Land Bank Corporate Plan 2005/06 Presentation: Portfolio Committee on Agriculture & Land Affairs

1. Land Bank Corporate Plan 2005/06Presentation: Portfolio Committee on Agriculture & Land Affairs

2. Overview of Presentation • Corporate Plan Overview • The Turnaround Plan • Financial Objectives • Non Financial Objectives • Questions and Comments

3. Land Bank Vision and Mission Land Bank Vision • To be the leading provider of world-class financial services to agriculture and related rural sectors in South Africa Land Bank Mission • Land Bank is an agricultural development finance institution that supports economic growth through the provision of retail, wholesale, project and micro-financial services to agriculture and related rural services

4. Land Bank Accountability • The State is the only shareholder, represented by the Minister for Agriculture and Land Affairs • Our activities are governed by the Land and Agricultural Development Bank Act, 2002 (Act no. 15 of 2002) and financial management guidelines provided by the Public Finance Management Act (Act no. 29 of 1999)

5. Land Bank Strategic Framework • Our programmes are aligned with government’s key strategic programmes in the agricultural sector: • Agricultural Sector Plan • Integrated Sustainable Rural Development Programme • Comprehensive Agricultural Support Programme (CASP) • Shareholder Compact

6. The Land Bank Corporate Plan 2005/06 George Oricho GM Strategy

7. Land Bank Priorities • Implement more effective banking and financial business systems • Implement processes and actions to ensure best practice and compliance with AC133 • Reposition the Bank to grow the commercial and development books • Increase focus on financing BEE transactions, in terms of the Agri-BEE framework

8. Land Bank Priorities • Completing the Business Process Review by November 2004, to ensure: • Improved productivity; • Streamlined operations; and • Enhanced customer service • Consolidate the management team • CEO candidate identified -- appointment process close to finalization • Senior management positions to be filled by November 2004 • Continue to support Government’s priority programmes • Land reform • Agricultural credit scheme • Food security

9. Important Economic Developments • Drought and delayed rains in Western Cape has a major negative impact on the agricultural sector • Strong rand causes great difficulty for agricultural exporters such as wine and citrus producers • Grain prices are extremely low, especially serious for maize producers • Carryover stocks in wine and maize sectors will continue to put downward pressure on prices • Sugar industry is benefiting from strong international sugar price

10. Land Bank Strengths • Land Bank has a well established brand name • Excellent relationships have been established with Provincial Governments • Staff has thorough knowledge of agriculture • A tailored range of products are available at competitive rates & fees • Bank is regarded as loyal to the agricultural sector, friend in good and bad times • Branch offices offer local decisionmaking

11. Land Bank Weaknesses • Retail has relatively high delivery costs • Limited product range in a single, high risk sector • Lack of satisfactory computer information system • Insufficient outreach in deep rural areas • Turnaround times are excessive

12. Land Bank Opportunities • Client base will be broadened through MAFISA, AgriBEE and other shareholder initiatives • Footprint can be extend through co-op and agribusiness network • BEE acquisitions are business opportunities • Can develop innovative modern products for old and new markets • Land redistribution initiatives offer new possibilities • New tailored information system will increase market and service opportunities

13. Land Bank Threats • Loss of preferred status through revisions to the Land Bank Act • Loss of staff expertise • Workforce that lacks tools, motivation, training • Bad debts resulting from adverse economic or climatic conditions • Expectations that are not achieved in reasonable timeframe • International competitors in the face of increased variability in net farm income and increased cost of debt

14. The Land Bank Turnaround Plan

15. Commercial Loan Book,Trend Line and March 2005 Target

16. Development Loan Book,Trend Line and March 2005 Target

17. Arrears Amounts, Trend Line and March 2005 Target

18. Non Performing Loan Balances, Trend Line and March 2005 Target

19. Return on Assets, Trend Line and March 2005 Target

20. Net Interest Margin, Trend Line and March 2005 Target

21. Efficiency Ratio, Trend Line and 2005 Target

22. Capital Adequacy, Trend Line and March 2005 Target

23. The Capital Adequacy Issue • Land Bank capital has been reduced significantly due to bad debt write-offs and the adoption of a new accounting standard known as AC133 • This reduction impacts the financial ratios used by investors to assess the credit worthiness of the Bank • Erosion of capital results in a loss of investor confidence in the Bank’s ability to withstand any future financial shock

24. Sources of Potential Shock • Prolonged or severe drought, • Financial failure of one or more large borrowers • Persistent low commodity prices • A large drop in land values used as security for loans • Adverse consequences resulting from additional changes in accounting treatment • Continued strong rand

25. The Capital Adequacy Issue • Historically Land Bank’s capital adequacy has been kept above 15% • In the past two years the ratio has fallen well below 15%. • To provide sufficient cushion for possible future adverse events and to restore investor confidence in the financial strength of the Bank, a prudent capital adequacy level would be at least 20%

26. Land Bank Role in Agricultural Transformation • The BEE transactions and other empowerment projects being financed or currently being considered for financing by the Bank’s CFU business is approaching R3.7 billion • The current Retail book to start up farmers amounts to R663 million • Step-Up adds another R74 million in loan volume

27. Land Bank Role in Agricultural Transformation • Since the Bank serves as one of the instruments of Government’s effort to encourage and support black economic empowerment in agriculture, it is important that the Bank’s capital adequacy position be sorted out as a matter or urgency. • A higher capital adequacy ratio will improve the credit rating and dampen investor fears regarding the risk of lending funds to the Bank.

28. The Capital Adequacy Issue • An appropriation of R2 billion will increase capital adequacy ratio to nearly 20% • Is adequate to shore up Bank’s financial strength and restore investor confidence • A capital injection will require Bank to implement a turnaround plan to ensure: • profitability is maintained • sustainability is ensured • capital adequacy is maintained

29. The Turnaround Plan • Improving Management Capacity • Skills and experience • Organisational Structure • Training and development • Selection, recruitment and retention of skills • Reward, recognition and incentives • Performance management; • Culture and values • Employment equity • Developing appropriate business models

30. The Turnaround Plan • Enhancing Bank Revenue Model • Pricing model • Net interest income • Non interest revenue • Creating new loan products • Creating non interest sources of revenue • Increasing client satisfaction • Understanding competitive environment and our clients

31. The Turnaround Plan • Controlling Costs • Cost to income ratio, operating efficiencies and increasing productivity • Loan book quality (Bad Debts) • Funding costs • Non interest costs • Expense reduction

32. The Turnaround Plan • Installing Information Systems and Processes • Implementation of Banking Solution • Reliable management information • Action plan management information • Improve client interface and integration • Enabling environment to manage risk and compliance

33. The Turnaround Plan • Managing Risk • Market risk • Interest rate risk • Enterprise wide risk management • ALCO process • Credit risk, liquidity, market, operating, • Banking risks and returns, profitability, liquidity, and solvency

34. The Turnaround Plan • Managing and Protecting Capital • Capital planning • Return on capital, economic value added • Development programme • Engage treasury • Capital injection

35. The Land Bank Financial Objectives

36. Loan Growth

37. Business Efficiency

38. Loan Quality

39. Profitability

40. Capital Adequacy

41. The Land Bank Non Financial Objectives

42. Non Financial Indicators

43. Questions and Comments

44. Thank You