Funding not a bailout but sector support, Land Bank says

Failure to secure assistance for the Land and Agricultural Bank will not only imperil the struggling entity but further undermine the broader state mission of supporting South African farmers who need access to competitive and flexible finance.

This is according to a bank delegation who briefed parliament’s select committee on finance on Tuesday morning. The briefing comes after the entity signalled it would request R20bn in financial assistance amid debt stress.

Land Bank acting CEO ​Jabu Mphambo told the committee the bank has borrowed under strict conditions and short repayment tenures to finance a sector where loan tenures are typically long-term, which has increased pressure on the bank itself.

“We have also been engaging National Treasury around the potential recapitalisation. We will be submitting a formal request for this. This is part of the funding model of the bank. It’s not necessarily to say the bank is being bailed out.

“The bank is being funded to ensure it can fulfil its mandate. Without this, we will have the problems of farmers paying high costs with the bank. The source of funding determines how a client is charged. For us to support a strong position for the bank to be developmental, to focus on the fulfillment of its mandate, the funding mix must be appropriate.”

The bank defaulted on some of its debt in 2020, forcing the entity to look to its loan book for means to repay the debt. Mphambo said part of improving liquidity will require adjustments to the lending structure the bank engages with to ensure it can provide long-term finance to farms.

“Part of the funding we are raising is to solve the long tenure issue. The farmers we are speaking to, we have been very clear we are looking for funding that can be paid off over a long period and not a short period of time.”

He said the Land Bank planned to raise at least R7bn to refinance the liability solution funding and unlock another R3bn next year to fund development and support the agriculture sector. From there, it would draw down R2bn to R3bn yearly to support the sector into the future, he said.

Mphambo said blended finance was critical to the financial sustainability of the bank and the ability to offer concessional funding and cheaper rates, as most farmers cannot afford to pay the exorbitant rates the bank has had to absorb.

“We believe the posture of National Treasury has been positive. We believe we’ve got a good working relationship with them. It’s to make sure we can see materialisation of some of the programmes we have been discussing.”

He said since the default, when debt was at R41bn, the bank has managed to reduce debt to R6.7bn, repaid mostly from its own cash, as it had to sell its own loan portfolio to raise funding and settle the debt.

“Of course, it was a necessity that the liability solution partners required National Treasury and us to have that partnership approach, where the bank had to make alternative means to settle a significant portion of its debt, and then National Treasury contributed through its recapitalisation, which only came in 2023. A portion of that was given immediately, and the balance was released post the bank’s meeting specific conditions to support the sector.”

He said the Land Bank is now in the consolidation phase of its turnaround process as it continues stabilisation, which is expected to be fully concluded in 2028. Thereafter, the growth phase will commence in 2029, but the bank must first be geared for a full recovery.

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