The Land Bank has been talking about turnaround strategies for years with no visible results. Stephan Hofstätter asked the bank’s newly appointed chief operations officer Saki Zamxaka what’s different about its new business model.
Tell me about your new lending model.
One of its key components is to disburse loans through co-ops. We’ve been talking to various businesses we would want to use as agents to disburse funds. Some have agreed we must work out the modalities of how this can be implemented. Some of the big agribusinesses started as co-ops. The principle of a co-op arises out of a need. There was a need at the time for farmers to organise themselves to buy inputs in bulk so they could get discounts. There was a need for them to market their products collectively. And there was a need for additional support to be provided to the farmers in the form of technical advice, which is what some of these co-ops do because, if they [extend credit] and buy your crops, they know their security lies in ensuring you deliver those crops. These things worked in the past, so we’re looking at how these co-ops help us reduce the risk of [emerging] farmers defaulting.
I believe only 20 big clients were responsible for half the bank’s non-performing loans of R1,7 billion in 2006, with a single borrower accounting for about R500 million. What’s being done to recover this money?
I can’t divulge client information. Yes, we’ve had an issue with non-performing loans generally. The ratio has been high for some time. Our shareholder [the agriculture ministry] has raised the concern for some time that we must improve the quality of the loan book. We need to deal with the underlying problems. Over time we want to look at each of these [non-performing] clients and assess the reasons for their failure and what can still be done to resuscitate them. It will be a huge benefit to us to get those projects that are still sustainable back on their feet. It will improve our financial position and enable us to say we’ve made an impact on development.
Have you appointed a task team to do this job?
Yes. We have a team that’s looking at ways to restructure loans. If a business has sound fundamentals and people are able to repay but are experiencing a cash flow problem, we may give them bridging finance. But if it’s a hopeless case and there’s no way they can repay the loan, we will shut it down.
What measures have been taken to improve credit control?
The first step was to get the right people to do the job, who can review and improve the credit policies and control environment. We are in the process of appointing consultants to do a risk analysis of the organisation. They‘ll start by the end of the month. That’s the short-term solution. [When] we’re comfortable that the systems are in place, we’ll centralise critical decisions to ensure people taking them are qualified, then start to delegate the powers of decision-making as we appoint more skilled people.
So more appointments are pending?
Yes, in corporate finance and credit risk monitoring. We’ve also asked branches to check if they have enough credit analysts, who put together the [loan] applications. It takes time to get the right people on board.
Opponents of the new lending model argue it will perpetuate the concentration of agricultural wealth in the hands of the white farmers who formed, and still dominate, the co-ops. Your response?
If we agree the co-ops will disburse R100 million as agents of the Land Bank, we would stipulate up-front that it must go to emerging farmers. Of course, this will come at a cost to us, but it’s one we’ll bear as we are a development finance institution. The cost could take the form of providing cheaper finance to [co-ops] or paying them [a fee] directly. We want them to provide a service to these emerging farmers. We’ll continue with our established accounts, but on the specific issue of development [finance] they must lend to emerging farmers. On the other hand, we’ll also facilitate and encourage the formation of new co-ops by organising funding, training or partnerships with [established] clients so [new] co-ops can get the technical experience.
Will particular commodity groups be used to help form new co-ops in under-serviced areas, such as the former Transkei?
Yes. We’ll be looking at those areas in partnership with commodity groups.
What are the implementation time frames?
Some of the co-ops have already indicated they’re willing to partner with us. We all have our own selfish interests. The co-ops want to do business. They also accept the profile of farmers is going to change. Government’s target is to redistribute 30% of the land. If they meet it by 2014, it means, arguably, 30% of clients in the agricultural sector are going to be black. These co-ops are saying [this is] a way for [them] to get closer to these customers. We [expect] to conclude agreements with some of them and start disbursing money before the end of the financial year.
Can you list some of the major players?
No. We haven’t signed agreements yet, and I don’t have permission to [divulge names]. There’ll be a balance of some of the bigger and smaller players.
What about government support?
Typically it’s fragmented, and uses different institutions. We want to be closer to the process of disbursing grants. There are options under discussion. One is we conclude agreements with the two departments and take direct responsibility for managing the grants to speed up disbursals. Secondly, it’s a problem that grants are approved long before money is disbursed. We want to be able to provide bridging finance when a decision [to approve a grant] is taken, knowing the money is going to come from [government]. If you must plant now because the rains are good, waiting for a grant to be paid puts our loans at risk.
How will you fund this new model?
The cost of funds is still an issue. Now 90% of our funds come from the capital markets. We’re looking at accessing funding from international development finance institutions, including the African Development Bank. These big organisations have funds they’re willing to disburse at preferential rates for projects that have poverty alleviation and job creation [as their aim].
Has anyone put money on the table?
There are no agreements yet. This is a medium- to long-term strategy. Nothing will happen this financial year. If we really want to address the cost of funding, we need to do this. But various departments must give [undertakings] and there are protocols to be followed. This is a work in progress. But we hope we’ll have taken the critical [steps] by the end of the financial year.
