Mercantil Banco Universal Annual Report 2014

Transcription

Annual Report 2014
Mercantil Banco Universal a subsidiary of Mercantil Servicios Financieros
The Mercantil Culture
The guiding principles behind
90 years of service
On March 23, 1925 in Caracas, an important
group of Venezuelan entrepreneurs founded the Banco Neerlando Venezolano. A year later,
it changes its name to Banco Mercantil y Agrícola.
Today, the Mercantil brand is well-known in Venezuela and internationally through the
development of banking, insurance and wealth management businesses.
Mercantil has experienced nine decades of sustained growth, while remaining committed to
the betterment of the communities, where it has presence, its institutions, people, and more
than five million customers. As part of this commitment, Mercantil has focused on introducing
innovative technologies, generating employment opportunities, caring for the well-being and
professional development of more than 9,500 employees, as well as supporting the
communities and organizations involved in social development.
Beyond the development of its multiple facilities, branches network, infrastructure and
technology, Mercantil is its people, who embrace shared principles and values, which have
remained unchanged, and represent a reference in the entrepreneurial performance of
Mercantil.
On the occasion of this 90th anniversary, we have decided to develop a document that
present the Mercantil Culture and Commitment, which are not new ideas, but take part of
the daily activities of all in Mercantil. These Culture has remaineded in time and represents
the way we are, our guideline, our way of action and performance.
This 2014 Annual Report, which is introduced at the Annual Shareholders Meeting on the
90th anniversary of the Mercantil foundation, presents the Culture and the Commitment
that incorporate the guiding principles, which have been, and continue to be in the
organization, and in addition summarizes the way Mercantil does business, widely recognized
by clients, employees and related people.
Mercantil Banco is a subsidiary of Mercantil Servicios Financieros, a financial service
corporation, engaged in banking, insurance and wealth management businesses in Venezuela,
with presence in nine countries in the Americas and Europe. Its shares are traded on the
Caracas Stock Exchange and its ADR on the OTC markets of the United States of America. Its
major subsidiaries include: Mercantil Banco Universal, Mercantil Seguros and Mercantil
Merinvest in Venezuela, Mercantil Commercebank in the United States, Mercantil Bank
(Panamá) in Panama, and Mercantil Bank (Schweiz) AG in Switzerland. Mercantil is one of
the 1,000 largest companies in the world according to Forbes Magazine (2014).
Banco Universal
AnnualReport 2014
CONTENTS
Presentation
4
Financial Highligths
5
Board of Directors and Administration
6
Notice of Ordinary General Shareholder’s Meeting
7
Board of Directors’ Report
9
Financial Statements consolidated
with Foreign Subsidiaries
24
Statutory Auditors’ Report
25
Financial Statements
26
Economic Climate
29
Strategic Positioning
31
Management Discussion and Analysis
35
Business Management Report
43
Quality of Service and Operating Efficiency
53
Human Resources
57
Risk Management
59
Credit Ratings
65
Prevention and Control of Money Laundering
and Terrorism Financing
67
Internal Auditing
69
Social Commitment
71
Corporate Governance
75
Awards and Acknowledgments
81
International Offices and
Corporate Contacts
83
Mercantil Banco Universal
90 years at the service of Venezuela
85
Banco Universal
Mercantil Banco Universal, founded in 1925,
with 89 years of financial activity, is one of Venezuela's leading institutions in the financial
system with Bs 24,256 million (US$ 3,860 million)1 in equity.
It is the main subsidiary of Mercantil Servicios Financieros in Venezuela and the country’s
foremost and most comprehensive financial services provider with presence in 9 countries
in the Americas and Europe. Mercantil Banco Universal offers its customer base a wide range
of quality financial products and services in different market segments, thereby reaffirming
its mission to “ fulfill the needs of our customers by providing excellent financial products
and services, attain the aspirations of our employees, support the development of the
communities where Mercantil has presence and add value for our shareholders through a
long term outlook”.
At December 31, 2014, Mercantil Banco Universal ranks as the leading bank in the private
financial system in terms of loans to the tourism, manufacturing and agricultural sectors, with
market shares of 14.2 %, 15.3 % and 15.3 % respectively. It is also the first bank in Venezuela
in terms of savings deposits with 20.7 % of the domestic market.
Mercantil Banco Universal’s products are offered mainly in Venezuela, through a nationwide
network of channels which at December 31, 2014 consisted of 265 branches, 1,192 ATMs of
which 158 are multifunctional, and 61,004 points of sales, made up of physical, merchant and
e-commerce points of sale, in addition to round-the clock access to telephone and online
banking.
At the close of the year the Mercantil Aliado network serves the banking needs of the masses
through 247 correspondent service desks and trading points in communities across the length
and breadth of Venezuela.
To complement these services and assist its customers overseas, Mercantil Banco Universal
has one agency in the United States (Coral Gables, Florida), a branch in Curaçao, and five
representative offices located in Bogota, Lima, Mexico City, Sao Paulo and New York.
Since its inception, Mercantil Banco Universal has played an active role in the development
of the different markets where it operates by financing trade, agriculture and industry.
Throughout Fundación Mercantil, the Bank affirms its social commitment towards the country
by playing an important role in the ongoing development of different sectors of the
community.
(1)
Dollar figures are given for reference only. This information is converted at the period-end exchange rate of Bs 6.2842/US$ 1. Exchange
control has been in place in Venezuela since February 2003.
4
Report
Financial Highlights
Consolidated Results
(In thousands of Bs and millons of US$, except percentages and other indicators)
Year Ended
December 31
December 31
December 31
December 31
December 31
2014
2014
2013
2012
2011
December 31
2010
US$(1)
bolivars
bolivars
bolivars
bolivars
bolivars
45,812 287,892,974
25,877 162,619,332
41,069 258,083,275
3,860 24,255,805
183,030,629
89,809,279
162,756,924
16,557,049
104,514,153
57,755,945
92,499,400
9,233,354
19,133,827
20,692,510
10,549,964
9,431,474
9,430,660
11,645,946
13,641,789
6,660,194
6,529,414
6,525,812
7,352,170
8,777,427
4,507,740
3,853,463
3,395,032
4,881,317
5,918,691
3,179,210
2,389,662
2,142,731
3,156,934
4,099,624
2,439,037
1,555,381
1,360,621
10.9
19.9
50.1
4.0
10.8
26.2
52.8
4.5
11.1
24.6
46.4
4.0
10.9
29.6
42.7
3.8
10.2
35.6
34.1
3.3
16.5
19.0
17.7
16.0
17.6
9.7
10.9
9.8
10.1
11.2
0.3
1,352.9
3.5
0.4
914.5
3.9
0.6
611.5
3.9
0.7
615.6
4.1
0.9
489.1
4.2
3.3
32.2
3.5
31.8
4.1
35.8
4.4
36.0
4.8
40.7
29.0
46.3
27.4
55.1
29.1
48.4
21.7
40.3
27.2
45.4
65.3
73.8
82.4
57.4
75.4
84.8
65.0
74.2
83.9
73.5
81.0
91.6
69.2
75.6
86.9
7,247
9
7,275
10
7,195
10
6,965
10
6,644
10
264
1,350
50,902
265
1,408
53,387
268
1,367
48,671
271
1,309
42,719
273
1,319
40,427
125
122
128
188
106
186
60
117
38
83
14.1
11.7
14.0
12.1
14.6
11.5
15.9
11.9
14.5
11.7
Balance Sheet (1)
Total Assets
Loan Portfolio (Net)
Deposits
Shareholders’ Equity
67,351,251 46,270,966
41,974,923 26,703,385
59,558,134 40,279,612
6,127,715
4,583,203
Income Statement (2)
Net Interest Income
Margin of Financial Intermediation
Personal and Operating Expenses
Income Before Income Tax
Net Income
3,045
3,293
1,679
1,501
1,501
Profitability Indicators (%)
Net Interest Income / Average Financial Assets (NIM)
Other Operating Income / Total Income
Net Income / Average Equity (ROE)
Net Income / Average Assets (ROA)
Capital Adequacy Indicators (%)
Equity / Risk-Weighted Assets (regulatory minimum 12 %) (3)
Leverage Indicators (%)
Equity / Assets (regulatory minimum 8 %) (3)
Loan Portfolio Quality Indicators (%)
Past-Due and Non-Performing Loans / Gross Loan Portfolio
Allowances for Loan Losses / Past-Due + Non-Performing Loans
Allowances for Loan Losses / Gross Loan Portfolio
Efficiency Indicators (%)
Operating Expenses / Average Total Assets
Operating Expenses / Total Income
Liquidity Indicators (%)
Cash and Due from Banks / Deposits
Cash and Due from Banks and Investment Portfolio / Deposits
Other Indicators (%)
Total Loan Portfolio / Deposits
Financial Assets / Total Assets
Financial Assets / Deposits
Number of Employees
Employees in Venezuela
Employees Abroad
Banking Distribution Network
Branches in Venezuela (4)
Automatic Teller Machines (ATM)
Point of Sale Terminals (POS) (5)
Mercantil Aliado Network
Correspondent Service Desks
Correspondent Trading Points
Market Share (%) (6)
Loan Portfolio
Deposits + Other demand liabilities
(1) Figures in US$ converted at the exchange rate at the close of December 31, 2014: Bs 6.2842/US$ 1 (controlled)
(2) Figures in US$ converted at the average exchange rate for the period Bs 6.2842/US$ 1 (controlled)
(3) In accordance with the standards of the Superintendency of Banking Sector Institutions (SUDEBAN - for its abbreviation in Spanish)
(4) Excludes internal branch for employees at Edificio Mercantil (Caracas)
(5) Physical Points of Sale (POS)
(6) Over Venezuela Operation
5
Banco Universal
Board of Directors
Principal Directors
Gustavo Vollmer A.
Chairman
Administration
Gustavo Vollmer A. *
Chairman
Nelson Pinto A.
Executive President
2/3
Gustavo A. Marturet M.
Alfredo Travieso P.1 / 2
Eduardo Mier y Terán1 /3
Víctor J. Sierra A.2
Roberto Vainrub A.1 / 3
Alternate Directors
Alejandro González Sosa2
Luis A. Marturet M.1
Carlos Zuloaga T.3
Gustavo Galdo C.3
Gustavo Machado C.1
Claudio Dolman C.2
Nerio Rosales Rengifo
Secretary
Guillermo Ponce Trujillo
Alternate Secretary
Rafael Stern S.
Principal Statutory Auditor
Francisco De León
Manuel Martínez Abreu
Alternate
Statutory Auditor
Umberto Chirico
Gladis Gudiño
Legal Counsel
Luis Alberto Fernandes
Alternate Legal Counsel
Paolo Rigio C.
Nelson Pinto A. *
Executive President
Nerio Rosales Rengifo *
Global Executive Director
Rosa M. de Costantino *
Personal Banking and Wealth
Management Manager
Luis Alberto Fernandes *
Chief Legal Counsel
Alfonso Figueredo D. *
Chief Financial Officer
Fernando Figueredo M. *
Chief Risk Officer
Philip Henríquez S. *
Corporate Banking Manager
Rodolfo Gasparri G. *
Operations and Technology Manager
Luis Calvo Blesa *
Human Resources
and Corporate Communications Manager
Carlos Tejada G. *
Commercial Banking Manager
Board of Directors Secretary
Rafael Stern S.
Board of Director Alternate Secretary
José Felipe Bello C.
Audit Manager
Anahy Espiga
Strategic Planning Manager
Luis M. Urosa Z.
Corporate Compliance Manager
Juan Livinalli M.
Money Laudering Prevention and
Compliance Officer and Terrorist Financing
1
2
3
Note: The Audit, Compesation and Risk Committees were created
pursuant to provision in the By-laws and in accordance with a
resolution by the Board of directors. These commitees are made up
of independent Directors and are attended by the President and the
Executive President (ex-officio).
6
Member of the Audit Committe
Member of the Compensation Committe
Member of the Risk Committe
Report
* Member of the Executive Committe
Notice of Ordinary
General Shareholders’ Meeting
MERCANTIL, C.A., BANCO UNIVERSAL
Subscribed and Paid-In Capital Bs 268,060,233
Caracas - Venezuela
The Board of Directors hereby convenes an Ordinary General Shareholders’ Meeting to be held at the Company’s principal office, located
at Avenida Andrés Bello N° 1, Edificio Mercantil, on March 20, 2015 at 8:00 in the morning, in order to:
1.
Consider the Board of Directors’ Report and the Bank’s Audited Financial Statements at December 31, 2014, in light of the Statutory
Auditors’ Report.
2.
Appoint the Principal members and their Alternates to the Board of Directors as established in the Bylaws and set the remuneration
of all the members of said Board.
3.
Consider the “Proposal submitted by the Board of Directors for the consideration by the Ordinary General Shareholders Meeting
on March 20, 2015, on the appointment of the Customer and User Ombudsman of Mercantil, C.A., Banco Universal and its
Alternate”.
N.B. The shareholders are hereby informed that: a) the Board of Directors Report, the Statutory Auditors Report, the Financial
Statements audited by “Espiñeira, Pacheco y Asociados”; b) the “Letter to Management and/or Memorandum of Internal Control”
and, c) the “Proposal submitted by the Board of Directors for consideration by the Ordinary General Shareholders Meeting on
March 20, 2015 to appoint the Customer and User Ombudsman of Mercantil, C.A., Banco Universal and its Alternate,” will be
available for review twenty-five days prior to the Shareholders’ Meeting, at the office of the Secretary of the Board of Directors
of the Company, Avenida Andrés Bello N° 1, Edificio Mercantil, piso 35, Caracas. In accordance with the company bylaws, the
Shareholders are hereby informed that each group of Common Class "A" shares that represents at least twenty per cent (20 %) of
the subscribed capital of said shares, has the right to propose and designate one Principal Director and its Alternate as it may
correspond.
Caracas, February 19, 2015
On behalf of Mercantil, C.A., Banco Universal
Secretary of the Board of Directors
7
Banco Universal
Board of
Directors’ Report
Caracas, February 19, 2015
Dear Shareholders:
We are pleased to submit the consolidated results and main activities of Mercantil, C.A. Banco
Universal for the second half of 2014 as well as for the whole year.
This report has been made in compliance with Article 20 of Resolution 063. 11 of the
Superintendency of Banking Sector Institutions (Sudeban), dated February 18, 2011, setting
forth the “Standards establishing the Guidelines and Requisites to be submitted by the
Meetings of Shareholders of Banking Institutions, Currency Exchanges, and Border Exchange
Operators”.
Financial and Economic Situation
The Bank's financial statements for 2014 included in this Report which consolidate the
activities of its branch and agency abroad and its subsidiaries, were prepared in accordance
with the standards of the Superintendency of Banking Sector Institutions. The Board of
Directors finds that the presentation of the Bank's financial situation and its affiliates, the
income from its operations, and the statements of changes in equity and cash flows presented
in the financial statements, are reasonable. The financial statements have been examined by
the Bank's external auditors Espiñeira, Pacheco y Asociados who have found them to be
reasonable and whose report is attached hereto. The consolidated financial statements are
presented in inflation-adjusted values as supplemental information.
During the year the Bank posted Bs 9,431 million in net annual income, Bs 3,505 million of
which corresponds to the first half of the year and Bs 5,926 million to the second. The results
presented reflect a sustained improvement in net interest income and control over operating
expenses. They compare favorably with the Bs 6,526 million in income registered in 2013.
In addition, in accordance with the various rules on banking activity, during the year the Bank
paid Bs 4,318 million in contributions to official agencies, representing 30.4 % of the Bank's
expenses.
Total assets reached Bs 287,893 million, up 57.3 % from Bs 183,031 million in December 2013
and 28 % more than the Bs 224,950 million registered at the end of June 2014. Shareholders'
equity totaled Bs 24,256 million, a year-on-year increase of 46.5 % from 16,557 million, and
32.8 % up from Bs 18,263 million at the end of June 2014.
9
Banco Universal
At the close of 2014, total deposits were Bs 258,083 million, up 58.6 % from Bs 162,757 million
in December 2013, and up 27.8 % from Bs 202,014 million in June 2014.
Another important point is the acquisition of Securities in 2014, following a requirement by
the executive branch of the Venezuelan government, known as Valores Bolivarianos para
Vivienda (Bolivarian Housing Securities) for Bs 9,705 million, which amounted to Bs 26,167
million in accumulated investments and accounted for 58.8 % of the Bank's total investments.
As of December 31, 2013, these investments amounted to Bs 16.745 million and represented
37.2 % of the Bank's total investments.
In 2014, Bs 1,099,046,955.20 in cash dividends were paid out, at the rate of Bs 4.10 per share.
In its recent evaluation issued in December 2014, Fitch Ratings affirmed Mercantil Banco's
short-term national ratings of “F1+(ven)” and adjusted its long-term national rating to “AA(ven)”, which is the best national rating granted to any private financial institution. Also, Fitch
Ratings adjusted its international risk ratings to “CCC” for long term, “C” for short term and
“ccc” for Viability rating. These risk rating adjustments responds to a modification made by
Fitch Ratings, in December 2014, to the sovereign risk rating of Venezuela. Mercantil Banco’s
international risk ratings are largely dependent on the country risk.
Statement on Credit Risk Reports
The credit risk reports on the proportionality of the guarantees on the loan portfolio and
contingent portfolio indicate that 67.5 % of them are backed by some type of collateral (the
inclusion of liens on vehicle titles would bring this percentage to 70 %).
More than 98 % of the loans to the SME and Middle Market segments are guaranteed by some
type of collateral, while 88 % of the loans to the Affluent segment are collateralized. There is
some type of collateral for 58.5 % of the loans to Corporate segment, in view of the size of
those companies and their level of solvency.
The conclusion reached after reviewing the credit risk is that the proportionality and type of
collateral received on the loan portfolio and contingent portfolio are both adequate and
sufficient, and within the guidelines established in the Bank's credit risk policies.
The guarantees also coincide with the maturities of the loans.
10
Report
Approval of Asset and Liability Operations
During the second half of the year, the Board of Directors, complied with the provisions of
Article 31[3] of the Law on Banking Sector Institutions repealed in November, 2014, which
attributed to the Board of Directors the obligation to decide whether or not to approve
individual asset and liability operations that exceed 2 % of its equity. During the second half
of the year, the Board considered, approved and/or ratified the exposures of its clients that
exceed 2 % of the equity, including economic groups and individual borrowers in different
economic sectors, for a total of 28 clients and Bs 13,871 million, representing 8.23 % of the
gross loan portfolio at December 31, 2014.
The Board of Directors, in keeping with its own approved methodology in respect of liability
operations - in other words total deposits - decided to add to its list of potential clients
another group of clients that might eventually exceed said 2 % considering their past behavior.
Hence at December 31, 2014 there are 428 clients, 34 professional counterparts with credit
facilities and 26 correspondent banks.
It is worth to mention that in light of the application of a new Decree with the Force of Law
of the Law on Banking Sector Institutions, published in the Official Gazette of the Bolivarian
Republic of Venezuela No. 6,154, dated November 19, 2014, the Board of Directors’ approval
of asset transactions was conditioned to those exceeding 5 % of equity, wheras the mandatory
approval of liabilities was removed.
Comparative Financial Statements for the last two years and
Distribution of Earnings
Included as an integral part of this report are the comparative financial statements for the
Bank over the last two years, reflecting the distribution of profits and showing the changes
or variations in its financial position.
Loan Portfolio - Participation in the Country’s Productive Sectors
through the Percentage of the Loan Portfolio
At the close of 2014, the Bank's gross loan portfolio increased to Bs 168,461 million. This was
81.2 % more than at the close of 2013 and 32.5 % more than at June 30, 2014.
At December 31, 2014, 0.3 % of loans were nonperforming, versus an average of 0.5 % for the
Venezuelan financial system. The coverage ratio of loan loss provisions over past-due and
nonperforming loans rose to 1,352.7 %, versus 931.3 % in June 2014 and 913,7 % in December
2013.
Loan portfolio growth in the second half of 2014 was mainly driven by the credit card,
agricultural, manufacturing and commercial portfolios, which increased 61.1 %, 35.8 %, 26.6 %,
and 19.5 %, respectively.
11
Banco Universal
This solid gross loan portfolio growth maintains the Bank on third position in the financial
system in this segment and closed the year with a 14.1 % share of the financial system's market
(14 % at the close of 2013). The Bank preserved the second position within the private financial
system with 20.3 %.
The gross loan portfolio is mainly broken down as follows: 35.2 % commercial loans (initially
to finance working capital), 23.0 % credit card products (including parallel line of credits),
16.4 % agricultural loans and 10.5 % manufacturing loans.
Loans to the production sectors in Venezuela at December 31, 2014 are broken down as
follows:
ACTIVITY
In Millions of Bolivars
Agriculture, fishery and forestry
Mining and
petroleum
Manufacturing industry
Electricity, gas and water
Construction
Wholesale and retail,
restaurants and hotels
Transportation, storage
and communications
Financial establishments
Insurance, real estate and
business services
Community, social and
personal services
Other activities
TOTAL PORTFOLIO
Percentage (%)
27,602
16.4
751
17,651
384
6,328
0.4
10.5
0.2
3.8
50,553
30.0
1,752
1.0
47,611
28.3
6,029
9,801
168,461
3.6
5.8
100.0
By law the banks are required to allocate a proportion of the loan portfolio to the agricultural,
microenterprise, mortgage, tourism and manufacturing sectors. Those loans account for 35.8 %
of the Bank's gross loan portfolio at December 31, 2014 and grew Bs 27,650 million (84.9 %)
year on year.
