Very interesting Bloomberg piece on the rise in bankruptcies across Brazilian agribusiness—and the direct impact on the banking sector, particularly Banco do Brasil.
In 2024, a combination of peak interest rates and poor harvests left producers on the ropes. Adding to this, Brazil’s Central Bank recently required banks to provision expected losses immediately and to stop recognising overdue interest on loans. This hits the region’s most exposed bank squarely.
The financial system’s exposure to agribusiness
The figure is stark: Banco do Brasil finances half of the agribusiness sector, which accounts for a third of its total loan book. That is far above its competitors. Consequently, when agribusiness stumbles, the bank stands in the line of fire.
Brazil is no minor player. It produces around 80% of global orange juice exports, half of the world’s sugar, over a third of coffee, and ranks in the top five for soy and maize. If agribusiness struggles, the shockwave runs through the economy and the banking system, ultimately tightening credit across the entire value chain.
The need for dynamic risk management
What is worrying is the scale of these bankruptcies. They are no longer just part of agriculture’s usual cycle; they can, in very little time, become a systemic issue for banking soundness. It is a wake-up call for how we measure risk in highly volatile environments.
Analysis cannot be static or rely solely on credit history. Today, the response must be dynamic—grounded in real operating conditions and the speed of reaction to change.
The challenge is not only for agribusiness; it extends to the entire financial system that underpins activity. How prepared are we to absorb sector shocks of this magnitude?
I am sharing the Bloomberg article here for those who wish to read more.
