Moody's Affirms Banco do Brasil's Ratings Despite Challenges

Strategic Insights -

Moody's Investors Service has confirmed Banco do Brasil's (BB) ratings, including its long- and short-term local and foreign currency deposit ratings at Ba1 and Not Prime, respectively. The affirmation comes after Moody's assessed BB's Baseline Credit Assessment (BCA) and Adjusted BCA, which were also confirmed at ba1. The stable outlook on the long-term bank deposit ratings reflects BB's strong credit profile, despite recent challenges in its agribusiness loan portfolio and implementation of IFRS 9 accounting standards. Moody's acknowledges BB's diversified earnings structure, steady access to core retail deposits, and adequate capital buffer, but notes that recent asset quality deterioration and high interest rates have led to increased credit costs and a reduced profitability.

Key Takeaways:

  • Banco do Brasil's long- and short-term local and foreign currency deposit ratings were affirmed at Ba1 and Not Prime, respectively, following the affirmation of its BCA and Adjusted BCA at ba1.
  • The bank's diversified earnings structure, steady access to core retail deposits, and adequate capital buffer were acknowledged as strengths.
  • Recent asset quality deterioration and high interest rates have led to increased credit costs and reduced profitability.
  • The agribusiness loan portfolio, which accounts for one-quarter of BB's loan book, has been affected by high interest rates and overleveraging of producers.
  • Loan-loss reserves maintained by BB are at 87.2% of Stage 3 loans and 7.2% of gross loans, providing a cushion to absorb higher credit losses.
  • BB is expected to maintain loan collection processes and enhance criteria for new credit disbursements to restructure problematic loans.
  • The bank's BCA could be upgraded if Brazil's sovereign rating is raised and BB demonstrates a material improvement in asset quality and profitability.

Statistics:

  • Banco do Brasil's loan book consists of 25% low-risk exposures, including loans to individuals through payroll loans and mortgage, as well as loans to government-related entities.
  • The bank's problem loan ratio increased to 8.4% in June 2025, from 7.8% in March 2025.
  • The 90-day nonperforming loan (NPL) ratio rose to 4.2% in June 2025, from 3.9% in the same period.
  • Loan-loss reserves maintained by BB are at 87.2% of Stage 3 loans and 7.2% of gross loans.
  • Banco do Brasil's net income to tangible assets ratio declined to 0.9% in June 2025, from 1.7% in the previous year.

Sources:

  • Moody's Investors Service (2025)
  • Moody's Ratings (2025)
  • Banco do Brasil S.A. (2025)