Land Bank said a plan to allow the state to seize land without compensation could trigger defaults that could cost the government R41 billion. Picture: Nhlanhla Phillips/African News Agency/ANA
JOHANNESBURG - The Land Bank issued a stark warning on the dangers of land expropriation without compensation as it delivered its annual results, saying this could have grim consequences for the bank's financial stability.

The bank said yesterday that it had maintained its strong balance sheet, growing the development portion of the organisation's loan book by 12percent to R5.5billion for the year to end March 31, up from last year’s R4.9bn.

Land Bank chairperson Mabotha Moloto said while the bank had identified opportunities around implementation of land expropriation without compensation, if poorly executed it could have “grim consequences for the bank as a creditor, bringing the organisation’s sustainability under threat”.

Moloto said the bank had about R9bn in debt, and explained that the bank was funded by the local debt, capital markets and international multilateral institutions such as African Development Bank, World Bank, KfW and the European Investment Bank.

“Where funders remain willing to provide funds, these would be perceived higher risk levels. Consequently, downward pressure would be exerted on our thin interest margins and levels of profitability,” he said.

“A poorly executed expropriation without compensation could result in the main sources of funding drying up as investors might not be willing to continue funding Land Bank in particular, or agriculture in general,” said Moloto.

Moloto said it would be futile to expropriate land without compensation without an associated re-alignment and adjustment of the institutional mechanisms to deliver land reform.

He said poor execution of the controversial policy would pertain to productive land being taken out of production; no protection from creditors; corruption; and lack of comprehensive support for beneficiaries, among others.

During the period under review, the bank disbursed R1.55bn to transformational projects, R334million in drought relief loans to affected farmers, and R74m in interest rate subsidies to new generation farmers.

It also achieved a net interest income of R1.28bn, profit from banking activities of R278m, profit from insurance activities (R11.5m), profit for the year from continuing operations (R290.2m).

The Land Bank also announced capital and reserves of R6.6bn. “We are satisfied with what we have done to our funding profile,” said Land Bank chief financial officer Bennie van Rooy.

Van Rooy said during the financial year under review, South Africa experienced heightened political uncertainty, continuous credit ratings action and further volatile weather conditions, which effected the agricultural sector.

“It is against this background that we focused on achieving two main objectives: improved financial sustainability and increased development effectiveness,” he said.