The Demise of Venezuela’s Banking System

A Survey of Corruption in Venezuela and the Effects on the Banking System

The banking system in Venezuela has suffered from government heavy-handedness and intervention over the past five years, and at this point is unrecognizable from the industry it was over a decade ago.  This paper will explore the root causes of the banking system’s near-collapse, and will assess options the Venezuelan government could pursue to improve the banking system and stabilize the markets. 


Hugo Rafael Chávez served as President of Venezuela from 1999 until he died in 2013. During his 14 years in office, Chavez initiated numerous political and economic policy changes, as well as diplomatic course changes. A self-described Marxist, Chavez devoted a significant portion of his political career to revolutionary activities, including founding the Revolutionary Bolivarian Movement-200 in the early 1980s.

Chavez was elected president of Venezuela in 1998 and immediately set out to implement a socialist agenda, the hallmarks of which were: poverty alleviation, universal health care, access to housing, and universal education.   Another significant initiative of the Chavez administration was nationalizing major industries. His reforms were often referred to as part of South America’s “pink wave,” which included other socialistic initiatives on the continent. 

The programs came with a high price tag and the Venezuelan economy declined precipitously in 2010 due largely to overspending and counterproductive price controls.  Poverty and food shortages were the consequence as well an increase in Venezuela’s murder rate. Police corruption during this period was also rampant. 

The banking culture under Chavez

The banking culture in Venezuela has suffered greatly from the socialist agenda, and the nationalization trend under Chavez’s rule. It is worth examining not only the general political climate that has affected the entire sector, but also the particulars of specific banks’ ordeals during the period of nationalization under Chavez. 

Banco Federal

One extreme example of a bank takeover occurred in June of 2010. The Venezuelan government seized the bank Banco Federal, citing two reasons - liquidity problems and suspected fraud. At the time, Banco Federal was closely aligned with the TV station Globovision, which was known for its anti-Chavez perspective. Banco Federal’s president, Nelson Mezerhane, believed the government was taking revenge because of Mezerhane’s role at Globovision.

Banco Occidental de Descuento

In 2008, Banco Occidental de Descuento (BOD), owned by Venezuelan banker and polo player Victor Vargas, moved to purchase the Banco de Venezuela. At that time, Banco de Venezuela was owned by a Spanish bank, Banco Santander.

Before BOD made its move to buy Banco de Venezuela, Venezuela government finance officials approved the purchase. On July 4, 2008, BOD proceeded with the purchase process and paid $150 million to Banco Santander as a down payment.

However, Chavez suddenly blocked BOD from buying the bank. Chavez went on national Venezuelan television to announce that he was killing the deal and buying the Banco de Venezuela instead.

Banco Santander refused to return the $150 million deposit to BOD. After litigation in Spain, in October 2010 a Spanish court ordered Banco Santander to return the money back to BOD. However, in December 2014, the highest court in Spain reversed the lower court’s order.

Bisignis highlights this case as one of many examples of how Chavez used his government power to interrupt, disrupt, and takeover private market entities. 

Bank closures, arrests, and more

Around the same time, Chavez’s government closed ten smaller banks at the end of 2009. The justification the government gave for closing the banks was that the banks were involved in “financial irregularities.”  That accusation appeared to many observers to be a convenient catch-all that could be leveled at any time and for any reason. Of those ten banks that were closed, a few were reopened as state-operated banks. 

Like the banks, brokerages in Venezuela have also been closed and the government has even gone as far as imprisoning employees in the sector. 

Chavez clearly had an agenda in selecting which banks to nationalize. He often targeted banks that refused to finance his socialist agenda, including his agricultural projects. In 2010, Chavez said that any bank failing to provide 10% of their total lending to support development would be nationalized. He quipped in an interview, “If you can’t do it, give me the banks.” 

Chavez’s nationalization streak

The widespread fear among the banks and the financial sector that Chavez might nationalize the banks was not an irrational one. It is worth examining the array of industries and sectors Chavez nationalized to gain an understanding of how pervasive the practice was under his rule. 

  • Agriculture:  Chavez's regime had major influence over the supply of food to the Venezuelan people.
    • In 2009, Chavez nationalized a rice mill operated by a local unit of U.S. food giant Cargill Inc.  A year later, Venezuela nationalized Fertinitro and Agroislena, two major companies in the fertilizer and agriculture sectors. In 2005, Chavez began implementing a Venezuelan law that allows the state to seize land and farmland in particular lacking proper titles. Through that process, Chavez redistributed millions of acres of land with the stated objective of alleviating poverty.
    • Another example is Domar Trading, a food distribution company owned by Tomas Elias Gonzalez. Gonzalez was an entrepreneur in Venezuela who owned and ran growing and stable companies before Chavez took over in 1998. Since the arrival of Chavez, Gonzalez continued his business with the private sector. Because the Venezuelan government is the major source of economic activity in Venezuela, Gonzalez had no choice but to conduct business through the government to continue distributing food to the Venezuelan population. During Chavez’s reign, Gonzalez expanded Domar Trading to the Dominican Republic, Panama, and the United States. Uncontrollable political forces required Domar, like all Venezuelan companies, to deal with the Venezuelan government.
  • Oil: In 2007, the Chavez government claimed a majority stake in four oil projects worth an estimated $30 billion in total.  As a direct consequence of that move, Exxon Mobil Corp and ConocoPhillips quit working in Venezuela.  Following that, in 2010, Chavez’s government seized eleven oil rigs from the U.S. company Helmerich & Payne Inc.
  • Steel: In the steel industry, Chavez has also attempted to implement a nationalization program. His government paid $2 billion in 2009 for Argentine-led Ternium SA's stake in Venezuela's largest steel mill.
  • Tourism: One of the most far-reaching examples of attempted nationalization was leveled at the travel and leisure industry. In October 2011, Chavez threatened to seize private homes on the Los Roques archipelago in the Caribbean and convert them into state-run hotels and vacation homes. The threat was a chilling reminder to prospective home owners and would-be tourists to the country that the Chavez government did not abide by the rule of law, and that personal assets were under constant risk. 
  • Telecommunication: In 2007, Chavez nationalized Venezuela’s largest telecommunications company, CANTV.

