Recently the Bank of Brazil (BBAS3) raised its payout (percentage of profit distributed in the form of earnings) to 45%, a move that was well received by the market and accompanies a wave of optimism for the financial sector, and more specifically for the company in question, which is experiencing a golden moment of high profitability.
Tiago Reis, Founder and Chairman of Suno, highlights that this level of dividends from Banco do Brasilin addition to being very attractive, it should only be the beginning of a future with increasingly greater distributions to shareholders.
The explanation is given by the growth trajectory of the credit portfolio – a movement that can boost the proceeds of BBAS3.
“I’m the first analyst to say this: this 45% should be the floor for the next few years. This is the result of our studies, there is no information obtained from the company, the guidance is 45%, but we think it should increase in the coming years”, he states. Tiago Reis.
The expert explains that he considers the number “feasible” and highlights that this phenomenon of increased payout has already been seen in the sector in the past.
“We have seen some banks do this in the past, back in mid-2016, credit portfolios did not grow as much and banks had a very large capital base, which allowed them to distribute many dividends“, he explains.
“[Agora] Itaú is doing this, Banco do Brasil is also doing this, it has increased its payout, and why? Because they are extremely profitable, highly capitalized and no longer need capital inside, therefore they return to their shareholders”, he adds.
Tiago Reis also cites the fact that BB’s main shareholder is the Federal Government, which has a challenge in achieving its fiscal sustainability objectives.
In this scenario, the bank can help by contributing dividends to reach the zero deficit targets for this year and surplus targets for the coming years.
Can crop failures in agriculture affect Banco do Brasil dividends?
Recently, the bank’s president, Tarciana Medeiros, made statements to reassure the market about the crop failures that have been occurring in the agribusiness segment.
At the Bloomberg New Voices event, which Suno Notícias was present, Medeiros drew attention to the fact that agriculture is ‘very diverse’ and that despite recent problems, the bank should not suffer drastic impacts and this should not constitute an obstacle for the company to deliver its guidance.
In line with the CEO’s statements, Tiago Reis draws attention to the fact that this scenario, in fact, should not substantially increase the company’s default rate – which tends to be very small, in fact.
“The farm is very big. You sectors are doing well and others not so much. Cocoa is excellent, for example, or the meat sector. The soybean sector, in turn, has very big challenges, due to climatic factors, recording drops of up to 50% in production, and also due to the price of soybeans, which fell sharply this year”, he explains.
“We did some studies here at Suno and saw that although the number of judicial recoveries in agriculture has grown, they are small compared to the whole. In the case of Banco do Brasil, the credit portfolio is 30% linked to agriculture, and in recent years the worst year of the portfolio recorded default rates of 3%, which is considered low”, he adds.
Finally, the expert also highlights that the company has many lines of business and is far from being “just agro”, despite being strongly associated with the sector.
“We have to remember that there are several areas of enormous importance, such as a resource management company that is very profitable, with approximately R$1.5 trillion under management, and this brings a relevant result”, he concludes about the Bank of Brazil.
