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Johannesburg - Finance Minister Pravin Gordhan has approved R3.5bn for the recapitalisation of the Land Bank, the bank said on Wednesday.
"This means that government undertakes to meet the obligations of the Land Bank to the amount of R3.5bn, as and when they become due and payable should the bank's liabilities exceed its assets," it said in a statement.
"The letter of undertaking (the guarantee) will proportionally decrease as cash injections are made by government to the Land Bank."
The Land Bank said the guarantee would terminate once R3.5bn in cash injections had been made to it by government.
This was subject to stringent conditions that included the Land Bank maintaining a capital adequacy ratio of at least 20%.
The Land Bank also had to provide the National Treasury with quarterly reports on progress on the turnaround strategy and on loan recoveries, demonstrating sound management of the loan book.
Furthermore, performance updates had to be supplied on the Land 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 the government would assist the Bank."
The Land Bank said the capital injection was approved after its interactions and discussions with Gordhan and Manuel.
"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 Land Bank said the challenges it faced had 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," it said.
A thorough revision of the Land Bank's corporate plan was undertaken to align the bank's operations to the new strategy.
The turnaround strategy was made up of three phases: clean-up, stabilisation and sustainability.
The Land Bank said the clean-up phase addressed audit queries by establishing systems and processes to provide a progressively cleaner audit report.
The stabilisation phase sought to prevent deterioration in the balance sheet, enhance human capacity and ensure an effective IT system.
The longer-term sustainability phase aimed to normalise operations and enhance the bank's focus on its core business of development and growth of its loan book.
"The Land Bank sees the capital injection as an acknowledgement by government of the progress achieved by management and the board in stabilising and turning the Bank around," it said.
The Land Bank said improved perceptions had also resulted in high calibre candidates joining its staff, increases in the numbers of investors willing to buy Land Bank paper, rejoining by a growing number of the clients who migrated to other financial institutions, improved liquidity and capital adequacy ratio, and a growing interest among stakeholders in partnering with the bank.
The strengthening of its balance sheet through the capital injection would enable the it to play a key role in the agrarian economy of South Africa and the region, it said.
"The bank will increase its intervention in development by engaging in pilot projects valued at R3.2bn over the next three years, setting the benchmark for future development projects.
"While development will receive focused attention, commercial agriculture will also remain an important component of the financing activity of the bank."
The Land Bank's chief executive officer Phakamani Hadebe said the engagement with National Treasury leading to the capital injection had been demanding.
"We worked hard to meet the stringent requirements set.
"As taxing as these interactions were, they made us realise the enormity of the challenges ahead, and we are thankful to the National Treasury for keeping us on our toes."
- Sapa
