Finance Minister Tito Mboweni has a soft spot for the Land Bank and is sympathetic when it comes to the state-owned lender’s demands. 

Mboweni recently said that the Land Bank – like Eskom – was “too big to fail”, pointing to the company being a substantial lender to SA’s agricultural industry and that it must be protected and supported by the government at all cost. 

The Land Bank’s operations are tied to SA’s food security system. In addition to offering loans to emerging and established farmers, the Land Bank also offers farmer insurance products for agricultural-related events such as a drought. 

The Land Bank was the only state-owned enterprise that was awarded a bailout by Mboweni in the 2021 Budget Review to avert the collapse of a lender that provides 27% of SA’s agricultural debt.   The Land Bank stands to receive a R7-billion bailout over the next three years, of which the National Treasury said would “put it [the bank] on a stable and sustainable development path.”

Like Eskom, the Land Bank’s financial problems are so daunting that it cannot pay its debt to lenders. The Land Bank’s financial problems have pushed it to suspend the extension of new loans to farmers because it is broke and buckling under the weight of a smothering debt load. 

At the end of 2019/20, the Land Bank’s total assets (loans disbursed to farmers) amounted to R46.2-billion, while it faces a debt load of R43.7-billion and pencilled in financial losses of R2.1-billion. 

The Auditor General’s office has cast doubt about the Land Bank’s ability to survive in the foreseeable future as the bank defaulted on debt payments to lenders in April 2020. The Land Bank is currently renegotiating its repayment terms with lenders and asking them to throw more funding to the bank for its operations. The Land Bank is also in talks with National Treasury to receive government guarantees, which the bank can use to solicit more funding from lenders such as commercial bank and private sector asset managers. 

A government guarantee is an agreement between the government and lenders that the government (or the SA taxpayer) would be on the hook for payments if a state-owned entity defaults on debt payments. 

But Mboweni has come to the rescue of the Land Bank, offering it R5-billion in 2021/22 and a further R2-billion in 2023/24 – R7-billion in total. This amount is over and above the R3-billion that the Land Bank received from Mboweni in the emergency budget in June 2020.

But the Land Bank might be disappointed with the R7-billion that Mboweni gave it. The Land Bank had originally asked Mboweni for R10-billion to pay capital and interest amounts owed to lenders and fund its restructuring plan. 

Unlike SAA and Eskom, the Land Bank has, since 2006, shown itself to be largely self-sustaining and profitable. However, its financial problems have been caused by an exodus of executives, lack of oversight from Treasury, junk downgrades of its credit rating and drought conditions that have made it difficult for farmers to pay back their loans.

Added to its problems are lenders that are starting to lose patience. DM/BM