Latin America Advisor 2022-03-08 – Inter-American Dialogue

LATIN AMERICA ADVISOR

A daily publication Of the dialogue

March 8, 2022

Can the Region’s Small Businesses Still Secure Loans?

Small businesses are likely to struggle during the economic recovery from the Covid-19 pandemic, Joy K. Gallup writes below. // File Photo: Peruvian Government.

Q

Credit expansion is expected to grow across most of Latin America and the Caribbean this year despite slowing economic growth, Fitch Ratings said in a note last December. However, after loan moratoriums expired at the end of last year in several countries of the region, more loan delinquencies are expected, including among loans made to small- and medium-sized enterprises (SMEs), the ratings agency added. What is the outlook for SMEs in Latin America as the region’s recovery from the pandemic evolves? To what extent are SMEs in the region still able to acquire loans and how much are they being compelled to borrow at growing levels? What complications are SMEs in the region facing amid rising inflation and higher interest rates? Do nonperforming loans in the SME sector pose significant risks to the region’s banks and lenders?

A

Joy K. Gallup, partner in the Corporate Department of Paul Hastings LLP: “SMEs, representing an outsized percentage of the businesses in Latin America and the Caribbean, are likely to struggle through the ongoing recovery from the pandemic in 2022 due to slowing economic growth and the unequal distribution of that growth. These SMEs do not contribute to GDP in proportion to their numbers. Most do not have access to traditional sources of capital, and the funding gap between their financing needs and availability in the region is very high. While Fitch Ratings states that credit losses are expected to be manageable for the region’s banks, the traditional banks are not providing the bulk of the financing that SMEs need. Over the past year, nonbank lenders in the region that specialize in providing SME financing experienced increasing levels of SME portfolio loan losses, in some cases jeopardizing their…”

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Thomas F. McLarty III
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Ernesto Revilla
Head of Latin American Economics, Citi

Gustavo Roosen
President,
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Andrés Rozental
President, Rozental &
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Shelly Shetty
Managing Director,
Sovereigns, Fitch

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