The agencies responsible for banking supervision in Venezuela are the Central Bank of Venezuela (BCV), the Superintendency of Banks and Other Financial Institutions (SUDEBAN), the Fund for Deposit Warranties (FOGADE), and the National Banking Advisory Board (CBN). The U.S. Department of Commerce reports in 2007 that the Banks and Other Financial Institutions General Law of 2001 increased the supervisory authority of SUDEBAN over financial institutions. A 2006 Working Paper published by the International Monetary Fund (IMF) indicates that, although the Venezuelan banking sector appears to have strong Financial Soundness Indicators (FSIs), this is the case only if the country is experiencing economic growth. The IMF paper further notes that there are several deficiencies in the banking supervisory framework, especially in the areas of consolidated supervision, offshore operations of Venezuelan banks and connected lending. In addition, the report notes that the Chavez government has introduced several changes in the regulatory environment resulting in increased government intervention in the banking sector. Nonetheless there is insufficient information publicly available as to Venezuela's compliance with the Bank for International Settlements' Basel Core Principles for Effective Banking Supervision.

General Overview

According to a 2006 Working Paper published by the International Monetary Fund (IMF) and authored by Rodolphe Blavy, during boom cycles, the Venezuelan banking sector appears sound and the financial soundness indicators (FSIs) are strong. However the report suggests that, in the event of a downturn, the banking sector in Venezuela may perhaps be exposed and vulnerable to interest rate and credit risks. Blavy's paper identified several deficiencies in the banking supervisory framework, namely the "absence of established procedures for the consolidated supervision of financial groups, off-balance-sheet items, offshore operations of Venezuelan banks, and for the monitoring of connected lending" (p. 30).

In its 2007 "Doing Business In Venezuela: A Country Commercial Guide for U.S. Companies," the U.S. Department of Commerce (DoC) reports that the agencies responsible for banking supervision in Venezuela are the BCV, the SUDEBAN, the FOGADE, and the CBN. According to a 2005 report by the Economist Intelligence Unit (EIU), SUDEBAN is responsible for the supervision of all financial institutions, and its main function is to monitor these institutions and alert the BCV of any failures on their part. In the words of a 2002 report by the Center for Latin American Monetary Studies and World Bank, "The SUDEBAN is the supervisory agency for universal, commercial, development, investment and mortgage banks as well for capitalization companies, foreign exchange houses, deposit general warehouses, representative offices of foreign banks, leasing companies, money market funds and savings and loans entities" (p. 19).

In November 2001 the Banks and Other Financial Institutions General Law was passed, and provisions therein increased the supervisory authority of SUDEBAN over financial institutions. Blevy's 2006 IMF report notes that the Law defines the different types of financial institutions and also brought about changes to the sanctions regime and that proposals made in 2005 for a new Banking Law and new measures on prudential regulations are being adopted. The U.S. DoC's 2007 report suggests that the new banking law is likely to be passed in 2007, and will increase the intervention capacity of the Venezuela government.

Blavy's 2006 IMF paper further points out that the Chavez government has introduced several changes in the regulatory environment in the financial sector, mostly involving new lending practices aimed at reducing poverty. Although Blavy finds some of these changes to be positive in their effects, he cautions that they have also increased government intervention in the banking sector.

According to the 2007 U.S. DoC report, 2006 total bank assets in Venezuela were US$ 63.5 billion and there were 22 universal banks, 14 commercial banks, 3 development banks, 4 investment banks, 2 mortgage banks, 1 leasing company, 3 savings and loan associations, 2 money market funds and 4 special law regulated banks. Ten of these institutions are state owned

The Principles

1. (1) Clear responsibilities and objectives for each supervisory agency.

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According to a 2002 report by the Center for Latin American Monetary Studies and World Bank, the SUDEBAN's functions are defined in the 2001 Banks and Other Financial Institutions General Law. The report further states that the functions "range from authorizing the creation and functioning of financial institutions, the issuing and implementing of prudential, accounting and other regulations, adopting measures to avoid or correct mistakes or irregularities, applying any related sanctions..." (p. 19). Nonetheless, there is insufficient information publicly available as to Venezuela's compliance with this Principle.

