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Land Bank’s profits dip amid 'tough trade-offs'

Sep 03 2019 20:46
Khulekani Magubane, Fin24

The Land Bank's profits dipped between 2018 and 2019 as the bank moved to reduce its exposure to risks in its loan book.

The bank tabled its integrated annual report and financial statements in Parliament on Monday.

According to the annual report, the Land Bank's profits as a group from continuing operations fell from R290.2m in 2018 to R168.2m in 2019. The group's fully-owned subsidiaries are Land Bank Insurance Company (LBIC) and Land Bank Life Insurance Company (LBLIC). 

Continued challenges

The bank itself saw profits from continuing operations decline from R278.7m in 2018 to R130.6m in 2019.

The Land Bank is a state-owned vehicle which seeks to transform the agriculture sector and ensure SA’s commercial and emerging agriculture is financed, mostly through loans extended to commercial farmers.

In its integrated report, Land Bank chairperson Mabotha Moloto said it remained a challenge for the bank to balance financial sustainability with its development mandate and expectations from shareholders to increase support to smallholder farmers.

"We consciously make certain trade-offs in pursuit of this objective where we choose to forego some profit and reduce our potential equity by extending loans at lower interest rates than required by our risk models for developmental purposes. In the 2019 financial year these interest rate subsidies amounted to R58.7m (R74m in the 2018 financial year)," Moloto said.

Transformation

Moloto noted the bank had managed to maintain its balance sheet and remain profitable in 2019, in addition to exceeding its target of disbursing R1.5bn for transformation in the agricultural sector. He said this increased the proportion of the bank’s loan book deemed transformational to 17% from 12% in 2018.

The bank also lengthened its funding portfolio to reduce re-financing risk, issuing five, seven and ten-year loans.

"We de-risked our book by pre-paying some liabilities in the anticipation of higher pricing linked to sovereign credit downgrades. This ultimately meant a penalty cost of R56.8m, which affected our net interest income and net profit this year," the report said.

The bank argued that de-risking its loan book would better position it for achieve profitability and have a stronger balance sheet in the coming financial years.

During a round table discussion hosted by the Black Business Council in Johannesburg last month, which the BBC circulated through press emails, the bank's executive for commercial development banking, Sydney Soundy, said not many were aware that the Land Bank existed during apartheid.

"In 1994 when the new government came into power the Land Bank recognised previously disadvantaged individuals where the requirement was for it to become a catalyst in land ownership operating under the directive of Land Bank Act 2002," said Soundy. 

Soundy said out of 100 people who request funding from the bank, only an average of 25 receive funding.

land bank  |  mabotha moloto  |  farming  |  agriculture
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