Follow-up meeting with Land Bank

NCOP Finance

18 April 2023
Chairperson: Mr Y Carrim (ANC, Kwazulu-Natal)
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Meeting Summary


The Select Committee on Finance met with the Land Bank for a follow-up on issues raised in their previous quarterly report, specifically the loan funding model and financial sustainability.

The Land Bank presented that while they remained in default, many operations had become profitable and significant changes occurred to achieve a clean audit. The Land Bank expressed that, while they would be able to sustain themselves for the next five years, they would require recapitalisation to assist with the implementation of the development mandate.

Members appreciated the progress of the Land Bank since 2020, however, they had concerns regarding several issues. Members expressed concerns regarding the legal processes instituted by the Bank against commercial farmers who could not pay loans, allegations of heavy-handedness by liquidators and attorneys, the increase of non-performance loans, whether the move to operate as a DFI was supported by National Treasury (NT), future credit ratings, and long-term funding for the entity.

Meeting report

Land Bank Presentation

Ms Thabi Nkosi, Chairperson of the Land Bank Board, introduced the new Land Bank Chief Executive Officer (CEO), Mr Themba Rikhotso.

They gave the presentation, and Mr Sydney Soundy, Executive Manager: Strategy and Communications; Ms Khensani Mukhari, Chief Financial Officer; and Prof. Johann Kirsten, Board Member.

Liability solution

In April 2020, the Land Bank defaulted on certain payment obligations – this triggered a cross-default on substantially all of Land Bank’s borrowings. In May 2020, the Bank commenced a debt restructuring process referred to as a Liability Solution to cure the event of default. Three versions of the Liability Solution have been considered and rejected by lenders since then. The fourth liability solution is currently being negotiated with lenders.

In September 2020, R3bn equity injection was received by the state. It intended to provide a degree of financial stability to the Land Bank in order to be able to sustain its disbursements to existing customers and resume the payment of interest to Lenders.

Good progress has been made to date regarding negotiations with lenders on the Debt Restructuring Process of the Land Bank. The Bank remains solvent and liquidity remains healthy. The Bank continues to support its existing customers.

Funding model

The Bank was effectively funded since inception to support the sector with long-dated affordable loans, disaster relief and production finance. However, due to limited capital deployment from the state, more reliance was placed on funding from capital markets. This culminated in the current default position faced by the Bank.

Resolving the Bank’s funding model is the most important objective to enable the Bank to fulfil its mandate sustainably. The Bank cannot achieve its development effectiveness and financial sustainability with the current funding structure, which is predominantly funded from the debt market.

The Bank, supported by the shareholder, needs to review what its “most appropriate” funding model should look like for it to remain financially sustainable and to ensure that it fulfils its mandate. To this effect, the Bank is working on a business case. It will engage and consult with all stakeholders in the process and also follow appropriate governance processes for approval and committed support.

Financial stability

Owing to the limited funding, the Bank has seen mainly good quality customers leaving the Bank for funding elsewhere. This has negatively impacted the quality of the loan book resulting in an increase in the non-performing loan ratio.

The Bank continues to rely mainly on one revenue stream in the form of interest income. The Bank is looking into ways to diversify its revenues operating within its mandate.

For the financial year of 2022, the Land Bank received an unqualified audit outcome (clean). This was an improvement from the Qualified Audit Opinion in FY2021 and a disclaimed audit outcome of FY2020.

See the presentation for more details.


Mr W Aucamp (DA, Northern Cape) noted the increase in NPLs since 2020. This is concerning, considering that the Land Bank moved funding away from 50% of commercial farmers who could afford to repay the loans, in favour of promoting transformation. It is important to maintain the existing lenders who were able to repay loans and ask the Land Bank for their comments on the matter.

He highlighted the issue of drought in the agricultural industry over the past few years. This impacted farmers’ ability to repay loans. While the agricultural conditions have improved, farmers were under tremendous pressure.

