Land Bank financial plans 2009 /12 & briefing

Meeting report

Land Bank (also referred to as the Bank) Presentation
The Chairperson acknowledged the presence of the Deputy Minister of Finance and the Deputy Minister of Agriculture, Forestry and Fisheries at the meeting.

Mr Phakamani Hadebe, Chief Executive Officer, Land Bank, gave a briefing on its current situation and status, as well as an indication of what Land Bank was doing to try to achieve a turnaround. Full details of the presentation are contained in the attached document. However, in summary, he noted that the mandate of Land Bank had not been achieved. Seventeen disciplinary cases were ongoing against former staff of the Land Bank. Land Bank had over the past few years shown both declining liquidity and a declining loan book.

When the decision was taken to assist Land Bank, it was placed under the financial control of the Department of Finance. A turnaround strategy was formulated, with more emphasis being placed on enhancement of controls and cleaning up of the systems. The turnaround also was aimed at an increased focus on trying to ensure stability and sustainability of the Land Bank. He outlined the progress of the efforts so far (see attached presentation for details). He also outlined the current status of the loan book, indicating those loans that were deemed to be recoverable and those that were classed as “non-performing”. Finally, he tabled the cost-to-income ratio, the steps taken to achieve cost reduction and the development and developmental financial targets. The full financial plan for 2009 to 2012 was also tabled and explained.

Discussion
Mr L Bosman (DA) said that it was obvious that the Land Bank had been through a very troubled period and he was glad to see that the turnaround strategy seemed finally to be in place.

He pointed out that although the functioning of the Bank had been transferred to the Department of Finance, its client base remained in the agricultural sector. Therefore the Committee could help the Bank with support and advice, in an effort to ensure that the Bank was sustainable and was able to give the necessary support to farmers. He said it was “unthinkable” for the agricultural sector to survive without the Land Bank and that was why it was so important that the Bank be run efficiently.

Mr Bosman made a number of points about the Bank. He said that there was a need to look at the perceptions of people “out there in the field”, as it was there that the Bank conducted its business and generated its profit. There was a broadly-held perception that service delivery had been neglected over the past years. He said he had spoken to many farmers who had complained that the service at the Bank’s local branches was not up to par, with the approval and turnaround time of loans being particularly problematic. Many clients had complained that they no longer received accounts from the Bank. It was this type of relatively small matter that gave the clients a sense of security and boosted their confidence in the bank, and when this was neglected they lost confidence.

Many irregularities at the Bank and in its conduct of affairs had existed for some time and had been investigated on several occasions, but although it had been expected that the reports would be tabled, none of these reports had, to the best of his knowledge, been made public. The Committee wanted to know what the findings of such investigations had been, what had been done about irregularities and what was being done to repay the Bank, in cases where there had been irregular payments. He asked how the situation had changed since the current investigations. He asked if the investigations into the Board and former CEO had unearthed any other unauthorised loans by other officers, board members or employees. He also asked what assurance the Committee could have that no further irregularities had taken place since then.

Mr Bosman said that there needed to be a differentiation between the commercial part of the Bank’s operations and the Bank’s developmental arm. Interest rates charged by the Bank were not competitive with rates charged by other banks and this resulted in the Land Bank losing clients to these other banks. He asked if the Bank was applying the same principles to emerging farmers, and what security was being given by clients in the case of developmental loans. He said that development would best be assisted by the granting of preferential loans, low interest rates and long-term repayment provisions. He suggested that there should be a clear distinction between commercial clients on the one hand and developmental clients on the other, for whom the government had a clear responsibility to help in securing loans.

Mr Hadebe replied that he fully agreed with Mr Bosman about the issue of the Bank’s poor service delivery and said that the problem was that there had just been too many matters which were not working for too long. Time was needed to rectify all these problems. He said he also agreed about the issue of accounts, and that was a matter that was also receiving the Bank’s attention. With regard to irregularities, he noted there were four forensic investigations ongoing and each of these was very complex and involved many people.

Mr Hadebe commented that the distinction between commercial and developmental roles was a political decision that must be made. The Strauss Report, as well as the Development Finance Institution review of the previous year had highlighted the need for a decision. He commented that the loans differed from one to another. He noted that the percentage of loans given to black emerging farmers was still very small, at about 6%, and he agreed that this was a cause for concern, requiring further work by Land Bank.

