Banco do Brasil's Credit Costs Ease as Capital Ratio Slips Further
Banco do Brasil's cost of credit fell 2.1% quarter over quarter to R$18.5 billion in the second quarter, even as its CET1 ratio slid another 32 basis points to 11.27%.
Banco do Brasil (BB) reported a second consecutive quarter of moderating provisioning pressure, with cost of credit falling 2.1% quarter over quarter to R$18.5 billion, reversing a 5.0% increase in the first quarter. The year-over-year comparison told the same story: cost of credit rose 16.1% from a year earlier, a sharp deceleration from the first quarter's 85.8% spike. Still, the trailing picture stayed heavy — first-half cost of credit reached R$37.3 billion, up 43.3% from the same period a year ago, extending a multi-quarter acceleration from the 66.4% year-over-year pace logged through the first nine months of 2024.
Asset quality kept deteriorating even as provisioning growth slowed. The bank's NPL-plus-90-day delinquency ratio worsened 56 basis points quarter over quarter to 5.61%, continuing a trend that had already pushed the ratio up sharply over the prior year. Coverage thinned in step, with the 90-day coverage ratio falling to 148.5% from 158.4% in the first quarter, a decline of nearly 1,000 basis points that unwound the partial recovery seen in the prior period.
Net interest income growth nearly stalled, rising just 0.2% quarter over quarter to R$27.5 billion after climbing 4.9% in the first quarter. The narrower gain in the second quarter came almost entirely from treasury results, up 2.1%, a much thinner driver base than the first quarter's mix of credit and treasury contributions. On a yearly basis, net interest income grew 9.6% to R$27,483 million from R$25,080 million a year earlier, a moderation from the first quarter's 14.8% year-over-year pace. Across the first half, net interest income of R$54.9 billion grew 12.1% from a year earlier, powered by loans to individuals, up 15.3%, and treasury, up 16.0% — a marked acceleration from the prior year's first-half trajectory, when funding costs had pushed net interest income down 4.6%.
Lending activity diverged by segment. The companies loan portfolio rebounded 2.7% quarter over quarter on an accounting basis, or 1.6% on the guidance-view measure to R$456.2 billion, breaking a streak of three consecutive quarterly contractions even as the book remained down 2.5% from a year earlier. The individuals portfolio moved the opposite way, declining 1.2% quarter over quarter to R$357.6 billion after growing 1.4% in the first quarter, with year-over-year growth decelerating to 4.4% from 7.8%, driven by payroll loans. The agribusiness book grew 0.8% quarter over quarter to R$421.6 billion, slower than the first quarter's 3.0% pace, though its year-over-year growth held roughly steady near 4.1%.
Fee income offered a bright spot, rising 3.4% quarter over quarter to R$9.1 billion after a nearly flat first quarter, with fund management fees up 6.3% and checking-account fees up 7.6%. Administrative expenses grew just 0.6% quarter over quarter to R$10.1 billion, decelerating from the first quarter's 1.3% increase and running below the 5.7% collective bargaining salary adjustment negotiated under ACT 24/25. The 12-month cost-to-income ratio held flat at 28.0%, suggesting expense pressure has plateaued after the first quarter's 28-basis-point deterioration, even as the ratio remained 97 basis points above year-ago levels.
Capital adequacy moved the other way. The CET1 ratio fell 32 basis points quarter over quarter to 11.27%, giving back part of the 62-basis-point gain booked in the first quarter that had followed favorable effects from Provisional Measure 1,314/24. The broader Capital Adequacy Ratio compressed by a steeper 90 basis points, to 13.91% from 14.23%.
Profitability improved from a weak base. Adjusted net income rose 13.9% quarter over quarter to R$3.9 billion, reversing the first quarter's 40.2% collapse from R$5.7 billion in the fourth quarter of 2024. Return on equity rose 107 basis points quarter over quarter to 8.3%, partially offsetting the first quarter's 516-basis-point drop from 12.4%. The recovery remained partial in scale: first-half net income of R$7.3 billion stood 34.2% below the R$11.2 billion booked in the first half of 2024, and first-half return on equity of 7.3% remained far below the year-earlier 12.6%.
The quarter's numbers point to a bank stabilizing its provisioning trajectory and rebuilding fee and lending momentum in corporate and agribusiness books, while capital ratios and consumer credit quality continue to erode — a combination that leaves the pace of the earnings recovery dependent on whether delinquency in the retail book peaks before capital buffers are tested further.