These examples are only a few of the many areas where Chavez implemented a nationalization program.  Viewed together, one gains a glimpse of just how fragile the rule of law was, and how far-reaching the socialist agenda was under Chavez’s rule.

The economic overview

Because the health of a country’s banking sector is so intricately related to the health of the country’s overall economy, it is important to assess Venezuela’s economic picture.  Up until recently, Venezuela benefited from high international oil prices.  The revenue from the oil industry enabled the Chavez government to spend large sums of money on its welfare programs. The oil revenue often masked the extreme spending that was occurring.  

At the same time that the government was able to reap the benefits of the global oil market, the government was also benefitting from the revenues of several industries it had nationalized, as outlined above. The government was the main entity profiting in sectors as diverse as hydrocarbon, telecommunications, and even domestic agriculture. 

The oil revenue helped the government finance its social programs, known as misiones, in Spanish. Wealth redistribution programs were a top priority of the misiones, and as a result, poverty did decline, from approximately 50% in 1998 to roughly 30% in 2012.  The decline in poverty was short-lived, however, and since 2014, poverty has been on the rise again. According to Venezuela’s own records, one in three Venezuelans is now living in poverty. 

Solution: Creating a climate of financial transparency

One of the greatest challenges facing the banking system in Venezuela today, which is a direct holdover of the Chavez years, is the complete lack of transparency. Banks are often unaware of the rules and regulations, which, more often than not, change based on the government’s latest agenda or whim. The rule of law is often ignored and business owners and bankers are left trying to figure out which rules apply on any given day.

In order to establish a climate conducive to re-building the banking industry, Bisignis recommends the following:

  1. Apply the law equally and fairly to all players. Too often in Venezuela, perceived enemies of the regime are targeted and have their assets and businesses seized. In order to establish the rule of law, there can be no special treatment or special prosecution of anyone or any business.
  2. Discontinue the practice of seizing assets to fund social programs. The current culture in Venezuela encourages the practice of “robbing from the wealthy to pay the poor,” which has counter-productive effects and has left the country reeling from lack of innovation, lack of investment, and an accelerating poverty rate.
  3. Give banks more leeway to invest in the programs that make profits. Under the current system in Venezuela, bankers are forced to make risky investments in unsure government programs. The banks suffer huge losses from the forced investments they must make.


Appendix A: Banks in Venezuela

Bancaribe: Bancaribe is a private bank based in Caracas, Venezuela. It is the seventh largest bank in Venezuela. The bank has 113 branches and more than 800,000 customers.  

Banco Industrial de Venezuela: In May of 2009 the former president of BIV, Luis Rafael Ouiro, was arrested for alleged corruption.  At the time, the bank was the largest state-run financial institution in Venezuela. 

Banco Nacional de Crédito: Founded in 1977, this bank is headquartered in Caracas. In 2009, BNC acquired the Stanford Bank Venezuela for 111 million USD. 

Banco Venzolano de Credito: Banco Venzolano de Credito was founded in 1925 and has since grown to become one of Venezuela’s largest banks. The bank has been chaired by Oscar Garcia Mendoza since 1983. 

BANDES: The Venezuelan Economic and Social Development Bank is a federal public company in Venezuela, closely associated with the Ministry of Popular Power for the Finances. 

Banesco: Banesco financial group includes an insurance and consumer banking division. Banesco’s headquarters in Caracas is the largest bank headquarters in Latin America. 

BBVA Provincial: This bank was founded in 1953. In 1996, Banco Provincial became the first universal bank in Venezuela by expanding to focus on “specialized banking.”

Banco Bicentenario: Based in Caracas, it was created through a merger with a state-owned bank Banfoandes. The new bank holds approximately 20% of Venezuela’s bank deposits. 

Central Bank of Venezuela: The Central Bank of Venezuela maintains a fixed exchange rate for the Venezuelan currency (the bolivar).

100% Banco: a privately owned commercial bank in Venezuela. The bank is owned by the Benacerraf family. 

Banco Mercantil: The second largest bank in Venezuela, it has close to 400 bank branches. 

Banco Occidental de Descuento: The bank holds approximately 6.6% of the Venezuelan market and is ranked as the fifth-largest bank. 

Sofitasa: Headquartered in San Cristobal, Venezuela, it is a smaller bank with only 1% of market share.

Banco de Venezuela: An international bank based in Caracas, Venezuela. It is currently the third largest bank in Venezuela with 11.3% market share of deposits. 

Women’s Development Bank: The Women’s Development Bank was founded in 2001 to address the difficulties women in Venezuela face, especially in financial and economic matters. The bank provides small, low-interest loans to women entrepreneurs. Consistent with the country’s socialist agenda, the bank will only grant “group loans” to groups of either five or ten women. The socialist ideology advanced by the late President Chavez, prioritizes community and the collective over individuals, which is the reason the bank will not grant loans to individuals entering a business venture.  


Copyright © 2015 by Bisignis Institute. All rights reserved.

No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. 

Printed in the United States of America