CARACAS (Reuters) - President Hugo Chavez struck a softer tone to reassure jittery investors on Thursday over the health of Venezuela’s banks, and markets began to stabilize after a sharp sell-off of bonds and the bolivar currency.
With rumors swirling about stability after the government closed four failing banks, Chavez twice this week stoked fears, threatening to nationalize banks involved in malpractice or failing to aid development in Venezuela.
But on Thursday he cooled his rhetoric after investors dumped Venezuelan bonds and the bolivar. Business groups and banks also released statements saying the system was solid.
“The government is putting out fire ... We are fixing the problem,” he said, saying both the country and the bank system will benefit from his measures. “We will all emerge stronger.”
His words seemed to calm investors. Prices for Venezuela’s widely traded 2027 global bond on Thursday suffered their sharpest fall since August 26 in intraday trading but pared their losses later in the day.
Chavez has brought many sectors of the economy, including the vital oil industry, into public hands. But he has so far shied away from a large scale takeover of finance — apparently aware his popularity could suffer if a nationalization failed.
The state closed four small private banks owned by a former government ally on Monday over concerns over their solvency, capital funding and other alleged irregularities.
Opposition politicians say the collapse of the banks and the arrest of wealthy owner Ricardo Fernandez, who worked closely with the government, was a move to cover up corruption linked to ministers and friendly businessmen.
“This is a government of thieves,” opposition politician Henry Ramos Allup said in an interview with Reuters at his Democratic Action party headquarters.
Chavez this week said authorities were monitoring another group of banks closely for possible further intervention, but on Thursday he avoided the word nationalization.
‘SOLVENT AND WELL-ADMINISTERED’
Venezuela’s benchmark 2027 global bond first plunged 6.6 percent in early trading, hitting its lowest intraday level since July 24. The yield hit 14.783 percent, its highest since mid-July.
Later, after Chavez spoke on a televised cabinet meeting, the bond pared its losses to 4.7 percent, with the yield at 14.614 percent. It has accumulated a fall of 11.1 percent since early Monday.
The bolivar currency, officially fixed at 2.15 per dollar, weakened to as low as 6.2 per dollar on the parallel market, traders said — its lowest rate in two months.
The J.P. Morgan Emerging Bond Index Plus listed the yield spread between Venezuela’s bonds and U.S. Treasuries 45 basis points wider, at 1215 bps, one of the world’s highest.
Analysts say the banking system is broadly healthy, though some fear more banks may be shut or that nervous depositors and rumors could trigger a bank run.
Chavez said his enemies among Venezuela’s old-guard wealth elite were deliberately trying to fan a run on banks. However, even business groups and analysts opposed to the socialist on Thursday were at pains to stress the strength of the system.
Venezuela’s association of private bankers said it supports the government’s recent actions and that the financial system is working normally.
In a poll last year, Venezuelans voted banks among the country’s most trusted institutions, even though many remember bitterly a 1994 crisis that saw half the nation’s banks fold, costing the government about $11 billion.
“The Venezuelan financial sector is not suffering a systemic crisis. In general it is solvent and well administered. We are not revisiting the 1994 crisis,” said Venezuelan think tank VenEconomia in a report.
Editing by Kenneth Barry