Follow-up Meeting with Land Bank: Quarterly Reports & Challenges in Executing its Mandate

NCOP Finance

17 May 2022
Chairperson: Mr Y Carrim (ANC, KwaZulu-Natal)
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Meeting Summary

The Committee met virtually for an engagement with the Land Bank board. The Land Bank presented its quarterly reports and challenges in executing its mandate.

One of the key challenges that the Bank is currently facing, which impact its ability to fully operate, is that the Bank relies mainly on collections to keep the lights on. This has required significant curtailment of disbursement support into the sector. Owing to the limited funding, the Bank has seen mainly good quality customers leaving the bank for funding elsewhere. This has impacted on the quality of the book.

The institution’s Board identified immediate priorities for its attention as it begins a process to get the Bank out of its current default status, stabilise the Bank and begin the turnaround process. Amongst these are: remediating audit findings and strengthen internal controls towards a clean audit outcome for FY2022/23; finalising the Development and Transformation Strategy; working towards regaining a positive reputation for the Bank; improving income and finalise the revised Funding Model Strategy.

Members asked what measures have been put in place to ensure that the loan book is professionally managed. Does the Bank have adequate capacity to manage it in-house? What are the challenges and successes of managing the loan book in-house? What extent has the bank liquidity and funding challenges affected it in fulfilling its mandate?

On challenges highlighted, why is there no mention of management issues, failure to recover debt, and lack of security on loan contracts? Are there any plans to invite the paying customers back that were turned away in 2021 due to transformation issues? Will the R10 billion bailout be sufficient to make the Land Bank profitable again? If not, how much is required?

The Committee requested more information on the outsourcing costs per year, their terms, and a list of the companies. How much funds can be recovered from fruitless expenditure? Are measures in place to measure the success for beneficiaries?

Meeting report

The Chairperson welcomed everyone present in the virtual meeting.

The Land Bank delegates introduced themselves, and thanked the Committee for the engagement.

Land Bank Briefing: Quarterly Reports and Challenges in Executing their Mandate

Since the inception of the event of default situation in April 2020, the Land Bank has worked to restore and catch up all interest due on all funding. In addition, the Bank has made the following four capital reduction payments to the South African lenders:

-February 2021: 12% (R3.9 billion) of capital outstanding

-June 2021: 10% (R2.9 billion) of the then capital outstanding

-October 2021: 10% (R2.6 billion) of the then capital outstanding

-A fourth capital reduction is currently being implemented, and will result in a cumulative debt capital reduction of 42.84% (R14 billion) of the original amount outstanding to South African lenders.

Some of the key challenges that the Bank is currently facing, which impact its ability to fully operate, and therefore its profitability, are outlined below:

  • The liability solution intended to cure the default has taken longer than anticipated to be concluded. This is as a result of the complexity of the Bank’s funding model and the regulatory framework it operates under, amongst other things.
  • As a result, the Bank has not been able to source the required funding to support the sector. The Bank relies mainly on collections to keep the lights on. This has required significant curtailment of disbursement support into the sector.
  • For the past two years since default the Bank has only been able to support existing customers and mainly with only production loans.
  • R500m set aside to recommence lending. Including grants for blending the total amount available for deployment to the sector is R1bn for development funding.
  • Owing to the limited funding, the Bank has seen mainly good quality customers leaving the bank for funding elsewhere. This has impacted on the quality of the book.

The Board identified immediate priorities for its attention as it begins a process to get the Bank out of its current default status, stabilise the Bank and begin the turnaround process:

  • Concluding the Liability Solution by 30 September 2022
  • Addressing quality deterioration and growth of the non-performing loans, through improved portfolio management and remediation efforts.
  • Improving the operating performance of the Bank – including execution capability and readiness of the Bank for resumption of lending activities, as well as appropriate cost containment.
  • Reducing the attrition of critical staff and start the implementation of the action plans in response to the culture survey feedback  
  • Remediating audit findings and strengthen internal controls towards a Clean Audit Outcome for FY2022/23.
  • Finalising the Development and Transformation Strategy.
  • Working towards regaining a positive reputation for the Bank.
  • Improving income and finalise the revised Funding Model Strategy.

[See presentation document for more details]

Discussion

Mr D Ryder (DA, Gauteng) noted that there were R3 billion and R7 billion bailouts from National Treasury. How much of this was used to settle out areas and operational costs? How long did it take from the announcement of the Minister on this bailout money and for it to enter the account? How many buildings are on the books and are they being fully utilised? Is the Land Bank in the position to start lending money to farmers? Was the Land Bank used as an instrument of state capture? Is the Land Bank a DFI or a commercial bank?

Mr S Du Toit (FF+, North West) asked what the Land Bank’s estimated monetary loss for the past five years was. He said that the institution needs to focus on being profitable first, before transformation. On challenges highlighted, why is there no mention of management issues, failure to recover debt, and lack of security on loan contracts? Are there any plans to invite the paying customers back that were turned away in 2021 due to transformation issues? Will the R10 billion bailout be sufficient to make the Land Bank profitable again? If not, how much is required? The R17.7 billion debt is due in the next 12 months; will the Land Bank be able to honour this, or will it need more money from Treasury to aid in this debt? Why did the Land Bank outsource its loan book? Can the Committee get more information on the outsourcing costs per year, their terms, and a list of the companies? How much funds can be recovered from fruitless expenditure? Are measures in place to measure the success for beneficiaries?

Mr W Aucamp (DA, Northern Cape) was worried about remaining current clients. Will they, in the current situation with increases in fuel and fertiliser, be able to honour their agreements with the Land Bank? What will the effect be on the finances of the Land Bank if the farmers cannot pay back their loans?

