The Land Bank’s Annual Report 2008/09 outlined the turnaround strategy that had been followed by the Bank. This consisted of three primary strands. The Bank had cleaned up its operations. It had addressed all the qualifications from the 2008 report of the Auditor General and had received an unqualified opinion in the financial year under review. The Bank had also stabilised itself. Staff capacity, information technology and funding had all been improved. The major non-performing loans had been identified and addressed, although the Land Development Funding Unit would remain on the Land Bank’s books for another two years. The cost/income ration of the bank had been reduced through 2008/09 but had recently increased again as employment had increased. The Bank was now focussing primarily on sustainability. The loan book had been stabilised and targets had been set for development lending. These amounted to R3.3 billion over three years.
The financial performance of the Land Bank was also presented. At the end of the 2008/09 financial year group profit had been R166.6 million and profit from banking operations had been R241 million. These were both increases from the previous year. The net cash position at March 2009 was R3.5 billion, an increase from the previous year’s figure of R0.8 billion. The six months to 30 September 2009 were also covered. Income from interest was down in comparison to 2008/09. Operating expenses were up on the previous year due to additional employment. Both income from banking activities and net profit operating expenses were on track to be approximately the same as in 2008/09. The net profit for the six months was R119 million
The critical issues affecting the Bank were those of legacy. There were forensic investigations on a number of issues – AgriBEE, the Micro-Agricultural Finance Initiative of South Africa (Mafisa), IT and the Land Development funding Unit. All of these were at sensitive stages and could not be discussed in great detail by the investigators. The AgriBEE investigation had become much larger than originally expected. It was expected that there would soon be smaller cases where action could be taken outside of the main investigation. A prosecution strategy had been designed for the Mafisa case.
There had been extensive discussions between the Ministers of Finance, Agriculture and Rural. A number of recommendations had been made to produce a rural development strategy. A curatorship concept could be used to help emerging farmers and a value-chain model would be used. The Ministers would present these plans to Parliament in the very near future.
Members asked questions on the AgriBEE investigation and the amount that the Land Bank was looking to recover from the investigations. They also enquired about the Land Bank’s use of consultants, the definition of, and skills needed by, an emerging farmer and the concept of curatorship. They also asked about resignations from the Bank’s board, the interest claims being investigated, the development pilot projects and the guarantees given by government.
Opening Remarks by the Deputy Minister of Finance
Honourable Nhlanhla Nene, Deputy Minister of Finance, began by outlining the responsibilities of the Land Bank. These were to increase access to land, support historically disadvantaged individuals in the agricultural sector and increase rural incomes. He agreed that in the past the Land Bank should have performed better, and its failings had been highlighted by the media. The reports of the Auditor General had shown a number of areas which required improvement. The Land Bank had been transferred to the National Treasury in an effort to stabilise it, this had been a success and the Bank had now received an unqualified report from the Auditor General.
The Deputy Minister stated that, while much had been achieved, there were still a number of challenges, primarily in terms of the legacy of the Land Bank. It was these challenges which dominated the media coverage of the Land Bank. The major challenge would be in improving the role of historically disadvantaged individuals in the agricultural sector, he said that there would be a report to Parliament in the near future on this topic.
Briefing on the Land Bank Annual Report 2008/09
Mr Phakamani Hadebe, Chief Executive Officer (CEO), Land Bank, gave a presentation describing the Annual Report for 2008/09. He also covered performance in the first six months of the 2009/10 financial year, up
to the end of September 2009.
Mr Hadebe began by describing the strands of the Land Bank's "turnaround strategy" that had been in place for the past two years. This strategy consisted of "clean-up", "stabilisation" and "sustainability", and was expected to finish by March 2010. He outlined the results of the “clean-up” strand of the Land Bank’s turnaround strategy. There had been seven qualifications in the 2008 audit report; all of these had been addressed by 2009. Two of the qualifications, non-compliance with mandate over the Land for Development Finance Unit (LDFU) loans and fruitless and wasteful expenditure had moved to being “other matters”. The remainder had been dealt with in full. The 2009 audit report was unqualified.
He then went on to describe the stabilisation strand of the strategy. Staff capacity had been improved with more senior positions being made permanent, rather than acting, and 62 out of 68 key positions being filled. The Land Bank was attracting high quality staff. Information Technology (IT) had also been stabilised. R140 million had been spent on the current system and, after investigation, this was found to still be the best option. There was a plan in place to improve IT and in two years there would be a fully fledged banking system. Until this was in place the “People Soft” system would be used.
