SAO PAULO (Reuters) -Brazilian state-run lender Banco do Brasil on Wednesday lowered its outlook for adjusted net income this year, citing higher funding expenses and rising defaults among local farmers.

The bank now expects annual net income of 18 billion to 21 billion reais ($3.33 billion-$3.89 billion), down from a previous forecast of 21-25 billion reais.

Banco do Brasil, long seen as a pillar of farm credit in the country, has been grappling with record default levels in its agribusiness portfolio, which hit results and raised investor concern over its exposure to the sector.

In the third quarter, the bank's agribusiness default ratio hit 5.34%, up from 3.49% in the prior three-month period and above its overall 90-day default ratio of 4.93%, which rose 72 basis points sequentially.

"Given this scenario, we have acted with transparency and implemented effective measures to address the situation, responding quickly and decisively," the bank said in its earnings report.

Banco do Brasil posted an adjusted net profit of 3.79 billion reais ($701.35 million) for the third quarter, down 60.2% from a year earlier but slightly above the 3.71 billion reais expected by analysts polled by LSEG.

The lender's return on equity, a gauge of profitability, was down 1,276 basis points year-on-year to 8.4%, but unchanged quarter-over-quarter.

In another revision, Banco do Brasil also raised its estimate for cost of credit in 2025 to a range between 59 billion and 62 billion reais, from the 53 billion to 56 billion reais forecast before.

($1 = 5.4039 reais)