The Land and
Agricultural
Development Bank
Annual Financial Results Presentation
2002-2003
1
Agenda
1
Overview of the year
Jethro Mbau
(Chairperson of the Board)
2
Operational overview
Monwabisi Fandeso (CEO)
3
Financial results
Kgosi Tshikare (GM: Finance)
4
Prospects
Monwabisi Fandeso (CEO)
2
1. Overview of the
year
Jethro Mbau
Chairperson of the Board
3
Overview
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Windfall year for sector
Volatile rand and producer price increases
Inflation and input costs
Deregulation (international & domestic)
Strategic plan adopted for sector
Legislative changes
Strauss implementation progress and
shareholder support
Business improvement initiatives
Financial results summary
4
2. Operational Overview
Monwabisi Fandeso
CEO
5
LAND BANK MISSION
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
LAND BANK VISION
To be the leading provider of world-class agricultural
financial services to agriculture and related rural
sectors in South Africa
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The State is the only shareholder represented by the
Minister for Agriculture and Land Affairs
Currently governed by the Land and Agricultural
Development Bank Act, 2002 (Act no. 15 of 2002) and
guidelines provided by the Public Finance
Management Act (Act no. 29 of 1999)
Exempt from the payment of income tax and currently
not paying dividends to the State
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Benchmarking our progress
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New legislation provides the benchmark against
which we measure progress
Land and Agricultural Development Bank Act
outlines 11 key objectives for bank
This section of presentation reports back on
progress against those objectives
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1. Equitable ownership
Objective: Equitable ownership of agricultural land, in particular
the increase of ownership of agricultural land by historically
disadvantaged persons
Achievements
 Agency agreement with DLA on LRAD
 Over R100 million disbursed in grants
 Over R300 million disbursed in production loans to beneficiaries
 Special mortgage loans @ 10% advanced
 Preferential access to bought-in properties
 Partnership with National Youth Commission
9
2. Promotion of reform
Objective: Promotion, facilitation and support of agrarian reform,
land redistribution or development programmes aimed at HDIs
for the development of farming enterprises and agricultural
purposes
Achievements
 Agency agreement on LRAD
 Tripartite agreement with NDA, CRLR & LB re restitution
programme
 Valuations carried out by Land Bank for Land reform purposes
 Preferential access to BIPs
 Training, skills development under CSI
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3. Access to land
Objective: Promotion, facilitation and support of land access for
agricultural purposes
Achievements
 Special mortgage loans
 Preferential access to BIPs (91 farms sold = 57k ha, to PDI’s)
 Agency agreement with DLA on LRAD
 Tripartite agreement with NDA, CRLR & LB re restitution
programme
 Youth farm projects with NYC
11
4. Entrepreneurship
Objective: Promotion, facilitation and support of agricultural
entrepreneurship
Achievements
 Training and skills development (R5.3-m)
 Developing grain producer of the year award (sponsorship)
(R60k)
 Sponsorships to organised agriculture for leadership
development, international relations, specific projects etc NAFU,
NERPO, Grain SA
• Land Bank Agricultural Chairs at six universities (R1.7-m)
• Bursaries to PDI students at tertiary level (R 1.3-m)
• Linkages with CDI, Agri-link project
• Sponsored female farmers on study tours to Spain, Kenya
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5. Redress
Objective: Promotion, facilitation and support of the removal of
the legacy of racial and gender and discrimination in the
agricultural sector
Achievements
 Batho Pele adopted and internalised as policy
Land Bank brochures & radio shows in different languages
 Step up (over 70% are women)
 Female farmer of the year, Women in Agriculture Conference
and international study trips sponsored
 Client base
 Employment equity plan advanced
60% of top 45 managers are PDI
25% of top 40 managers are Women
 60% of bursaries targeted at females
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6. Productivity and innovation
Objective: Promotion, facilitation and support for the
enhancement of productivity, profitability investment &
innovation in the agricultural and rural financial systems
Achievements
 Improvement of financial service delivery reach mobile
banking, satellite offices. Outlets increased from 27 to 80
 Intermediary financing R60-m to provincial DFI
 Africare guarantee scheme (R 7m)
Financing appropriate technology for developing farmers
 Publication of Vukuzenzele – comprehensive guide to farming
for small scale farmers
Publication of Animal Health guide for emerging farmers.