Mr M Moletsane (EFF, Free State) asked what measures have been put in place to ensure that the loan book is professionally managed. Does the Bank have adequate capacity to manage it in-house? What are the challenges and successes of managing the loan book in-house? What is the progress in achieving distribution in land programme for the historically disadvantaged? What extent has the Bank’s liquidity and funding challenges affected it in fulfilling its mandate?

Ms M Mamaregane (ANC, Limpopo) said that affirmative action is still relevant. Transformation is important and needs to be prioritised. There is a huge inequality in the country. There needs to be a balance. What role is the Land Bank playing in terms of assisting the affected farmers?

The Chairperson asked what the different is now that the entity can provide a promise to deliver on objectives put in place. How effective is Treasury’s oversight? What is Treasury doing to help the Land Bank? It is worrying that the mandate is focused mainly on transformation, because there are other aspects that the institution needs to consider. Why is the Land Bank losing senior staff? South African farmers have significant dependency. Food security enables stability. The increasing costs of fuel and fertiliser means that farmers are going to struggle.

Responses

Ms Thabi Nkosi, Chairperson, Land Bank, said that the board takes full accountability. She said that a number of entities bring turnaround plans, and years down the line, the Land Bank is back at square one. The main problem is the Land Bank’s funding model. The Land Bank has an unfunded mandate. There are many restrictions on the workspace and on farmers. This has affected the entity, and farmers, significantly – in its effectiveness and transformation. The entity has been discussing with Treasury and financiers on the fiscal support needed. Parliament also needs to support the entity. The liability solution is targeting a completion date on the 30 September 2022. When solutions are in place, it will allow the debt profile to be restructured in a more sustainable way.

The Land Bank is tasked with enhancing food security, growth of the agricultural sector, sustainable development, and land reform. The entity does not compete with commercial banks. It comes in when the market has failed to deliver. The accountability and consequence management team has brought many new findings about the partners of the Land Bank and the issues that need to be addressed.

The department of staff is due to the instability in the Land Bank and the difficulty in its operation. The liability solution needs to be finalised to bring back normality, and so that the employees can see a positive future for themselves in the institution.

Ms Khensani Mukhari, Acting CEO, Land Bank, said that R3 billion was transferred and appropriated in June 2020. When the Bank went into default, the R3 billion was used to pay lenders and towards the servicing of the applicable interests as well as for operation. The Bank owns 15 buildings – three are vacant. R6 billion had to be adjusted over a three-year period. The Land Bank cleared up legacy issues. The Bank is busy with corporate planning, and will be able to determine how much it needs on annual expenditure.

Mr Andrew Makenete, Deputy Chairperson, Land Bank Board, said that the core of the Land Bank’s problems is its funding model. The change nature of the Bank from a supported institution to one without support has set the bank back. The Land Bank has been doing less land banking. Concrete proposals and suggestions are being discussed to address the issues the Land Bank is facing.

The Chairperson asked if the Land Bank has only spent R3 billion from September 2020 of the money given to them. If so, why?

Ms Mukhari responded that the transfers of the money have been spread out and have not come all at once. The complete allocation of the remaining R7 billion has not been transferred yet. This has been due to the conditions set in place for the transfer.

Ms Nkosi said that, when the Land Bank went into default, it halted on majority of its activities. A sum of R5 billion was used to support clients of the bank and new clients as well.

Mr Sydney Soundy, Board Member, Land Bank, said that the Bank is ensuring that its mandate has progressed. The development mandate is to address previously disadvantaged persons. The issues faced by entrance in the market are the availability of equity on their side. New transactions do not come with net assets. Partnerships are being pursued with key strategic partners such as the Department of Agriculture, Land Reform and Rural Development (DALRRD). The focus will be on the acquisition of land, land infrastructure and equipment. The land reform agenda is through accessing or financing land acquisition that the Land Bank aids with. There are pre-finance support services that see to a range of areas such as cash flow, and so on, as well as having post-finance support services. Success is measured through a system of monitoring and evaluation; this system will be deployed. It will look at the clients and the sustainability of the Bank, job creation in the country, transformation, and so on. The Bank will ensure that risks are managed. The SLA clients have been allocated a support structure by the Bank. The Bank does have the capacity to function fully. Issues on disasters and rising costs – businesses need to recover costs to be successful; the same applies to the Bank. There are arrangements for repayments to clients, and restructuring is in place to help the Bank move closer back to normality. The SMA partners require a report to be introduced to the Committee in another meeting.

Mr Ryder asked whether the 15 buildings are in control of Public Works or the Land Bank. What progress is being made on disposals? How can the Committee continue to fund the Land Bank? The Joint Committee and the Ministry needs to come forward and comment on the issues with the Land Bank.

Ms D Mahlangu (ANC, Mpumalanga) said that she is sceptical on the formation of the ad hoc committee.

Ms Unathi Ngwenya, Chief Director: Governance and Financial Analysis, National Treasury, said that there is a thin line between oversight and acting outside one’s powers. The Public Finance Management Act is where National Treasury can express its opinions and approvals. There have been concerns around the Land Bank and its assets and debts. The entity should sell some assets and manage its debt. The Minister has the responsibility to appoint the CEO and members of the board. Guarantees given to entities are given with conditions to minimise risks; this has been done with the Land Bank. Treasury supports an organisational turnaround for the Land Bank.

The Chairperson said that joint meetings are not something that can be picked and chosen. Ad hoc committees are not practical. A combined committee can be something to consider. Practical solutions will be considered.

The meeting was adjourned.

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