WATCH: Moody's slashes SA state-owned Land Bank's credit rating to junk
Moody’s said it lowered the rating due to an increase in non-performing loans; environmental risks linked to climate change; land expropriation without compensation as well as the perception that the government was hard pressed to aid the state owned bank. Moody’s confirmed the Land Bank’s b1 Baseline Credit Assessment and assigned a Corporate Family Rating of Ba1, with the outlook on issuer had been changed to negative from ratings under review.
“The ratings downgrade reflects Moody’s assessment that ongoing fiscal challenges suggest that the South African government will be more selective in dispersing financial support to state-owned enterprises, including to Land Bank,” said Moody’s in a statement. The agency also revised Land Bank’s outlook to negative for the same reason.
The rating has left the Land Bank’s profile vulnerable, with agricultural bodies warning that it would make raising funds more expensive for the sector.
Lobby group Agri SA said the outlook primarily reflected the potentially weakening capacity of the government to support the Land Bank in case of need as well as on-going pressures on its financial performance.
Agri SA executive director Omri van Zyl said the rating was a disaster for an already-struggling agricultural sector. “There will be chaos in terms of liquidity in the system. The risk profile of the bank will go up and it will now be more expensive to raise funding. A lot of farmers will go bankrupt, there will be problems with paying back the farms. This is the last thing we need,” he said.
The bank was in the spotlight this month for poor corporate governance after its third acting chief executive in a year, Konehali Gugushe, resigned from the position, highlighting the failure of the government to appoint a permanent chief executive.
It posted a net profit of R130.6million for the year ended in March, despite challenging conditions in the agricultural sector.
A commentator who did not want to be named said: “Moody’s believes the bank’s exposure to environmental risks is high. As a company serving the broader agricultural sector, it is faced with rising physical environmental risks, such as the sustained droughts, uncharacteristic hail in usually hail-free areas and increased frequency of disease outbursts which will disrupt the ability of the bank’s customers to repay their loans.”
The sector has been battling drought and other natural vagaries in the past few years.
Agricultural economist Wandile Makholwa said the Agbiz/IDC Agribusiness Confidence Index showed that farmers were concerned that the current drought could negatively affect plantings in the 2019/20 and overall activity in the sector.