Ms N Phaliso (ANC) asked how much litigation was taking place in relation to the Bank and what the Bank’s plans were for calling up current loans. She said that the Bank was expected to go out of its way to help people and to ensure that they did not lose their farms. She noted that a 30% target had been set for black emerging farmers and asked what had currently been achieved.

Ms M Pilusa- Mosoane (ANC) asked about the status of the Bank’s 27 branches. She also asked how many people had taken out loans from the Bank and how many farms the Bank had actually repossessed, as also whether there were any time frames applicable to repayment of these loans, because it was important for the Bank’s clients to know how long they had to pay back loans.

Mr Hadebe agreed that there was a need to change the culture of the branches and to make them more service-orientated and that was currently being done. The majority of the Bank’s 27 branches faced an increasing non-performing loan book.

Ms Pilusa- Mosoane asked what monitoring had been in place when the irregularities had first occurred and what had happened to those officials who had been found guilty of irregularities.

Mr Hadebe replied that 13 staff had been dismissed and three suspended, of whom two had been re-instated through the Commission for Conciliation, Mediation and Arbitration (CCMA). Only one official who had been charged had been sentenced in the past three years. Three clients had been charged for fraud, and one client had been sentenced. There were four complex forensic investigations under way. The first was the Land for Development Finances project, the first to be identified when the Bank had been transferred to the control of National Treasury. This report had concluded that further work needed to be done and the Bank had resolved to use its own resources to assist the police, who were under-resourced. This investigation was at an advanced stage. The second investigation concerned Agri-BEE. The first report produced in this regard had not been tight enough. The Land Bank was now busy compiling another, and had resolved to bring in security and to assist the police. The Bank had been given about six months in which to conclude this investigation. One of the other forensic investigations related to an instance where officials of the Land Bank had inflated the cost of Information Technology equipment to R140 million. Some of those responsible had been fired while others had been suspended. This process had been referred to the Standing Committee on Public Accounts, and was moving very slowly. The last investigation related to MAFISA. This had been referred to the Directorate of Special Operations (as it was then), and there had been a visit to Limpopo as part of the investigations. He stressed that all four forensic investigations were with the right authorities, but the Land Bank had taken these a step further and had engaged a private investigator to investigate all these cases. The report had been received and would be forwarded to the relevant officials. The Land Bank was in control of all these matters. There were, apart from these instances, no other irregularities picked up by either the internal or external auditors. Land Bank had now put in place control systems to try to obviate such problems in future. One, for example, was that all loans above a certain amount could not be approved by any one official, but had to go through an entire committee.

Hon Nhlanhla Nene, Deputy Minister of Finance, said that although he realised that Members expected answers to all questions, they should kindly bear in mind that the National Treasury would still be presenting its Annual Report to Parliament, and this would contain most of the details required by the Committee. If he covered most of these details today, there would no longer be anything substantial to report on in that presentation. In regard to Land Bank’s sustainability, he appealed for the Committee to exercise a public relations function to assist in ensuring that the Bank’s mandate was carried out. He said that there had been a moratorium on loans, but that there would be further action taken on this down the road, if the loans were not recovered. The Annual Report that he had referred to earlier would also contain the details of these loans, and a report on black emerging farmers. Land Bank was currently working on an appropriate pricing and credit model, so he was unable to share precise details with the Committee at this stage.

Mr Hadebe pointed out that Land Bank borrowed at a rate similar to all the other banks, and its lending rates were calculated according to a number of variables, including the need to recover the costs and also the special risks associated with each project.

The Chairperson asked what the Bank was doing to educate emerging farmers, particularly as to why they were required to pay back a larger amount than they had borrowed, as many might not understand the concept of interest on capital. He asked what the margins were between borrowing and lending, noting that the figure of 1.5% had been mentioned.

Mr Hadebe replied that the Bank did not borrow money from the Reserve Bank but operated like any other business and went to the market, where it negotiated an optimal borrowing rate. Land Bank’s efforts over the past five or six months had resulted in it now having better options when looking for loans, so that it could borrow on the terms which were most favourable to it. The market wanted to know what were he Bank’s equity and profitability, before it was prepared to lend. Land Bank had only one option, namely to work on its balance sheet so as to restore confidence in the market. He stressed that Land Bank was still involved in an ongoing process of restructuring, and the full impact of this would not be felt until in two to three months’ time.
 