Mr Hadebe said that funding dynamics had been stabilised, and it was important for the Land Bank to have investment so that spending was possible. From an original R300 million, the funding had grown to R4 billion. Liquidity was no longer an issue for the Bank as investors had begun to return. However, the Land Bank’s balance sheet had continued to deteriorate and there was a need to stabilise and grow this. To do this the Land Bank had identified the top three non-performing loans and tried to address these. One had been successful, one was not and the third was the LDFU. The Land Bank hoped that the LDFU would be off the books by the end of the next financial year. In order for this to happen it was important that market conditions changed, this did not look likely and it seemed probable that the LDFU would not be cleared for two years.
Finally within the stabilisation strand, Mr Hadebe pointed out that the cost/income ratio had been reduced by the Land Bank. However, the increased employment at the Bank had resulted in this ratio increasing again. There were now, however, higher quality staff in place.
Mr Hadebe showed the results from the attempts to improve the sustainability of the Land Bank. Firstly, there was an attempt to stabilise the loan book, this had been achieved as the very large falls in previous years had been halted and the decreases in recent months had been very small. Secondly was the issue of development. Targets had been set for growing the development loan book, the target for March 2010 was R450 million and for the three years to March 2012 was R3.3 billion. There had been many discussions between the Deputy Minister of Finance, the Minister of Finance, the Minister of Agriculture and Minister of Rural Development. The biggest problem was developing a strategy to deal with emerging farmers.
Mr Hadebe moved on from the turnaround strategy to look at the financial performance of the Land Bank. At the end of the 2008/09 financial year group profit had been R166.6 million and profit from banking operations had been R241 million (compared to comparable figures of R17.5 million and a R20 million loss in the previous year). The net cash position on March 2009 was R3.5 billion, an increase from the previous year’s figure of R0.8 billion.
The six months to 30 September 2009 were also covered although Mr Hadebe did point out that there could be changes through the remainder of the financial year. Income from interest was down in comparison to 2008/09. Operating expenses were up on the previous year due to additional employment. Both income from banking activities and net profit operating expenses were on track to be approximately the same as in 2008/09. The net profit for the six months was R119 million.
The cost/income ratio had steadily decreased from 99% in 2005/06 to 55% in 2008/09, but had recently increased to 88% due to increased employment. Liquidity had also come down over time and the monthly cash balance for September 2009 was R1.6 billion. There had been a conscious decision by the Land Bank to reduce this since holding cash was costly. The organisation was trying to determine how much money it should hold at any given time and ensure that it was not holding excessive amounts of cash.
The quality of the Land Bank’s loan book had improved as non-performing loans were down to R2.6 billion and performing loans were up to R11 billion. Non-performing loans represented 19% of the total loan book. The Land Bank’s equity had been boosted by a government injection of R700 million in 2007/08. In 2008/09 equity was R2 billion, this had increased by September to R2.1 billion. Mr Hadebe said that the Bank expected this to continue to grow. Capital adequacy had increased. Over and above the government guarantees and injections the Land Bank was improving its financial performance.
Lastly Mr Hadebe moved on to describe the critical issues that were determining the legacy of the Land Bank. Primary amongst these were the forensic investigations that were currently being undertaken.
Mr Willie Hofmeyr, Head of Asset Forfeiture Unit, National Prosecuting Authority, described the investigation into AgriBEE. He said that the investigation was ongoing and at a sensitive stage and he was therefore reluctant to give many details in a public forum. There had been practical difficulties in carrying out the investigation and it had been necessary to employ a private forensic accounting firm to assist. As the investigation had unfolded it had become clear that there were much wider ramifications than had first been suspected. There were many individuals that needed to be examined in detail. Another difficulty in the investigation had been to determine whether a person was a potential witness or a potential accused person. The final difficulty was that much of the investigation was being carried out on paper. It was necessary to get access to many bank accounts in order to track down money and this had taken time. The National Treasury had acted to try and speed up the process. Mr Hofmeyr said that many interviews were taking place and he hoped that soon it would be possible to identify some smaller cases where action could be taken outside of the main investigation. He pointed out that it was important to carry out the investigation properly due to its huge scale.
