* First draft passed, second reading may come next week
* Chavez has already increased control of banking sector
* Analyst says bill ups costs but not "strait jacket"
By Frank Jack Daniel
CARACAS, Nov 11 Venezuelan lawmakers on Thursday passed the first draft of a bill that would make it easier for President Hugo Chavez to nationalize banks and require them to give five percent of profits to social groups.
In recent weeks Chavez has accelerated his push to build a socialist state in OPEC member Venezuela but few think he will nationalize banking outright. He has increased the state's share of the industry over the last two years.
Lawmakers from Chavez's Socialist Party said the proposed rules aimed to bring the banking sector in line with the government's development plans and protect consumers by tightening already tough rules.
"The sprit of our law is to protect the users, not the bankers, as used to happen," said Ricardo Sanguino, who heads the National Assembly's finance commission.
The law could be passed as soon as next week, although no date was immediately set for the second reading.
The bill simplifies the procedure for taking over or closing failing banks, allowing the president to personally order such a move. It also appears to declare them "public utility," a status often used prior to nationalizations.
State-owned banks currently make up about a third of Venezuela's banking system, which analysts generally say is financially sound. During nearly 12 years in office Chavez has increased government control in many areas of the economy, including oil, electricity and telecommunications.
Since winning a reduced parliamentary majority in elections in September, Chavez has pushed ahead with new takeovers and is hurrying a number of laws before the new parliament is formed in January.
In 2009, Venezuela bought one of the country's largest banks, Banco Venezuela, from Spain's Santander (SAN.MC) and has taken over a number of smaller failing banks over the last 12 months.
If the bill is passed, banks will have to divert 5 percent of their profits to grassroots social groups called community councils that are Chavez wants to have increased decision making and financial power. Banks may seek to offset the five percent rule by dropping other funding for charities.
The bill suggests fines for infractions of up to five percent of a bank's share capital and long prison sentences for fraud.
Venezuelan banking analyst Cesar Aristimuno said the new rules were not crippling, as long as the economy recovered next year after two years in recession.
"Despite everything the banks are operating with a margin of profits, even after two years of economic contraction," Aristimuno said. "This is not a strait-jacket in which the banks cannot prosper."
Aristimuno said he did not believe Chavez would totally nationalize banking but said the government could seek to increase the public sector's share to 50 percent of the industry.