At December 31, 2014, the Bank exceed the required compulsory loan portfolio measurements
at that date, calculated on the portfolio balances at the dates established according to the
standards, excepting the mortgage sector. Compliance by sector is summarized in the
following table:
SECTOR
Microenterprise
Tourism
Agriculture
Manufacturing
Mortgage
REQUIRED (%)
3
4.25
25
10
20
ACHIEVED (%)
4.09
5.06 *
38.21 **
18.99
15.16 ***
*
Includes Bs 207 million Class "B" shares of Sociedad de Garantías Recíprocas para la Pequeña y Mediana Empresa del Sector Turismo, S.A.,
in accordance with the regulations on compliance with the compulsory tourism loan portfolio.
** Includes Bs 1,580 million in Agricultural Bonds issued by the Venezuelan state and government entities, in accordance with the
regulations on compliance with the compulsory agricultural portfolio.
*** Includes Bs 7,975 million in Securities issued by the Fondo Simón Bolívar para la Reconstrucción S.A.
12
Report
The microenterprise sector continued to consolidate its various portfolio sub-segments
during the second half of 2014, achieving 98.9 % year-on-year growth to Bs 5,195 million. At
the end of the second half of 2014 compliance was 4.09 %, which exceeds the regulatory
requirement of 3 % by Bs 1,381 million.
The approved and cleared tourism sector portfolio grew 112.7 % and 90.7 % year on year,
respectively. The tourism portfolio is broken down as follows: 86 % accommodation, 11.9 %
tourism transportation, 0.7 % travel agencies, 0.9 % restaurants, and 0.5 % theme parks. Since
2013, the Bank amounted Bs 207 million Class “B” shares from Sociedad de Garantías
Recíprocas para la Pequeña y Mediana Empresa del Sector Turismo (Sogatur), which adds up
to the compulsory portfolio compliance. It registered 5.06 % compliance versus a required
4.25 %. This result for the sector makes the Bank first in the private financial system.
The agricultural loan requirement established 25 % as minimum percentage to be complied
with at the close of 2014, and the actual percentage achieved was 38.2 %, reflecting a yearon-year growth of 93.2 % (not including agricultural bonds). Some additional considerations
for measuring this portfolio have already been established, however modified again in 2014:
(a) "Financing of Strategic and Non-strategic Items", measured quarterly, complying with the
minimum and maximum distributions envisaged both for strategic (minimum 75 % / achieved
89.9 %), non-strategic items (maximum 5 % / achieved 0.3 %) and agribusiness investment
and trade (maximum 20 % / achieved 9.9 %); (b) attention to “New Borrowers”, achieving 706
“New Borrowers” versus 262 requiered; and (c) a proportion of the Medium and Long-Term
Portfolio, achieving 21.8 % compared to the minimum 20 %.
In addition, under the guidelines issued by the executive branch, the Bank has Bs 1,580 million
in Agricultural Bonds which are added to the portfolio and count towards the compulsory
requirement.
The manufacturing portfolio totaled, at the close of 2014, Bs 17,651 million, achieving a surplus
of Bs 8,358 million over the minimum requirement of Bs 9,294 (achieved 18.99 % / requiered
10 %), also complying with the sub-segments: 1) Strategic Sectors (achieved 127.5 % / minimum
requiered 60 %); SME, Joint Ventures, Community and State Enterprises (achieved 73.4 % /
minimum requiered 40 %). For the first review held on September, according with the
regulation, a surplus of Bs 7,502 million over the minimum requirement of Bs 7,436 million
was registered (achieved 16.1 % / requiered 8 %), also complying with the sub-segments.
The Bank's manufacturing portfolio accounts for 15.3 % of the financial system, reaching the
second place within the Venezuelan financial system as a whole and first in the private
banking system with 28.1 %. The resolution applied was passed in July.
During 2014 demand for loans through the mortgage portfolio to build a primary residence
under the regulations of the Ministry of Ecosocialism, Habitat and Housing remained low,
which affected the mandatory compliance set for this portfolio.
13
Banco Universal
Demand for these loans has been slowing down since 2011 and has also led to a drastic drop
in the inventory of homes under construction, which in turn has prevented the Bank from
granting sufficient loans for a primary residence to comply with this segment's compulsory
mortgage portfolio.
In response of the situation, the Bank carried out several marketing campaigns through digital
media, press and radio in 2014 to promote the purchase of housing in the secondary market,
in order to partially offset the abovementioned new primary housing deficit. As a result, the
mortgage portfolio at December 31, 2014 achieved 91.8 % of compliance from housing
adquisition. The high inflationary effect in the price of existing housing during 2014 was
among the difficulties faced to achieve this goal. This prevented the placement of loans to
many potential buyers who were unable to complete the required initial payment to
materialize the housing purchase.
Nevertheless, the mortgage portfolio at December 31, 2014 was 15.16 % versus a 20 % requirement,
amounting to Bs 14,091 million. This bring Mercantil Banco as the first bank among larger
banking institutions in Venezuela with the highest compliance rate in 2014. Notably, as
established by the Resolution No. 31 issued on June 14, 2014 by the Ministry of Ecosocialism,
Habitat and Housing, this figure included the acquisition of Bs 7,975 million in securities issued
by the Simon Bolivar Fund for Reconstruction, S.A.
Report on Complaints and their Solutions
On average, 97 million transactions were carried out per month in the second half of 2014
through the Bank's different channels, 11 % more than during the previous six months. On
the other hand, the total average monthly volume of complaints in the second half of 2014
amounted to 10,099 cases , of which 98 % are financial and 0,5 % corresponds to complaints
that customers filed with Sudeban. The average monthly volume of complaints in the second
half of 2014 rose 9 % (802) compared to the first half of the year and 57 % of them were
declared as having merit. The average time taken to resolve customer complaints regarding
debit and credit cards and deposit accounts remained in five days as in the previous six month.
Regarding to fraud prevention in the form known as “El Cambiazo” (The Exchange), consisting
of a deceitful substitution of debit cards to customers, when making any ATM transaction,
comprehends the inclusion of notifications in such Mercantil Banco’s ATM network and
website, aimed at keeping customers informed and aware of this fraud. In addition, The
“Monitor Plus” tool showed significant progress during 2014. Thus, the CISM (“Customer
Information Service Manager”) module was implemented during the second half of 2014, in
order to start using it as of 2015. This module allows to manage relations contact and
communication with customers through notifications via messages (SMS) of unusual events
or potential frauds, providing customers the opportunity to reject any consumption, by
14
Report
activating security mechanisms, such as blocking actions and credit card transfers. For
Mercantil Online Banking, the antifraud monitoring was also maintained, through the
Transaction Guard tool, which guarantees a safe operation by evaluating the origin of the
connection, the IP ("Internet Protocol") from which the customer connectes and the employed
authentication elements, among other aspects of interest for the prevention of frauds. During
that semester, it was also kept the Online Banking challenging Q&A pattern as in the rest of
the year, through an one-time password (OTP), which is introduced by the customer in the
automated system of the Bank (IVR). These tools are part of a set of authentication means
for a secure banking.
According to the management report for the second half of 2014, the Customer and User
Ombudsman handled slighly less complaints than in the fisrt half of the year, totalling 2014
10,012 complaints versus 11,504 in 2013. This shows that the actions implemented by the Bank
of internal systems adjustments, staff induction and customers campaigns for the proper
handling of mobilization instruments have resulted effective.
The 5,200 claims handled (of which 404 were reffered) included claims for Bs 42,910,383.05, of
which 192 cases were declared to have merit. The Bank was required to pay out Bs 2,064,939.67
to customers. A total of 4,604 complaints were declared without merit.
The Bank keeps detailed records of all complaints, claims and how they were processed and
resolved.
Distribution of Electronic Channels and Banking Centers
At the close of the second half of 2014 the Bank had 265 branches, 1,350 ATMs, 247 Mercantil
Aliado active service points operating through correspondent trading desks and trading
points, with 36 offices with Mercantil Vía Rápida fast-track service areas equipped with 158
multifunctional facilities. At the close of December 2014, there are 61,004 points of sale which
include physical points and Cestaticket Accor Services Electronic Meal Voucher points in
42,828 establishments. The point of sales network service is provided to customers through
the Inversiones Platco, C.A. affiliate.
Capital Adequacy Ratio Position
The equity/risk-weighted assets ratio was 16.5 % (regulatory minimum 12 %).
Report of the External Auditors
As stated above, the financial statements for 2014 included in this report have been examined
by the Institution's external auditors Espiñeira, Pacheco y Asociados who find them to be
reasonable and whose report is attached hereto.
15
Banco Universal
Liquidity, Solvency, Efficiency and Profitability Indicators
The liquidity ratio, calculated by dividing total cash and due from banks by total deposits,
was 29 %; and calculated by dividing total cash and due from banks plus investments by total
deposits was 46.3 %, compared with 27.4 % and 55.1 % respectively in December 2013, and 25 %
and 48.2 % respectively in the first half of 2014. The Capital Adequacy Ratio, that results from
dividing equity by total assets minus investments held in government securities, was 9.7 %
(minimum requirement 9 %). The consolidated efficiency ratio calculated by dividing
operating expenses by average assets was 3.3 %, compared to 3.5 % in 2013, and 3.3 % in the
first half of 2014; while the efficiency ratio, calculated by dividing operating expenses by total
net income was 32.2 %, compared to 31.8 % in 2013 and 34.9 % in the first half of 2014. The
ROE indicator was 50.1 %, versus 52.8 % in 2013 and 40.8 % in the first half of 2014; and the
ROA indicator was 4 %, versus 4.5 % in 2013 and 3.4 % in the first half of 2014.
Internal Audit Report including the Audit Report on Compliance
with ML/FT Standard
The internal auditor issued a report for the second half of 2014, expressing his opinion on the
result of his examination, which the Board took into consideration for its work in that area.
The work of the Audit unit was mainly addressed at testing the efficacy of the Bank’s internal
controls, assessing management execution in the compliance of said controls in diverse areas,
comprising Prevention and Control of Money Laundering and Terrorism Financing (ML/FT),
in keeping with the guidelines of the Internal Audit Operating Plan approved by the Board of
Directors' Audit Committee, issuing periodic progress reports of this Audit Committee to the
Executive Committee and Integral Risk Committee, including audit testing to evaluate
significant risk exposure, follow-up of corrective/preventive action and efficacy of the Internal
Control environment.
This report aims at the Internal Audit reviews of the Bank’s units and processes, with special
attention on risks, adequate corporate governance and timely supervision, strategic
objectives based on operability, management and control activities and policies and
procedures compliance in accordance with Sudeban’s recommendations and instructions.
It also refers to the reviews on Prevention and Control of Money Laundering and Terrorism
Financing (ML/FT), with a total of 245, covering central processes, technological tools and
branch offices. The Bank got an Excellent average rating, showing its full compliance with
Sudeban Resolution 119-10, containing all the provisions of the regulations on the
Management and Inspection of risks related to crimes involving Money Laundering and
Terrorism Financing.
16
Report
Communications by Sudeban related to Provisions, Observations,
Recommendations or Initiatives regarding the Institution's Operation
During the second half of 2014, the Bank continued to take steps to bring its activities in line
with the provisions and timelines established in the rules issued during that period. The Board
of Directors is responsible for examining those provisions and resolving matters related
thereto. A set of Decrees, regulating banking activities were issued by the National Executive
Branch, within the framework of the Enabling Act, among them: the Banking Sector
Institutions Organic Law, a Partial Reform to the Central Bank of Venezuela Law, the Foreign
Exchange Regime and Foreign Exchange Crimes Law, the Tourism Investment and Credit Law;
a Reform to the Income Tax Law, the Tax Organic Code, a Reform to the Value Added Tax
(VAT) Law, a Reform to the Organic Law on Science, Technology and Innovation, and to the
Promotion and Development of Small and Medium Industry and Socially Owned Units Law.
Another set of legislative acts particularly related to the financial sector were also issued.
Among them are: the general regulations on Internal Audit Units in the Banking Sector
Institutions; the ones referring to the functions and responsibilities of the External Auditor,
Audits and Banking Sector Institutions’ Audited Reports; general criteria and guidelines to
be considered on transactions made through SICAD II; monthly reports on foreign currency
accounts and wire transfer origin from SICAD II; a partial Reform on the guidelines to process
SICAD II operations; ratification of The Banking Security Standards, the duty to provide to
the Public Ministry information about bank customers in real time in accordance with Article
291 of the Criminal Organic Procedure Code; the compulsory percentage of the manufacturing
loan portfolio for the 2014 financial year; the methodology to be applied by Financial
Operators for improvements and refurbish loans with the Mortgage Portfolio Compulsory
Savings Fund for Housing (FAOV - for its abbreviation in Spanish) resources and main housing
purchase and self-construction with the Voluntary Savings Fund for Housing (FAVV - for its
abbreviation in Spanish) and Compulsory Savings Fund for Housing (FAOV) resources; the
scope of the instructions to the sale of foreign currency from credit and debit cards
consumptions and cash advance in Venezuela against overseas accounts and line of credits;
and the submission term for the adjustment plan to the new Banking Sector Institutions Law.
Through its internal control system the Bank constantly monitors these provisions closely to
ensure compliance and so safeguard its reputation for operating with integrity and
professionalism. The Corporate Compliance business unit reports directly to the Chairman
of the Board and helps the Business and Support units to identify standards that are related
to their own particular activities.
17
Banco Universal
In the second half of 2014, the Bank also received visits from Sudeban to inspect the Quality
of Service provided at branches and Customer Service Points and by the Ombudsman for
Bank Clients and Users and by Prevention and Control of Money Laundering and Terrorism
Financing (PCML/TF) units, concerning the “Know your Customer” policy application, some
of them linked to Sicad II operations. During that period other Public Administration bodies,
among them the Foreign Currency Administration System (CENCOEX), National Council for
Persons with Disabilities (CONACPDIS), Body of Scientific, Penal and Criminal Investigations
(CICPS) and National Institute for Occupational Prevention, Safety and Health (INSAPSEL)
made inspection visits in their areas of competence.
In compliance with the provisions of paragraph 5 of Article 30 and Article 32 of the Decree
with Rank, Value and Force of Law on Banking Sector Institutions, the Bank’ Board Directors
is responsible for examining and resolve the content and compliance of several official
communications from SUDEBAN, mainly concerning the inspections visits carried out by the
agency during the year. These official communications included its respective remarks and
recommendations.
Acknowledgements
Dr. Gustavo J. Vollmer Herrera, who was a member of the Board of Directors for 47 years, 13
of which was President of the Mercantil Banco, passed away on November 2, 2014 in Caracas,
at age 91.
His example of honesty, competence, working, solidarity, modesty, closeness, kindness and
sound ethical principles shown throughout his career represents Dr. Vollmer Herrera’s
contribution and legacy to Mercantil, leaving a deep footprint.
With his performance, he mostly contributed to forge the “Mercantil Culture”, characterized
by, among other qualities, its adherence to ethical principles, transparency, responsibility,
solidarity and community commitment.
As Dr. Vollmer Herrera’s passing is deeply mourned, the Board of Directors wishes to stand
out all of his personal qualities, valuable contribution and accurate advice from whom they
received for many years.
90th Anniversary
On March 23, the Mercantil Banco subsidiary will be celebrating 90 years of its foundation.
During its existence, this subsidiary has preserved the ethical principles that encouraged its
creation, by always focusing on an excellent customer service, strengthening itself as a strong
and innovative institution of reference in the Venezuelan financial system, establishing its
mission “To fulfill the needs of our customers by providing excellent financial products and
services, attain the aspirations of our employees, support the development of the
communities where Mercantil has presence and add value for our shareholders through a
long term outlook."
To celebrate such a significant and important date, several institutional events and activities
are scheduled, all year long.
18
Report
Products and Services
During the second half of 2014, Mercantil Banco continued to offer products and services to
suit the needs of its more than 4,600,000 customers, of which around 116,608 were
incorporated.
Mercantil Banco ranks second in the financial system with a market share of 18.4 %, due to
continued promotional activities and adjustments on the credit limits.
Likewise, through products cross-selling initiatives, the first and/or second credit cards were
granted to 163,000 customers who fulfilled the established evaluation and risk parameters,
which represented Bs 5,869 million exposure during the second half.
Additionally, 3,488 New Professional Credit Cards were issued during that term distributed
among students of Universidad Monteávila, Universidad Metropolitana and Universidad
Católica Andrés Bello, to support the academic community strategy.
On the other hand, the Special Account in Foreign Currency product, required for all SICAD
II operations, totaled 147,274 open accounts for both individuals and businesses as of
December 2014.
The consolidation process to include the unbanked sector of the population and support the
communities continued in the Majorities Banking segment, through the Mercantil Aliado
network, operating in low-income areas in 15 states throughout the country and the Capital
District. These network operations are steadily growing in product placement. The Tarjeta
Efectivo (Cash Card) reflected a 76.61 % growth, reaching a total of 174,685 Cards, while
Microenterprise Loans registered a 98.90 % increase, totaling Bs 5,195 million with 17,386
active borrowers at the end of the year.
Following on with the strategy to enhance customer service, the passbook updating option
was incorporated on the multifunctional equipments in the Mercantil Vía Rápida fast-track
self-service areas. At the close of the period, 4.9 million transaction were carried out through
Mercantil Vía Rápida. 53.6 % of the total transacciones managed through branch offices were
processed through Mercantil Vía Rápida.
Between June and October, 2014, the “0” Choice for product suspension and additional
alternatives for monitoring alert were incorporated in the Centro de Atencion Mercantil
Automated System, in the Automatic Affiliation Charge option for Credit Card Payment.
Mercantil Online Banking continued to garner preference among customers, reaching at year
end more than 1,270,000 users in Mercantil Personal Online Banking and more than 66,000
affiliated groups on Mercantil Business Online Banking, which carried out a total of 618 million
transacctions during the year, representing more than 53 % of the transactions carried out
through all channels.
19
Banco Universal
The distribution of transactions by channels over the same term is shown as follows:
CHANNELS
TRANSACTIONS
(in millions of Bolivars)
POS
ATMs Network
Mercantil Móvil
Branches
Call Center
Mercantil Business and Personal Online Banking
212
130
130
65
16
618
PARTICIPATION
(%)
18
11
11
6
1
53
During the second half of the year, Mercantil Personal Online Banking incorporated the
Activation and Deactivation of services, Wire Transfers to Own International Account and
Venezuelan Central Bank Fund Availability Inquiry for Special Foreign Currency Account
functionalities.
Mercantil Business Online Banking incorporated the SICAD II Foreign Currency Purchase
Inquiries and Order Taking and migrated the platform of the “Invoice Collection” product,
which included improved functionalities for the settlement of collecting societies and local
technological attention.
The new Internet fuctionality of “Pronto Credito Empresarial” product, addressed to the
Corporate Banking segment is now in use. At the end of December, 115 credits for Bs 150
million were cleared.
At year end, @MercantilBanco, the Bank’s Twitter account, which recently turned two yearsold in January, 2015, accounted for 180,000 followers. Around 22,400 approaches were served
through @MercantilBanco. This account is ranked as the fourth most followed account in the
banking system and second one in the banking sector with reference to the “Klout” influence
indicator, in charge of measuring the account-followers interaction, with a score of 66 points.
This is considered a positive number in social networks and is recognized at corporate levels.
In September, The Venezuelan Standardization and Quality Certification Institute
(Fondonorma) ratified quality certificates under the ISO 9001:2008 standards on the
following lines of service: Mercantil Call Center (CAM), Mercantil Online Banking, ATM
network, Corporate Client Securities, Application for and Printing and Delivery of Credit
Cards, Home Delivery of Checkbooks, Préstame instant loans, Employee Benefit Trust Funds,
nationwide Branch Teller services and Mercantil Vía Rápida fast-track facilities regional head
offices and "A" category offices). Mercantil Banco is the first financial institution with the
highest number of certified lines of service, which allow to assure quality on products and
services offered.
Awards and Acknowledgements
The AméricaEconomía magazine ranked the Bank on the 23rd place among its 250 Latin
American Banks Ranking, climbing 7 places compared to last year. This ranking includes stateowned banks, which are ranked according to their asset size by the end of June 2014 .
20
Report
Likewise, the Bank was the leading institution in the banking segment of the Venezuelan
companies with the best image ranking. The study was published by the well-known P&M
magazine on its latest anniversary edition, according to a study by Datanálisis, a polling firm.
In addition to these acknowledgements, granted to the Bank, are considered those received
during the first half of 2014. For instance, “Venezuela's Best Trade Finance Provider in 2014”,
“Best Consumer Internet Banks in Venezuela” and “Best Information Security Initiatives in
Latin America” awards granted by the Global Finance magazine, the “Data Integrity 2013
Award for Latin America” from MasterCard Worldwide and the first place of preference on
the Gerente 2014 Brands ranking in the banking sector, for the seventh consecutive year.
Prevention and Control of
Money Laundering and Terrorism Financing
Prevention of money laundering and control of terrorism financing remains a priority for the
Bank. This is why it continues to implement the Program to Prevent Money Laundering and
Terrorism Financing at every level, using appropriate internal control and oversight
mechanisms. The Bank is also intensifying its staff training programs to stress the importance
of applying the “Know your Customer” policy as it is considered the best and most effective
means of preventing money laundering and corruption in general.
In order to comply with money laundering regulations, the Bank has in place a well-structured
"Comprehensive System for the Prevention of Money Laundering and the Control of Terrorism
Financing" as well as Operational and Follow-Up Plans, and Monitoring and Oversight Plans.
Social Commitment
The Bank's 'social investment in 2014, carried out both directly and through Fundación
Mercantil which it sponsors, totaled Bs 52.5 million, and was addressed at different programs,
projects and initiatives undertaken by well-known social development and educational
organizations in Venezuela.
The Bank earmarked 61 % of the contributions to elementary and higher educational
institutions, especially entrepreneurship and scholarship programs, giving the youngsters
the opportunity to keep on developing their college and high school studies; and 39 % to
social development institutions, that foster health prevention programs in the communities,
child and youngsters care social programs and those institutions that disseminate art and
culture.
