The Land and Agricultural Development Bank

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The Land and Agricultural Development Bank

• Annual Financial Results Presentation
• 2002-2003

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Agenda
1 Overview of the year Jethro Mbau (Chairperson of the Board)
2 Operational overview Monwabisi Fandeso (CEO)
3 Financial results Kgosi Tshikare (GM Finance)
4 Prospects Monwabisi Fandeso (CEO)
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1. Overview of the year

• Jethro Mbau
• Chairperson of the Board

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Overview

• Windfall year for sector
• Volatile rand and producer price increases
• Inflation and input costs
• Deregulation (international domestic)
• Strategic plan adopted for sector
• Legislative changes
• Strauss implementation progress and shareholder
  support
• Business improvement initiatives
• Financial results summary

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2. Operational Overview

• Monwabisi Fandeso
• CEO

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• LAND BANK MISSION
• 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
• LAND BANK VISION
• To be the leading provider of world-class
  agricultural financial services to agriculture
  and related rural sectors in South Africa

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• The State is the only shareholder represented by
  the Minister for Agriculture and Land Affairs
• Currently governed by the Land and Agricultural
  Development Bank Act, 2002 (Act no. 15 of 2002)
  and guidelines provided by the Public Finance
  Management Act (Act no. 29 of 1999)
• Exempt from the payment of income tax and
  currently not paying dividends to the State

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Benchmarking our progress

• New legislation provides the benchmark against
  which we measure progress
• Land and Agricultural Development Bank Act
  outlines 11 key objectives for bank
• This section of presentation reports back on
  progress against those objectives

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1. Equitable ownership

• Objective Equitable ownership of agricultural
  land, in particular the increase of ownership of
  agricultural land by historically disadvantaged
  persons
• Achievements
• Agency agreement with DLA on LRAD
• Over R100 million disbursed in grants
• Over R300 million disbursed in production loans
  to beneficiaries
• Special mortgage loans _at_ 10 advanced
• Preferential access to bought-in properties
• Partnership with National Youth Commission

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2. Promotion of reform

• Objective Promotion, facilitation and support of
  agrarian reform, land redistribution or
  development programmes aimed at HDIs for the
  development of farming enterprises and
  agricultural purposes
• Achievements
• Agency agreement on LRAD
• Tripartite agreement with NDA, CRLR LB re
  restitution programme
• Valuations carried out by Land Bank for Land
  reform purposes
• Preferential access to BIPs
• Training, skills development under CSI

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3. Access to land

• Objective Promotion, facilitation and support of
  land access for agricultural purposes
• Achievements
• Special mortgage loans
• Preferential access to BIPs (91 farms sold 57k
  ha, to PDIs)
• Agency agreement with DLA on LRAD
• Tripartite agreement with NDA, CRLR LB re
  restitution programme
• Youth farm projects with NYC

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4. Entrepreneurship

• Objective Promotion, facilitation and support of
  agricultural entrepreneurship
• Achievements
• Training and skills development (R5.3-m)
• Developing grain producer of the year award
  (sponsorship) (R60k)
• Sponsorships to organised agriculture for
  leadership development, international relations,
  specific projects etc NAFU, NERPO, Grain SA
• Land Bank Agricultural Chairs at six
  universities (R1.7-m)
• Bursaries to PDI students at tertiary level (R
  1.3-m)
• Linkages with CDI, Agri-link project
• Sponsored female farmers on study tours to
  Spain, Kenya

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5. Redress

• Objective Promotion, facilitation and support of
  the removal of the legacy of racial and gender
  and discrimination in the agricultural sector
• Achievements
• Batho Pele adopted and internalised as policy
• Land Bank brochures radio shows in different
  languages
• Step up (over 70 are women)
• Female farmer of the year, Women in Agriculture
  Conference and international study trips
  sponsored
• Client base
• Employment equity plan advanced
• 60 of top 45 managers are PDI
• 25 of top 40 managers are Women
• 60 of bursaries targeted at females

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6. Productivity and innovation

• Objective Promotion, facilitation and support
  for the enhancement of productivity,
  profitability investment innovation in the
  agricultural and rural financial systems
• Achievements
• Improvement of financial service delivery reach
  mobile banking, satellite offices. Outlets
  increased from 27 to 80
• Intermediary financing R60-m to provincial DFI
• Africare guarantee scheme (R 7m)
• Financing appropriate technology for developing
  farmers
• Publication of Vukuzenzele comprehensive guide
  to farming for small scale farmers
• Publication of Animal Health guide for emerging
  farmers.

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7. Stimulating growth

• Objective Promotion, facilitation and support of
  programmes to stimulate the growth of the
  agricultural sector and better use of land
• Achievements
• 70 growth of the Development book
• Outgrew the shrinking sector in the year
• Microfinance expansion mainly through growth of
  existing clients.
• Participate in the revival of schemes e.g Ncora,
  Qamata

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8. Promoting sustainability

• Objective Promotion, facilitation and support of
  programmes to promote and develop the
  environmental sustainability of land and related
  natural resources
• Achievements
• Alliance with ARC on Agricultural GIS
• Flood relief programme in partnership with NDA
  IDC
• Assisted NDA with assessment of damage caused by
  veld fires drought.
• Financing of livestock done on the basis of
  carrying capacity
• Participation in the WSSD

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9. Rural development and job creation

• Objective Promotion, facilitation and support of
  programmes that contribute to agricultural
  aspects of rural development and job creation
• Achievements
• Social accounting introduced to track impact of
  Banks lending activities
• Social investments e.g Qamata school in
  Elliotdale
• Special focus on financing projects in the
  presidential nodal points in conjunction with IDT
• Compulsory in-service training and internship
  for bursars

