Who will want to do business in Venezuela?

UPDATE 3-Venezuela bank law makes nationalizations easier

* Banks must hand 5 percent of profits to social groups

* Part of package of laws strengthening Chavez control

* Parliament due to give him decree powers for a year (Updates with analyst, paragraphs 9-10)

By Frank Jack Daniel

CARACAS, Dec 17 (Reuters) - Venezuela's parliament passed a bill on Friday making it easier for President Hugo Chavez to nationalize banks and trim their profits, part of a legislative onslaught to entrench socialism in the oil-exporting country.

Later on Friday, the National Assembly is also due to grant Chavez the power to pass laws by decree for one year, a move criticized as autocratic by opposition parties as well as the U.S. State Department.

The banking law, passed during a marathon 12-hour session that ended well after midnight, creates stringent new operating rules that include forcing banks to hand over 5 percent of their profits every six months to community groups.

It also allows Chavez to order the takeover of institutions that he deems problematic, a move previously made by the banking watchdog. Chavez has increased the state's role in the sector this year, but a total takeover of banking is unlikely.

"It adopts a group of measures to correct problems that have been produced in the banking sector at the cost of the government's objectives and the welfare of the nation," the text of the measure says. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Full coverage of legislative push: [ID:nVEDECREES] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Chavez has repeatedly threatened to nationalize any institution that fails to meet his objectives of ending "speculation" in banking and increasing credit to "productive" parts of the population.

Few analysts believe the socialist president plans to nationalize banks outright, but many say he could further increase the state's role in the industry. U.S.-based economic think-tank IHS Global said last week they believed the risk of nationalizations in the sector was now "very high."

In the past 12 months the government has taken over a dozen small failing banks and paid-back deposits to most customers. Chavez spent $1 billion last year on the local unit of Spain's Banco Santander (SAN.MC: Quote, Profile, Research, Stock Buzz). All together, public banks make up about one-third of the industry.

Goldman Sachs analyst Alberto Ramos said authorities had been gradually tightening the regulatory grip on the banking sector, forcing it to assume responsibilities and pursue objectives that were usually the government's mandate.

"The problem is that banks do not have the expertise to deliver on these objectives and it dilutes their business focus," he told Reuters. "As such, this decreases the overall efficiency of the economy."

Last week, Chavez repeated his warning to banks that they should meet government-set lending targets or face takeover, and he specifically mentioned the local unit of Spain's BBVA (BBVA.MC: Quote, Profile, Research, Stock Buzz), among others.

Once the law is signed by Chavez and published in the government's Official Gazette, banks' participation in the insurance industry and brokerages will be strictly limited.

Several of the banks that collapsed this year had overextended themselves with takeovers in the insurance sector, or were accused by authorities of fraudulent activity in brokerages.

The law also stipulates that banks set up a fund worth 10 percent of their capital to pay for wages and pensions in the event of bankruptcy.

Banks are still profitable in Venezuela, although a two-year long recession has tightened their margins. Analysts say the new law makes it harder, but not impossible, for them to operate successfully.

This was copied from the Reuters news story and so I have no idea what the ^^^^^..., is supposed to mean. However the story sounds like Hugo at work. Is Hugo getting close to running out of other people's money? He sure has achieved despot status.