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Land Bank 2004 Annual Report Presentation: Portfolio Committee on Agriculture & Land Affairs Committee Room S 26, 1 st floor, NCOP Wing 10 September 2004 PowerPoint PPT Presentation


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Land Bank 2004 Annual Report Presentation: Portfolio Committee on Agriculture & Land Affairs Committee Room S 26, 1 st floor, NCOP Wing 10 September 2004. Overview of presentation. Group overview Nomhle Canca Chairperson: Land Bank Finance, Credit, & Economic Committee.

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Land Bank 2004 Annual Report Presentation: Portfolio Committee on Agriculture & Land Affairs Committee Room S 26, 1 st floor, NCOP Wing 10 September 2004

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Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Land Bank 2004 Annual ReportPresentation: Portfolio Committee on Agriculture & Land AffairsCommittee Room S 26, 1st floor, NCOP Wing10 September 2004


Overview of presentation

Overview of presentation


Group overview nomhle canca chairperson land bank finance credit economic committee

Group overview

Nomhle Canca

Chairperson: Land Bank Finance, Credit, & Economic Committee


Our vision and mission

Our vision and mission

Our vision

  • To be the leading provider of world-class financial services to agriculture and related rural sectors in South Africa

    Our mission

  • Agricultural development finance institution that supports economic growth through the provision of retail, wholesale, project and micro-financial services to agriculture and related rural services


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Accountability mechanism

  • The State is the only shareholder, represented by the Minister for Agriculture and Land Affairs

  • Our activities are governed by the Land and Agricultural Development Bank Act, 2002 (Act no. 15 of 2002) and financial management guidelines provided by the Public Finance Management Act (Act no. 29 of 1999)


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Our strategic framework

  • Our programmes are aligned with government’s key strategic programmes in the agricultural sector:

    • Agricultural Sector Plan

    • Integrated Sustainable Rural Development Programme

    • Comprehensive Agricultural Support Programme (CASP)

    • Shareholder Compact


The year in review george oricho acting chief executive officer

The year in review

George Oricho

Acting Chief Executive Officer


Economic developments in 2003 4

Economic developments in 2003/4

  • The South African economy grew by 1.4% in year ended 31 March 2004

  • Growth was sluggish due to negative contributions by manufacturing (-2.2%) and agriculture (-10.3%)

  • Drought and delayed rains had a major impact on the agricultural sector

  • Strong rand and resulted in a drop in producer prices


Economic developments in 2003 4 cont

Economic developments in 2003/4 cont

  • As a result:

    • Gross farm income decreased by 4.3%

    • Net farm income decreased by 17.8%

  • As a result of factors above, total farm debt to increase by R2.7-billion to R30.9-billion

  • primarily due to the effects of lower interest rates increase in total farm debt has not had a huge debilitating effect

  • In addition, the decline in interest rates provided some relief to farmers

  • In addition, the Bank assisted farmers with debt consolidation and rescheduling


Highlights of the land bank s year

Highlights of the Land Bank’s year

  • The Bank is back into profitability, as promised last year – a net profit of R247-million (compared to a R1.4-billion loss last year), despite a difficult business environment

  • Number of loans granted grew by 14% from 89 967 in 2002/3 to 102 527 during the reporting year

  • Development loan book grew by 5.3% to R1.096-billion: a total of 61 014 loans in this sector, compared to 59 875 last year – confirming the Land Bank’s position as the major player in this sector


Highlights of the land bank s year cont

Highlights of the Land Bank’s year cont

  • Arrears as a percentage of the loan book dropped from 9.6% to 6.2% due to last year’s write-off and improved collections

  • Total provisions as a percentage of loan book also were reduced from 9.4% to 7.4%

  • The introduction of new revenue streams has led to non-interest income going up 339% -- from R41-million to R180-million


Highlights of the land bank s year cont1

Highlights of the Land Bank’s year cont

  • New branch model piloted in 9 branches, and is in the process of being rollout to all 27 branches.

  • The need to generate efficiencies such as the introduction of new management information systems.

  • Enhance our ability to service our clients

  • Improve loan turn-around times


How we performed against our targets

How we performed against our targets


Our development book

Our development book

  • We continue to lead the sector with our development book currently standing at R1.096-billion

  • Significant progress has been made in financing LRAD projects -- R106-m in special mortgage loans were approved (240 accounts)

  • Rate of default in development loan book has dipped substantially (from R223m to R166m)

  • The Bank has continued to improve outreach in rural areas not serviced by commercial banks, by wholesale to provincial banks and expanding the number of satellite offices


Step up loans

Step-up loans

  • A total of 165 877 clients have benefited from the Bank’s microfinance programme since inception in April 1998

  • During the reporting period, a total of 38 104 new clients joined the programme

  • A total of R169-m was disbursed over the same period


Step up loans cont

Step-up loans cont


Step up loans cont1

Step-up loans cont

  • Financing was provided to 77845 women out of 123 564 clients resulting in 63% female client base

