Mercantil Banco Universal Annual Report 2014 › ingles › content › pdfs › historicos › banco...Mercantil Banco Universal, founded in 1925, with 89 years of financial activity,

Mercantil Banco Universal a subsidiary of Mercantil Servicios Financieros2014Annual Report

2014

The Mercantil Culture

The guiding principles behind90 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).

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 Launderingand Terrorism Financing 67

Internal Auditing 69

Social Commitment 71

Corporate Governance 75

Awards and Acknowledgments 81

International Offices andCorporate Contacts 83

Mercantil Banco Universal90 years at the service of Venezuela 85

Banco Universal

AnnualReport2014

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.

4 Report

Banco Universal

(1) Dollar figures are given for reference only. This information is converted at the period-end exchange rate of Bs 6.2842/US$ 1. Exchangecontrol has been in place in Venezuela since February 2003.

Financial Highlights

Balance Sheet (1)Total AssetsLoan Portfolio (Net)DepositsShareholders’ Equity

Income Statement (2)Net Interest IncomeMargin of Financial IntermediationPersonal and Operating ExpensesIncome Before Income TaxNet Income

Profitability Indicators (%)Net Interest Income / Average Financial Assets (NIM)Other Operating Income / Total IncomeNet 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 PortfolioAllowances for Loan Losses / Past-Due + Non-Performing LoansAllowances for Loan Losses / Gross Loan Portfolio

Efficiency Indicators (%)Operating Expenses / Average Total AssetsOperating Expenses / Total Income

Liquidity Indicators (%)Cash and Due from Banks / DepositsCash and Due from Banks and Investment Portfolio / Deposits

Other Indicators (%)Total Loan Portfolio / DepositsFinancial Assets / Total AssetsFinancial Assets / Deposits

Number of EmployeesEmployees in VenezuelaEmployees Abroad

Banking Distribution NetworkBranches in Venezuela (4)

Automatic Teller Machines (ATM)Point of Sale Terminals (POS) (5)

Mercantil Aliado NetworkCorrespondent Service DesksCorrespondent Trading Points

Market Share (%) (6)Loan PortfolioDeposits + Other demand liabilities

Consolidated Results(In thousands of Bs and millons of US$, except percentages and other indicators)

Year Ended

45,812 25,877 41,069 3,860

3,045 3,293 1,679 1,501 1,501

December 31

2014US$(1)

December 31

2014bolivars

December 31

2013bolivars

December 31

2012bolivars

December 31

2011bolivars

December 31

2010bolivars

(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

287,892,974 162,619,332258,083,275 24,255,805

19,133,827 20,692,51010,549,964 9,431,474 9,430,660

10.919.950.14.0

16.5

9.7

0.31,352.9

3.5

3.332.2

29.046.3

65.373.882.4

7,247 9

264 1,350

50,902

125 122

14.1 11.7

183,030,629 89,809,279 162,756,924 16,557,049

11,645,946 13,641,789 6,660,194 6,529,414 6,525,812

10.826.252.84.5

19.0

10.9

0.4914.53.9

3.531.8

27.455.1

57.475.484.8

7,275 10

265 1,408 53,387

128 188

14.0 12.1

104,514,153 57,755,945

92,499,400 9,233,354

7,352,170 8,777,427 4,507,740 3,853,463 3,395,032

11.124.646.44.0

17.7

9.8

0.6611.53.9

4.135.8

29.148.4

65.074.283.9

7,195 10

268 1,367

48,671

106 186

14.6 11.5

67,351,251 41,974,923 59,558,134 6,127,715

4,881,317 5,918,691 3,179,210 2,389,662 2,142,731

10.929.642.73.8

16.0

10.1

0.7615.64.1

4.436.0

21.740.3

73.581.091.6

6,965 10

271 1,309 42,719

60 117

15.9 11.9

46,270,966 26,703,385 40,279,612 4,583,203

3,156,934 4,099,624 2,439,037 1,555,381 1,360,621

10.235.634.13.3

17.6

11.2

0.9489.14.2

4.840.7

27.245.4

69.275.686.9

6,644 10

273 1,319

40,427

38 83

14.5 11.7

Board of Directors

6 Report

Gustavo Vollmer A.Chairman

Nelson Pinto A.Executive President

Gustavo A. Marturet M.2 / 3

Alfredo Travieso P.1 / 2

Eduardo Mier y Terán1 /3

Víctor J. Sierra A.2

Roberto Vainrub A.1 / 3

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

Guillermo Ponce Trujillo

Rafael Stern S.