On the ground, attorneys and liquidators were steamrolling efforts to quickly liquidate these farms. He asked the Bank what they were doing to help farmers who were previously affected by agricultural and macro-economic pressures. He specifically asked about farmers who had already been instituted with legal action. He acknowledged the legal costs associated with the process, which are later covered by the auctions on the land. What is the exact percentage that the Land Bank afforded from valuations after these legal costs have been paid?

What progress has been made in addressing funding issues? He further questioned whether the Land Bank engaged with NT on the feasibility of annual fiscal transfers from government to support the transformation agenda.

On the non-performance loan remediation plan, he noted that the Land Bank had not made significant efforts to assist farmers who defaulted on loans initially but who were now in a position to repay. What has the Bank done to assist these farmers?

Mr Aucamp felt it was futile to continue providing bailouts to the Land Bank without ensuring proper structure reforms are implemented. A major concern regarding the performance of the Land Bank was that the loan asset portfolio was entirely funded by short-term debt collected. He said the Land Bank business model must shift to improve long-term capital raising.

He noted that farmers had lost confidence in the Land Bank and preferred to take loans from other commercial banks. This has left the Land Bank with many clients who cannot repay their loans. He asked what was being done to stop this curve.

Has the 30 September 2022 target to finalise the liability solution been met? He asked what the challenges were, if any, regarding this. Concerning the Moody’s credit downgrade, he asked the Land Bank to predict future credit ratings and whether we would remain in junk status. He congratulated the incoming CEO on his appointment.

Mr D Ryder (DA, Gauteng) asked for an updated organogram on the number of permanent appointments made. He said the Land Bank had to decide whether it was a commercial entity or a development finance institution (DFI).

He acknowledged the distress faced by the Bank due to bad leadership and decisions. This has created bad reputational damage amongst clients and stakeholders. In addition to the R5 billion appropriated, government bailouts over the years have been wasted through poor management.

He said that the Land Bank could not be a DFI on account of the flawed funding model. He asked what the plan was to dissolve the Bank with minimal impact on the state.

Mr F Du Toit (FF+, North West) said the current model was not functioning. The Land Bank borrowed funds at a certain interest rate before on-lending those funds at a subsidised interest rate. He asked whether the Bank still subsidised clients and the monetary value of this practice.  

Considering that the Bank borrowed funds from the West until now, has the scope changed towards the East? He based his question on a comment in a previous meeting where it was noted that South Africa was placing their focus on Eastern funding models.

Ms D Mahlangu (ANC, Mpumalanga) appreciated the Land Bank presentation. On the liability solution, she applauded that there was a plan that responded to the audit outcome, resulting in a clean audit.

Members needed a diagram to speak to the demographics of the country. She had a specific interest in whether women and youth formed part of the permanent senior management staff. Is there a plan to address the dissatisfaction of lenders? She further asked whether the Bank made it easy for lenders to see that red tape has been reduced.

She said that small and medium scale farmers were gaining knowledge from the experiences of commercial farmers. Is there a plan to ensure that smaller scale farmers benefit from the Land Bank? Is the Loan Book declining a positive indication? She wanted further clarity on the matter. She appreciated Prof. Kirsten's concluding remarks in acknowledging the Bank's prior mistakes, which resulted in its distress.

How many provinces benefited from the programmes and to what extent? Farmers contribute towards food security and have a very important role. She wondered whether provinces that had not experienced natural disasters were also prioritised.

Ms Mahlangu acted as Chairperson when he lost connectivity.


Ms Nkosi said there had been a significant increase in NPLs over the past few years. This was due to a number of challenges in the sector that affected farmers’ ability to pay loans. Secondly, when the Land Bank insourced the loan portfolio from their intermediary partners, they noticed different forms of accounting for NPLs.

This required a readjustment in accounting for these loans in the portfolio. She said that upon review from the Bank, many of the loans were readjusted from an accounting perspective, which increased the number of NPLs.

This means that money lent to the sector must be recouped. The Land Bank said that it took a patient approach when doing this. The Bank has a dedicated restructuring team in the agricultural sector, specifically, when farmers are identified as struggling. This team works with the farmer and restructures their loans, provides repayment holidays, and provides further loans to remedy the situation.

