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Please give us a brief overview of what happened with Land Bank over the past four years.
Land Bank went into debt default in April 2020. The bank struggled to pay some of its debts, which caused one of the lenders to panic and demand an immediate repayment. Our inability to repay the loan triggered a cross-default clause, leading to the default of the bank’s entire debt portfolio of R40 billion.
Since then, Land Bank reduced its debt obligations to just over R16 billion and, after four years of negotiations, a repayment plan was finally approved and implemented, effective 16 September 2024.
The bank will pay about R4 billion towards reducing the current outstanding balance of R16 billion, and two instalment tranches covering the 31 March 2024 and 30 September 2024 scheduled instalments by 30 September. The rest must be settled as per the new repayment profile and debt restructure agreement by March 2028.
In your view, how did the bank get into this situation?
I think the biggest drivers were the bank’s outsourcing of its loan book to external service providers, non-performing loans, insufficient revenue generation or diversification, and poor management or mismanagement.
Who was most responsible for those non-performing loans: commercial or developing farmers?
Mainly the commercial farmers, as they represented more than 90% of our debt book
at the time and still make up about 80% of it.
The emerging farmer book is new, with expected credit losses currently at less than 1%. The book has not matured enough to have a reliable non-performing loan ratio.
Why did the non-performing loans get out of control?
There is this misconception and mentality among many farmers that because Land Bank is a state-owned enterprise, they don’t have to repay loans. They also think that Land Bank is passive and won’t pursue defaults aggressively.
The truth is that Land Bank must borrow money in the open market and repay these loans like every other commercial bank.
How have you addressed these misconceptions?
We have gone to all the big agricultural organisations to clear up these misconceptions and worked together with them to develop ways to assist farmers who could be rehabilitated. Our relationships with farming organisations have strengthened through these endeavours.
What happened with non-performing loans over the past four years?
Land Bank adopted an asset strategy that encourages customers to repay their debt. As such, the bank lost good commercial farmers to commercial banks, and the size of the loan book shrunk significantly.
Non-performing loans, nevertheless, are sticky, which means that the percentage of non-performing loans increased as the loan book shrunk. Currently, about 50% of the loan book is non-performing due to attrition of good customers to commercial banks, while non-performing loans remained with the bank.
What strategies do you have to remediate non-performing loans?
Preservation, rehabilitation, and cure forms the first dimension of our strategy, which is aimed at preserving our performing loan book and avoiding roll-in to the next stages of non-performance.
To this end, farmers starting to encounter repayment challenges are identified and assisted to get back to performing status. They might be offered further loans, as part of our permitted indebtedness strategy, or their loans might be restructured, as part of our forbearance strategy.
Please elaborate on ‘permitted indebtedness’.
It refers to loans for ‘good’ farmers who ran into trouble because of conditions out of their control, such as droughts, fires, floods, hail, and so forth, and who would be able to bounce back with the additional financial support.
A lot of assessments are done to ensure these farmers, who are already struggling, will be
able to repay the additional loans. Most of the permitted indebtedness is in the form of production facilities.
And the forbearance strategy?
It focuses on restructuring loans that have already reached non-performing stage, deemed to be low risk and solvent, and considers all factors surrounding the client to conclude a loan restructuring, like what Land Bank was able to achieve with its lenders as part of the debt restructure we recently announced.
So, if you were supposed to repay the bank over five years but are struggling to do that, the loan term might be extended over a longer time, or you can apply for a payment holiday to improve cash flow.
An open relationship and good communication with the bank are of critical importance in these situations, as it is easier for the bank to intervene early. We supported farmers with over R780 million in forbearance assistance last year.
What if the remediation strategies fail?
Then we must resort to loan recovery strategies through our legal department, such as legal recoveries, perfection of security, and assisted sales.
Does the bank still have the expertise to assist struggling farmers?
Land Bank is 112 years old. We have more than 50 agricultural specialists, some of whom are the greatest minds in the country in their fields and have over 30 years of experience in the sector.
Remember, though, that we won’t take control over a farming business; instead, we will look at devising strategies or partnerships to improve the financial resilience of a farmer.
From the bank side, skills and devising plans for the farmer is not a problem.
Then what is the biggest problem?
Farmers might struggle to repay loans for various reasons, with the bank usually
being able to assist those who got into trouble because of external factors, such as adverse climatic conditions, disease outbreaks, or phytosanitary-related problems with fruit, for example.
The biggest reason why many farms cannot be rehabilitated is because of mismanagement. We may come up with a great plan, but it will not work if it is not implemented or managed properly.
The appointment of competent management might, therefore, be a precondition for assistance in these cases. 
Who do you hold responsible for mismanagement if a farm is huge and, say, one of the managers stole money from it?
At the end of the day, the farmer is always expected to ensure proper management of the farming business. You need to have a good governance strategy and checks and balances to keep track of money coming in and going out.
If the farming business is too big for you to do this, then you don’t deserve the big farm. An ‘I was not aware’ mentality will never be a good enough excuse.
However, in most of the mismanaged cases, it is not an issue of farmers not knowing, but rather of farmers who borrowed money for a specific purpose and then used it for something totally unrelated and often personal.
They often intend to pay the money back, but things spiral out of control and soon they are in so much trouble that the business cannot be saved.
