Morning. I am Janaína Storti, Head of Investor Relations at Banco do Brasil. Thank you for joining us for another live streaming on the results of the first quarter. Our live streaming will be in Portuguese with simultaneous translation into English. You can choose three audio options: original, English, or Portuguese. To talk about the numbers of the first quarter, we have here with us today our CEO, Tarciana Medeiros, our CFO, Giovanni Tobias, and our CRO, Felipe Prince. Now, just to start off, I would like to turn the floor over to Tarci to start with her initial remarks.
Good morning. Good morning, everyone. Thank you for joining us in another earnings release presentation. I just landed from an official mission to China, where I had a very intense institutional and business prospecting agenda.
Right now, I'm talking from our New York office, where we will also be holding important meetings with clients and partners. Over the last two years, we have built up a very close relationship with the market, and I really wanted to be here with you today. This quarter, it's even more important that I provide you with a diagnosis of the bank's results and its strategic direction, and I'm going to address all of the issues that have impacted the beginning of the year and what we are doing to get through this moment. Since the beginning of our administration, just over two years, we have delivered BRL 73.5 billion in adjusted net income.
We added value to our shareholders and added a further BRL 171.5 billion to the whole Brazilian society by means of the demonstration of the added value, which is an important sustainability concept that goes beyond profit. The return was about 20% in every quarter during our administration, reflecting the disciplined execution of our corporate strategy, as I have always telling you. Throughout the first quarter of 2025, we continue to deliver important milestones in line with the direction we set for managing the trillion-dollar business, growing the loan portfolio at an adequate pace, despite a cautious scenario with our fee income dynamics moving in the right direction, especially instead for the conglomerate's business and without losing sight of expense control, which is a constant effort by the bank. I am very proud to see all these strategic funds we presented to you in February moving forward.
Of course, I can't fail to mention something we've worked very hard on over the last few months, which is a significant and historic delivery this quarter: a new point, a new product, a product that changes the conditions and the way that Brazilians access credit. Crédito do Trabalhador was a major turning point. We connected our more than 20 years of expertise in payroll loans with the best in CRM, artificial intelligence, and credit analysis, both for individuals and companies to confirm our leadership position. Until the launch of the solution, we had just over 20,000 agreements with companies to operate with payroll loans in a portfolio with BRL 1.5 billion, which took us about a decade to achieve, and we achieved that in under two months. In the short period, disbursements exceeded BRL 3 billion with employees from 68,000 companies, and there's still portability to come.
Whenever we refer to net income itself, we deliver BRL 7.4 billion in the quarter with a return of around 16.7%, below what I believe is the Banco do Brasil's size and potential. We had already said that the first quarter would be a period of transition, especially because of the new accounting regulations. What we saw was an increase in delinquency in the agribusiness segment that was worse than expected, even with all the measures that we have adopted. This, combined with the implementation of Resolution 4966, which changes the way you calculate expected losses and interest accruals, had an even greater impact on the portfolio at the moment. The combination of these factors has led us to revise these two lines of the guidance and, consequently, the profit line as well.
It wasn't an easy decision, but I believe it's the most prudent decision and one that reinforces the commitment to honesty and transparency with the market, something I've been honoring since the beginning of my tenure. With more visibility of the scenario and the end of the 2024-2025 crop plan cycle and the strategic measures we are pursuing, we will be able to bring you a new predictability of these projections for the coming periods. Now, when I look at the results for the first quarter, I can certainly say that none of the events surprised us in terms of where they were heading, but rather in terms of the magnitude of their impact once they were combined. I met with some analysts less than a month ago, and we talked about the dynamics we could anticipate, given structure issues, performance by segment, and the seasonality of the first quarter.
I would like also to take this opportunity to discuss some important aspects of the current moment, and then I'll present the direction of our strategy, trusting our capacity to generate results.
The first factor is related to the effect that the interest rate environment has on the balance sheet, especially with regard to the rise in the SELIC rate and intense and accelerated cycles such as the one we saw between December and March of this year, when SELIC rate went up three consecutive times by 100 basis points. This immediately impacts around half of our commercial funding and institutional funding as well, both of which were post-fixed and are immediately remunerated at the new rates. The increase in the reference rate in the same period, which practically doubled, affects the other half of commercial fundings with savings and judicial deposits. In addition, liquidity in the first quarter of the year is lower, and that's why it was impossible to offset the increase in funding expenses with the Treasury results.
We are therefore working on new disbursements and the turnover of the loan portfolio. However, in the short term, the impact of the SELIC rate is greater on funding expenses, and this influences the net interest income. We have a strong balance sheet to cushion the variations over the quarters, so in the annual view, this tends to be smoothed out. The second factor is of a regulatory nature, and I'm referring to the entry into force of Resolution 4966 from the National Monetary Council. I would like to comment on the changes of this resolution to Banco do Brasil's business. This transition has required a recalibration not only of risk modeling, but also of commercial flows and practices to context focus on expected loss for the flow of interest received.
Here at BB Seguridade, we continue to improve our practices and face up to the new resolution, which brings new information, internal intelligence, statistics, and modeling to our business. In this first quarter, we decided to maintain a conservative analysis of risk and provisioning, and I've had interesting conversations about various points of our origination strategy and business context. The main impact of this change is in agribusiness, which has its own particularities and is very specific in terms of annual flow of receivables and guarantees and its planting, harvesting, and marketing cycles. This certainly impacts the entire agribusiness chain, so by the same token, it impacts the portfolios of individuals and companies. With the 4966, the provisioning flow tends to be brought forward compared to previous rules of Resolution 2682.
The interest accrual changes from accrual basis to a cash basis for assets considered to be problematic, even if they are not in default during the cure period. Here was BRL 1 billion of credit income that no longer impacted the margin in the quarter and around BRL 400 million in income from credit services, which are now also deferred in the margin. The third factor is the unfavorable timing of agro segments' credit quality as we go through this change in accounting rules. The timing of this transaction was negative for Banco do Brasil, and so far as agribusiness accounts for more than BRL 400 billion in the portfolio and is going through a cycle of pressure on defaults above the historical average. This has pushed the provision for the segment, which was already at high levels, to more than BRL 5 billion in just one quarter.
Moreover, this context is aggravated by the in court reorganization of rural producers, which we have been discussing with you for some quarters. The in court reorganization assets are immediately considered problematic, and as such, their expected loss dynamics are accelerating. I would like to point out that our efforts to sit down and renegotiate have had an effect with a reduction in the pace of new supervised reorganization entries. In view of this, Banco do Brasil, which has a historical and strategic presence in the sector, is naturally affected in a different way when compared to other organizations because there is an intersection of this portfolio with individuals and corporate clients.
None of these factors would have brought the result to the level we delivered, given the bank's business diversification. However, the combined effect of the accelerated increase in the SELIC rate and the still deteriorating credit quality of the agro segment during the adoption of Resolution 4966 impacted our result.