Francisco De LeónManuel Martínez Abreu

Umberto ChiricoGladis Gudiño

Luis Alberto Fernandes

Paolo Rigio C.

1 Member of the Audit Committe2 Member of the Compensation Committe3 Member of the Risk Committe

AdministrationGustavo Vollmer A. *Chairman

Nelson Pinto A. *Executive President

Nerio Rosales Rengifo *Global Executive Director

Rosa M. de Costantino *Personal Banking and WealthManagement 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 Resourcesand Corporate Communications Manager

Carlos Tejada G. *Commercial Banking Manager

Guillermo Ponce TrujilloBoard of Directors Secretary

Rafael Stern S.Board of Director Alternate Secretary

José Felipe Bello C. Audit Manager

Anahy EspigaStrategic Planning Manager

Luis M. Urosa Z.Corporate Compliance Manager

Juan Livinalli M.Money Laudering Prevention and Compliance Officer and Terrorist Financing

* Member of the Executive Committe

Principal Directors

Alternate Directors

Secretary

Alternate Secretary

Principal Statutory Auditor

AlternateStatutory Auditor

Legal Counsel

Alternate Legal Counsel

Note: The Audit, Compesation and Risk Committees were createdpursuant to provision in the By-laws and in accordance with aresolution by the Board of directors. These commitees are made upof independent Directors and are attended by the President and theExecutive President (ex-officio).

Notice of OrdinaryGeneral Shareholders’ Meeting

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

Guillermo Ponce Trujillo

Secretary of the Board of Directors

MERCANTIL, C.A., BANCO UNIVERSAL Subscribed and Paid-In Capital Bs 268,060,233 Caracas - Venezuela

7 Banco Universal

9 Banco Universal

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.

Board of Directors’ Report

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’sinternational 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 andDistribution 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 Sectorsthrough 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:

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:

12 Report

Agriculture, fishery and forestryMining and petroleumManufacturing industryElectricity, gas and waterConstructionWholesale and retail, restaurants and hotelsTransportation, storage and communicationsFinancial establishments Insurance, real estate and business servicesCommunity, social and personal servicesOther activitiesTOTAL PORTFOLIO

ACTIVITY 27,602 751 17,651 384 6,328 50,553 1,752 47,611 6,029 9,801 168,461

In Millions of Bolivars 16.4

0.4 10.5 0.2 3.8

30.0

1.0

28.3

3.6 5.8 100.0

Percentage (%)

MicroenterpriseTourismAgricultureManufacturingMortgage

SECTOR 3 4.25 25 10 20

REQUIRED (%) 4.09 5.06 * 38.21 ** 18.99 15.16 ***

ACHIEVED (%)

* 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 theregulations 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.

13 Banco Universal

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 year-

on-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.

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 Compliancewith 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 specialattention 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 Directorsis 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:

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 years-

old 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 AcknowledgementsThe 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 state-

owned banks, which are ranked according to their asset size by the end of June 2014 .

20 Report

POS

ATMs Network

Mercantil Móvil

Branches

Call Center

Mercantil Business and Personal Online Banking

CHANNELS

212 130

130

65

16

618

TRANSACTIONS(in millions of Bolivars)

18 11

11

6

1

53

PARTICIPATION(%)

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

22 Report

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.

57.8 %

45.9 %

9.9 %

4.8 %4,583

6,1289,233

16,557

24,256

8.8 %9.0 % 8.4 %

-20 %

-10 %

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

0

5,000

10,000

15,000

20,000

25,000

30,000

9.1 %9.9 %11.1 %

1926 1930 1960 1990 2000 2010 2011 2012 2013 2014

0.013 0.02 0.09 4.61 353

0.34 %

0.31 %27,875

43,788

60,099

93,420

168,518

6.66 %

0.18 %

3.59 %

0.86 %0.67 % 0.64 % 0.42 % 0.26 %

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000 20 %

-5 %

0 %

5 %

10 %

15 %

1926 1930 1960 1990 2000 2010 2011 2012 2013 2014

0.01 0.02 0.21 45.37 1,788

98 % Mercantil Banco Universal employees agree that “Mercantil is a solid and stable organization”.

2014 Organizational Climate and Engagement Survey

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

Soundness“Strength and Soundness above all else”

Our Culture

Capital Ratio EvolutionMercantil 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.

Gross Loan Portfolio versus Past-Due and Non-Performing Loans ratioMercantil 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.