Ms D Carter (COPE) thanked Mr Hadebe and his team for the honesty reflected in its report. She commented that taking up a position at the Land Bank was not for the faint-hearted. She said that although some of the earlier questions had been addressed, she nonetheless wanted the Land Bank to be more specific on the need for effectiveness, competitiveness and on all the allegations of misconduct and irregularities. She asked, in relation to the transactions around land development in 2007, whether action had been taken against employees, and, if so, how many employees were involved, what action had been taken and when had it been taken. She also wanted to know what action had been taken against defaulting employees to recover the funds.

Ms Carter also said that the question whether loans or financial assistance had been made available to any past or present members of the Board had not been satisfactorily answered, and she requested full details in this regard. She also referred to the mention, in the report, that the Bank had approved a R200 million loan for non-agricultural purposes in favour of Komotse, over a 10-year period, in about 2006. She asked whether that money had been recovered.

Mr P Pretorius (DA) said that although he was new to the Committee he had the feeling that the same theme of a turnaround had been raised in each of the last few years, and he said that he hoped that by the critical period of March 2010 matters would be very different.

Mr Pretorius asked what made the Land Bank different from any other bank. If, as it appeared, the Land Bank struggled to get funds at a rate cheaper than other banks, it would seem that it was in a downward spiral, which he commented was the crux of the problem. He said that no farmer would entertain the idea of taking out a loan at an interest rate higher than that available at a commercial bank. He asked if there was not then a responsibility on Government, as the sole share- holder of the Bank, to ensure that preferential seed-money was given to the Land Bank.

Mr A Williams (ANC) asked when the Bank envisaged that it would become self-sustainable, given that a re-capitalisation to the tune of R13 billion was due in March 2010.

Mr S Abram (ANC) agreed with Mr Pretorius that he too must have heard at least a dozen announcements over the last ten years to the effect that the Land Bank was effecting a turnaround.

Mr Abram said that the Land Bank was expected to carry out a developmental function. That being the case, it could not be expected to compete on the open market for funding. That could only be done if the Bank had a massive commercial loan book. The developmental function could only be carried out if the State was willing to provide a source of aid for the poor in the agricultural sector. He believed that the State should be told, in no uncertain terms, that it would need to pump in resources to enable this function to be carried out. He pointed out that the history of the Land Bank would show that its interest rate, at inception, was between 1% and 2%. Mr Abram wanted to ask the Deputy Minister of Agriculture, Forestry and Fisheries, who was present at the meeting, to take back this message on the developmental function, and to get the support of government for the developmental role.  He said that in the 1960s the Agricultural Credit Board was created to help the commercial farmer endure and survive tough times. This Board had operated on an interest rate models of between 3% and 4%. Such models needed to be revisited if there was to be meaningful land reform that put more people on the land. People present at the meeting today had the task to save the Land Bank from failure, but they must look not only to the future plans, but also examine where the problems had begun. The problem, as he saw it, was that Land Bank was regarded as a good source from which officials could loot money.

Mr Abram commented that no Members of this Committee or elsewhere in Parliament had seen the 192-page Forensic Report. Land Bank had failed to take Members into their full confidence about the matters raised in the media. Members had not expected to hear of the sordid goings on in an institution funded largely by taxpayers. If Land Bank’s oversight had been properly carried out, then its problems would not have happened. The report of the Auditor-General had devoted about nine or ten paragraphs to the various irregularities. The current Chief Executive Officer, having inherited these problems, was answerable for them, and owed the Members full explanations.

Mr Abram stressed that the Committee wanted clarity on the way forward. This could only be gained if the clean-up operation was correctly executed. Mr Abram said that he was not aware of charges being laid against anyone and he wanted to know exactly how far the investigations had gone, and what charges, if any, were contemplated. Apart from the Board Members who might have benefited, there were rumours that politicians might also have received something. He wanted the Land Bank and this Committee to be brutally frank with each other. This Committee and the National Treasury must see to it that all State institutions were run in a totally upright manner, so that the public, who relied on Parliament to carry out an oversight function, could see that something was being done.