But surely mismanagement at Land Bank was a bigger problem than the non-performing loans?
There were various management mistakes, but the biggest problem from a management perspective, in my opinion, was to outsource some of Land Bank’s core business, such as the origination, assessment and management of loans, to large co-operatives, many of which did things that were not part of the agreement.
But remember, most big companies that are over 100 years old go through periods when the management at times adopt strategies that some question in later years, and we should turn those times into learning experiences that strengthen our future strategies.
Why were the co-operatives a problem?
Some of the co-operatives were far more lenient and did not follow the same stringent rules as the bank when granting loans. They broke many of the rules as far as the credit risk model was concerned. Some simply operated outside the agreement we had with them.
What is the future of commercial agricultural loans at Land Bank?
Land Bank represented 28% of the commercial agricultural loan book in 2020, which has since shrunk to 12% because of loan repayments and commercial farmers moving to other commercial banks.
There were also two years, between 2020 and 2022, during which Land Bank was unable to give out loans because of its default position, and when lending was finally reopened in 2022, it was very controlled.
The bank is now in a better position, and we plan to rebuild our market share to at least 20%.
How will you restructure your funding model to prevent non-performing loans from causing another default?
We have already stopped the outsourcing model for our core lending role, which means that we will have more control over who is approved for loans.
Also, Land Bank Insurance offers insurance to cover farmers against risks, such as floods, droughts, fires and pests. In agriculture, these are not once-off surprise events, but happen regularly and should therefore be planned for with the right insurance products.
We will also need to secure more affordable financing options to support loan books for commercial and emerging farmers.
How should Land Bank differ from other commercial banks?
My idea is that we should be able to offer loans at lower interest rates and over much longer periods than other commercial banks to support farmers, improve food security, and grow the economy.
After Land Bank was formed in 1912, government allocated funding to the bank year after year. It is this funding that was used to build most of the big, multigenerational commercial family farms in the country. This funding also allowed the bank to give payment holidays, loans of up to 25 years and lower interest rates than commercial banks.
Most farmers struggle to afford insurance. How does your insurance work?
Land Bank Insurance was launched 70 years ago and we currently own close to 40% of the market in the agricultural insurance space.
But, insurance does not cover everything, so we are in talks with other players like African Guarantee Fund to help us put up some payment guarantee schemes from which we can claim if a farmer is unable to repay a loan because of some external event, such as a veld fire or drought.
We are also in discussions with government to offer other products, such as drought index insurance, which we will pilot once approved by government. With index insurance, actual yields are compared with the average expected yields in a region, and the farmer is then compensated for the difference.
The beauty of this is that, even if no disaster had been declared, the insurance can be paid out and used to cover other climate-related risks or external events, such as losses due to locusts, or diseases like foot-and-mouth disease, avian influenza, and so forth.
Once this scheme is launched, Land Bank will be the first in the country to offer drought insurance through index insurance.
Do you think government should offer more support for disaster funding?
Definitely. In the EU, up to 50% of farmer revenue is subsidised, and mechanisms are in place to compensate farmers for losses during adverse climatic conditions such as droughts, and disease outbreaks.
We don’t have this type of support in South Africa. Subsidising insurance premiums would make a huge difference in South Africa, as farm revenues are under huge pressure and many farmers cannot afford insurance premiums. Less than 2% of South Africa’s black farmers are covered by agricultural insurance.
I spoke to a farmer who lost 300ha of macadamia orchards in a fire and asked if he had insurance. His reply was “No, because it would have been R300 000 per month”.
What happened with loans to developing farmers over the past four years?
The then Department of Agriculture, Land Reform and Rural Development launched a multibillion-rand blended finance scheme with Land Bank towards the end of 2022 to assist historically disadvantaged farmers.
Since then, Land Bank used blended financing to assist about 205 farmers by 31 July 2024, although there are some funds yet to be disbursed. The loan-to-grant ratio is about 50:50 on average, with approved loans amounting to about R1,5 billion. New applications from across the country are being approved almost daily in 2024.
What about green climate finance?
Many developed countries have pledged funding to help developing economies mitigate climate risks and recuperate from extreme weather events.
So far, there has been a lot of talk about this. We have seen some money flowing toward renewable energy, but nothing is really flowing towards agriculture, despite its importance in ensuring food security and growing the economy on the continent.
How do you plan to regain market share and re-establish Land Bank as a leading financial services provider to South African farmers?
We want to expand our footprint in the country. The bank is present in all the provinces, but we have identified strategically important agricultural nodes where we are absent and where we now want to open offices.
In the Western Cape, for instance, we have identified Beaufort West and George as two of the nodes where we want to open offices.
We already own office space in Beaufort West, but it is not operational yet, so it is just a matter of getting there when the time is right.
How will you employ new people at these nodes, considering one of the big challenges for the bank over the past four years was the filling of vacancies?
We are on a big recruitment drive to fill all the positions. The debt default created a lot of uncertainty, which you can imagine resulted in many staff members looking for alternative opportunities.
The conclusion of the stability solution has helped to stabilise the bank and improve job security, making it easier to attract staff. Since our signing of the debt restructuring solution, I have received many phone calls from people, even ones who were difficult to attract before, who want to come and work at the bank.
For more information, email [email protected].