  • We continue to monitor repayment levels and develop new approaches, to ensure satisfactory repayment levels


Funding job creation and bee

Funding job creation and BEE

  • Land Bank’s activities resulted in the creation of approximately 60 000 new sustainable jobs in the agri-economy

  • Significant BEE transactions were concluded, including:

    • Foodcorp: R800-m loan to Pamodzi Investments for acquisition of Foodcorp agri-processing company

    • Foodcorp restructured and refinanced R800m

    • Gledhow Sugar Mill: R335-m financing for BEE and worker consortium acquisition of sugarmill and over 12 000 hectares of land. Gledhow will source sugarcane from emerging farmers, and its activities currently benefit more than 1 000 farmers. First black-owned sugar mill - component of land reform


Our impact on development

Our impact on development

  • Community development initiatives were funded, including:

    • Makhathini Flats: R269-m facility approved to fund irrigation scheme, which has potential to turn the area into the principal cotton-producing area. More than 1 000 farmers will be established and more than 5 000 jobs created, benefiting more than 30 000 people

  • R9-million was allocated to CSI initiatives, including:

    • Training and development grants to a range of projects, such as:

      • Buhle Farming Academy (Mpumalanga)

      • Keiskammahoek Dairy Project (Eastern Cape)

      • Tshivase Agri Dam (Limpopo)

      • Xihoko Primary School Vegetable Garden (Limpopo)


Our impact on development continued

Our impact on development (continued)

  • Other CSI initiatives included:

    • Capacity building at a number of institutions, including:

      • NAFU

      • Agricultural Business Chamber

    • 40 bursaries for agricultural students, of whom 19 are women

    • Research grants to several tertiary institutions, including:

      • University of Fort Hare

      • University of Zululand

      • University of the Free State

      • University of North West

      • University of the North

      • University of Venda

      • University of Pretoria


Funding youth development

Funding youth development

  • The National Youth Development Programme was formed in partnership with the National Youth Commission and Umsobomvu, to assist young aspirant farmers

  • Four farms have been allocated to date: in the Free State, Western Cape, Northern Cape and North West

  • Land Bank has disbursed more than R5-million in loans to the four farms, which are being leased with an option to purchase


Background ag report mr jacob modise chairperson land bank audit committee

Background & AG Report

Mr Jacob Modise

Chairperson: Land Bank Audit Committee


Background

Background

  • Difference in reporting periods

  • AC133

  • New revenue sources

  • Turnaround in equity markets

  • Loan impairments


Difference in reporting periods

Difference in reporting periods

  • Year-end changed to 31 March from 31 December in the prior period in line with PFMA

  • Reporting period for 2003 annual report was 15 months compared to 12 months in current 2004 annual report


Difference in reporting periods continued pro forma results

Difference in reporting periods (continued) - pro-forma results


Ac133 compliance and adoption

AC133 compliance and adoption

  • SA GAAP aligned with International Accounting Standards

  • Compliance requires significant system capabilities

  • Group’s systems in the process of being modernised. Therefore full compliance to AC133 not possible

  • PFMA requires financial statements to be prepared in accordance with SA GAAP

  • Auditor-General required to confirm that SA GAAP complied with, failing which opinion to be qualified


Impact of ac133 on income statement r m

Impact of AC133 on Income Statement ( R’m)


Impact of ac133 on balance sheet

Impact of AC133 on Balance Sheet


New revenue streams

New revenue streams

With the adoption of AC133, fair valuing financial instruments resulted in a gain of R58m.


Turnaround in equity market resulted in a turnaround of investment income of r242 m

Turnaround in equity market resulted in a turnaround of investment income of R242-m


Loan impairments excluding ac133

Loan impairments excluding AC133


Auditor general report emphasis of matter items

Auditor-General Report: Emphasis of matter items


Financial performance

Financial performance

Income Statements

Net interest income

Interest margin %

Efficiency ratio

Loan book quality


Income statement highlights

Income Statement Highlights

  • Net interest income down to R529m (2002/3 : R882m)

  • Operating income down to R709m (2002/3 : R923m)

  • Non interest income up to R180m (2002/3 : R41m) .

  • Net operating Profit before Provisions down to R404m (2002/3 : R574m)

  • Efficiency ratio of 43.0% (2002/3: 37.8%) due to margin squeeze.

