A breakdown in agricultural support structures appears to have sparked a crisis in the Land Bank. Allegations of mismanagement have dogged the institution in recent years, but the emerging farmers the bank is meant to help have been left worst off.
Although a forensic audit of the Land Bank has not been made public, on Wednesday the ministry of agriculture and land affairs said it had ‘revealed some ultra vires transactions falling outside the scope of the Land Bank mandate and Act”.
Emerging farmers complain of slow turnaround times and high interest rates. It takes an average of six months for loans to be approved and sometimes longer, said Aggrey Mahanjana, managing director of the National Emerging Red Meat Producers’ Organisation. According to Mahanjana, interest rates of between 17% and 20% were being offered by the Land Bank, which is currently prime plus 5%.
Kraai van Niekerk, DA spokesperson on agriculture and former agriculture minister said that while no two farmers had the same interest rate, long-term loans were being offered at between prime minus 1% and prime plus 2%. ‘The higher the risk, the higher they go,” he said, explaining that an overdraft could attract an interest rate of prime plus 3% or more.
Previously a profitable institution, the Land Bank has received qualified audits for the past three years, according to Van Niekerk. In March, Cabinet approved a R1,5-billion guarantee and a R700-million cash injection to recapitalise the bank. Banks normally operate on cash reserves of between 15% and 21%, but by March, the Land Bank’s reserves had fallen to 5%. Without the recapitalisation, the bank would not have been able to pay its own funders, said Van Niekerk.
It appeared last week that government had finally had its fill of bad news from the Land Bank. On receiving the forensic audit from Deloitte, the Cabinet referred the report to the police and to the National Prosecuting Authority for further investigation.
It recommended that criminal proceedings be instituted against anyone who ‘acted inappropriately and negligently”, that members who failed to act within the confines of their duties be disciplined internally, that all loans that were written off be reviewed, and that remedies for recovering ‘undue benefits” be investigated.
The bank’s management would also be reviewed and government would evaluate whether the board had acted with the ‘necessary care required and fiduciary responsibility”.
The agriculture department and treasury were given the task of turning the bank around, according to a statement from the ministry of agriculture.
Deloitte’s findings have not been made public, but it appears that the Land Bank was riddled with corruption. At least one of Deloitte’s informants has alleged intimidation. According to a DA press release: ‘The informant states in documents submitted to the forensic team that during the first week of March 2007 an Indian man in his late thirties driving a dark blue BMW arrived at his home and said to him: ‘You are dealing with very resourceful people. They are very well connected. Leave it alone before it is too late!’ On Thursday, May 17 2007, an unknown person tried to run him over. The informant fortunately escaped with bruises and lacerations by leaping out of the way.”
There are indications that former CEO Alan Mukoki may have been thwarting the investigation. In August, Minister for Agriculture and Land Affairs Lulu Xingwana, in reply to a question about the forensic investigation, said ‘there were problems earlier, but the investigators have had full and unfettered access to files and information since the CEO of the Land Bank left in July”. Van Niekerk complained that Mukoki had not appeared before the portfolio committee for the past two years to answer questions, but had sent junior officials in his stead.
Part of the problem, according to Van Niekerk, was that the bank’s risk assessment measures had crumbled. The Agricultural Credit Act, which was repealed in 1999 and offered subsidised loans to farmers with no collateral, had had a national network of field officers, with magisterial committees headed by district magistrates and neighbouring farmers who closely supervised the loan money. After World War I, many returning soldiers, who previously had not been farmers, were given land and close assistance by agricultural extension officers
‘Now, I think they’ve got 18 extension officers; there is no supervision of money in the field, and they’ve received a government instruction to use profit on the loans to commercial farmers to subsidise emerging farmers,” Van Niekerk said of the Land Bank’s plight. ‘The Land Bank has to make money to survive, or it has to be changed to a social welfare department.”
Under pressure to transform, the Land Bank lost many of its experienced staff members to the commercial banks, who were then able to offer its best clients — established, low-risk farmers — better interest rates on loans and a full banking service. The big four banks gained the agricultural knowledge and expertise that had once been the preserve of the Land Bank, Van Niekerk explained.
Servicing emerging farmers and losing established commercial farmers as clients meant the bank’s capital base was run down. Previously, it sourced 75% of its funds on the open market and 25% of its funds were its own.
Government was the sole shareholder, and the bank was not required to pay a dividend, which meant that it could offer better interest rates.
But with the loss of capital it had to compete for all its funding, and was no longer in a position to offer good rates. The loss of skills also affected its evaluation of potential borrowers, Van Niekerk said, as the bank was no longer able to evaluate loan applications properly.
The Sunday Times reported last week that R2-billion was used to fund golf estates, a sugar mill, equestrian estates and residential developments that benefited ‘close friends and business associates” of top officials in the bank. This would have been part of the bank’s turnaround strategy to fund high-return projects in order to get the money to help emerging farmers.
However, the ministry’s statement this week said that this amount was inaccurate. ‘The bank’s exposure to the land for development transactions is about R1-billion — The aforementioned transactions represent active loans for which the value of the security on these transactions is adequate to cover the exposure,” the statement said.
Head of treasury Makgale Gwangwa and former senior finance manager Kumenderi Pillay had not been implicated in the report and had never been suspended, the statement added.
Earlier this week, Mukoki told Talk Radio 702 that the bank had funded these developments because ‘the agri business that we had at the time cannot make that money so that it can deliver”. In terms of the Public Finance Management Act, he could assume that the bank’s new strategy had been approved if no answer had been received 30 days after making a submission.
‘We are not going to be able to get capital from any other place and we have to be reasonable, because there is no reason for the government to continuously subsidise the Land Bank in the first place. The Land Bank must be able to stand on its own,” he said.