Having the challenges we faced in the short term, I want to draw your attention now to the drivers that are the basis of our commitment to creating sustainable value looking beyond this quarter. I've been telling you that our relationship with more than 86 million clients is our competitive edge. The great beauty of our relationship is the closeness and human connection we built. We are the only omnichannel bank in practice. I say this with the confidence of knowing our new interactions platform and CRM 360 in voice and seeing what it is capable of. It has recently been integrated with WhatsApp and our entire channel architecture in a way that is unprecedented in the market. This solution was developed by Banco do Brasil and has become a worldwide case. Given its success, I have no doubt that it will be sold to other companies very soon.
Since we connected the CRM two ends, we have seen the average number of contacts and interactions via text message grow 417% in March. That is valuable, powerful, and promising. Each of these records helps us to get to know our clients more deeply. By applying AI, we use the rich information from each contact to generate increasingly accurate insights, personalizing interactions, our offers, and really delivering a BB bank for each of our clients. Currently, more than 17,300 colleagues work with access to the CRM 360 platform, and we should extend that to our entire managed service structure by year end.
The new platform drives the evolution of relationship and service models with the best combination of physical and human, as well as more efficient allocation of our professionals, providing the best interaction with clients on the ideal channel and at the most appropriate time in a scalable way and with a high potential for capturing results. We are also continuing to reframe the concept of the bank branch with Ponto BB, of which we celebrated one year at the beginning of April. The new model integrates spaces, explores strategies beyond banking, and proposes new service journeys in a more welcoming environment and with the physical presence of market partners. This new model spreads the changes we are promoting in our structure, making them more consultative, advisory, and efficient, offering the best of both physical and digital. Nós não vamos parar por aqui. O processo de otimizar a estrutura é constante.
The process of optimizing the structure is continuous. We are pioneers in technological solutions in our industry. In the first quarter alone, we invested 30% more in technology when compared to last year in search of the best experience, convenience, and level of security for clients. Over the last two years, these amounts have exceeded BRL 18 billion. These investments have also allowed what was once our digital acceleration project to now become BB's new operating model. The new way of working, with a culture of innovation and continuous delivery, with greater integration between teams and speed in delivering solutions, is BB's newest reality. After more than 1,000 new professionals I had informed I would recruit in 2025 to work in the areas of technology and cybersecurity, we just swore in 359 this week. They are in addition to the more than 2,000 that we have recruited in recent years.
When I look at this great conglomerate that is Banco do Brasil, I see and feel both the commercial power of my team, with business growing at the pace and in the direction we have planned. We have consistently evolved the solutions we make available to investors. This includes a special focus on the journey and experience of these clients. Our app dedicated to investments has reached its best mark in the App Store, while we continue to make progress in the active specialized advisory structure, which has onboarded more than 50,000 new clients to the new model and should total 150,000 by August. I see the group's companies adding new solutions with growth and innovation. With the new dynamics of B income, the group's companies are playing an even more important role in shaping BB's results.
We reached more than BRL 1.7 trillion in funds under management by BBSX, with net funding of BRL 29 billion in just one quarter. In consortia, we reached an all-time record of BRL 818 million in revenues, with 120,000 quotas sold in three months. Our investment banks supporting 36 capital market operations, reaching deals of more than BRL 121 billion, even in a seasonally weaker quarter. At Cielo, we made progress with new products and better customer relations based on the holistic view of the company. As a result, we increased BB's trying to see in the cash flows of SMEs, increasing revenue captured from new business by 66% and the number of new accreditations by 25%, with strengthening of our work to win companies' cash flow, improving our experience with solutions for prepayment of receivables and supporting businesses in their daily financial management.
I've been telling you over and over that we would be leaders in all payroll and verticals. During Q1 2025, we grew more than the market in all line items. With INSS retirees and pensioners, the portfolio has expanded by almost 40% in two years, and we're very close to reaching a historic mark of 10% market share in this market. In the corporate segment, I had declared in February my ambition to grow safely and with quality, using guarantee funds, supporting SME clients to face the current scenario. Our Pronampi and EACA FGI portfolio for these clients reached BRL 30 billion, gaining a lot of relevance. In wholesale, we increased the number of clients with credit operations by 46%. In Q1, we reached a balance of BRL 261.5 billion in the large corporate segment. I'd also like to highlight the value chain.
That mechanism, where large companies influence a whole network of suppliers and small enterprises, which has improved our systemic view of credit and has minimized risks. We are the Brazilian Agribusiness Bank, committed to boosting the foundation that sustains and fosters the country's growth and development. At the Agribusiness Trade Shows, we have already reached the mark of BRL 12.5 billion in applications received, serving more than 20,000 clients from different regions of Brazil. We are still moving forward. By year end, we will have covered 250,000 km, more than 200 municipalities, with the CARRETAS BB, BB trucks, BB innovation, credit advisory on settling debt, and opportunities for those who make agribusiness growth. While always being close to our clients, we have also expanded the use of data for collection, which is being done with preventive solutions. We have gained efficiency in our processes, and 55% of defaults have already been resolved.
I can guarantee that we will do everything possible to recover our assets. I would like to draw your attention to the straight annual cycle, which is working with agribusiness. While Brazilian farmers are harvesting and selling the 2024-2025 crop, we are already building a new 2025-2026 crop plan. This dynamic is a machine that has to run perfectly and generate results for all parties: growers, suppliers, and financial institutions, and more broadly, the country. Agribusiness does not stop, and it will not stop. I just have to highlight our ESG businesses, which continue to grow. For the sixth year, we have been recognized as the most sustainable bank on the planet, and one that generates the most revenue from sustainable assets. This reinforces that it is possible to create value for the whole society and shareholders alike.
We have short, medium, and long-term commitments to sustainability and diversity, including a guidance to grow this portfolio. We are confident that this is the way to go. We acknowledge that we are facing a moment of transition where macroeconomic, regulatory, and business segment issues have impacted results at the start of the year. I never tire of repeating that we remain focused on our fundamental commitment to deliver results in line with Banco do Brasil's size. I am closely monitoring all work fronts in order to accelerate initiatives that maximize this result, whether on the side of revenue, efficiency, or innovation. I would point out that we were able to recover capital and reach 11%, already covering the first installment of the provisioning we made under the new resolution.
This shows that we have the strength to face short, medium, and long-term cycles, even if the journey is not linear. We've faced other tough times before, and we've always come out stronger, more resilient, and more united. Lastly, I trust in my team's ability to do responsible business, to be close to our clients this year and in coming years as well. It is the expanded vision and purpose that will mark Banco do Brasil's trajectory. Thank you, and I'm going to hand the floor back to Jana to start the question and answer session.
Obrigada, Tarsi. Vamos começar agora, então, a sessão de perguntas e respostas.
Thank you, Tarsi. Now we will initiate the Q&A session. Questions can be asked in either Portuguese or English, and they will be answered in the language that they are spoken. I would urge any alumnus to ask only one question.
I already have a lot of people waiting in line, so let's give everybody a chance to participate. Our first question comes from Gustavo Schroeder from Citibank. Hello, Schroeder.