During the year, it is underlined in Venezuela the consolidation of the Fundación Mercantil
and Asociación Fe y Alegría alliance, which is part of the development and strengthening of
the “Give Your School a Helping Hand“ program, with more than 30 years of existence. Among
the objectives of this alliance are rehab and maintenance of school facilities, raising school
maintenance awareness and sense of compromise and create participatory forums with the
educative communities. More than 22 educational centers throughout the nation were served
in 2014, with more than 12,000 students being directly benefitted.
21
Banco Universal
The corporation continued to strengthen the Online Donation Program “Un Aporte por
Venezuela”, through which the Bank along with the Fundación Mercantil makes its internet
platform available to social institutions allowing them to disseminate information about their
work to clients who can make donations to them via electronic transfers. In addition, programs
supporting culture are strengthened through the exhibition activities of Espacio Mercantil, a
place of dissemination and promotion of the Venezuelan art historiography.
Lastly, it is important to mention the growing participation of Mercantil's Volunteers and their
families active involvement in several activities in Venezuela, among them, the tree planting
and housing building programs in alliance with the Universidad Simon Bolivar and
Organización Techo, respectively.
One of Mercantil's corporate values is “to be an integral institution and an important factor
in the development of the communities and places in which it is involved.”
Development and Working Environment
There is a continuity in the application of compensation policies that benefit and support
workers preserving and improving their economic conditions. These policies, for which The
Bank has a leading position in the financial sector, joined with the development of permanent
retention, education and training programs, allow to improve the staff professional training
and to maintain a continuous knowledge process. All of these is complemented with the
development of several activities that encourage areas of closeness and recreation with the
workers, on which their family groups actively participate throughout the country.
Relations between bank officials and employees have continued to evolve within the
traditional spirit of harmony and cooperation and the Board of Directors wishes to
acknowledge them for their efficiency and dedication to their work.
During the half, a number of Alternate Directors attended Board meetings, either standing in
for Principal Directors in their absence, or as invitees. On the occasion of the Chairman’s and
the Executive President’s temporary absences, some of the Executive President’s functions
were delegated to members of the Executive Committee.
Yours sincerely,
Gustavo Vollmer A.
Nelson Pinto Alves
Gustavo A. Marturet
Alfredo Travieso P.
Eduardo Mier y Terán
Víctor Sierra A.
Roberto Vainrub A.
22
Report
Our Culture
Soundness
Capital Ratio Evolution
“Strength and Soundness
above all else”
70 %
30,000
57.8 %
60 %
25,000
24,256
50 %
45.9 %
20,000
40 %
in millions of Bs
30 %
15,000
16,557
20 %
10,000
11.1 %
9.9 %
9.9 % 9.1 % 8.8 %
9.0 % 8.4 %
10 %
9,233
4.8 %
5,000
0
Mercantil Banco implements policies related to
credit, risk and liquidity, as well as solvency and
financial strength indicators that ensure the
soundness of the institution.
These policies have been maintained and
strengthened over time to align them with the
best practices in the industry both domestically
and internationally
0%
6,128
4,583
0.013 0.02
0.09
1926
1960
1930
-10 %
353
4.61
1990 2000 2010
Shareholder’s Equity
2011
2012
2013
2014
-20 %
Capital Ratio Evolution
Mercantil Banco Universal has been kept within
international standards of well-capitalized
banks over nine decades. In the
beginning, between 1926 and 1930s,
Equity accounted for half of its
assets. Afterwards it was getting
stabilized, as its credit
operations grew.
Capital Adequacy Indicators
(Equity / Assets)
Gross Loan Portfolio versus Past-Due
and Non-Performing Loans ratio
Gross Loan Portfolio versus Past-Due
and Non-Performing Loans ratio
180,000
168,518
20 %
160,000
Mercantil Banco Universal maintains a
customer base that, over time, has shown a
highly satisfactory loan performance. The
excellence of our customers has allowed us
to maintain an optimal quality portfolio.
15 %
140,000
120,000
in millions of Bs
10 %
100,000
93,420
6.66 %
80,000
5%
40,000
43,788
0.34 %
0.31 %
20,000
0
60,099
3.59 %
60,000
0.01 0.02 0.21
1926 1930 1960
Gross Loan Portfolio
0.86 %
0.18 %
27,875
45.37 1,788
1990 2000 2010
agree that “Mercantil is a solid and stable
organization”.
2014 Organizational Climate and Engagement Survey
0%
0.67 % 0.64 %
0.42 % 0.26 %
2011
98 % Mercantil Banco Universal employees
2012
2013
2014
Past-Due and Non-Performing Loans
/ Gross Loan
-5 %
Consolidated with Foreign Subsidiaries (*)
(In accordance with the Superintendency of
Banking Sector Institutions -SUDEBAN)
Balance Sheet
Consolidated
(In Bolivars)
Assets
Cash and Due from Banks
Investments in Securities
Loan Portfolio
Interest and Commissions Receivable
Investments in Subsidiaries, Affiliates and Branches
Assets Available for Sale
Property and Equipment
Other Assets
TOTAL ASSETS
December 31
June 30
2014
2014
74,865,588,236
44,287,992,721
162,619,332,439
2,170,590,311
449,474,708
22,636,071
920,047,356
2,557,706,075
287,893,367,917
50,497,947,706
46,576,041,790
123,279,963,409
1,797,782,305
424,848,511
3,877,627
669,988,878
1,713,090,122
224,963,540,348
258,084,540,921
375,258
268,163,402
4,061,038
63,195,292
5,217,227,356
263,637,563,267
202,019,275,738
739,195
155,706,456
6,670,997
31,305,535
4,486,590,389
206,700,288,310
24,255,804,650
287,893,367,917
18,263,252,038
224,963,540,348
Liabilities
Deposits
Deposits and Liabilities with BANAVIH
Other Borrowings
Other Liabilities from Financial Intermediation
Interest and Commissions Payable
Accruals and Other Liabilities
TOTAL LIABILITIES
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
Consolidated
Statement of Income
(In Bs)
PERIOD ENDED
Interest Income
Interest Expense
Net Interest Income
Income from Financial Assets Recovered
Expenses from Uncollectibles and Devaluation of Financial Assets
Net Interest Margin
Other Operating Income
Other Operating Expenses
Financial Intermediation Margin
Operating Expenses
Cross Operating Margin
Income from realizable goods
Miscellaneous Operating Income
Expenses from realizable goods
Miscellaneous operating expenses
Net Operating Margin
Extraordinary Income
Extraordinary Expenses
Gross Income before Tax
Income Tax
NET INCOME
Application of Net Income
Retained Earnings
LOSEP Fund
December 31
June 30
2014
2014
16,741,731,153
5,262,208,120
11,479,523,033
152,220,262
1,902,223,521
9,729,519,774
4,017,704,847
1,528,112,758
12,219,111,863
5,920,521,034
6,298,590,829
46,337,421
222,563,917
2,848,863
602,536,496
5,962,106,808
0
35,623,180
5,926,483,628
721,382
5,925,762,246
11,421,360,952
3,795,574,605
7,625,786,347
145,240,991
893,778,959
6,877,248,379
2,599,042,156
1,006,520,070
8,469,770,465
4,625,466,105
3,844,304,360
43,424,917
197,905,043
836,042
424,145,298
3,660,652,980
0
34,554,336
3,626,098,644
121,201,528
3,504,897,116
5,925,762,246
59,856,184
3,504,897,116
36,626,320
(*) Comparative Financial Statements for the last four quarters and Appropriation of Net Income, pursuant to Article 20[D] of the Standards establishing the Guidelines and Requisites to be submitted by the
Meetings of Shareholders of Banking Institutions, Currency Exchanges, and Border Exchange Operators.
24
Report
(In accordance with the standars of the
National Securities Superintendency)
Balance Sheet
For Operations
in Venezuela
Consolidated with
Overseas branches
December 31
December 31
June 30
June 30
2014
2014
2014
2014
74,773,739,699
4,323,074,680
66,235,156,563
290,000
510,114,920
0
3,705,103,536
0
74,865,588,236
4,323,074,680
66,235,156,563
290,000
601,963,457
0
3,705,103,536
0
50,410,147,565
2,739,677,801
43,118,281,307
290,000
598,057,769
0
3,953,840,688
0
50,497,947,706
2,739,677,801
43,118,281,307
290,000
685,857,301
0
3,953,841,297
0
43,634,837,603
1,188,775,000
0
16,292,728,396
5,755,356,716
189,564,274
20,208,413,217
0
44,287,992,721
1,188,775,000
0
16,845,890,167
5,755,356,716
289,557,621
20,208,413,217
0
46,323,837,174
7,487,822,000
0
18,113,390,216
5,761,060,584
11,602,025
14,949,962,349
0
46,576,041,790
7,487,822,000
0
18,276,289,403
5,761,060,584
100,907,454
14,949,962,349
0
162,564,282,251
167,524,542,973
500,986,234
435,910,057
56,019
(5,897,213,032)
162,619,332,439
167,580,573,699
500,986,234
435,910,057
56,019
(5,898,193,570)
122,815,365,124
126,119,259,514
540,771,377
462,267,640
204,595
(4,307,138,002)
123,279,963,409
126,586,702,116
540,771,377
462,267,640
204,595
(4,309,982,319)
2,159,182,238
0
599,964,109
1,495,049,967
88,417,268
30,552
(24,279,658)
2,170,590,311
2,253
611,233,037
1,495,186,859
88,417,268
30,552
(24,279,658)
1,794,762,551
0
743,330,634
1,017,830,846
55,392,215
108,371
(21,899,515)
1,797,782,305
1,136
745,021,484
1,019,158,614
55,392,215
108,371
(21,899,515)
1,185,015,578
449,491,830
735,540,870
(17,122)
449,474,708
449,491,830
0
(17,122)
1,150,754,013
424,865,633
725,905,502
(17,122)
424,848,511
424,865,633
0
(17,122)
22,636,071
920,047,356
2,556,195,064
22,636,071
920,047,356
2,557,706,075
3,877,627
669,988,878
1,704,725,996
3,877,627
669,988,878
1,713,090,122
Total Assets
287,815,935,860
287,893,367,917
224,873,458,928
224,963,540,348
Contingent Debtor Accounts
Assets Received in Trust
Special Trust Services
Debtor Accounts from Other Special Trust Services
(Régimen Prestacional de Vivienda y Hábitat)
Other Debtor Accounts (Housing Mutual Fund)
Other Debtor Memorandum Accounts
Other Debtor Control Accounts
2,619,615,291
20,688,548,760
12,527,177
2,619,615,291
20,688,548,760
12,527,177
1,897,050,319
16,850,891,288
15,326,827
1,897,050,319
16,850,891,288
15,326,827
0
0
429,295,677,844
9,832,276
0
0
429,295,677,844
9,832,276
0
0
330,473,420,718
10,851,683
0
0
330,561,587,317
10,851,683
(in Bolivars)
Assets
Cash and Due from banks
Cash
Central Bank of Venezuela
Venezuelan Banks and other Financial Institutions
Foreign Banks and other Financial Institutions
Head Office and Branches
Pending Cash Items
(Allowance for Cash and Due from banks)
Investments Securities
Central Bank of Venezuela and Overnight
Investments in Trading Securities
Investments in Securities Available for Sale
Investments in Securities held-to-maturity
Restricted Investments
Investments in Other Securities
(Allowance for Investments Securities)
Loan Portfolio
Current
Rescheduled
Past Due
In Litigation
(Allowance for Losses on Loan Portfolio)
Interest and Commissions Receivable
Interest Receivable on cash and Due froms Banks
Interest Receivable on Investments Securities
Interest Receivable on Loan Portfolio
Commissions Receivable
Interest Receivable on Other Accounts Receivable
(Allowance for Interest Receivable on Loan Portfolio and Other)
Investments in Subsidiaries, Affiliates and Branches
Invesments in Subsidiaries and Affiliates
Invesments in Branches
(Allowance for Invesments in Subsidiaries, Affiliates and Branches)
Assets Available for Sale
Property and Equipment
Other Assets
For Operations
in Venezuela
Consolidated with
Overseas branches
Nelson Pinto A.
Alfonso Figueredo Davis
Isabel Pérez Sanchis
Gustavo Vollmer A.
Executive President
Corporate Comptroller
President
26
Report
(In accordance with the standars of the
National Securities Superintendency)
Balance Sheet
For Operations
in Venezuela
Consolidated with
Overseas branches
December 31
December 31
June 30
June 30
2014
2014
2014
2014
258,022,405,977
174,692,960,589
83,614,527,247
77,384,718,564
227,562,130
13,466,152,648
4,431,357,875
0
78,111,913,789
520,245,035
0
265,928,689
0
0
375,258
255,595,002
116,740,735
0
138,854,267
0
0
0
4,061,038
63,154,127
62,806,139
0
0
347,988
0
0
0
258,084,540,921
174,735,696,082
83,655,678,689
77,386,302,615
227,562,130
13,466,152,648
4,432,222,968
0
78,120,225,622
522,884,401
0
273,511,848
0
0
375,258
268,163,402
116,740,735
0
151,422,667
0
0
0
4,061,038
63,195,292
62,813,788
0
0
381,504
0
0
0
201,934,781,323
138,890,047,952
64,359,978,518
67,027,935,255
360,589,187
7,141,544,992
3,973,094,637
0
58,369,816,510
508,937,417
0
192,884,807
0
0
739,195
155,706,456
123,100,665
0
32,605,791
0
0
0
6,670,997
31,265,285
31,144,646
0
0
120,639
0
0
0
202,019,275,738
138,940,627,936
64,410,367,604
67,028,126,153
360,589,187
7,141,544,992
3,973,117,286
0
58,382,775,574
511,575,862
0
211,179,080
0
0
739,195
155,706,456
123,100,665
0
32,605,791
0
0
0
6,670,997
31,305,535
31,184,896
0
0
120,639
0
0
0
5,214,539,808
0
0
5,217,227,356
0
0
4,481,043,634
0
0
4,486,590,389
0
0
263,560,131,210
263,637,563,267 206,610,206,890
206,700,288,310
Nominal Capital Stock par value
Convertible Bonds
Paid-in Surplus
Capital Reserves
Equity Adjustments
Retained Earnings
Unrealized Gain on Investments Available
for Sale
268,060,233
0
35,833
278,782,642
(1,035,863)
22,869,096,766
268,060,233
0
35,833
278,782,642
(1,035,863)
22,869,096,766
268,060,233
0
35,833
277,442,341
(1,003,358)
16,944,674,821
268,060,233
0
35,833
277,442,341
(1,003,358)
16,944,674,821
840,865,039
840,865,039
774,042,168
774,042,168
Total Shareholders’ Equity
24,255,804,650
24,255,804,650
18,263,252,038
18,263,252,038
Total Liabilies and Shareholders’ Equity
287,815,935,860
287,893,367,917
224,873,458,928
224,963,540,348
(in Bolivars)
Liabilities
Total Deposits
Demand Deposits
Non-Interest Bearing Cheking Accounts
Interest Bearing Cheking Accounts
Checking accounts in accordance with Exchange Agreement Nº 20
Demand deposits and certificates
Other Demand Deposits
Obligations for Money Desk Operations
Saving Deposits
Time Deposits
Securities Issued by the Bank
Restricted Customer Deposits
Rigths and participation investment securities
Obligations to Central Bank of Venezuela
Deposits and Liabilities with BANAVIH
Borrowings
Borrowings from Venezuelan Financial Institutions, Up to 1 Year
Borrowings from Venezuelan Financial Institutions, More Than 1 Year
Borrowings from Overseas Financial Institutions, Up to 1 Year
Borrowings from Overseas Financial Institutions, More Than 1 Year
Other Borrowings, Up to 1 Year
Other Borrowings, More Than 1 Year
Other Liabilities for Financial Intermediation
Interest and Commissions Payabler
Expenses Payable on Customer Deposits
Expenses Payable on Obligations to the BCV
Expenses Payable on Deposits and Liabilities with BANAVIH
Expenses Payable for Other Financing Obtained
Expenses Payable for Other Borrowings
Expenses Payable for Other Obligations
Expenses Payable for Subordinated Debt
Other Liabilities
Subordinated Debt
Obligations Convertible to Capital
Total Liabilities
For Operations
in Venezuela
Consolidated with
Overseas branches
Nelson Pinto A.
Gustavo Vollmer A.
Executive President
President
27
Banco Universal
(In accordance with the standars of the National Securities Superintendency)
Income Statement
(in Bolivars)
Semestre finalizado
Interest Income
Income From Cash and Due From Banks
Income From Investment Securities
Income From Loan Portfolio
Income From Other Account Receivable
Income From Investment in Subsidiaries, Affiliates, and Branches
Income From Head Office and Branches
Other Interest Income
Interest Expenses
Expenses From Customer Deposits
Expenses From Obligations to Central Bank of Venezuela
Expenses From Deposits and Liabilities with BANAVIH
Expenses From Other Borrowings
Expenses From Other Liabilities From Financial Intermediation
Expenses From Subordinated Debt
Expenses From Other Obligations
Expenses From Head Office and Branches
Other Interest Expenses
Net Interest Expenses
Income From Financial Assets Recovered
Expenses From Uncollectible and Devaluation of Financial Assets
Provision for Loan Portfolio and Other Accounts Receivable, Losses
Provision for Cash and Due from Banks
Net Financial Margin
Other Operating Income
Other Operating Expenses
Financial Intermediation Margin
Personnel and Operating Expenses
Salaries and Employee Beneficts
Operating Expenses
Fees Paid to The Deposit Guaranted and Banking Protection Fund (Fogade)
Fees paid to The Superintendency of Banks and Other Financial Institutions
Gross Operating Margin
Income From Realizable Goods
Income From Special Programs
Miscellaneous Operating Income
Expenses From Realizably Goods
Expenses From Depreciation, Amortization, and Devaluation
of Miscellaneous Goods
Miscellaneous Operating Expenses
Net Operating Margin
Extraordinary Income
Extraordinary Expenses
Gross Income Before Tax
Income Taxes
Net Income
Application of Net Income
Legal Reserve
Profit Sharing
Board of Directors
Officers and Employees
Other Capital Reserves
Retained Earnings
LOSEP Fund
For Operations
in Venezuela
Consolidated with
Overseas branches
December 31
December 31
June 30
June 30
2014
2014
2014
2014
16,723,494,683
565,305
1,749,917,032
14,876,443,096
24,267,023
0
0
72,302,227
5,262,082,746
5,240,360,501
0
0
718,757
18,619,452
0
0
0
2,384,036
11,461,411,937
149,758,871
1,901,656,961
1,901,656,961
0
9,709,513,847
4,027,674,870
1,520,434,774
12,216,753,943
5,916,539,497
2,231,015,545
2,103,606,516
1,458,116,054
123,801,382
6,300,214,446
46,337,421
0
219,264,712
2,848,863
16,741,731,153
568,390
1,765,715,808
14,878,877,705
24,267,023
0
0
72,302,227
5,262,208,120
5,240,382,142
0
0
822,490
18,619,452
0
0
0
2,384,036
11,479,523,033
152,220,262
1,902,223,521
1,902,223,521
0
9,729,519,774
4,017,704,847
1,528,112,758
12,219,111,863
5,920,521,034
2,231,015,545
2,107,588,053
1,458,116,054
123,801,382
6,298,590,829
46,337,421
0
222,563,917
2,848,863
11,410,521,712
406,973
1,951,657,320
9,418,606,004
19,169,352
0
0
20,682,063
3,795,534,600
3,649,492,495
0
0
1,445,406
140,332,538
0
0
0
4,264,161
7,614,987,112
144,672,530
893,778,959
893,778,959
0
6,865,880,683
2,601,975,760
1,004,847,351
8,463,009,092
4,619,751,874
1,895,475,672
1,446,393,003
1,182,820,850
95,062,349
3,843,257,218
43,424,917
0
197,905,043
836,042
11,421,360,952
410,988
1,957,542,462
9,423,556,087
19,169,352
0
0
20,682,063
3,795,574,605
3,649,532,500
0
0
1,445,406
140,332,538
0
0
0
4,264,161
7,625,786,347
145,240,991
893,778,959
893,778,959
0
6,877,248,379
2,599,042,156
1,006,520,070
8,469,770,465
4,625,466,105
1,895,475,672
1,452,107,234
1,182,820,850
95,062,349
3,844,304,360
43,424,917
0
197,905,043
836,042
0
601,582,290
5,961,385,426
0
35,623,180
5,925,762,246
0
5,925,762,246
0
602,536,496
5,962,106,808
0
35,623,180
5,926,483,628
721,382
5,925,762,246
0
423,191,093
3,660,560,043
0
34,554,336
3,626,005,707
121,108,591
3,504,897,116
0
424,145,298
3,660,652,980
0
34,554,336
3,626,098,644
121,201,528
3,504,897,116
0
0
0
0
0
5,925,762,246
59,856,184
0
0
0
0
0
5,925,762,246
59,856,184
0
0
0
0
0
3,504,897,116
36,626,320
0
0
0
0
0
3,504,897,116
36,626,320
For Operations
in Venezuela
Consolidated with
Overseas branches
Nelson Pinto A.
Gustavo Vollmer A.
Executive President
President
28
Report
Economic Climate
Venezuela
Venezuelan economic results during 2014
continued affected by restrictions in external money supply, enhanced by oil prices decline
during the second half of the year, resulting in an important restrain to economic growth and
price stability. Taking into consideration the figures published during the the first three
quarters of the year, the Venezuelan economic outlook slowed down significantly from 1.5 %
growth during the same period in 2013 to 4 % decline of total GDP, on which oil activities
grew at 0.3% and non-oil activities dropped to 3.8 %. The fastest-growing sectors continue
to be non-tradable, among them, Financial Institutions and Insurance Companies (14.2 %),
Communications (5.0 %), General Government Services (1.7 %), and Community, Social and
Personal Services (0.2 %). By contrast, the remaining businesses registered drops in: Trade
(10.8 %), Construction (10.0 %), Manufacturing (9.2 %), Transportation (8.2 %), Mining (7.2 %),
Agriculture (3.9%), Real Estate Services (1.9 %), and Electricity and Water (1.1 %).
