Venezuela presents a challenging environment for any bank. But
high margins tend to make up for problems caused by inflation
and an uncertain operating climate.
October¹s re election of Hugo Chávez as
president has re-assured Venezuelans, if nothing else, that
there will be political continuity though the economic
outlook remains murky.
³It is a complicated economic and regulatory
environment for banks to operate in,² says Theresa
Paiz-Fredel, an analyst at Fitch. ³The cost of inflation
weighs on their efficiency.² BBVA Provincial stands out in
Venezuela, not least for having an ample cushion to deal with
Its total assets of 82.9 billion Bolívares ($19.3
billion) as of mid-year, are smaller than those of Banesco and
state-owned Banco de Venezuela, according to the country¹s
bank regulator. But it is more profitable, with a return on
average assets of 6.5% and a return on average equity of
For the second straight year, BBVA Provincial¹s size
and strength mean remains best placed in the banking system to
face these challenges. In addition to being among the most well
capitalized banks, the bank¹s risk management and strong
asset quality also set it apart from its peers. The bank has
higher loan loss reserve levels and capital coverage as well as
lower exposure to government assets than most of the sector,
which is dominated by public sector banks with, in general,
lower asset quality.
³Banks in Venezuela tend to be highly profitable in
nominal terms,² says Paiz-Fredel. ³They have wide
interest rate margins which can compensate for credit costs and
inefficiency.² Higher margins the net average
interest in 2011 was 11% have insulated Venezuela¹s
stronger banks. There has also been a shift to less regulated
segments, and to retail lending, which has higher margins.
Growth was strong in 2012, thanks to loose monetary and fiscal
policy in the lead-up to the elections.
Nationalization talk died down before the elections, and the
government, despite lingering perceptions that this will not
always be the case has not taken over a financial
institution since mid-sized bank Banco Federal in 2010.
Fitch expects 2013 to be more challenging, but not
necessarily detrimental to domestic banks¹ overall
performance. There has not yet been a deterioration in asset
quality, Paiz-Fredel says, and the banks remain adequately