Fears grow for Venezuelan banks

Fears are mounting in Venezuela that regulations designed to prevent currency speculation and capitalise the banking system could trigger the collapse of several banks and hit sovereign debt prices. Banks are being forced to sell around $5.6bn in complex financial instruments known as ”structured notes” – payable in dollars but denominated in local currency – that in some cases are now worth as little as half what they paid for them, due to the rapid appreciation this year of the local currency, the Bolivar. Huge opportunities for currency speculation – due to a widening gap, until recently, between the fixed official exchange rate and the unregulated, parallel exchange rate – have allowed banks paradoxically to be one of the sectors that has most benefited President Hugo Chavez’s self-styled socialist revolution. But measures taken by the finance ministry this year that have succeeded in causing the parallel value of the Bolivar to strengthen by around 40 per cent has now left a number of banks in trouble. Many banks used the structured notes to exceed dollar limits on their balance sheets, as they are denominated in Bolivars. In the most extreme cases, a handful of banks speculated so heavily that they have been left holding notes whose total value exceeds their capital by four to five times.