Land Bank recovers from interim loss

The Land Bank had made a strong financial recovery since its interim loss and is expecting a full-year profit or at least to break even, executives said on Tuesday.

The 2019-2020 profit would, however, be lower than in previous years, the bank’s GM for finance, Ryan Engle, told Business Day in an interview after a presentation by executives to the National Council of Province’s select committee on finance.

The bank, which provides financing to commercial and emerging farmers, reported an interim loss of R184.7m for the six months to end-September. It attributed the deterioration in its financial position to muted loan-book growth and a higher impairment charge, which rose R193m from the previous corresponding period. Nonperforming loans rose to 9.9% from 5.8%. The bank attributed this to the drought, late harvests and loan repayments.

The Land Bank group made a profit of R181m in 2018-2019 and R242.7m in 2017-2018.

The bank has addressed some of the issues raised by Moody’s Investors Service when it lowered the institution’s rating to subinvestment grade in January with a negative outlook.

Executive for strategy and communication Sydney Soundy said the only outstanding matter was the bank’s capital adequacy.

He said Moody’s had said that it would not wait for an annual review and if there were significant changes in the areas of concern a review would be conducted.

At the time of the downgrade Moody’s said the move reflected its view that the government will have less scope in future to support distressed state-owned enterprises (SOEs).

It was also concerned about the increase in nonperforming loans; environmental risks, linked to climate change; and expropriation without compensation. Moody’s said the bank had modest capital buffers and suffered from unstable leadership.

A new CEO, Ayanda Kanana, former CEO of the Joburg Fresh Produce Market, had been appointed. The issue of leadership stability had been addressed as there was also a new CFO, and the appointment of other executives was under way, Soundy said.

The Treasury had permitted the bank to draw on its pre-existing guarantee of R5.7bn, after having previously repaid the loans made against it.

“Following the downgrade and the potential that we could have had expensive funding from funders we thought it would be nice if we got the Treasury to support us so that the cost of that funding could be maintained,” Soundy said.

He also said that the late rains would hopefully help improve the bank’s nonperforming loans.

“Once you consider all the improvements there might well be a sufficient case for them [Moody’s] to review but it will be a combination of all these factors,” he said.

“The issue of the modest capital buffers still remains. If in addition to the R5.7bn we received a capital injection [from the government as shareholder] that would have gone significantly towards the need for them to review as we would have dealt with the stabilisation of the long-term funding through the guarantees, we would have dealt with capital adequacy issues and nonperforming loans might improve as well as having dealt with the stabilisation of leadership. So there would be sufficient reason to review.”

Soundy said the Land Bank was investigating expanding its footprint by offering other transactional services in partnership with a commercial or specialised bank but under the label of the Land Bank. This would be easier than applying for a fully fledged banking licence.

Funding structure

Such a partnership would not only generate additional albeit minimal income and offer benefits to users but also provide more information to the Land Bank about its clients so that it can offer them better services.

“We cannot remain purely a lending institution,” Soundy said.

The bank was also looking at its funding structure because all its loans to farmers were funded from the capital market, which was costly and made it a challenge to finance and support emerging farmers and still remain financially sustainable.

“There has to be funding from the state,” Soundy said, saying this would address Moody’s concern about the modest capital adequacy.

ensorl@businesslive.co.za