DOCUMENTS

Govt injects R3,5bn into Land Bank

Minister of finance Pravin Gordhan approves recapitalisation plan, subject to stringent conditions

The Minister of Finance, Pravin Gordhan, has approved R3.5 billion for the recapitalisation of the Land Bank.

This means that government undertakes to meet the obligations of the Land Bank to the amount of R3.5 billion, as and when they become due and payable should the Bank's liabilities exceed its assets. The Letter of Undertaking (the guarantee) will proportionally decrease as cash injections are made by government to the Land Bank.

The guarantee will terminate once R3.5 billion in cash injections have been made by government to the Land Bank. This is subject to stringent conditions that include:

  • Land Bank maintaining a Capital Adequacy Ratio (CAR) of at least 20%;
  • Providing the National Treasury with quarterly reports on progress on the turnaround    strategy and on loan recoveries, demonstrating sound management of the loan   book; and
  • Performance updates on the Bank's development indicators contained in the   Bank's development policy.  

The capital injection follows the acknowledgement in the budget speech by the previous Minister of Finance Trevor Manuel, of the progress made by Land Bank management, and his consequent commitment that government would assist the Bank. The capital injection was approved after interactions and discussions between the Bank and the current and former Finance Ministers.

The Bank is steadily emerging from a period of instability that adversely affected the sustainability of many of its operations. In recent years the Bank was unable to implement its development mandate as articulated in the Land Bank Act and struggled to create a balance between implementing its mandate, and financial stability. The challenges faced by the Bank have also affected its financial performance.

In response to the challenges, the Land Bank submitted a turnaround strategy that was approved by the shareholder. The new strategy represents a deliberate attempt to redirect the Bank to meet its mandate. A thorough revision of the Bank's corporate plan was undertaken to align the Bank's operations to the new strategy. The turnaround strategy consists of three phases: cleanup, stabilisation and sustainability. The cleanup phase addresses audit queries by establishing systems and processes to provide a progressively cleaner audit report. The stabilisation phase seeks to prevent deterioration in the balance sheet, enhance human capacity and ensure an effective IT system. The longer-term sustainability phase aims to normalise operations and enhance the Bank's focus on its core business of development and growth of its loan book.

The Land Bank sees the capital injection as an acknowledgement by government of the progress achieved by management and the board in stabilising and turning the Bank around.

Improved perceptions on the Bank have also resulted in high calibre candidates joining the Bank, increases in the numbers of investors willing to buy the Bank paper, growing number of the Bank's clients who migrated to other financial institutions rejoining, improved liquidity and capital adequacy ratio (CAR), and a growing interest among stakeholders in partnering with the Bank.

The strengthening of the Land Bank's balance sheet through the capital injection will enable the Bank to play a key role in the agrarian economy of South Africa and the region. The Bank will increase its intervention in development by engaging in pilot projects valued at R3.2 billion over the next three years, setting the benchmark for future development projects.   While development will receive focused attention, commercial agriculture will also remain an important component of the financing activity of the Bank.

Commenting on the developments, the Land Bank's CEO, Phakamani Hadebe said the engagement with National Treasury leading to the capital injection had been demanding.

"We worked hard to meet the stringent requirements set. As taxing as these interactions were, they made us realise the enormity of the challenges ahead, and we are thankful to the National Treasury for keeping us on our toes." Hadebe said.

Statement issued by Musa Mchunu, head of marketing and communications at the land bank, June 10 2009

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