Land Bank
Corporate Plan
2005/06
Presentation: Portfolio Committee on
Agriculture & Land Affairs
Overview of Presentation
 Corporate Plan Overview
 The Turnaround Plan
 Financial Objectives
 Non Financial Objectives
 Questions and Comments
2
Land Bank Vision and Mission
Land Bank Vision
 To be the leading provider of world-class financial
services to agriculture and related rural sectors in
South Africa
Land Bank Mission
 Land Bank is an agricultural development finance
institution that supports economic growth through
the provision of retail, wholesale, project and
micro-financial services to agriculture and related
rural services
3
Land Bank Accountability
 The State is the only shareholder, represented by
the Minister for Agriculture and Land Affairs
 Our activities are governed by the Land and
Agricultural Development Bank Act, 2002 (Act no.
15 of 2002) and financial management guidelines
provided by the Public Finance Management Act
(Act no. 29 of 1999)
4
Land Bank Strategic Framework
 Our programmes are aligned with government’s
key strategic programmes in the agricultural sector:
 Agricultural Sector Plan
 Integrated Sustainable Rural Development
Programme
 Comprehensive Agricultural Support
Programme (CASP)
 Shareholder Compact
5
The Land Bank Corporate
Plan 2005/06
George Oricho
GM Strategy
Land Bank Priorities
1. Implement more effective banking and
financial business systems
2. Implement processes and actions to ensure
best practice and compliance with AC133
3. Reposition the Bank to grow the commercial
and development books
4. Increase focus on financing BEE
transactions, in terms of the Agri-BEE
framework
7
Land Bank Priorities
6. Completing the Business Process Review by November
2004, to ensure:
 Improved productivity;
 Streamlined operations; and
 Enhanced customer service
7. Consolidate the management team
 CEO candidate identified -- appointment process close
to finalization
 Senior management positions to be filled by November
2004
8. Continue to support Government’s priority programmes
 Land reform
 Agricultural credit scheme
 Food security
8
Important Economic Developments
 Drought and delayed rains in Western Cape has a
major negative impact on the agricultural sector
 Strong rand causes great difficulty for agricultural
exporters such as wine and citrus producers
 Grain prices are extremely low, especially serious
for maize producers
 Carryover stocks in wine and maize sectors will
continue to put downward pressure on prices
 Sugar industry is benefiting from strong
international sugar price
9
Land Bank Strengths
 Land Bank has a well established brand name
 Excellent relationships have been established with
Provincial Governments
 Staff has thorough knowledge of agriculture
 A tailored range of products are available at
competitive rates & fees
 Bank is regarded as loyal to the agricultural sector,
friend in good and bad times
 Branch offices offer local decisionmaking
10
Land Bank Weaknesses
 Retail has relatively high delivery costs
 Limited product range in a single, high risk sector
 Lack of satisfactory computer information system
 Insufficient outreach in deep rural areas
 Turnaround times are excessive
11
Land Bank Opportunities
 Client base will be broadened through MAFISA,
AgriBEE and other shareholder initiatives
 Footprint can be extend through co-op and
agribusiness network
 BEE acquisitions are business opportunities
 Can develop innovative modern products for old
and new markets
 Land redistribution initiatives offer new possibilities
 New tailored information system will increase
market and service opportunities
12
Land Bank Threats
 Loss of preferred status through revisions to the
Land Bank Act
 Loss of staff expertise
 Workforce that lacks tools, motivation, training
 Bad debts resulting from adverse economic or
climatic conditions
 Expectations that are not achieved in reasonable
timeframe
 International competitors in the face of increased
variability in net farm income and increased cost of
debt
13
The Land Bank Turnaround
Plan
Commercial Loan Book,
Trend Line and March 2005 Target
March 2005
Target 16,835
Loan Volume (R m)
20,000
18,000
16,000
16,445
17,935
14,000
12,000
14,653
15,218
14,801
15,111
10,000
8,000
6,000
4,000
2,000
1999
2000
2001
2002/3
Year
15
2003/4
Jan-05
Development Loan Book,
Trend Line and March 2005 Target
3,000
March 2005
Target 1,775
Number of Loans (R m)
2,500
2,535
2,000
1,500
1,000
1,042
1,096
500
317
413
451
1999
2000
2001
2002/3
-500
Year
16
2003/4
Jan-05
Arrears Amounts, Trend Line
and March 2005 Target
3,000
2,551
2,500
Number
2,000
1,561
1,490
1,500
1,506
1,000
1,009
749
500
March 2005 Target
Less than 4% of total boo k
1999
2000
2001
2002/3
Year
17
2003/4
Jan-05
Non Performing Loan Balances, Trend Line and
March 2005 Target
6,000
4,939
Loan Balances
5,000
4,000
3,148
4,010
3,376
3,003
3,000
3,001
2,000
March 2005 Target
7% of Loan Portfolio
1,000
1999
2000
2001
2002/3
Year
18
2003/4
Jan-05
Return on Assets, Trend Line
and March 2005 Target
4.0%
Percent Return on Assets
2.5%
3.0%
2.0%
March 2005
Target 2.4%
1.9%
1.3%
0.0%
0.4%
-2.0%
-4.0%
-6.0%
-8.0%
-8.1%
-10.0%
1999
19
2000
2001
Year
2002/
2003/4
Jan-05
Net Interest Margin, Trend Line
and March 2005 Target
6.0%
March 2005
Target 4.3%
5.5%
4.9%
5.0%
4.6%
4.3%
Margin
4.0%
3.3%
3.0%
2.1%
2.0%
1.0%
0.0%
1999
2000
2001
2002/3
Year
20
2003/4
Jan-05
Efficiency Ratio, Trend Line
and 2005 Target
100.0%
95.0%
90.0%
80.0%
Percent
70.0%
60.0%
50.0%
40.0%
37.8%
34.7%
31.0%
43.0%
36.9%
30.0%
28.0%
20.0%
10.0%
0.0%
1998
1999
2000
2001
Year
21
2002/3
2003/4
Jan-05
Capital Adequacy, Trend Line
and March 2005 Target
25.0%
March 2005
Target 17.7%
21.8%
21.7%
20.0%
Percent
19.0%
15.0%
16.5%
14.6%
12.9%
12.0%
10.0%
5.0%
0.0%
1998
1999
2000
2001
Year
22
2002/3
2003/4
Jan-05
The Capital Adequacy Issue
 Land Bank capital has been reduced significantly
due to bad debt write-offs and the adoption of a
new accounting standard known as AC133
 This reduction impacts the financial ratios used by
investors to assess the credit worthiness of the
Bank
 Erosion of capital results in a loss of investor
confidence in the Bank’s ability to withstand any
future financial shock
23
Sources of Potential Shock
 Prolonged or severe drought,
 Financial failure of one or more large borrowers
 Persistent low commodity prices
 A large drop in land values used as security for
loans
 Adverse consequences resulting from additional
changes in accounting treatment
 Continued strong rand
24
The Capital Adequacy Issue
 Historically Land Bank’s capital adequacy has
been kept above 15%
 In the past two years the ratio has fallen well
below 15%.
