The Banking Council South Africa

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The Banking Council South Africa

• BANKING COUNCIL SUBMISSION TO THE PORTFOLIO
  COMMITTEE ON AGRICULTURE AND LAND AFFAIRS
  (NATIONAL ASSEMBLY) PUBLIC HEARINGS ON ROLE OF
  THE PRIVATE SECTOR IN AGRICULTURE
• 10 JUNE 2003

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PRESENTATION

• This presentation has six parts to it
• The Banking Council
• The contribution of banks to agricultural
  development
• The activities of banks in agricultural
  development
• The relationship with the Department of
  Agriculture
• The future involvement of banks
• Other comments banks are bring to the attention
  of the portfolio committee

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BANKING COUNCIL MEMBERSHIP

• 35 BANKS
• Big 5
• ABSA
• FIRST NATIONAL BANK
• NEDCOR
• INVESTEC
• STANDARD BANK
• INDEPEDENT BANKS
• Independent bankers forum
• FOREIGN BANKS
• Foreign bankers association

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BOARD OF DIRECTORS

• One member from any bank whose liabilities to
  public exceeds 3 of industry total
• TWO MEMBERS OF FBA
• TWO MEMBERS OF IBF

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ROLE, MISSION AND APPROACH

• To establish and maintain the best possible
  platform on which bank groups can do competitive,
  profitable and responsible banking
• REPRESENTING INDUSTRY
• PARTNERSHIP
• POSITION PAPERS

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STRUCTURE
GENERAL MANAGER Support Services
GENERAL MANAGER Financial Markets
GENERAL MANAGER Communications
GENERAL MANAGER Banking Operations
GENERAL MANAGER Transformation
GENERAL MANAGER Market Conduct
SUPPORT STAFF
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BANKING INDUSTRY

• The Banking Industry in South Africa employs an
  estimated 250 000 people on a fulltime basis and
  procures services on an annual basis for over R10
  billion which provides work for many thousands
  more people.
• The Banking Sector is an important asset in many
  ways including job creation, economic
  institutional infrastructure and the capacity to
  become a financial servicing point for many
  countries in Africa.

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THE CONTRIBUTION OF BANKS TO AGRICULTURAL
DEVELOPMENT

• Banks involvement in agricultural development is
  demand driven, no specific budget allocated.
• National Department of Agriculture (NDA) figures
  on total farming debt as at Dec 2002 R28.3
  billion. About 33 of this amount sourced from
  the Land Bank and the erstwhile Agricultural
  Credit Boards. The remainder of 67 of the
  funding drawn from commercial banks, cooperatives
  and private investment.

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THE CONTRIBUTION OF BANKS TO AGRICULTURAL
DEVELOPMENT (cont.)

• Between June 1995 and June 2002 average
  indebtedness to banks 36 with the percentage of
  debt to the banks increasing from 33 in 1995 to
  42 of total farm debts in 2002.
• NDA figures not specified as indebtedness for
  agricultural production, could include
  indebtedness for acquisition of land, equipment,
  production costs, distribution costs and
  processing costs.
• Similar difficulty will pertain to data obtained
  from banks and their exposure in this sector.
  Total exposure of the commercial banks in
  agricultural sector was close to R11 billion as
  at December 2002. Banks currently have difficulty
  giving a breakdown by race of their exposure in
  the agricultural sector.

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N E P A D

• The Comprehensive Africa Agriculture Development
  Programme (CAADP) prepared by the Food and
  Agriculture Organisation for the NEPAD
  discussions states
• Between 2002 and 2015 an estimated annual
  investment of US 17 billion will be required for
  agriculture in Africa
• Investment in agriculture in South Africa in 2002
  was about US3.5 billion
• With over US251 billion of ivestment required in
  the continent over the next 13 years South
  Africas banking infrastructure could play a
  significant role

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ACTIVITIES OF BANKS IN AGRICULTURAL DEVELOPMENT

• Banks have been engaged in a wide range of
  activities in support of agricultural
  development. These are recorded in the submission
  under the headings of
• Farmers support and development
• Land reform
• Training
• Publications
• Sponsorships

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RELATIONS WITH DOA

• RELATIONSHIP WITH THE DEPARTMENT OF
• AGRICULTURE
• The Banking Council has and continues to enjoy a
  positive relationship with the National
  Department of Agriculture.
• The larger member banks of the Banking Council
  are participating in the technical task teams
  that have been established by the Department of
  Agriculture.
• Member banks are also engaged with Provincial
  Departments of Agriculture.
• Still under discussion with the Department of
  Land Affairs is the agency agreement on accessing
  LRAD funds.
• The Banking Council appreciates and acknowledges
  the challenging and significant role that the
  Department of Agriculture has to play for
  agricultural development and transformation at
  both the national and provincial levels of
  government.