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10. Commercial agriculture

• Objective Promotion, facilitation and support of
  commercial agriculture
• Achievements
• Maintained 50 share of commercial agriculture
• Financing of agricultural companies/co-ops for
  on-lending purposes - (R7-bn)
• Financing of agribusinesses
• Sponsorship to AGRISA, ABC

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11. Food security

• Objective Promotion, facilitation and support of
  food security
• Achievements
• MoU concluded with NDA to distribute security
  Veggie Packs
• Promotion of vegetable gardens
• Grain financing options advanced

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The Development Imperative

• The holistic approach to development finance
• Access to Skills and Capacity Building
• Access to Technology and Information
• Access to Markets
• Access to Land
• Access to Finance
• Success will be determined by the
• Partners and Alliances we can mobilise
• Resources that can be mobilised into the sector
• Enabling environment to play our role
• Efficient and effective Bank operations to
  enhance the institutions ability as a delivery
  vehicle

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Achieving our Purpose

• In order to achieve our vision, mission and
  mandate we required
• Legislative change
• Business process improvements to enhance
  performance
• Enhance competitive advantage as a specialist
  provider of agricultural financial services

The solution BPR (Project Gateway)
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Objectives of BPR

• Clarify procedures and ensure compliance leading
  to better management of the risk profile of loan
  book
• Accelerate arrear recovery performance and
  improve insolvency collection rates
• Identify opportunities for profitable loan book
  growth, including product offering and customer
  service enhancement
• Improved reporting and control systems
• Elimination of non value adding activities
  (process refinement)
• Promote active management and supervisory style

Deliver quantifiable and measurable performance
improvement R200 million within the year
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Areas of focus

• Customer service and sales orientation
• Structure productivity improvements
• Process improvements, including loan book analysis

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Results customer service sales

• Non interest income products implemented
• New management control system implemented for
  sales function
• New loan products designed
• Branch remodeling for enhanced client service
• Days in pipeline reduced
• Database of prospective clients developed

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Results structure productivity

• Branch structure analysed and new branch model
  piloted
• Core business activities restructured to focus on
  sales, account management and recoveries
• Management control systems installed to increase
  accountability
• Increased supervisory positions planned to
  increase level of control

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Results process improvements

• New process flows designed
• Loan application approval
• Loan processing
• Account management
• Recoveries arrears management

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Understanding our loan book

• Specialised techniques employed
• Discovery of a more acute level of arrears and
  insolvencies than was previously identified and
  classified as a result of .
• Uncertainty around Constitututional Court
  judgement
• Weak and bureaucratic recovery mechanisms due to
  constraints of old Act compounded by
• Deregulation of sector, and past natural
  disasters
• Result Significant bad debt provision charge

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Arrears management

• New mechanisms put in place in December 2002
• Arrears of R350-million already recovered
• Ongoing attention being paid to enhancing quality
  of loan book
• Loans at risk reduced from R5-bn in September
  2002 to R2.8-bn in March 2003
• Specialist collection agencies being appointed
  to maximise recovery
• Current provision for doubtful debt is adequately
  provided for

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3. Financial results

• Kgosi Tshikare
• General Manager Finance

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Outline

• Income statement highlights
• Balance sheet salient features

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Income statement highlights

• Net interest income 18.6
• Non interest income 73.9
• Net operating profit before provisions 18.4
• Efficiency ratio within target 38.7
• Net interest income margin 4.3
• Provision impact on profitability R1 429 million

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Net Interest Income up 18.6 to R882 m
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Non interest income up 74 to R38.9-m
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Operating income up by 19.9
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Efficiency ratio of 37.8 compares favourably
with desired target of below 40
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Operating profit before provisions of R 574-m
(2001 R485-m)
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Provisions for non performing loans Impact on
profitability

• Acute arrears resulted in bad debts provision
  charge of R1776-m
• Resulting in reported loss of R1 429-m

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Balance Sheet Salient features

• Development loan book increased by 71
• Loan portfolio down 3.8 to R16 260-m against 8
  decline in agricultural debt
• Loan approval up by 4 to R8 722-m
• Arrears reduced by 36 to 9.6
• Provision for doubtful debt up from R729-m to R1
  530-m
• Capital adequacy of 14.6 is above the benchmark
  of 11

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Provision as a of loan book
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4. Prospects

• Jethro Mbau Chairperson
• Monwabisi Fandeso CEO

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Shareholder support

• Commendable progress has been made not only in
  implementing the recommendations of the Strauss
  Commission but also in transforming the bank into
  an institution that all South Africans can be
  proud of.
• While further challenges still lie ahead for the
  Bank there is no doubt that tremendous progress
  has been made, and that the Bank continues to
  move in the right direction.

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Shareholder support

• On this basis I would like to express my
  continued support for the Board and Management of
  the Bank and to endorse their activities in the
  field of development finance.
• The Strauss commission recommended direct
  grants to enable the Bank to meet its development
  mandate. This recommendation has been taken to
  heart by government and has resulted in a
  directive from the Ministry to expedite the
  transfer of funds from the former ACB to Land
  Bank in accordance with the provisions of the
  Agricultural Debt Management Act.

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The year ahead

• Development Holistic approach will be greatly
  enhanced by the transfer of funds to the Bank
• Margin Interest rate cycle and inflation could
  put pressure on margin
• Continued growth growth of 5.3 on the average
  gross loan book
• Efficiencies ratio set at 35
• Increased sales and customer orientation new
  branch model to be implemented to enhance sales
  and account management function
• Risk management planned redesign of credit
  assessment and risk management evaluation
  methodology will enhance quality of loan book

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Thank you