1.(2) Operational independence and adequate resources.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

1.(3) A suitable legal framework for authorization and ongoing supervision.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

1.(4) A suitable legal framework to address compliance with laws as well as safety and soundness concerns.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

1.(5) Legal protection for supervisors.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

1.(6) Arrangement for sharing of information between supervisors and protection of confidentiality of shared information.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

2. Clearly defined permissible activities for banks and control of the use of the word 'bank'.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

3. Criteria for structure, directors, operating plan, controls, financial condition and capital base.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

4. Authority to review and reject transfer of ownership.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

5. Authority to review major acquisitions and investments.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

6. Minimum capital adequacy requirements (meet Basle Capital Accord for internationally active banks).

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According to Rodolphe Blavy's 2006 report for the IMF, the statutory risk-weighted capital-assets ratio set by the SUDEBAN is 12 percent and the required capital-to-asset ratio is 10 percent. Blavy notes that "the average capital-to-risk-weighted-assets ratio stood above 15 percent in December 2005, while the capital-assets ratio was above 11 percent" (p. 17). However, the report indicates that the average capital adequacy ratios do not fully capture the pressure on some banks and that, in 2005, "seven banks did not comply with the capital-to-assets minimum requirement, and five banks did not meet the minimum capital to risk-weighted assets ratio" (p. 19). In the final analysis, however, there is insufficient information publicly available as to Venezuela's compliance with this Principle.

7. A method exists for the evaluation of procedures related to loans, investments and portfolio management.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

8. Policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves.

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According to the Rodolphe Blavy's 2006 report for the IMF, the quality of Venezuelan assets has improved since 2002, and nonperforming loans declines to 1.25 percent in 2005. Nonetheless, there is insufficient information publicly available as to Venezuela's compliance with this Principle.

9. Prudential limits and management information system on concentration of exposure.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

10. Arm's length rule and monitoring for connected lending.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

11. Policies and procedures for country risk and transfer risk.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

12. Measuring and monitoring market risk. Limit and/or specific capital charge on market risk exposure.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

13. Comprehensive risk management processes.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

14. Adequate internal controls.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

15. Strict "know-your-customer" rules and high ethical and professional standards.

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The Organic Law (2005) and Resolution 333-97 of the Superintendent of Banks and Other Financial Institutions (SUDEBAN) specify strict customer identification requirements and thresholds for reporting currency transactions which apply to all banks, according to the 2007 U.S. DoS report. Nonetheless, there is insufficient information publicly available as to Venezuela's compliance with this Principle.

16. Effective supervisory system consisting of on-site and off-site supervision.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle. However, according to a 2002 report by the Center for Latin American Monetary Studies and World Bank, the SUDEBAN "supervises the financial entities through various Inspection Divisions, which are responsible for implementing the two basic types of controls: direct controls (i.e., on site inspections) and indirect controls (i.e., off-site surveillance)" (p. 19).

17. Regular contact with bank management and understanding of bank's operations.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle

18. Analytical reports and statistical returns on solo and consolidated basis.

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According to the 2002 report by the Center for Latin American Monetary Studies and World Bank the SUDEBAN "has a Technical Division that is in charge of preparing technical studies, statistics, economic research and special studies to support supervisory activities" (p. 19). Nonetheless, there is insufficient information publicly available as to Venezuela's compliance with this Principle.

19. Independent validation of supervisory information through on-site examination or external auditors.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

20. Ability to supervise on a consolidated basis.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

21. Consistent accounting policies and practices that provide a true and fair view of the financial condition of the bank.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

22. Adequate supervisory measures to ensure timely corrective action.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle. However, according to a 2002 report by the Center for Latin American Monetary Studies and World Bank, the SUDEBAN "supervises the financial entities through various Inspection Divisions, which are responsible for implementing the two basic types of controls: direct controls (i.e., on site inspections) and indirect controls (i.e., off-site surveillance)" (p. 19).

23. Banking supervisors must practice global consolidated supervision over their internationally-active banking organizations.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

24. International exchange of information with other supervisors.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.

25. Supervision of local operation of foreign banks and information sharing with home country supervisors.

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There is insufficient information publicly available as to Venezuela's compliance with this Principle.