Capital Ratio Evolution

in m

illio

ns o

f Bs

Shareholder’s Equity Capital Adequacy Indicators (Equity / Assets)

Gross Loan Portfolio versus Past-Due and Non-Performing Loans ratio

Gross Loan Portfolio Past-Due and Non-Performing Loans / Gross Loan

in m

illio

ns o

f Bs

50,497,947,70646,576,041,790123,279,963,409

1,797,782,305424,848,511

3,877,627669,988,8781,713,090,122

224,963,540,348

202,019,275,738739,195

155,706,4566,670,99731,305,535

4,486,590,389206,700,288,310

18,263,252,038224,963,540,348

11,421,360,9523,795,574,605

7,625,786,347145,240,991893,778,959

6,877,248,3792,599,042,1561,006,520,070

8,469,770,4654,625,466,105

3,844,304,36043,424,917197,905,043

836,042424,145,298

3,660,652,9800

34,554,3363,626,098,644

121,201,5283,504,897,116

3,504,897,11636,626,320

June 30

2014

June 302014

24 Report

Financial Statements Consolidated with Foreign Subsidiaries (*)

(In accordance with the Superintendency of Banking Sector Institutions -SUDEBAN)

Consolidated Balance Sheet(In Bolivars)

AssetsCash and Due from BanksInvestments in SecuritiesLoan PortfolioInterest and Commissions ReceivableInvestments in Subsidiaries, Affiliates and BranchesAssets Available for SaleProperty and EquipmentOther Assets TOTAL ASSETS

LiabilitiesDepositsDeposits and Liabilities with BANAVIHOther BorrowingsOther Liabilities from Financial IntermediationInterest and Commissions Payable Accruals and Other Liabilities TOTAL LIABILITIES

Shareholders’ EquityTOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

Interest Income Interest Expense

Net Interest IncomeIncome from Financial Assets RecoveredExpenses from Uncollectibles and Devaluation of Financial Assets

Net Interest MarginOther Operating IncomeOther Operating Expenses

Financial Intermediation MarginOperating Expenses

Cross Operating MarginIncome from realizable goodsMiscellaneous Operating IncomeExpenses from realizable goodsMiscellaneous operating expenses

Net Operating MarginExtraordinary IncomeExtraordinary Expenses

Gross Income before TaxIncome TaxNET INCOME

Application of Net IncomeRetained EarningsLOSEP Fund

December 31

201474,865,588,23644,287,992,721162,619,332,439

2,170,590,311449,474,70822,636,071

920,047,3562,557,706,075

287,893,367,917

258,084,540,921375,258

268,163,4024,061,03863,195,292

5,217,227,356263,637,563,267

24,255,804,650287,893,367,917

16,741,731,1535,262,208,120

11,479,523,033152,220,262

1,902,223,5219,729,519,7744,017,704,8471,528,112,758

12,219,111,8635,920,521,034

6,298,590,82946,337,421

222,563,9172,848,863

602,536,4965,962,106,808

035,623,180

5,926,483,628721,382

5,925,762,246

5,925,762,24659,856,184

Consolidated Statement of Income(In Bs) PERIOD ENDED

(*) 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 theMeetings of Shareholders of Banking Institutions, Currency Exchanges, and Border Exchange Operators.

December 312014

Financial Statements(In accordance with the standars of theNational Securities Superintendency)

Balance Sheet(in Bolivars)

Assets

Cash and Due from banksCashCentral Bank of VenezuelaVenezuelan Banks and other Financial InstitutionsForeign Banks and other Financial InstitutionsHead Office and BranchesPending Cash Items(Allowance for Cash and Due from banks)

Investments SecuritiesCentral Bank of Venezuela and OvernightInvestments in Trading SecuritiesInvestments in Securities Available for SaleInvestments in Securities held-to-maturityRestricted InvestmentsInvestments in Other Securities(Allowance for Investments Securities)

Loan PortfolioCurrentRescheduledPast DueIn Litigation(Allowance for Losses on Loan Portfolio)

Interest and Commissions ReceivableInterest Receivable on cash and Due froms BanksInterest Receivable on Investments SecuritiesInterest Receivable on Loan PortfolioCommissions ReceivableInterest Receivable on Other Accounts Receivable(Allowance for Interest Receivable on Loan Portfolio and Other)

Investments in Subsidiaries, Affiliates and BranchesInvesments in Subsidiaries and AffiliatesInvesments in Branches(Allowance for Invesments in Subsidiaries, Affiliates and Branches)

