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Brazil's top banks have highest loan exposures to vulnerable SME segment

Three major Brazilian banks have some of the largest loan portfolio allocations to small and midsize enterprises, a segment widely considered to be among the most vulnerable during the COVID-19 pandemic, data collected by S&P Global Market Intelligence shows.

Banco Bradesco SA has the greatest exposure to SMEs among a sample of regional heavyweights, with 24.0% of its loan book allocated to the segment. At Itaú Unibanco Holding SA, Latin America's largest financial institution, SME lending makes up about 16.3% of its total loan book, while at Banco Santander Brasil SA it is 12.2%.

On average, the group of large Latin American banks have 12.1% of their financings allocated to SMEs.

Smaller businesses have been one of the main areas of concern for lenders through the COVID-19 pandemic, as mobility restrictions have forced many business owners to shut down temporarily. Few have the ability to weather the crisis for an extended period. Itaú's investor relations head has called the SME sector "the most fragile link in the chain."

The coronavirus outbreak has hit Latin America particularly hard. Months later, many countries are still struggling to contain its spread. Flexibility programs and government help throughout the pandemic has so far shielded SME owners from falling into default. About 50 million loans worth a combined $330 billion gained some form of credit relief in five of Latin America's largest economies: Brazil, Mexico, Colombia, Chile and Peru. In some countries, the value of those loans represented up to two-fifths of total private credit loans in the system.

But as those measures begin to wind down, credit deterioration is likely to increase.

Outside of Brazil, Banco de Chile and Banco de Crédito del Perú SA also have sizable loan exposures to the SME segment, at 15.2% and 13.7% of their loan books, respectively. Similarly, Banco Santander Chile's SME lending accounts for about 13.3% of its portfolio.

Conversely, Peru's Intercorp Financial Services Inc. and Mexico's Grupo Financiero Inbursa SAB de CV have relatively lower exposures, both below 5%.

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