Presentation to the Portfolio Committee on Agriculture, Forestry, and Fisheries: 9 July 2009

1. Presentation to the Portfolio Committee on Agriculture, Forestry, and Fisheries:9 July 2009

2. Index Land Bank in context State of the Bank in 2008 Consequences of the above The turnaround strategy Turnaround progress report Development Conclusion Annexure - Development

3. Land Bank in Context

4. The Land Bank Act 15 of 2002 Section 1.2 (1) mandates the bank to promote, facilitate, and support the following: • Equitable ownership of agricultural land • Agrarian reform, land distribution or development programmes • Land access for agricultural purposes • Agricultural entrepreneurship • Removal of the legacy of past racial and gender discrimination in the sector • Rural development and job creation • Commercial agriculture, and • Food security

5. Mandate has not been achieved Reasons for failure to achieve mandate objectives: • Instability in leadership and management • Misalignment between Board and Management • April 2007 to June 2008: 6 CEO’s & 4 Chairs of Board • Executive management (12) only 4 permanent • At senior management level 39 positions with 23 vacant

6. State of the Bank in 2008

7. Audit findings Damning Audit findings (192 page report) in the following areas (incl.): • Weak\non existence of controls • Land for development • Breakdown in payroll system • Breakdown in procurement system • Deteriorating IT environment (personnel and systems) • Poor records of audit trails • Poor monitoring and collection of arrear loans • Non-compliance with legislation • Funds under administration • Numerous special investigations of suspicious fraudulent transactions

8. Critical Vacancies (July 08) Vacant posts • GM Credit • GM Risk • CFO • GM Operations • Credit Head – Corporate Banking • Head – Internal Audit • Head of Retail • Senior Manager Finance

9. Employee Relations (July 08) Seventeen (17) disciplinary cases in total Cases Finalized = 13 Nature of misconduct ranged from the following: • Dishonesty • Misrepresentation • Gross Insubordination • Negligence/ Gross Negligence • Fraud In progress 4 and nature of misconduct ranged from: • Fraud and or misrepresentation • Gross Negligence • Contravening provisions of PFMA

10. State of the Bank: Consequences

11. Funding and lending activities • Bank funding • Equity – (R1bn) • Injection – (R700m) • Investor funds – (R13bn) • Surplus cash • Commercial banks • Bank on lends funds • Retail clients (R3.2bn) • Commercial clients (R10.2bn) • Profit sufficient to fund • Risk • Cost of operations • Growth in capital Profit = Lending rate – cost of funds

12. Funding and lending activities

13. Declining liquidity

14. Declining loan book

15. Increasing NPL’s

16. Cost of NPL’s

17. The Turnaround Strategy Government had to intervene to restore confidence and address going concern uncertainties

18. Land Bank turnaround strategy - timeframes

19. The clean-up process involves addressing audit qualifications and related issues: 7 qualifications 12 other matters Management letter (185 pages) Conditions of government guarantee Scopa resolutions The sustainability initiative aim to normalise operations and enhance the banks focus on its core business of development mandate Phases of the turnaround strategy - definition Clean-up Stabilisation Sustainability The stabilisation efforts are intended to stabilise the bank financially and functionally: • HR • IT • Liquidity • Balance sheet • Cost to income • LDFU

20. Turnaround Progress Report

21. Progress report – clean-up • Dealt with 7 qualifications • Dealt with 12 other matters of emphasis • Dealt with management letter issues • Awaiting Auditor General to finalise the audit

22. Progress … Stabilisation (HR) • 5 of 8 executive positions occupied • Interviews for 3 more in 1 to 2 weeks time • 68 critical positions filled

23. Progress … Stabilisation (IT) • HR and Finance SAP configuration fixes completed • Decision taken that SAP implementation is best for LB • Appointed CIO regarded as a SAP expert • Downsizing SAP as automated core banking solution