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FUTURE INVOLVEMENT

• Banks are investigating the possibilities of
  partnerships with other interested parties which
  can add value and assist in risk mitigation.
  Banks will also consider the mobilisation of
  donor funds that can be channelled into
  agricultural development. The most significant
  work being done within the banks is around the
  BEE Financial Sector Charter. This document is in
  the process of being finalised as a draft for
  discussion with government. One of the areas of
  special attention will be agricultural
  development. At this point it will be
  inappropriate to discuss the details of this
  Charter.

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OTHER ISSUESLAND BANK ACT AMENDMENTS

• THE LAND BANK ACT
• The banks have had differences over certain
  provisions of the Land Bank Act, -unlevel playing
  field
• The Land Bank is persistent in its preferent
  attitude and gone to the High Court
• This legal action by the Land Bank in securing
  its preference confirms the worst concerns of the
  commercial banks
• We believe that this matter will require
  legislative intervention in making amendments to
  the Land Bank Act that will allow the commercial
  banks to be role players in agricultural lending
  rather than forcing them out of lending for
  agricultural development.

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OTHER ISSUESFarmer Support and Development

• FARMER SUPPORT AND DEVELOPMENT
• Need for a range of support services
• Financial literacy and numeracy poses a
  communication problem between the Bank and
  prospective borrowers.
• Advisory and technical support services are some
  of the necessary ingredients of financing
  developing farmers.
• A public-private partnership approach is
  necessary for the success of developing farmers.
• The importance of a management team, particularly
  in group projects cannot be overemphasised.
• Mentoring is essential at the early stages of the
  transfer of ownership (at least 2 years).
• Post transfer support (working capital, training
  in hard and soft skills, mentorships) 

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OTHER ISSUESMarkets, Monitoring and LRAD

• MARKETS
• Off-take agreements (market) are necessary to
  ensure that projects have secure markets.
•  MONITORING
• Monitoring and progress reports are important for
  the success of projects.
• Development projects should form part of the key
  performance areas of bank's staff.
• Verification of business plans
• LRAD
• LRAD has become a numbers game. There are needs
  e.g. equity fund to supplement LRADand to reduce
  the numbers
• Availability of LRAD grants

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OTHER ISSUESThe Role of Government

• THE ROLE OF GOVERNMENT
• Strengthen the present agricultural insurance
  services
• Initiate and develop guarantee schemes
  specifically designed to meet agricultural needs
  of the emerging and black commercial farmer.
• Find ways in which to securitise communal land
  rights.
• Strengthen the co-operative movement in terms of
  membership, training and management.

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OTHER ISSUESThe Role of Government (cont.)

• Consider linking water usage rights to land
  title/rights
• Government should consider obtaining
  certification to potential markets (countries)
  for exporters of agricultural products especially
  if we are to achieve transformation. At present
  this cost is borne by the exporters.
• The Department of Trade and Industry should be
  positioned in such a manner that it can respond
  to the need for tariff changes faster and
  efficiently.
• The National Department of Agriculture needs to
  position itself to serve as agricultures voice
  to government and the public in general.

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CONCLUSION

•  The Banking Council is committed to playing its
  part in the
• transformation of agribusiness in South Africa
  and would like to
• be party to the implementation of the Strategic
  Plan for South
• African Agriculture. In order to compete in the
  agricultural
• development market in a way that will create
  shareholder value in
• the medium to long-term, the banks are amending
  their strategies
• to finance and support transformation of
  agriculture.
• The banks are committed to increasing the number
  and quality of
• developing agriculture clients who have
  commercial farming as
• their main objective.