THE Land Bank has warned that its operational and liability challenges could prevail beyond the end of September after it and its lenders failed to agree on the third liability solution to be implemented before the end of the 2022 financial year.
The struggling state-owned agricultural lender and its lenders are collectively working towards September 30 for the conclusion and implementation of the liability solution.
This is in a bid to cure the event of default and enable the Land Bank to restart the rebuilding process towards a true development finance institution.
Land Bank chairperson Thabi Nkosi said yesterday that the newly appointed board was engaging with lenders on improved measures, including ongoing workshops, to consider all the burning issues raised by the lenders about the proposed liability solution.
Nkosi was briefing the parliamentary select committee on finance yesterday on the bank’s quarterly reports and challenges in executing its mandate.
Nkosi said the liability solution intended to cure the default had taken longer than anticipated to be concluded as a result of the complexity of the bank’s funding model and the regulatory framework it operated under, among other things.
The cash-strapped bank entered a serious liquidity crisis when it failed to make interest payments due on its R50 billion listed notes in April 2020, triggering a cross default on substantially all of the Land Bank’s borrowings.
“It’s been very challenging operating under an event of default with no ability to operate fully. We have been unable to access much-needed funding to drive the development mandate of the bank,” Nkosi said.
“(However), the bank is working with its lenders to craft a revised liability solution to cure the event of default by September 30, 2022. This is not to say that the Land Bank problems would have ended in September.”
Nkosi said the R7 billion remaining from the R10bn, which was appropriated to recapitalise the Land Bank would be transferred at R6bn and R1bn during the 2023 and 2024 financial years, respectively.
The Land Bank’s default saw it projecting an unaudited loss of nearly R1bn for the 2020/21 financial year after making a R2.8bn loss in the previous financial year.
For the past two years since default, the bank has only been able to support existing customers and mainly with production loans only.
Nkosi said they had uncovered a number of ill-conceived transactions that had been entered into by the bank in the past.
She said the majority of loans originated by the Land Bank had a term that is more than five years, while a large portion of the funding liabilities were due before five years, with R17.7bn due in the next 12 months.
“This has given rise to a mismatch between assets and liabilities and provides further context to the liquidity pressure faced by the bank,” Nkosi said.
The Land Bank has also experienced a decreasing loan book, compressing net interest margins mainly due to the increased cost of funds on defaulted debt, and increasing non-performing loans.
Sydney Soundy, executive for commercial development banking, said they had seen mainly good-quality customers leaving the bank for funding elsewhere due to the limited funding, impacting on the quality of the book.
Soundy said R500 million had been set aside to recommence lending by the bank.
“We are currently looking at the resumption of lending activities and we must ensure that risks are managed for out loan book,” he said.
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