There is a new force in small and medium-sized enterprise banking in Latin America and that is BTG Pactual. The bank is renowned for forensically analyzing new segments before entering and then aggressively pursuing what it has identified as specific opportunities and market innovations.
Its impact on SME banking followed this pattern and the bank has been enjoying swift market penetration since it prioritized the sector in recent years. In 2023, the bank’s corporate and SME lending portfolio grew by 19%, and R$8.9 billion ($1.6 billion) of this was part of the bank’s sustainable financing framework, with the bank enforcing IFC Performance Standards for every transaction larger than $30 million.
BTG Pactual’s SME business – under the stewardship of the bank’s chief executive Roberto Sallouti – now accounts for 12.2% of the bank’s total business, up from just 4.5% in 2019. BTG’s SME credit portfolio has been growing at a compound annual growth rate of 21% – much faster than the rest of the market, albeit from a lower base.
The segment represents 99% of Brazilian business and is the major source of job creation. In fact, BTG attributes the low level of GDP growth in Brazil (0.6% over the past decade) to structural bottlenecks that impact the SME sector more than larger companies, including lack of access to credit. In response BTG has started to provide fast credit lines and improved the support needed to facilitate SME transactions, most of which take place online or on mobile. The bank has also identified specific industries that have both good growth prospects and a large number of companies, such as those in renewable energy.
Despite historically relying heavily on hydropower plants to supply its energy demand, Brazil’s electricity matrix has been changing in recent years. The country has started to focus investments in solar and wind power, which combined account for 96% of new energy authorizations. By 2027 these two sources are expected to make up 22% of total power capacity and BTG has increased its exposure to this with a $512.9 million SME loan portfolio to the industry, mainly focused on the northeast where most new solar and wind plants are located. The bank has developed a specific solar credit platform that allows distributors to access credit immediately and extend repayments. A similar initiative for the agricultural sector has also been established.
In 2023 BTG also launched a platform focused on Brazil’s deregulated energy market, which is dominated by SMEs. Companies that consume energy in the regulated market must purchase it in regulated auctions and cannot trade it freely. However, when they switch to the deregulated market, companies have the freedom to choose their supplier and contract terms.
BTG Pactual’s SME business now accounts for 12.2% of the bank’s total business, up from just 4.5% in 2019
BTG anticipated that many SMEs would find it difficult to navigate this newly liberalized market and so introduced a new digital product called the Guaranteed Discount, which offers a discount of up to 30% compared to the regulated market price. Already more than 35% of the energy consumed in Brazil is sold on the free market – most of which is bought by SMEs – and 10% of that is sold through BTG’s proprietary platform.
More broadly, BTG’s digital platform for SMEs provides firms with access to a wide range of products and services, such as credit, guarantees, insurance, investments, foreign exchange and derivatives. BTG also grants access to the platform to partners who offer non-banking services to SMEs, such as those that aim to support the management and productivity of companies in the segment.
And it’s not just Brazil. Since 2022 BTG has been aggressively expanding its Latin American SME credit lines. By the end of 2023 its credit portfolio outside Brazil was R$780 million and its ambitions for future growth are as clear as the level of disruption it has been causing in the Brazilian SME banking market for the past few years.
