“The agreement with our lenders is not just a financial relief; it reinforces our status as a going concern and gives us the stability to focus on our core mission – supporting and transforming the agricultural sector.”
This is the view of Land Bank chief executive Themba Rikhotso, who participated in a brunch conversation hosted by Food For Mzansi at Nampo Cape, currently underway in Bredasdorp in the Western Cape.
His comments come just days after the state-owned bank, which defaulted on its debt in April 2020, reduced its debt from over R45 billion to R16 billion after reaching a restructuring deal with its lenders.
The bank plans to repay R4 billion this month, with the remaining R12 billion to be repaid by March 2028, while being allowed to incur further borrowings within agreed parameters.
Rikhotso provided a detailed account of the challenges the bank faced since 2020, which saw the default of its entire R40 billion debt portfolio due to a single lender’s demand for immediate repayment.
He said the ripple effect triggered cross-default clauses, plunging the bank into a financial crisis that hampered its ability to fulfil its mandate as a development finance institution (DFI) for the agricultural sector.
Future priorities for Land Bank
Rikhotso attributed the successful debt restructure to the strategic efforts of the bank’s board and management team over the past three years.
He emphasised that the turnaround strategy involved overhauling operations, policies, and systems, with a particular focus on five critical elements: revising the funding model, strengthening the commercial model, optimising the operating model, enhancing service delivery, and improving the credit risk framework.
He acknowledged that while significant progress has been made, much work remains to be done to restore confidence in the bank and ensure it can effectively support its clients, particularly as a DFI tasked with both developing and transforming the agricultural sector.
Looking ahead, Rikhotso outlined the bank’s key priorities, which include executing the new operating model and decentralising processes to empower provincial offices.
This approach aims to enhance responsiveness and service delivery to clients, with an emphasis on creating a targeted client experience that aligns with the bank’s commitment to supporting the agricultural sector’s needs.
“The real work starts now,” Rikhotso remarked, signalling that the Land Bank is focused on embedding its new operational structure and building a robust financial base to prevent future crises.
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Bank’s debt default spurs improved ties with government
Reflecting on the unintended positives of the bank’s default four years ago, Rikhotso noted that while the default was a challenging period, it also led to significant improvements in the bank’s relationships with government entities.
“The default helped us to sort out our relationship with the National Treasury,” he said. “Today, the relationship with the National Treasury is at its best, and we are able to get the support that we required to get out of default.”
This strengthened alignment with National Treasury has been crucial in securing the necessary support for the bank’s recovery and future operations.
Harrison also highlighted how the default facilitated a stronger connection with the department of agriculture.
“Out of default, we were able to sort out the relationship with the department,” he explained. “We are now working very closely together, and the relationship is in a very, very good position.”
This collaboration has led to a ten-year agreement for grant support and the reallocation of provincial grants to be managed by Land Bank, which is expected to enhance the bank’s ability to support agricultural projects.
Blended finance boosts agricultural growth in WC
Meanwhile, Craig Harrison, Land Bank’s provincial manager in the Western Cape, explained that the bank’s blended finance scheme uses a combination of grants and loans to support agricultural projects. The grant portion reduces financial risk for farmers by providing non-repayable funds, which helps them secure necessary loans and fosters growth in the sector.
Harrison highlighted that the Western Cape has seen considerable progress since the financial year began in April, with the blended finance fund playing a pivotal role. This initiative has supported both new entrants into farming and existing farmers by providing production support. Despite a slow start in the province, recent success stories underscore the scheme’s positive impact.
Rikhotso underscored the importance of the blended finance programme in transforming the agricultural sector by offering comprehensive pre- and post-funding support. He noted that over the past year and a half, the bank has approved funding for 205 farmers amounting to just under R2 billion.
This achievement aligns with Land Bank’s 2030 strategy to introduce 1 050 new commercial farmers into the sector, with the current pace suggesting that this target is achievable.
Addressing the challenges faced by emerging farmers in the Western Cape, Harrison acknowledged that high farm prices present a significant barrier.
To counter this, Land Bank is collaborating with provincial departments to de-risk transactions and support beneficiaries of government land reforms with funding for livestock, production inputs, and machinery. This collaborative approach aims to alleviate some of the financial pressures on new and existing farmers.
The conversation also touched upon the role of Geographic Information Systems (GIS) in the bank’s decision-making processes.
Mzi Shabangu, GIS specialist for Land Bank’s agricultural technical services department, explained how GIS is used to assess and mitigate risks associated with land, including factors like climate, soil, and terrain. This technology provides critical data to help the bank and farmers make informed decisions and optimise land use.
“We focus more on the risk associated with the land itself, using geographical information systems to assess and advise accordingly, providing scientific evidence for our recommendations,” said Shabangu.
“GIS allows us to bring in aspects like climate, soil, and terrain to analyse land potential accurately. This helps us support farmers by pinpointing the best practices for their specific locations.”
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