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7. Stimulating growth
Objective: Promotion, facilitation and support of programmes
to stimulate the growth of the agricultural sector and better
use of land
Achievements
 70% growth of the Development book
 Outgrew the shrinking sector in the year
 Microfinance expansion mainly through growth of existing
clients.
 Participate in the revival of schemes e.g Ncora, Qamata
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8. Promoting sustainability
Objective: Promotion, facilitation and support of programmes
to promote and develop the environmental sustainability of
land and related natural resources
Achievements
 Alliance with ARC on Agricultural GIS
 Flood relief programme in partnership with NDA & IDC
 Assisted NDA with assessment of damage caused by veld
fires & drought.
 Financing of livestock done on the basis of carrying
capacity
 Participation in the WSSD
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9. Rural development and job creation
Objective: Promotion, facilitation and support of programmes
that contribute to agricultural aspects of rural development and
job creation
Achievements
 Social accounting introduced to track impact of Bank’s
lending activities
 Social investments e.g Qamata school in Elliotdale
 Special focus on financing projects in the presidential nodal
points in conjunction with IDT
 Compulsory in-service training and internship for bursars
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10. Commercial agriculture
Objective: Promotion, facilitation and support of commercial
agriculture
Achievements
 Maintained 50% share of commercial agriculture
 Financing of agricultural companies/co-ops for on-lending
purposes - (R7-bn)
 Financing of agribusinesses
 Sponsorship to AGRISA, ABC
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11. Food security
Objective: Promotion, facilitation and support of food security
Achievements
 MoU concluded with NDA to distribute security “Veggie
Packs”
 Promotion of vegetable gardens
 Grain financing options advanced
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The Development Imperative
 The holistic approach to development finance
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Access
Access
Access
Access
Access
to Skills and Capacity Building
to Technology and Information
to Markets
to Land
to Finance
 Success will be determined by the
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Partners and Alliances we can mobilise
Resources that can be mobilised into the sector
Enabling environment to play our role
Efficient and effective Bank operations to enhance the
institutions ability as a delivery vehicle
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Achieving our Purpose
In order to achieve our vision, mission and mandate we
required:
• Legislative change
• Business process improvements to enhance
performance
• Enhance competitive advantage as a specialist provider
of agricultural financial services
The solution: BPR (Project Gateway)
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Objectives of BPR
• Clarify procedures and ensure compliance leading to better
management of the risk profile of loan book
• Accelerate arrear recovery performance and improve
insolvency collection rates
• Identify opportunities for profitable loan book growth,
including product offering and customer service
enhancement
• Improved reporting and control systems
• Elimination of non value adding activities (process
refinement)
• Promote active management and supervisory style
Deliver quantifiable and measurable performance improvement
R200 million within the year
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Areas of focus
• Customer service and sales orientation
• Structure & productivity improvements
• Process improvements, including loan book
analysis
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Results: customer service & sales
• Non interest income products implemented
• New management control system implemented for sales
function
• New loan products designed
• Branch remodeling for enhanced client service
• Days in pipeline reduced
• Database of prospective clients developed
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Results: structure & productivity
• Branch structure analysed and new branch model piloted
• Core business activities restructured to focus on sales, account
management and recoveries
• Management control systems installed to increase accountability
• Increased supervisory positions planned to increase level of
control
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Results: process improvements
• New process flows designed
• Loan application & approval
• Loan processing
• Account management
• Recoveries & arrears management
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Understanding our loan book
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Specialised techniques employed
Discovery of a more acute level of arrears and insolvencies
than was previously identified and classified as a result of .
