Bank reserves have a negative impact on the economy
30 noviembre 2018

The lending capacity of public and private banks has contracted in the last two months, after peaking in August 2018. The main causes are the government’s ban on banks from using their reserve money to grant loans and the increase from 21.5% to 31% of the minimum reserves. Banks and productive sectors are the most affected sectors. Should the outlook remain the same in the coming months, the severe economic crisis that has been engulfing Venezuela since the beginning of the year is set to worsen.

The decisions of the Central Bank of Venezuela concerning bank reserves in September 2018 mean that for every 1.21 USD deposited in the country’s banks, 0.07 USD will be used for loans. Previously, the ratio was 0.61 USD for every 1.21 USD deposited.

The main industries affected are the country’s banks and productive sectors. In terms of the former, financial institutions stand to suffer losses because the fewer the loans that are granted, the lower the interest revenue they can make. With respect to the latter, productive sectors have limited access to financing to increase their production. A lower production capacity can negatively affect the supply of goods in the economy, accentuating the economic crisis.

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