Venezuela
Checking in on the Central Bank balance sheet: 1H17 edition
- Central Bank (BCV) reserves continue to inch lower: $10.03bn in June and $9.84bn as of August 29; the cash portion stood at $699mn in June, and could be as low as $470mn now
- Beyond reserves, the composition of the BCV’s balance sheet remains dynamic, with non-reserve assets ballooning in local currency terms due to a devaluation applied to non-reserve FX holdings, and a new acceleration of claims on PDVSA
- Growth in BCV liabilities continue to accelerate as well, with the monetary base up by 453%oya higher in nominal terms by June
Venezuela’s Central Bank (BCV) this week posted its balance sheet for June 2017, including the bi-annual detailed notes. We take the opportunity to update our up-close look at the balance sheet (see our
August 19, 2016 note and our
February 23, 2017 note).
Central Bank international reserves stood at $10.03bn in June, down from $10.99bn in December 2016. As of August 29, reserves stood at $9.84bn, according to the BCV’s daily reporting of the headline figure.
The Central Bank’s monthly balance sheet presents a more granular view the breakdown of reserves (in VEF terms), and the bi-annual notes deliver insight into the FX valuation, particularly of the cash portion (Table 1). As we noted six months ago, compared to the sharp drop in 2015 and 1H16, both the headline and the composition of reserves have stabilized, insofar as there has been a slowdown in the monetization of gold and a standstill in the monetization of IMF SDRs.
Cash: The portion of BCV reserves in cash amounted to $699.8 mn in June, breaking through the lower bound of a $0.73bn-$5.4bn range that had prevailed since 2012 (average during that period: $2.4bn; Figure 1). As of August 29, we estimate the cash portion is down to $470mn, assuming no additional gold operations since June (Table 1).
Gold: The Central Bank reports $7.49bn of gold as of June, down on the margin from $7.73bn of gold last December, at which time $7.59bn was onshore (the BCV is no longer publishing this onshore/offshore breakdown). The move in gold is due mostly to a slightly lower price effect (the BCV values gold on a 9mo moving average). In volume terms, the total gold position within reserves remains almost unchanged at 6.1mn oz, similar to the end-2016 level, and compared to 6.4mn oz in June 2016. The volume of gold in reserves stood at 8.8mn oz at end-2015, having been reduced from 11.6mn oz prior in the years prior (Figure 2).
Beyond reserves, the rest of the BCV’s balance sheet produces vertigo
International reserves are an increasingly tiny portion of the asset side of the BCV’s ballooning balance sheet. Meanwhile, the combination of FX devaluation (via the Dicom rate) and an apparent dollarization of the BCV’s claims on PDVSA has led the non-reserve FX portion to dominate the asset side of the balance sheet.
The Central Bank reports $32.24bn of “non-reserve” hard currency assets. This is an increase of $3.41bn since December and $9.15bn since June 2016 (Table 2). In local currency terms, non-reserve FX assets ballooned from VEF 3.78 trillion in June 2016 to VEF 52.57 trillion by June 2017 (Figure 3 above).
The BCV values these assets in at an average FX rate of USD/VEF 1,568, compared to USD/VEF 143.1 the year prior, reflecting a blended average of Dipro (USD/VEF 10) and Dicom (USD/VEF 2,633, up from 626 in June 2016), as well as some other legacy official rates (Sicad 1 and 2).
Most of these non-reserve FX assets are labeled as “securities”: $25.6bn or 69% of the total. We presume these assets are marked at “face” value and lack liquidity.
Another $5.02bn (18% of the total) is non-reserve gold as defined by a March 2015 Banking superintenency resolution, which we believe is related accounting of gold that has been removed from reserves and utilized in swap operations.
It is unclear how much of the “securities” could be Venezuela or PDVSA international bonds, though these nearly certainly would be reported at face value. The detailed notes that accompany the balance sheet show a decline of the portion traditionally valued at the lowest official rate (USD/VEF) from $7.69bn in June 2016 to $4.55bn at the end of last year to $1.54bn this past June. This reduction could reflect reported market operations of the BCV liquidation bonds into the secondary market—operations that presumably would no longer be feasible in light of the latest US Executive Order.
At the same time, the “securities” valued at the highest official rate (Dicom) have soared in USD terms since June 2016 to $19bn. This increase probably reflects the dollarization (or at least indexation) of growing
BCV claims on PDVSA (see our
August 21 note on PDVSA’s 2016 financial statements). Other presumably illiquid assets in the portfolio could include legacy structured credit notes originally purchased by government development fund Fonden prior to 2009, and claims Central American and Caribbean countries related to the Petrocaribe subsidized oil agreement.
Liability side: gathering momentum too
The liability side of the BCV’s balance sheet is surging in nominal terms, driven by the inorganic growth of the asset side and the impact of FX devaluation. The largest component—the monetary base—continues to accelerate, growing by 453%oya in June, up from 227% growth in last December an average growth of 121%oya in 2016 as a whole. Meanwhile the parallel FX rate continues to reach new highs.
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