Assets Available for SaleProperty and EquipmentOther Assets

Total Assets

Contingent Debtor AccountsAssets Received in TrustSpecial Trust ServicesDebtor Accounts from Other Special Trust Services(Régimen Prestacional de Vivienda y Hábitat)Other Debtor Accounts (Housing Mutual Fund)Other Debtor Memorandum AccountsOther Debtor Control Accounts

74,773,739,6994,323,074,68066,235,156,563

290,000510,114,920

03,705,103,536

0

43,634,837,6031,188,775,000

016,292,728,3965,755,356,716189,564,274

20,208,413,2170

162,564,282,251167,524,542,973

500,986,234435,910,057

56,019(5,897,213,032)

2,159,182,2380

599,964,1091,495,049,967

88,417,26830,552

(24,279,658)

1,185,015,578449,491,830735,540,870

(17,122)

22,636,071920,047,356

2,556,195,064

287,815,935,860

2,619,615,29120,688,548,760

12,527,177

00

429,295,677,8449,832,276

For Operationsin Venezuela

December 31

201474,865,588,2364,323,074,68066,235,156,563

290,000601,963,457

03,705,103,536

0

44,287,992,7211,188,775,000

016,845,890,1675,755,356,716289,557,621

20,208,413,2170

162,619,332,439167,580,573,699

500,986,234435,910,057

56,019(5,898,193,570)

2,170,590,3112,253

611,233,0371,495,186,859

88,417,26830,552

(24,279,658)

449,474,708449,491,830

0(17,122)

22,636,071920,047,356

2,557,706,075

287,893,367,917

2,619,615,29120,688,548,760

12,527,177

00

429,295,677,8449,832,276

Consolidated with Overseas branches

December 31

201450,410,147,5652,739,677,80143,118,281,307

290,000598,057,769

03,953,840,688

0

46,323,837,1747,487,822,000

018,113,390,2165,761,060,584

11,602,02514,949,962,349

0

122,815,365,124126,119,259,514

540,771,377462,267,640

204,595(4,307,138,002)

1,794,762,5510

743,330,6341,017,830,846

55,392,215108,371

(21,899,515)

1,150,754,013424,865,633725,905,502

(17,122)

3,877,627669,988,878

1,704,725,996

224,873,458,928

1,897,050,31916,850,891,288

15,326,827

00

330,473,420,71810,851,683


June 30

201450,497,947,7062,739,677,80143,118,281,307

290,000685,857,301

03,953,841,297

0

46,576,041,7907,487,822,000

018,276,289,4035,761,060,584100,907,454

14,949,962,3490

123,279,963,409126,586,702,116

540,771,377462,267,640

204,595(4,309,982,319)

1,797,782,3051,136

745,021,4841,019,158,614

55,392,215108,371

(21,899,515)

424,848,511424,865,633

0(17,122)

3,877,627669,988,8781,713,090,122

224,963,540,348

1,897,050,31916,850,891,288

15,326,827

00

330,561,587,31710,851,683


June 30

2014


Alfonso Figueredo DavisChief Financial Officer

Isabel Pérez SanchisCorporate Comptroller

Gustavo Vollmer A.President

26 Report

Financial Statements(In accordance with the standars of theNational Securities Superintendency)

Balance Sheet(in Bolivars)

Liabilities

Total DepositsDemand Deposits

Non-Interest Bearing Cheking AccountsInterest Bearing Cheking AccountsChecking accounts in accordance with Exchange Agreement Nº 20Demand deposits and certificates

Other Demand DepositsObligations for Money Desk OperationsSaving DepositsTime DepositsSecurities Issued by the BankRestricted Customer DepositsRigths and participation investment securitiesObligations to Central Bank of VenezuelaDeposits and Liabilities with BANAVIHBorrowingsBorrowings from Venezuelan Financial Institutions, Up to 1 YearBorrowings from Venezuelan Financial Institutions, More Than 1 YearBorrowings from Overseas Financial Institutions, Up to 1 YearBorrowings from Overseas Financial Institutions, More Than 1 YearOther Borrowings, Up to 1 YearOther Borrowings, More Than 1 YearOther Liabilities for Financial IntermediationInterest and Commissions PayablerExpenses Payable on Customer DepositsExpenses Payable on Obligations to the BCVExpenses Payable on Deposits and Liabilities with BANAVIHExpenses Payable for Other Financing ObtainedExpenses Payable for Other BorrowingsExpenses Payable for Other ObligationsExpenses Payable for Subordinated Debt