Hello, good morning, Jana. Good morning, Tarsi, Giovanni, and Prince. Thank you for taking my question. I think Tarciana mentioned many interesting things during her opening remarks. If we exclude agribusiness, because I think this is something that we've been monitoring for some time, we've noticed a worsening in delinquency KPIs in almost every single line, starting with corporate, individuals, and even farmers, rural. I would just like to hear from you what has caused that worsening in the other lines as well. Maybe if you look at the rural aspect, the magnitude of the impact was bigger, but we already expected to see delinquency in the rural segment, but we've seen worsening across the board.
I would just like to understand from you, what do you think led to that worsening in other lines, and whether we could, of course, I mean, your capacity to convey information to us in this transition moment. I know that it is probably limited, but I would like just to know what would be the level of provisions that we could expect for the next quarters. Would that be still at this high level that we noticed in the first quarter? Thank you.
Prince, I will turn the floor over to you to answer that question.
Schroeder, good morning. Obrigado. Thank you for your question. I think we can split this question in a few folds.
First, in terms of individuals, all of the portfolios, in all the portfolios, we've been very diligent looking at the NII, but individuals, here, we see that there is a transition into the new models of 4966, and this is probably what explains this spike in delinquency. I mean, the new operations have to be stronger in our balance sheet until they go into write-off. This is something that we already expected. That was within the plan, because NPL of individuals was forecasted to be slightly higher. So this is within the way that we are operating in terms of sending into write-offs. Now, speaking about the corporate segment, here, we see a worse performance coming from SMEs. One positive aspect is that we are already taking steps to improve not only origination, but also the entire collection process for that portfolio.
We see an increase in NPL for SMEs, and Tarsi, as she was saying, we implemented the rise of that portfolio more specifically. Now, moving to agribusiness, this is related to something that we have been talking to you about. Obviously, in all of these portfolios, you have an addition of what was brought into that portfolio. We are not using this quarter's sales from active portfolios, but this is a process that we are looking at, and the entire market uses that. It is likely that we will be doing that from now on.
Our individuals' portfolio is very resilient, and seasonally, delinquency from individuals is usually higher in the first quarter due to all of the expenses that we all have in the beginning of the year. I think this is good news because we have not felt any delinquency pressure because of that.
I mean, there was a slight increase, and this pressure increase is related to a longer period of delinquency operations in our balance sheet. Now, the corporate segment, as I said before, and agribusiness is a challenge. So despite the fact that we have a record crop season, there is still a difficulty to generate margin on the part of our clients. And as a consequence, people are late in their payments. Any question? Oh, you also referred to provisions. Yes.
What can we expect? Naturally, that is why we put the guidance under review. Our flow of maturities for agribusiness is more intense in March, April, and until June because of the end of the crop season.
These are operations that, unlike other portfolios, the payment occurs at the end of the period, at the end of the crop, because you fund production to help farmers to develop their activities. At the end of the crop season, they have to replenish the credit. We notice, therefore, that there has been a delay in payments, and this is observed in short-term NPL. On the other hand, there is a new Crop Plan or crop plan. This new launch of the Crop Plan is attracting these farmers to get that situation in order, because if they are not, I mean, if their credit is not in order, they will not be able to get new credit for the next crop season. We are in the field trying to get our clients to reorganize their debt.
This is mostly concentrated in different crops: soybean, corn in the Midwest of the country. Due to this record crop season, we know that we will be successful in terms of reversing this delinquency scenario. What we've seen is that it's taking a bit longer for us to collect payments. Once this takes a bit longer, this calls for more production. That is why we are constantly monitoring this entire process, and we put the guidance under review. To be more pragmatic, we should still see some pressure. Provisions will be under pressure this quarter, and this will be so until we go into the second quarter, where things will be much better, especially due to this new crop plan or Safra Plan. Thank you, Schroeder. Bom, pessoal, eu vou passar então aqui para a...
I will now go to the second question.
Renato Meloni from Autonomous. Oi, Renato. Bom dia. Renato, good morning. A gente não está te escutando. We can't hear you, Renato. Oi, bom dia, pessoal.
Oh, good morning. Now it's okay. Loud and clear.
Good morning, and thank you for taking my question. I would like to talk about capital and dividends. I mean, considering the uncertainties with agribusiness and also with Resolution 4966, which, you know, led you to review your guidance, how are you balancing the issue of growth, lack of funding, and dividends? Would it make sense for us to think about 40% payout for this year? What is your expectation here?
Thank you, Meloni, for your question. Certainly, we are maintaining our 40% payout.
We will be certainly very attentive because once we see the performance of delinquencies, especially in agribusiness, and out of the BRL 10 billion expenses that we factored in as expected loss for the first quarter, almost BRL 6 billion came from the rural portfolio. That same amount in the fourth quarter was BRL 3 billion. We managed to improve and have some growth, especially in terms of common equity. We had like 10.97% profit, and we've been saying that the area that we want to populate in terms of CET1 or common equity is about 14%. Therefore, we believe that we are in a good position to sustain the growth of that portfolio once we have delinquency under control. At first, we are not, I mean, changing the, I mean, we are reviewing, we're not reviewing our payout.
Despite all of the measures that we are putting in place, in the second quarter, we should maintain that 40%. We do not see any difficulty in growing our assets, especially because we are generating organic growth of our growth. I know that in terms of net income, the results were frustrated, but this has been one of the highest, BRL 7.5 billion. It is the highest in the entire Brazilian market, and this is what led to the growth of our common equity. Okay? Would you like to add something else, Prince?
Just adding to that answer, I think this is good news, and we have to consider that resilience of capital, the capital that we posted, despite this challenging scenario. I mean, this is mostly related to agribusiness NPL, but even then we were able to form organic capital.
It's also important to highlight that our balance sheet is quite robust and also prepared. So what is left to do is, like, you know, in view of our activity, we really have to put an effort to deliver improvements in this delinquency scenario. Metro, this will lead to better results. This will feed in capital, and by the same token, this will support our capacity to grow our activity and at the same time to remunerate, you know, our shareholders more adequately. Thank you .
If you allow me a follow-up question, if the agri scenario continues to deteriorate, what will be your priority?
To continue to grow with dividends? What will be the minimum level of capital that you think that you could achieve?
We expect to see recovery. This will be a record crop season. It will be the highest ever.
It's just a matter of making fine-tuning adjustments of all the variables because we were surprised by the implementation of this new 4966. I mean, delinquency in agribusiness is out of historical level. It's not part of historical level, so we're not working with that possibility. And we have several alternatives in place, and we believe that that 11% will be the ideal for us. This will be an optimal structure. I'm referring to common equity. In a way, as Tarciana said in her initial remarks, we knew that there will be impacts with the new regulation implementation. That's why we adjusted our payout that was at 45. Now we are working in the range of 40-45. Certainly, as we noticed this aggravation, and that's why did we suggest a review? Because the April figures are still showing resilience of this delinquency instead of giving in.