Mr Hadebe commented that the questions directed at the Bank had been searching and would ensure that the Bank was alert to the problems. He conceded that perhaps oversight in the past could have been more thorough, but commented that many of the issues were not immediately obvious. He hoped that the Bank would “do far better in the future”.

The Chairperson suggested that Members must accept that the forensic reports were in progress and must await the Land Bank reverting to members in regard to the reports.

Ms M Mabuza (ANC) asked about the grace period given to farmers. There were allegations that they were expected to start repaying the loans after only one month, instead of being given the opportunity to plant and harvest before the obligations started. She also asked about the allegations of repossession of farms, including 800 that were allegedly up for auction, and two farms at Pananashoek in the Tzaneen area that were due to be up for auction on 28 July. She asked if farmers were not given the opportunity to sit down with the Bank and explain their problems first.

Mr Harry Moeng, Head of Corporate Finance Unit, Land Bank, noted that Land Bank would have to investigate and report back on each specific case. It must examine the file of each specific client to see what were the terms of the contract and loan agreement. However, he mentioned that many farmers, especially the new farmers, were under the misconception that their loans could be paid back in one annual payment, whereas this was not the case.

Ms Mabuza also asked whether the resolutions of the Standing Committee on Public Accounts (SCOPA) had been implemented.

Ms Mabuza enquired if borrowers were being charged compound interest, which she thought would be incorrect since Land Bank was supposed to be a development Bank with the aim of helping the poor.

The Chairperson asked what the “average interest rate charged by the bank” was.

Mr Hadebe replied that he agreed that it would not be in the interests of the country if the Land Bank did not increase its developmental focus and work.

Deputy Minister Nene added that with regard to comments that the Land Bank was a developmental bank, it was advisable to distinguish between ordinary grants and those intended to assist emerging farmers. He noted that the Land Bank needed to achieve a self-sustaining status. The Bank’s equity was R1 billion, and R700 million had been put in by the State. The question was whether the State should be expected to pay out another R13 billion. There was a commitment to make Land Bank work. Land Band was currently working on a new pricing model that would be taking into account the Bank’s developmental responsibility.

With regard to the details sought on other matters, Deputy Minister Nene again appealed to Members not to insist now on being given details of matters which would be covered in the upcoming Annual Report, especially those matters presently under investigation. He said that it would not be correct for this forum to go into these details. If necessary, the public representatives could submit enquiries to the Land Bank on each specific case.

The Chairperson asked whether, without going into specifics, the Land Bank team could give Committee Members an idea of the rate of repossession, and pending repossessions, and how such cases were being dealt with.

Mr Hadebe replied that the Land Bank had placed a moratorium on loans in 2002, 2004 and 2005. He said that the majority of black farmers who were currently in trouble had not paid anything for a long time. The Bank could not afford to continue granting continuous moratoriums.
The Public Finance Management Act (PFMA) dealt with the issues. If this was not complied with, then it became a political issue. There were currently 25 repossessions under way. He stressed that the Land Bank had not merely acted unilaterally but had had full discussions with the Directors-General of the (formerly named) Departments of Land Affairs and of Agriculture on how to proceed in these matters. There had also been full discussions with all the provinces to keep them abreast of the situation. A political decision was now needed.

Mr Hadebe also stressed that farms were supposed to be income-generating entities. If the farming activities could only just cover the survival of the owners and their families, but not generate sufficient to pay back the loans, then it was a political decision as to whether to use taxpayers’ money to help sustain them.

Deputy Minister Nene reiterated the need for Members to have patience and to await the Annual Report, which would contain all the relevant details.

Mr Hadebe stressed that Land Bank, when holding discussions with the Provincial Departments of Agriculture, had made it clear that it could not arrogate to itself the right to take essentially political decisions. Land Bank was also severely constrained by its financial position. It was patently false to suggest that the Land Bank had impulsively gone ahead and undertaken repossessions.

Mr Hadebe said that when the Bank had been transferred to National Treasury, he had been given two principal responsibilities: namely, to stabilise the Land Bank and “clean it up”, by ensuring that legal action would be taken against all people who had done anything wrong. That was exactly what he had done. He had not encountered any opposition from members of the Board or other officials involved in the process. However, as rightly indicated by the Deputy Minister, this would be a long process and he could not give names at this stage. The process was ongoing. Land Bank had appointed its own security officials to assist the South African Police Service investigators.