Other LiabilitiesSubordinated DebtObligations Convertible to Capital

Total Liabilities

Shareholders’ Equity

Nominal Capital Stock par valueConvertible BondsPaid-in SurplusCapital ReservesEquity Adjustments Retained EarningsUnrealized Gain on Investments Available for Sale

Total Shareholders’ Equity

Total Liabilies and Shareholders’ Equity

258,022,405,977174,692,960,58983,614,527,24777,384,718,564

227,562,13013,466,152,6484,431,357,875

078,111,913,789520,245,035

0265,928,689

00

375,258255,595,002116,740,735

0138,854,267

000

4,061,03863,154,12762,806,139

00

347,988000

5,214,539,80800

263,560,131,210

268,060,2330

35,833278,782,642(1,035,863)

22,869,096,766

840,865,039

24,255,804,650

287,815,935,860


December 31

2014258,084,540,921174,735,696,08283,655,678,68977,386,302,615

227,562,13013,466,152,6484,432,222,968

078,120,225,622

522,884,4010

273,511,84800

375,258268,163,402116,740,735

0151,422,667

000

4,061,03863,195,29262,813,788

00

381,504000

5,217,227,35600

263,637,563,267

268,060,2330

35,833278,782,642(1,035,863)

22,869,096,766

840,865,039

24,255,804,650

287,893,367,917


December 31

2014201,934,781,323138,890,047,95264,359,978,51867,027,935,255

360,589,1877,141,544,9923,973,094,637

058,369,816,510

508,937,4170

192,884,80700

739,195155,706,456123,100,665

032,605,791

000

6,670,99731,265,28531,144,646

00

120,639000

4,481,043,63400

206,610,206,890

268,060,2330

35,833277,442,341(1,003,358)

16,944,674,821

774,042,168

18,263,252,038

224,873,458,928


June 30

2014202,019,275,738138,940,627,93664,410,367,60467,028,126,153360,589,187

7,141,544,9923,973,117,286

058,382,775,574

511,575,8620

211,179,08000

739,195155,706,456123,100,665

032,605,791

000

6,670,99731,305,53531,184,896

00

120,639000

4,486,590,38900

206,700,288,310

268,060,2330

35,833277,442,341(1,003,358)

16,944,674,821

774,042,168

18,263,252,038

224,963,540,348


June 30

2014





27 Banco Universal

28 Report

Financial StatementsIncome Statement(in Bolivars)

Interest IncomeIncome From Cash and Due From BanksIncome From Investment SecuritiesIncome From Loan PortfolioIncome From Other Account ReceivableIncome From Investment in Subsidiaries, Affiliates, and BranchesIncome From Head Office and BranchesOther Interest IncomeInterest ExpensesExpenses From Customer DepositsExpenses From Obligations to Central Bank of VenezuelaExpenses From Deposits and Liabilities with BANAVIHExpenses From Other BorrowingsExpenses From Other Liabilities From Financial IntermediationExpenses From Subordinated DebtExpenses From Other ObligationsExpenses From Head Office and BranchesOther Interest ExpensesNet Interest ExpensesIncome From Financial Assets RecoveredExpenses From Uncollectible and Devaluation of Financial AssetsProvision for Loan Portfolio and Other Accounts Receivable, LossesProvision for Cash and Due from BanksNet Financial MarginOther Operating IncomeOther Operating ExpensesFinancial Intermediation MarginPersonnel and Operating ExpensesSalaries and Employee BenefictsOperating ExpensesFees Paid to The Deposit Guaranted and Banking Protection Fund (Fogade)Fees paid to The Superintendency of Banks and Other Financial InstitutionsGross Operating MarginIncome From Realizable GoodsIncome From Special ProgramsMiscellaneous Operating IncomeExpenses From Realizably GoodsExpenses From Depreciation, Amortization, and Devaluation of Miscellaneous GoodsMiscellaneous Operating ExpensesNet Operating MarginExtraordinary IncomeExtraordinary ExpensesGross Income Before TaxIncome TaxesNet Income

Application of Net IncomeLegal Reserve Profit SharingBoard of DirectorsOfficers and EmployeesOther Capital Reserves Retained EarningsLOSEP Fund

16,723,494,683565,305

1,749,917,03214,876,443,096

24,267,02300

72,302,2275,262,082,7465,240,360,501

00

718,75718,619,452

000

2,384,03611,461,411,937149,758,871

1,901,656,9611,901,656,961

09,709,513,8474,027,674,8701,520,434,77412,216,753,9435,916,539,4972,231,015,5452,103,606,5161,458,116,054123,801,382

