Land Bank Briefing on its Turnaround Strategy

Agriculture, Forestry and Fisheries

18 February 2008
Chairperson: Mr M Mohlaloga (ANC)
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Meeting Summary

The Land and Agricultural Development Bank of South Africa addressed the Committee on their turnaround strategy. They had however been unable to provide all the necessary information, as the Committee had requested this report at an unusual time (since it was one month from financial year end and budgets had not yet been approved).

The Committee expressed concerned about the corruption that had taken place within the Land Bank and that the Bank had had many turnaround strategies – yet there did not seem to be a sense that they were on top of the situation.The Committee doubted whether the risk management capabilities of the Bank were up to standard. Members referred to the fact that the Bank was losing clients and there were concerns that irreparable damage had been done to the image of the Land Bank. It was urgent for them to bring stability back to the Land Bank.

Meeting report

Chairperson’s introduction of Land Bank briefing on its turn-around strategy
The Chair noted that towards the end of 2007 Cabinet had decided that there was a need to:
- develop a turnaround strategy for the Land Bank and
- restructure the Board and appoint a new Chief Executive Officer (CEO) for Land Bank.

The Chair had received a letter from the Minister saying that the process of restructuring the Board was still underway and that the appointment of the new CEO had not been finalised yet. The Acting CEO would be on sick leave for a month and Mr Saki Zamxaka had been appointed as Acting CEO in the meantime.

Mr J Bici (UDM) asked how useful this engagement would be in the absence of a CEO or board members.

The Chair said that Mr Zamxaka was Acting CEO and had therefore been conferred with all the powers and duties necessary for this role.

Mr S Abraham (ANC) asked when the Land Bank had started their turnaround strategy. A corporate business would have managed to do this within days, whereas it had taken months for the Land Bank to develop their strategy.

Dr A van Niekerk (DA) complained that the Committee had not received the documents the previous week. This made it difficult for members to interact and query issues in the document if they had not scrutinised it previously. The Committee had decided that presenters would be sent away to return at another date if they did not comply with this rule.

The Chair said that one had to consider the level at which the strategy was. He had simply thought that it would be interesting for members to see where the Land Bank was in terms of their turnaround strategy. He was therefore willing to be flexible on this rule.

Mr A Botha (DA) said that the process had started months ago and had probably been completed weeks ago. There was no reason that they could not have sent it to the Committee the previous week.

Adv S Holomisa (ANC) referred to page 3 of the document that stated that the Bank could not provide detail on the process and that the figures and actual performance would be reported after year-end. He asked what the point was of continuing with the discussion if so much still needed to be done. They would probably have to engage on this issue again once these reports were submitted. They might as well have waited for the end of March to get a full report.

The Chair said that when he had approached Land Bank to do the briefing, they had indicated that they were not ready with their figures. He had however felt that those figures belonged in the Annual Report while the turnaround strategy was an overall strategy which did not require figures. The Chair felt that the Land Bank should be allowed to brief the Committee.

Land and Agricultural Development Bank of South Africa briefing
Mr Saki Zamxaka (Acting CEO of the Land Bank) said that as noted they had communicated to the Committee the difficulties with reporting at this stage of the financial year. They had given the Committee a broad presentation on the matter the previous year, and had agreed to provide more detail in their next interaction. The Land Bank had come to the Committee hoping to obtain more input from the Committee. This was a difficult time to make this presentation, since it was one month away from financial year-end. In addition they had not audited their financial statements yet and the budget process would only be completed at the end of February. This interaction would merely serve to provide the principles around the turnaround strategy. The year-end report would only be available in one month’s time.

Mr Abraham asked when the Bank had started with their turnaround strategy.

Mr Zamxaka responded that many of the panel members had only joined the Land Bank in the second half of 2007. They had worked on their turnaround strategy between August and 13 November 2007.

Mr Zamxaka read through their presentation document. He highlighted certain areas and provided additional comments:
Page 6: With regard to the turnaround factors, he said that their systems were not up to scratch and employees’ performance had to be improved. The issue of risk management, as highlighted in their Annual Report, was not well managed and it left them exposed. The low levels of capital were of concern to management, because relying on financial markets to provide capital meant that there would always be a limitation on what they could do. They therefore appealed to the Committee to take this into account when annual budget voting occurred.

