The Land Bank says it will restructure its operations, splitting them into different business units so it can service emerging farmers better. .
Details of the proposed restructuring emerged at the presentation of the bank’s results for the year ending March 2019 on Monday.
“Our shareholder [the government] has a very particular objective — it wants to drive economic growth and broaden inclusion in the agricultural sector. At the moment, the funding model presents a challenge to these objectives, so there needs to be a shift. A repurposed Land Bank will map that out,” says acting CEO Konehali Gugushe.
Land Bank chair Arthur Moloto says the bank’s management has been engaging its shareholder, the government, with a view to recapitalising it.
“During financial year 2019, the bank proposed the division of its commercial and development units to achieve both mandates. The board supports the proposal and believes that it is the correct course of action,” said Moloto in his chairman’s statement.
The bank disbursed a record amount towards transformation of the sector by extending loans of more than R5bn to emerging farmers. These developmental loans now account for 17.5% of its R45.2bn loan book.
The Land Bank sources funding from a range of institutional investors and has greatly reduced its reliance on the Public Investment Corporation (PIC) as a source of funds, as well as on the use of government guarantees to raise funds in recent years.
The bank’s cost of funding, largely as a result of using long-dated maturities, was evident in its latest results. Its interest expense rose 7% to R3.8bn during the year, despite the size of its loan book declining marginally. Most of these costs have had to be passed on to emerging farmers, with little scope to subsidise interest rates.
The current operating model also restricts the degree to which the Land Bank can provide pre- and post-funding services. This partly explains why most applications from emerging farmers are not successful.
“We are already subsidising the emerging farmers, but we would like to increase that. Pre- and post-support also imposes costs on them, and because we are not currently providing that, we decline 85% of applications based on ... poor business plans, lack of repayment ability, and lack of equity contributions by smallholder farmers,” says Gugushe.
Besides separating business activities, the restructuring will assess ways of lowering financing costs to emerging farmers through different funding models. One way would be to use government guarantees to lower the cost of funding for the developmental unit.
The changes could take years to implement because changes may be required to be made to applicable legislation, including the Land Bank Act of 2002.
Net income declined by 28% to R181m in the context of a tough economic environment which saw the agricultural sector contract by nearly 5% during the year.
The state-owned bank received another clean audit and maintained its credit rating. It also settled R2.7bn of government guaranteed loans, further reducing the amount of fiscal support it receives from its shareholder.
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