Venezuela proposes to cut capital adequacy ratios

CARACAS - Venezuela is looking to cut capital adequacy ratios for financial institutions at a time when banks are ramping up consumer lending, increasing risk substantially. Bankers in Caracas say the move, if implemented, would take the country away from Basel II standards and further undermine the credibility of the banking system.

Capital adequacy ratios have already been cut once, in 2005, when they were reduced from 10% to 8%, points out Francisco Faraco, who runs a banking consultancy in Caracas. The new proposal would reduce them a further 2%, he says. José Grasso, bank analyst at Caracas-based Softline Consultores, says that, although it is not yet certain that the law will be passed, the previous decision to grant a reduction in the rate suggests banks are likely to be successful in their bid to have it reduced