 To provide sufficient cushion for possible future
adverse events and to restore investor confidence
in the financial strength of the Bank, a prudent
capital adequacy level would be at least 20%
25
Land Bank Role in Agricultural Transformation
 The BEE transactions and other empowerment
projects being financed or currently being
considered for financing by the Bank’s CFU
business is approaching R3.7 billion
 The current Retail book to start up farmers
amounts to R663 million
 Step-Up adds another R74 million in loan volume
26
Land Bank Role in Agricultural Transformation
 Since the Bank serves as one of the instruments
of Government’s effort to encourage and support
black economic empowerment in agriculture, it is
important that the Bank’s capital adequacy position
be sorted out as a matter or urgency.
 A higher capital adequacy ratio will improve the
credit rating and dampen investor fears regarding
the risk of lending funds to the Bank.
27
The Capital Adequacy Issue
 An appropriation of R2 billion will increase capital
adequacy ratio to nearly 20%
 Is adequate to shore up Bank’s financial strength
and restore investor confidence
 A capital injection will require Bank to implement a
turnaround plan to ensure:
• profitability is maintained
• sustainability is ensured
• capital adequacy is maintained
28
The Turnaround Plan
 Improving Management Capacity
• Skills and experience
• Organisational Structure
• Training and development
• Selection, recruitment and retention of skills
• Reward, recognition and incentives
• Performance management;
• Culture and values
• Employment equity
• Developing appropriate business models
29
The Turnaround Plan
 Enhancing Bank Revenue Model
• Pricing model
• Net interest income
• Non interest revenue
• Creating new loan products
• Creating non interest sources of revenue
• Increasing client satisfaction
• Understanding competitive environment and our clients
30
The Turnaround Plan
 Controlling Costs
• Cost to income ratio, operating efficiencies and
increasing productivity
• Loan book quality (Bad Debts)
• Funding costs
• Non interest costs
• Expense reduction
31
The Turnaround Plan
 Installing Information Systems and Processes
• Implementation of Banking Solution
• Reliable management information
• Action plan management information
• Improve client interface and integration
• Enabling environment to manage risk and compliance
32
The Turnaround Plan
 Managing Risk
• Market risk
• Interest rate risk
• Enterprise wide risk management
• ALCO process
• Credit risk, liquidity, market, operating,
• Banking risks and returns, profitability, liquidity, and
solvency
33
The Turnaround Plan
 Managing and Protecting Capital
• Capital planning
• Return on capital, economic value added
• Development programme
• Engage treasury
• Capital injection
34
The Land Bank
Financial Objectives
Loan Growth
Loan Growth
Retail
Wholesale
Development
Mar. 2004
(15.0%)
13.9%
13.2%
Step Up
1.5%
36
Mar. 2005
(5.6%)
16.6%
22.9%
4.1
Mar. 2006
7.1%
0.2
19.1%
15.2%
Business Efficiency
Business
Mar. 2004
Efficiency
Cost to income
43%
ratio
37
Mar. 2005
Mar. 2006
108%
86%
Loan Quality
Loan Quality
Non performing
loans
38
Mar. 2004
Mar. 2005
Mar. 2006
18.5
16.9%
12.1%
Profitability
Profitability
Mar. 2004
Mar. 2005
Mar. 2006
Net interest
margin
4.3%
1.8%
2.4%
ROA
0.6%
-5.8%
0.4%
ROE
5.5%
-125.3%
7.1%
39
Capital Adequacy
Capital
Adequacy
Mar. 2004
Mar. 2005
Mar. 2006
Mar. 2006 with capital
injection of R2 billion
Capital Ratio
9.8%
4.6%
5.1%
16.4%
40
The Land Bank
Non Financial Objectives
Non Financial Indicators
Non-Financial Indicators
Target - 2005/6
Development Program
Expand outreach, loan volume, gender access, support
services, household income and jobs in rural communities and
agricultural businesses
Employee relations
Improve job satisfaction based on survey results
Client relations
Improve client satisfaction based on survey results
Safety and Health
Promote better health and safety for clients and staff
Environment
Make loan policies and Bank practices environmentally friendly
Transformation
Lead financial institutions in AgriBEE initiatives
HIV/AIDS
Implement program that demonstrates Bank commitment
42
Questions and Comments
Thank You
45
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