The Land Bank stands by a misleading statement issued last year, suggesting international rating agency Fitch had upgraded its credit status because of steps taken by its board and management to improve performance. In December, just three months after a forensic report into financial mismanagement was finalised, the bank issued a statement through the ministry of land and agriculture claiming it had made dramatic progress in cleaning up its act. But Fitch pointed out the bank “has and continues to be rated solely based on the government’s strong commitment to supporting it, given its status as a development finance institution and its strategic development role in the agricultural sector. The R1,5 billion capital guarantee and R700 million capital injection confirmed the government’s commitment.”
Fitch said a shift from AA- to AA in November 2007 simply reflected an “internal recalibration” that applied to all its SA clients, and didn’t suggest any improvement in creditworthiness. Land Bank acting CEO Phil Mohlahlane says its controversial statement on a dramatic turnaround must be read in context. “For us, what was exciting was the fact that despite the turmoil we’d gone through, we still got the same rating, rather than a lower rating, because at that time there were stories going around that we’d get a lower rating,” he told Farmer’s Weekly. The bank therefore sees no need to retract its statement. “The Fitch Ratings agency showed confidence in the Land Bank despite the current realignment activity,” says corporate development manager Herman Moeketsi. “This puts the Bank on par with ratings attributed to major local retail banks and vindicates our conviction in the turnaround strategy and its ability to re-establish the bank as a strong and viable institution.”
When the Fitch recalibration was issued last year the Land Bank was reeling from a series of financial scandals, including irregular authorisation of non-agricultural loans worth almost R1 billion, Scorpion investigations into fraud and a Cabinet recommendation that criminal charges be laid against senior executives and a government official named in the report. Despite all this, last December’s turnaround announcement listed several remarkable successes, including an unaudited R200 million profit from operational activities, a highly motivated workforce due to improved governance under the direction of a new board, and a credit-rating upgrade from Fitch. Democratic Alliance agriculture spokesman Kraai van Niekerk immediately greeted the claims with scepticism. “It is not possible to turn around a bank with as many problems as the Land Bank has, in just three months,” he told Business Day. “As to the R200 million unaudited profit, the bank has had qualified audits for the past 25 years, so let’s see if it’s real profit when the books are audited.” This was confirmed by financial sector sources, who told Farmer’s Weekly the bank was reporting interest on non-performing loans as profits.
Fitch also told Farmer’s Weekly the credit fundamentals reflected in its rating, issued on 29 March 2007, had not changed. Its report, issued two days after the Treasury bail-out was announced, pointed out the bank’s continued favourable long-term and short-term rating was based solely on the perceived high level of support that it would receive from the South African government. “The drivers behind our [March 2007] rating are still current,” Fitch reiterated last week. – Stephan Hofstätter Land Bank toughs out credit upgrade blunder land bank ‘We were excited we got the same rating, rather than a lower rating.’
Issue date: 25 January 2008