t expecting him to nationalize Banco de Venezuela.” LF Uruguay Best Bank – Banco de la República FDI Booster U ruguay’s Banco de la República, the country’s largest bank in terms of deposits, has started to notch up an excellent performance on the back of firm economic growth. The Uruguayan economy has been roaring ahead at more than 7% a year following the 2002 economic crisis, according to the IMF. At first, expansion in banking did not follow the economic rise, but during the past two years it has started to match it. “Credit is growing at around a 20% annually in US dollar terms. The number of clients has been growing at the same pace,” says Fernando Calloia, president of state-owned Banco de la República. “Uruguay is growing dramatically thanks to foreign direct investment, which is concentrated in agribusiness, meat packing and forestry. We expect that position will continue during the next years, in line with the investment plans that have already been announced by foreign firms,” says Calloia. Banco de la República had $6.24 billion in deposits as of June, up from $5.32 billion as of mid-2007. Profitability has been falling slightly, to 1.71% ROA 50 LATINFINANCE November 2008

Latin Finance - November 2008

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