Despite this decline in growth, the labor market picked up, with open unemployment closing
at 5.5 % vs. 5.6 % in December 2013 (7.0 % vs. 7.5 % on average), partly due to the net creation
of 441,170 jobs, at the close of 2014. Public sector employment decreased in 77,577 jobs, which
were more than offset by the creation of 518,747 jobs in the private sector, of which nearly 26 %
were formal activities.
For the first three quarters of the year, global aggregated demand (domestic plus exports)
also slowed down significantly, from -0.9 % in the same period of 2013 to -8.2 %, both in its
domestic demand (-8.4 %) and exportations (-6.1 %). The remaining domestic spending
components declined, with the exception of public consumer spending (+0.8 %): household
spending (3.3 %), gross fixed capital formation (17.9 %) and inventories (28.5 %). From the
Summary of Economic Performance
2013
2014
production was intensified by the significant
Percentage Variation of Gross
Domestic Product %1
Total
Oil Sector
Non-Oil Sector
Exchange Rate Bs/US$
End of Períod
Average
Exchange Rate Variation %
End of Períod
Average
Inflation (Caracas) %2
Cumulative Variation
Annualized Variation
Interest Rates. End of Period
Average Lending Rates (6 main banks)
90 day Time Deposits (6 main banks)
aggregate supply side, the drop in local
contraction of imports in 17.4 %, which is added
1.5
1.0
1.7
-4.0
0.3
-3.8
to the reduction registered in the same period of
2013 (5.6 %), totaling a total contraction of 22 %
in the last 2 years.
6.30
5.80
13.90
14.66
The performance of the aggregated supply and
demand,
46.51 %
34.90 %
120.6 %
152.7 %
and
particularly
the
current
mechanism used to finance the public consumer
spending, explains the significant rise in
inflation in 2014 which, from a year-on-year
52.7
25.2
64.7
70.4
variation (November to November), was 60.1 %
from 52.8 % in 2013.
15.6
14.7
(1) Cumulative figures for the third quarter of each year.
(2) Figures as of November of each year.
Source: Central Bank of Venezuela (BCV) and in-house calculations.
19.2
14.5
The external sector has also experienced a
negative performance up to September 2014,
compared to the same period of 2013.
29
Banco Universal
The value of oil exports decline in more than US$ 6,000 million, as a result of the average
price declining from US$ 101.5/barrel in 2013 to US$/91.5 barrel in 2014 (-5.9 %) and the 89,000
barrels/day decline in oil exports (estimated implicitly from the balance of payments). Total
imports also underwent into a contraction, both in the case of public oil imports (US$ 2,327
million), and private non-oil imports (in US$ 5,142 million) since public non-oil imports slightly
increased (US$ 213 million). As a result, the balance of goods increased its surplus in US$ 1,179
million in 2014, to calculate a significant external saving of US$ 28,344 million in three
quarters. Nevertheless, after adjusting the structural deficit in the balance of income, services
and current transfers (-US$ 18,435 million) and the capital and financial account (-US$ 7,525
million), plus Errors and Omissions (-US$ 3,189 million), for the sixth year running, the global
statement of the balance of payments reflected a US$ 805 million deficit (considerably lesser
than the US$ 3,305 million gap in 2013). The international reserve levels closed at US$ 21,340
million during the third quarter of the year, similar to 2013. In the last quarter of the year, the
international reserves increase 3.4 % (+US$ 718 million) to US$ 22,058 at the end of 2014.
The fiscal policy nominally grew at 53 % up to December 2014, once the accumulated inflation
in the same period was deducted, an inter-annual decrease of 1.2 % in real terms was implied.
This relative expenditure and income abatement, which is estimated to have increased around
45 % in nominal terms establishes a fiscal deficit from the Central Government around 2.7
points of GDP (-2 % in 2013).
The injection of considerable sums of money of fiscal origin, credits to PDVSA by the issuing
institution, banking credits, less available foreign exchange, maintenance of restrictions to
capital flows and the absence of the issuances of dollar-denominated debt securities paid in
bolivars in the domestic market explained the significant monetary expansion in 2014 of 64 %
(69.7 % in 2013), which after taking the effect of inflation into account, led to a -2.1 % decline
in payment systems in real terms (+7.2 % in 2013).
The lending rates of the Commercial and Full-Service Banks averaged on 17.2 % in 2014, above
the 15.6 % registered in 2013. The deposit rates, which are measured based on savings and
term deposits averaged 13.9 % and 14.7 %, almost identical to last year's figures. Significantly
faster-growing inflation remained real interest rates negative. On average, the real lending
rate was -28.7 % (-24.2 % in 2013) and the real deposit rate was -30.4 % (-25.0 % in 2013) taking
term deposits as a benchmark.
30
Report
Strategic
Positioning
During 2014, a detailed review and analysis process of all major strategic definitions, guiding
Mercantil business activities, was conducted. During this process, the texts of Mercantil’s
Mission and Vision strategic definitions were reviewed, and the Culture and Commitment
concepts were set, which integrate all Mercantil principles and values. They include new
Mission
distinguishing elements of Mercantil performance in the development and implementation
of its activities.
To fulfill the needs of our customers by
providing excellent financial products
and services, attain the aspirations of
our employees, support the development
of the communities where Mercantil
has presence and add value for our
shareholders through a long term
outlook.
Our Culture
Soundness: “Strength and Soundness above all else”.
Long-term thinking and vision: “The strategy is based on a long-term outlook, with tactical
decisions and permanently striving to achieve the desired results”.
Respect and Care for Employees: “The well-being, motivation, recognition and individual
development of our employees are permanent goals for the organization”.
Mercantil brand is the focal point: “The brand image is the organization. The public presence
is of the organization as a whole and not of its individual members. The corporate profile is
Vision
guided by the strategy”.
To be a financial services organization
Compliance: “Strict and timely adherence to all applicable laws, regulations, rules and policies”.
of reference* in the area of banking, in
Ethical Behavior: “Zero tolerance for unethical behavior and transparency in all
the markets we serve.
communications and information”.
Multinational: “We are an international organization with Venezuelan roots”.
(**) Reference:
To be recognized and respected for our
strength, ethical behavior, dynamism,
innovation, quality of service and for
being the best place to work.
Resilience: “We continuously adapt to changing environments and circumstances with dignity
and integrity”.
Good citizenship: “Our behavior reflects the solidarity and commitment to the community”.
Corporate Governance: “Respect for the organization’s corporate governance structure”.
Our Commitment
• To be the best financial services provider as measured by the degree to which customers’
needs and expectations are met, through products and services considered by them as the
best in the market.
• To be a leading and innovative institution that anticipates the needs of the customers and
competitors actions.
• To be recognized for its quality and excellence.
• To have the best and most capable human resources that are committed to working as a
team.
• To maintain a prudent risk management combined with an excellent asset and liability
management.
• To maintain a continuous focus on increasing operational efficiency across the organization,
leveraging on technology as a competitive advantage.
31
Banco Universal
Mercantil keeps focusing on the development of integral and differentiated value proposals
for each customers segment.
Efforts are maintained to increase financing to the productive sectors and the SME segments,
in line with the risk parameters established throughout the institution. A constant supply of
comprehensive products and services was made available to meet customers' needs and the
supply of electronic and self-service products was expanded in an endeavor to enhance the
quality of service through the installation of new self-service facilities and the increase of
Mercantil Móvil functionalities, reflected in the transactions growth registered in these two
distribution channels. The company also continued to execute its plan to grow the Mercantil
Aliado network, focused on the Majority Banking segment to promote the development of
low-income communities and attract new clients.
Emphasis is on improving efficiency through the ongoing improvement of processes and an
improved quality of products and services.
All of this has been undertaken in strict compliance with the regulations applicable in the
countries where we operate, with strong capitalization following the principles of
transparency and sound management that are key to Mercantil’s strategic positioning, the
nature of the institution, and its day-to-day activity.
32
Report
Anual
Our Culture
Long-Term
Thinking
and Vision
“The strategy is based on a long-term
outlook, with tactical decisions and
permanently striving to achieve the
desired results”
Customers of three generations
Mercantil Banco has a clear long-term
business vision. Go along with its
customer in their development have
served as pillars in their relationship.
Mercantil has maintained a relationship
for three generations with Marrone
family. For Nicola Marrone (father),
Marco Marrone (son) and Mauricio
Marrone (grandson) the reciprocal trust
that has grown with the institution is
crucial to its daily operations and future
plans.
Since Mercantil’s inception, its founders and
successors always had a long-term business
vision. Mercantil’s steadfast commitment to
Venezuela and the close relationship with its
customers, employees and vendors is grounded
in creating strong partnerships, adding value
and serving as a pillar and support for all to
grow collectively and individually.
Banking oriented to people and
small and medium enterprises
An important landmark in Mercantil’s
development process was the decision
of acquiring Interbank Banco Universal
in the year 2000; a fact that
complemented Mercantil`s strength.
96 % of Mercantil Banco Universal
employees agree that “At Mercantil, we make
decisions thinking about the future of the
organization.”
Our Culture
Respect and Care for Employees
“The well-being, motivation, recognition and individual development
of our employees are permanent goals for the organization”
The employees of Mercantil Banco are its greatest asset and the commitment to their well-being and
personal and professional development is a permanent strategic priority. This is demonstrated
year after year in the company’s compensation policies, training opportunities, and employee
engagement initiatives, bringing together employees and their families closer to Mercantil.
Through our employees and their contributions to the organization, Mercantil
communicates their own culture guidance.
Training program of
reference in Venezuela
In 1966, Mercantil initiated its Credit
Training Courses, supported by the
experience of the Chase Manhattan
Bank. The comprehensive credit
program is a tradition in the
company and a reference in the
country in the quality of
professionals training.
A Labor Relationship with Identity
Cordiality and respect are fundamental
values at Mercantil. These three
members of the same family, who have
created a 40-year relationship with the
Bank, state that “our co-workers are
people like us.”
Pedro Reyes (uncle), who is currently
the Customer and User Ombudsman
of Mercantil, joined the bank in
1975; Nelson Lehmann (father)
did it so in 1982, when the Bank
purchased the Diners Club
franchise. Today, he is
retired from Mercantil.
And in 1991, Elsy Lehmann
(daughter and niece) has
developed her Human
Resources career since
then.
employees agree that “At Mercantil, trust
and respect are the guiding principles of how
employees are treated”.
Management Discussion
and Analysis
Balance Sheet
A summarized Balance Sheet at December
31, 2014, 2013 and 2012 is presented below and the main variations when comparing
December 2014 with December 2013 are commented on:
Summary of the Consolidated
Balance Sheet
Dec. 2014 vs. Dec. 2013
Dec. 2014 vs. Dec. 2012
Increase/
(Decrease)
bolivars
%
Increase/
(Decrease)
bolivars
%
December 31
December 31
December 31
December 31
2014
2014
2013
2012
US$(1)
bolivars
bolivars
bolivars
Total Assets
45,812
287,892,974
183,030,629
104,514,153
104,862,345
57.3
183,378,821
175.5
11,913
74,866,697
44,543,920
26,893,624
30,322,777
68.1
47,973,073
178.4
Investment Portfolio
7,085
44,523,248
45,067,501
17,870,462
(544,253)
(1.2)
26,652,786
149.1
Loan Portfolio (net)
25,877
162,619,332
89,809,279
57,755,945
72,810,053
81.1
104,863,387
181.6
Deposits
41,069
258,083,275
162,756,924
92,499,400
95,326,351
58.6
165,583,875
179.0
3,860
24,255,805
16,557,049
9,233,354
7,698,756
46.5
15,022,451
162.7
Year ended
(In thousands of Bs and millons of US$
except percentages)
Historic figures presented in accordance will the standars of the Superintendency of Banks and Other Financial Institutions.
The Audited Financial Statements and their notes, which include the summary of the
accounting standards used, are included in this report.
Total Assets
At December 31, 2014 Mercantil Banco Universal’s total consolidated assets were Bs 287,893
million (US$ 45,812 million)1 , which represents Bs 104,862 million (57.3 %) and Bs 183,379
million (175.5 %) more than in December 2013 and 2012 respectively. The loan portfolio
remained the principal component (56.5 %) of total assets, cash and due from banks accounts
for 26.0 %, while the investment portfolio accounts for 15.5 % at the end of the half.
Mercantil Banco Universal ranks third in the Venezuelan private financial system at December
31, 2014 in terms of total assets, with 11.6 % of the market. The largest market share held by
an institution in Venezuela's financial system is 17.6 % and the country’s four largest banks
account for 56.8 % of the market
.
(1)
Dollar figures are given for reference purposes only; balance sheet figures are converted at the period-end exchange rate of Bs 6.2842 / US$ 1.
Exchange control has been in place in Venezuela since February 2003.
35
Banco Universal
At December 31, 2014, cash and due from banks reached Bs 74,867 million (US$ 11,913
million)1 , reflecting Bs 30,323 million (68.1 %) and Bs 47,973 million (178.4 %) growth
compared to December 2013 and 2012 respectively, mainly due to the increase in the
balances in the Venezuelan Central Bank, driven by the total deposit growth. The liquidity
ratio, calculated by dividing total cash and due from banks by total deposits was 29.0 %,
and the liquidity ratio calculated by dividing total cash and due from banks plus
investments, by total deposits was 46.3 %, compared with 27.4 % and 55.1 % respectively in
December 2013.
by Issuer
Dec. 2014 vs. Dec. 2013
Dec. 2014 vs. Dec. 2012
Increase/
(Decrease)
bolivars
%
Increase/
(Decrease)
bolivars
%
December 31
December 31
December 31
2014
2013
2012
bolivars
bolivars
bolivars
1,188,775
9,753,685
42,987,197
35,037,610
13,537,974
U.S. Government and U.S. Government-backed Agencies
102,892
143,634
163,267
Others
244,384
132,572
93,624
111,811
44,523,248
45,067,501
17,870,462
(544,253)
Year ended
(In thousands of Bs except percentages)
Venezuelan Central Bank (BCV)
Venezuelan State and Government Entities
Total Investments
4,075,597 (8,564,910)
7,949,587
(87.8) (2,886,822) (70.8)
22.7
29,449,223
217.5
(40,742) (28.4)
(60,375)
(37.0)
150,760
161.0
(1.2) 26,652,786
149.1
84.3
At December 31, 2014 investments in securities totaled Bs 44,523 million (US$ 7,085 million)1,
similar to Bs 45,068 million registered in December 2013 and higher than Bs 26,653 million
(149.1 %) recorded in December 2012. Also at December 31, 2014 total investments in securities
were made up of: 96.6 % in securities issued or guaranteed by the Venezuelan state and
government agencies; 2.7 % in deposit certificates issued by the Venezuelan Central Bank
with maturities less than 30 days; 0.5 % in securities issued by the Venezuelan and
international private sectors, and 0.2 % in securities issued by the U.S. government and
guaranteed agencies, among others.
Government bonds issued by the Venezuelan state account for 0.6 times the Bank's equity
and 5.8 % of its assets.
At December 31, 2014, in line with a regulation issued by the Venezuelan National Executive
branch, the Bank purchased Bs 26,167 million in Mortgage Securities, Participation
Certificates, Agricultural Bonds and Stocks, accounting for 58.8 % of its investment portfolio
and 1.1 times its shareholders' equity (Bs 16,745 million, representing 37.2 % of its investment
portfolio and 1.0 times its shareholders' equity at December 31, 2013).
(1)
36
Report
Loan Portfolio
At December 31, 2014 net loans totaled Bs 162,619 million (US$ 25,877 million)1, reflecting
Loan Portfolio
By Business Segment
year-on-year growth of Bs 72,810 million (81.1 %) and Bs 104,863 million (181.6 %) compared
to December 2013 and 2012 respectively. At the close of December 2014, Mercantil Banco
Universal is the leading bank in Venezuela's private financial system in terms of loans to the
180,000
tourism, manufacturing and agricultural sectors with 14.2 %, 15.3 % and 15.3 % of the market,
Millions of bolivars
160,000
140,000
40 %
120,000
100,000
13 %
80,000
respectively. It ranks second in terms of gross loans with a market share of 14.1 %. It is
Venezuela's third bank in terms of mortgages with a market share of 6.6 %. Loan portfolio
47 %
quality remains very favorable, with a ratio of past-due and nonperforming loans to gross
60,000
42 %
40,000
15 %
20,000
43 %
15 %
47 %
loans of 0.3 %, compared to 0.5 % for the Venezuelan financial system as a whole.
38 %
0
Dec. 2012
Dec. 2013
Dec. 2014
99.4 % of Mercantil Banco’s loan portfolio is outstanding at December 31, 2014. The allowance
for losses on loan portfolio covers 1,352.9 % of past-due and nonperforming loans (914.5 %
Individuals
Large Corporations
and 611.5 % at December 31, 2013 and 2012 respectively).
Small and Medium Enterprises (SMEs)
Loan Portfolio
Quality (2)
Year ended
Past Due + Non-Performing Loans /
Gross Loans (%)
Allowance for Loan Losses /
Past Due + Non-Performing Loans (%)
(2)
December 31
December 31 December 31
System
Average
2014
2013
2012
bolivars
bolivars
bolivars
0.5
0.3
0.4
0.6
604.7
1,352.7
913.7
611.1
Calculated on operations in Venezuela
Gross Loans Classified
by Status
Year ended
(In thousands Bs except percentages)
December 31
December 31
2014
2013
bolivars
%
99.4
0.3
0.3
0.0
Current
Reestructured
Past Due
In Litigation
167,580,574
500,986
435,910
56
Total
168,517,526 100.0
bolivars
92,479,759
545,128
389,596
5,180
December 31
2012
%
99.0
0.6
0.4
0.0
93,419,663 100.0
bolivars
59,223,813
492,243
373,454
9,761
%
98.6
0.8
0.6
0.0
60,099,271 100.0
(1)
Dollar figures are given for reference purposes only; balance sheet figures are converted at the period-end exchange rate of Bs 6.2842 / US$
1. Exchange control has been in place in Venezuela since February 2003.
37
Banco Universal
At December 31, 2014 the full-service banks must earmark a minimum nominal percentage
of 62.3 % for loans to the agricultural, microenterprise, mortgage, tourism and manufacturing
sectors. Mercantil Banco Universal’s level of compliance is as follows:
At December 31, 2014
Balance
(In Thousands
of Bolivars)
Activity
Agriculture (a)
Achieved
%
Required
%
27,602,484
38.21
25.0
5,195,148
4.09
3.0
Microenterprise
Manufacturing
Average gross loans at December 31, 2013 and 2013.
24
Gross loans at June 30, 2014.
6,116,783
15.16
20.0
3,660,742
5.06
4.25
7.02 ó 10.02
17,650,616
18.99
10.0
16.20 ó 18
60,225,773
81.51
62.25
Tourism (c)
Calculation basis
13
Between
4.66 y 10.66
Mortgage (b)
(d)
Maximum
Annual
Interest
Rates %
Gross loans at December 31, 2013
Average gross loans at December 31, 2013 and 2012.
Gross loans at December 31, 2013.
a) In July 2012, Petroleos de Venezuela, S.A. (PDVSA) and in May 2012, the Fondo de Desarrollo Nacional Fonden, S.A., issued Non-Convertible Bearer Bonds to strengthen and finance the agricultural mission
Great Agricultural Mission Venezuela (Gran Misión Agro-Venezuela) through the Ezequiel Zamora Fund, which totalled Bs 1,580 million. In April 2009 the executive branch approved the issuance of government
debt bonds to finance the Integral Agricultural Development Plan Project 2009-2010. These emissions can be attributed to the compulsory agricultural loan portfolio up to a maximum of 30% of the required
portfolio in accordance with the Ministry of Agriculture and Lands aproval in July 2012. The total amount of the agricutural loan portfolio adding these investments amounted to Bs 29,183 million at December,
31 2014. From the total amount of the compulsory agricultural loan portfolio to be maintained, at least 75% must be allocated to financing strategic items for which compliance percentages for specific activities
were set, a maximum of 5% for non-strategic items and 20% for agribusiness investment and marketing. Similarly, medium and long term credits should be placed in a minimum percentage of 20% of total
agricultural loan portfolio. At December, 31 2014 the Bank has allocated 89.86% to strategic items, 0.26% to non-strategic items and 9.88% to agribusiness investment and marketing. Also, at December 31,
2014 medium and long term credits are held representing 21.78% of the total agricultural loan portfolio.
b) At December 31, 2014 the Bank has Bs 18,081 million in Bolivarian Housing Securities issued by Fondo Simón Bolívar para la Reconstrucción, S.A., to finance the Great Venezuelan Mission (Gran Misión
Venezuela) of which Bs 7,975 million are attributed to the compulsory agricultural loan portfolio of 2014. The total amount of the mortgage loan portfolio adding these investments amounted to Bs 14,091
million at December, 31 2014.
c) At December 31, 2014 the Bank complies with the minimum percentage requiered for tourism sector in 5.06% (includes Bs 207 million SOGATUR shares). In November 2014 the Tourism Sector Credit Law
came into effect, which repealed the measure of segment classification of loan applicants; the total amount of the tourism loan portfolio by adding these investments amounted to Bs 3,868 million.
d) In June 2013 the Ministry of Industries and the Ministry of Finance established the activities that must be financed through the full-service banks' manufacturing portfolio, which must earmark 60% of the
total funds to strategic development sectors, and a minimum 40% for financing small and medium industries, joint ventures, community companies and state companies.