We already told you before that the first quarter would be still tough because it will be in a transition phase. There will be aggravation of risk. As of the second quarter, we will then see stabilization. After the second quarter, we will see an improvement. We believe this scenario will stand. We are still a bit reluctant because the initial April figures are still showing some difficulty in part of the clients. I have, I mean, 96% of my portfolio is being paid in time, but I'm referring to a delinquency of around 3% and 3%, some, you know, approaching 4%. We believe that the measures that we are putting in place of judicialization, you know, collection, etc., will allow us, together with, you know, higher income generation, we will be able to put things under control and resume our growth path.
Certainly, in terms we will grow in more profitable lines like private payroll loans. This will amortize the impact in terms of, you know, funding costs, and this will help us increase profitability. For the time being, we would rather just observe the second quarter, and from then on, we will tell you what we anticipate for the second, you know, quarter of this year. Right? Thank you.
I'll switch to English to. From Tito Labarta from Goldman Sachs. Tito, you can make your question, please
Okay. Thanks, Janaína. Good morning, everyone. Thank you for the call and taking my question. I guess my question's on the guidance. I understand it's under review and some of the uncertainty going on, but if we look, you're sort of on track for the provision guidance.
Now, that said, it could get worse, right, given some of the comments that you made, but more where you're tracking below was on the NII. On the loan, you maintained your loan growth guidance, which I thought was a little bit interesting. I guess the question is a little bit two-part. One, were you already factoring in some of the accounting changes and the impact that that would have on the guidance, or did that surprise you in any way, the magnitude of the impact? Two, is it just from higher interest rates impacting your funding costs? Is that the other main risk that you're seeing? Is there any risk to loan growth? Is the underlying question, given the asset quality issues that you're facing right now, which could further impact what you're seeing?
Just to understand why the uncertainty on the NII from here going forward. Thank you.
Thank you, Tito, for the question. This is Giovanni. The uncertainty is mainly due to the new provisions that were set with this regulation from the central bank. The impact in the NII was already expected and was already factored in. The magnitude in terms of provision charges and also the stop approval of those loans, it's important to mention that we have BRL 86-87 billion of problematic assets, stage three assets. 38% of the loans that are accounted as problematic assets, they are on course, on due course. However, they are considered problematic assets, and I am no longer allowed to recognize on an accounting basis the interest from those loans. That's why our NII was compressed due to this lack of credit revenues.
Looking forward, we do believe that why we decided to put on review. We got to understand how this flow will continue in terms of loans that are moving to stage three, the ones that are coming back to stage two and one, according to the new regulation, once the loan is in stage three. I cannot no longer recognize the interests that are buried on those loans. However, in order to move to stage one, once the client starts paying back the loan, I have to hold it within a four- to six-month period. This is something that we are still understanding and addressing how our loan will be performed. It is important to remind you that all the agri loan book, especially the working capital ones that we grant, they are bullets. The interests are paid at the end of the term.
In the meantime, I used to account on a monthly basis the accrual of that interest. Now I will account only once the loan is effectively paid. Okay. These new accounting rules are something that is bringing some pressure on our net interest margin. Besides that, we used to write off loans within 360 days. With this new regulation, it is taking longer for us to write off those loans. That is why you see the total volume of loans that are past due over 90 days increasing. It does not mean that the overall loan book is deteriorating. Okay. It is just a matter of these new accounting rules. On the operational side, I think that the good news is that we have been growing our loan book in line with our guidance.
As long as we keep up with this loan growth, mainly focused on individuals' loans, payroll accounts for public servants, and now for private sector employees, we will be able not only to balance the impact of the 300 basis points increase in the benchmark rate throughout the year. It's important to remind you all that according to our assessment, every 100 basis points increase in the benchmark rate would represent a BRL 100 million reduction roughly on a yearly basis in our NIM. Okay. With these 300 basis points, it would imply a BRL 300 million impact looking for the overall fiscal year because every semester I roll over, I grant new loans around a ratio of 25%. As long as I continue growing my loan, I will replace with new ones with higher rates, with higher margins that will offset the impact of the increase in the benchmark rate.
The main focus will be curbing delinquency in the agri book, reducing provision charges, and at the same time growing loans. That is why we kept our targets. According to what we have seen so far, even in April, loan growth has been keeping up with the pace that we have estimated. The impact was expected in terms of new regulation, but the magnitude, as our CEO mentioned, was bigger than the one that we were expecting. That is why we decided to revise it and see what happens in the second quarter and compare the first with the second that will be comparable. Okay. Then we will be able to bring you new numbers when we disclose the second quarter results.
Great. Thanks, Giovanni. That is helpful.
It sounds like it was just that the magnitude of the change in accounting was greater than what you were anticipating. The other operationally trends were more or less in line because you're not changing. You feel comfortable with the loan growth guidance. I guess maybe just a follow-up question would be, how come we did not really see this from your peers? Is it maybe more related to the rural portfolio, or was there something specific that you were impacted more than your peers?
Definitely is the rural. They do not have the size of rural loans that we have. Unless you consider that farmers in Brazil will stop financing their crops, there is no way of missing the growth guidance in our agri book. Okay.
That is why we have been so vocal saying that 96% of our customers in the agri book, they are paying their loans. In the meantime, these 4% are bringing a burden in terms of provisions and also the lack of interest accrual on those loans due to this new regulation. If you look to the provision charges in the first quarter, sorry, the BRL 10 billion, almost BRL 6 billion was coming from the rural portfolio. Okay. When you compared to the fourth quarter provision charges in the rural, you had BRL 3 billion. It doubled. This is what is draining our or increasing our provision charges due to this new expected loss methodology. Okay.
Great. Thank you. Thanks, Giovanni.
Thank you, Tito. A nossa próxima pergunta vem do Bernardo Gottman, da XP. Oi, Bernardo. Olá, bom dia, pessoal. Obrigado pelo espaço.
Good morning.
Thank you for taking my question. My question is about the behavior of NII, NIM, in the cycle of monetary tightening. In past cycles, it could be benefited from a prefixed rate, while now it seems to be suffering more than your peers with the rise in the SELIC rate. What changed in your liability structure or in the balance sheet that could explain this behavior, which is more sensitive this time?
Gottman, thank you for the question. There was no change in my asset and liability structure. We've always had a mismatch or about BRL 380 billion of mismatch, and I have a prefixed mismatch in my assets. When we look at market NII and when we compare Q1 2024, back then we had a positive effect above the normal. It was the effect of Patagonia Bank in Q1 2024.
In Q1 2025, we had created a volatility. We had an opportunity to make an adjustment to try to protect these mismatches. When we look at market NII of Q4, there was a certain amount coming from some prefixed positions that I had with CDI. Actually, what is happening now? It was practically an overshooting of the SELIC rate in one quarter, 300 basis points. So 3 percentage points have increased. It takes time, and that is why it is important that we continue to grow volumes, especially in individual loans that bring us a greater spread in the risk-adjusted portfolio so that we can offset this higher funding cost, the cost of funding. In reality, what happened was, on average, I reduced my cost of funding. I was able to improve my cost of funding, but at a higher SELIC rate.