6,300,214,44646,337,421

0219,264,7122,848,863

0601,582,2905,961,385,426

035,623,180

5,925,762,2460

5,925,762,246

00000

5,925,762,24659,856,184


December 31

201416,741,731,153

568,3901,765,715,808

14,878,877,70524,267,023

00

72,302,2275,262,208,1205,240,382,142

00

822,49018,619,452

000

2,384,03611,479,523,033152,220,262

1,902,223,5211,902,223,521

09,729,519,7744,017,704,8471,528,112,75812,219,111,8635,920,521,0342,231,015,5452,107,588,0531,458,116,054123,801,382

6,298,590,82946,337,421

0222,563,9172,848,863

0602,536,496

5,962,106,8080

35,623,1805,926,483,628

721,3825,925,762,246

00000

5,925,762,24659,856,184


December 31

201411,410,521,712

406,9731,951,657,320

9,418,606,00419,169,352

00

20,682,0633,795,534,6003,649,492,495

00

1,445,406140,332,538

000

4,264,1617,614,987,112144,672,530893,778,959893,778,959

06,865,880,6832,601,975,7601,004,847,351

8,463,009,0924,619,751,8741,895,475,6721,446,393,0031,182,820,85095,062,349

3,843,257,21843,424,917

0197,905,043

836,042

0423,191,093

3,660,560,0430

34,554,3363,626,005,707

121,108,5913,504,897,116

00000

3,504,897,11636,626,320


June 30

201411,421,360,952

410,9881,957,542,4629,423,556,087

19,169,35200

20,682,0633,795,574,6053,649,532,500

00

1,445,406140,332,538

000

4,264,1617,625,786,347145,240,991893,778,959893,778,959

06,877,248,3792,599,042,1561,006,520,0708,469,770,4654,625,466,1051,895,475,6721,452,107,2341,182,820,85095,062,349

3,844,304,36043,424,917

0197,905,043

836,042

0424,145,298

3,660,652,9800

34,554,3363,626,098,644

121,201,5283,504,897,116

00000

3,504,897,11636,626,320


June 30

2014





(In accordance with the standars of the National Securities Superintendency)

Semestre finalizado

VenezuelaVenezuelan 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

aggregate supply side, the drop in local

production was intensified by the significant

contraction of imports in 17.4 %, which is added

to the reduction registered in the same period of

2013 (5.6 %), totaling a total contraction of 22 %

in the last 2 years.

The performance of the aggregated supply and

demand, 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

variation (November to November), was 60.1 %

from 52.8 % in 2013.

The external sector has also experienced a

negative performance up to September 2014,

compared to the same period of 2013.

29 Banco Universal

Economic Climate

(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.

Summary of Economic Performance 2013 2014

Percentage Variation of GrossDomestic Product %1

Total 1.5 -4.0 Oil Sector 1.0 0.3

Non-Oil Sector 1.7 -3.8

Exchange Rate Bs/US$End of Períod 6.30 13.90

Average 5.80 14.66

Exchange Rate Variation %End of Períod 46.51 % 120.6%

Average 34.90 % 152.7%

Inflation (Caracas) %2

Cumulative Variation 52.7 64.7Annualized Variation 25.2 70.4

Interest Rates. End of PeriodAverage Lending Rates (6 main banks) 15.6 19.2 90 day Time Deposits (6 main banks) 14.7 14.5

30 Report

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.

31 Banco Universal

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

distinguishing elements of Mercantil performance in the development and implementation

of its activities.

Our CultureSoundness: “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

guided by the strategy”.

Compliance: “Strict and timely adherence to all applicable laws, regulations, rules and policies”.

Ethical Behavior: “Zero tolerance for unethical behavior and transparency in all

communications and information”.

Multinational: “We are an international organization with Venezuelan roots”.

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.

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.

Vision

To be a financial services organization

of reference* in the area of banking, in

the markets we serve.

(**) Reference:

To be recognized and respected for ourstrength, ethical behavior, dynamism,innovation, quality of service and forbeing the best place to work.

32 Report

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.

Anual32

96 % of Mercantil Banco Universal employees agree that “At Mercantil, we make decisions thinking about the future of the organization.”

2014 Organizational Climate and Engagement Survey

“The strategy is based on a long-term outlook, with tacti

Documents

Mercantil Banco Universal Annual Report 2014 › ingles › content › pdfs › historicos › banco...Mercantil Banco Universal, founded in 1925, with 89 years of financial activity,