Federal banking regulators have upgraded their assessment of the quality of bank loans to Venezuela, removing the stigma of "substandard" from billions of dollars of U.S. bank credits to that debt-ridden nation, banking sources said yesterday.
The upgrading followed a decision by regulators earlier this week to classify a large portion of Argentine debt as substandard. Big banks said the ruling was designed to throw as few roadblocks as possible into current negotiations between Argentina and its major bank lenders.
A substandard classification does not require banks to write off any portion of the debt as uncollectable, but it does require banks to pay special attention to the credit. Most loans classified as substandard by regulators end up on problem lists at banks.
Sources said the regulators' decision to remove the substandard label from Venezuela was taken at the same time they downgraded Argentine debt. The Venezuelan decision was triggered by the September agreement between Venezuela and its bank lenders to stretch out the repayment of $20.75 billion of its $35 billion in foreign debts over 12 1/2 years. Venezuela also agreed to make available to legitimate private-sector borrowers sufficient dollars to pay their debts.
Although the Venezuelan public sector is current on its interest payments, private-sector debtors from that country are in arrears on interest payments by about $2 billion.
Because of its large oil revenues and relatively small population, Venezuela is in the best position of any Latin American debtor to pay its bills, and the only one to reach agreement with its bank lenders without having to go to the International Monetary Fund for help.
Venezuela suspended payment of principal in February 1983 and took until September 1984 to come to terms with its lenders. Last summer, apparently in recognition of the political unwillingness of Venezuela to renegotiate its debts, U.S. regulators classified all outstanding Venezuelan debt as substandard -- including government debt on which interest payments were current.
That broad-brush decision is in contrast to last week's decision to classify as substandard only a portion of Argentine debt. Regulators exempted from the "substandard" classification all debt on which payment is current, all interbank debts, all trade-related debt and all commitments banks might make to lend Argentina money in the future. In addition, the regulators said they would reconsider their decision when Argentina signs a formal pact with the IMF.
The country signed a tentative agreement in late September, but banks have to ante up new funds as part of the IMF agreement.