By Brazil Stock Guide – Brazilian President Luiz Inácio Lula da Silva confirmed on Friday (Sept. 5) that he signed a provisional decree authorizing the renegotiation of farm debts hit by climate shocks. The program channels R$12 billion ($2.2 billion) from the Treasury through banks, offering a lifeline to Banco do Brasil (B3: BBAS3), the country’s largest rural lender.
The plan offers controlled interest rates — 6% annually for family farmers and 10% for large producers — with repayment terms of up to eight years and a grace period of up to two years. Lula announced the measure in a video posted on social media during the opening of Expointer, an agricultural fair in Esteio, southern Brazil.
Banco do Brasil holds nearly one-third of its loan book in agribusiness and has been squeezed by rising defaults. Provisions jumped after the central bank’s Resolution 4,966 took effect in January, requiring banks to immediately reclassify loans from clients under court-supervised restructuring as high risk.
Dividends and fiscal stakes
The relief could also boost government coffers. The government had already cut its expected dividend income from the bank after worsening rural delinquencies. Officials now hope the program will stabilize earnings, allowing Banco do Brasil to resume stronger payouts.
The measure won’t hit Brazil’s fiscal spending cap or the primary budget target, but it will raise gross public debt. Lula’s team chose the R$12 billion arrangement to avoid a broader bill passed by the lower house in July that envisioned as much as R$30 billion in subsidized farm credit.
The program gives indebted farmers more time and cheaper credit, while banks cut their loss exposure. The National Treasury, however, bears the subsidy cost, adding to Brazil’s debt load.
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