(Bloomberg) -- Brazil’s second-biggest bank handed shareholders returns of 76% last year, proving traders wrong who bet President Luiz Inácio Lula da Silva would hurt the company’s performance by using it to juice the nation’s economy.

State-controlled Banco do Brasil was the best-performing bank on the benchmark Ibovespa index in 2023, posting a total return roughly 30 percentage points higher than Itau Unibanco Holding SA, the nation’s largest bank by assets. The performance gap is likely to continue this year, according to analysts’ forecasts.

“The market over-penalizes Banco do Brasil given that the bank has delivered great results with a return on equity comparable to a first-rate, non-government-owned bank,” Ricardo Peretti, a strategist at Banco Santander Brasil SA, said in an interview.

On the campaign trail, Lula promised to combat poverty and bring back the type of prosperity that Latin America’s largest economy experienced when he oversaw the nation at the start of the century. That led to fears among some investors that Banco do Brasil, with 2.2 trillion reais ($450 billion) in assets, might get tapped to fund too many social programs or be forced to offer a great deal of subsidized loans. 

So far, those concerns appear to be misplaced. In 2023, the first year of Lula’s third term, Banco de Brasil added 59 billion reais in market value largely thanks to its role as the largest lender to agribusiness in the resource-rich nation.

“We ended 2023 with a clear demonstration that the market is starting to pay greater attention to the value of Banco do Brasil,” Geovanne Tobias, the bank’s chief financial officer, said in a statement. 

Tobias rejected the idea that the bank is at risk from political interference, pointing to its support of the public and agricultural sectors to explain its standout performance.

Bumper crops last year helped lift profits and decrease defaults, while Brazil’s double-digit interest rates have helped to boost Banco do Brasil’s credit portfolio. It reported fourth-quarter adjusted net income and return on equity that beat estimates. And in February, Banco do Brasil’s board increased the percentage of its profits to be distributed to shareholders this year to 45% from 40%.

But the boost from agriculture is unlikely to last. The sector, like the Brazilian economy as a whole, is widely expected to slow this year. That has raised concern inside Banco do Brasil that its share price could take a hit, according to people familiar with the matter who asked not to be identified.

The company’s agribusiness credit portfolio is distributed across all states and regions, and there’s no concentration in specific crops, it said in a statement, adding that climate and market impacts tend to be varied but don’t significantly influence the portfolio as a whole. 

The prospect of weaker economic growth has made it tougher to put to rest concerns about potential political interference at the Brasilia-based bank.

During the administration of President Dilma Rousseff, Lula’s hand-picked successor from his previous term, Banco do Brasil provided billions of dollars of additional credits to individuals and small businesses, which contributed to higher delinquencies and a decline in the bank’s share price, according to analysts.

Still, some market observers see the bank serving as a major lender to agriculture as a buffer against a weaker economy because of the sector’s historically low default rate. 

“At the end of the day, Banco de Brasil has a portfolio that’s counter-cyclical,” said Wesley Okada, an analyst at hedge fund Ace Capital. “When the market is bad, the bank tends to do well because of its participation in the rural sector.”

Legacy Capital and AZ Quest Investimentos, two of Brazil’s largest hedge funds, have kept a long position on Banco do Brasil after the 2023 rally because of its exposure to agribusiness. 

Now that Brazil’s central bank has begun lowering its benchmark interest rate, some analysts see Banco do Brasil, like the entire banking system, further benefiting from fewer delinquencies. 

With monetary easing underway, “family defaults decrease and the profitability of payments improves,” said AZ Quest analyst Murilo Marchioni. 

--With assistance from Martha Beck, Andrew Rosati and Cristiane Lucchesi.

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