When the Land Bank tables its annual report in parliament this month several large losses are likely to be disguised in its financials. T hey include at least R41 million lost through speculative trading by betting R1,2 billion on the expectation of an interest-rate drop last year, despite a warning from its own risk department at the end of 2006 that the upward rate cycle was likely to continue.
A memo written by the bank’s head of risk in September 2007, to its CEO and its audit and risk committee chairperson, warns of “a loss in excess of R41 million at a mark-to-market valuation at March 2008 year end”, stressing that urgent action to prevent further losses. Bank sources said no effort had been made to cancel the instruments to limit losses likely to have exceeded R50 million by the end of the financial year. he national Treasury said it did not regard the swaps as reckless trading because the bank’s policy was to limit fixed interest rate funding to 25% of its assets.
“If these transactions had not been executed, the board limit of 25% mismatch would have been exceeded,” said Thoraya Pandy, national Treasury spokesperson. But the bank’s head of risk at the time, Gerhard Hechter, and another senior risk official who didn’t want to be named, both insist the bank’s treasury was warned the swaps were reckless and speculative. They said the 25% threshold was simply a monitoring limit and should not be slavishly followed, irrespective of rate realities.
“Every bit of advice, every external and internal scientific measure, including the yield curve done daily, was ignored,” said Hechter. But the bank is unlikely to disclose the losses to investors as an abnormal item in its annual report because only the net result of the bank’s overall hedging portfolio is likely to be reflected in its financials. National Treasury said the portfolio would show a net profit for the 2008 financial year. K raai van Niekerk, the DA agriculture spokesperson, called on finance minister Trevor Manuel to launch a full-scale investigation into the loss. “More importantly the Land Bank must be candid and reflect this when tabling its financial statements in parliament this month,” he said.
“This must be coupled with a clear strategy of how similar losses will be avoided in the future.” Van Niekerk said the Land Bank was critical to South Africa’s wellbeing because of its role in funding agriculture. “The will keep a close look at the affairs of the Bank,” said Van Niekerk. “When its financials are tabled in parliament we will make sure that all the irregularities are exposed.” he extent of the bank’s debt write-offs are unclear, but likely to be substantial. credit committee report notes up to R300 million of the bank’s largest non-performing loan to Ushuklela Milling, could be written off. loan, for R640 million, has not been serviced since 2004 and is clocking up R20 million in interest each year.
The Land Bank is underwritten by taxpayers with a R1,5 billion government guarantee, currently under review, and received a R700 million cash injection last year because the bank is considered a national strategic asset expected to play a key role tackling SA’s food-price crisis by boosting agricultural production. It is exempt from paying tax and raises money through lending, overdrafts, hedging instruments and issuing bills and bonds. he bank has been embroiled in a series of corruption and governance scandals culminating in President Thabo Mbeki removing it from agriculture minister Lulama Xingwana’s jurisdiction and making it Manuel’s responsibility.
Last year internal controls at the bank were so lax its treasury’s dealing room was looted weeks after a malfunctioning security door was reported, but not repaired. Bills and promissory notes worth R28 million were stolen from a locked safe and several personal items from locked cupboards, an internal memo shows. The theft was only discovered in November after a Mpumalanga construction company tried to cash a bill of R1 million at the Standerton branch of First National Bank.
The remaining 27 bills are still in circulation. he bank said it had introduced stringent security measures after the theft, but only referred the case to the Scorpions after it was exposed by media reports. The bank’s executives are also in possession of a pile of forensic documents detailing how bank officials, farmers and property speculators colluded to defraud the bank of more than R100 million, but have done little to recover the money or ensure perpetrators are brought to book. – Stephan Hofstätter