Tuesday , May 18 2021

Hyperinflation and measures destroy banking

Just as hyperinflation destroys the Bolivian purchasing power, reduces Venezuelans' wages, reduces consumption and production and exponentially increases the costs of companies, the national bank does not avoid the effect of hyperinflation. Contrary to what most people think, banking is one of the sectors of economic activity that are most affected by hyperinflation. His greatest value and wealth is money, in this case mostly bolivarians who are absent every day and in the Venezuelan case with very little alternative cover or hedging the risk of Bolivian devaluation and loss of property in Bolivar.

The capital of Venezuelan banks declined realistically by 74% during 2017. Adjusted for inflation, national banking assets increased from 30,174 thousand in 2016 to constant 8,009 thousand, which is the largest contraction in the last five years. In the past three years, the capital and credit of the financial system have lost 90% of their real value. Venezuela's hyperinflation has devoured the assets of a local bank as long as the size of the bank in the Dominican Republic was total and without the possibility of the country getting out of recession. After decades of regulated rates of up to 28 percent for commercial loans and up to 30 percent for consumer loans, and inflation has already recorded five digits, banks in the country are currently not profitable and shareholders have little interest in losing capital to increase loan amounts and impact on consumption of enterprises and individuals. The Venezuelan banks borrowed just 28 percent of bolivar buffets before the statutory increase in reserves in August, November and February, leading to financial disintermediation of the bank and its main business objective, distorting the banking business scheme and generating compensation schemes in granting loans and financial and economic advisory services which greatly increase the financial costs of the winner or the recipient of the loan. The percentage of bank intermediation according to official data for January is far from the average of banking systems in Latin America, which maintained lending volumes comparable to deposits in 2018, according to the Latvian Banking Federation (Felaban).

According to Felaban's statistics, the size of the loan portfolio is very small compared to the number of banks in Colombia, Brazil, Peru, Chile, Argentina and Mexico, a group of major economies in the region. In all cases, they borrow more than $ 2,000 per person. For large and medium-sized businesses, local private banking lends more than $ 25,000 worth, and in almost every case requires dollar back-ups. As economist Leonardo Vera rightly says, "The economy without credit does not grow, businesses are left without working assets to expand and neither can the home increase wealth."

Sudeban Measures Banks' capital loss is a key element of recovery. Because of hyperinflation, companies and individuals are looking for higher low-tech financing loans that remain active or cover the increase in credit card costs. However, banks can not increase the amount of loans without continuing to increase their assets because they are obliged to maintain the minimum ratio between their own funds and the risks they take when lending money to clients.

If capital does not grow at the same rate as loans, banks can not continue to lend because they are not in line with the regulations, and by the end of December, the bank did not have the chance to proceed with the approval of the loan, but the supervision of banks, as opposed to the current trend in Latin America, by January 2019 the minimum asset index from 9% to 7%.

Although Superintendency allowed banks to adjust their position in dollars at the official exchange rate (Dicom), which makes it possible to increase shareholding, however, it counteracts this by lifting the 100% margin limit. Although a large number of banks recorded their position in the strong currency, bonds of the Republic and PDVSA, they suffered brutal discounts on market prices that could affect their positions if they had to liquidate them.

Hyperinflation and devaluation of the currency turned the Venezuelan financial system into a very small sector within Latin American banking. At the official rate, the total assets at the end of 2018 amounted to only $ 5.700 million, which was very small in size compared to the rest of Latin American banks and amounted to 15% of Equity banks.

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