Page 7: Referring to their accumulated deficit and deterioration in performance, Mr Zamxaka said that they had lost R10 million the previous year.

Page 8:
Point 2 - A General Manager had been appointed in the credit department of the Land Bank and they would be able to provide a report for this at the end of this financial year.
Point 4 - This reference to ‘security’ was a reference to the farms which were held as security for loans taken. It was important for the Land Bank to ensure that these farms remained in a good condition.

Page 9:
This core function of the Land Bank was a focus on development. There was a need to provide marketing support and technical training to emerging farmers by forming alliances with commodity groups and co-operatives. The reason for this was so that the Bank could manage their risk and provide the emerging farmers with services to sustain their businesses, which the Land Bank could not offer. One could not ignore the importance of providing grants to ensure the development of emerging farmers.

Their aim was to improve the performance of emerging farmers so that they could become commercial farmers. They would therefore be working with the complete value chain, which would reduce the risk of the Land Bank, since most of the risk lay with primary agriculture.

On the matter of financial sustainability, Mr Zamxaka said that the challenge that faced the Land Bank was that the Portfolio Committee would expect them to focus on development, while their shareholders expected them to focus on profits. In the process they had to remain sustainable.

Page 11:
A skills audit was necessary to match the skills required to the needs of the projects.

Page 12:
When the Land Bank presented their Annual Report to the Committee, they would also include details on their pilot projects

Page 14:
Point 4 - On the matter of alternative funding, Mr Zamxaka said that part of these funds had already been received.

Page 18:
When the Land Bank presented their budget to the Committee, they would be able to provide more detail as to whether these figures had been revised.

Discussion
Mr Bici referred to page 12, which dealt with the turnaround strategy. He asked how the Committee was supposed to engage on this when there were no plans outlined to achieve these steps.

Mr Zamxaka answered that it was not possible to provide all the information at that point as those documents were still with the Minister for approval and could therefore not be made available to the public yet.

Mr L Bici (UDP) referred to their statement that they were planning to stick to their operational mandate. He asked if they had previously acted outside their mandate and when this had happened.

Mr Zamxaka replied that this had been indicated in their audit report. There had previously been a focus on profit and development. They were looking to increase their involvement in the area of development.

Mr Bici asked for the exact amount and details of the suspended interest.

Mr Zamxaka said that interest on non-performing loans was suspended. This had amounted to R172 million in 2006 and R173 million in 2007.

Mr Bici referred to the level of capital (page 6) and asked what their lowest level of capital was and what had caused it. He also asked how this had impacted on service delivery.

Mr Zamxaka replied that the lowest level was R1.1 billion. National Treasury had guaranteed an additional R1.5 billion.

Mr Bici referred to the reference to inadequate funding on page 7. He asked them to expand on this.

Mr Zamxaka responded that it was not only Land Bank that had this problem but also the rating agencies. Their capital base increased due to their not relying so much on capital markets.

Mr Bici asked if the Land Bank had the manpower and infrastructure to take the steps needed to attain sustainability.

Mr Zamxaka replied that in order to attain sustainability they had to enter into alliances with big companies who had the capacity to monitor the progress of start-up farmers. When the farmer was purchasing a new farm, they would sometimes include the condition that the existing management of the farm be retained for a number of years in order to ensure the transfer of skills.

Mr Abraham said that the Bank had been given a legislative mandate and asked if they had the capacity to carry out their functions.

Mr Zamxaka replied that they did not have the capacity to do everything they were promising in this strategy document. Their focus was finance, but they had to manage the risks for the Land Bank. Therefore they had to provide technical training to their clients who did not have adequate skills. This would be done by forming alliances with big companies that had the capacity to assist.

Ms B Thompson (ANC) asked how long the Land Bank had been in operation.

Mr Zamxaka replied that the Land Bank had been operating since 1912.

Ms Thompson asked for more information on the Credit Committee, saying that it was annoying that loans were approved by the Land Bank when they should not have been (for example loans were granted for golf estates instead of for emerging farmers).

Mr Zamxaka answered that all credit transactions went to a centralised Credit Committee which comprised three levels. All decisions to approve or decline loans were now taken at a centralised point. Certain criteria had to be complied with for farmers to receive loans. Failure to follow this approach would mean that they would have to come and explain to the Committee why they were giving loans to people who could not repay them.

