Land Bank woos buyers for loan book
Land Bank has gone to market in search of a buyer for its distressed loan book as it ramps up its turnaround efforts after a torrid three years, in which it became the first state-owned enterprise since 1994 to default on its debt.
The entity, established in 1912 to extend credit to the agriculture sector, issued a tender inviting interested financial institutions to bid for a contract to take over its written-off debt book.
The bank would not be drawn into disclosing the size of the loan book being put out to tender, but according to the bank’s latest financials, its nonperforming loans at end-March were about R10bn.
“The respondent [to the request for proposal will have] to evidence a track record of active business operations in the financial services industry.
“In addition, the respondent should indicate experience in the acquisition of commercial and corporate loan asset portfolios or distressed loan assets, including evidence of acquisition of agricultural loan assets,” the tender document reads.
The interested bidder should also “demonstrate financial capability (including a letter of good standing from the respondent’s financier/s demonstrating the ability of the respondent to participate in a transaction of this nature) and the balance sheet to fund or raise funding for the purchase/acquisition of a commercial and corporate loan asset portfolio of at least R300m”.
The lender’s limited funding has prompted high-quality customers to leave the bank for funding elsewhere. This affected the quality of the loan book negatively, causing an increase in the nonperforming loan ratio, which stood at 51.9% at the end of the previous financial year.
The deterioration of the quality of the loan book has been partially attributed to the manner in which service level agreements were concluded, managed and monitored.
The bank has since insourced the loan book previously managed by intermediary partners and has asked the National Treasury’s specialised audit services unit to conduct a forensic investigation into loans that were granted and managed by the lender’s service level agreement partners on its behalf. It said the decision to insource the agreements has saved it about R30m a year in management fees.
“The bank cannot disclose or provide information regarding specific accounts that have been written off and are [the] subject of a possible disposal through this tender process,” spokesperson Rebecca Phalatse said.
“The tender relates to accounts that have been written off by the bank in line with its policies and applicable laws. Disposing [of] 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.
“The bank continues to recover debt owed to it using the normal legal processes within the purview of the country’s laws and thus our processes are not weak.”
Land Bank has been in default since April 2020, triggering a cross-default on most of its borrowings. Since then the default R18.1bn has been repaid and interest payments continue to be serviced.
The default was preceded by a Moody’s downgrade in January and March 2020, causing disinvestment by some investors and worsening the bank’s liquidity issues. It also faced allegations that it had deployed “unlawful and aggressive methods” of recovering outstanding debts from farmers who had defaulted on loan repayments.
The bank appointed a law firm in May 2023 to verify these allegations. “This investigation is still under way,” Phalatse said.
It has previously said it had no evidence to suggest it had acted hastily or made any mistake in instituting any legal action against its clients.
Land Bank has premised its turnaround strategy on the following pillars:
● Stabilising the organisation from the 2023/24 financial year;
● Consolidation in the next two financial years by revising its funding model; and
● Pursuing growth from the 2028 financial year.
“[Despite] the bank’s notable achievements under exceptionally challenging circumstances, the sustained recovery of Land Bank relies greatly on its ability to successfully restructure its debt and to cure its current state of default,” finance minister Enoch Godongwana said in the bank’s latest annual report.
“National Treasury continues to support Land Bank in this process and has allocated R10bn to the bank since financial year 2021 to assist in its debt restructuring and to support its developmental funding activities, subject to specific conditions being met.”