1. Land Bank Corporate Plan 2005/06 Presentation: Portfolio Committee on Agriculture & Land Affairs

2. Overview of Presentation
Corporate Plan Overview
The Turnaround Plan
Financial Objectives
Non Financial Objectives
Questions and Comments

3. Land Bank Vision and Mission
To be the leading provider of world-class financial services to agriculture and related rural sectors in South Africa
Land Bank Mission
Land Bank is an 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
NOMHLE CANCA
The Land Bank has been in existence for over 90 years. The last few years have seen a fairly dramatic modernisation of the Bank’s operations, which have brought it directly in line with government’s priorities for the agricultural sector.
The Bank takes its lead from the Strauss Commission of Inquiry into rural financing, and has outlined a vision of being the leading provider of world-class agricultural financial services to agriculture and related sectors.
To ensure it achieves this, the Bank’s mission statement clearly outlines the range of services it provides to the sector in support of economic growth – highlighting the importance of retail, wholesale, project and micro-financial services.

4. Land Bank Accountability
The State is the only shareholder, represented by the Minister for Agriculture and Land Affairs
Our activities are governed by the Land and Agricultural Development Bank Act, 2002 (Act no. 15 of 2002) and financial management guidelines provided by the Public Finance Management Act (Act no. 29 of 1999)
In terms of accountability, it is important to note the legal framework in which the Bank operates, and the fact that the Bank’s activities are governed by the Land Bank Act that was passed in 2002.
The Bank’s management and board are directly accountable to the Minister, and we appear before yourselves at least once a year as a means of ensuring Parliamentary oversight and transparency around the Bank’s activities.

5. Land Bank Strategic Framework
Our programmes are aligned with government’s key strategic programmes in the agricultural sector:
Agricultural Sector Plan
Integrated Sustainable Rural Development Programme
Comprehensive Agricultural Support Programme (CASP)
Shareholder Compact
To ensure the Bank plays a direct role in growing the economy, we have ensured that its strategic focus supports key elements of Government’s own plans for the sector – such as the ISRDP, the Agricultural Sector Plan and Shareholder Compact. In this way, we ensure that the Bank’s funding activities support growth and development in the agricultural economy, as well as facilitating the entry of new farmers and farming groups such as women and the youth
The Acting CEO of the Bank, George Oricho, will talk you through this in detail in the next section, including but not limited to strategic objectives and our achievements against targets…

6. The Land Bank Corporate Plan 2005/06 George Oricho GM Strategy

7. Land Bank Priorities
Implement more effective banking and financial business systems
Implement processes and actions to ensure best practice and compliance with AC133
Reposition the Bank to grow the commercial and development books
Increase focus on financing BEE transactions, in terms of the Agri-BEE framework
To conclude the presentation, I’d like to talk you through the eight key priorities that have been outlined for the Bank in the current financial year, which we believe will enhance its role as the key delivery agent for agricultural finance.
Most importantly, from an efficiency and corporate governance point of view, the Bank will be continuing with the implementation of its new banking and financial systems, and in particular implementing processes and actions that ensure full compliance with AC133 and other accounting standards.
On a broader level, it will continue to reposition itself and its products to ensure it addresses the needs of both existing and future clients – and, in particular, that it is geared to serve both commercial and emerging farmers.
In addition, it will continue to contribute to the transformation of the sector by funding black economic empowerment transactions, in terms of government’s Agri-BEE framework, such as the Pamodzi and Gledhow transactions mentioned by Mr Oricho.

8. Land Bank Priorities
Completing the Business Process Review by November 2004, to ensure:
Improved productivity;
Streamlined operations; and
Enhanced customer service
Consolidate the management team
CEO candidate identified -- appointment process close to finalization
Senior management positions to be filled by November 2004
Continue to support Government’s priority programmes
Land reform
Agricultural credit scheme
Food security
To ensure it maintains its strong customer focus, the Bank is bedding down the final phases of the BPR process, with a view to completion by November this year.
Alongside this is the consolidation of the Bank’s management team. We have identified a candidate for the CEO position, and the appointment process is close to finalisation. At the same time, a number of key management positions have been advertised and are due to be filled before the end of the year.
Finally, the Bank will continue to play a central role in facilitating the roll-out of government’s priority programmes in the sector, and to support the key areas of land reform and food security through the provision of finance and other services.

9. Important Economic Developments
Drought and delayed rains in Western Cape has a major negative impact on the agricultural sector
Strong rand causes great difficulty for agricultural exporters such as wine and citrus producers
Grain prices are extremely low, especially serious for maize producers
Carryover stocks in wine and maize sectors will continue to put downward pressure on prices
Sugar industry is benefiting from strong international sugar price
GEORGE ORICHO
As a development finance institution, our activities are directly linked to the country’s economic performance.
Let me talk you through some of the key economic indicators for the period under review:
Firstly, as you will see, economic growth was slightIy sluggish, with growth of just 1.4% during the last financial year. This was primarily due to a lull in the manufacturing sector and, crucially for us, negative growth of around 10% in the agricultural sector. We cannot underestimate the impact on the sector of drought in the south-western parts of the country, and delayed rains in the north, which had a significant impact on crops and production. This, coupled with the strong rand, had an impact on producer prices in the sector.