The Chairperson suggested that it might be useful if the answers to some questions were given in writing. He said that Members were under strict instructions from the President to adopt a robust approach. Both the Committee and the institutions were partners when it came to service delivery.

Mr L Gaehler (UDM) asked whether, in the context of repossessions, the Land Bank valued the farms in question. He also asked whether the Land Bank would provide mentorship to farmers.

Mr Moeng replied that the Land Bank valued every farm that it purchased, and that it had a very conservative policy in this regard.

The Chairperson commented that not much had been said about the insurance activities of the Land Bank. However, because of the extent and seriousness of other issues under discussion, this would be postponed to a later date.

Mr J Gelderblom (ANC) reiterated that the public perception of the Bank was very poor. He asked whether the forensic report was already with SCOPA. He also commented that the 6% interest on loans for emerging farmers was totally unacceptable, and that this would be a problem if the Land Bank did not drop these rates by between 3% and 5%. Although he realised that this would be a political decision, he urged the Ministers dealing with Agriculture, Rural Development and Finance to work together to resolve the issues.

Mr Hadebe replied that he fully agreed that the 6% interest rate was unacceptable, and the Bank had yet to deal with the issue.

Ms Pilusa-Mosoane stressed that eventually the Committee would require to see the names of parties involved in irregularities. She pointed out that there had been 11 SCOPA resolutions, of which only three had been dealt with and eight remained. She also reminded members that officials involved in irregularities were undermining the PFMA as well as these SCOPA resolutions. She asked if any of the officials had received performance bonuses, and, if so, why.

Mr Hadebe said that unfortunately some officials had been paid bonuses but that an oversight function would ensure that that did not happen again in future.

Mr R Cebekhulu (IFP) asked if the Committee could get a list of farms identified by the Bank for repossession. He said it was unfortunate that first-time land owners who required assistance and guidance were going to lose their farms. He also pointed out that there was a real danger, as had happened before, that once the farms had been repossessed, the former owners would simply buy them back, which took away the hope that African farmers would increasingly own land.

Mr Abram, taking Mr Gelderblom’s suggestion further, requested the Chairperson to approach the three Ministers concerned for a meeting. He also suggested that in the meantime the Chairperson should also approach the Department of Agriculture, Forestry and Fisheries (DAFF) to give the Committee the names of the clients who were in difficulty. He agreed that the Land Bank must try to avoid the situation where commercial farmers could buy back repossessed land, thus defeating the aim of having 30% of all commercial land reverting to the people.

Mr Abram said that the Committee had not had a satisfactory answer to the question as to whether any board member, politician, Bank employee, or members of their families had been given preferential assistance, such as grants from Black Economic Empowerment (BEE) funds.

Mr Hadebe said that there were allegations around benefits to politicians, but these had to be properly investigated.

The Chairperson said that issues of corruption had been repeatedly raised. Members had been informed that a forensic audit was in progress. He appealed to Members to give the process a chance. He had been told that the Auditor-General should be in a position to finalise his report by the end of July. A full report would be available by mid-August. The Committee would then be given the opportunity to engage further on these issues.

The Chairperson asked whether it might not be worthwhile for the Committee to engage in an oversight exercise and visit two or three of the provinces concerned. Although the Committee could not visit all the affected farms, it should do as much as possible to avoid repossessions or auctions. Perhaps even another moratorium was needed, especially in respect of the properties of emerging farmers that were at risk.

Mr Hadebe replied that an oversight visit was an excellent idea. Whether or not the auctions could be avoided was a political decision, and the Bank would have to take instructions from the Minister. He conceded that repossessed properties were often sold to corporates.

Mr Hadebe said, with regard to the suggestion of giving extensions for repayment to developing farmers, that if the Bank showed leniency to one farmer, then another farmer, who might have been paying diligently, would rightly ask why he was not granted the same indulgence. He predicted that to allow this precedent would cost Land Bank at least R100 million monthly, and it would be forced to close down with a huge liability within a matter of a few years. He requested that the whole question be discussed with the relevant ministers.

Mr Bosman noted that if Government wanted the Land Bank to fulfill a developmental function, then Government would have to change the rules. Interest rates would have to be subsidised. If debtors were unable to pay back loans, then Government would have to compensate the Land Bank for its loss, recognising that the Land Bank had to compete with other commercial banks.

