CARACAS, Venezuela — VENEZUELA’S government closed four banks Monday, saying authorities uncovered major financial problems after taking over management due to irregularities in their operations.

Two of the banks, Canarias and ProVivienda (BanPro), will be permanently closed and their assets auctioned off, Finance Minister Ali Rodriguez said. Most deposits in those banks will be covered by the state deposit insurance fund while the banks are liquidated, he said.

Authorities will try to rehabilitate the other two banks, Confederado and Bolivar, because their financial problems seem surmountable, Rodriguez said.

The banks, which account for 5.7 per cent of Venezuela’s banking sector, were taken over by the government November 20, citing various violations. At the time, officials said the banks would remain open while authorities investigated.

“The damage caused has been of such severity that it has severely compromised the solvency of those institutions,” Rodriguez told state television. He said the closures were necessary because the deposit withdrawals were reaching “very dangerous dimensions” that threatened to create “even more damage for the entire system”.

Two people have been arrested in the scandal: Key investor Ricardo Fernandez and his lawyer, Jose Camacho, are charged with misappropriating deposits and providing loans to other businesses in which they were investors.

The four banks were purchased in September and October by a group of investors headed by Fernandez, who is involved in the food industry and sold products to a network of state-run subsidised markets known as Mercal.

Opponents of President Hugo Chavez blamed the problem on what they charged was corruption involving Fernandez, other business people and government officials. The government did not immediately respond to the claim, and no representatives of Fernandez were available for comment.

Authorities have said investors were unable to show the origins of the funds used to buy the banks, among other violations.

As of October, about a third of the total US$6.7 billion in deposits at the four banks had been put there by state entities, according to the banks’ financial statements.

Government entities holding deposits included the National Treasury; the state oil company, Petroleos de Venezuela SA; and the National Development Bank, among other entities. The financial impact on the government remained unclear.

The announcement of the banks’ closure came a day after the president threatened to nationalise any banks that violate regulations, saying he would do whatever was needed to prevent irregularities.

Chavez’s government has sought a bigger state role in the banking sector, and in May agreed to buy the formerly private-run Banco de Venezuela from Spain’s Grupo Santander for about US$1 billion. The government now owns five commercial banks, which together account for about 21 per cent of deposits and 16 per cent of loans.

The finance minister said the state deposit insurance fund will handle the liquidation of Canarias and BanPro and payments to depositors and employees. He said state deposit insurance will immediately cover 97 per cent of BanPro depositors and 92 per cent of Canarias depositors whose deposits are less than the coverage limit of 10,000 bolivars, or US$4,651 each.

Others with larger deposits would be owed reimbursement once the banks’ assets are sold off.

Dozens of clients and employees gathered at some bank branches seeking information. Some employees carried away boxes and bags filled with belongings.

Opposition politician Henry Ramos Allup said government officials had ignored a warning by the nation’s banking agency late last year, when it said regulators detected problems in the banks.

Alleging corruption by Fernandez, other business people and government officials, Ramos called Fernandez and other involved bankers “Boli-bourgeoisie” — slang for Venezuelans who have grown wealthy during the Bolivarian revolution, Chavez’s name for his political tenure.