2 Background Purpose Key elements of our Corporate Plan Scanning the environment and building...

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Background Purpose Key elements of our Corporate Plan Scanning the environment and building

capacities Supporting values Operating principles Objectives Financial resources and sources of income

(refer to budget presentation) Conclusion

CONTENTS

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BACKGROUND

Over the past five years the Land Bank has had low levels of capital and has been making losses

Land Bank is currently not delivering effectively on its development mandate

• About R821m are development loans• Funding development in the financial markets

presents challenges for the Land Bank

The Land Bank has lost its market share over the past five years due to the following:

• Growth of the financing in the sector outpaced that of the Bank

• Constraints of financial resources• Removal of Government subsidies and financial

support to farmers

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BACKGROUND (Cont)

Demand for agricultural finance has increased due to

» Improved farm incomes » Rising input costs» Expanding production

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PURPOSE

The objects of the Bank are the promotion, facilitation and support of

• Equitable ownership of agricultural land, in particular the increase of ownership of agricultural land by historically disadvantaged persons

• Agrarian reform, land redistribution or development programmes aimed at historically disadvantaged persons or groups of such persons for the development of farming enterprises and agricultural purposes

• Land access for agricultural purposes• Agricultural entrepreneurship • Removal of the legacy of past racial and gender

discrimination in the agricultural sector

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PURPOSE (Cont)

• enhancement of productivity, profitability, investment and innovation in the agricultural and rural financial systems

• Programmes designed to stimulate the growth of the agricultural sector and the better use of land

• Programmes designed to promote and develop the environmental sustainability of land and related natural resources

• Programmes that contribute to agricultural aspects of rural development and job creation

• Commercial agriculture• Food security

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KEY ELEMENTS OF CORPORATE PLAN

MissionTo promote and facilitate access to ownership of land by PDI for agricultural purposesTo increase the levels of productive land useTo support emerging farmersTo support commercial agricultureTo promote agricultural entrepreneurship

Strategic Goals Ownership of land (PDI) Agrarian reform and

development programmes for emerging farmers

Financial Services for the rural economy

Support Commercial agriculture Ensure food security Support creation of employment

opportunities

External Driving Forces & Internal Constraints

Energy prices

Interest rates

Rising commodity prices

Financial performance of the bank

Capacity to deliver•Skills shortage •Inadequate systems

Reputation of the Bank

Fin

Plan/

Budget

Shareholder Compact

KPA’s & KPI’s

Our vision is to promote, facilitate and support the achievement of sustainable food production and security, development of rural economies and growth of the agricultural sector

Short/Medium Term Objectives

Stabilising the business

New Funding Model

Service delivery /Development

Management Capacity

Controlling Costs

Information Systems

Managing risks

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SUPPORTING VALUES

Guided by Batho Pele • Integrity

– Honest and ethical conduct in all of our interactions. Honoring the dignity and worth of all. Ensuring fairness and equitable access to our services

• Professionalism and Service excellence– Executing all activities in a professional manner

thereby ensuring that we exceed delivery expectations for quality, responsiveness and value to our customers.

• Accountability– Taking personal ownership to meet commitments

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• Cost consciousness – Using all our resources in the most cost

effective manner

• Innovation – Open and receptive to new ways of

conducting ourselves and our business, seeking to continuously improve our service delivery

SUPPORTING VALUES

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Scanning Environment and Building

Competencies

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ECONOMIC FACTORS

OUTLOOK

• Slow down in international and local growth• Increase in commodity prices• Increase in input costs• Increase in inflation• Increase in interest rates• Higher producer prices

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Current trends in agriculture: To 2006, long-term agricultural profit margins declined despite overall

growth in gross farming income In 2007 profitability improved, while production costs are also rising

Removal of government intervention has exposed agriculture to inherent

volatility Increasing consolidation and sophistication among commercial farmers Favourable opportunities for wheat, other grains (maize) and oil seeds Livestock improvement programme of DoA One municipality one product concept of DoA/DLA

Agriculture sector performance

Food is increasingly getting beyond reach for the poorest nations as consumers worldwide grapple with the spike in prices of basic commodities, attributable to:

•Freak weather conditions•Dramatic changes in the global economy, including higher energy prices, lower food reserves and growing consumer demand•Changes in consumer needs and diet patterns influenced by changes in income levels and settlement patterns •Increasing production costs

Food security and food prices

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LAND BANK PRODUCT AND SERVICE OFFERING RELATIVE TO THAT OF THE COMMERCIAL BANKS

Land Bank has a very narrow product range that consists of a simple debt products vs. a holistic offering by commercial banks that become the primary bankers for farmers

BANK 1

•Transaction and

savings account

•Complete suite of

short, medium and

long-term loans

for production and

mortgage finance.

