Venezuelan Banking Sector - Bbva

¶ … Venezuelan Banking Sector - BBVA Banco Provincial

General country background

Venezuela is the 31st largest economy of the globe in terms of measured GDP. For 2007, the country's gross domestic product has been estimated at a total value of $334.3 billion.

The country is located on the northern part of South America and its primary natural resources are petroleum, natural gas, iron ore, bauxite, gold, diamonds and various other minerals. They gained their independence from Spain in 1811 and their current president is Hugo Chavez.

Venezuela has a population of 26,414,816 individuals of a total median age of 25.2 years. They register an income per capita of $12,800, $2,800 higher than the global average. The unemployment rate is of 8.5% and 37.9% of the population is living below the poverty line. More than half of the working population activates in the service sector, with the remaining occupying positions in industry or agriculture (Central Intelligence Agency, 2008).

General sector info

The modern Venezuelan banking sector is comprised from a total of 50 banking and financial institutions. These organizations possess assets estimated at a value of $109 billion; their credit portfolio revolves around $52 billion (Reuters, 2008).

The economic growth and expansion of the banking institutions has been quite difficult generally due to two forces: complex interest rate regulations and a growing continental inflation. In this order of ideas then, banks face difficulties as they must offer at least 15% for loans, but are restricted from requesting more than 14 or 19% on loans. The 14% limit on interest rates is for the agricultural loans and the 19% limit is for the manufacturing loans. The downside of the limitations is foremost enhanced when the consumer prices increased by 22.5% throughout 2007 and the banking companies cannot integrate the price increase in their product offering. But despite these limitations and the nationalizing policies of Hugo Chavez, the sector has registered some growth. This is generically due to the support received from the oil industry, which triggered an increase in living standards and higher demand for consumer goods. "Venezuela's banks have benefited from its oil-driven economic expansion, with booming consumer spending spurring double-digit growth in car and home loan portfolios" (Reuters, 2008).

Patterns of ownership

The matter of banking ownership is a quite interesting one within Venezuela. In this order of ideas, President Hugo Chavez is renowned for his anti-capitalist rhetoric. This basically means that he generally opposed the concepts of a free market, in which the prices are determined by demand and offer. He also opposed the ideas promoting privatization or foreign investments. This then meant that most of the banks were owned by local entrepreneurs and that processes of nationalizing the major banking institutions had commenced. Aside the Venezuelan state and its native born citizens, the banking companies are also owned by the previous occupants of the country - the Spanish holding groups.

Importance of sector to economy

The importance of the banking sector is crucial within any economy, but even more so in the emergent market of Venezuela. Its importance is given by its ability to offer financing opportunities to both population and business community. Also, by attracting deposits and offering loans, banking institutions ensure the circulation of money and the existence and proper allocation of liquidities within the market.

Key developments in the sector during the period report of the Venezuelan banking sector looking at the developments throughout 2003 up to 2008 revealed a continuous and sustained growth and development of the sector, despite the still existence interference from the government. Loans have increased by 400% since 2003, with consumer loans registering an unprecedented 32% of total loans. The increase has been due to growth in imports and higher government spending. "Contrary to earlier periods of rapid loan growth, this expansion has been funded by a significant reduction in the investment portfolio and the liquidity of the system has been diminished" (Business Wire New York, 2008). Venezuela's CBBER (Commercial Banking Business Environment Rating) is of 49.2, with a potential return of 51.3 higher than the average of other countries. This means that the banking sector in the South American country is overdeveloped in comparison to the country's real wealth, financial infrastructure and stability (Business Wire Dublin, 2008).

2. Strategy Exploration more comprehensive look at the Venezuelan banking sector can be achieved through a more complex approach of one of Venezuela's most prominent banking institutions - BBVA Banco Provincial.

BBVA Banco Provincial was founded in 1953 and it is headquartered in Caracas. In 1996, the bank gained a leading position by implementing strategies of differentiation and specialization. The following year, 55% of the company's shares were purchase by the Spanish Banco Bilbao Vizcaya Argentina in their desire to expand operations in Latin America. The aim of the bank is to support the country's development by increasing its export opportunities. In this order of ideas, they sustain entrepreneurs by offering letters of credit for import and export operations, collection of trade documents and a wide series of other products and services. They also strive to increase the living standards of the population by easing their access to loans and offering attractive interest rates on deposits. In order to maintain and further consolidate their leading position within the Venezuelan market, BBVA Banco Provincial has implemented various strategic approaches along the past recent years. The three most relevant ones include the introduction of newer technologies, social responsibility programs or a superior specification of the products and services offered.

Strategy definition

The introduction of newer and better technologies is renowned across the globe for offering an increased operational efficiency and cost reduction. "The use of information technology as a competitive weapon has become a popular cliche" (Bakos and Treacy, 1986). The strategy of integrating it developments in corporate affairs is mostly based on the previous advantages that other players in the industry have achieved. The usage of information technology creates several advantages, such as ability to make better informed decisions, achieve cost reductions and consequently a reduced retail price, increase operational efficiency, all for the ultimate satisfaction of the customers.

The development and implementation of corporate social responsibility programs as a strategic approach is also based on the need to gain competitive advantages that better satisfy the customers. These measures mostly revolve around conducting operations in an ethical manner and considering the feelings and interest of various stakeholders, such as employees, customers, communities or governmental and non-governmental organizations. "CSR covers all aspects of corporate governance. It is about how companies conduct their business in an ethical way, taking account of their impact economically, socially, environmentally and in terms of human rights" (Chartered Institute of Personnel and Development, 2008).