Dr A van Niekerk (DA) said that in order to have a clean slate it was necessary to obtain a forensic audit or no one would believe anything that they were saying. He asked why they did not have access to the forensic audit. He asked if Land Bank would be prepared to make recommendations to their Board to obtain a full forensic audit to ensure that they have a clean slate.

Mr Abraham expressed concern about the absence of the forensic audit report, saying that this report was necessary to allow the Committee to perform its oversight role. He believed that Parliament had to rectify this matter.

Dr van Niekerk asked if there were political appointees in the Land Bank. He asked if Mr Zamxaka had any banking experience. Who was at the core of the development of the turnaround strategy?

Ms Ntsietso Mofokeng (General Manager, CEO’s Office: Land Bank) said that most of the planning had taken place at management level. There had been an Operational Committee, which had included senior managers. They had tracked the progress of this plan on a weekly basis.

Dr van Niekerk asked when the new CEO and Board would be appointed.

Mr Zamxaka replied that the CEO would be appointed before the end of the financial year. They would be receiving information soon about how far the process of appointing the Board was.

Ms B Ntuli (ANC) commended Land Bank on their appearance before the Committee despite their challenges. She referred to money received from Government via the Micro Agricultural Financial Institute of South Africa (MAFISA) and asked how much of the money referred to on page 15 was from MAFISA.

Mr Zamxaka responded that money obtained from MAFISA did not form part of this capital.

Ms Ntuli asked if they differentiated between support they gave to emerging farmers as opposed to commercial farmers. She asked how much support was given to each group.

Mr Zamxaka replied they would provide further information on this when they reported to the Committee again at the end of the financial year.

Ms Ntuli asked what had been done to correct the situation outlined on page 8. She referred to the management of non-core function assets mentioned on page 7 and asked if this was still in the planning phase or if something had been done about it. She also wanted to know if the issues listed under the turnaround strategy on page 12 had at least been partly addressed already.

Mr P van der Westhuizen (General Manager, Credit Department: Land Bank) said that most issues which had been addressed in the turnaround strategy were issues that would impact on their risk. While this would not be remedied in a day, they were on top of most of these challenges and were making good progress

Mr A Botha (DA) referred to the sustaining of development projects and the establishment of emerging farmers. He asked what mentorship programme the Land Bank had in place. Commercial banks had two managers on board for this purpose - one would have financial expertise and the other would have expertise in the area of development. He referred to page 12 and said that neither Agri-Unions, Sector Education and Training Authorities nor Local and Provincial Governments knew anything about the business of farming. He asked if there was anyone who had the necessary skills in the Land Bank.

Mr Abraham complained that members received more information on the Land Bank in the media than they received from the Bank itself.

Mr Zamxaka said that indeed it appeared that, because of media reports, the Committee actually knew more about certain activities happening in the Bank than what they did themselves.

Mr Abraham said that many of the Bank’s clients, for example Cape-Agri, were already negotiating deals with commercial banks. This was largely due to the issues raised on page 8, which indicated that the Land Bank was on its way to oblivion and that their time for closing shop was near. He cautioned that many banks were negotiating good deals with their clients and that they would probably be losing much of their profitable business.

Mr Zamxaka said that the Land Bank would not have knowledge of these negotiations as they were private matters. There were various reasons clients would leave Land Bank. Often clients’ businesses grew in a way that they would require a different type of funding, for example when they were listed. Some clients’ businesses develop needs which the Land Bank would not be best suited to meet.

Mr van der Westhuizen added that in the market place there were very often cases of mismanagement, followed by competitors jumping on board to try to poach clients. However Land Bank would protect their interests and those of their clients. They would focus on providing something which the other competitors could not. Previously they had been able to provide funding for cheaper than commercial banks. Since this was no longer possible, they would have to offer something different while fulfilling their mandate to their clients.

Mr Abraham referred to the Acting CEO of the Land Bank, who had been found to have two Identity Documents and used the one to purchase land. He said that the Intelligence Services should be used to verify people in these positions prior to their appointment.

Mr Zamxaka replied that the Acting CEO had been a Deputy Director General and the Land Bank had therefore expected that an extensive verification process had taken place before his appointment to his previous role. It would ultimately depend on the persons who had been involved in the appointment processes.

