Banco do Brasil Profit Halves as Farm Loans Sour; Stock at 0.6x Book
Banco do Brasil Profit Fall: What Happened
Banco do Brasil S.A. (B3: BBAS3) is the oldest working bank in Latin America and one of its largest: 78,796 employees, a R$1.3 trillion ($255B) expanded credit portfolio, and an unmatched franchise in agribusiness lending — it finances more of Brazil’s farm belt than any institution on earth. The federal government holds 50% of the shares; the rest trade on the Novo Mercado, long prized by income investors for fat dividends.
Key Facts
—Net Profit. Recurring net profit fell 53.5% year over year to R$3.43 billion ($672M).
—Return on Equity. Return on equity collapsed to 7.3% from 16.7%.
—Loan-Loss Provisions. Loan-loss provisions jumped 86%, driven above all by souring farm credit.
—Cost-of-Credit Guidance. Management raised the cost-of-credit guidance from R$53–58 billion to R$65–70 billion ($12.7–13.7B).
—2026 Profit Guidance. The 2026 profit guidance was cut from R$22–26 billion to R$18–22 billion ($3.5–4.3B).
—Valuation. The stock trades at R$20.76, 0.61x book value, and 9.4x depressed earnings.
The latest reported quarter landed in May and was ugly: recurring net income of R$3.43 billion ($672M), down 53.5%, per ADVFN, with return on equity at 7.3% — for scale, private rivals Itaú and Santander Brasil run north of 20%. Provisions for bad loans jumped 86%, concentrated in agribusiness and unsecured personal credit, per Seu Dinheiro.
Two numbers define the debate: 0.61x book and 7.3% ROE. A bank earning less than its cost of equity deserves a discount to book — the argument is only about how temporary the 7.3% is.
Key Drivers Behind the Fall
The farm belt is the wound. Brazil’s agricultural boom was financed at floating rates, and the combination of high Selic, weaker grain prices — the same deflation crushing Camil — and two difficult harvests has pushed record numbers of farmers into court-supervised debt workouts.
As the country’s dominant agro lender, Banco do Brasil owns a disproportionate share of that pain: the 86% jump in provisions is the harvest failure arriving on a bank balance sheet.
A new accounting regime sharpened the blow. Brazil’s central bank pushed lenders onto stricter expected-loss provisioning this year, forcing earlier recognition.
And unsecured personal credit — the other growth engine of recent years — is souring alongside. Service fees (+5.5% to R$8.8 billion) and treasury results (+26.4%) cushioned what they could.
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Banco do Brasil Financial Detail
| Metric | 1T25 | 1T26 | Chg |
|---|---|---|---|
| Recurring net profit | R$7.38 bn ($1.4B) | R$3.43 bn ($672M) | −53.5% |
| Return on equity | 16.7% | 7.3% | −9.4 pp |
| Provisions (cost of credit) | — | — | +86% |
| Service revenue | R$8.3 bn ($1.6B) | R$8.8 bn ($1.7B) | +5.5% |
| Market NII (treasury) | R$3.5 bn ($686M) | R$4.4 bn ($862M) | +26.4% |
| Expanded credit portfolio | R$1.27 tn | R$1.3 tn ($255B) | +2.2% |
| 2026 guidance | Before | After | |
|---|---|---|---|
| Cost of credit | R$53–58 bn | R$65–70 bn ($12.7–13.7B) | |
| Net profit | R$22–26 bn | R$18–22 bn ($3.5–4.3B) |
| Fiscal year | Net income | Change |
|---|---|---|
| 2021 | R$19.7 bn ($3.9B) | — |
| 2022 | R$31.1 bn ($6.1B) | +58% |
| 2023 | R$29.9 bn ($5.9B) | −4% |
| 2024 | R$26.4 bn ($5.2B) | −12% |
| 2025 | R$13.7 bn ($2.7B) | −48% |
| Quarter | EPS actual | EPS estimate | Surprise |
|---|---|---|---|
| Q1 2026 | R$0.53 | R$0.51 | +3.9% |
| Q4 2025 | R$1.06 | R$0.72 | +47.2% |
| Q3 2025 | R$0.66 | R$0.65 | +1.5% |
| Q2 2025 | R$0.67 | R$0.87 | −23.0% |
| Q1 2025 | R$1.29 | R$1.57 | −17.8% |
Management Signals
CEO Tarciana Medeiros’ team chose the kitchen-sink route: cut the guidance hard, front-load the provisioning, and rebuild credibility from a floor the bank can actually defend. The tell will be the dividend — Banco do Brasil’s payout is politically visible (half flows to the Treasury), and how management balances capital preservation against its income-stock identity says what it really expects from the farm book.
What to Watch Next
August 12: second-quarter results — the first full quarter under the new guidance; the market needs provisions to decelerate. Farm-debt workouts: the monthly count of judicial recovery filings in the agro belt is this stock’s leading indicator. Selic cuts: relief for floating-rate farm debtors, but pressure on the treasury income now cushioning results. Politics: any hint of the state leaning on its bank for policy lending would widen the discount.
Risks
The bear case: farm-credit stress runs into the 2026-27 harvest, provisions stay at the new guidance ceiling, and the 7.3% ROE becomes a plateau rather than a trough — at which point 0.61x book is not cheap. State control cuts both ways: it guarantees the franchise and clouds the governance.
And the dividend that anchored the shareholder base is arithmetically at risk if the profit guidance slips again.
Background: Moraes Family Firm Warned of Corruption Risk in Master Advice.
Brazilian Banking Sector Context
The gap between Brazil’s private and public banks has rarely been this wide: Itaú and Santander Brasil print 20%+ returns while the state lender halves its profit — same country, same rates, different loan books. Banco do Brasil is paying for being the bank of Brazilian agriculture in the one year agriculture could not pay.
That is precisely the bet the stock offers at 0.61x book: agro credit is cyclical, Brazil’s farm engine is structural, and the bank financing it has survived every crisis since 1808. The counter-argument reports on August 12.
This report is part of The Rio Times’ Company Intelligence coverage of B3-listed companies. It is journalism, not investment advice.
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