10. Land Bank Strengths Land Bank has a well established brand name
Excellent relationships have been established with Provincial Governments
Staff has thorough knowledge of agriculture
A tailored range of products are available at competitive rates & fees
Bank is regarded as loyal to the agricultural sector, friend in good and bad times
Branch offices offer local decisionmaking

11. Land Bank Weaknesses Retail has relatively high delivery costs
Limited product range in a single, high risk sector
Lack of satisfactory computer information system
Insufficient outreach in deep rural areas
Turnaround times are excessive

12. Land Bank Opportunities
Client base will be broadened through MAFISA, AgriBEE and other shareholder initiatives
Footprint can be extend through co-op and agribusiness network
BEE acquisitions are business opportunities
Can develop innovative modern products for old and new markets
Land redistribution initiatives offer new possibilities
New tailored information system will increase market and service opportunities

13. Land Bank Threats
Loss of preferred status through revisions to the Land Bank Act
Loss of staff expertise
Workforce that lacks tools, motivation, training
Bad debts resulting from adverse economic or climatic conditions
Expectations that are not achieved in reasonable timeframe
International competitors in the face of increased variability in net farm income and increased cost of debt

14. The Land Bank Turnaround Plan

15. Commercial Loan Book, Trend Line and March 2005 Target

16. Development Loan Book, Trend Line and March 2005 Target

17. Arrears Amounts, Trend Line and March 2005 Target

18. Non Performing Loan Balances, Trend Line and March 2005 Target

19. Return on Assets, Trend Line and March 2005 Target

20. Net Interest Margin, Trend Line and March 2005 Target

21. Efficiency Ratio, Trend Line and 2005 Target

22. Capital Adequacy, Trend Line and March 2005 Target

23. The Capital Adequacy Issue
Land Bank capital has been reduced significantly due to bad debt write-offs and the adoption of a new accounting standard known as AC133
This reduction impacts the financial ratios used by investors to assess the credit worthiness of the Bank
Erosion of capital results in a loss of investor confidence in the Bank’s ability to withstand any future financial shock

24. Sources of Potential Shock
Prolonged or severe drought,
Financial failure of one or more large borrowers
Persistent low commodity prices
A large drop in land values used as security for loans
Adverse consequences resulting from additional changes in accounting treatment
Continued strong rand

25. The Capital Adequacy Issue
Historically Land Bank’s capital adequacy has been kept above 15%
In the past two years the ratio has fallen well below 15%.
To provide sufficient cushion for possible future adverse events and to restore investor confidence in the financial strength of the Bank, a prudent capital adequacy level would be at least 20%

26. Land Bank Role in Agricultural Transformation
The BEE transactions and other empowerment projects being financed or currently being considered for financing by the Bank’s CFU business is approaching R3.7 billion
The current Retail book to start up farmers amounts to R663 million
Step-Up adds another R74 million in loan volume

27. Land Bank Role in Agricultural Transformation
Since the Bank serves as one of the instruments of Government’s effort to encourage and support black economic empowerment in agriculture, it is important that the Bank’s capital adequacy position be sorted out as a matter or urgency.
A higher capital adequacy ratio will improve the credit rating and dampen investor fears regarding the risk of lending funds to the Bank.

28. The Capital Adequacy Issue
An appropriation of R2 billion will increase capital adequacy ratio to nearly 20%
Is adequate to shore up Bank’s financial strength and restore investor confidence
A capital injection will require Bank to implement a turnaround plan to ensure:
profitability is maintained
sustainability is ensured
capital adequacy is maintained

29. The Turnaround Plan Improving Management Capacity
Skills and experience
Organisational Structure
Training and development
Selection, recruitment and retention of skills
Reward, recognition and incentives
Performance management;
Culture and values
Employment equity
Developing appropriate business models

30. The Turnaround Plan Enhancing Bank Revenue Model Pricing model
Net interest income
Non interest revenue
Creating new loan products
Creating non interest sources of revenue
Increasing client satisfaction
Understanding competitive environment and our clients

31. The Turnaround Plan Controlling Costs
Cost to income ratio, operating efficiencies and increasing productivity
Loan book quality (Bad Debts)
Funding costs
Non interest costs
Expense reduction

32. The Turnaround Plan Installing Information Systems and Processes
Implementation of Banking Solution
Reliable management information
Action plan management information
Improve client interface and integration
Enabling environment to manage risk and compliance

33. The Turnaround Plan Managing Risk Market risk Interest rate risk
Enterprise wide risk management
ALCO process
Credit risk, liquidity, market, operating,
Banking risks and returns, profitability, liquidity, and solvency

34. The Turnaround Plan Managing and Protecting Capital Capital planning
Return on capital, economic value added
Development programme
Engage treasury
Capital injection

35. The Land Bank Financial Objectives

36. Loan Growth

37. Business Efficiency

38. Loan Quality

39. Profitability

40. Capital Adequacy

41. The Land Bank Non Financial Objectives

42. Non Financial Indicators

43. Questions and Comments

44. Thank You