Banco do Brasil boosts farm credit plan as investors question exposure

Brazilian state-run lender Banco do Brasil BBAS3 said on Thursday it would bump up the money it allocates to national farm credit in the 2025/26 season, as markets grow increasingly worried about its exposure to the sector.

Banco do Brasil is typically a pillar of the country's "Plano Safra," a government program providing farmers with subsidized loans, which is seen as critical to boosting output in the South American agricultural powerhouse.

The bank said in a statement it would allocate 230 billion reais ($42.41 billion) this season, up 2% on a yearly basis. The government had disclosed its program totaling 605.2 billion reais earlier this week.

"The bank kept its leadership in financing for both family farming and agribusiness, posting growth across all parts of the government's Plano Safra," CEO Tarciana Medeiros said, referring to the previous season.

The announcement comes as investors voice concern over the bank's agricultural footprint, after it reported a profit miss in the first quarter and pulled some full-year projections due to the worsening of its agribusiness credit book delinquency.

Shares of the state-run lender have plunged nearly 25% since it published its first-quarter results in May, with analysts at XP and BTG Pactual downgrading their recommendation on the stock.

Asset manager Legacy Capital revealed in a report on Wednesday that it has been holding a short position on Banco do Brasil for some time now, saying that the market "still underestimates risks stemming from its agribusiness loan book."

Banco do Brasil's agribusiness portfolio stood at 406.2 billion reais at the end of the first quarter, up 9% year-on-year, with a delinquency rate of 3.04%. The lender's overall outlook for expansion of its agribusiness credit portfolio this year ranges from 5% to 9%.

Banco do Brasil shares were up 1.5% on Thursday, in line with benchmark stock index Bovespa IIBOV.

Some farmers in Brazil - a top global supplier of grains, coffee, meat, cotton and sugar - have struggled in recent years with bad weather, high interest rates and elevated input costs, leading to an increase in the number of bankruptcy filings.

($1 = 5.4237 reais)