Dr van Niekerk said that the Land Bank had to start with a clean slate and could not continue in its present form. He had sympathy with Mr Zamxaka because of the challenges highlighted on page 7. Many clients were on the verge of leaving Land Bank for other financial institutions. The present Acting CEO had been suspended for purchasing property using a fake Identity Document, but was still on sick leave. He asked how many of these old officials were still with the Land Bank.

Mr Abraham asked what the scope of the alleged corruption within the Land Bank was when they were planning their turnaround strategy. How had the directors of Land Bank responded when the lack of corporate governance in the Bank had become apparent? He asked if they had conducted investigations and carried out the basic tenets of corporate governance. Who were that CEO’s underlings and were they still employed by the Bank? He referred to the underlings of the corrupt management and said that they had to have known that millions of rands were being channeled to activities that did not fall within the Bank’s core mandate. He asked if any action was being contemplated against these people and if they were still employed by the Bank. If these people had been investigated but remained in the employ of the Bank, then the Land Bank was letting the people of South Africa down.

Mr Zamxaka replied that the exact scope of the mismanagement was difficult to quantify. If they saw a problem, they would act on it immediately. This also applied to instances where the Bank’s policies were not adhered to. Immediate action had been taken, for example, the Board had been restructured.

Mr van der Westhuizen said that they were putting structures and procedures in place to deal with discipline. They would focus on taking the business to the next level by ensuring that mistakes made in the past were not repeated and that they learned lessons from these mistakes.

Mr Abraham asked how the Bank expected to retain the confidence of the public with the publicity they had been receiving. How did they plan on restoring faith in the Bank. He was not sure they realized the extent of the damage that had been done to the Land Bank brand or how they would reverse this damage.

Mr Zamxaka responded that it would be difficult to change this image and gain the confidence of the public. This would be done by meeting promises, changing the experiences of clients and producing results. It would not be done by presenting them with documents. He said that their problems were not unmanageable and that they had gotten more than their share of media attention because of problems that had arisen in the Bank.

Mr Abraham referred to the activities listed on page 9 as a ‘wish list’. He said that the core functions of the Land Bank were the provision of finance and developmental financing. They were not supposed to do the job of agri-technical people although these people should be in the employ of the Bank. This job was not the focus of the Bank, but of the Department.

Mr Zamxaka replied that while they could not do everything on the list themselves, there were some things that were in management’s control, for example, how fast they employed the necessary people and formalised contracts. However, there were some things included on the list, which were not in the mandate of Land Bank and were very costly for them to implement. They were however necessary, as failure to provide the farmers with the necessary technical support and assistance would place the Bank at greater risk if these businesses could not succeed and the farmers could not repay the loans.

Mr Abraham wanted figures on how many of the projects funded by the Land Bank had failed and how much was needed to revive these. It was important to know why these projects had failed as Parliament had to have some idea as to the extent of the problems (even though many areas within these projects fell outside their core mandate).

Mr Zamxaka replied that they had conducted such an audit. The reasons for the failure of these projects had varied. Sometimes the person applying for the loan could not afford to repay it. Also the person could possibly also have lacked the skills to do business. Very often drought led to the loss of the business, as the farmer had no insurance and lacked proper support to deal with this situation. The problem was that the stricter they were regarding their conditions for granting credit, the more likely it was that the Bank would be accused of not assisting their developing clients. It therefore was necessary to obtain the assistance of other role players who could assist with issues such as marketing or provide technical assistance.

Ms Ntsietso Mofokeng (General Manager: CEO’s Office, Land Bank) said that there was currently an initiative to aid development projects. The top non-performing accounts had been identified to receive special attention. These projects would be studied in order to come up with recommendations on whether to revive these, and what the cost implications would be.

Mr Abraham said that the Bank had a developmental function which could not be carried out if they charged emerging farmers commercial interest rates. The Bank had indicated that they wished to help emerging farmers to graduate to commercial farmers, which would not be possible if the Bank continued to charge commercial rates to these farmers. They had to be clear about what they could or could not do.

Mr Zamxaka responded that they had to charge clients enough so that the Bank could remain in business. The rate charged by MAFISA was 8%, but one would only obtain a maximum of R100 000. One could have an interest free loan, but if the farm had too much debt, it would be impossible for the business to survive. Sometimes departmental grants were more suited to the needs of these emerging farmers, as loans would have to be repaid.

