UPDATE: Venezuela Orders Liquidation Of 2 Intervened Banks

The government's takeover of operational control in four banks continued to rattle the Venezuelan financial system on Monday as Finance Minister Ali Rodriguez said two of them will be liquidated and the other two will shut their doors to the public as state administrators try to fix them.

The government will sell off Banco Canarias de Venezuela CA (BCA.CA) and Banco Provivienda, or Banpro, after its intervention begun Nov. 20 "revealed that they had been severely compromised," Rodriguez said Monday during a televised address. Bolivar Banco and Banco Confederado SA (BCF.CA), the two other banks, are in better shape but state administrators will temporarily shut their doors during the intervention.

Rodriguez said 92% of depositors at Banco Canarias and 97% at Banpro will get their money back.

The banks were owned by Ricardo Fernandez Barrueco, a powerful businessman believed to be a close associate of high-ranking officials in the government of President Hugo Chavez. Fernandez Barrueco was jailed last week on charges of illegally using depositors' money and faces up to 10 years in jail.

"There are people out there that say that they are revolutionary and are doing business. A true revolutionary is not going around doing business for profit," Chavez said Sunday during his weekly television show. The Venezuelan attorney general barred 16 of the banks' executives from leaving the country, a measure that Chavez said was insufficient.

"I talked to the attorney general, and I don't meddle in this, but I told her that anyone that deserves to go to jail should go to jail," Chavez said.

The intervention in the banks, which account for less than 6% of deposits in the Venezuelan banking system, is putting political pressure on the overall banking system. "If any banker slips, he loses, regardless of the size of the bank," Chavez said. "You want me to nationalize the banking sector? I have no problem (doing that)."

Jose Grasso, head of Caracas-based financial research firm Softline Consultores, said that Venezuelan banks should take Chavez's threat seriously. "A nationalization of the banking sector is not something I can rule out," he said. During his 11 years in power, Chavez has nationalized large portions of the economy, including key industries like oil, power, steel and cement and the country's leading telecommunications company.

The government already controls about 20% of the banking sector through a roster of public banks that includes Banco de Venezuela, which Chavez purchased from Spain's Banco Santander SA (STD, SAN.MC) for $1.05 billion.

"The government is watching banks very closely and they have to make every effort to follow the rules," Grasso said. The government requires banks to earmark nearly 50% of their lending to industries like manufacturing, agriculture and tourism. Most banks fail to meet that quota, citing insufficient applications for credit. The government, however, is trying to push banks to increase lending in a bid to fight an economic recession.

-By Darcy Crowe, Dow Jones Newswires; (58) 414 249 6821; [e-mail]