BB (BBAS3) recognizes pressure on provisions, but sees defaults under control

Banco do Brasil (BBAS3) recognizes that there is pressure on the credit portfolio from the legal entity and agribusiness segment, but that default rates will remain at a healthy level and provisions for doubtful debts will move towards the projection stipulated for the year .

“The bank’s pricing still does not reflect the fact that we are among the most profitable institutions in the country. The shares appreciated by 75% last year, but we consider that our valuation is still far from what it should be”, said Tarciana Medeiros, president of BB, during a press conference to detail the results of the first quarter.

The increase in provisions, as well as the increase in defaults in the agro and legal entities portfolio, was one of the points that caught the attention of analysts.

BB’s provisions totaled R$8.5 billion in the first quarter, an increase of 45.9%. If this pace is maintained, this expense would be above the projection for the year, which is between R$27 billion and R$30 billion.

In the same period, the default rate (delays over 90 days) was 2.9%, compared to 2.62% in the same period last year. This increase was due to the higher rate of delays in the agricultural segment and legal entities.

BB’s Vice President of Finance, Marco Geovanne Tobias, stated that the increase in defaults in the agribusiness portfolio is being monitored and is linked to a group of soybean producers. The default rate for this portfolio reached 1.19% in the first quarter, compared to 0.59% in the same period last year and 0.96% in the fourth quarter.

“We understand that we have sufficient provision to cover the risk of this portfolio. The default being observed is a specific case of soy products. Due to the variation in the commodity, some were delayed, but we have been monitoring to keep defaults under control”, he said during the press conference on the first quarter results.

According to BB, producers increased product storage, expecting a rise in prices. However, they will have to honor the operations to have financing for the 2024/2025 harvest.

In relation to legal entities, the expectation is for a drop in lines intended for small and medium-sized companies and, in the case of large companies, the increase in defaults and provisions are related to Casas Bahia, which announced an extrajudicial recovery.

“We saw a stabilization in individual risk management. We started to come under a little more pressure due to credits to companies, with some inferring judicial or extrajudicial recovery, and SMEs which are a little more challenging”, he explained, adding that the bank has provisions to deal with this period of deterioration.

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Despite this pressure, he stated that he is confident in the delivery of provisions and other guidance. Furthermore, he stated that the bank’s “payout” (payment of dividends in relation to profit), which was increased from 40% to 45% in February.

The bank’s guidance (projection) for adjusted profit is a range between R$37 billion and R$40 billion – it was R$35.6 billion in 2023.

“Although many analysts do not believe it, our first quarter numbers show that we can deliver a ‘high single digit’ [um dígito alto]”, he said.

Rio Grande do Sul

Medeiros informed that the bank does not yet have an estimate of the impacts of the floods that hit Rio Grande do Sul, a state that represents 4% of the bank’s total portfolio and 6% of the agro portfolio.

“It’s something we’ve never dealt with. The country never coped. It is an unprecedented tragedy. It is not something that currently has a relationship only with the bank. It’s an entire economic cycle for an entire region and the impacts on the country,” she said.

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For the executive, in addition to serving the region, it is important to seek structuring actions because events like this are likely to become more recurrent. “We need to see how prepared we will be to deal with adverse weather conditions from now on.”

The bank announced this Tuesday an additional R$50 million to support those affected by the floods. These resources will be directed by the BB Foundation. Previously, BB had already announced R$5 million in donations and another R$4 million that were raised by the foundation.

“We are directing another R$50 million. But our actions go beyond donations, they involve humanitarian support and business support for customers”, he said, during a press conference to announce the first quarter results.

Among the flexibilities already announced are prioritized service from BB Seguros, greater grace periods, renegotiation of debts with different rates and suspension of collection actions, among other measures.

BB has 350 service points in Rio Grande do Sul. Around a third of the total was affected by the floods, which includes branches that are in regions without energy supply.