This brings a short-term pressure. In a full-year approach, we will be in the right conditions to normalize this. There is this estimate that for every 100 basis points, it will be a BRL 100 million reduction in my NII. For 300 basis points, we are talking about a BRL 300 million reduction, even if I reprice my portfolio, because this is not immediate. It is 25% of the repriced portfolio every quarter. We believe that while we continue to grow, of course, we should never lose sight of controlling NPL. In terms of NII, we do not have exposure to currency. We are super hedged. This is our position. It is effective. Both the SELIC rate and the TR rate for savings accounts grew significantly. The best way to face this will be by replacing the prefixed portfolio.
Thank you, Giovanni.
Obrigada, Bernardo.
Bom, vou passar aqui para a próxima pergunta. Now let's go to our next question from Mario Pierri with Bank of America. Hi, Mario. Good morning.
Giovanni, I would still like to focus on delinquency in agribusiness. April is slightly worse, and I don't think you're seeing any return to normality. Could you explain whether there is any specific region or crop that we should look at it closely so that we have a better idea? I have another question also related to that. You showed that there was an impact on capital of 27 basis points because of Resolution 4966, and you made provisions to adjust the 4966 through equity. I think the amount was BRL 16 billion. Why is it that part of these provisions went through the income statement, or whether those BRL 16 billion should have been a higher number?
Why do we see such a large number in the income statement, even with a high impact in your balance sheet?
Thank you for your question. Let me split the question into two parts. I will start, and then I'll turn the floor over to Prince in New York and Tarciana. It's important to bear in mind that when you look at the rural NPL, there is something very unique that did not come last year, which is in court reorganization. When the client goes to court asking for reorganization without even sitting with the bank to renegotiate, this operation immediately becomes a problematic asset, and this will call for further provisions. I have to stop accruing that transaction. It's a double effect, which is a detractor of my results.
On the one hand, I increased the provision of that transaction that was too mature, and I stopped accruing interest. The effect is on my NII and my credit risk. This is something that has certainly led to the increase of that deterioration because sometimes it does not even make sense. In an all-time record crop season, we still see delinquency in an industry. I mean, you could even say, well, the margins fell because prices of commodities are down. You know, on average, because this is the main engine of the Brazilian trade balance, and there is a lot of wealth coming from agribusiness. It would be just natural to have some one-off things.
When we look with magnified lenses, you see a lot of reorganizations in Mato Grosso do Sul, parts of Goiás, and Mato Grosso states, which are soybean growers. You know, it's a soybean-growing region. I don't know whether Tarciana would like to comment on that, but this is an area where we have to be present to operate. We know of the existence of predatory litigation, a lot of lawyers selling the world to mid-sized farmers saying that they will be the solution to their problems. This is not true because once these farmers resort to in court reorganization, they are probably paralyzed because they will not have access to credit in the financial organizations. They will no longer have access to subsidized credit from the government. This is hurting the segment and also impacting our results.
Our balance sheet structure is very robust, and so we are capable of absorbing all of these impacts. Certainly, we are frustrated because this impacts our profitability. We wish we could be showing 20% profitability, but even then, you know, profitability close to 17% with, you know, net income of BRL 7.5 billion. Again, we have to fight what the lawyers are saying in the agribusiness scenario. We do not see this spread across the board, but it is more focused on these regions that I mentioned. Now, related to risk, maybe Prince and Tarsi, if you want to also comment on the rural portfolio, please do so. Mario.
First of all, I think Giovanni said it all about the regional aspect. I mean, soybeans mostly in Goiás, Mato Grosso, Mato Grosso do Sul, mostly concentrated in mid and large-sized farmers.
There is also part of this delinquency that comes from the reorganization in Rio Grande do Sul, the recovery, you know, in Rio Grande do Sul because there was first drought and then one of the largest floods in history. The delinquency there was even lower than expected, but certainly this also puts pressure in the index. However, the situation in that part of the country is being resolved, and now the focus is on these three states of the Midwest of the country. Your question was whether would it be the case for us to make provisions once we started with IFRS 9 and Resolution 4966, the models of expected losses taken into consideration, the best scenario evaluation for that particular moment. The entire modeling was done, certainly, of course, we took into account all of historical data of the agribusiness environment.
We collect data since 1960. We have data in store that, and we use this data to model the risk in agribusiness. But certainly, you know, looking at pricing scenarios, you know, yields in the field, production, and future income in the field. And back in December, when we did the modeling, the scenario was not so aggravated as it is today, especially between March, April, and May. And why we are looking at it now, we are observing it now, because now we are approaching the end of the crop season. I mean, we have, I mean, harvesting and product, but financial expenses are not fitting into the total income of that grower. You know, they are not making ends meet, and that's where the problem lies. So we are trying to anticipate the receivables.
I mean, farmers know that Banco do Brasil, due to its footprint and its presence, is one of the few players that have the means of granting credit once, you know, they pay out their debt. We are willing to fund the next crop season. Delinquency might be high, but if you compare it to other players that operate in the barter segment, I mean, delinquency is probably the same or higher when compared to this activity. We are doing all we can to be able to collect and certainly fund the next crop season. 80% of this NPL comes from farmers that have never been delinquent in the past. As you can tell, I mean, this is a one-off situation, and we are paying very close attention to that. We know that looking at the future scenario, we can certainly reverse that scenario.
As things begin to shape up, and this is the advantage of the new models, because with all of the technology on board, we can model things in a week, and in 10 days, that has to be ready to be used by our negotiators. This is what we are doing. The fact is that we had a scenario at the start of our balance sheet, and the expected losses stemming from this scenario were incorporated into that BRL 16 billion of the transition. From then on, as Giovanni said himself, especially in agribusiness, there was a higher worsening of the scenario when compared to our initial model. Until we get a reaction and keep our balance sheet strong enough to face the problem head-on, we will just adjust the model.
Of course, then in a more deteriorated scenario, you have to increase provisions, and that is what led to our provisions in the first quarter, and also something that we see for the second quarter. That is why we were very honest with all of you, and we are back to our desk just so that we can give you a provisions guidance as soon as we have a better evaluation of this scenario. Prince, also to reinstate that point, I think it is important that we revisit some points. First of all, the bank has been working diligently to fight predatory advocacy. It is also important that we interrupt some reorganization processes or proceedings. The second aspect is that we are proceeding with a complete review of the network. We have experts constantly talking to farmers and experts.
The second aspect is that with the use of AI and analytics, we are trying to understand the entire financial flow of the client. When Felipe said that in some instances, we are asking farmers who they are going to pay first, we are also monitoring where the credit from the sale of the production will come in first. Therefore, the bank is well prepared to seek these credits from growers to renegotiate the debts whenever necessary. The fact is that at first, we see this worsening in delinquency levels, but unlike other segments and the behavior from other clients, the agribusiness segment, I mean, people plant, they harvest, they sell, and then they plant again. We are now harvesting and selling. That is the period now, harvesting and selling.