The idea of implementing a strategy of product specialization is based on the fact that the totalities of customers served have varying needs and can be divided into groups. It is therefore easier to best satisfy the needs of a particular group by specializing the product offering for that respective group. The strategy then ensures a competitive advantage materialized in the ability to better satisfy customers' needs (Fuentes, Grifell-Tatje and Perelman, 2005).

Strategy focus

All three strategies have been implemented throughout the past five years and they are all aimed to increase the organizational profits through an increase in the satisfaction felt by customers. The introduction of technologies for instance aimed to allow bank customers to conduct operations online, saving as such time and money. Through programs of social responsibility, BBVA Banco Provincial strives to create a favourable image by becoming a supporter of the communities. Finally, the strategy to specialize the product offering was implemented for the business customers and it saw the introduction of additional services to help the international trade of merchandize.

3. Strategy Analysis

Newer technologies

The introduction of the newer technologies allows bank customers to conduct operations online. The client logs on to the bank's website and is able to view the history of the operations in his account, such as payments or collects. He also able to conduct payments by himself. The newer technologies also allow for the banking services to be delivered through cellular telephones or landlines (Google Finance, 2008). First of all, the strategy implied a significant increase in customer satisfaction. The clients of BBVA Banco Provincial would no longer have to stand in line at the bank registers to get information on their accounts or conduct operations.

As a consequence of the integration of the technological developments into the services of BBVA Banco Provincial, the banking company was able to better consolidate its position within the Venezuelan market. This was generically due to the net comparative advantage gained over other commercial banks, better access to corporate information and an improved system at the basis of the decision making process.

The satisfaction of the corporate employees also increased as the newer technologies implied a reduced amount of work to be handled manually. As customers could log on to the website, the register personnel had to deal with fewer demands. This would then imply an increased on-the-job satisfaction, generated by a reduction in stress and organizational pressure. The increased satisfaction on the job materializes in increased performances and an increased support in helping the bank reach its overall objectives.

Aside from the direct impacts upon the satisfaction of the customers, the benefits of introducing the newer technological advancements have also resulted in more efficient communications. This was available between company representatives and shareholders, customers, employees, as well as communities.

Future benefits of the investment are also likely to materialize in the following years. As such, the $95 million funds allocated to the modernization of BBVA Banco Provincial would increase the number of customers. It would also imply that the current customer base becomes more loyal, ensuring as such constant and reliable corporate incomes. More specifically, the investments in technology are expected to increase the sector of private loans by 27% (South American Business Information, 2000).

Corporate social responsibility programs

Throughout the past recent years, BBVA's interest in implementing programs of social responsibility has significantly increased. "BBVA understands corporate responsibility to be a wholehearted commitment to providing the utmost value possible in a balanced manner to all its direct stakeholders -shareholders, customers, employees and suppliers- and to the sum of societies in which it operates. The prevailing commitments that the Group seeks to fulfil through its corporate responsibility (CR) policy are as follows:

Uphold excellence at all times in our core business operations

Minimize the negative impacts caused by our business activity

Develop "social business opportunities" that generate both social value and value for BBVA

Invest in those societies in which the Group is present through support for social projects, especially those involving education" (Website of the BBVA Group, 2008) most relevant example of how BBVA Banco Provincial creates value for the community is given by the measures it took this year to offer scholarships to the financially disadvantaged youth to continue their education. They invested 2.37 million euros in this program (Website of the BBVA Group, 2008).

The introduction of corporate social responsibility programs into the strategic approaches of BBVA Banco Provincial has proven beneficial from various standpoints, such as an increased customer satisfaction, better consumer reviews or increased employee pride for working within an organization committed to social development. Ultimately however, the most important benefit is that of creating a strong brand that is favourably perceived by the market.

Product specification

The strategy of product specification is most common among the products and services offered to the business customers. Based on the premises of supporting the Venezuelan entrepreneurs in conducting international trade, the bank developed a wide offering for economic entities. They revolve around:

Import and Export letters of Credit

Operations under ALADI agreement (Latin-American Association of Integration)

Remittance and Receipt of Payment Orders

Issuance of Foreign Currency Checks

Import and Export Documentary Colletion

Insurance of surety Bonds and Guarantees in foreign currency

Export Bonds transsaction and processing

Checks and effects collection in foreign currency

Foreign currency acquisition procedure before CADIVI (Venezuelan Government Currency

Administration Commission. CADIVI, for its initials in Spanish: Comision de Administracion de Divisas)" (DDEX)

The strategy had benefits on multiple levels. First of all, the business customers achieved increased satisfaction, became more loyal and through word of mouth, brought in new clients. Then, the measures promoted increased the trust and support in the development of the Venezuelan economy, which once more helped create a favourable image within the market. Ultimately however, all these benefits materialized in increased corporate profits.

4. Conclusions

BBVA Banco Provincial was initially established as a Venezuelan banking institution but, through an opening to capitalization, it was then purchased by the Spanish Group BBVA. The new owners commenced a process of modernization and in this instance, they developed and implemented a wide series of strategic approaches. All of these measures aimed the registration of increased corporate profits through the achievement of multiple subgoals, such as the attraction of additional customers or the increased satisfaction of the customers. Throughout the past recent years, the management at BBVA Banco Provincial has been focused on integrating the latest technological developments into their operations, placing an increased emphasis on corporate social responsibility programs and increasing the offering to some customers by increasing the product specification.