Banco do Brasil (), the largest agribusiness financier in the country, threatens to suspend new loans to producers who file for judicial recovery, amid a wave of defaults in rural regions.
“They won’t have credit today, tomorrow or ever again,” said Felipe Prince, the bank’s risk director, in an interview. “Judicial recovery is a trap for producers — they lose access to credit and are unable to plant the next crop.”
The bank has also been adopting a stricter stance in debt negotiations and greater caution in granting credit, demanding faster payments and more solid guarantees. The change comes after a court decision that allowed individual producers to request protection from creditors and after accounting adjustments that led the bank to record, in the second quarter, the lowest profit in almost five years.
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According to data from the bank itself, R$5.4 billion in loans are not being paid due to requests for judicial recovery from 808 rural producers, in a universe of 1 million customers and a credit portfolio for the agricultural sector that totaled R$404.9 billion in June.
Prince, who has worked at Banco do Brasil for more than 25 years, stated that agribusiness is undergoing a profound transformation.
“To get an idea of the change in behavior, 75% of defaulting producers are in this situation for the first time,” he said.
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Even among those who did not seek judicial protection, delays in payments grew. The rural portfolio default rate rose 2.2 percentage points in one year, reaching 3.5% in June.
The increase in provisions for credit losses reduced the bank’s return on equity from 21.6% to 8.4% in the same period. The drop in Banco do Brasil’s profits is one of the clearest signs of the difficulties faced by producers and financial institutions in one of the largest agricultural hubs in the world.
The higher costs of rural credit left Banco do Brasil with the worst performance among the country’s large banks in the first half of the year. Analysts expect this difference to persist.
“Banco do Brasil should be the last to release results and probably the weakest of the group,” wrote Pedro Leduc, an analyst at Itaú BBA, in a report on the third quarter. The balance sheet is scheduled for November 12th.
Gustavo Schroden, an analyst at Citigroup, stated in a note that the third quarter should be the worst of the year for Banco do Brasil, given the continued challenges in agribusiness.
A debt renegotiation program launched by the government should not yet have an impact, as the bank only started offering it at the end of October. Even so, any signs of customer adoption will be a relevant indicator, according to Schroden.
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Change of relationship
Producers used to prioritize payments to Banco do Brasil, which accounts for around 60% of rural credit in the country — some with subsidized interest — and was seen as a long-term partner.
“We were always the bank that came back, negotiated, extended maturities and didn’t cut credit lines,” said Prince.
When there was no agreement, the risk was the loss of land, as many loans were secured by mortgages.
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The strengthening of agribusiness, especially during and after the pandemic, attracted new financiers who did not previously operate in the sector, such as Fiagros — funds that invest in securities backed by receivables from the field.
“More credit came in, but it was precisely this credit that super-leveraged the segment,” said Prince.
Then came the drop in commodity prices, the rise in interest rates and the increase in climate disasters. As a result, defaults grew and the Fiagros started charging advance payments, according to the executive.
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Many producers began to prioritize the titles held by Fiagros or resorted to judicial recovery, which prevents Banco do Brasil from taking the land given as collateral.
“There is a change in behavior,” Prince said. “And this change forces us to adapt to a new reality.”
The bank now requires an extra layer of security to ensure that the land given as collateral is not protected in judicial recovery processes. The institution replaced mortgages with fiduciary alienation, a modality in which the creditor maintains ownership of the asset until the debt is paid in full.
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This type of guarantee makes credit more expensive, increasing the cost for producers.
The changes also affect the pace of financing release, according to a report by JPMorgan analysts led by Yuri Fernandes.
“New disbursements are occurring, but more slowly, because more guarantees are required, which takes more time,” they wrote.
Banco do Brasil also reduced the period for contacting the producer after late payment, from 30 to 5 days. And it shortened the period before going to court, from 90 to 180 days to 30 days.
The institution also started using artificial intelligence to classify customers according to their payment capacity, mapping where they can expand credit, renegotiate debts or suspend loans.
Renegotiation initiatives to avoid defaults also increased.
“There is no debt that cannot be negotiated with us,” said Prince. “The producer is fully willing to talk, no matter the complexity of the situation — unless he requests judicial recovery.”
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