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DE RUEHCV #0004 0021322
ZNY CCCCC ZZH
P 021322Z JAN 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 2379
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEBAAA/DEPT OF ENERGY
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

C O N F I D E N T I A L CARACAS 000004

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR RJARPE
NSC FOR JSHRIER
COMMERCE FOR 4431/MAC/WH/JLAO

E.O. 12958: DECL: 12/31/2018
TAGS: ECON EFIN VE

SUBJECT: PRESSURE IN OVERNIGHT INTERBANK MARKET AS SOME
BANKS FEEL LIQUIDITY SQUEEZE
REF: CARACAS 566

Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b)
and (d).

¶1. (U) The overnight market for interbank loans has come
under increasing pressure in the last two months, with the
loan amounts negotiated and average interest rates more than
doubling. In 2007, the average daily total negotiated in the
interbank overnight market was 1,212 billion bolivars (Bs;
USD 564 million at the official exchange rate of 2.15 Bs per
USD) and the average interest rate was 10.7 percent. In
2008, amounts and average rates fluctuated roughly around
these same averages through October 2008. The averages
jumped in November and have steadily climbed in December; on
December 29, the daily total negotiated was Bs 6,538 billion
at an average rate of 33 percent.

¶2. (SBU) Our contacts indicate the primary reason for this
pressure is withdrawal of public sector deposits from the
banking sector by the Government of the Bolivarian Republic
of Venezuela (GBRV). These withdrawals are causing
increasing liquidity problems at a number of smaller and
medium-sized banks which are more dependent than their larger
counterparts on government deposits (reftel). A similar
phenomenon occurred at the end of 2007, with the average
daily amount negotiated and average interest rate spiking to
Bs 2500 billion and 18 percent, respectively, in December
2007 and January 2008. At that time, the GBRV appeared to be
moving deposits to the state-owned Banco del Tesoro in an
effort to force private banks to convert dollar assets into
bolivars to meet liquidity needs and thus bring down the
parallel exchange rate. Several of our contacts believe the
current episode is more a consequence of GBRV institutions
not getting the inflow of funds from the National Treasury
necessary to meet their year-end obligations (including
bonuses and expenses related to the November 23 elections)
and thus being forced to draw down existing deposits. (Note:
Statistics on individual banks are available only through
October 31, making it impossible to pinpoint which banks are
in most trouble. End note.)

¶3. (C) Comment: As noted in reftel, the Venezuelan banking
sector is concentrated (in that the top five banks have 50
percent of market share) but has a large number of banks (39
commercial or universal banks) relative to the size of the
economy. Several of the smaller and medium sized banks are
not healthy: they do not meet the solvency standards imposed
by the Superintendency of Banks (SUDEBAN, the sector's
primary regulator) and have intermittent liquidity problems.
If the GBRV, which as of October accounted for 18 percent of
deposits in the sector, continues to draw down its deposits
to cover budgetary shortfalls, there is a possibility several
banks - especially those most dependent on GBRV deposits -
may fail. As noted in reftel, this prospect does not appear
to present a systemic risk to the sector. How this situation
plays out depends on what the GBRV does with its deposits and
on how SUDEBAN handles its regulatory responsibilities. One
indication of the former may be a report from one bank, which
we have been unable to confirm, that the Ministry of Finance
issued in late December a regulation requiring banks to
return to the National Treasury all public sector deposits
they have been holding for more than four months. SUDEBAN's
response is an open question, as press reports indicate the
GBRV announced the appointment of a new SUDEBAN head in the
December 30 Official Gazette. End comment.
CAULFIELD