By Brazil Stock Guide – Banco do Brasil (B3: BBAS3) said it expects a full normalization of its agribusiness loan book only in 2026, using the Q&A session of its earnings call to detail how an accelerated renegotiation program, heavier provisioning and stricter credit practices aim to stabilize a historic rural delinquency shock.
Restructuring Under MP 1314 Gains Speed
CEO Tarciana Medeiros described 2025 as a “transition year,” noting that provisions surged because producers waited for MP 1314’s regulation before resuming payments. CRO Felipe Prince told analysts that this “pause” distorted migration between credit stages, with many Stage 2 loans avoiding deterioration thanks to imminent restructuring. He said October was still pressured but should mark the peak of the cycle as renegotiations accelerate.
Analysts questioned whether the bank can truly absorb the surge in non-performing operations. Executives highlighted that renegotiations reached in 24 days the pace previously expected for two months, with R$5.4 billion already approved and R$11.4 billion under analysis. The target of R$24 billion in free-funding renegotiations remains intact, and the bank stressed that there is no formal cap on free resources — only on regulated funds.
Renegotiated Loans Become the Core Risk
The sharp increase in the renegotiated portfolio prompted further questions. Prince acknowledged the discomfort, saying the portfolio expanded because producers had been rolling over debt for years without structural adjustments. Under MP 1314, these loans will migrate into structured renegotiation, with payment flows and maturities rebuilt case by case.
Agribusiness VP Gilson Bittencourt added that the bank is enforcing strict viability criteria — some producers receive shorter terms, others up to nine years, and some do not qualify at all. He said renegotiations concentrate 33% in the Center-West, 27% in the Southeast and 21% in the South, with most controlled-fund cases in southern states affected by climate and pricing shocks.
New Origination Standards Redefine Rural Credit
Analysts pressed on whether the same deterioration could return with the next crop cycle. Bittencourt said the 24/25 season reflected an unusual combination of climate effects, price swings and leverage, but that the bank has already overhauled its credit model.
New contracts rely on fiduciary collateral, georeferenced land productivity, historical performance data dating back to the 1960s and tighter scrutiny of tenants. Prince said the bank will take a firmer legal stance, including filing for bankruptcy in cases of abusive judicial recovery, signaling a shift in posture.
Corporate Credit and Judicial Recoveries Add Pressure
Questions about wholesale credit intensified after executives disclosed R$1.3 billion in provisions tied to large corporate cases. Prince explained that judicial-recovery clients may join MP 1314 only after leaving court protection, since the program is designed for economically viable borrowers. He said the bank is preparing to challenge certain cases legally to prevent strategic misuse of judicial recovery.
Consumer Credit Hit by Rural Spillover
The bank faced questions about its retail portfolio after reporting the highest 90-day delinquency since 2014. CFO Giovanni Tobias said more than 40% of the deterioration stems from rural households, affecting even credit-card performance.
He expects normalization in the fourth quarter thanks to seasonality and holiday income flows. Looking ahead, he said 2026 growth will rely on payroll-deductible loans for public servants and private-sector workers, with the worker-payroll product already reaching R$11 billion in disbursements and more than 90% assignment ratios. Analysts asked whether tax reform could aid recovery; Tobias said income-tax exemption up to R$5,000 should meaningfully support disposable income and repayment.
Capital to Remain Constrained Through 2026
When analysts asked about returning to higher payouts, Tobias made clear that the dividend policy will stay at 30% due to upcoming capital pressures. He outlined impacts from the expiration of CGPE, new layers of Resolution 4966, annual hybrid-instrument redemptions and phased operational-risk charges.
RI head Janaína Stott clarified that these effects sum to roughly 60 bps from CGPE, 25 bps from the resolution, 10 bps per year in operational risk and R$1 billion per year in hybrids. She noted that every real renegotiated under MP 1314 generates deferred-tax assets that help offset these hits.
Margins and Treasury Face a Lower-Selic Environment
Analysts also asked how falling rates would affect the bank’s margin. Tobias said a lower Selic should ease pressure on post-fixed funding and reduce the pre- versus post-rate mismatch, but will compress retail spreads, making credit mix and volume more important. Treasury played a significant role in third-quarter NII due to high liquidity and high rates, but he expects a more moderate, predictable contribution in 2026.
Tax Rate Turns Negative on Heavy Provisioning
International investors questioned the negative tax rate. Tobias explained that large deferred-tax assets generated under Resolution 4966 outweighed pre-tax income and that the effective rate should remain “low single-digit” while provisions remain high. He also confirmed that Brazil’s Supreme Court extended the negotiation window for economic-plan cases through mid-2027, meaning related provisions will continue without major swings.
A Long Cycle, but a Defined Path
Throughout the call, executives repeated that Banco do Brasil is facing one of the most complex credit cycles in years, yet remains confident that accelerated renegotiation, tighter origination and a shift toward safer retail products will stabilize rural delinquency in late 2025 and drive a clear turnaround in 2026. Despite absorbing nearly R$60 billion in provisions this year, the bank still expects to deliver close to R$20 billion in 2025 net income — a signal, management argued, of the institution’s ability to withstand a historic agribusiness credit shock.
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