Cash alone ‘won’t save Land Bank’
Money isn’t enough to save the Land Bank. This is the view of Christo van der Rheede, executive director of Agri SA, who said this week that even with the bailout announced in the recent budget, in terms of what the government expects the Land Bank to deliver, the fundswill not make it sustainable.
Van der Rheede said rather than being a piece in a fragmented puzzle, the Land Bank needs to be made the custodian of agricultural development in SA and set the strategy for the industry, take ownership of state land so it has an asset base and guide various government departments in a unified fashion.
He said many state institutions were receiving funding for agriculture, including sector education and training authorities (Setas), the departments of trade and industry; agriculture; land reform and rural development; and environment, forestry and fisheries.
“No wonder there has been little progress in terms of agricultural reform,” Van der Rheede said.
The Land Bank holds 29% of all agricultural debt in SA, with most loans in cattle and sheep farming (mutton and wool), grains and agri-business. It has limited exposure to sub-tropical fruit such as mangoes, and oats, chillies, grass and oil seeds.
The medium-term budget policy statement said the Land Bank will require an additional R7bn over the medium term.
This is over and above the R3bn allocated in June.
The Land Bank said this week that in addition to the R7bn it would require over the medium term, it had requested R1bn a year for the next three years, starting in the 2022/2023 financial year, for development funding for emerging farmers.
Sydney Soundy, executive manager for strategy and communications at the Land Bank, said the R3bn would be used to repay debt, which includes defaults on interest payments.
He said the bank had been in default on its liabilities since April 2020 and could not service its current debts in their current form and terms.
The bank’s credit rating has deteriorated significantly, meaning it cannot raise funding from capital and debt markets.
The going-concern status of the Land Bank is at risk and a de facto standstill of funding activities is in place while the restructuring of debt is undertaken.
Soundy said the R7bn would be used for the bank’s financial and sustainability plan.
Currently awaiting National Treasury approval, this plan is intended to address the defaults and terming out of existing debt maturities, improving the bank’s gearing, or the ratio of its debt to its equity; ensure capital adequacy or the availability of capital; address the lack of access to the capital markets to raise funding; reduce the loan portfolio and sell off non-core assets.
Soundy said while the bank is awaiting approval from the government, new loans would not be extended and lending to new clients would only resume once solutions had been implemented.
This delay in extending loans was placing transformation in the agricultural industry on the back foot, he said.
Van der Rheede said the bank required more than an additional R7bn, and that there was a big drive to scale down loans to commercial farmers and move the financing to emerging farmers.
The bank currently has R6.4bn in nonperforming loans in this segment, Van der Rheede said.
In a presentation to parliament in October, the bank confirmed it had R6.4bn in non-performing loans but did not confirm to Business Times whether this was from small farmers. Soundy said a combination of drought and market conditions was the reason that these farmers were unable to repay their loans.
Van der Rheede said the bank needed a mix of farmers to diversify its risk and that if it continued funding only farmers who are battling then they would increase their risk exposure and eventually remain dependent on the state for bailouts.