Banco do Brasil faces new El Niño with farm-credit stress unresolved

Banco do Brasil is still paying the bill from the agribusiness credit downturn. Profit rose 13.9% in the second quarter to R$3.9 billion, but ROE was just 8.3% and cost of credit remained elevated at R$18.5 billion. The improvement in new NPL formation suggests some stabilization, yet the bank enters the second half of 2026 still carrying the effects of the last bad cycle just as a potentially strong El Niño raises the risk of fresh stress in the farm sector.

The rural-credit problem is well known. Provisional Measure 1,314 created facilities to extend producers’ debts, and BB has already restructured R$39.3 billion. Even so, expected losses on that portfolio remain at 10.9%. There has been some improvement: new agribusiness NPL formation fell to 1.37% in the second quarter. But cost of credit still reached R$37.3 billion in the first half, up 43.3%, with agribusiness and retail lending among the main sources of pressure.

That is where the next El Niño matters. Protection against agricultural risk has weakened: the share of crop-financing operations with some form of risk mitigation fell from just over half to just over one-third in two harvest cycles. Less insurance and less protection leave more risk with the producer and, ultimately, with the lender. Repeated restructurings do not fix that weakness. Brazil has become better at dealing with the problem after it emerges, but not necessarily at sharing the risk before losses occur.

For BB, this is structural. The bank accounts for 49.1% of agribusiness financing and 56% of direct lending to individual rural producers. When the cycle turns, that scale makes it the sector’s main financial shock absorber. The decline in new NPLs suggests the portfolio may be stabilizing, but the margin of safety remains thin. Refinancing helps, longer maturities help and stronger collateral helps. None of those measures can make it rain. If the next El Niño is severe, the test will be whether Brazil’s farm-credit model can do more than refinance risk after the damage is done.