BBVA Banco Provincial: Strategy in Venezuela's Banking Sector

Venezuela: Country and Economic Background

Venezuela is the 31st largest economy in the world in terms of GDP. For 2007, the country's gross domestic product was estimated at a total value of $334.3 billion. The country is located on the northern coast of South America, and its primary natural resources include petroleum, natural gas, iron ore, bauxite, gold, diamonds, and various other minerals. Venezuela gained independence from Spain in 1811.

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

The Venezuelan Banking Sector

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

Economic growth and expansion of banking institutions has been challenging due to two primary forces: complex interest rate regulations and growing continental inflation. Banks are required to offer at least 15% on deposits but are restricted from charging more than 14% on agricultural loans and 19% on manufacturing loans. These limitations are further compounded by the fact that consumer prices increased by 22.5% throughout 2007, and banking companies cannot integrate this price increase into their product offerings.

Despite these limitations and the nationalizing policies of President Hugo Chávez, the sector has registered some growth. This is largely due to support from the oil industry, which triggered an increase in living standards and higher demand for consumer goods. As Reuters (2008) noted, "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."

The matter of banking ownership is particularly interesting within Venezuela. President Hugo Chávez is well known for his anti-capitalist rhetoric, which meant he generally opposed the concepts of a free market in which prices are determined by supply and demand. He also opposed privatization and foreign investment. As a result, most banks were owned by local entrepreneurs, and processes of nationalizing major banking institutions had commenced. Aside from the Venezuelan state and its native-born citizens, banking companies are also owned by the former colonial presence — specifically, Spanish holding groups.

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

A review of the Venezuelan banking sector from 2003 to 2008 reveals continuous and sustained growth and development, despite ongoing government interference. Loans increased by 400% since 2003, with consumer loans registering an unprecedented 32% of total loans. This increase was driven by growth in imports and higher government spending. According to Business Wire New York (2008), "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."

Venezuela's Commercial Banking Business Environment Rating (CBBER) stands at 49.2, with a potential return of 51.3 — higher than the average of other countries. This indicates that the banking sector in Venezuela is overdeveloped relative to the country's real wealth, financial infrastructure, and stability (Business Wire Dublin, 2008).

BBVA Banco Provincial: Company Overview and Strategy

A more comprehensive understanding of the Venezuelan banking sector can be achieved by examining one of its most prominent institutions — BBVA Banco Provincial. The bank was founded in 1953 and is headquartered in Caracas. In 1996, it gained a leading market position by implementing strategies of differentiation and specialization. The following year, 55% of the company's shares were purchased by the Spanish Banco Bilbao Vizcaya Argentaria (BBVA) as part of the group's strategy to expand operations in Latin America.

The bank's stated aim is to support the country's development by increasing its export opportunities. In this regard, it sustains entrepreneurs by offering letters of credit for import and export operations, collection of trade documents, and a wide range of other products and services. The bank also strives to improve living standards by easing access to loans and offering attractive interest rates on deposits.

In order to maintain and further consolidate its leading position within the Venezuelan market, BBVA Banco Provincial has implemented various strategic approaches in recent years. The three most relevant are: the introduction of newer technologies, the development of social responsibility programs, and greater specialization of its products and services.

The introduction of newer and better technologies is recognized globally for delivering increased operational efficiency and cost reduction. As Bakos and Treacy (1986) observed, "The use of information technology as a competitive weapon has become a popular cliché." The strategy of integrating technology into corporate affairs is largely based on the advantages that other industry players have already achieved. The use of information technology creates several benefits, including better-informed decision-making, cost reductions and consequently lower retail prices, and increased operational efficiency — all in service of greater customer satisfaction.

The development and implementation of corporate social responsibility (CSR) programs as a strategic approach is similarly grounded in the need to gain competitive advantages that better satisfy customers. These measures generally involve conducting operations in an ethical manner and considering the interests of various stakeholders, including employees, customers, communities, and governmental and non-governmental organizations. According to the Chartered Institute of Personnel and Development (2008), "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."

The strategy of product specialization is based on the recognition that the totality of customers served have varying needs and can be divided into distinct groups. It is therefore more effective to satisfy the needs of a particular group by specializing the product offering for that group. This strategy delivers a competitive advantage by enabling the bank to better address customers' specific needs (Fuentes, Grifell-Tatjé, and Perelman, 2005).

All three strategies have been implemented over the past five years and are all aimed at increasing organizational profits by improving customer satisfaction. The introduction of technology, for instance, aimed to allow bank customers to conduct operations online, saving time and money. Through CSR programs, BBVA Banco Provincial strives to create a favorable image by becoming a supporter of local communities. Finally, the product specialization strategy was implemented for business customers and involved the introduction of additional services to facilitate international trade.

Technology Integration as a Competitive Strategy

The introduction of newer technologies allows bank customers to conduct operations online. Clients can log on to the bank's website to view the history of their account operations — such as payments and receipts — and can conduct payments themselves. Newer technologies also allow banking services to be delivered through cellular telephones or landlines (Google Finance, 2008).

First and foremost, this strategy resulted in a significant increase in customer satisfaction. Clients of BBVA Banco Provincial no longer need to stand in line at bank registers to obtain information on their accounts or complete transactions. As a consequence, the bank was better able to consolidate its position within the Venezuelan market through a net comparative advantage over other commercial banks, better access to corporate information, and an improved decision-making system.

Employee satisfaction also increased, as the newer technologies reduced the volume of work that had to be handled manually. With customers able to log on to the website independently, register personnel faced fewer demands. This reduction in stress and organizational pressure translated into greater on-the-job satisfaction, which in turn improved performance and support for the bank's overall objectives.

Beyond direct impacts on customer and employee satisfaction, the benefits of technological integration also resulted in more efficient communications — between company representatives and shareholders, customers, employees, and communities alike.

Future benefits of the investment are also expected to materialize in coming years. The $95 million allocated to the modernization of BBVA Banco Provincial is anticipated to grow the customer base and increase loyalty among existing customers, thereby securing reliable corporate revenues. More specifically, these technology investments are expected to increase the private loans segment by 27% (South American Business Information, 2000).

References

Bakos, J.Y., Treacy, M.E., June 1986, Information Technology and Corporate Strategy: A Research Perspective, MIS Quarterly, pp. 107–119.

Fuentes, H., Grifell-Tatjé, E., Perelman, S., November 27, 2005, Product Specialization, Efficiency and Productivity Change in the Spanish Insurance Industry, Ecole de Gestion de l'Université de Liège.

March 11, 2008, Fitch Special Report: Venezuelan Banking Sector Expands, Faces Challenges, Business Wire, New York.

April 25, 2008, Venezuela Commercial Banking Report Q1 2008, Business Wire, Dublin.

July 31, 2008, Factbox — Key Facts about Venezuela's Banking Sector, Reuters.

September 2008, Corporate Social Responsibility, Chartered Institute of Personnel and Development.

2008, BBVA Banco Provincial, S.A., Google Finance.

2008, BBVA's Commitment to Society, Website of the BBVA Group.

2008, The World Factbook — Venezuela, Central Intelligence Agency, https://www.cia.gov/the-world-factbook/countries/venezuela/.

June 2000, Venezuela: BBVA Invests U.S.$95.6 Million to Modernize Banco Provincial, South American Business Information.

June 1, 1999, Banco Provincial Strengthens Leadership in Venezuelan Market, Global Finance.

Export Services — Banco Provincial, DDEX.