Total Deposits
At December 31, 2014, total deposits were Bs 258,083 million (US$ 41,069 million)1 , reflecting
increases of Bs 95,326 million (58.6 %) and Bs 165,584 million (179.0 %) compared with
December 2013 and 2012 respectively.
Deposits by Business Segment
Demand deposits were the main component of total deposits, which
reached Bs 174,734 million, 60.6 % up from the previous year and
270,000
240,000
representing 67.7 % of total deposits. Savings deposits rose Bs 28,053
27 %
210,000
million (56.0 %) and time deposits Bs 42 million (8.8 %) compared to
180,000
150,000
the previous period.
29 %
26 %
120,000
90,000
At year end Mercantil Banco Universal was the leading institution in the
29 %
60,000
25 %
24 %
30,000
51 %
45 %
Dec. 2012
Dec. 2013
country's private banking system with 20.7 % of savings deposits, and
44 %
the third in terms of total deposits including demand liabilities with 11.7 %
of the market.
0
Dec. 2014
Small and Medium Enterprises (SMEs)
Large Corporation
Individuals
(1)
38
Report
Anual
Shareholders’ Equity was Bs 24,256 million (US$ 3,860 million)1 at December 31, 2014,
reflecting increases of Bs 7,699 million (46.5 %) and Bs 15,022 million (162.7 %) compared with
December 2013 and 2012 respectively. The year-on-year increase includes mainly Bs 9,431
million in accumulated net income in 2014, a Bs 1,099 million decrease corresponding to cash
dividends paid, and Bs 633 decline from adjusting investments available for sale to their
market value.
For Mercantil Banco Universal, the equity/assets ratio as of December 31, 2014 is 9.7 %2
(minimum requirement 9 %) and the equity/risk-weighted assets ratio is 16.5 % (minimum
requirement 12 %) according to the standards of the Superintendency of Banking Sector
Institutions (10.9 % and 19.0 % at December 31, 2013 and 9.8 %; and 17.7 % at December 31,
2012 respectively).
Income Statement
Net Income
Year ended
(In thousands of Bs and millions of US$,
except percentages)
Interest Income
Income Expense
Net Interest Income
Income from Financial
Assets Recovered
Provision for Loan Portfolio Losses and
other Accounts Receivable Losses
Net Financial Margin
Other Income, net
Operating Expenses
Taxes
Net Income for the year
Dec. 2014 Vs. Dec. 2013
Dec. 2014 Vs. Dec. 2012
Increase/
(Decrease)
bolivars
%
Increase/
(Decrease)
bolivars
%
7,352,170
11,515,154
4,027,273
7,487,881
69.1
80.1
64.3
17,470,651
5,688,994
11,781,657
163.0
168.9
160.2
128,319
110,359
59.0
169,142
131.8
1,704,815
823,864
10,128,233
6,656,625
1,091,188
6,507,052
284,778
3,889,770
(2,788)
2,904,848
64.0
64.2
9.3
58.4
(77.4)
44.5
1,972,139
9,978,660
1,641,575
6,042,224
(457,617)
6,035,628
239.4
149.9
96.3
134.0
(99.8)
177.8
December 31
December 31
December 31
December 31
2014
2014
2013
2012
US$(1)
bolivars
bolivars
bolivars
4,486
1,441
3,045
28,191,405
9,057,578
19,133,827
16,676,251
10,720,754
5,030,305
3,368,584
11,645,946
47
297,461
187,102
445
2,647
532
1,679
0
1,501
2,796,003
16,635,285
3,346,153
10,549,964
814
9,430,660
3,061,375
1,704,578
6,660,194
4,507,740
3,602
458,431
6,525,812
3,395,032
(1)
Dollar figures are given for reference purposes only; balance sheet figures are converted at the exchange rate at the end of the period of
Bs 6.2842/US$ . income statement figures are converted at the average exchange rate for the period of Bs 6.2842 / US$ 1. Exchange control
has been in place in Venezuela since February 2003.
(2)
Obtained by dividing equity by total assets minus investments in securities issued or guaranteed by the Venezuelan government and
public entities.
39
Banco Universal
Net Interest Income
In 2014 net interest income was Bs 19,134 million (US$ 3,045 million)1 representing increases
of Bs 7,488 million (64.3 %) and Bs 11,782 million (160.2 %) compared to the margins for the
years ended December 31, 2013 and 2012 respectively. The increase compared to the end of
2013 is mainly due to a higher volume of financial assets and liabilities. Mercantil Banco
Universal's net interest income/average financial assets ratio at December 31, 2014 was 10.9 %
compared to 10.8 % the previous year. Interest income totaled Bs 28,191 million, recording a
69.1 % year-on-year increase. Financial expenses were Bs 9,058 million, 80.1 % more than in
2013.
Evolution of Net Interest Income
25,000
11.1 %
10.8 %
10.9 %
3.5 %
3.3 %
7,352
11,646
19,134
2012
2013
2014
20,000
15,000
10,000
4.1 %
5,000
0
12.0 %
11.0 %
10.0 %
9.0 %
8.0 %
7.0 %
6.0 %
5.0 %
4.0 %
3.0 %
2.0 %
Net Interest Income
Net Interest Income/Average Financial Assets
Operating Expenses/Total Average Assets
The financial intermediation ratio (loans to deposits) was 65.3 %, at the close of 2014 (57.4 %
and 65.0 % at December 31, 2013 and 2012 respectively).
Loan Portfolio Provision
During 2014, loan portfolio losses were Bs 2,796 million (US$ 445 million)1 , up Bs 1,091 million
(64.0 %) and Bs 1,972 million (239.4 %) compared to December 31, 2013 and 2012 respectively.
The accumulated provision climbed to Bs 5,898 million as of December 31, 2014 and covers
1,352.9 % of past-due and nonperforming loans.
(1)
40
Dollar figures are given for reference purposes only; income statement figures are converted at the average exchange rate of Bs 6.2842 / US$ 1.
Report
Other Income, net
Other Income, net, in 2014 reached Bs 3,346 million (US$ 532 million)1 , representing increases
of Bs 285 million (9.3 %) and Bs 1,642 million (96.3 %) compared to December 31, 2013 and
2012 respectively. The year-on-year increase is mainly due to:
• Bs 1,512 million (84.4 %) growth of earnings from commissions on credit and debit cards, net
of expenses for commissions for using points of sale and ATMs, generated by the increase in
the volume of operations during the year.
• Bs 57 million (58.4 %) growth of income from commission on trust funds.
• Bs 46 million (6.3 %) decline in earnings from the sale of investments in securities as a result
of trading in securities issued by the Venezuelan state. This activity was worth Bs 675 million
in net earnings in 2014.
• Bs 958 million (107.2 %) decrease in earnings from exchange difference due to the exchange
rate set by the Venezuelan Central Bank for the valuation of assets and liabilities in foreign
currency (adjusted from Bs 4.2893/US$ to Bs 6.2842/US$) in 2013.
• Bs 253 million (54.1 %) rise in expenses for assets available for sale, provision for assets and
operating expenses, among others.
Operating Expenses
Operating and Personnel expenses in 2014 reached Bs 10,550 million (US$ 1,679 million)1 ,
representing increases of Bs 3,390 million (58.4 %) and Bs 6,042 million (134.0 %) compared
to December 31, 2013 and 2012 respectively. The year-on-year increase is mainly due to:
• Bs 1,183 million (40.2 %) rise in personnel expenses. This increase in expenses is due to the
application of compensation and benefits according to the market. Assets per employee grew
from Bs 25.1 million in 2013 to Bs 39.7 million in 2014.
• Bs 1,222 million (74.6 %) rise in expenses for contributions to regulatory agencies.
• Bs 1,484 million (71.4 %) increase in general and administrative expenses. This increase is
primarily due to Bs 338 million (61.2 %) in expenses to outsource services such as securities
transportation, surveillance, and others, Bs 636 million (111.8 %) in expenses for depreciation
of property and equipment, amortization of intangibles, etc., Bs 175 million (48.6 %) in taxes
and contributions, and Bs 336 million (56.2 %) in general administrative expenses.
In 2014, the efficiency ratio measured by calculating operating expenses as a percentage of
average assets, was 3.3 %, compared to 3.5 % in 2013; while the efficiency ratio, measured by
calculating operating expenses as a percentage of total income was 32.2 %, versus 31.8 % in
2013. The number of employees have kept at the same level for the last 3 years. Personnel
and operating expenses are affected by inflation in Venezuela which was 68.5 % over the last
12 months.
(1)
Dollar figures are given for reference purposes only; income statement figures are converted at the average exchange rate of Bs 6.2842 / US$ 1.
41
Banco Universal
Taxes and Contributions
For the year ended December 31, 2014 Mercantil Banco Universal and its subsidiaries reported
a significant volume of expenses for various types of taxes and contributions.
Operations in Venezuela generated: Bs 467 million in Value Added Tax, Bs 531 million in
Municipal Taxes, Bs 2,641 million in contributions to the Deposit Guarantee and Banking
Protection Fund, Bs 219 million in contributions to the Superintendency of Banking Sector
Institutions, and Bs 390 million in contributions to the National Community Council Fund.
Mercantil Banco, C.A. Universal and its subsidiaries also complied with other contributions
provided for in the pertinent legislation.
Total contributions to the various official entities totaled Bs 4,318 million, accounting for 30.4 %
of the Bank's expenses (Bs 2,614 million and 28.1 as of December 31, 2013 respectively).
42
Report
Business Management Report
Personal Banking and Wealth Management
Personal Banking has a portfolio of over 4.4
billion clients served by 265 branches, 126 Affluent segment officers , 929 Mass Market
segment officers, 9 Private Banking segment advisors and 53 Majorities Banking segment
officers, offering different financial products and services to Mercantil customers.
Personal Banking’s deposits closed at Bs 117,460 million and represent 60.4 % growth
compared to the end of December 2013. These performance is explained by 74.6 % increase
in non interest bearing demand deposits and 56 % growth of savings deposits at the end of
2014. Personal Banking contributed with 46.7 % of Mercantil Banco Universal’s total deposit
growth of Bs 94,644 million, at the close of 2014.
Personal Banking’s loan portfolio grew 96.5 % at December 2014 to Bs 68,372 millions. Credit
cards and its parallel credit lines were a determining factor in the loan portfolio growth,
showing a 124 % increase (Bs 21,826 million). Loans aimed to individuals increased by 87 %
(Bs 3,016 million), as a result of an attention-focused strategy in niche customers. Personal
Banking contributed with 44.5 % of Mercantil Banco Universal’s total loan portfolio growth
of Bs 75,491 million at the end of 2014.
During 2014, Credit Card business growth strategy consisted of promotional activities and
adjustments on credit limits. These actions were instrumental for the Bank to rank second in
the financial system with a market share of 18.4 % at December 2014.
This strategy was supported by cross-selling initiatives. The first and/or second credit cards
were granted to 163,000 customers who fulfilled the established evaluation and risk
parameters. Additionally, 3,488 New Professional Credit Cards were issued and distributed
in several universities, to support the academic Community Strategy.
The consolidation process to include the unbanked sector of the population and support the
communities continued in the Majorities Banking segment, through the Mercantil Aliado
network, operating in low-income areas in 15 states throughout the country and the Capital
District. As a result of this strategy, these network operations continues steadily growing in
product placement. The Tarjeta Efectivo (Cash Card) reflected a 76.61 % growth, reaching a
total of 174,685 Cards, while Microenterprise Loans registered a 98.9 % increase, totaling
Bs 5,195 million at the end of the year. These volume of loan portfolio allowed the compliance
of the microenterprise compulsory loan with 4 % reached, while the regulatory requirement
is 3 % at the close of the year.
During 2014, Mercantil Banco, through its Trust Services Unit continued focusing its efforts
on services enhancing and launching of two new products: Occupational Contingency Trust
and Escrow Trust, keeping its leadership in the trust market and framed in an optimizing
strategy of income on assets under management. Compared to 2013, the volume of customer
assets increased 40 % and income from services grew 59 %.
43
Banco Universal
The Securities Market Business, during 2014, focused on providing better services and
technological improvements to customers for its participation on the exchange market
through SICAD II. The simplification and automatization of the order registering process
provided an important contribution to the Mercantil Securities Account growth, which totaled
164,785 customers, allowing their participation in the primary and secondary securities
market, increasing securities custody management in 17.5 % and income in 17.8 % at the close
of the year.
On the other hand, the Special Account in Foreign Currency product (Covenant Nº 20),
required for all SICAD II operations, totaled 147,274 open accounts for both individuals and
businesses as of December 2014.
At the close of 2014, Mercantil held 454 campaigns to promote products and services as well
as the use of electronic channels, with a volume of over 42 million messages sent.
Between June and October, 2014, the “0” Choice for product suspension and additional
alternatives for Monitoring Alert were incorporated in the Centro de Atencion Mercantil
Automated System, in the Automatic Affiliation Charge option for Credit Card Payment .
Mercantil Online Banking continued to consolidate itself as the banking method preferred
by clients, reaching at year end more than 1,210,000 users, equivalent to 576 million
transactions, representing over 44 % of the transactions made in all channels in 2014.
During the second half of the year, Mercantil Personal Online Banking incorporated the
Activation and Deactivation of services, Wire Transfers to Own International Account and
Venezuelan Central Bank Fund Availability Inquiry for Special Foreign Currency Account
functionalities.
44
Report
Commercial Banking
Commercial Banking has more than 176,000 clients at year end, representing 46 % of Mercantil
Banco Universal’s total loan portfolio. It is broken down as follows: 59 % for Small and Medium
Entreprises (SME) segment, with 92 % of customers, and 41 % for the Middle Market segment
with 8 % of the rest of the customers.
At the close of December 2014, Commercial Banking loan portfolio in Venezuela registered a
strong 74 % growth compared to 2013, totaling Bs 77,746 million, of which Bs 31,957 million
corresponds to the Middle Market Banking segment, showing 50 % year-on-year increase, and
Bs 45,789 million corresponds to the Small and Medium Enterprise sector, with 96 % increase,
compared to the end of 2013. This result was supported by the continued strategies of
supporting and promoting SME segments through a program to finance working capital under
competitive conditions. Commercial loans was the product with a higher contribution to the
loan portfolio growth, showing Bs 19,000 million increase (70 % vs Dec. 13).
Currently, Mercantil Banco Universal complies with five compulsory loan portfolios, which
accounted for 36 % of the Bank’s gross loan portfolio. Commercial Banking is responsible for
the agricultural, tourism and manufacturing sectors, and cooperates with the microcredit and
mortgage sectors. At December 31, 2014 the Bank registered Bs 27,755 million (85 %) year-onyear growth to Bs 60,467 million. Commercial Banking represents 51 % of these compulsory
loan portfolios with Bs 30,581 million.
Commercial Banking's deposits grew Bs 26,000 million (62 % vs December 2013) to more than
Bs 69,000 million which accounts for 30 % of the Bank's total deposits. The main factors of this
growth are current account products which grew Bs 24,500 million (59 % vs December 2013).
As part of the deposits strategy, Commercial Banking has focused its efforts in boosting the
sales of products that lead the higher use of electronic channels, through the sales force and
communications campaigns for customers. These resulted, at the end of 2014, in the reduction
of branches transactions in 13 % compared to 2013, the 51 % of the operations carried out
through Mercantil Business Online Banking are wire transfers, payments of services and
domestic taxes, payments to suppliers and collections for afilliated payments transaccions,
among others.
At the close of 2014, 66,500 customers of Mercantil Business Online Banking make use of the
new security scheme based on a physical device called "Token" to access to this channel. This
facilitates mobility and encourages use of this more secure channel. In addition, the Bank
continued boosting the sale of “Círculo de Seguridad” product, reinforcing the security of issued
checks, reaching 2,651 companies at the close of 2014.
In 2014, Mercantil Business Online Banking transactions reached 73 % (70 % at end 2013) of a
total of more than 59 million transactions made by customers of Commercial Banking via
Internet and branches offices, reaching around 44 million transactions and 74,500 active
companies at end of December.
45
Banco Universal
Mercantil Banco Universal is characterized by offering innovative financial solutions tailored
to its customers needs. In November, a new functionality by Internet called “Pronto Credito
Empresarial” was launched for the Commercial Banking segment. This is the first loan
installments for working capital available and self-managed through Mercantil Business
Online Banking.
Mercantil Banco Universal has continued supporting SMEs by taking part in the last four
editions of Mercantil Banco and Confederación Venezolana de Industriales (Conindustria)
agreement, which has remained in force since 2003. The V Convention, covering the 20142016 period was signed last September.
Mercantil Banco Universal has allocated Bs 4,225,423 as a contribution to the five editions of
the agreement, benefiting 310 companies through training programs in the areas of
Competitiveness / Family Business (Coninpyme), Energy efficiency, Quality and technological
innovation.
In addition, the Mercantil-Consecomercio agreement signed in October 2011, has brought
great benefits, as a support to the European Union's Al-Invest program aimed to SME. Since
2012, the "Organize and grow your business" program is imparted with an effective business
plan, which allows SMEs to improve their competitiveness, streamline processes, develop
their financial plan and clarify key aspects of their market.
This agreement has served 200 companies, with a total cost of Bs 1,200,000, of which
Consecomercio has contributed with Bs 792,000 from the European Union funds for Al-Invest
IV program. Beneficiary companies have contributed with Bs 204,000, and Mercantil Banco
Universal has provided other Bs 204,000.
46
Report
Corporate Banking
Global Corporate and Investment Banking
Corporate Banking
Loan Portfolio
In 2014 Corporate and Investment Banking continued to offer a wide variety of quality financial
2014
products and services to more than one thousand economic groups through different corporate
segments in Venezuela.
The Corporate and Investment Banking loan portfolio posted 66 % year-on-year growth to
Bs 22,287 million, distributed among the different segments.
At year end, total deposits plus investments sold under repurchase agreement registered 50 %
growth to Bs 73,521 million compared to December 2013, distributed between the Corporate
and Investment Banking segments.
Corporate/Oil & Gas
95 %
Financial Institutions
3%
Corporate Banking in Venezuela
Institutional Banking
2%
Total deposits from corporate clients were 43 % higher at year end compared to 2013 (Bs 61,406
Bs 22,287 millions
million). These volumes continue to reflect a growing accumulation of funds by our clients
whose cash management is influenced to a large extent by inflation levels and market conditions
for their collecting processes.
The loan portfolio continued its upward trend, rising 64 % during the year (Bs 21,188 million).
Corporate Banking
Total Deposits + Investment sold
under repurchase agreement
2014
An increased support to customer’s needs in the agricultural, as well as, manufacturing sector,
and investors in the tourism sector has been sustained. As a result, Corporate Banking continued
contributing to Mercantil Banco Universal’s compulsory loan portfolio.
Financial Institutions and International Relations
The Financial Institutions segment in Venezuela continues adapting to the changing market.
The segment's strategic focus has been on rationalizing the counterparts that are necessary in
the money and capital market in terms of Banks and Insurance companies. Much effort has
been devoted to cross selling products and services to our current customer base, producing
Bs 762 million in assets and Bs 8,568 million in liabilities respectively.
Corporate/Oil & Gas
84 %
Financial Institutions
12 %
4%
At the close of 2014, deposits by Mercantil Banco Universal's Institutional Banking segment
Bs 73,521 millions
totaled Bs 3,547 million, representing 1.2 % of the institution's total deposits. It should be noted
that government deposits account for 0.8 % of the Venezuelan financial system.
With that level of penetration, Mercantil Banco Universal serves more than 157 different
government and state entities, including Petróleos de Venezuela (PDVSA), offering a wide range
of products: payroll services and payments to suppliers, domestic tax collection, investment
trust funds, managed funds, and pension funds.
47
Banco Universal
Corporate Products Unit
During 2014, Corporate Products continued with the strategy of quality of services and
customer attention in order to consolidate customers’ relationship. The Corporate Products
Unit met customers’ needs, through its Corporate Service model, offering an efficient and
customized service.
Corporate Products continued with its strategy to divert transactions towards electronic
channels with the sale of specialized products, increasing cross-selling products per corporate
client. In addition, a new functionality was implemented to allow customers to set up foreign
currency requests in an automated way in the Alternative Foreign Exchange System (SICAD II)
through Mercantil Business Online Banking. Additionally, a new platform was deployed with
utilities and bill payment capabilities offering to collecting companies to gather collections
online with a totally automated account reconcilement processes.
Likewise, the Corporate Products unit continued participating on promoting events and
sponsorship of companies within this segment, which has consolidated Mercantil’s image as a
partner in some essencial areas aimed at reinforcing corporate responsibility, and confirming
their commitment with the country’s enterpreneurial culture, by sustaining their backing in
new companies development initiative.
48
Report
Finance
Liquidity
The behavior of the economy in 2014 was characterized by a recomposition of the excess of
liquidity in the financial system. At the close of the year, it was distributed as follows: 61.0 %
for the privately owned banks and 37 % for the state-owned banks. The ratio of excess liquidity
over reserves in the financial system rose Bs 33,525 million in nominal terms, 32 % more than
at the close of December 2013 (Bs 105,534 million) to Bs 139,059 million. The trend showed a
rise in monthly average surplus of Bs 103,652 million, 36.52 % more than the average
registered for the same period in 2013 (Bs 75,924 million).
Mercantil Banco Universal registered similar levels of excess liquidity to reserve ratio,
compared to December 2013 (Bs 12,000 million). Three periods were distinguished during
2014, two of liquidity concentration and one of sustained reduction. As of November, liquidity
grew at 173 %.