24. Progress … Stabilisation (funding and liquidity)

25. Progress ... Stabilisation (balance sheet)

26. Progress... Stabilisation (balance sheet) Excluding LDFU

27. Progress... Stabilisation (Increasing repayments by development clients)

28. Progress... Stabilisation (capital improving) Equity expected to improve

29. Progress... Stabilisation (improving cost-to-income) Improvements due cost reduction

30. Progress... Stabilisation (cost reductions)

31. Progress... Sustainability (loan book stabilising)

32. Development as core to the business

33. Development

34. Development financial targets

35. Conclusion • Shareholder approval of the turnaround strategy and development policy led to the approval of R3.5bn guarantee • To maintain the benefits of the turnaround the • following needs to be done: • Grow the loan book • Maintain low level and increase recovery of non-performing • loans • Maintain a sustainable level of cost-to-income ratio • Preserve capital (balance sheet) • Implement the development mandate

36. Conclusion (continued) • Accordingly Land Bank is undertaking the following projects: • Appropriate pricing model • Appropriate credit model • Appropriate products for the target market niches (specifically rural development) • Review of branch network • Alignment with Provincial government strategies

37. Thank you

38. Annexure - Development

39. Objective and purpose • The objective of the Bank is to entrench development as core to its businesses • The purpose of the policy is to operationalise development by: • Generating thrusts to mainstream development within the Bank • Facilitating transformation programmes in the Bank • Introducing and supporting innovation in agriculture • Building a foundation for sustainable agricultural development

40. Problem statement • Banks failure to establish policy to enable the following: • Definition of development • Development monitoring • Development quantification • Historical absence of systematic management of risk • Unstructured development financing, and • Lending • Need for Policy • Tool to enable bank to implement development mandate appropriately • Objective of policy • To entrench development as core to the business

41. What informs the Policy • Political imperatives in the sector • Deregulation of the sector in 1994 • Strauss Commission recommendations • Amended 2002 Land Bank Act • NT review of DFI’s • Need to address market failure in the sector • Bank risk appetite • Alignment with shareholder objectives • Need to define target markets, develop products and procedures • Need for a policy to guide the bank in positioning its operations within predetermined risk • The above require the bank to realign its products, services, processes, infrastructure, and capacity

42. Objectives of realignment • To meet expectations of shareholder • To address the financial market failure • To prioritise development as core to business • To manage expectations for innovative products against the bank’s sustainability • To inculcate the culture of responsible lending • To address expectations for the Bank to provide non financial services • To re-define Land Bank development products

43. Operational policy on development • Strategic goal and market position • The Land Bank to be a fully integrated agricultural development finance institution with a regional footprint that promotes, facilitates and supports agricultural and rural development.

44. Target market space • The Bank has identified market space for development which includes: • Financing agri related activities • Support to land reform programmes • Spectrum from individuals to cooperatives • From empowerment clientele to commercial (emerging, commercial) • Support for innovative ideas to enticing commercial agriculture into development

45. Identified target market niches (TNMs) • Target market space be serviced through TNMs (see funding presentation for details): • Indirect funding of emerging entrepreneurs via direct funding of large corporate clients (priority) • Indirect funding of emerging entrepreneurs via the direct funding of newly established co-operatives as well as via existing commercial infrastructure (priority) • Directfunding of emerging entrepreneurs (priority) • Direct funding of emerging entrepreneurs, particularly groups such as trusts and communities, via the funding of inter alia enterprises that utilize land now available under the national land reform initiative (priority)

46. Identified target market niches (TMNs) • Direct funding of the participation by emerging entrepreneurs in commercial primary or secondary agriculture (such as food processing) • Direct funding of the acquisition by emerging entrepreneurs of shares in existing and/or expanding enterprises • Direct funding and/or support of focusedrural development enterprises or initiatives

47. Development impact parameters (DIP’s) • Market niche or delivery products to be assessed on the basis of DIP’s (see mainstreaming presentation for details) • DIP’s include among others: • Development of emerging entrepreneurs • Generation of employment opportunities • Access to land • Creation of BEE ownership • Creation of BEE management • Creation of WYD participation • Alleviation of poverty in high priority regions • Contribution to food security • Introduction of innovative ideas in agriculture • This to be reported to the Board Audit Committee

48. Proposed funding model to support development