Ms Thembakazi Burhali, Deputy Director of Public Prosecutions, National Prosecuting Authority, described the progress of the Micro-Agricultural Finance Initiative of South Africa (Mafisa) investigation. Reports had been made in November 2007 but the investigation had only started in October 2008 due to access to files. She said that the investigation was looking at something that had been engineered from inside the Land Bank. She highlighted the difficulties of investigating issues with many faceless people, a lack of personal details and people who were uneducated and unable to write their own names. There had also been substantial difficulties in physically investigating the cases as it was necessary to cover many miles to many farms all over
Ms Burhali also described the forensic investigation into IT at the Land Bank and said that progress had been made. In January 2009 an investigator had been hired and bank statements had been obtained. These were not sufficient and better leads were now being followed up. Within one month the Hawks would be able to say what would happen in this investigation.
Mr Hadebe pointed out that the forensic investigation of the LDFU was in the same position as that of AgriBEE. Delays were being experienced in getting hold of bank account statements. The Land Bank had added resources to the investigation to try and improve progress.
Another of the legacy issues affecting the Land Bank was that of resuscitation of developing/emerging farmers. Mr Hadebe highlighted the differences in borrowing for an established farmer and an emerging farmer. Often the emerging farmer carried a higher risk and therefore paid more for the same loan. Both farmers were operating in the same markets, thus putting the emerging farmer at a disadvantage. The Ministers of Finance, Agriculture and Rural Development had met on this issue and had made a number of recommendations for a rural development strategy. A curatorship concept could be used to help emerging farmers and a value-chain model would be used. It was crucial to help farmers improve access to finance, access to markets and aftercare services. The Ministers would present these plans to Parliament in the very near future. Mr Hadebe outlined a proposed model involving a triangular agreement between the Land Bank, the borrower and a collateral fund/credit board. This worked by decreasing the risk on the individual borrower.
Mr Hadebe said that interest disputes and claims were a result of two things. Firstly there had been a change in 1999 whereby the Land Bank changed its calculation methodology to be compounded monthly from being compounded annually. There had also been a change in the Land Bank Act allowing the bank to levy administration and penalty fees on new loans. Overall some borrowers paid less money than previously, some paid more. To address this, the Land Bank had engaged with banking experts and advocates and had established a task team to investigate. Since 2006, there had been 101 disputes of which 34 had been settled (for a total of R9 million). Mr Hadebe said that the majority of large banks had gone through these changes, but that it was up to the Land Bank to ensure the changes were handled correctly.
Finally Mr Hadebe described the amounts of fruitless and wasteful expenditure at the Land Bank. The vast majority of this (98%) had come from the irregularities surrounding the implementation of a new IT system.
Mr S Abram (ANC) recalled that 402 jobs were supposed to be created as a result of AgriBEE. He wanted to know whether this had happened and whether there was any monitoring information available.
Mr Hadebe replied that the AgriBEE system had been flawed from the beginning and that it had never achieved anything. This was the reason for the current forensic investigation. The important thing was that the authorities and the Land Bank were both working to reclaim as much money as possible.
Mr L Bosman (DA) said that until everything was brought out into the open in the investigations there would still be doubts as to what had happened. He wanted further clarity on the process and when further details of the AgriBEE investigation could be expected.
Mr T Harris (DA,
Mr Hofmeyr replied that if money could be found then it would be recovered, but it was likely that much of the money would have already been spent. Even if money could not be recovered it was important that people were held accountable.
Ms Burhali said that the Land Bank had done well to recognise that there needed to be cooperation between departments. She said that this could often cause large problems with investigations.
Mr C De Beer (ANC,
Mr Hadebe replied that for the LDFU this would be around R500-R550 million. The forensic investigations were less to do with recovering assets and more about looking at why and how decisions were taken. In the AgriBEE fund, R85 million had been disbursed and they were looking to get back as much of this as possible. For the IT and Mafisa investigations they did not expect to get much money back, but it was important that the perpetrators paid the price.
Mr M Johnson (ANC) asked about the whistle-blower who had been dismissed from the Land Bank. He wanted to know what had happened in this case.
Mr Hadebe replied the court was still to decide on this case.
Mr M Makhubela (COPE,
Mr De Beer referred to page 33 of the Annual Report and asked why the performance management system, a key performance area, had been marked as “not achieved”.
Mr Hadebe acknowledged that the correct people had not been appointed in management and staff- hence the failure of the organisation. The appointment of a permanent human resources manager had improved this situation.
Mr B Mashile (ANC,
Mr Hadebe replied that he did not have the exact figure at hand, but could provide it at later stage. He expected it to be at least 90%. There was a weakness, however, at the level of senior staff in terms of equity.
Mr Mashile asked whether there were any legislative provisions which prevented the Land Bank carrying out its work.
