ANNUAL REPORT 2010

Finance
During 2010 Mercantil’s Treasury focused mainly on managing the risk factors in the market,
especially interest and liquidity risk, taking into account market conditions and the
vulnerability of global banking. The economic and financial environment showed signs of
improving, through the different programs implemented by the central banks, increasing
investors confidence levels.
As of the third quarter, liquidity surpluses in Venezuela’s financial system grew, basically due
to the faster rate of public spending and the Central Bank’s monetary policies. Lending and
deposit rates remained stable during the year, without any significant changes being
introduced by the Regulator. In the Venezuelan money market, the Mercantil Banco Universal
subsidiary maintained its active participation through interbank operations and absorption
instruments offered by the Central Bank of Venezuela.
During the second half of the year, the Ministry of Economics and Finance resumed public
auctions of 91-day Treasury Bills. The National Office of Public Credit announced the Treasury
National Public Debt Program through auctions that included Variable and Fixed Rate Bonds
(Vebonos and TIFs). Mercantil Banco Universal played an active part in the weekly auctions
held and as a market maker in the secondary market for debt securities. By year end, these
securities were yielding slightly higher returns, in line with the market trend.
Fixed Interest Rate Securities maturing at 1 year, with an initial annual yield of 12.36%, reached
12.56% at year end, and TIFs maturing at 3-years, yielded 13.75%, reaching 15.80% per annum
in December 2010. It also actively participated in the emerging markets’ international
securities market, mainly in Venezuelan government bonds, through its Mercantil Bank
(Panama) subsidiary. During the year the Ministry held one auction of bolivar-denominated
bonds. Mercantil participated in these processes mainly as an intermediary for its clients
through the Venezuelan subsidiaries mentioned. During 2010 several issues of bolivardenominated
securities were launched, amounting to US$ 6 billion. In August Sovereign Bonds
(maturing in 2022) were issued for US$ 3 billion and another US$ 3 billion in October
corresponding to PDVSA bonds (maturing in 2017). Mercantil participated actively in these
processes as an intermediary for its clients.
During 2010 governments and central banks around the world undertook to offer incentives
to speed up the financial markets’ recovery processes. In the USA particularly, interest rates
continued their downward trend, which created a very favorable environment for refinancing.
Annual Report 2010
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