She said that legal assistance intervenes only once all of these interventions have failed. The Land Bank said that even during this process, clients are engaged with and the Land Bank tries to find solutions. Only thereafter does the legal process formally start.

Once the matter is in court, it is very difficult for the Land Bank to intervene. She noted enquiries from a number of farmers who had been in default for many years and gone through unsuccessful attempts to improve performance, only to end up in legal processes. These farmers later contacted the Land Bank for a review, however, it is often too late in the legal process to intervene.

She acknowledged concerns regarding the Bank’s heavy-handedness of collections. When these concerns arose in 2022, all farm associations were engaged and concerns were tabled, including that of specific clients. These clients were followed up on and dealt with by the restructuring team. The Bank is aware of potential instances of wrongdoing on the part of their collectors and legal teams being investigated.

On the breakdown of the NPL Book, majority of the non-performance was noted in commercial books. She clarified that at no point did the Bank turn away paying commercial customers in lieu of providing financing for transformation. In 2020, the Bank, given the state of default, stopped all lending activities to stabilise the Book. This applies to all customers. Lending activity has since resumed across the lending portfolio, including commercial customers.

On bailouts, Ms Nkosi said there was a mismatch of assets and liabilities in 2020. NT, as the sole shareholder, recapitalised the entity. She explained that the last recapitalisation had occurred 15 years prior. In 2020, R10 billion was appropriated to the Land Bank, with no additional appropriations since then. The R5 billion appropriated in 2022 formed part of the R10 billion. This was meant to facilitate in the liability solution and to kickstart the development mandate.

The Land Bank’s role was to come in and assist the large contingent of emerging and commercial farmers that have been underserviced by the commercial sector. Despite their continuation to default, the Land Bank has been one of the only state-owned enterprises (SOEs) that operate profitably and with a clean audit.

The Bank asked that Members be patient as they try to remedy the challenges created years prior.

Mr Soundy said that the Land Bank would provide a detailed document to Members on the issue of net recoveries from defaulting clients. Regarding engagements with National Treasury, he confirmed that the Board held discussions on the funding model.

The Land Bank was asked to review proper business cases to justify future allocations. That will go through a budget process for the Department to look at. Mr Soundy felt that the Bank has compelling motivations if the funding has been appropriately engaged with.

The Land Bank would provide a document on provincial breakdown. Mr Soundy confirmed that work was being done across the provinces.

Ms Mukhari agreed that the Bank had some loans that were not optimally priced due to a legacy issue. The Bank reviewed the pricing model years ago to ensure appropriate pricing. Since then, there has not been cross-subsidisation.

The Bank is currently working to stabilise itself and improve its credit rating. Once the Bank has settled and is ready to return to the market, it would reapply for credit rating.

With potential funding from the East, the Bank will be able to operate over the medium-term with the current resources available. However, in five years, the Bank would have to recapitalise the entity. Ms Mukhari said that the question becomes, “do they return to the market using the historic business model, or should the entity be recapitalised to allow it to function as an effective DFI?”

Prof. Kirsten said that the legacy since 2002 has required that the funding model, and its purpose, be redesigned. He clarified that the funding provided was not a bailout. It is rather to facilitate the move to recapitalise the Bank and assist it in becoming a sensible DFI.

He corrected Members who said that the Bank’s loans to farmers consisted of white commercial farmers. The idea that transformation was moving the Bank in the wrong direction was incorrect. Many NPLs are from white commercial farmers that, in some cases, refused to engage with the Bank, their clients and submit their financial statements as per their contract. This has resulted in their non-performance status.

He acknowledged that the Bank’s task to move in the development space, as it did in 1912 to 1930, has not been happening due to the funding model.

Ms Mathane Makgatho, Chairperson of the Credit and Investment Committee, Land Bank, addressed issues on supporting clients. She said there was a forbearance strategy as part of the NPL remediation strategy adopted in 2022. This strategy includes the Bank working with clients, assessing their challenges, and assisting them with what is required for their business operations.