180,000
35,000
160,000
30,000
140,000
25,000
120,000
+49%
20,000
100,000
-81%
15,000
80,000
60,000
10,000
40,.000
5,000
20,000
15-dec-14
0
29-dec-14
17-nov-14
20-oct-14
03-nov-14
06-oct-14
22-sep-14
08-sep-14
11-aug-14
25-aug-14
14-jul-14
28-jul-14
16-jun-14
30-jun-14
02-jun-14
19-may-14
21-apr-14
05-may-14
07-apr-14
10-mar-14
24-mar-14
10-feb-14
24-feb-14
13-jan-14
27-jan-14
30-dec-13
01-dec-14
+173
0
Financial System Excess Liquidity / MBU Reserve requirements
Financial System Excess Liquidity / Financial System Reserve requirements
Monetary Policy
The Venezuelan Central Bank's monetary policy in 2014 had a net contractionary effect on
money supply.
At the close of December, the net amount of open market operations was Bs 83,314 million,
57.36 % higher than at the close of 2013 (Bs 52,944 million). Mercantil considerably reduced
its participation in these operations, representing 1.4 % of the system.
49
Banco Universal
Interbank Market
The negociations in the overnight market were considerably higher than the ones registered
in previous years, due to the above mentioned excess liquidity reductions, as a result of the
SICAD and the issuance of Bolivarian Securities. Transactions in the overnight market averaged
Bs 2,794.8 million daily, versus Bs 228.4 million in 2013. This was 1,124 % increase in traded
volume. Mercantil participated in this market lending an average of Bs 15.2 million.
Overnight Market
20.00 %
18.00 %
16.00 %
14.00 %
12.00 %
10.00 %
12.00 %
10.00 %
8.00 %
6.00 %
4.00 %
2.00 %
0.00 %
Financial System Overnight Volume
Financial System Average Rate
dec-14
oct-14
nov-14
sep-14
jul-14
aug-14
jun-14
apr-14
may-14
mar-14
jan-14
feb-14
dec-13
oct-13
nov-13
sep-13
jul-13
aug-13
jun-13
apr-13
may-13
mar-13
jan-13
feb-13
12,000.00
11,000.00
10,000.00
9,000.00
8,000.00
7,000.00
6,000.00
5,000.00
4,000.00
3,000.00
2,000.00
1,000.00
0.00
The maximum overnight rates was observed in July which reached 16.60 % and higher daily
amounts than Bs 5,000 million. However, as of November 11 there was a sharp slowdown as
a result of the increase in excess of liquidity. Meanwhile, Mercantil Banco Universal kept the
level of rates consistent with the market's behavior.
50
Report
Domestic Borrowing
Venezuelan Public Debt and Compulsory Investments
The Government maintained its borrowing strategy by investing significant amounts of
domestic public debt to finance spending and generate additional income for the National
Treasury. In contrast with previous years, securities auctions were held until May 22. The
total amount of the Public Debt Bonds (DPN - for its abbreviation in Spanish) issued in 2014
was Bs 82,832 million, of which Bs 41,800 million were assigned through public auctions,
and Bs 41,031 million through direct allocation to state-owned banks and other public
agencies. Mercantil Banco Universal participated actively in the total amount auctioned in
the primary market with average yields of 15.31 % compared to 13.27 % for the financial
system as a whole, maintaining its strategy to optimize the net interest income. In the
secondary market, the Bank acquired DPN Bonds belonging to the mid-long yield curve.
Like the previous year, the absence of auctions in dollars prevailed.
Regarding compulsory investments, special financing operations were conducted as of May,
through the Simón Bolívar Reconstruction Fund, under Petroleos de Venezuela (PDVSA),
in the order of Bs 56,768 million, which was below Bs 15,665 million (21.82 %) to 2013 volume
(Bs 71,768 million). Mercantil Banco Universal was also allocated with a total of Bs 7,974
million, sustaining a 14 % of the total amount invested, very close to 2013 share.
Compulsory Investments in millions of bolivars
80,000
70,000
60,000
50,000
40,000
30,000
20,000
System
10,000
MBU
2012
2013
2014
51
Banco Universal
Customer orientation
The is always present in the commitment
of their clients ’well-being.
Ever since the 60s, the Mercantil brand
was committed to its role of training and
customers advice.
Our Culture
Mercantil Brand
is the focal point
“The brand image is the organization.
The public presence is of the
organization as a whole and not
of its individual members.
The corporate profile is
guided by the
strategy”
Throughout our history, the Mercantil brand has
exemplified the corporate and institutional image of the
organization.
New Corporate Identity
On November 6, 2007, Mercantil
launched a new graphic corporate
identity, highlighting the features of
being a sound, dynamic and visionary
corporation.
92 % of the Mercantil Banco Universal employees
agree that “At Mercantil, the organization is
above the individual role”.
Quality of Service
and Operating Efficiency
During 2014, Mercantil Banco Universal,
through the Operations and Technology unit, improved customer service quality by shoring
up the distribution channels used to sell products and services and enhanced security on the
prevention of fraud and efficiency processes levels by promoting the use of electronic
channels for banking transactions.
Network of Branches
At the close of 2014, Mercantil Banco has 265 offices nationwide. As a result of the initiative
to encourage the use of electronic channels, the volume of transactions carried out at
branches dropped from 6 % to 5 % of total transactions handled in the various channels in
2014. This initiative led to an improvement in the service provided to our customers, making
it easier to comply with the waiting times stipulated by the regulatory entity.
The Bank continued to expand its network of devices for the self-management of teller
transactions through the Vía Rápida fast-track facility. At December 2014, the Bank has 158
multifunctional self-service facilities in 36 locations (Principal Office, Tolón, El Rosal, Centro
Plaza, Bello Monte, Las Garzas, Barquisimeto, Av Lara, La Concordia, La Lagunita, Plaza
República, Puerto Ordaz, C.C. Orinokia, Cima Barinas, Sambil San Cristóbal, La Cascada,
Sambil Maracaibo, Sambil Barquisimeto, C.C.C.T. II, Guarenas, Valencia Norte, Maturín,
Mérida, Girardot, Valera, Galerías el Recreo, Cabimas, Paseo Orinoco, Cumaná, Sambil
Valencia, C.C. Buenaventura Acarigua, and Sambil Paraguaná, C.C. Santa Fe, Cagua, San
Fernando de Apure and 4 de Mayo). They can be used to deposit cash and checks as well as
to pay credit cards and cash withdrawal. At the close of the year, these facilities handled an
accumulated level of 9,378,142 transactions at year end. 54 % of transactions carried out at
branches with these self-service areas were orientated to these fast-track areas.
ATM Network
At the end of 2014, the ATM network has 1,192 ATMs in 589 locations, of which 265 are located
in branches offices. During the year, more than 128 million transactions were carried out
through this network. One of the initiatives intended to improve the network's quality of
service was the implementation of the monitoring and management tool to increase this
service's levels of availability. New cash withdrawal limits were established for customers,
which enables the execution of transactions. In addition, the functionality of sending the
receipt of transactions via e-mail was incorporated, to facilitate customer transaction
reconciliation processes.
53
Banco Universal
Points of Sale Network
At the end of 2014, Mercantil Banco has a network of 61,004 points of sale made up of
physical, merchant and e-commerce points of sale, with average monthly availability levels
of 99.67 %. Historically, the points of sale channel is one of the fastest growing channels whose
operations grew 21.14 % in 2014, moving from 175 to 212 milllion transactions compared to
2013.
Mercantil Aliado Channel
At the close of 2014, Mercantil Banco has 247 customer service banking points for the
majorities banking segment, through 125 correspondent trading desks and 122 trading points,
which processed more than 1.8 million transactions from the Majority Banking segment
customers. New services were incorporated to this channel during this period as prepaid and
postpaid TV service (Direct TV), credit card payment and Tarjeta Efectivo (Cash Card)
recharge through Mercantil Personal Online Banking In order to broaden its service offer.
Mercantil Móvil Channel
In 2014, the Mercantil Móvil channel carried out 87,750,424 transactions, reflecting 62.08 %
growth compared to 2013. 90 % of the total operations were made through the available App
for Ipads and Android tablets an Android, IOS and Blackberry Smartphones. The remaining
devices were served through Mercantil Móvil Internet.
Additionally, Mercantil Banco Universal initiated the development of new functionalities to
be available in 2015, for instance: Móvil Payment, inquiere status of requests and
appointments of Foreign Exchange Control operations (CENCOEX), affiliation to Mercantil
Móvil SMS service, among others.
At the end of 2014, the volume of alerts and notifications through Mercantil Móvil Channel
totaled 42,614,795 messages and 83.27 % of them corresponded to fraud alerts for the purpose
of prevention.
ISO 9001:2008 Quality Management System
The Venezuelan Standardization and Quality Certification Institute (Fondonorma) maintains
the ISO 9001:2008 certification of nine Mercantil Banco Universal lines of service and
expanded the scope of Vía Rápida fast-track self-service. The maintenance and renewal audit
was carried out by the quality certification organization in September 2014 and confirmed
the strength of Mercantil's Management System.
54
Report
The nine lines of service certified under ISO 9001:2008 that comply with the standard's
requisites are:
• Attention to customer requests for services and transactions via Mercantil's Call Center (CAM).
• Processing of transactions through the ATM network.
• Attention to requests for services and transactions via online banking.
• Instant cash loans for Mercantil cardholders (Préstame).
• Employee Trust Fund Service.
• Ordering and nationwide home delivery of checkbooks .
• Corporate client service for fixed-income securities.
• Credit Cards in the nationwide branch network.
• Attention to and processing of banking transactions at commercial office teller desks
nationwide (regional head offices and "A" category offices). The scope of the latter was
extended to include the Vía Rápida fast-track self-service facility (Deposits, Credit Cards and
Cash Withdrawal).
The ratification of Fondonorma's certifications of Mercantil Banco Universal in accordance
with ISO 9001:2008 for nine lines of service and the inclusion of the certification of the
Mercantil Vía Rápida self-service areas, acknowledge the quality of service which the
institution satisfies the financial needs of its clients in an environment of constantly
improving processes.
Customer Complaints
The total average monthly volume of complaints in 2014 amounted to 10,099 cases, of which
98 % are financial. 57 % of financial and non-financial complaints were declared as having
merit.
The average time taken to resolve customer complaints regarding debit and credit cards and
deposit accounts is five days.
The volume of requests received from government agencies regarding complaints, was 0.5 %
of monthly average admitted complaints, during 2014.
During the second half of 2014, Mercantil Banco Universal implemented notifications in ATMs
and the website of the Bank, aimed at keeping customers informed and prevented.
In order to reinforce the most important security aspects related to the protection of
customers’ information, the Bank has continued to execute informative campaigns in
Mercantil Online Banking website updated to address and attack the changing methods of
fraud that predominate nowadays.
55
Banco Universal
Relevant Projects
During 2014, Mercantil Banco Universal continue with the implementation of the new phases
of the multichannel integral monitoring tool in the area of electronic fraud prevention. These
allows to detect in a timely manner fraud patters, allowing to take actions in order to mitigate
its occurrence in credit cards, debit cards and deposit account transactions. For Mercantil
Online Banking, the antifraud monitoring was also maintained, through the Transaction Guard
tool, which guarantees a safe transaction with a montly average of 10,943 alerts for the
Personal Online Banking and 1,605 for the Business Online Banking.
As a measure to reinforce security of Business Online Banking, the distribution and activation
process of Token device was concluded, which replaces the Digital Certificate. This piece of
hardware that generates a one-time password (OTP), enables new passwords to be generated
every time a customer logs on to Business Online Banking. This method mitigates the risk of
users compromising their passwords through the use of mathematical algorithms that
strengthen the authentication process.
In addition, and complying with the precepts of the regulatory body, during 2014 Mercantil
Banco applied the dollar account opening program and foreign currency purchase orders to
provide customer with alternate options to purchase foreign currencies. Similarly, in order to
comply with Circular Letter No. 104 of the BCV, the adequacy and production models of check
was made with security standard and unique features for the Venezuelan Banking system,
which will allow reducing counterfeit fraud.
Mercantil has created a Level 3 alternate contingency center, as a precautionary measure, in
order to guarantee the operational continuity in the event of failures or physical damages.
This facility enables to operate distributed platforms of critical services, in order to guarantee
their availability in case of a contingency. In addition, a recovery center of critical services
was incorporated in the event of a disaster for the total loss of the central processing. This
center will be fully operative in 2015.
56
Report
Anual
Human Resources
Mercantil Banco’s human capital activities
were mainly orientated to strengthen staff retention, maintain and improve commitment to
and from employees and organizational climate, foster opportunities for the individual
development of employees, as well as their levels of personal and family well-being. All the
above in strict fulfillment of the statutory and contractual obligations, enhancing efficiency
levels and developing new opportunities for rapprochement with the staff.
At December 31, 2014, the Bank has 7,247 employees who represent 0.4 % year-on-year
decrease. The Assets/Employee ratio is now Bs 39,7 million (Bs 25.2 million in 2013). It is
important to point out that the self-management tool of Human Resources processes,
developed in the Somos Mercantil portal, were reinforced, enabling more than 234,000
transactions to be carried out during the year (37.7 % more than the previous year).
During the year, the Bank implemented a series of initiatives to help its employees strengthen
both their income and their social benefits. New compensation mechanisms were introduced
that allowed optimizing the monthly income of workers and strengthened and expanded
financing plans for reasonable expenses, most notably those for home purchase and
refurbishment.
To develop talent, during 2014 a wide range of activities and training events were held,
through which 163,500 hours of training was given to over 77,800 participants at a total
investment of Bs 25,1 million, focused on technical and generic competencies, and regulatory
and compliance techniques. This was implemented nationwide and included both e-learning
and on-site training in 43 cities across the country (30 % more than in 2013). Employees were
encouraged to develop their potential by applying for any of the 500 job vacancies which are
now more widely visible through the new internal job application system.
In order to strengthen the relationship with workers and their families, over 50 special
integration and rapprochement events were held nationwide, achieving the participation of
more than 40,600 people, all of them linked with the Bank’s employees
In the area of compliance, the Bank maintained its Labor Solvencies, and the external and
internal audits conducted reflect its compliance with the pertinent legal and accounting
regulations. Also in 2014 more than 95 % of the staff underwent the medical and occupational
assessments carried out periodically by the company.
57
Banco Universal
With no labor conflictivity issues in 2014 Mercantil Banco was able to sustain the traditionally
respectful and harmonious relationship between the company, its unions and the employees.
All management's actions and activities were fundamental in the improvement of every
dimension of the Organizational Climate and employees’ engagement survey. In 2014, the
study was applied, with the support of the well-known international consulting firm Aon
Hewitt. This survey extend the scope of the last study by including the employees’
engagement levels. The results showed that 90 % of the Bank’s employees (9 of each 10) are
engaged with Mercantil, a level that widely exceeds the average of the best companies in
Latin America (81 %) listed by Aon Hewitt. From the perspective of the indicator used in
previous surveys, 92 % of Mercantil Banco’s employees consider that Mercantil Banco
Universal is a great place to work.
Finally, in terms of quality of life of employees and their families, the following actions were
executed in 2014: Recreativo Plan with the participation of 1,187 children of employees with
an investment of Bs 12.6 million, the Sports School for employees’ children, Sports
Tournaments, Special Days (tax declaration, I.D. card issuances, driver’s license renewals,
health days, training courses, videos and conferences to promote the development of values),
People at Mercantil on the Move event for the promotion of a healthy lifestyle (project
submitted to the National Anti-Drug Office) and guided visits to the Espacio Mercantil.
58
Report
Risk Management
At
Mercantil
Banco
Universal,
risk
management is one of the main strengths of its competitive strategy. During 2014, the Risk
Management unit continued to strive to implement best practices within the tolerance limits
set by the Board of Directors at the upper management of the Bank. This effort is designed to
strengthen a risk culture throughout the organization by consolidating corporate values and
the search for excellence.
Credit Risk
The breakdown of global credit risk exposure at December 2014 is given below and includes
direct, contingent and issuer risk by country and type of customer:
Breakdown of Credit Risk by Country
35 %
30 %
25 %
20 %
15 %
10 %
5%
Other Countries
REAL ESTATE
LOANS
GOVERMENT
SPONSORED AGENCIES
FINANCIAL
OTHER
ASSETS
CORPORATE
INDIVIDUAL
GOVERMENT
U.S.
VENEZUELAN
CENTRAL BANK
Venezuela
OTHER
COMPANIES
0%
In 2014, Mercantil Banco Universal’s consolidated risk exposure was Bs 177.18 billion, a yearon-year increase of 75.5 %. Venezuela is still the region with the highest total risk exposure,
accounting for 99.5 % of the total.
During 2014, the Other Businesses segment increased its participation by 3 basic points of the
total credit risk distribution, accounting for 27.6 %; the Individual segment which increased by
4.8 basic points, totaling 24 %; while the Government segment decreased their participation
by 5.3 basic points, accounting for 7.8 %; and the BCV segment decreased its participation by
2.4 basic points reaching 23.2 %. The rest of the portfolio did not show significant changes.
59
Banco Universal
The distribution of Mercantil’s loan portfolio consolidated by clients’ economic activity is
shown below:
Breakdown of Mercantil's Loan Portfolio consolidated by economic activity
ELECTRICY, GAS AND WATER
0.3 %
NO SPECIFIED ACTIVITIES
1.0 %
MINING EXPLOTATION AND HYDROCARBONS
TRANSPORTATION, WAREHOUSING, AN TELECOMUNICATION
CONSTRUCTION
2.1 %
5.1 %
5.5 %
SOCIAL AND PERSONAL COMMUNITY SERVICES
7.1 %
AGRICULTURE HUNTING, FORESTRY AND FISHERY
12.5 %
MANUFACTURING INDUSTRIES
17.0 %
FINANCIAL INSTITUTIONS, INSURANCE AND OTHERS
22.6 %
WHOLESALE AND RETAIL STORES, RESTAURANTS AND HOTELS
0.0 %
26.8 %
5.0 %
10.0 %
15.0 %
20.0 %
25.0 %
30.0 %
The following four economic activities make up 78.9 % of the loan portfolio: Wholesale and
Retail, Restaurants and Hotels 26.8 %; Financial Establishments, Insurance, Real Estate and
Business Services 22.6 % (includes consumer loans); Manufacturing Industry 17 %, and
Agriculture, Hunting, Forestry and Fishery 12.5 %.
The fastest-growing economic activity in relative terms in 2014 was the Manufacturing
Industry, which grew 58 basic points.
At the close of 2014, the 20 largest debtors represented 4.9 % of total loan portfolio for this
period.
Risk concentration is constantly monitored according to credit risk management practice,
through portfolio analysis, revisions of exposure limits and policy making.
60
Report
Operational Risk
Mercantil sees operational risk management as fundamental to attain its objectives, with the
view of the financial activity dynamism and considering the various sources of this type of
risk, both internal and external. This is undertaken by keeping an integrated focus to meet
the expectations of stakeholders and within the framework of the rules of the regulatory
entities.
Operational risk management follows the comprehensive approach that characterizes it,
always aiming to combine qualitative and quantitative aspects obtained from preventive risk
analysis, and in due time attention to them through the establishment of corrective actions
to mitigate any weaknesses detected.
During 2014, the organization identified and assessed operational risks detected in its critical
processes, and provided the information necessary for decision-making.
In response to the risks identified, a fundamental part of operational risk management
involves following up with action plans, particularly plans designed to prevent high-frequency
risks involving electronic fraud and to mitigate risks derived from data security violations.
Robust policy programs are available to cover high severity or catastrophic risks and business
continuity plans have been strengthened, preparing the Organization to respond effectively
in the event of such threats.
The comparative study of the behavior of operational risk events over time is a daily
management task. Using information gathered on events around the world, risks are
quantified and scenarios analyzed to help calculate economic capital, set objectives, and
control expected losses.
Making employees aware of operational risk is key to good prevention and mitigation, which
is why the Bank constantly maintains available the “Operational Risk” online training course,
in order to strengthen even more risk culture within the organization.
Market Risk
An institution is subject to market risk when the market conditions deteriorate and affect the
liquidity and value of the financial instruments in its investment portfolios or contingent
positions, resulting in a loss for that institution. For Mercantil Banco, there are two basic
fundamental types of market risk: Price Risk and Liquidity Risk.
Each market factor and its effect on the organization’s risk profile is measured daily. To
accomplish this, Mercantil has a technological infrastructure and early warning systems in
place. Treasury unit employs this technology to monitor and track market risk. It then
produces a series of reports for Treasury risk-taking units and the corresponding management
levels.
61
Banco Universal
Mercantil’s analyses use different methodologies to gauge market risk: Value at Risk (VaR),
Financial Margin Sensitivity due to interest rate changes (Repricing Gap, Risk Gains), Liquidity
Gap and a series of other effective risk management measures and ratios, under normal
market conditions as well as under stress conditions.
The Market Risk unit is responsible for establishing and certifying the models for measuring
market risk. Each of the parameters that support these models is periodically reviewed and
compared using backtesting studies.
The Market Risk Unit is permanently monitoring the following activities: Market Risk in
Trading activities in the Fixed-Income in bolivars Securities Market, Trading in the Securities
Market in bolivars, Market Risks in Positioning Activities, Price Risk in Interest-Rate Mismatch
and Liquidity Risk Positions.
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Report
Our Culture
Compliance
“Strict and timely adherence to all
applicable laws, regulations, rules
and policies”
At Mercantil Banco, the respect for and
permanent compliance with legal and
regulatory requirements, as well as the
adherence to international best
practices, is a fundamental premise for
the company’s actions as a business
organization. In addition, Mercantil
maintains internal units devoted to the
compliance function responsible for
monitoring and managing the Bank’s
compliance with applicable laws and
regulations, including the prevention of
money laundering and terrorist
financing.
employess agree that “At Mercantil, we fully
comply with the regulations and laws”.
Our Culture
Ethical Behavior
“Zero tolerance for unethical behavior and transparency
in all communications and information”
Mercantil Banco maintain a Code of Ethics that upholds a set
of principles and values that serve as a guide for
decision-making and to conduct the company’s business
activities. The Code of Ethics also sets forth fundamental
obligations for employees, such as integrity, loyalty, efficiency,
camaraderie, honesty and respect for the law, that guide daily
activities.
