BRASILIA: Banco do Brasil SA is weighing fresh financial relief for farmers hit by the war in Iran, a move that risks straining its balance sheet and reviving the need for asset sales or a capital increase.
One option under discussion at the state-controlled bank, Brazil’s largest lender to agribusiness, is to extend loan maturities, allowing farmers to defer part of their payments to the end of existing contracts rather than suspending obligations outright, according to a person familiar with the matter.
Last year, Banco do Brasil narrowly avoided a capital increase when delinquencies in its agriculture loan portfolio surged, forcing it to renegotiate 35.5 billion reais in debt from farmers affected by droughts, floods and other adverse climate events.
Pressure on the bank’s balance sheet eased towards the end of the year as revenue from payroll-deducted loans rose, but the risk of a capital increase still lingers, according to three people familiar with the situation.
The lender is also evaluating asset sales to bolster capital, other people involved in the discussions said. All of the people spoke on condition of anonymity because the matter is sensitive.
Options include changes to its insurance business model and a potential initial public offering of its credit card unit Elo.
Banco do Brasil said in a statement there is no “study or demand involving specific actions to extend maturities due to the conflicts in the Middle East”.
Banco do Brasil has long served as a key tool to finance Brazil’s vast agricultural sector, which accounts for nearly a quarter of gross domestic product.
That role is especially important for President Luiz Inacio Lula da Silva, who has historically struggled to win support from agribusiness and now faces a tight re-election campaign against Senator Flavio Bolsonaro, son of former President Jair Bolsonaro.
The bank is also navigating a more challenging operating environment. A central bank rule implemented last year requires banks to provision upfront for expected losses and stop accruing interest on non-performing loans.
While Banco do Brasil has traditionally been more conservative than peers, booking higher provisions, that stance eased more recently as it sought to support profitability.
The regulatory change has compounded a broader rise in delinquencies.
The bank’s 90-day delinquency ratio rose to 5.17% at the end of 2025, from 3.16% a year earlier, driven largely by agribusiness and credit card portfolios. Defaults in the farm sector reached 6.09%, jumping 1.25 percentage points in the fourth quarter alone and prompting higher provisions.
Earlier this year, Banco do Brasil asked the Finance Ministry to delay payments to the Treasury. The lender requested postponing 1.8 billion reais due in 2026 and 2027 to 2029.
Chief executive officer Tarciana Medeiros said the move was part of a “prudent” capital management plan.
Banco do Brasil is assessing whether disruptions to global shipping, particularly risks to flows through the Strait of Hormuz, could increase costs for Brazilian commodity exporters and eventually require relief measures, according to a person familiar with the matter.
Executives are closely monitoring the next 12 weeks as a key window to assess whether the conflict will significantly disrupt global trade routes.
For now, Brazilian exports continue to flow, though higher diesel prices have already pushed up transportation costs.
Fresh relief could help Lula ease tensions with agribusiness ahead of elections, but it may also revive concerns about the use of state banks to pursue policy goals at the expense of balance sheet strength. — Bloomberg
