South Africa’s commercial banks are up in arms over the Land and Agricultural Development Bank Act passed recently, which bankers say was intended to shield the Land Bank from Zimbabwe-style land invasions in South Africa.
The new Act allows the Land Bank to claim all the income of any farmer who falls into arrears with it.
About half of all South African farms are mortgaged to commercial banks as well as the Land Bank.
Commercial bankers say the Act effectively removes half of all the collateral they hold in farms and the Banking Council has asked the Land Bank to have the law amended.
”The Act suggests an underlying political agenda and efforts to create a soft landing for the country for a Zimbabwe scenario in South Africa,” Andre Louw, general manager of Absa AgriBusiness, South Africa’s largest agricultural lender, told farmers at a recent meeting in Bellville.
The Act favours the Land Bank above all creditors, including agricultural cooperatives, when a borrower defaults. The law takes precedence over legislation affecting financial institutions, short-term and long-term insurance, pensions and unit trusts.
”Farmers and banks are faced with the implications of the legislation, which was hurried through Parliament without prior consultation,” Louw told the Mail & Guardian.
The Constitutional Court declared the previous Land Bank Act unconstitutional two years ago and said it should be reviewed. The law was redrafted, but the Banking Council was permitted to meet Parliament’s agricultural portfolio committee only on May 7, after the Bill was gazetted.
Said Anthonie Ehlers, economist for Standard Bank’s agricultural division: ”Various sections in the Act raised concern for other financiers in agriculture. These concerns have now been escalated to the Deputy Minister of Agriculture, Dirk du Toit, in an effort to get the legislation amended.”
He said the implications of the Act were diametrically opposed to healthy competition in the agricultural financing market and that imbalances could develop from the situation.
”Split banking initiatives between the Land Bank and commercial banks might be discouraged. Farmers may be forced to choose between the Land Bank and commercial banks, and a limited product range would be available to commercial agricultural customers partially financed by the Land Bank.”
Ehlers said there would be an increased administrative burden for all banks. Commercial banks would need to be well informed of a farmer’s position with the Land Bank before any applications for production credit against liens over crops could be considered.
Under the Act, commercial farmers would need to get written consent from the Land Bank before they disposed of produce it had financed. Farmers also may not transfer property encumbered with a loan for farm improvements without a certificate signed by an authorised official of the Land Bank.
The banking industry is taking a conciliatory line in the hopes of getting the Act amended.
”We … want the more onerous parts of the Act sanitised, because their presence in the Act effectively preclude farming partnerships between commercial banks and the Land Bank,” said Stuart Grobler, general manager of the Banking Council.