Similarly, the Board is empowered, from an ethical standpoint,
to resolve conflicts of interest.
95 %
of the Mercantil Banco Universal
employess agree that “The Code of Ethics of
Mercantil determines our way of life here”.
Credit Ratings
During
2014,
Mercantil,
C.A.,
Banco
Universal’s credit rating review was held.
The following table shows a summary of the current credit ratings of Mercantil, C.A., Banco
Universal’s credit rating assigned by Fitch Ratings
The risk ratings for Mercantil Banco Universal are sustained by its sound balance sheet, strong
franchise, stable deposit base and adequate risk management. It also highlights the
experience of its management in a challenging operating environment. According to Fitch
Ratings’ scale Mercantil Banco national ratings reflects “Very High Credit Quality”, being the
best ratings given to a private financial institution in Venezuela. The international ratings are
limited by the operating environment therefore are largely dependent on the country risk for
Venezuela.
National Rating
Long Term
Short Term
International Ratings
Long Term (Foreign and local currency)
Short Term (Foreign and local currency)
Viability
Fitch Ratings
AA- (Ven)
F1+ (Ven)
CCC
C
ccc
65
Banco Universal
Our Culture
Multinational
“We are an international organization
with Venezuelan roots”
The Founders’ Vision
March 23, 1925
In the articles of association of Banco Neerlando-Venezolano
(today, Mercantil Banco), its shareholders set the direction of
the institutition of “develop overseas banking and commercial
activities”. (An excerpt of the March 23, 1925 articles of
association). This international outlook was present since its
inception through the Dutch Caribbean islands Curacao, Aruba
and Bonaire, with which there was a fluid trade. Later and over
time, it evolved and today Mercantil Banco has representative
offices in Bogota, Lima, Mexico, Sao Paulo and New York. In the
late 70's, the Bank opened a branch in Curacao and from the 80s
began operations with an office in Miami, United States.
97 %
of Mercantil Banco Universal employees
agree that “I understand that meeting the
customers’ expectations is a top priority for our
organization”.
Prevention and Control
of Money Laundering
and Terrorism Financing
(ML/TF)
The mission of Mercantil’s Prevention and
Control of Money Laundering and Terrorism Financing (ML/TF) Unit is to promote, at all levels
of the Organization and as part of its good Corporate Governance, a culture of compliance with
the statutory and regulatory requirements on the prevention and control of money laundering
and terrorism financing (ML/TF) of the Superintendency of Banking Sector Institutions
(Resolutions 119.10 and 136.3) and the Law Against Organized Crime and Terrorism Financing.
This involves supporting the organization through a systematic, professional approach in order
to detect, monitor and manage reputational risk due to ML/TF by providing data, analysis and
recommendations to guarantee its adherence to the regulations and the best international
practices on the matter. These include the recommendations of the Financial Action Task Force
(GAFI), the Caribbean Financial Action Task Force (GAFIC), the Wolfsberg Principles, to which
the Bank joined in the year 2003, and the Customer Due Diligence for Banks document of the
Basel Committee on Banking Supervision of the Bank for International Settlements.
Pursuant to the provisions of current legislation, Mercantil Banco Universal has created and
developed a “Comprehensive AML/FT System” comprised by an AML/FT Compliance Officer
who reports directly to the Board of Directors, a multidisciplinary committee, an AML/FT Unit
and Compliance staff responsible for areas susceptible to ML/TF risks. There is also an Annual
Operational Plan, an Evaluation and Control Program, a Code of Ethics, a Manual of ML/FT Risk
Management Policies, a Training Program, and a risk-based approach to prevention, monitoring,
detection and control of unusual or suspicious activities liable to involve ML/TF which should, in
its opinion, be reported to the authorities.
During 2014, Its action continued to focus on strengthening ML/TF risk management processes
in line with Resolution 119.10 of the Superintendency of Banking Sector Institutions and the Law
Against Organized Crime and Terrorism Financing; strengthening coverage and minimizing
ML/TF risks by approving and setting policies, constantly updating the Manual of ML/FT Risk
Management Policies and Procedures; appointing 28 compliance staff in the areas susceptible
to risk; implementing new administrative and operational monitoring and control processes;
training staff with special emphasis on the people responsible for handling risk sensitive
information and acquiring state-of-the-art technology, all of which has enabled it to have an
efficient and effective structure, with a highly professional risk management level, interacting
with the rest of the units within a climate of ongoing improvements.
The “Know your Customer” policy is crucial to the timely detection of operations presumed to
involve ML/TF, whose AML/FT processes are reviewed on a regular basis by the Superintendency
of Banking Sector Institutions and by the External and Internal Auditors.
Staff training on ML/TF Prevention and Control was undertaken through an extensive program
of training courses and workshops for 6,992 employees.
The unit maintains fluid and effective communication with the regulatory body.
67
Banco Universal
Our Culture
Resilience
Pioneers in electronic
customer service channels
Over the years, Mercantil has
adapted to the evolution of the
banking business and adopt new
technologies that have provided
greater efficiency and comfort to
our customers. Examples of which
are the development of ATMs,
automated call center, Internet
banking and mobile banking.
“We continuously adapt to
changing environments and
circumstances with dignity
and integrity”
Over 90 years, Mercantil Banco has responded to
and anticipated changes. This ability, also known
as resilience, has enabled the organization to find
solutions to adverse and dynamic business
environments, or to adapt business processes
effectively to achieve efficient and productive
solutions that benefit customers, employees and
other stakeholders.
One example of this has been the accelerated
evolution of new technologies. Mercantil has
mostly pioneered the introduction of
state-of-the-art technologies in the banking sector.
Increase utilization of much
faster channels
In order to make easier and more
automated transactions, in 2012
the Mercantil Vía Rápida fast-track
service areas were launched.
76 % of Mercantil Banco Universal employees
agree that “This organization provides me with
the support I need to create ideas that will help
the organization to be more sucessful”.
Internal Auditing
Mercantil Banco Universal’s Internal Audit
Unit carries out an independent and objective assurance and consultation activity designed
to add value to the Bank's operations and contribute to the efficacy and efficiency of the risk
management, internal control and Corporate Governance processes. The Bank’s audit process
consist of three fundamental stages related to the annual planning, conducting the audits and
communicating their results on an or going basis and in accordance with the provisions of the
Law on the National Financial System; Law on Banking Sector Institutions, prudential standards
issued by Sudeban and other regulatory agencies; with special attention to Resolution 119.10
of Sudeban included in the Standards for Adequate Integral Risk Management and ML/TF Risk
Management; Resolution 136.03 of the Integral Risk Management System; Internal Policy and
Procedure Manuals; Corporate Mandate (ISO 9001:2008 and Guidelines for Auditors ISO
9001:2002); Declarations on Internal Audit Standards and Procedures N° 1 and 2 (DNAI-1 “The
Internal Audit Report ” and DNAI-2 “Internal Audit Work Documentation”) issued by the
Federation of Associations of Certified Public Accountant (CPA) of Venezuela; International
Standards for the professional practice of Internal Auditing of the Institute of Internal Auditors
(IIA), among others.
Its main function is to support the Board of Directors through the Board of Directors' Audit
Committee to safeguard Mercantil's assets, providing in a timely manner information, analysis
and recommendations on internal control in various areas: financial, operational, accounting,
branch network, ATMs, information technology, assets under management, taxation,
regulatory and quality, in order to ensure that it operates lawfully and in accordance with the
policies, standards and procedures established by the Organization.
The Internal Audit unit reports directly to the Board of Directors' Audit Committee, and
administratively to the Chairman and is made up of six Audit Departments that oversee: central
processes, systems, taxation, branch network, assets under management and quality
management.
In order to strengthen its role and comply with the SUDEBAN Resolution 064.14, Mercantil
Banco Universal’s Internal Audit unit executed a series of actions related to change the design
and shape of the reports to be issued, such as: strengthening teamwork through integration
activities, adecuacy of auditable universe, communication plan of the internal audit role to the
institution, review of management indicators, configuration of AutoAudit system and
definition of the consultant role in the Tributary Audit unit, in order to create value and boost
risk approach in fulfillment of the business objective.
BRANCHES (General + AML/CFT)
Internal
266
GENERAL
Audit
Unit
assessed
the
operational
effectiveness and efficiency of risk management
73
processes and contributed to reinforce Mercantil’s
QUALITY
64
AML/CFT
internal controls.
15
FOLLOW-UP
During 2014, all efforts were addressed to review units,
10
SPECIALS
branch offices, processes and technological components,
giving priority to more relevant and risky aspects. The
7
0
50
100
150
200
250
300
abovementioned coverage is summarized below.
69
Banco Universal
Our Culture
Good Citizenship
“Our behavior reflects the solidarity and
commitment to the community”
Mercantil’s commitment is present both in a direct manner, as well as
through Fundación Mercantil, along with its own initiatives and support
to the work of various communities’ organizations serving education,
social development, health and culture.
People at Mercantil: Helping
hands to the community
Throughout Mercantil‘s history, its
workers and family have played an
active role in a set of social,
educational and environmental
preservation actions.
33 years generating culture on
school maintenance
The “Give Your School a Helping Hand
program” was created by Mercantil in
1982. Since then, it contributes with the
quality of elementary and higher
education through the rehab and
maintenance of school facilities, with
the active participation of students,
teachers and communities. In 1995 the
program obtained a Unesco recognition,
considering it a unique program of its
kind in Venezuela.
95 %
of Mercantil Banco Universal
employees agree that “This is a socially and
environmentally responsible organization”.
Social Commitment
Mercantil Banco Universal's social investment
in 2014 carried out both directly and through Fundación Mercantil which it sponsors, totaled
Bs 52.5 million (61 % up that allowed to serve 550,000 people, representing a 32 % more than
in 2013) and was addressed mainly at different programs, projects and initiatives undertaken
by well-known social development and educational organizations in Venezuela.
Contribution were broken down as follows: 62 % for elementary and higher educational
institutions, especially entrepreneurship, inclusion and culture maintenance programs, giving
the youngsters the opportunity to continue their college and high school studies; and 38 %
to social development organizations that foster in the communities improvements in their
quality of life, through health prevention, care for children, young and elderly, as well as those
organizations that disseminate art and culture.
Mercantil’s Contributions
Year 2014
Fostering Education
Elementary Education and Job Training
During the year, it is highlighted the consolidation of the Fundación Mercantil and Asociación
Fe y Alegría alliance, which is part of the development and strengthening of the Give Your
School a Helping Hand program, with more than 30 years of existence. Among the objectives
of this alliance are rehab and maintain school facilities, raising school maintenance awareness
and sense of compromise and create participatory forums with the educative communities
“contributing to social structure integration that is present in the Fe y Alegria schools”. During
2014, more than 22 educational centers throughout the nation were served, with more than
12,000 students being directly benefited.
Working together with the Catholic Schools Association of Venezuela (AVEC - for its
Education
62 %
Social Development
19 %
abbreviation in Spanish), different contributions were also given to consolidate the school
Healthcare
8%
infrastructure in Caracas, San Carlos, Cojedes State, and Barquisimeto, Lara State, benefiting
Religious Institutions
6%
1,165 students. Ongoing support for different scholarship programs, aimed at children from
Culture
5%
low-income sectors and underprivileged young people who have been excluded from the
formal education system, especially those aimed at training them in technical areas that enable
them to enter to the job market. These are some of the beneficiary institutions: A.C. Alianza
para el Conocimiento Instituto Venezolano Suizo; Fundación para el Desarrollo de la Educación
(FUEDUCA); Asociación Superación por medio de la Tecnología (SUPERATEC); Fundación Santo
Domingo (training of geriatric nursing auxiliaries); Fundación Alzheimer (caretakers’ training
for domicilliary attention) and Asociación Civil Damas Salesianas (La Milagrosa - Baruta).
71
Banco Universal
Higher Education
During 2014, the Bank made important contribution to programs and initiatives of different
education institutes involved in the academic and professional development of
undergraduate (Bachelor and Advanced Vocational University degrees), and postgraduate
(4th level) students. These are some of the universities and foundations that received this
support: Universities Católica Andres Bello; Zulia; Simon Bolivar; Central de Venezuela;
Metropolitana; Nacional Experimental del Táchira; Fundación IESA; Católica del Tachira;
Católica Santa Rosa and Fundación Pygmalion (UCV). These contributions went to fund
scholarships awarded to needy students for school fees and for academic-student
development activities; equipping laboratories, libraries and multiple use rooms, as well as
to improve physical infrastructure.
Social Development and Healthcare
During 2014, Mercantil continued to support the work of social and health organizations
involved in programs aimed at the child, youth and senior citizen population; social
entrepreneurship promotion, fight drug abuse, early pregnancy prevention, help people with
disabilities, as well as nutritional support for children and people living in extreme poverty.
These are some of the institutions covered: VenAmCham's Social Alliance; Fundación Ideas;
United Nations Children's Fund (Unicef); Centro de Servicio de Acción Popular (Cesap); AC
Red de Casas Don Bosco; Asociación Civil Buena Voluntad; Asilo La Providencia; Salud y
Familia, Alianza para una Venezuela sin Drogas, Autismo en Voz Alta ; Por La Caracas Posible;
Centro Comunal Catia; Comedores Madre Teresa de Calcuta; Fondo de Protección del Niño
y el Adolescente; Sociedad Venezolana para Niños y Adultos Autistas (Sovenia); Fundación
de Instituciones Privadas de Asistencia al Niño (Fipan); Fundación Amigos del Adolescente
(Fundamad); Asociación Nacional Contra la Parálisis Cerebral (Anapace); Asociación Benéfica
Cristiana Promotora de Desarrollo Integral (ABC-Prodein); Asociación Provida Venezuela
(Provive); Un Techo para mi país; among others.
Mercantil contributes towards the health sector by supporting institutions that run
specialized research programs, comprehensive medical care as well as preventive and hospital
programs for children, young people and adults in Venezuela. These include: the Friends of
Children with Cancer Foundation; Cardioamigos Foundation; Laparokids Foundation; Jacinto
Convit Foundation; Hospital JM de Los Rios; Stop VIH, /AIDS Porlamar; Centro de Salud Santa
Inés; Sociedad Anticancerosa de Venezuela; Maracaibo Pediatric Hospital; Operación
Sonrisa; Hospital San Juan de Dios de Mérida and Centro Médico Docente La Trinidad
(Community Medicine).
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Report
Culture, Quality of Life and Environment
In 2014, Mercantil continued to promote activities aimed at conserving and protecting the
environment, as well as those activities that foster national artistic talent in music, literature
and plastic arts.
In the environmental area, the support given to La Salle Society of Natural Sciences is
highlighted
Cultural institutions were also supported by Mercantil. These include Fundación Camerata
de Caracas; Organización Venezuela Viva; Museo de Arte Contemporáneo del Zulia (Maczul);
Fundación Pro Música de Cámara; Museo Sefardí; Fundación Museo de Arte Colonial;
Fundación Francisco Herrera Luque; Fundación Vinicio Adames; Fundación John Boulton;
Camerata de Caracas; Lagunillas Autonomous Municipality Major’s Office (Mural Work:
“Lagunillas Waters saved from Fire”) and Fundación Festival Caribe.
Espacio Mercantil has been active disseminating the Collection of Works of Art orientated
to preserve, research and exhibit the Venezuelan art to the community.
Support for the Social Work of Religious Institutions
In 2014, Mercantil continued to support religious institutions which are involved in social
work and which also develop and strengthen training programs for the priesthood.
Particularly, the Venezuelan Episcopal Conference outstands among these institutions
through the Family Apostolate and the strengthening of the Mercantil Solidarity Fund- Caritas
alliance, aimed at attending those affected families by natural disasters; in addition to
contributions to the Venezuelan Archidiocese and Diocese; John Paul II Foundation for
Ecclesiastical Education; Fundación Amigos del Seminario (Fundasem); Asociación Civil Bien
Mutuo and Asociación de Formadores Integrales (Afin).
Online Donations Program: “Un Aporte por Venezuela”
The corporation continued to strengthen the Online Donation Program in Venezuela “Un
Aporte por Venezuela”, through which the Mercantil Banco Universal subsidiary along with
the Fundación Mercantil makes its internet platform available to social institutions allowing
them to disseminate information on their work to clients who can make donations to them
via electronic transfers.
Special mention and recognition are due to Mercantil Volunteers’ active and growing
participation, along with their families in a variety of activities. Among this activities are the
Tree Planting Day carried out with the Universidad Simón Bolívar, which is a contribution to
minimize the global warming problem, as well as housing construction, in alliance with Techo
Venezuela Organization.
One of Mercantil's corporate values is “to be an integral institution and an important factor
in the development of the communities and places in which it is involved.”
73
Banco Universal
Our Culture
Corporate
Governance
“Respect for the
organization’s corporate
governance structure.”
Mercantil’s corporate governance structure is derived
from its articles of incorporation. The governance
structure is composed of the Shareholder’s Meeting;
followed by the Board of Directors, Audit, Risk and
Compensation Board Committees; Executive
Committee; Chairman; Executive President; Internal
Auditor and Compliance Officer.
Mercantil’s Shareholders meetings have been over time
an event where fundamental decisions of the
organizations corporate and financial life are analyzed
and approved.
98 % of Mercantil Banco Universal employees
agree that “Mercantil is a serious and honest
institution”.
Corporate Governance
Mercantil Banco Universal was incorporated as
a bank in Venezuela in 1925. Its main shareholder is Mercantil Servicios Financieros whose shares
are listed on the Caracas Stock Exchange and also are traded over-the-counter market in the
United States through a Level 1 ADR program. The Bank’s Corporate Governance structure is
based on the company bylaws, the Law on Banking Sector Institutions, the Code of Commerce
and the standards issued by the Superintendency of Banking Sector Institutions (Sudeban). The
Board of Directors and the Bank's management keep up with the changing regulations through
analysis and study of this area so the Corporation is able to adapt its Corporate Governance
structure to current best practices in order to guarantee its appropriate transparency and
efficiency, based on the highest professional and ethical principles that characterize its
permanent and close relationship with its shareholders, customers, creditors and employees.
Since 2009, the innovative initiative of the creation and development of the unit in charge of
Compliance was undertaken, which is responsible for independently detecting and managing
the risk of compliance with regulatory obligations through adequate policies, methodologies
and procedures, to strengthen the business model, eliminating or reducing exposure to
associated risks.
As planned, during 2014, implementation of this unit’s Strategic Agenda progressed with the
development of the phases planned for this period.
All the Bank’s activities are undertaken in accordance with the strictest ethical and professional
principles. The Bank has a Code of Ethics which encompasses a series of ethical principles and
values that guide its decision-making process and activities. The Code of Ethics includes our
fundamental duties such as probity, loyalty, efficiency, co-fraternity, honesty, sincerity, dignity
and law abidance. It also establishes standards whose purpose is to regulate the treatment of
any conflicts of interest that may arise, complementing the provisions of the company bylaws in
this area. The bylaws stipulate how such situations should be handled and ban Board Members
from taking part in discussions on any matters in which they, or their partners in civil or mercantile
companies have a personal interest. Directors are required to remain outside the meeting room
until a final decision is reached.
The Bank’s governance structure is composed of the Shareholders’ Meeting, followed by the
Board of Directors, with its Audit, Risk and Compensation Committees, the Executive Committee,
the Chairman and the Executive President, the Internal Auditor and the Compliance Officer.
75
Banco Universal
Board of Directors
It is essential for the Board of Directors to be efficient so that it can act in the interests of the
company, which are ultimately those of the community at large and its shareholders, creditors,
client and employees in particular. The Board has responsibility for defining corporate
strategies, determining business policies and establishing and controlling the strategic
direction of the institution. It also supervises the management of the organization’s different
business and support areas. It also evaluates results by comparing them against previously
approved plans and strategies, performance in previous years, and the performance of the
banking system in general.
The majority of the Directors on the Board are independent from the Administration, in
keeping with best corporate governance practices. This further demonstrates the Bank’s
commitment to comply with international management standards. The Directors are highly
qualified and well-versed in business and finance, ensuring optimum performance of their
functions.
The Board of Directors is made up of seven directors and their corresponding alternates. The
Board appoints the Chairman and Executive President, who must be Directors, from among
its members, and these positions may be held by the same person. The Board meets once a
month and whenever else its Chairman deems necessary.
To ensure better transparency and control over management procedures, the company bylaws
have provided, since 1981, the creation of the Compensation and Audit Committees whose
functions are governed thereby. At an Ordinary Shareholders’ Meeting held in January 2006,
the shareholders approved a proposal submitted by the Board of Directors to amend the
company bylaws giving the Risk Committee legal status, which had already been agreed by
the Board at its May 31, 2001 meeting. These Committees are comprised mainly of Directors
who are independent from the Administration.
Additionally, in accordance with its traditional interest in adhering to best corporate
governance practices, the Audit Committee approved the bylaws governing its performance.
This document details the purpose of the Committee, as well as its functions and its
responsibilities. There members should undertake an annual compliance evaluation with them
It also states that its members must be independent from Management, adding that at least
of them must have considerable accountancy or financial management experience.
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Report
Board of Directors Audit Committee
The Committee is made
up as follows:
(Coordinator)
Roberto Vainrub
Alfredo Travieso P.
Gustavo Machado C.
Luis A. Marturet M.