Therefore, we have to understand what will happen in the second quarter and how things will evolve so that after that, we will be able to have more clarity, and this clarity will be translated into numbers for what will happen after the second quarter. It will be only at the end of this 2024-2025 crop season that we will be able to have a more, you know, clear picture. This is a one-off situation. We've never seen things performing this way in the agro segment. At the end of the cycle, we will be better equipped to see what will happen in the next cycle. The fact is that growers will have to plant again, and they will have to seek funding with the bank, or they will try to renegotiate that debt to be able to plant again. It's important that we reinforce these points.
Thank you. Thank you, Mario. Our next question is from Henrique Navarro with Banco Santander Brasil. Navarro, go ahead.
Good morning, everyone. Tarciana, Giovanni, and thank you for taking my question. Congratulations on the video you posted. It was very good, very technical. You tackled all of the important points we wanted to discuss, and this really helped us to do our work last night. My question is on guidance. I understand that you published the first quarter, which is a transition quarter, and that talks about a large part of the adjustments of 4966. According to the message, we verified a resilience or the maintenance of delinquency in April. This leads us to believe that the second quarter might not be as negative as the first quarter, but it is not yet a quarter where Banco do Brasil will resume its profitability level or the bottom line.
If I take everything I just said and I translate that into figures, it is almost impossible to reach the bottom of the previous guidance. My question is, okay, once this scenario that I just described is materialized, let's say that in the second quarter, that scenario is materialized. Instead of under review, your guidance will have probably a lower range. With the cushion you have today in terms of maintaining that 40% payout, and in a future moment when you indeed will have to publish a guidance with a lower range, do not you think that 40% will be at risk and maybe we should be talking about 35% or something like that?
Navarro, thank you for your question. You are already doing all the math for us.
I mean, certainly, our CEO said that, I mean, we talked a lot about whether we should put the guidance under review, because if you look at the core figures and if you do just the basic math, in terms of provision, BRL 10 million, you multiply it by four, then you would have BRL 40 billion that was within the range that we had signaled before. I mean, we knew that margins would be under pressure in the short run in the first quarter due to the increase in interest rates, but we did not anticipate that stop accrual to be so high. I have left on the side BRL 1 billion, and that would be incorporated in the margin because throughout the year, the margin would be adjusted with my portfolio. But even if you do the math, you will be close to that, so I will be very close to BRL 37 billion.
Now, if I analyze things very pragmatically, maybe you could even say, well, maybe eventually they would have to review things going forward. I mean, we do not give payout guidance, but this is a decision by the board. Second, second of all, we are putting in place a lot of short, mid, and long-term measures, and this will allow us to reinstate or to go back to our cruise mode. Right now, we would like to stick to our compensation to shareholders. We are delivering profits. We are not saying that Banco do Brasil is generating losses. No, we had profitability of 17%, and we also saw improvements in our CET1, and this is the focus whenever we talk about reestablishing our payout. At the moment, what we see would not motivate us to adjust the payout or maybe reduce it to 35%.
We will maintain, we will stick to the low band, but we will work hard to recover these credits and normalize, you know, the results for Banco do Brasil with growth because we are growing in all of our business lines.
The question is, if I am performing so well, how come this is not being reflected in the numbers? We are taking a very deep dive into that and finding ways to see that reflected in the numbers. At first, Navarro, I think you can still work with that 40%. We are careful enough because I cannot just, you know, call for additional funding in the market whenever I want. I have to reinforce my common equity and generate profits. We do not work with the possibility of Banco do Brasil not being profitable, right? Great Navarro, thank you.
Next question from Yuri Fernandez JP Morgan. Bom dia a todos.
Good morning, everyone. Thank you, Janaína. Thank you for the opportunity to ask a question. Following Renato Meloni's and Navarro's question, I'd like to understand what would be a sustainable ROE level for you, 17% ROE this quarter? Income?
Taxes were low. There's a lot of IOC explaining this and other things. I'd like to know whether a 5% effective tax rate is sustainable. The provisioning level was high against the new NPL formation. We can discuss resolution 4966. New NPL formation is more difficult, but the level of provision was lower based on new NPL formation. Also, the economic condition drove your ROE more to 15%. We have the NII, profitability, revenue points improving.
When I put everything into the equation, I find it hard to estimate your ROE, 17% or closer to 15-16%. That goes back to Navarro's question, how to maintain 40% dividend payout. If there is increased tax and more provisioning for formation, it is hard to keep the portfolio and the ROE. What are the moving parts here? Perhaps the NII will improve, but I find it hard to see the sustainability in payout, given that the ROE of 17% was helped by some other factors. Thank you very much. Thank you, Yuri. Yes. Undoubtedly, I am not in a position to help you with the moving parts because we have a transition trial balance, and it is not comparable to the previous one. No bank adjusted their historical series, so it is hard to show you what the trend will be.
Even in a process of low loss, the banks are working with 360. We are working with more than 500 days to write off loss. That increases the 90-plus NPL. It is very early to try to figure out what it will be. We believe in our capacity of generating results. It is the size of Banco do Brasil. I do not think that Banco do Brasil will have an ROE below its cost of capital. It does not exist. Our growth outlook is to grow in the most profitable lines, private payroll loans. We started that with more than 30% market share. We are at 20-odd percent. We have BRL 3 billion from March 21st to date. We can bring in a lot of NII and risk-adjusted margin to help adjust this.
What is impacting our losses today is the provision for expected loans, particularly for the rural portfolios. I stress, I provisioned BRL 3 billion for Q4 and for this quarter, BRL 5.9 billion. This is unacceptable. We cannot accept this for an industry that is delivering the highest crop season ever. I cannot explain that. If we get a snapshot of the situation and try to manipulate everything, it is hard. I will be candid with you, Yuri. If at any time we perceive that our level of common equity is at risk to sustain growth, we will be the first ones to propose to reduce it. Before I reduce, I have other alternatives to try to boost my capital, not including capital markets, so that I can strengthen my base. To us, it is also important to ensure adequate remuneration to our shareholders.
We aim at the high teens. As Navarro mentioned, the cruise flight will be an ROE of 20%. We went through a moment now. In this moment of settling, we will have an ROE of around 17%-18% while we do not get the provisioning part right. We do not see Banco do Brasil, given its business structure, going back to an ROE of 12%-13%, which is what we had in the past. Banco do Brasil today is totally different than Banco do Brasil in the past. I do not know whether Tarciana or Prince would like to add anything.
I can add, Yuri, I think that if you think that we are with the highest delinquency in history of the agribusiness, in a portfolio that accounts for one-third of our total portfolio, and still we are delivering an ROE of 17%, I think that if you calibrate the fundamentals a little, I'm observing that there is a huge opportunity with individuals that we have started to tap into related to private payroll loans. It's a risk-adjusted operation, which is fantastic that they're not operating with. If we consider the whole process of stabilizing performance for companies, legal entities, and if we have a normalization in the agribusiness, we are able to bring the cost of risk to seven, not considering the beneficial effect on our operations if we have a higher level of operations and more regularly.
