Part of the increase reflects the impact of new accounting rules under Resolution 4,966. Still, banks acknowledge that SME delinquency is growing and requires attention, though it has not yet reached alarming levels. The expected cut in the benchmark Selic rate early next year also offers some relief.

The higher-risk assets indicator includes financial instruments and credit operations classified as “stage 3” under Resolution 4,966, which covers loans with serious recovery issues. The resolution took effect at the beginning of this year. Meanwhile, SME delinquency rose from 4.5% in January to 5.4% in September, after peaking at 5.5% in August, the highest since May 2018.

The Central Bank’s most recent Monetary Policy Report estimated that about 70% of the increase in overall delinquency in the first half of the year is linked to the effects of Resolution 4,966.

Ricardo Jacomassi, partner and chief economist at TCP Partners, noted that the credit market has grown rapidly despite high interest rates. The Selic stands at 15%, and the Central Bank’s Monetary Policy Committee (COPOM) has signaled that it will remain high “for quite a prolonged period,” as stated in the latest minutes.

Financial tools

Mr. Jacomassi said part of the difference in behavior between SMEs and large companies lies in the financing tools available. Large companies have access to structured operations, bond issuance, and more collateral. “Small and mid-sized firms don’t have the same options and are heavily reliant on working capital loans and receivables-backed credit,” he said.

In the third-quarter earnings call, Santander’s CFO Gustavo Alejo said short-term delinquency has improved, especially among individual borrowers. “All ‘vintages’ are performing well, but we see some concern in the small business segment,” he noted.

At Itaú Unibanco, SME delinquency rose 0.1 percentage point from the second to the third quarter, “due to normalization following the end of grace periods under government programs.” At Bradesco, the rate declined, and CEO Marcelo Noronha said he sees room for further drops, even though the bank’s overall delinquency rate is expected to remain relatively stable in the coming quarters.

A Central Bank study in its latest Financial Stability Report found that during interest rate hikes, smaller companies are the first to be affected, hurting their repayment capacity. “They’re hit faster because their debt rollovers are shorter, which directly increases their interest expenses,” the report said.

Ricardo Moura, head of investor relations, M&A, and strategy at Banco ABC Brasil, agreed. He noted that smaller firms did not benefit as much from capital markets expansion in recent years and are now forced to borrow at higher rates from banks during this tightening cycle. “They don’t have longer-term liabilities and end up suffering more.”

At ABC Brasil, a conservative credit approach led to a drop in mid-sized company delinquency between June and September. Still, Mr. Moura said he does not expect further declines ahead.

In a statement, Décio Lima, president of Brazil’s small business agency Sebrae, said the rise in SME delinquency is “moderate and compatible” with the current economic cycle. “This is not a sign of uncontrolled deterioration, but a natural adjustment in a more selective credit environment with higher financial costs,” he said.

He added that expectations for the coming months are for stability or gradual improvement, driven by a more predictable economy and stronger support and debt renegotiation measures. “There are challenges, but also tools and ways to address them responsibly.”

New accounting standard

Resolution 4,966 adopts an expected-loss model, replacing the previous incurred-loss approach. Under the new rule,financial institutions must use economic analysis to estimate potential defaults. It also delays the write-off of problematic assets, which raises the numerator over time and ends up increasing measured delinquency.

“Banks must provision based on the probability of future defaults, using macroeconomic and sectoral forecasts,” explained Gisele Assis, a partner specializing in payments and regulation at the law firm /asbz.

The Brazilian Association of Banks (ABBC) said economic conditions are contributing to the rise in SME defaults. However, much of the increase in high-risk loan balances is due to the new accounting standard.

“The changes in how financial institutions recognize expected losses and write-offs have affected how credit operations are allocated to stage 3. This will take time to adjust as lenders recalibrate their internal recovery metrics,” the ABBC said in a note.

The Brazilian Federation of Banks (FEBRABAN) also said the uptick in SME delinquency is partially due to the new rule but also reflects real increases driven by high interest rates. It cited government-backed programs like Pronampe, which offers credit to small businesses at Selic-linked rates. “With the likely scenario of no further Selic hikes, we could see improvement starting early next year,” the federation said.

FEBRABAN added that large companies continue to benefit from ample liquidity in capital markets. “Still, there are some isolated signs of risk, such as bankruptcy filings, which deserve attention.”

7.6 million SMEs behind on payments

The challenges facing SMEs are also reflected in other indicators. Data from credit bureau Serasa Experian showed that by July, 7.6 million small and medium-sized companies in Brazil were behind on at least one financial obligation—ranging from bank loans to utility bills or supplier payments—totaling 54 million overdue debts.