Mr Gelderblom remarked that emerging farmers meant farmers who wanted to provide food for the whole of South Africa.

Mr Pretorius asked whether the CEO believed that the current business model of the Bank was viable, given that it had to compete with other banks.

Mr Bosman congratulated the Land Bank team on the job it had done so far in the turnaround. He wanted to state unequivocally that his party was fully in favour of transformation, but it was also necessary to look closely at how taxpayers’ money was being spent. It was not tenable to allow people to benefit without taking responsibility. He knew for a fact that when a commercial farm was repossessed, the Bank did offer it first to the Departments concerned with Agriculture or Land Affairs, before putting it on the open market. The DA supported such a policy because it would not like to see the Bank’s business suffer as a result of being forced to execute a policy framework without the support of Government.

Mr Abram accused Mr Bosman and his party of wanting to preserve the privileges of a few at the expense of the majority.

He said that it must be made very clear that the ANC had a mandate from the people of South Africa. Land Bank needed to assist the emerging farmer to graduate into becoming a commercial farmer. One had to be cognisant of the historical situation, which had kept 87% of the land from being accessed by the majority of the population, who were confined to small areas of the country and yet still expected to survive. It was imperative to redress the imbalances of the past. When the Land Bank had first been established in 1912, its beneficiaries were mainly white. They were able to get loans at an interest rate of 1%, repayable over a period of up to 60 years. This ensured that land ownership remained firmly in the hands of the privileged. Now emerging farmers were expected to pay commercial interest rates. This seemed to be denying these farmer the chance to buy and farm land, as they were unable to service their loans and faced the prospect of losing their farms.

Ms Pilusa-Mosoane said she supported the Bank in what it was doing and reminded the Committee that Parliament had to take immediate and strong action.

The Chairperson also commented that the priorities of the Nation had been clearly spelled out by the President, and included job and work creation.

Ms Pilusa-Mosoane asked what had happened to the termination package of R4.7 million given to the former CEO.

Mr Hadebe admitted that the R4.7 million payout had previously been made. This had been thoroughly discussed by the Board. There was little that could be done about this now.

The Chairperson again asked about interest rates, and whether these were prime, or prime plus 4%.

Mr Hadebe said that the average cost could be anything from prime, to prime plus 4%, and retail tended to be the same. But on the strong commercial side it could be prime minus 1% or even 2%, which was the best rate offered.

The Chairperson referred back to the comment by Mr Pretorius on the commercial and developmental responsibilities of the Land Bank. These were competing interests and begged the question whether the current model was capable of succeeding.

Mr Hadebe again emphasised that the Land Bank’s strategy already took into consideration its developmental arm. It was also working on the assumption that the government guarantees of about R3.5 billion over the next three years or so would convert into cash over time. Land Bank was further hoping that non-performing loans would continue to decrease. If all that happened, the Bank would achieve its goal. He said that Land Bank was already beginning to see this business model succeed. In regard to previous comments that there had been other turnaround strategies, he said that the Bank was convinced that the current model would work. The Annual Report would more fully show the direction being taken and its results. However, he once again reiterated that this was the start of the process. Much remained to be done. The Bank would, in making the changes, ensure that it was doing what it was supposed to do.

Once again, Mr Hadebe stressed that the developmental function was essentially a political decision. The two most thorough pieces of research conducted up to now on the sustainability of the Land Bank had stated that it was necessary to separate the commercial function and the developmental one. That had also been the thrust of the Strauss Report which had resulted in the Land Bank Act. In future the Bank would have to separate its commercial function from that of development.

Professor Herman van Schalkwyk, Acting Chairperson of the Land Bank Board, reported that the Board was very satisfied with what had been done in the Bank over the past year. Much ground had been covered, as the Annual and financial reports would show.

Professor van Schalkwyk said that many of the questions raised today went beyond the Land Bank alone. There were two issues with emerging farmers, one technical and the other institutional. Land Bank was only one of the role players, and was solely concerned with supplying credit. All other role players must also look at their functions and develop a strategy around emerging farmers. This must happen at a very localised level, because that was where agriculture happened. The Land Bank remained committed to agricultural development and would do its best to fulfill the mandate.

The Chairperson thanked all Members and officials and said that the discussions had been very useful.

The meeting was adjourned.