Reserve Bank bails out CPD as Land Bank defaults on loans
The Bank has issued a R3.45bn guarantee to bail out the Corporation for Public Deposits, putting further pressure on the state coffers
The Reserve Bank has issued a R3.45bn guarantee to bail out the Corporation for Public Deposits (CPD), a government investment arm hit by surging defaults at state agricultural lender Land Bank.
The issue adds a further strain on state finances as the government props up its main power utility Eskom, and SAA, which were already struggling before the coronavirus crisis, and now faces rising defaults at Land Bank.
CPD, which purchased various debt instruments from Land Bank, said overall it suffered a R2.8bn loss in the 2019/2020 financial year, necessitating the Reserve Bank bailout.
Deputy governor of the Reserve Bank and chair of the CPD, Fundi Tshazibana, said this week that the guarantee was to cover the investment arm’s losses in the 2019/2020 period and replenish reserves, which had dwindled to zero.
“We had to provision for what we will not be able to recover from Land Bank. That was one of the reasons why [the Reserve Bank] had to provide the guarantee,” said Tshazibana.
“Because of Land Bank’s default, we were running at a loss and we weren’t going to be a going concern ... That would have been of real concern to depositors,” she said.
In April, Land Bank, the country’s largest agricultural-focused lender, defaulted on R50bn worth of loans repayments and in June it failed to make interest payments of nearly R120m.
On Friday, Land Bank said it had not made interest payments of about R320m of debt which was due at the end of June.
The Treasury guarantees about R5.7bn of Land Bank’s debt and, last week, granted it R3bn of emergency equity funding.
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