Banco do Brasil reported its weakest profit since 2020 as new accounting rules and agribusiness stress drove provisions higher, cutting dividends and weighing on returns.
Banco do Brasil SA (Brazil) has reported its weakest quarterly profit since 2020, as stricter accounting standards and rising credit stress in agribusiness weighed heavily on earnings.
The state-controlled bank’s adjusted profit fell 60% year-over-year in the second quarter to 3.8 billion reais ($701 million), well below market expectations of 5 billion reais. The new rules, effective since January, require lenders to apply tougher provisioning standards and halt the accrual of interest on distressed loans, pressuring balance sheets across the sector.
Provisions for credit losses surged 104% to 15.9 billion reais, reflecting higher risks in the agribusiness portfolio, where bankruptcies among Brazilian farmers have accelerated. As a result, return on equity slipped to 8.4%, the lowest since 2016, underscoring the scale of the bank’s earnings challenge.
In addition to the weaker results, Banco do Brasil cut its dividend payout ratio to 30%, from a prior range of 40%–45%. This marks the first reduction in shareholder returns since 2020, when the COVID-19 pandemic forced payout restrictions. The move is particularly significant as the Brazilian government — a majority shareholder — relies on these dividends to support its annual budget.
Despite the earnings setback, Chief Executive Officer Tarciana Medeiros highlighted that 2025 will serve as an “adjustment year,” with a recovery expected to begin in the fourth quarter, supported by growth in net interest income. The bank also reinstated its full-year profit guidance, projecting at least a 34% decline year-over-year after previously withdrawing its forecast in May.
Banco do Brasil’s shares have declined 17% so far in 2025, extending last year’s 13% drop. However, analysts note that much of the downside risk may already be reflected in the current stock price, given the technical rebound observed following the earnings release.
This performance highlights the dual challenge for Banco do Brasil: navigating stricter regulatory standards while managing heightened credit risks in agribusiness. With dividend adjustments and elevated provisions weighing on near-term profitability, the lender’s focus remains on stabilizing its loan portfolio and positioning for gradual earnings recovery in 2025.
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