It argues that by taking an increasingly large share of the market it will help to keep costs down.
A celebratory mood pervaded Monday’s presentation of the Land Bank’s most recent financial results with its leaders hailing them as one step closer to its goal of having a 35% market share by 2016.
The bank’s chairperson, Ben Ngubane, said he was “particularly delighted” with the bank’s level of delivery, which saw its total adjusted income for the year increase by 44% to R154.3-million and its gross performing loans up by 26% to R29.5-billion.
Its chief executive, Phakamani Hadebe, said: “It’s been a tough year but I think the fundamentals have been in [place]. Our loan book has grown within acceptable measures and we have taken reasonable measures against risk.”
The bank would increase its loan book by R3.3-billion next year, Hadebe said, in line with its plan to take up more than a third of the total agricultural debt market by 2016.
Last year, the institution’s market share was 30.2%, of the total agricultural loan market, worth R92.7-billion. By June this year, it was estimated to be 31.7%, which is R29.5-billion, although the numbers would only be confirmed at the end of the year, he said.
That figure was set to increase by about 2% each year for the next three financial years, cutting into the R50.3-billion of the market currently dominated by commercial banks.
Still it rises
Although the Land Bank’s market share had dipped four years ago amid allegations of financial mismanagement (in 2010 it was only 20.6%, less than half of the portion owned by the banks), it had subsequently risen again, said Hadebe. The rise in market share spelled good news for farmers, as it brought the cost of debt down across the sector, he said.
“When people [seeking finance] left the Land Bank, it increased the average lending rate in the sector, which decreased the average return on investment,” he said. Although other factors had also played a role in the decreased level of profitability in the sector, there was “no doubt a correlation” between this and the role played by the Land Bank.
Those reporting at the results session predicted that the thin margins currently faced by farmers are unlikely to abate in the next two or three years, which heightened the importance of the bank’s developmental role.
Also the growing tendency of commercial farms to collaborate and rely on economies of scale to stay profitable presents significant barriers for emerging farmers to enter.
In the year under review, the bank disbursed R654.6-million (exceeding the shareholder’s target of R550-million) under the broad guise of development.
It included R163-million to emerging farmers through the retail emerging markets division; R117.9-million to small- and medium-sized co-operatives and companies through the retail commercial banking division; and R373.7-million to larger agribusinesses through the business and corporate division.
"Clearly on track"
Minister of Rural Development and Land Reform Gugile Nkwinti said the Land Bank was “now an institution that is clearly on track”, but that the government required more for the development of emerging farmers. “We want to see the Development Bank of South Africa playing an even larger role,” he said.
The bank has penned this into its mid-term goals. By 2016, it aims to increase developmental investment to 15% of its total book. With development expenditure currently at R1.8-billion, it needs to increase it to R6-billion to achieve this goal.
Litha Magingxa, senior manager of strategy and planning, told the Mail & Guardian this would involve providing finance and other support to emerging farmers “to enable them to participate successfully in the agricultural sector and promote graduation to thriving commercial enterprises”.
Hadebe, who is leaving the bank, was hailed as the golden boy who steered the bank out of the financial doldrums and put it on the path to achieving its 2016 goals.
“The minister asked me to beg him to stay,” said Ngubane. “It’s a sad story that he is about to leave.”
Sentiments regarding his departure were in sharp contrast to the exit of his predecessor in 2009. The acting Land Bank chief executive, Phil Mohlahlane, was fired in January of that year after being found guilty of siphoning money from the AgriBEE (black economic empowerment) Equity Fund.
On the recommendation of the then minister of agriculture and land affairs, Lulu Xingwana, the Cabinet also sacked the entire board of the bank.