XP Cuts Banco do Brasil (BBAS3) Outlook on Agricultural Stress

XP Investimentos has lowered its financial projections for Banco do Brasil (BBAS3), citing a prolonged downturn in the agricultural credit cycle. The revision is driven by rising delinquencies in the farming sector, which has prompted a 22% reduction in the bank's projected 2026 net income to R$ 18.3 billion. Consequently, XP reduced its 2026 Return on Equity (ROE) expectation for the state-owned lender to 9.4%, down from a previous estimate of 12%.

The agricultural sector, which represents a core pillar of Banco do Brasil's loan book, continues to face severe margin compression due to depressed commodity prices, high production costs, and elevated interest rates. According to XP's analyst team led by Bernardo Guttmann, these factors are driving up non-performing loans (NPLs) and judicial recovery filings among farmers. This credit deterioration is also spilling over into the bank's unsecured retail portfolio, adding further structural drag to its balance sheet.

With limited short-term catalysts for a re-rating, BBAS3 currently trades at approximately 6.3 times its projected 2026 earnings, a premium compared to its historical average of 4.5 times. Analysts note this elevated multiple reflects deteriorating earnings rather than improving fundamentals. The broader Brazilian market reflected cautious sentiment today, with the Ibovespa (IBOV) trading down at 172,447.58 (-0.93%), alongside declines in major blue chips including Petrobras (PETR4) at 37.77 (-1.25%), Vale (VALE3) at 77.79 (-1.33%), and Itaú Unibanco (ITUB4) at 42.56 (-0.42%).