Has the Land Bank finally turned a corner? Possibly.  

The state-owned company, which provides loans to established and emerging farmers, is profitable again after being on a money-losing streak for two years since 2020. The Land Bank pencilled in a profit of R1.39-billion for the year to 31 March 2022, from a loss of R711-million in 2021, and a loss of R905-million in the previous year. 

The Land Bank’s latest profits were largely driven by crafty but legitimate accounting practices. The Land Bank quickly wrote off soured loans of farmers to ensure that manageable and not large losses were recorded — an exercise that contributed to about 93% of its profits. Also boosting its profits were gains or income it received on its investments and the reduction of company expenses, mainly managing its loan book worth more than R20-billion internally rather than paying fees for someone else to do so.   

The Land Bank’s financial books received a clean audit from the Auditor-General as they were presented in a way that reflected the company’s true financial state. Another sign of progress at the Land Bank is that the company resumed its lending activity after two years of rejecting loan applications from farmers because it was broke. The Land Bank’s operations are important for SA’s food security system as it provides 30% of the country’s agricultural debt. 

When a private sector company records such progress, it is usually nothing to write home about. But when one of SA’s state-owned companies does this, it is an event, considering the dire performance of such companies. 

Problem areas at the Land Bank  

Although progress has been recorded at the Land Bank, the company is far from celebrating a complete turnaround as it is still under financial strain. Without a diverse source of income, the Land Bank still largely relies on loan repayments from farmers to stay afloat. This is arguably a dangerous business model because if the fortunes of farmers turn for the worse as a result of uncontrollable events (such as adverse weather conditions), they won’t be able to service their loans from the Land Bank. This will, in turn, negatively affect the company’s financial situation.  

The inability of farmers to repay their loans is still a big problem for the Land Bank.  

The Land Bank’s non-performing loans — referring to payments not made by farmers for a period of time (usually beyond three months) — increased by 2.8% or R337.6-million to R12.3-billion. Expressed as a percentage of its total loan book (of more than R20-billion), the non-performing loan ratio increased from 32.5% in 2021 to 47.7% in 2022. 

In banking circles, rising non-performing loans are bad news because banks/lenders generate their profits from the timely repayment of loans by borrowers with interest. And in the Land Bank’s case, the rise in non-performing loans underscores that the company is still having a tough time recovering loan repayments from farmers.  

The Land Bank’s board and management say that reversing the rising trend of non-performing loans is receiving urgent attention. But this is a problem that has persisted for many years, and turning the situation around won’t be easy.  

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Exodus of Land Bank staff and debt problems 

Another worrying situation at the Land Bank is that the company is losing talent, especially individuals who bring institutional knowledge. In 2019, the Land Bank had 486 permanent workers, which reduced to 349 workers by 2022. More recently, the company has been operating without a CEO after Ayanda Kekana resigned from the top job at the end of April. Kekana was the Land Bank CEO for less than two years. The high turnover of executives contributed significantly to the Land Bank’s financial and governance crisis, as the company had a sizeable number of interim CEOs and CFOs since 2019.  

The crisis in question is the Land Bank defaulting on debt repayments in early 2020 to its lenders, which prompted them to immediately demand the money they are owed.  

The Land Bank’s financial problems have been caused by an exodus of executives, lack of oversight from National Treasury (representing the SA government as the bank’s sole shareholder), “junk” downgrades of its credit rating by Moody’s, and drought conditions which have made it difficult for farmers to pay back their loans. 

The Land Bank defaulted on debt payments of about R40.2-billion in April 2020 to lenders, whose exposure to the bank is mainly through two publicly listed notes or debt instruments called domestic medium-term note (DMTN) programmes. To raise money on the open market, a company would issue debt or notes to lenders with a promise of paying back the money with a fixed and floating interest rate at a later stage. A DMTN programme is like a sophisticated company credit card that a company uses by withdrawing money contributed by lenders to fund its operations. 

About R17.3-billion of the R40.2-billion defaulted debt amount has been repaid by the Land Bank to lenders, including interest payments. Some of the lenders that have received payments include the Government Employees’ Pension Fund, which has funded the Land Bank to the tune of R2.6-billion. 

Land Bank Chair Thabi Nkosi recently told Parliament that the Land Bank hoped to solve the debt default with lenders by the end of 2022, which would include revised repayment terms with local and international lenders. Land Bank lenders have rejected three proposed solutions to fixing the company’s debt problems as they wanted guarantees and protection from National Treasury or government that their amounts owed would be repaid.  

Read more in Daily Maverick: “High noon for efforts to save Land Bank from collapse”  

For farmers, the good news is that the Land Bank has resumed its lending activity. The bank has partnered with the Department of Agriculture, Land Reform and Rural Development to launch a scheme in which R1.95-billion in grants and loans will be provided to farmers over the next three years.  

The scheme will start with an initial minimum annual grant allocation of R325-million from the department. The Land Bank will match these grants with loans on a rand-for-rand basis for three years. To extend loans to farmers in this scheme, the Land Bank will tap into its cash reserves of R9.8-billion in 2022, which improved significantly from R700-million recorded at the height of its financial crisis in 2020. DM/BM