Land Bank shows 4.8% rise in interest income
THE LAND Bank yesterday reported a 4.8 percent growth in net interest income to R1.2 billion for the year end to June – up from R1.16bn reported last year.
The bank said its total loans grew marginally by 3.2 percent (adding R1.2bn) to R39bn for the year.
Chief executive Petrus Nchocho said the results reflected the resilience of the bank’s business model and its continued focus on executing its growth strategy.
Nchocho said the growth was driven by cost containment and net interest income, which rose
FIDELITY insurance is a class of insurance that is designed to protect you, as a business owner, against losses incurred as a direct result of fraud or theft on behalf of an employee, according to Jurgen Hellweg, chief executive officer at Western National Insurance.
He says in essence, fidelity insurance protects you against the potential infidelity of your employees.
“Corruption and fraud are common issues in South African society, not only in the public sector but also among privately owned and listed businesses.
“In fact, according to Transparency International’s 2015 Corruption Perception Index, South Africa was given a rating of 44 out of 100 – a poor 4.8 percent to R1.2bn from the previous year.
“A number of non-recurring expenses had an impact on the overall performance of the bank, including the organisational review costs of R162.7 million as well as the once-off adjustment to the carrying value of liabilities amounting to R50.8m,” Nchocho said.
“Excluding these items, operating cost increased marginally score, illustrating how deeply corruption is entrenched in our culture.
“It’s puzzling therefore that so few business owners are aware of fidelity insurance. One reason for this might be the perceived complexity of this type of cover.
“However, the risks of not having this cover can make ignorance very costly indeed.
“Consider the risk of arson, which is an insurable event. The incidence of arson in South Africa is higher than in many other countries as a side effect of our heightened crime rates.
“This risk is dwarfed, however, when compared to the even higher risk of fraud. In South Africa, your business is particularly susceptible to fraud.
“Why, then, would business by 0.9 percent and the bank achieved a pleasing cost to income ratio of 56 percent.”
Nchocho said the bank approved loans to the value of R11.4bn during the year.
He said the non-performing loans were 8.8 percent, lower than the 9.7 percent for the previous year.
“This shows that the bank is able to put its debtors under control,” said Nchocho. “The non- performing loans stand at owners prioritise insurance cover for arson and other crimes, but not fraud,” questions Hellweg?
He says there are a few technicalities with fidelity insurance. For instance, it’s a requirement that the employee that has committed fraud must have gained something, be it financially or, for example, using stolen goods for personal purposes.
Another minor, yet important, detail is time restriction. R2.2bn currently.”
Nchocho said the bank had embarked on changes as requested by the Treasury.
“We have completed our restructuring now. We have reduced our head count to 400 employees, down from 540 and we paid out a severance package of R160m,” Nchocho said.
The bank’s clients in the agricultural sector have been affected by the worst drought in more than a decade. If you discover fraud that has been going on for years, your insurer will only cover the preceding two years, even if you’ve had fidelity insurance for decades.
Equally so, the insured will not be covered for any losses sustained before the cover was taken out.
“Much like liability insurance, deciding how much fidelity insurance to buy can be a challenge,” says Hellweg.
“A good adviser should be
Last week Statistics South Africa said the sector was in recession.
“Although the bank is managing to navigate through these tough challenges, the agricultural sector is continuing to plod along,” Nchocho said.
Agbiz agricultural economist Wandile Sihlobo said the drought had not made it easy for the farmers and the sector to survive. “The agricultural sector remained in recession,” able to give you an estimate of how much you should include in your policy.
“This will be based on your risk profile and other relevant variables, such as your number of staff, stock flow, possible incentives to commit fraud, whether your business deals in selling luxury items to the general public, and if the value of your stock is high and susceptible to crime.
“In comparison, services-oriented businesses might Sihlobo said.
Meanwhile Nchocho said the bank was continuing to engage with Futuregrowth fund managers about its decision to stop funding state-owned enterprises (SOEs).
Futuregrowth last month said it had decided to suspend any additional loans to some of the country’s largest SOEs, including Eskom, Transnet, Sanral and the Land Bank.
The fund said the decision need less fidelity insurance since there is no physical product that can be stolen. However, these businesses are still vulnerable to financial fraud.”
Hellweg reports that the controls in place, in terms of business processes, will also affect how much fidelity insurance you should buy.
“If it’s easy for an employee to steal money or stock from you, your internal processes are lacking. By its nature, fraud within a business is hard was driven by growing concerns about the governance and decision structures of the SOEs.
“We were never consulted by Futuregrowth about their intended decision, it came as a surprise to us but we have held about five meetings with them since then,” Nchocho said.
“Most of our R30bn funding came from institutions like the Public Investment Corporation (PIC) which contributed R10bn. The commercial banks added R6bn and R1bn came from international development finance institutions. Futuregrowth’s contribution was R1.2bn and the rest came from other fund managers.” to detect and can in some cases carry on for years, resulting in millions in financial losses.
“Your fidelity insurance policy should cover you from losses sustained as an indirect result of inadequate controls within the business, but only initially.
“If your business is the target of fraud by an employee a second time, your insurer will want to know that you put the necessary controls in place after your initial claim before paying out your new claim.
“If these controls are still lacking, your insurer may repudiate the claim,” says Hellweg.
He contends that all businesses that are profitable should have at least some kind of protection against losses as a result of employee fraud.
“Corporate conglomerates have thousands of employees, many of which are paid by different departments within the organisation. This means there are a lot of holes to plug.
“Small business owners should also consider fidelity insurance, as stock theft or even low-level financial fraud could be financially crippling without cover.
“To illustrate, if your business lacks certain basic defences against fraud, a cashier could potentially steal hundreds of thousands of Rands, simply by voiding purchases and pocketing customers’ money.
“Crime is unfortunately a reality, and the financial loss involved can drastically affect a business. It is therefore essential to mitigate these risks with proper insurance coverage,” says Hellweg.