I think you can realize that if we are successful in the execution, considering normalization of the taxes, we can easily go back to a level of 20 or so. As Giovanni mentioned, this is structural. And Prince, let us remind them, we are at the highest SELIC rate in Brazil, at the peak. Our economist—the market is still divided, but our economist believes that 14.75% is the peak, and it will stop here. It will be maintained for a while and then start dropping again. This will also be positive for the banks and NII. I think that calculating these moving parts at this point, you know, it will end up taking you to the end of the tail in this case.
Thank you, Yuri.
Vou passar aqui para a nossa question. Daniel Vaz, Safra. Daniel Vaz, with Safra.
Bom dia, Jana.
Bom dia a todos. Good morning, Jana. Prince. CEO Tarciana, Giovanni Prince. I'd like to go back to agribusiness payment flows in Q2. We heard that April did not show a significant improvement and that farmers are changing their behavior. We have inquiry organizations, and this is affecting provisioning. They are having access to funding through bartering and co-ops. I get the impression that these farmers that were hurt in the crop seasons in the past can have part of their cash compromised, either because they go to inquiry to reorganization, due to predatory practices of lawyers, or because they have committed to bartering. According to Prince, the bank is moving to try to bring forward payments and renegotiate. Putting it all together, I'd like to understand things. Don't you think that this recovery of profitability in the agribusiness will take a little longer?
Because we tend to focus too much on Q2, but perhaps with this more compromised cash generation or "loss of seniority in payment," I guess that this recovery could take a little longer. Is this a fair statement? What do you think?
Thank you. Prince, can you answer that?
Your question is actually very good. It is exactly what is bringing some uncertainty to define our scenario. The fact is, strategically, tactically, and operationally, how are we positioned? We are positioned exactly to have the seniority in the flow of receivables. The commodity is there. It will be translated into resources. The challenge is to channel these resources prioritized for our banks. We have the capacity to manage this risk with more solidity than other players that you mentioned, and that players that are at this point competing with us. Why do we have this capacity?
Because there is the new crop plan coming up soon. And Banco do Brasil naturally is the provider of funds that can manage this risk to renew the crop season and to renew the cohort more easily, of course. We are not counting on just that. As Tarciana and Giovanni mentioned, we have some negative cases. What did we change in our structure? We are more aggressive in the process of collection. A very short default already triggers an action from us. When we start collecting from them, they cannot take any other local loans because they are no longer in the white list. When we put them in the short-term black list, we start putting pressure on the suppliers. We start bothering those suppliers who are at the city, also working at the city where the farmer lives. The execution process, 90% of these debts have collaterals.
The moment that we identify a behavior which is more prolonged in terms of default, of course, we act. Of course, we precede all that with an exhaustive negotiation process with the clients. When we get the feeling and the trigger that there is no more negotiation, we created a much more agile and a much faster process to recover these resources via extra court measures or even court measures. Having said that, we will remain having a risk tail, but this is concentrated mainly on farmers who lease the land and who made investment in expanding their farms in recent quarters, right? Because they lease the land at a certain price, the production volume to pay the lease increased a lot because there was a reduction in commodity prices. There is this part of the portfolio that we are already addressing differently.
It's about projection for you, bringing you the best projections for you, because there will still be a tail, and the landing will not be a hard landing. We will be gradually lowering delinquency, and we expect to deliver a complete process by the end of the year.
Okay, can you hear me now? Thank you for the answer. If I may ask a second question to Giovanni, the video cast was excellent. I agree with Navarro. In the video cast, it spoke about the funding being affected by the SELIC rate variation. I think it was 300 basis points, and the average SELIC was a little lower. There is a carryover effect for Q2 variation of the average SELIC being 180, 140 sequentially. What was the most important factor to reduce your NII?
Was it the average SELIC rate or the lower liquidity you saw in Q1? Because I want to try and understand the effects here. In NII, you have to look from the standpoint of cost of funding. Indeed, expenses increased as a result of this overshooting that I mentioned. At the same time, I was able to, proportional to the SELIC rate, reduce my cost of funding. We had two last business days in the quarter, and with lower liquidity, I had approximately BRL 100 billion less liquidity in Q1. This is seasonal. It is normal. In Q1, everyone is traveling, everyone is spending money, paying taxes, buying school material. It is very normal after the holiday season to have a liquidity reduction. In Q2, we are going to have a higher liquidity cushion. We will be remunerated. This helps.
In terms of the NIM, this is the magnitude that impressed us. It was the lack of accrual, the lack of accrual of operations that used to accrue and no longer accrue. Because now I have to do it on a cash basis. I have cases of clients that I would accrue BRL 30 million a month, and they would pay BRL 1 million, for example, but the debt was there and had been negotiated and was being paid. This stopped. I can only recognize BRL 1 million. Just to give you an idea of what happened, I have these portfolios, large portfolios being restructured. All of that ended up impacting, not to mention this is not in NIM. It is in the result. I had BRL 400 million in credit operations, pre-income by the operation, and that stopped. That migrated to NIM.
I could not migrate BRL 400 million because now I have to do amortization along the operation. The BRL 400 million became BRL 40 million. In Q2, we believe that NIM will be more stabilized, although there was also a SELIC rise. I will be in the environment of better liquidity. I will have a better comparability quarter on quarter. I think that we will try and get to a certain stability. If we get our treasury result, for example, that was 11 down to 7, I had all of the securities results, and I have to go to the credit operations. If we adjust down, we are going to have the NIM effect coming from credit operation revenues and not from treasury. Okay?
Thank you very much. Obrigado, Daniel. A nossa próxima pergunta vem do Edu. Next question from Eduardo Nichil with Genial.
Good morning, Nichil.
Good morning.
Can you hear me?
Yes.
Thank you for taking my question. I just have a follow-up from Daniel's question concerning payment flow, and maybe we could talk about the size of the portfolio that is in court reorganization. I just want to try to understand what is happening with those at stage three. This issue with soybean in the Midwest is an old problem. We've been talking about it since 2000. In 2023, it started with prices. Prices were dropping. People were storing a lot of products, and there were several moments when you renegotiated debt with those farmers. I mean, that's my belief. I'm trying to understand whether it is the same client that is now resorting to reorganization, and how come you had so many interactions with them because those loans are short, and whether the client's situation hasn't been resolved yet.
What is the magnitude of that reorganization portfolio, and what is the possibility of that spilling over to other clients? The number of reorganizations, the number of that is increasing. On stage three, how many of these clients are paying off their debts or maybe waiting to receive payment? We do not know whether they are going to pay or not. How many of them could be paying now and then go back to a healthy credit situation? I believe that they are now part of Reneg, as part of this entire process. Prince, over to you.
Good morning, Nichil. It is a pleasure to see you again. That is a very good question. First, they are not the same farmers. Those farmers are here with us. Once they renegotiated their debt, but part of that debt flowed into our balance sheet.