Mr Abraham said that he was disappointed that although the Bank had worked on their strategy since August last year, they had only managed to come up with a few ideas. He was certain that the majority of what they had presented in their turnaround strategy was unattainable. In addition, he accused the Land Bank of having held Parliament in contempt, since after six months had elapsed, it could not address the Committee with their complete strategy. He said that he had not seen much of a strategy in the presentation.

Mr Zamxaka answered that they would receive more detail in March. The budget would have been approved by the Board and presented to National Treasury. One should bear in mind that this was an abnormal time to report, as it was one month before financial year-end.

Ms M Nkompe-Ngwenya (ANC) asked if emerging farmers were receiving advisory support. She asked if they visited the land of the loan recipients. She referred to certain members of the National Movement of Rural Women who had received loans from the Bank and said that that Bank representatives had never visited their land to see their circumstances before attaching their land when they could not repay.

Mr Zamxaka replied that sometimes it was better for farmers not to apply for loans, but rather for grants from the Department of Agriculture. If they did not collect their repayment installments from these women, Land Bank would run at a loss and they would have to explain this to the Committee. There was a need to understand that if these women were applying for loans (instead of grants), these loans would have to be repaid. The Bank had in fact conducted visits to farms in order to ascertain reasons for non-payment. However very often it was simply the fact that clients should not have received a loan (which had to be repaid), but should rather have applied for a grant.

Ms Thompson asked what the main sources of income was for the Land Bank.

Mr C Greyling (ANC) echoed this and asked what alternative funding was being referred to on page 14.

Mr Zamxaka replied that the bulk of their income was derived from the capital markets. They did not charge fees on complex transactions like other banks did. They also derived income from shareholders’ equity. Sometimes there were contributions from international organizations to developing projects, but this did not happen easily.

The Chair said that he had sympathy with Mr Zamxaka for the task that lay ahead. However the Bank had had many turnaround strategies and there had never been a clear direction. He appreciated their honesty with regard to their operating inefficiencies. However there did not seem to be a sense that they were on top of the situation. The Land Bank needed to give the Committee the report that had been handed to National Treasury. It was also important that this should be their last turnaround strategy. It was necessary to bring stability back to the Land Bank, and therefore the appointment of the CEO and the Board had to treated as a matter of urgency. There were clearly mixed feelings on the strategy from members, but he suggested that everyone should move forward with optimism.

Mr Bici referred to the fact that the Committee could not access all the information it needed and asked to be referred to a law which prevented the Committee from doing so.

Adv S Holomisa (ANC) commented that the Committee understood that the information was still with the Executive and would be made available to the Committee once approved. He referred to Mr Zamxaka’s statement that they had received more than their share of media attention and said that they should be subjected to scrutiny since they were engaging in unsound practices with the public’s money.

Mr Zamxaka replied that they welcomed media input but it became frustrating when the media printed information which was not factual.

Dr van Niekerk asked if they had strategies in place to ensure that no further corruption would occur in the Land Bank.

Mr Zamxaka replied that risk management initiatives were in place. There was a centralised credit process where all decisions regarding the granting and writing off of loans were taken. There were both legal and risk representatives in the Credit Committee.

Mr Botha recommended that the Executive should introduce a policy that the Board must have extensive banking experience.

The Chair said that the Annual Report and Forensic Audit reports had not been tabled but the Minister had addressed them briefly on these. The reports should be able to put the Bank on the correct footing. The Committee could contribute toward ensuring the sustainability of the Land Bank, while seeing that the needs of the emerging farmers were being addressed. The Committee would follow up further with the Executive.

Committee Business
The Chair said that the Committee would have to look at their legislative programme . The issue of land had been alluded to by the President in his State of the Nation address both this year and in 2007. Thus, any legislation on this issue would impact on the Committee programme.

Secondly there were oversight reports which were yet to be finalised. The Chair had requested members involved in the oversight tours to Brazil and the Eastern Cape to meet earlier to finalise this matter. Since this had not happened, the Chair instructed the Committee secretary to ensure that a meeting was convened the following week for this purpose.

Thirdly the workshop on the Land Use Management Bill, which was scheduled for the following week, would have to be postponed until the second term of Parliament.
 
The Chair adjourned the meeting.

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