State-owned entity Land Bank has posted a 9.3% drop in profit from continuing operations year-on-year, citing a decline to R352.5-million in the 2015 financial year from R388.6-million in the 2014 period.

The bank’s net cash position improved from R1.47-billion to R1.61-billion, while it managed to contain costs, decreasing its operating expenses. Staff costs declined from R368.2-million to R344.3-million and other costs increased from R157.6-million to R166-million, with overall cost down 2.9%. The Land Bank attributed this to the improvement in its cost to income ratio of 54.9%.

Net interest income for the year under review had grown 13.7% from R931.9-million to R1.059-billion, with operating income from banking operations inching forward 3.8% to R775.8-million, compared with R747.7-million in the prior financial year.

This was offset by net impairment charges increasing by 18.3% from a loss of R140.9-million to R166.7-million and noninterest expense rising from a loss of R53.5-million in the prior financial year to R130.5-million.

As such, Land Bank’s comprehensive income for the year under review declined by 15.4% from R260.7-million to R220.5-million.

The bank’s gross performing loan book had increased by 10.4% year-on-year from R33-billion to R36.4-billion, however, Land Bank CFO Bennie van Rooy noted that notwithstanding the challenges the bank had faced, it had still reported very healthy financial results.

The banks nonperforming loans (NPLs) had risen by 28.4% to R1.4-billion from R1.1-billion, with the NPL ratio climbing by 15.6% from 3.2% to 3.7%.

Compounding the situation was that 69% of its loans would mature in the next 12 months, although this was a decline of 8% year-on-year.

“This is not a position any bank wants to find itself in.

“On the one hand, the Land Bank is a sizeable organisation with significant substance and strong balance sheet, but on the other hand there are certain structural weaknesses that the bank is exposed that will need to be addressed going forward to ensure the sustainable future of the organisation,” Van Rooy stressed.

The agriculture-focused lending institution released its integrated annual report for financial year 2015 in Irene, Centurion, on Thursday, where Finance Minister Nhlanhla Nene said the current year under review was a difficult time for the South African economy.

The Minister said while the Land Bank was celebrating 103 years in existence, lots still had to be done in support of rural development and emerging farmers. He advised that there were significant challenges within the bank that prevented it from achieving its objective of being a sustainable developmental finance institution.

“The bank has briefed me on its organisational review and operating model. We will be working with the bank on its implementation to ensure greater operational efficiency,” Nene advised, noting that the foundation had been laid, “it is now the opportunity to build”.

He added that the team running the business would create much of the Land Bank’s future value. “Therefore, my job is simple… If they fail, it is their fault. If they do it, I take the credit,” Nene quipped.

Part of this team was Land Bank CEO TP Nchocho, who had been with the institution for the last six months.

Speaking at the results presentation, he said the bank would place emphasis on growing the agricultural sector in terms of its output, supporting existing commercial agriculture to sustain productivity and improve yields, processing primary output in value-added activities and innovation.

“We are confident that we are on track to unleash the potential of the Land Bank and shape it into a stronger organisation.”