I mean, there is an increase in write-offs coming from agribusiness. This is not necessarily bad news because the possibility to write off in the agribusiness is much higher when compared to the others in our portfolio. That is why we assign a very specialized team to leverage that recovery coming from agribusiness. I said before, when I was talking to Daniel, we have a large volume of delinquency concentrated in new defaults. These are farmers that accumulated the problems you refer to and that just now are delinquent. In the past, I mean, they did not resort to any additional measure like those that we often offered to them. We are focusing now on these farmers, and we are trying to solve their problems now with the new crop season. I mean, prices still perform, like you said, but you have increasing production and yield.
Even though the margins are not enough to cover all of their commitments, they will have enough margin to continue paying for their obligations. By the same token, you reduce the risk of the activity as a whole. What we are trying to do is just to be at the top of the list of those who will receive payments. Now, referring to stage three, we have approximately 80% of people that are performing on stage three. We are not referring to grace periods, we are talking about farmers that are at the most paying all of their financial expenses. This is all included in the same basket. The challenge is the same. We have to convert harvest into funding, and this money goes to pay their obligations with the bank. What is in our favor is this new Crop Plan.
Also, combined with the fact that we are very familiar with the track record of these growers, we will be able to fund the next crop season. The issue will be more stabilized, and the portfolio will be able to perform around 1.5% of delinquency. You just do the math, and you will know that we will continue to make more money. I think there I would add another point, a relevant point. We are talking about a very specific crop in a very specific region. We are talking about soybeans in the Midwest in a very specific region. There is something we should also bear in mind because when we talk about the possibility of farmers regularizing their financial position, I mean, today, farmers that grow soybean, they grow corn. Soybean is harvested between January to January and May.
That's why we saw a more resistant delinquency, especially in the first quarter and also going forward into April. We know that these farmers are not using their soybean harvest to plant corn, but they are planting corn, and they will sell it soon. We hope that in the second quarter, those proceeds from the sale of the corn crop will come back to the bank. We can provide new funding in our Crop Plan. There was a significant evolution when it comes to the use of the land by farmers. They do not plant just a single crop. We are working with soybean, but there is a rotation soybean-corn. We are expecting a record corn harvest. We have to wait another 90 days because that's when farmers will receive some new proceeds from the second crop. This has not yet materialized.
We haven't seen that yet. It's only from April onwards that we'll be able to have a better understanding of the process stemming from this second crop. Just to give you an idea, when last year we started talking about the reorganization, it was a gradual move. It was 50, then 100. Today, March. Position. I mean, mid and large-sized clients. There are more than 600 clients in a portfolio involving more than BRL 4 billion. This would be probably the size of that. It makes it difficult because you immediately post that as problematic asset. You stop accruing interest, and the average of provisions for this problematic portfolio is about 67%. You have to put some reinforcements in that, and a lot of it. Thank you, Nichil.
Our next question comes from Eduardo Rossman with BTG. Good morning, Rossman.
Good morning, Giovanni, and everyone else. Thank you for taking my question. Still speaking about agribusiness, I'm just trying to get a better understanding of Resolution 4966. I mean, agro is more relevant in Brazil when compared to other countries, and I think it's also even more relevant to Banco do Brasil when compared to other banks. I'm just trying to understand whether you were having some sort of conversations with the regulating agency just to buy some time because there was an economic worsening. There was an increase in NPL, but there was also a very drastic change in the way you have to deal with the operation. There are some negotiations that are normal in the sector, and probably the regulation, the way it was envisioned and drawn up, it didn't take into account that special aspect of Brazil.
I mean, I'm talking about this time difference in Brazil. Things are different. In Brazil, there was a new rule to leave the DTA and keep it in common equity. I'm just thinking whether there was any kind of conversation with the regulating body so that the transition would be smooth. Tarsi, would you like to comment on that?
Yes. We have engaged in some conversations. It's important to highlight that this conversation door with the regulators is always open. What needed to happen is that we had many questions about how, in practical terms, we would be able to see the performance of the agro portfolio and how would this combine with the risk models of the bank. Now we are sure when we look at the behavior of the agribusiness portfolio.
This portfolio has a very specific behavior, and this is also very specific when it comes to Banco do Brasil. This impact forecast was not a surprise to us. What surprised us was the worsening of the agro portfolio, which was even more aggravated in view of the situation that we had anticipated. Now we are starting conversations with the regulators, taking some suggestions so that they could have a different regime applied to the agro portfolio. These are transactions that have a different payment and receivables flow. These operations bring about challenges to us when it comes to the cure period. I have a negotiation, and then I have to understand at what stage that transaction is during the cure period. The cure period will only be materialized when I start getting revenues from my collections, from my receivables.
There are some specificities that are very peculiar to the agribusiness portfolio, and that's what we're beginning to talk to with regulators. You're very right, and we have to work with that. This is one of the reasons why our guidance is now under review because, again, everything depends on a possible adjustment in terms of this view of the agribusiness portfolio, considering the different stages and profile of the operation in every single stage. It's a pleasure to see you, Rossman, taking a deep dive into the subject. What has the central bank done? I mean, the implementation in Brazil had a few one-off situations, and one of these one-offs was the setting up of minimum floors. I mean, we are still looking at our modeling, and we believe that our management is quite interesting in terms of our loan provisions.
The models have been very assertive, especially in view of the current scenario and the scenario that we anticipate. The issue is that when the model dialogues with the minimum levels set up by the central bank, you see that there are some provision steps, and that's why expenses are more sudden rather than being staged as we had before. Sometimes we say that the minimum levels lead provisions to go up, taking the elevator, and the cure process leads provisions to come down using the steps or the stairs. This is something that we've been discussing with regulators. As Tarciana was saying, they are very open to suggestions, even because at the end of the day, this could also lead to restrictions to the farming activity. Nobody is interested in seeing that happen, and we don't want to penalize the farming sector. Conversations are underway.
Again, the technical understanding should prevail over issues that are punitive. They might make sense when you do not have a modeling process that is accrued and developed. Once our modeling process is very accurate, we should then move towards the regulation that is used all over the world, where expected losses are set according to your best evaluation of the assets rather than complying with minimal levels. If that was the criteria of the 2682, that led to that 4966. We do have some technical arguments, and we are now dialoguing with the regulators. That is why, Prince, I mean, that was a very difficult decision for us to put the guidance under review. Once we look at the conservative aspect of our risk modeling combined with profiles set for 4966, set by 4966, now we arrived at a much more conservative model.
That's why we decided to maintain it and then discuss it with the regulator rather than not being transparent right now. Thank you.
Thank you, Rossman. We are hitting our time at hard stop. I still have three analysts in queue to ask questions. We'll get in touch with you myself and all the whole team, Carlos, Natalia, JP Morgan, and Marcelo Masari from EDISCO. Unfortunately, we cannot stay longer in the call. I'd like to thank you all for participating in this live call to discuss our earnings. We'll schedule meetings with the three of you, and I will see you all again in the next quarter. Thank you very much, and I'll see you next time. See you all next time. Thank you very much.