Post on 12-Jan-2016
description
Presentation to the Portfolio Committee on Agriculture, Forestry, and Fisheries:
9 July 2009
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
Land Bank in Context
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
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
State of the Bank in 2008
Audit findings
Damning Audit findings (192 page report) in the followingareas (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
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
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
State of the Bank: Consequences
Funding and lending activities
Bank funding•Equity – (R1bn)•Injection – (R700m)•Investor funds – (R13bn)
Bank on lends funds•Retail clients (R3.2bn)•Commercial clients (R10.2bn)
Surplus cash•Commercial banks
Profit = Lending rate – cost of funds
Profit sufficient to fund•Risk•Cost of operations•Growth in capital
Funding and lending activities
Investor funding
Dependent on LB risk being acceptable
Risk profile depends on:
Investor confidence
Sustainable return on investment
Investor confidence dependent on
Adequate return on investmentFuture sustainability
Low probability of default
If positive investor confidence
Attract more funding available to on lend
Increased profits - grows capital
Less dependency on shareholders
If negative investor confidence
Call up funding
If insufficient cash surplus, market panic
Market panic - run on the bank (investors recall all funds)
Bank insolvent - government rescue required
Loan book quality
If good qualityPositive investor confidence - more funding
Margins realised
Loan repayments
Book grows
If bad quality
Loan impairments
Losses
Negative investor confidence - withdrawal of funding
Declining liquidity
Declining loan book
Increasing NPL’s
Cost of NPL’s
The Turnaround Strategy
Government had to intervene to restore confidence and address going concern uncertainties
Land Bank turnaround strategy - timeframes
Sep 10Sep 09 Mar 11 Sep 11 Mar 12Mar 09 Mar 10Sep 08
Clean-up
Stabilisation
Sustainability
Break even
More emphasis
on cleanup to enhance
controls
More focus on
stabilisation
Increasing focus on
sustainability
Time
Effort
Phases of the turnaround strategy - definition
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
The stabilisation efforts are intended to stabilise the bank financially and functionally:
• HR• IT• Liquidity• Balance sheet• Cost to income• LDFU
Clean-up Stabilisation Sustainability
Turnaround Progress Report
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
Progress … Stabilisation (HR)
• 5 of 8 executive positions occupied
• Interviews for 3 more in 1 to 2 weeks time
• 68 critical positions filled
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
Progress … Stabilisation (funding and liquidity)
Monthly Cash Balances from March 07 to March 09 (R'm)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Mar07
Apr May Jun Jul Aug Sep Oct Nov Dec Jan08
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan09
Feb Mar Apr May Jun 07Jul09
Months
Progress ... Stabilisation (balance sheet)
Intensify efforts to recover non-performing loans to improve the balance sheet
Key performance indicator Actual (unaudited)
Collection on non-performing loan book Collected R541 million
Maximise corporate finance unit (CFU) pre-legal recoveries
Recovered R157million
Maximise pre-legal retail recoveries Recovered R376 million
Maximise LDFU recoveries R14.7 million recovery.Guarantee of R53 million inplace.R130 million letters of intent.
Progress... Stabilisation (balance sheet)
Excluding LDFU
Progress... Stabilisation (Increasing repayments by development clients)
0
20
40
60
80
100
120
140
160
180
Mill
ions
Total development collections
Progress... Stabilisation (capital improving)
-
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
Land Bank Equity 1999-2008Excl Guarantee
Equity expected to improve
Progress... Stabilisation (improving cost-to-income)
Improvements due cost reduction
Progress... Stabilisation (cost reductions)
Marketing costs 30
Professional fees 12
Personnel costs 12
Travel and other costs 6
60
Progress... Sustainability (loan book stabilising)
Total Loan Book (R'bn)
12
13
14
15
16
17
18
Development as core to the business
Development
Area of Intervention Progress Report
Meet objectives of the mandate of the bank
Development adopted as core to the business of the bank
Formalisation of development policy Policy approved
Mainstreaming of development Development impact parameters approved
Implementation of development pilot projects
Projects being considered for approval
Development financial targets
Commercial Development
Retail Development
Corporate Clients Development
Total Development
2010 200,000,000 250,000,000 450,000,000
2011 250,000,000 600,000,000 250,000,000 1,100,000,000
2012 250,000,000 120,000,000 250,000, 000 1,700,000,000
Total Growth 500,000, 000 200,000,0000 750,000,000 3,250,000,000
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
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
Thank you
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)
• Direct funding 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 focused rural 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