 Uncertainty around Constitututional Court judgement
 Weak and bureaucratic recovery mechanisms due to
constraints of old Act; compounded by
 Deregulation of sector, and past natural disasters
Result: Significant bad debt provision charge
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Arrears management
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New mechanisms put in place in December 2002
Arrears of R350-million already recovered
Ongoing attention being paid to enhancing quality
of loan book
‘Loans at risk’ reduced from R5-bn in September
2002 to R2.8-bn in March 2003
Specialist collection agencies being appointed to
maximise recovery
Current provision for doubtful debt is adequately
provided for
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3. Financial results
Kgosi Tshikare
General Manager: Finance
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Outline
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Income statement highlights
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Balance sheet salient features
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Income statement highlights
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Net interest income 18.6%
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Non interest income 73.9%
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Net operating profit before provisions 18.4%
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Efficiency ratio within target 38.7%
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Net interest income margin 4.3%
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Provision impact on profitability R1 429 million
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Net Interest Income up 18.6% to R882 m
2.9
2.4
R bn
2.3
1.7
2.3
1.7
2.1
2.1
1.6
1.4
0.78
0.58
1998
Interest income
1999
2000
Interest expense
0.88
0.74
0.73
2001
2002/3
Net Interest Income
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Non interest income up 74% to R38.9-m
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30
20
10
0
*1998
1999
2000
2001
2002-3
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Operating income up by 19.9%
Operating Incom e
1,000
800
600
400
200
-
586
*1998
788
1999
743
2000
769
2001
923
2002-3
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Efficiency ratio of 37.8% compares favourably with desired target
of below 40%
Operating Expenses
300
36.9%
37.8%
40.0%
32.8%
35.0%
34.0%
250
111
24.7%
110.40
30.0%
82
200
25.0%
48
38
150
20.0%
15.0%
100
151
161
157
173
169
50
10.0%
5.0%
-
0.0%
1998
1999
Personnel
2000
Other
2001
2002/3
Annualised
Efficiency ratio : (Cost to Income)
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Operating profit before provisions of R 574-m (2001: R485-m)
Operating profit before provisions
R'm illions
593
574
499
485
2000
2001
387
*1998
1999
2002-3
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Provisions for non performing loans: Impact on profitability
15 months
ended 31
March 2003
12 months
ended 31
December
2001
`
Operating profit before provisions
574
485
Bad debt provisions
(1,776)
(213)
Operating loss after provisions
(1,202)
272
(227)
72
(1,429)
344
Net non-operating (loss) / income
Net (loss)/profit for the period
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Acute arrears resulted in bad debts provision charge of R1776-m
Resulting in reported loss of R1 429-m
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Balance Sheet: Salient features
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Development loan book increased by 71%
Loan portfolio down 3.8% to R16 260-m against
8% decline in agricultural debt
Loan approval up by 4% to R8 722-m
Arrears reduced by 36% to 9.6%
Provision for doubtful debt up from R729-m to
R1 530-m
Capital adequacy of 14.6% is above the
benchmark of 11%
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Provision as a % of loan book
Provision as a % of Gross Loan Book
9%
91%
Provision Gross Loan Book
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4. Prospects
Jethro Mbau: Chairperson
Monwabisi Fandeso: CEO
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Shareholder support
“Commendable progress has been made not only in
implementing the recommendations of the Strauss
Commission but also in transforming the bank into an
institution that all South Africans can be proud of.
“While further challenges still lie ahead for the Bank there is
no doubt that tremendous progress has been made, and
that the Bank continues to move in the right direction.
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Shareholder support
“On this basis I would like to express my continued support
for the Board and Management of the Bank and to
endorse their activities in the field of development
finance.
“The [Strauss] commission recommended direct grants to
enable the Bank to meet its development mandate. This
recommendation has been taken to heart by government
and has resulted in a directive from the Ministry to
expedite the transfer of funds from the former ACB to
Land Bank in accordance with the provisions of the
Agricultural Debt Management Act.”
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The year ahead
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Development: Holistic approach will be greatly enhanced
by the transfer of funds to the Bank
Margin: Interest rate cycle and inflation could put pressure
on margin
Continued growth: growth of 5.3% on the average gross
loan book
Efficiencies: ratio set at 35%
Increased sales and customer orientation: new branch
model to be implemented to enhance sales and account
management function
Risk management: planned redesign of credit assessment
and risk management evaluation methodology will enhance
quality of loan book
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Thank you
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