Question NW448 to the Minister of Finance

Reply:

(1) (a) What is the rationale behind the decision of the Land Bank to advertise the sale of its loan book, (b) what specific criteria were employed to determine which loans would be included in the sale and (c) which clients would be excluded;

Land Bank’s Response:

At the outset, it should be noted that a write-off of non-performing loans is an accounting term and a function of International Financial Reporting Standards (IFRS) 9. In terms of IFRS 9 a debt may be written off in its entity “if an entity has no reasonable expectations of recovering the contractual cash flows on a financial asset”. When a debt is written off by the Bank, it does not mean that the Bank can no longer enforce its rights in respect of that particular loan. In addition, it does not mean forgiving the debt. The debtor still owes money to the Bank, however, the Bank has derecognized this asset from its financial statements due to the low prospects of recovery. In case the borrower resumes servicing its debt, or the exposure is sold, a recovered amount would be directly recorded as profit in the books of the Bank.

The Bank issued a tender notice for the sale of its written-off loan assets for the submissions of expressions of interest. This sale relates to accounts where the Bank does not have reasonable prospects of recovering the debt, and where the Bank has consequently written off these amounts in line with the Bank’s policies and applicable laws. The disposal of already written off accounts is a standard practice within the financial services sector and there is nothing unique about the Bank’s intention in this regard. It is also important to note that this written off assets are NOT accounted for as part of the current loan book assets due to the fact that they have been written off, as such this tender does not have any links to the current loan book asset. As stated above, when a debt is written off by the Bank, it does not mean that the Bank will not continue to recover debt owed to it using the normal legal processes within the purview of the country’s laws. In this particular instance, the proceed of the successful sale of these written-off loan assets will be synonymous with the recovery of an amount of the written off assets. The tender process is currently underway and it is expected to be completed in the next few months.

(2) what is the (a) estimated timeline for concluding the sale of the loan book and (b) anticipated total amount of proceeds expected from the specified sale;

Land Bank’s Response:

As stated above, this is a tender process and it is still at its early stage as the closing date for the submissions of expressions of interest was on 23 February 2024. We expect to complete the process in the next few months. Given that the envisaged sale is being conducted through a tender process, the anticipated total amount of the proceeds cannot be disclosed. This is about the recovery from the written off assets which no longer form part of the reported value of the current loan book. Disclosing value of written off assets which the tender aims to recover will have a negative impact on the recovery process of the written off book.

(3) whether the sale is an effort to ensure the sustainability of the Land Bank in the long run; if not, what is the position in this regard; if so, what are the relevant details?

Land Bank’ Response:

The objective of the sale is to try and maximize the recovery on the bad debt that has already been written off. The proceeds of such a sale will contribute to the augmentation of the Bank’s liquidity position and profitability.