Rural defaults climbed from 0.5% to 3.0% in two years
Banco do Brasil's rural credit exposure is uniquely high at 33% of total portfolio versus 7% at Bradesco and 3% at Santander, with 96% from individual farmers. NPL formation reached R$14.3 billion in Q1 2025 (5.2% of average credit portfolio), driven by commodity oversupply, climate events, and judicial recovery requests.
- Rural credit comprises 33% of Banco do Brasil's portfolio vs. 7% at Bradesco and 3% at Santander
- Non-performing loans reached R$14.3 billion in Q1 2025, or 5.2% of average credit portfolio
- Goldman cut 2025 profit estimates by 22% and price target to R$23 from R$25
- Expected ROE to bottom at 11.9% in Q2 2025 before gradual recovery toward 15%
- 96% of Banco do Brasil's agricultural portfolio comes from individual farmers
Goldman Sachs reduced Banco do Brasil's price target from R$25 to R$23 due to deteriorating rural credit portfolio, with NPLs rising from 0.5% to 3.0% since 2022. The bank cut 2025 profit estimates by 22% and expects ROE to bottom at 11.9% in Q2.
Banco do Brasil's stock has lost nearly a third of its value since first-quarter earnings landed, and now Goldman Sachs is telling investors to expect worse before things get better. The investment bank cut its price target on the state-controlled lender to R$23 from R$25, a move that reflects a grimmer view of the agricultural credit portfolio that has become the bank's central vulnerability.
The numbers tell the story of a crisis that crept up gradually, then accelerated. Rural loan defaults at Banco do Brasil have climbed from 0.5 percent in late 2022 to 3.0 percent by the first quarter of 2025, and Goldman expects them to keep rising through the second quarter. The bank's reserves for bad loans have not kept pace with the deterioration, meaning larger provisions are coming. In the first quarter alone, non-performing loans reached R$14.3 billion—equivalent to 5.2 percent of the bank's average credit portfolio.
What makes Banco do Brasil uniquely exposed is the sheer concentration of its agricultural bet. One-third of the bank's total lending goes to agribusiness, compared to 7 percent at Bradesco and 3 percent at Santander. More striking still: 96 percent of Banco do Brasil's agricultural portfolio comes from individual farmers rather than larger operations. The private banks, by contrast, have roughly half their farm lending spread across smaller producers. This structural difference means Banco do Brasil absorbs the full force of agricultural stress without the diversification its competitors enjoy.
The stress itself has multiple origins. Oversupply followed bumper harvests in 2021 and 2022. Commodity prices spiked during the Ukraine war, then fell. Extreme weather in 2023 and 2024 devastated crops and triggered a wave of judicial recovery requests. Farmers who borrowed in better times now cannot service their debts.
Goldman has slashed its earnings estimates across the board: down 22 percent for 2025, 12 percent for 2026, and 4 percent for 2027. The bank now projects net income of R$25.6 billion for this year—31 percent below the low end of guidance that Banco do Brasil itself provided and is now revising. Return on equity, a key measure of profitability, will hit bottom at 11.9 percent in the second quarter before gradually recovering toward 15 percent, Goldman believes. That recovery assumes the rural deterioration is mostly cyclical rather than structural.
The dividend is also at risk. Goldman expects a 30 percent payout ratio for 2025, well below the bank's stated guidance of 40 to 45 percent. Capital preservation is becoming the priority. The bank's CET1 capital ratio sits at 11.0 percent—adequate by regulatory standards but modest by the standards of a major lender trying to weather a crisis and fund future growth.
JPMorgan, in separate analysis, warned that investor expectations for Banco do Brasil have become untethered from reality. The bank noted that asset-quality deterioration cycles typically take two years or more to resolve, and some investors are drawing comparisons to Bradesco's recovery, which unfolded over roughly that timeframe. The question hanging over the stock is whether Banco do Brasil has the capital cushion and earnings power to absorb the losses ahead without cutting growth or dividends so deeply that it becomes uncompetitive. For now, the market is pricing in a long wait.
Citas Notables
Goldman expects rural loan defaults to keep rising through the second quarter, with reserves lagging behind deterioration— Goldman Sachs analysis
JPMorgan warned that investor expectations for Banco do Brasil have become untethered from reality, with asset-quality cycles typically taking two years or more to resolve— JPMorgan
La Conversación del Hearth Otra perspectiva de la historia
Why is Banco do Brasil so much more exposed to this rural credit problem than its competitors?
It's a structural choice that made sense in better times. The bank lends to individual farmers at scale—96 percent of its agricultural portfolio—while Bradesco and Santander have more balanced customer bases. That concentration was fine when commodity prices were rising and harvests were strong. Now it's a liability.
So this isn't just a temporary downturn?
It could be. Goldman thinks the deterioration is mostly cyclical. But the timing is brutal—oversupply from good harvests, then weather disasters, then judicial recovery requests all piling up at once. The bank's own reserves haven't kept pace, so larger write-downs are coming.
What does the dividend cut mean for shareholders?
It signals that capital preservation matters more than income right now. The bank is guiding for 30 percent payout instead of 40 to 45 percent. That's a real hit for investors who bought this stock for yield.
How long until things stabilize?
JPMorgan is pointing to Bradesco's experience—roughly two years for a meaningful recovery. But that assumes the agricultural cycle turns and commodity prices stabilize. There's no guarantee either happens on schedule.
Is the stock cheap enough to buy now?
Goldman says there's 8 percent upside to R$23 plus 6 percent dividend yield. But that assumes the recovery thesis holds. The market is trading it at 4.8 times projected 2025 earnings, a bigger discount to private peers than historical average. Cheap can stay cheap if the story keeps deteriorating.