Gustavo J. Vollmer A. (Ex officio)
Nelson Pinto (Ex officio)
The Committee has responsibility for reviewing and discussing accounting and management policies, the
opinions and reports of the Bank’s internal and external auditors, establishing reserves, reviewing the
Financial Statements and their Notes and formulating recommendations on matters incumbent upon it
to the Board. It also approves the engagement and remuneration of the external auditors. In 2014 the
Audit Committee met seven times. The main topics reviewed were: Consideration of the Bank's financial
statements, opinions of the external auditors on the financial statements and their corresponding notes;
observations by the external auditors on internal control; analysis and establishment of loan portfolio
provisions and other provisions and allowances; contributions payable to the Deposit Guarantee Fund and
Banking Protection Fund (FOGADE), Sudeban and the Community Councils; report on internal auditing
activities; report on antimoney laundering and terrorism financing activities; report on external auditing
activities planned for 2015; proposal on fees of external auditors in 2015; additional fees of external auditors
in 2014; review of new disclosures contained in the notes to the financial statements; consideration and
follow up of the process for electing the Bank's external auditors pursuant to the provisions of the Law on
Banking Sector Institutions and the prudential standards issued in that regard; external auditors report
on the contents and scope of the Superintendency resolution of the "General Rules on the functions and
responsibilities of the external auditor, audits and audited reports of the Banking Sector Institutions”.
Board of Directors Risk Committee
up as follows:
(Coordinator)
Roberto Vainrub A.
Gustavo Galdo C.
Carlos Zuloaga T.
The Risk Committee approves Mercantil’s risk profile, policies and limits. It also optimizes the use of capital
to support the approved risk profile. In 2014, the Risk Committee met twelve times. The main topics reviewed
were: Results of reviews of the loan portfolios of the following units and segments: Multinational Corporate,
Large Corporations, SME, Constructions, Long-Term Mortgage, Affluent, Financial Institutions, Oil and Gas,
Microcredits, Credit Cards, Agricultural, National Corporate, Tourism, Curaçao branch, Automotive, Middle
Market; review plan 2014; adjustments on general provisions methodology; questionnaire on Integral Risk
Management; reports on Market Risk, Credit Risk and Operational Risk; budget of treasury unit activities
and Market Risk limits; proposals on provisions; methodology for approving liability operations that exceed
2 % of the Bank's equity; recommendations on clients to include in the corresponding list; reports on the
project to set up a Central Alternate Data Processing Center; adjustment and follow up of credit risk limits
for Venezuela; adjustment and follow up of Cross Border limits; follow up of Stress Test for the investment
portfolio; summary of the trading activity; considerations on the proportionality of collateral received on
the loan and contingent portfolios; review limits for Individual Borrower and Economic Group, Loan and
Capital Commitment Committee, Board of Directors; Risk-Adjusted Return on Capital (RAROC) Methodology
for the investment portfolio; reports on potential impacts on liquidity through the SICAD II foreign exchange
scheme; Liquidity Risk-associated methodologies, short-term liquidity limits and early alerts; considerations
on the Venezuelan and PDVSA sovereign debt risk assessment companies’ evaluation effects; appointment
of the Comprehensive Risk Committee and Credit and Capital Engagement Committee Members; LGD and
EAD calculation methodologies validation.
Board of Directors Compensation Committee
up as follows:
Alfredo Travieso P.
(Coordinator)
Víctor Sierra
Claudio Dolman
Alejandro González S.
This committee is responsible for setting the Bank’s policy on pay and benefits, approving the
remuneration of the Chairman and senior management and informing the Board of Directors accordingly.
In 2014, the Compensation Committee met eight times. The main topics reviewed were: Mercantil Banco
Universal's semi-annual reports; short-term management incentive programs; consideration of per diems
of board members; analysis of staff movement during the year; impact of national minimum wage;
establishment of annual wage policy; situation of Mercantil Complementary Pension Scheme (Plan
Complementario de Pensiones de Jubilación Mercantil); actuarial assumptions and adjustment of
minimum pension under the scheme; results of the survey on the organizational climate; considerations
on the base compensation payable to Senior Management and the Executive Committee; considerations
on the payment structure of the variable compensation; considerations on key staff protection measures;
special compensation action in favor of the general staff.
77
Banco Universal
Executive Committee
up as follows:
Gustavo Vollmer A. - Chairman
Nelson Pinto Alves – Executive President
Nerio Rosales Rengifo
Luis Calvo Blesa
Rosa Delgado de Costantino
The bank has an Executive Committee with a Chairman and an Executive President plus nine senior
managers from the organization’s Business and Support areas, which guarantees the timely
implementation of the Bank’s decisions and strategies. The committee meets weekly and holds
extraordinary meetings as required. It is responsible for evaluating options and making recommendations
on policy, objectives, strategies and organization and submitting to the Board of Directors for
consideration, as well as guiding management in its effort to implement the policies adopted. It is also
responsible for evaluating the outcome of their implementation.
Luis Alberto Fernandes
Alfonso Figueredo
Fernando Figueredo M.
Rodolfo J. Gasparri
Philip Henríquez S.
Carlos Tejada G.
Chairman of the Board of Directors
The Chairman of the Board is the President of the Bank. Along with the Executive President
and the other Board members he is responsible for conducting the Bank's activities and
business and has general executive powers. He also chairs the Meetings of Shareholders, the
Board of Directors and the Executive Committee, providing guidance and advice on policies,
objectives, strategies to be followed and major decisions; as well as supervising and ensuring
that the decisions and policies of the Board of Directors and the Executive Committee are
carefully executed. Additionally, he is responsible for exercising the functions assigned to
him by the Board of Directors and for representing the Bank before political and
administrative authorities and other public and private entities.
The Chairman stands in for the Executive President during temporary his absences, exercising
the same powers and attributions.
The Secretariat and the Audit business units which report directly to the Board of Directors,
come under the Chairman where administrative matters are concerned. The Corporate
Compliance business unit reports directly to the Chairman.
Executive President
The Executive President is responsible for the executive management and coordination of
the Bank and for submitting policies, objectives, strategies and major decisions to the
consideration of the Chairman, the Board of Directors and the Executive Committee and
informing them of the financial situation of the Bank and the results of its operations. He is
responsible for executing or delegating the execution of the decisions adopted by the Board
of Directors and the Executive Committee, and for designing, establishing and developing
the Bank's organizational structure, appointing general managers, consultants and advisers
to office and, if necessary, removing them from office. He represents the Bank before political
and administrative authorities and government entities, bodies corporate or individuals.
The Executive President stands in for the Chairman during his temporary absences, exercising
the same powers and attributions.
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Report
Internal Audit Manager
In accordance with the regulations in force, the Bank has an Internal Audit Manager who,
together with the Audit Committee, is responsible for reviewing the Bank's performance.
The Internal Audit Manager leads the Internal Audit business unit, which works with the Audit
Committee to design Mercantil’s internal audit plan. This plan is executed throughout the year.
The results of the internal audits are reviewed and discussed periodically by the Audit
Committee and the Board of Directors so that any corrective action may be taken.
Compliance Officer for the Prevention of Money
Laundering and Terrorism Financing
In accordance with the regulations on the matter, the Bank has a Compliance Officer in charge
of Prevention of Money Laundering and Terrorism Financing who chairs the Committee on
the Prevention and Control of Money Laundering and Terrorism Financing and is responsible
for designing the AML/FT Annual Operating Plan, coordinating and supervising the
Committee of the AML/FT unit, coordinating staff training activities, on matters related to
prevention and control of money laundering and terrorism financing, and maintaining
institutional relations with the regulatory agencies on this matter. The Compliance Officer
also advises the Audit Committee and Board of Directors on compliance with their anti-money
laundering and antiterrorism financing obligations under the legislation in force.
Disclosure of Information
The Bank prepares and publishes its financial statements monthly as of the end of the
preceding month, in compliance with the standards of the regulatory bodies. On the occasion
of Shareholders’ Meetings, the Bank also makes available to shareholders a detailed report
of its activities, and the semi-annual and annual financial statements for the immediately
preceding periods; this information is prepared in accordance with Sudeban and disclosed to
the general public and the Superintendency of Banking Sector Institutions. The Bank’s
financial information is also available on its website: www.bancomercantil.com.
79
Banco Universal
Interior of the branch office of Mercantil
Banco in San Francisco, Caracas
80
Report
Awards and
Acknowledgments
In 2014, Mercantil Banco Universal received
various acknowledgments by prestigious publications and institutions.
• In January, Global Finance magazine selected Mercantil Banco Universal as "Venezuela's
Best Trade Finance Provider in 2014”, for the ninth year running. Global Finance's selection
process took into consideration the volume of transactions, range of global coverage,
customer services, competitiveness in prices, development of new businesses and
technological innovation.
• In June, Mercantil Banco Universal ranks, for the seventh consecutive year, as the first
bank in the Gerente Magazine’s ranking of the Top 100 brands in Venezuela with higher
preference index in 2014, with 29 % of preference rate, based on a survey conducted to
Venezuelan executives in various economic sectors.
• In July, Mercantil Banco Universal received the Data Integrity 2013 Award for Latin America
granted by MasterCard Worldwide, acknowledging the quality of the information for
authorizing, exchanging and clearing card transactions. MasterCard uses a Data Integrity
Monitoring Program to follow up transactions sent by member financial institutions in
order to reward the most efficient ones, for showing the highest increases in their
operating quality indexes. With this award, MasterCard Worldwise acknowledged
Mercantil’s commitment with its transactions quality to its customers’ benefit.
• In July, Global Finance magazine announced the winners of the “World’s Best Internet
Banks”, having selected Mercantil Banco Universal in the category per country as “Best
Consumer Internet Banks in Venezuela” and also in the regional category as “Best
Information Security Initiatives in Latin America”. Global Finance considered the strategy
for attracting and servicing online customers, growth of online customers, breadth of
products offerings, benefits gained from Internet initiatives and web site design and
functionality.
• In November, Mercantil Banco Universal was the leading institutions in the banking
segment of the ranking of Venezuelan companies with the best image. The study was
published in the anniversary edition of the well-known P&M magazine, according to a
study by Datanálisis, a polling firm. “This research applied a methodology based on the
addition of individual perceptions and a list of characters that consumers associate with
a company,” quoted the publication.
• In December, Mercantil Banco Universal was ranked at 23rd place among the 250 Latin
American Banks of the AméricaEconomía magazine, up 7 places in relation to last year.
The ranking includes state-owned banks, which are ranked according to asset size by the
close of June 2014.
81
Banco Universal
From 1951 to 1983, Banco Mercantil (today Mercantil Banco Universal)
was located in the centric corner of San Francisco in Caracas.
International Offices
and Corporate Contacts
Corporate Contacts
MERCANTIL, C.A. BANCO UNIVERSAL
Avenida Andrés Bello, N° 1, Edificio Mercantil
Caracas 1050, Venezuela
Phone: (58-212) 503.1111
Telex 27002/27003 BMERVC
P.O. Box 789, Caracas 1010-A Venezuela
[email protected]
www.mercantilbanco.com
Twitter: @mercantilbanco
Call Center (CAM):
Phone: 0-500-600 2424/ 0-500-503 2424
(58-212) 600.2424-(58-212) 503 2424
CORPORATE COMMUNICATIONS
Av. Andrés Bello, N° 1, Edificio Mercantil
14thfloor, Caracas 1050, Venezuela
P.O. Box 789, Caracas 1010-A
Phone: (58-212) 503.1670
[email protected]
International Offices
Agency and Branch
Representative Offices
UNITED STATE
CORAL GABLES, AGENCY
220 Alhambra Circle, Coral Gables
Fl. 33134, U.S.A.
Phone: (1-305) 460.8500
Fax: (1-305) 460.8595
Telex: 681278 BMER UW
[email protected]
BOGOTÁ
Av. 82, Nº 12-18, 8th floor, Ofc. 805
Edificio Interbolsa, La Cabrera Bogotá,
D.C. Colombia
Phone: (57-1) 635.0035
Fax: (57-1) 623.7701
[email protected]
LIMA
Edificio Banco de Comercio
Av. Canaval y Moreyra 452, 15th-17th floors
San Isidro, Lima 27, Perú.
Phone: (511) 442.5100
Fax: (511) 442.5100 Ext. 237
[email protected]
CURAÇAO
CURAÇAO BRANCH
Abraham Mendez Chumaceiro Boulevar 1
Willemstad, Curaçao.
Phone: (5999) 432.3000
Fax: (5999) 461.1974 / 432.5049
[email protected]
MÉXICO
Eugenio Sue N° 58, Colonia Polanco Chapultepec,
Delegación Miguel Hidalgo C.P. 11560,
México, D.F.
Phone: (52-55) 5282.2300
Fax: (52-55) 5280.9418
[email protected]
NEW YORK
11 East 51st. Street, New York
NY, 10022-5903, U.S.A.
Phone: (1-212) 891.7479
Fax: (1-212) 891.7419
[email protected]
SAO PAULO
Av. Paulista, N° 1842, 3° andar, CJ. 37
Edf. Cetenco Plaza, Torre Norte-Cep 01310-200
Sao Paulo, SP, Brasil
Phone: (55-11) 3285.4647 - 3284.0206
Fax: (55-11) 3289-5854 [email protected]
83
Banco Universal
84
Report
Mercantil Banco Universal:
90 years at the service of Venezuela
The Banco Neerlando-Venezolano
was founded in La Gran Casa de Camejo
On March 23, 1925, an important group of Venezuelan entrepreneurs founded the Banco
Neerlando Venezolano, today the Mercantil Banco Universal. Located at Gran Casa de Camejo,
on the a central Caracas street corner that bore the same name as the property, the Bank began
its operations on April 3 of the same year, with a share capital of Bs 3,200,000 and a payroll of
16 employees, under the management of its first Board of Directors, chaired by Francisco A.
Guzmán Alfaro.
Since its inception, all related activities to real estate transactions and business, and international
banking and trading connections, particularly with the Netherlands and other Northern European
countries, complete the complex relationship process its founders had set up as one of the
organization’s goals. It is referred to in the bylaws of the institution.
Banco Mercantil y Agrícola:
Boosting the country’s agricultural sector
In 1926, Banco Neerlando Venezolano, as it was then called, changed its trading name to Banco
Mercantil y Agrícola and increased its capital to Bs 8 million. Aware at the time of the importance
of agriculture for the country, the Board of Directors (anticipating changes in legislation) decided
to stimulate production through agricultural credits, positioning itself as a prominent financial
institute in this important sector;.a leadership that is still preserved in Venezuela’s financial
system.
It noted that in 1927, the former Banco Mercantil y Agrícola was one of the four financial
institutions in Venezuela authorized to issue its own paper money acceptable as legal tender.
Ten years later, in 1936, the Bank began its geographic expansion in the country by opening an
office in the city of Valencia, Carabobo state, becoming the first branch of the institution outside
Caracas.
In 1947, the Bank listed its shares on the Caracas Stock Exchange, and after 20 years of
operations, it began to diversify its services in loans for car purchases, positioning itself as a
pioneer in the Venezuelan financial system in the electronic processing system of data.
85
Banco Universal
Growth and expansion: the head office of San Francisco
In 1951, the Bank had 14 branches, 9 of which were located in the Caracas Metropolitan Area and
5 in the provinces. That same year, the Bank acquired the land occupied by the then known Pan
Grande Bakery located on the San Francisco corner in Caracas, where a building marked as No.
5 was constructed. The new head office was opened on April 25 of the same year. At the end of
the 60s, the Bank had 28 branches and agencies throughout the country to meet its operational
expansion and, therefore, to offer a better service to all its customers and general public.
In 1962, Banco Mercantil y Agricola associated with the Chase Manhattan Bank, N.A, in the
United States, institution that acquired 49 % of the Bank’s shares. This participation was
subsequently reduced to less than 20 %, due to changes in the Venezuelan legislation, which
limited the percentage of foreign ownership in Venezuelan banks. In 1980, the remaining share
was then acquired by a group of Venezuelan investors.
In 1972, Mercantil signed the first Statutory Benefits Trust Fund Agreement, making it a pioneer
in this field in Venezuela.
In 1975, In order to meet the needs of its customers in other countries, the Bank began to expand
its international presence by opening representative offices in New York, London and Frankfurt.
Within the framework of this expansion process, in 1981 it set up a branch in Panama and opened
Latin American Representative Offices in Bogota and Lima.
Banco Mercantil:
Multinational company with Venezuelan roots
In 1982, the Bank changed its name to Banco Mercantil, C.A. and expanded its portfolio of
services to include personal, consumer and travel loans. It acquired a franchise from Diners Club
de Venezuela, C.A. giving it the exclusive right to manage and issue Diners credit cards directly.
In 1982, it opened a branch in Curaçao and representative offices in Sao Paulo and Quito opens.
Avenida Andrés Bello Nº 1:
New head office, new corporate identity
In 1983, after three decades at the Esquina de San Francisco address in Caracas, its head office
moved to the current Avenida Andrés Bello N° 1 and the Institution adopted a new corporate
identity.
In 1987, Mercantil was the leader in electronic banking services with its ABRA 24 ATMs, and in
1988 the institution was one of the top three private banks in Venezuela with the broadest
national and international presence.
Ever since it was created, the Bank has supported social development organizations by
contributing to their institutional programs. Permanent support is given to these initiatives
through Fundación Banco Mercantil which was created in 1987 to develop and promote programs
involving the community, such as the “Give your School a Helping Hand” program for Venezuela’s
elementary schools which it has been running since 1982.
In 1991, the Bank launched its third credit card, Visa Mercantil, on the market, in addition to
Master Card and Diners. This positioned Mercantil as the leader in the credit card business,
making it the only bank to hold franchises for 3 out of the 4 credit cards in the Venezuelan market.
That same year the representative office in Mexico City was opened.
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Report
In 1996, the Bank changed its status from a commercial bank to a full-service bank to offer its
clients a comprehensive mix of products and services, in particular medium and long-term
financing options.
En 1997, the Bank was again at the forefront of technology, becoming the pioneer in Internet
banking in Venezuela when its website www.bancomercantil.com and its Mercantil Online
Banking service were launched. Subsequently, the Mercantil Business Online Banking is
incorporated.
Mercantil Servicios Financieros is constituted
That year, in order to give the Institution a new corporate structure, enhance its competitiveness
and take advantage of the Venezuelan financial sector’s opportunities for growth, Mercantil
Servicios Financieros was created and Banco Mercantil became its principal subsidiary.
Over the years Mercantil Banco Universal’s Internet banking service has grown and new
functionalities and types of transaction have gradually been added. These include payments with
virtual cards (e-card) which Mercantil pioneered in the market.
In 2000, Mercantil acquired Interbank, C.A. Banco Universal in a merger. With this process,
Mercantil expanded its presence in Venezuela by incorporating Interbank’s offices and large
widespread nationwide network of banking centers.
Mercantil Banco Universal:
Soundness, Vision and Dynamism
In 2007, a new brand strategy was developed and changed its name to Mercantil Banco Universal
under a new corporate graphic identity, which is identified by the Mercantil Empower reflecting
three Mercantil brand attributes: soundness, vision and dynamism, and positioned its brand
promise: “Empowering your world”.
In 2008, an important project got started, in order to offer products and services in areas that
lacked banking services in Venezuela. This network of service points is called Mercantil Aliado
orientated to serve the majorities banking segment. This concept consists of correspondent desk
and correspondent trading points located in densely populated areas along the Venezuelan
territory.
In 2009, the Bank introduced the chip technology on its ATM network and debit cards, within
its high technology guidelines in rendering services. In this way, it allowed to increase security
in all its customers base transactions.
In 2010, on the occasion of Mercantil Banco Universal eighty-fifth anniversary celebration, the
Espacio Mercantil was opened. A place dedicated to art and culture with the aim of expanding
ties with the Venezuelan community.
In 2011, Mercantil Banco Universal concludes the incorporation process of the Chip technology
in all its credit and debit cards, ATMs and points of sale network. Mercantil Banco Universal is
the first institution of the Venezuelan financial system to implement this valuable security
mechanism for its customers. In addition, the Bank offered to its credit cardholders a fully
automated loan authorization system called Préstame Mercantil with the use of Online Banking
facilities.
In 2012, Mercantil Banco Universal starts the installation of new self-service areas "Mercantil
Vía Rápida” fast-track service, continuing with the strategy in favor of promoting the use of
electronic channels to process transactions and self-management. Additionally, the Mercantil
Móvil service was introduced, in order to enable customers to access the Online Banking through
Smartphones.
In 2013, Mercantil’s presence in social networks started with its @MercantilBanco Twitter
account, basically aimed at informing and guiding on services, products and various Bank’s
activity, creating a new direct communication channel with the customers.
87
Banco Universal
In 2014, a new product called “Pronto Credito Empresarial” was launched for the Commercial
Banking segment. This is the first loan installments for working capital available and self-managed
through Internet.
Mercantil Culture and Compromise:
Our way of doing businesses
Since its foundation, Mercantil Banco Universal has been an institution guided by its Culture and
Commitment which uniquely distinguishes its way of doing businesses. Mercantil Employees,
the organization’s most valuable asset, are also guided by a Code of Ethics that represent the
principles and values shared by all.
The development of human capital and talent has always been a strategic priority. Mercantil
Banco Universal employees consider the organization an excellent place to work in Venezuela,
which is confirmed through on-going employee surveys related to employee engagement,
organizational climate, open communication, and independent evaluations. The results confirm
that Mercantil Banco Universal is one of the best companies in the industry, in Venezuela and
Latin America. In addition, Mercantil Banco Universal has traditionally maintained close
relationships with its employees and their trade unions.
True to its vision, 90 years after Mercantil Banco Universal was established, the organization
continues to support the economic and social development of Venezuela and communities where
it has a presence. The corporate Culture and Compromise passed down by its founders remain
unchanged, and are the primary reason millions of customers trust Mercantil Banco Universal.
General Production: Corporate Communications Management
Artwork Photography: Walter Otto, Drones Venezuela, Organización Mercantil.
Graphic Design: Arte Impreso H.M., C.A.
Caracas, Venezuela, July 2015.
Avenida Andrés Bello Nº 1. Edificio Mercantil
Caracas 1050, Venezuela. Phone: (58-212) 503.1111
www.bancomercantil.com

Mercantil Banco Universal Annual Report 2014

Transcription

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