SAO PAULO (Reuters) -Banco do Brasil is facing the highest default level ever recorded in its agribusiness loan portfolio, CEO Tarciana Medeiros said on Friday, adding that the deterioration had not been anticipated even in the most pessimistic forecasts.
The state-run lender on Thursday reported weaker-than-expected second-quarter results and announced a sharp cut to its full-year outlook, following an already challenging first quarter marked by high delinquency in the agribusiness segment.
Most of the defaults stem from soybean, corn, and cattle producers in Brazil’s center-west and southern regions, Medeiros said during a call with analysts.
“We have a portfolio of over 600,000 clients, of which 20,000 are in default. And 74% of them had never been in default until December 2023,” she said.
Many farmers in Brazil – a top global supplier of grains, coffee, meat, cotton and sugar – have struggled in recent years with bad weather, high interest rates and elevated input costs, leading to an increase in the number of bankruptcy filings.
Banco do Brasil reported a 90-day default ratio of 3.49% in the sector in the April-to-June period, up from 3.04% in the previous quarter and 1.32% a year earlier.
The bank, long seen as a pillar of farm credit in the South American agricultural powerhouse, expects the sector to continue to hurt its results in the very short term, Medeiros said.
She pointed to a “still stressed” third quarter and said the lender did not want market participants to have unrealistic expectations, as it has debt from the 2024/25 season maturing through September.
The bank hopes that favorable weather conditions, forecasts for a bumper 2025/26 grain crop and improving commodity prices will help lower delinquency in agribusiness in the new season.
Banco do Brasil expects some improvement in its overall results from the fourth quarter onwards, driven by net interest income growth.
Its shares fell as much as 4% in early Sao Paulo trading, before reversing course to trade up 1%. They had plunged more than 30% since the weaker-than-expected first quarter results and are still down 13% year-to-date.
“Certainly a weak quarter, but somewhat expected,” analysts at Itau BBA said in a note to clients.
“We remain cautious, looking for more visibility on the still-worsening credit quality trends, but do not expect a major negative reaction,” they added.
($1 = 5.3934 reais)
(Reporting by Gabriel Araujo, Paula Arend Laier and Alberto Alerigi Jr.; Editing by Joe Bavier)
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