  • Loan impairments impact on profitability improved by R1 556m to R260m (2002/3 : R1 776m)

  • Group returned to profit of R247m (2002/3 : -R1 429m)


Group income statement

Group income statement


Group income statement pre ac133 adoption

Group income statement: pre-AC133 adoption


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Net interest income

Net Interest Income down by 25% or R177m to R529m compared to prior year annualised. (2002/3 annualised : R706m)Impacted upon by 550bps reduction and AC133 adoption


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Non-interest income

Non interest income up 445% or R147m to R180m (2002/3: R33m annualised) mainly due to increase in account administration fees(R81m) and AC133 financial instruments fair value gains (R58m)


Operating income decreased by 4 or r30m to r709m compared to prior year 2002 3 annualised r739m

Operating income

Operating Income decreased by 4% or R30m to R709m compared to prior year(2002/3 annualised : R739m)


Operating profit before impairments down by r56m or 9 7 from prior year s annualised r460m

Operating profit before provisions

Operating profit before impairments down by R56m or 9.7% from prior year’s annualised R460m


Net interest margin

Net interest margin

  • Net interest income margin down 100 basis points to 3.3 % (2002/3 :4.3%)

  • Margin squeeze as a result of reduction of repo rate over the year by 550bps and

  • AC133 on treasury instruments negative impact of R227m

  • Pre- AC133 net interest margin is 4.7% which is slightly higher than previous year

  • Effective margin management mechanism minimised the impact of repo rate reductions.


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Efficiency ratio

Squeeze on margins resulted in an efficiency ratio of 43% (target : 35%) against prior year’s of 37.8%.Pre-AC133 efficiency ratio of 34.7% is below target and better than prior year.


Loan book quality

Loan book quality

  • Impairments charged to income is R260m compared to R1,776bn in FY:2002/3

  • Total provisions for both specific and loan impairments is R1,196bn compared to R1,529bn for FY:2002/3

  • Provisions as a % of total loan book is 7.4% (2002/3 : 9.4% )

  • Arrears as % of total loan book has improved improved by 35% to 6.2% (2002/3: 9.6%)


Financial position

Financial position

Highlights and key ratios

Summarised balance sheet

Loan provisions

The Group’s funding

Cash position and liquidity mismatch


Balance sheet highlights

Balance sheet highlights

  • Net loan portfolio increased by R280m or 2% to R15.010bn (2002/3: R14.730bn)

  • Increase in gross short term lending by 12.3% or R1,0bn largely from wholesale finance to co-operatives

  • Improved liquid cash assets by R955m or 92.9% to R1.985bn

  • Decrease in long/medium term funding of 14.2% from prior year’s R5,3bn

  • Conversely, increase in short term borrowing of 14.3% or R1,3bn to R10,7bn

  • Decline in capital adequacy ratio (CAD) from 14.5% to 12.9% due to growth in asset base and adoption of AC133

  • Significant improvement in ROA from -8.1% to 1.3%


Summarised group balance sheet

Summarised group balance sheet


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Provision as a percentage of loan book

Provision as a % of loan book has decreased to 7.4% from 9.4%.Provision at 31 March 2004 are R1.196bn (2003 : R1.530bn)


Impairment charge to income improved to r260m against r1 7bn in fy 2002 3

Impairment charge to income

Impairment charge to income improved to R260m against R1,7bn in FY:2002/3


Capital adequacy ratio cad

Capital adequacy ratio (CAD)

  • Decline in capital adequacy ratio (CAD) from 14.5% to 12.9% due to growth in asset base and adoption of AC133

  • Pre-AC133 CAD for the group is 15% which is an improvement on prior year.

  • Pre-AC133 CAD for the bank is 12.1% compared to industry benchmark of 10%. Post-AC133 CAD is 9.8%


Cash position and liquidity

Cash position and liquidity

  • Healthy cash reserves of R1.984bn compared to R1.029bn prior year.

  • Cashflow from operating improved to R386m compared to an outflow of R132m prior period

  • The board is reviewing various options to improve the matching of its liquidity positions.


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Bank borrowings

Bank borrowings shifted towards short term which increased by 16.4% in line with actual growth in short term loan book


Going forward

Going forward


Land bank priorities

Land Bank priorities

  • Implementing more effective banking and financial business systems

  • Implementing processes and actions to ensure best practice and full compliance with AC133

  • Repositioning the Bank ensure we continue to grow our commercial and development books

  • Increased focus on financing BEE transactions, in terms of the Agri-BEE framework


Land bank priorities1

Land Bank priorities

  • Completing the Business Process Review by November 2004, to ensure:

    • Improved productivity;

    • Streamlined operations; and

    • Enhanced customer service

  • Consolidating our management team

    • CEO candidate identified -- appointment process close to finalisation

    • Senior management positions to be filled by November 2004

  • Continued support for Government’s priority programmes

    • Land reform

    • Agricultural credit scheme

    • Food security


The final word

The final word

This was a year of new opportunities and challenges. The Bank has been able to contribute towards development, in line with its mandate.

The Bank has continued to finance its existing clientele, while also extending support to new clients.

I would like to extend my sincere gratitude and continued support to the Board and management

The Honourable Minister for Agriculture & Land Affairs: Thoko Didiza

Land Bank annual report 2004


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Thank you


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Back-up slides


Land bank 2004 annual report presentation portfolio committee on agriculture land affairs committee room s 26 1

Credit rating

  • Rating Agency: Fitch Ratings

  • Latest Rating Update : September 2003

    • Short term:F1+

    • Long term: AA-

    • Support:- 2

  • This rating is a reflection of the bank’s standing as a government-owned development-finance institution, its internal capital generation and its improved risk management


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