The Bank assisted current clients to the value of R500 million. The second strategy was a rehabilitation strategy to assist underperforming clients. The Bank assists them with restructuring and collections. The Bank achieved its R2 billion target. The final strategy is a preservation strategy which helps clients to continue performing.

Further questions from Members

Acting Chairperson Mahlangu asked whether there was a communication strategy and if the strategy speaks to the clients. She asked whether this occurred on the website or directly to interested clients.

Mr Aucamp acknowledged the Bank’s work in assisting defaulting farmers. There is a perception of heavy-handedness of liquidators and attorneys trying to get the farms on auction as soon as possible to gain a commission. This created the view that there was no sympathy towards the farmer and their situation.

He asked what the Land Bank was doing in instances where helping a farmer could now succeed. He reported that farmers have expressed that once the affairs have been handed over to attorneys, they cannot contact the Bank again.

Mr Ryder asked whether National Treasury shared the same vision for the Land Bank to continue providing capital funding.

National Treasury response

Mr Lefentse Radikeledi, Director: Development Finance Institutions, National Treasury (NT), said that the aim of NT was to support emerging farmers more. This has been in discussion with the Land Bank over the past year. NT supported the development of the Bank as a DFI.

Mr Radikeledi asked the Land Bank to provide a business case to indicate how it planned to move forward to support that side of the market. He further asked the Bank to develop a funding model which shows how it would actually be financed. It is up to the Bank to apply to the National CR for any funding required.

The budget process would dictate whether they are actually able to fund the Bank’s request. Mr Radikeledi said that it was difficult to pre-empt how this would evolve in the future. This relies on the business case regarding the funding model and support of development.

Mr Radikeledi said that he felt confident in seeing that the Land Bank has aligned with NT’s vision for supporting the agricultural sector in the future.

Land Bank response

Mr Soundy confirmed that there is a communication strategy that is premised on face-to-face engagements with clients. The website provides contact details for different provinces whereby clients can contact the Bank.

Some clients do not have the required knowledge of the criteria relating to norms and standards. The Bank is embarking on a process of regional radio engagements to provide as much information as possible throughout provinces.

The Bank also has an institute that offers pre and post-support programmes to ensure clients are afforded opportunities and alternatives to source support. This would be to prepare business plans, access information required to assess transactions, and link them with potential partners. The process is already implemented and the Bank would work towards increasing this support.

Mr Stephen Sebueng, Executive Manager: Legal Services, said that once a client is in default, legal processes are a last resort. He indicated that there is a department responsible for assisting struggling clients.

There were specific instances where clients negotiated settlements which would be conceded to, provided that they would be able to repay the loan. He said the Land Bank’s legal department was more lenient than other commercial banks regarding the legal process, as it was a last resort measure.

He acknowledged the heavy-handedness allegations in the market. However, these allegations were misconceptions. He said they were based on three instances where clients in liquidation received information that assets forming part of the security package for the Bank were dissipated or hidden. In those instances, liquidators had to act quickly to protect the assets of creditors. In other instances, the Bank had to go to court to get a perfection order with a general authorial board to ensure that assets were secured. This enabled secured creditors to be paid.  

The High Court appoints liquidators and must act in accordance with the Insolvency Act. He explained that in meetings with creditors, a vote occurs to determine what happens. They function to ensure that all creditors’ interests are protected. While the Bank supports the appointment of liquidators, the final say of appointment rests with the Master of the High Court. 

Ms Nkosi said that there were instances of concern despite the Bank doing everything in its power to ensure legal processes align with its role as a DFI. They do not take the concerns raised by the market lightly. The Land Bank has re-evaluated its relationships with its attorneys externally. The Bank is currently re-examining relationships with creditors and has instituted internal and external investigations to ensure fair treatment of clients.

Ms Nkosi assured that when findings are available, she would share them with Members. In closing, she said that the Land Bank continues restructuring the entity. They feel confident in their new strategy which is closer in line with the mandate. The Board was encouraged by the work conducted thus far in terms of improved financial and operating performance.

She asked for the support of National Treasury and Parliament in the rebuilding as the Land Bank tries to effectively service the agricultural market.

The meeting was adjourned.


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