•Revolving credit

facilities for

working capital

finance

•Wealth creation,

and estate

planning products

•Commodities trading and hedging facilities

•Crop insurance and life insurance products

BANK 2

•Transaction and savings

accounts

•Production credit and

term loans for inputs, land

and fixed capital

•Silo certificate finance

•Revolving overdraft credit

for working capital

•Investment profit CTS

•Crop insurance and life

assurance products

•Grain trading and facilities

•International banking

LAND BANK•Short-term

production loans

•Revolving short-

term cash credit

accounts

•Medium-term

installment sale

finance loans

•Medium term

establishment loans

•Long-term mortgage loans

Livestock financing

•Land bank terms are in

general less stringent

than commercial banks.

•Land Bank allows longer

repayment periods on

mortgage

•Financing norms outdated

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Price

Service delivery

Agric expertise

• Competitive market related interest charges

• Transaction and service fees

• Competitive market related interest charges

• Transaction and service fees

• Interest rates currently priced above the rest of the market

• No transaction fees

Bank 1 Bank 2 Land Bank

• Quick processing and turnaround time

• Quick processing and turnaround time

• 20 specialist managers, 22 agricultural economists, 120 agri-bankers

• 53 agri-businesses specialists

• 28 agricultural experts

• 7 person research unit

• Slow processing and turnaround time

*According to interviews with commercial farmersSource: Adapted from Team Analysis (Mckinsey : 2005)

Reduce cost of funds through government support and raising funds for dev separately, & MAFISA

Implement an adequate IT systemHubs and satellite offices

Recruit relevant resources in economics, agriculture science and banking business.

Solutions

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Bank 1 Bank 2 Land Bank

Channels

• Leverages off wide retail distribution network

• Technology-centric proposition, incl. internet banking, electronic banking, cell phone banking

• Leverages off wide retail branch network

• Very sophisticated and technology driven proposition, inc. internet banking, electronic banking (using custom software)

• Limited number of branches

• No internet banking, telephone or cell phone banking

• Inadequate and outdated system and loan processing

Brand Good brand Good brand • Low brand strength• Negative publicity

Introduction of hubs or satellite offices within reasonable proximity to target market – 47 municipalities, partner with other local municipalities

Overhaul IT systems

Solution

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Historical Performance 2005 – 2007

2005 2006 2007

Total Assets (Rbn) 20.1 17.6 19.1

Net Interest Margin Before Provisions (%) 3.3% 2.4% 2.8%

Net Profit/(Loss) (Rm) (208) (100) (99.5)

Cost to Income Ratio (%) 54.8% 58.9% 81.0%

Non Performing Loans (% of gross loan book)

14.0% 11.4% 15.3%

Capital Adequacy Ratio (CAR) excluding R1,5bn Gaurantee

7.30% 5,76% 5,95%

Capital Adequacy Ratio (CAR) including R1,5bn Guarantee

14.7% 13.6% 14.3%

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COST OF FUNDSCOST OF FUNDING

AVERAGE COST OF FUNDING (NACM)

6

7

8

9

10

11

12

13

14

15

AUG '05 OCT DEC FEB '06 APR JUN AUG OCT DEC FEB '07 APR JUN AUG OCT DEC JAN '08 FEB MAR

%

SHORT MEDIUM LONG TOTAL PRIME

The total Cost of Funding (turquoise line) reflects the weighted average of Land Bank’s short, medium and long term portfolios. Although our spreads have recently been put under pressure, increases in market rates also contributed to the rise in Cost of Funding.

OPERATING PRINCIPLES

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OPERATING PRINCIPLES

We operate on the principles of:• Accessibility

– A network of 27 Branches• Direct and indirect lending to agriculture

– Long term mortgage loans – Short and medium term production loans– Cash credit facilities to Agri-businesses and co-ops

• Forming alliances and partnerships– Cooperatives and agri-businesses (wholesale funding)– Permanent staff of 613 excluding vacancies

• Supporting emerging farmers– Targeting new markets– Including former homelands

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STRATEGY

Stabilise the BusinessDeliver on developmentReview the funding model

OBJECTIVES (SHORT TO MEDIUM TERM)

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Management stability - Filling critical vacancies, including specialists

Restore health of staff – culture, morale and performance

Improve credit granting & monitoring processes, and policies

Source Senior staff; Appoint interim consultants to fill critical areas.

