Land Bank performance improving, but liability solution crucial – Masondo

19th October 2022 By: Tasneem Bulbulia - Senior Contributing Editor Online

The last three years have been challenging for both government and the Land Bank and, although there have been improvements in performance under the leadership of the new board, it is important that the debt situation be remedied and the bank returns to full operations expeditiously, Deputy Finance Minister Dr David Masondo said in a presentation to Parliament’s Standing Committee on Finance on October 19.

The presentation was in response to a call for the National Treasury to brief the committee on the policy direction for the Land Bank, as well as to request the committee to support the amendment of Section 45 of the Land Bank Act as presented previously by Treasury.

Masondo outlined government’s aim for the Land Bank to make a positive contribution to the transformation of the agriculture sector.

He emphasised that the restructuring of the Land Bank was crucial for it to be re-established as an effective and efficient development finance institution.

He said the Land Bank needed to prioritise its developmental impact and improve its support of developing or emerging farmers and that it must work closely with the Department of Agriculture, Land Reform and Rural Development to ensure transformation is feasible and assistance to small and emerging farmers is prioritised.

LIABILITY SOLUTION UPDATE

The Land Bank experienced liquidity challenges and defaulted on its debt obligations on April 1, 2020. Through a series of cross-default provisions, this meant that all of the Land Bank’s debt became payable at that point, Masondo outlined.

To remedy the situation, the Land Bank started the process of negotiations with its lenders to restructure outstanding debt and craft a workable repayment plan. This process of debt restructuring is referred to as a liability solution.

Masondo noted that, over the past three years, Land Bank and its lenders have worked on a number of possible solutions.

However, given the complexity of Land Bank’s debt structure and the large number of lenders involved, the bank has, to date, not been able to find a solution that “enjoys the consensus support of its lenders”, he said.

Masondo said Treasury continues to support the Land Bank in its debt restructuring process and is working with the entity to ensure it continues to play its vital role in the agricultural sector, while work on the liability solution continues.

It has also provided fiscal support to the Land Bank. Since the default, it has recapitalised the Land Bank with a total of R10-billion. R3-billion of this recapitalisation was transferred in 2020 and the remaining R7-billion is still available to be transferred to the Land Bank, subject it concluding the liability solution, which Masondo said would resolve the default position of the bank.

AMENDMENT

Masondo and Treasury also requested support to amend Section 45 of the Land Bank Act.

“The amendments proposed provide an important safety net for Land Bank and will ensure that the entity receives the protections afforded by the Companies’ Act,” he emphasised.

PERFORMANCE IMPROVEMENTS

While the bank remains in default, it has managed to repay 43% of the debt that was outstanding in 2020 and R1.5-billion of guaranteed debt remains, Masondo noted, indicating that a further reduction of debt is expected in the current financial year.

“The bank has also significantly improved its governance, financial reporting and internal control mechanisms. This resulted in the Bank achieving a clean audit from the Auditor-General in the past financial year, against a qualified audit in the 2021 financial year and a disclaimer in the 2020 financial year.

“Financial performance has also improved. The bank is in a healthy liquidity and solvency position and reported a net profit of R1.4-billion in the most recent financial year against a net loss of R711-million in the 2021 financial year. At the operating level, Land Bank reported a profit of R11.7-million,” Masondo noted.

He said that, while recovery efforts continue, Treasury is encouraged by the bank’s efforts to close its mandate gaps and is working closely with the Land Bank team in the implementation of its new developmental finance programme.