The Land & Agricultural Development Bank of SA (Land Bank) has faced numerous challenges in its 110-year existence. Still, the entity remains vital to SA’s agricultural sector and the economy at large.
Over many decades it has been instrumental in the commercialisation and expansion of the agricultural sector, providing much-needed financial support to farmers across the country even when other financiers were unwilling to take the risks inherent in agricultural financing. These efforts greatly supported the development of SA’s agricultural sector and ensured stable food security at the national level.
The world is again facing a global food crisis, which places increased focus on agricultue. In SA we also look to the sector as a contributor to job creation and the economic vibrancy of rural towns. In strengthening its ability to contribute effectively to SA’s developmental objectives and ensure continued food security, the role of agricultural finance is as critical now as in the past. Without appropriate financial solutions to fuel agricultural growth and food security, much of our ambitions for the sector, such as increased employment and inclusion of new entrant black farmers, will remain unrealised.
While it is true that Land Bank has in recent years underachieved, particularly on its development objectives, it remains the only public institution that can play this role and was established solely for this purpose. Our focus is on reviving the entity and ensuring it is appropriately positioned to achieve its development objectives. There are various organisations involved in agricultural finance, but none, whether public or private, has the depth of accumulated expertise and sector-specific funding infrastructure necessary to directly support the agricultural sector’s policy ambitions.
To achieve the stabilisation, refocusing and revival of the bank, finance minister Enoch Godongwana appointed the new Land Bank board in December 2021, which I chair. When the board was appointed it had a mandate to do what it takes to stabilise the entity and rebuild the institution into a credible agricultural developmental financier that balances financial sustainability with developmental effectiveness.
Over the past eight months Land Bank has held extensive engagements with its lenders, shareholder, parliament and farmer organisations, including the African Farmers' Association of SA, Agri SA, the National African Farmers' Union and TLU/TAU, to fully diagnose the bank’s challenges from all angles and develop a credible plan for recovery. In embarking on this diagnostic exercise it was important to gain a full understanding of the factors contributing to the bank’s financial challenges; to assess the shortcomings of the bank’s performance; and to frankly evaluate the effectiveness of the bank in carrying out its developmental mandate as articulated in Land Bank Act.
Having concluded this diagnostic exercise the bank has developed a turnaround plan that seeks to sustainably reposition it to significantly increase its support to developing farmers (who constitute less than 10% of the overall loan portfolio) while addressing the shortcomings that contributed to its challenges. We are discussing the turnaround plan with the bank’s financiers and agricultural stakeholders to ensure an inclusive and transparent way forward. While the process of consultation on the bank’s turnaround plan remains ongoing, two main areas addressed in the plan require immediate emphasis.
The first relates to the Bank’s current state of default and the restructuring of its debt. In April 2020 the bank defaulted on its debt obligations, and since then the entity and its lenders have been in negotiations to restructure outstanding debt. Significant progress has been made in ensuring continued solvency and reducing outstanding debt from R41.35bn in 2020 to R24.2bn presently. This diligent servicing of outstanding liabilities indicates the bank’s commitment to prudent financial management and sets the basis for financial self-sufficiency.
The debt restructuring solution now being discussed with the bank’s group of lenders focuses not only on the continued reduction of debt but also sets a clear path to sustained improvement in operating performance and seeks to ensure the bank can reliably operate without burdening the taxpayer. Negotiations with the bank’s lenders are ongoing with the aim of reaching agreement in the coming months.
The second critical area addressed in the bank’s turnaround plan relates to the performance of its loan book and related collections, aspects that have greatly contributed to the bank’s difficulties. In March Land Bank’s nonperforming loan ratio peaked at 47.7%, with farmers representing R12bn of its loan book failing to meet their financial obligations to the bank, even as overall agricultural sector performance remained robust for three consecutive seasons. Much of this underperformance sits in the loan book previously managed by intermediaries.
To gain a greater level of control over its loan book and enhance its performance, the bank has terminated agreements with most of its intermediaries and deployed a range of forbearance solutions to restructure the loan facilities of farmers experiencing financial difficulties. Unfortunately, not all forbearance efforts are successful, and at times the bank faces a lack of co-operation from clients with whom it or its previous intermediaries have contracted. In such instances the bank, like any other financier, must resort to legal action.
While Land Bank, as a patient financier, seeks to assist all farmers and has in instances worked with farmers over many years to remedy defaults, the deterioration of the loan book and low levels of collections of outstanding debt pose a serious threat to its financial sustainability. This increases the burden on SA taxpayers and negatively affects the bank’s ability to effectively recycle capital to support new entrants. For this reason it is important that the bank’s clients honour their contractually agreed financial obligations and work constructively with the bank to remedy any events of default.
This sensible approach is unfortunately not supported by all. Over the past few weeks there have been several sensational media articles from some agricultural groupings that seek to weaken the bank’s collection and turnaround efforts. These articles include allegations that the bank is mistreating its clients and acting unfairly in collecting outstanding debt. This is untrue. The bank has been patient and has only opted for legal action in relation to farmers that have either refused to work with it or those for whom remediation efforts have been unsuccessful.
Overall, the efforts to ensure Land Bank regains its prime role in growing SA’s agricultural economy are intensifying and have begun to bear fruit. The bank aims to broaden its reach and best serve those who need it most by supporting the country’s agricultural policy ambitions and growth plans such as the Agriculture and Agro-processing Master Plan. To sustainably achieve these objectives all stakeholders and farmers supported by the bank must collectively play their part in honouring their commitments and acting with responsibility and accountability. This is the only way we can best serve the agricultural sector and SA.
• Nkosi is nonexecutive chair of Land Bank.