Develop and Implement a change management program.

Ensure consistent communication and better employee interrelations.

Design, develop/acquire and implement an appropriate risk rating system

Ensure adequate competency levels to execute credit risk management.

Enhance credit risk management systems

Accelerate predictive modeling, application scoring and risk rating.

PRIORITIES 2008/9 MITIGATION 2008/9

STABILISING THE BUSINESS

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Improve internal controls and governance

Build capacity to manage risks associated with development funding

Implement Enterprise Risk Management Framework

Review Delegation of Powers

Form partnerships with Co-ops and other service providers

Internal capacity of development specialists in alignment with DoA extension officers and ARC



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Restructure high value non-performing loans

Maintain support to commercial

farmers

Interventions to address key non-performing loans taking place to recover outstanding debts

LDFU: Awaiting Senior Counsel opinion regarding legal matters and recovering the outstanding debt– 15 May 2008

Continuing to support commercial agriculture



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Managing operating costs

Overhaul IT infrastructure (12 - 18 months)

Review spending on consultants Costs are being managed down Instill culture of budget control

Implement core banking solution Customer Relationship

Management system Risk Rating system



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PROGRESS TO DATELiquidity position of the bank stabilized Interventions to address key non-performing loans

taking place to recover outstanding debtsStabilization of the Finance department taking

place• External audit firms


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Employee Relations Update

Sixteen (16) cases in total

General Managers Four (4) Senior Managers Eight (8) Specialists One (1) Junior Managers Three (3)

Cases finalized = Seven (7)

Found guilty / dismissed:GM Risk FraudGM HR Gross insubordination/negligenceSnr Manager Retail DishonestySnr Manager IT x 2 FraudSnr Manager LDFU Gross MisconductSnr Manager CFU Gross Misconduct

In Progress: CFO Gross Misconduct/DishonestyGM IT FraudSnr Manager HR Gross NegligenceArea Manager Tzaneen – Financial Irregularities Specialist - IT Dishonesty

New Cases:

3 Administrative staff Gross Misconduct/Dishonesty1 Operations Managers Financial Irregularities

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Critical Vacancies

GM Risk GM HR Credit Head – Corporate Banking Head – Internal Audit Head of Retail Senior Manager Finance

Contingency plan in place to ensure continuity of functions

Short term contracts Consultants on retainer

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DEVELOPMENT

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MINISTERIAL PRIORITIES The Bank must also contribute to the implementation of Land

and Agrarian Reform Policy (LARP), which has been initiated to accelerate agricultural development through a delivery mechanism that provides a “one-stop-shop” for agricultural and other support services close to farming and rural communities through (for the next two years):

• Redistribution of 5 million hectares of white-owned agricultural land to 10,000 new agricultural producers

• Increase Black entrepreneurs in the agri-business by 10%

• Provide universal access to agricultural support services to target groups

• Increase agricultural production by 10-15% • Increase agricultural trade by 10-15%

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A key element and priority of this corporate plan is refocusing the Land bank onto the development mandate

• Financing emerging farmers along the value chain• Providing non-financial support to ensure success

Continuing to support commercial agriculture Success on this development mandate is dependent on

government support/grants The Land Bank will create business centres that will

focus on emerging farmer support (As per the Strauss Commission Report):

• Business Centre 1: Development Finance• Business Centre 2: Commercial Finance

Increase reach inline with the 47 district municipalities

CONTRIBUTION TO AGRICULTURAL DEVELOPMENT

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PERFORMANCE INDICATORS Grow development Book by

R3 billion

Profitability

Cost to income• After restructuring costs

Non performing loans

R72m R84m R140m

68% 63% 60%

78% 67% 60%

12.1% 10.1% 7.7%

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FUNDING

RecapitalisationGovernment guaranteesDonor fundingDoA/DLA Grants

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CONCLUSION

One-stop-shop Stabilising the bank Alignment with the DoA/DLA, and other

stakeholders –ARC, DFI Focus on Presidential priorities, Apex priority 7 Focus on increasing agricultural production Long term strategy is to deliver on Land Bank’s

mandate

2 Background Purpose Key elements of our Corporate Plan Scanning the environment and building...

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