Saturday, January 06, 2007

Impact of sale of Salvadoran banks

As I noted a few weeks ago, the largest banks in El Salvador have now all been sold to foreign owners. Raúl Gutiérrez has written an article on the Inter Press Service predicting bad results from these developments:

SAN SALVADOR, Jan 5 (IPS) - International financial consortia have already squeezed local shareholders out of banks in El Salvador, and now they are expected to sideline the state, all of which will contribute to widening the gap between rich and poor.

Salvadoran financial groups ended the year with enormous revenues from the sales of most of their bank shares to transnational conglomerates, such as Canada's Scotiabank, the U.S.'s Citigroup, Bancolombia, and Panama's Banistmo which was then sold to Hong Kong & Shanghai Banking (HSBC).

The coup de grace was given by Bancolombia, which bought the Banco Agrícola (Agricultural Bank), the last remaining financial group owned by local capital, in December.

While supporters of this sort of transaction argue that they make the banking system more competitive and provide advantages to clients, economists and political scientists consulted by IPS take the view that the Salvadoran state's weakness and the lack of regulations put the country at risk of "greater dependency and subordination to multinational economic powers."

Transnational capital "will become a new political class which, although resident abroad, will wield great power, and could turn this Central American country into another banana republic," said one analyst....

The analysis of the article does not necessarily hold up. While the Salvadoran owners of these banks are selling their interests to large multinational financial institutions, the argument that banks like Citibank will become a new political class in El Salvador lacks any logic. The current owners of those banks exercise considerable (overwhelming?) influence over the policies of El Salvador's government, influence which was not usually directed towards the common good. So how will this change of ownership worsen conditions in El Salvador?

El Salvador's largest bank, Banagricola, was sold to Colombia's largest bank, Bancolombia. In related news this week, Bancolombia executives were charged with fraud in the 1997 merger which created Colombia's largest bank:
Jan. 5 (Bloomberg) -- Shares of Bancolombia SA, the nation's biggest bank, fell as much as 9 percent after the company's president, Jorge Londono, was accused of fraud and ordered arrested.

Colombia's Attorney General Mario Iguaran ordered yesterday that Londono, 59, and Bancolombia Vice President Federico Ochoa be held under house arrest as part of a probe of the 1997 merger that created the company.

Although the Colombian bank is not itself the target of this prosecution, it's not a good sign to have your top officers accused of fraud. It's not clear whether this development will have any impact on the pending sale of the Salvadoran banking group.


Anonymous said...

It certainly does make you wonder if there was any fraud in the sale of Banagricola to Bancolombia.

Caminante said...

Who owns Banco Salvadoreño?

Tim said...

Banco Salvadoreno was purchased by Panamanian bank Banistmo, which was subsequently acquired last year by HSBC.

gapgirl said...

Where there is an emerging market, there is a global bank. Especially if this emerging market has a rising lower middle class with spending power and where much of the population remain unbanked.
It is pure economics that make these multinational banks want to tap the pocketbooks of some of the world's nouveau riche.
The presence of the major international bank institutions in poor countries dont necessarily command political stability or effect an equal wealth distribution.
And definitely will not guarantee to get a customer any richer .
The control to one's personal wealth is sometimes at the mercy of the many diversified financial services of these multinationals and to their sometimes pretty unusual marketing campaigns that is too sophisticated for the regular accountholder.
It is a classic: where there is high growth, the risk is higher. Thats the downside of getting global.

Anonymous said...

Yeah, I'm prety sure that the selling of the banks to the international banks went just as clean and smooth as the original privatization process by the Cristiani mafia.

About the "new rich" and greater middle class, I actually believe that all those transnational companies are eager on getting their hands on the multibillionaire "remittance dependancy" (along with the money-laundery scheme that goes along with it) this country is suffering. Not necessarily local productivity and eliminating poverty.

HODAD26 said...

ou are correct
anf thanks for the url's of interest, but what can one do, nada
I want to get rid of my Banco Aalvadoreno acct. especially now they are owned by needle dick Chinese Mafia/Triads
but what, Scotia Bank from Canada?
they are probably the ones behind the gold mining ATTEMPTS!
that i would sure like to know

but does not First Union/Wachovia own a bank or is that all about Citicorp?

Anonymous said...

The junta directiva of Banco Cuscatlan is also under investigation for fraud in its expansion attempts into Honduras:

The original banking frauds in El Salvador go back to Martinez's rule. To create a national banking system, Martinez acquired the bank Agricola Comercial, and then gave away its stocks, 36% to the Asociacion Cafetalera, and the rest to private banks and individuals who were Martinez's supporters. Also in this deal, the Salvadoran government made "indemnizacion" payments to Banco Salvadoreno and Banco Occidental in order for them to stop printing their own currency. This represented a direct transfer of 13% of the entire nation's budget in 1934 to the banking and landed classes. Martinez's version of the New Deal, I guess, but it included only the support for the business class without any of the changes for the working class that the New Deal in the states represented.

Anonymous said...

I used to have an account with agrigola back in the 90s.

Too bad the country is in its last throes of su propia descuartizacion y puteria.

wally said...

Wouldn´t banks operated by large multinational banking corporations tend to be more efficient and also operate under more sound business principles than locally owned banks? It would seem that the possibility of large scale bank fraud and subsequent bank failure would decrease in this situation. Local political influence in banking decisions which may result in monetary losses would also tend to diminish I would think.