Mr Hadebe replied that any problems were with the interpretation of Acts, rather than the Acts themselves. There was a difficulty in establishing what a Development Finance Institution (DFI), such as the Land Bank, should do and what a development agency should do. The Land Bank was often seen as a government agency, and often seen as a commercial fund.
Mr Mashile asked about the chart in the presentation which showed the three strands of the turnaround strategy. He wanted to know what the lines represented.
Mr Hadebe replied that the chart was included in an attempt to “tell a story”. It showed that within the clean-up there were only simple tasks still to be done and that the focus would increasingly move towards stabilisation and sustainability.
Mr Makhubela pointed out that the Land Bank had been set up in 1912. He wanted to know when it had fallen down in such a way that it could not survive, and what its current position was.
Mr Hadebe replied that this was a difficult question to answer. The Land Bank had not started to fail in 1994, but there had been a very rapid decline in recent years. In March and April 2008 the Bank had hit “rock bottom”. It was important to rebuild credibility to get investors and farmers to come back to the Bank.
Mr Makhubela referred to page 24 of the Annual Report and asked why there had been such a high number of resignations from the board.
Mr Herman Van Schalkwyk, Acting Chairperson, Land Bank, said that there had been a number of resignations, but that mostly these were down to people’s personal circumstances. Also, two of those who had resigned had been re-appointed to the board at a later date. There were two vacancies on the board and he expected these to be filled soon.
Mr Johnson said that by March 2010 the clean-up would be finished. He asked what would happen next.
Mr Hadebe pointed out that the Bank spent a huge amount of time dealing with legacy issues, rather than core business. In the future the Bank would focus on core business.
Ms N Twala (ANC) asked how the Bank was going to address its declining loan book.
Mr Lebogang Serithi, Chief Operations Officer, Land Bank, replied that the loan book was declining because the Bank had not communicated its strategy correctly. Borrowers left the Bank as they thought it was purely for development and not for commercial farmers. There was mistrust of the Bank. There were now initiatives in place to win back trust (e.g. road shows). An important feature of this was to reduce the turnaround time of loan applications.
Mr De Beer asked about an irregularity between figures for wasteful expenditure on pages 43 (R16.5 million) and 154 (R16.2 million) of the Annual Report.
Mr Hadebe recognised that this was a mistake and said that the correct figure was R16.2 million.
Mr Abram asked whether the Land Bank used consultants. He asked how many were used and for what total cost.
Mr Hadebe replied that the Bank did use consultants and promised to provide the exact expenditure figures at a later date. The spending on consultants had come down drastically. He said that it was important for the Land Bank to continue to attract the best quality staff members.
Mr Mashile asked whether the profit figure of R166.6 million gave any indication as to the level of service delivery.
Mr Hadebe said that this was difficult to pinpoint. It was important to consider the position that the Land Bank had come from. The institution had borrowed R12 billion, but only had equity of R1 billion. It had been borrowing to operate. The financial trends within the Land Bank were now improving.
Mr P Pretorius (DA) asked whether the Land Bank was only looking at interest claims lodged with them, or all existing loans.
Mr Wolf Meyer, Chief Financial Officer, Land Bank, outlined the changes in the interest calculations and the Land Bank Act. It was not straightforward to work out which accounts were involved, although it was most likely live accounts in 1999 and 2003. The Bank was concentrating on the claims that had been received, but was also widening the scope of the team to investigate which farmers were involved.
Mr Bosman commented that the financial projections looked positive. However he was concerned at the increasing cost/income ratio. Costs would continue to increase at the Land Bank; he wanted to know whether this was sustainable without increasing income.
Mr Hadebe agreed that this situation would not be sustainable. The Land Bank was making an effort to build its portfolio.
Mr Bosman pointed out that the interest rate charged by the Land Bank was higher than that charged by commercial banks. He said that it was important to attract commercial clients back to the Bank.
Mr Hadebe replied that clients left the Bank for different reasons, and that work was being done to change this.
Mr Bosman asked about financial sustainability. The capital injection from government was ring-fenced for development. He wanted to know what the expectation for the future was.
Mr Harris commented that the cost-savings across the whole government were less than the guarantee given on the Land Bank; it was large amounts of money that were being discussed. The initial guarantee of R1.5 billion had been extended to R3.5 billion. He wanted to know whether the R700 million was a cash injection to the Bank, and how all these fitted together. He also asked whether the R1 billion recently announced by the Minister of Finance was additional or a part of the R3.5 billion. Finally he asked whether the guarantee could be converted to a loan to get some of the money back for taxpayers.
