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.