Mr Hadebe said that the R700 million cash injection had disappeared very quickly given the state of the Bank’s finances, but that it had allowed the Bank to continue to operate. He said that it was important that the Bank was able to boost its equity levels.
Ms N Sibhidla (ANC) asked what plans were in place to ensure that the Land Bank did not become dependent on government bail outs.
Mr Hadebe said that much work was taking place to make the Land Bank sustainable so that further government bail outs would not be necessary. The Land Bank had survived in the past because of the backing of government grants. The finances of the Bank were not stable, however, and there was a need to grow equity levels.
Mr Abram pointed out that it took more than money to resuscitate distressed farmers. He said that skills were needed. He wanted to know whether the Land Bank was taking these wider issues into account. He also wanted to know whether the Bank was helping farmers who should not be farming to “gracefully bow out” of agriculture.
Mr Hadebe agreed that skills were crucial. It had been a failure of the government system which had not provided these skills. He pointed out that the meetings between the Ministers ( Ministers of Finance, Agriculture, Forestry and Fisheries and Land and Rural Development) had been positive in this regard as they were not only talking about finance, but much wider issues around rural development.
The Deputy Minister pointed out that the model presented on the slides had been accepted by all three departments – Finance, Agriculture and Rural Development.
Mr Hadebe also said that people could “bow out” of agriculture. Much depended on how a farmer had performed in the past. The Land Bank was wary of throwing money around and it was important that farmers showed commitment to farming.
Mr Mashile asked about the curatorship concept and whether this amounted to a take-over of an individual farmer. Did this assist emerging farmers? He wanted to know if this was disempowering since the Land Bank held power over these farmers.
Mr Hadebe explained that curatorship was not a take-over, and neither was it a bail-out. It was important that the farmer showed commitment to farming and it was not merely the government giving the farmer money for no effort. It was important that government took some of the risk to assist farmers. If the money was a pure grant then there would be a risk of disempowerment but farmers only get a guarantee for a certain period.
Ms Z Balindlela (COPE) asked what defined an “emerging farmer”.
Mr Serithi replied that the definition used to be based on the amount of money borrowed, but that the new definition was that a farmer farming 300 hectares or more was considered commercial.
Mr Harris asked whether a young, white farmer, newly graduated from agricultural school could be classified as an emerging farmer.
Ms Balindlela asked about valuation of land procedures. She said that many people were not aware that their land was a valuable asset. She wanted to know what the Land Bank was doing to ensure that people were fully aware of their situations.
Mr Serithi replied that the Land Bank took part largely in security-based lending but wanted to move towards cash-flow lending. However, security would still be needed to reduce the costs of lending; this would be provided in future by the collateral fund.
Mr Hadebe also raised the issue of land reform. A community without security would not be able to borrow. The Land Bank was trying to find a way around this problem by working with farmers as a partner and taking a percentage of returns on produce.
Ms Twala asked for details of the development pilot projects.
Mr Hadebe replied that the projects for the entire R3.3 billion had not been decided on- only the ones for the first year.
Ms Sibhidla asked what progress the Land Bank had made in addressing its objective to equalise ownership of agricultural land by Africans.
Ms Sibhidla asked how much agricultural land was available in
Mr Hadebe said that he did not have this information.
Mr Pretorius raised an issue from a previous Parliamentary Question to the Minister of Agriculture. The previous acting head of the Land Bank had not yet been paid his pension as he was not registered with the South African Revenue Service (SARS). He wanted to know whether the systems in place at the Land Bank and the Department of Agriculture, Forestry and Fisheries (DAFF) were good enough.
Ms Delanie Lamprecht, Chief Project Implementation Officer, Land Bank, replied that the as part of the clean-up a private firm had cleared all banking practices of the Bank, including those surrounding Pay As You Earn (PAYE) systems. There was voluntary disclosure to SARS where there could be potential risks. Now all information had now been submitted and all employees were registered with SARS.
Mr Harris asked what non-core assets (e.g. golf courses) the Bank held and what income came from these.
Mr Mashile commented that there was a lot of overlap of committee membership on the Land Bank’s board. He wanted to know what checks and balances existed to avoid collusion.
The Deputy Minister said that the various unanswered questions would be answered in writing.
The Chairperson supported, on behalf of the Committee, the proposal in the Medium Term Budget Policy Framework for the R1 billion extra for the Land Bank.
The meeting was adjourned.
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