land bank corporate plan 2005/06 presentation: portfolio committee on agriculture & land affairs
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Land Bank Corporate Plan
2005/06
Presentation: Portfolio Committee on Agriculture & Land Affairs
2
Overview of Presentation
Corporate Plan OverviewThe Turnaround PlanFinancial ObjectivesNon Financial ObjectivesQuestions and Comments
3
Land Bank Vision and Mission
Land Bank VisionTo be the leading provider of world-class financial
services to agriculture and related rural sectors in South Africa
Land Bank MissionLand 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
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)
Land Bank Accountability
5
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
Land Bank Strategic Framework
The Land Bank Corporate Plan
2005/06
George OrichoGM Strategy
7
Land Bank Priorities
1. Implement more effective banking and financial business systems
2. Implement processes and actions to ensure best practice and compliance with AC133
3. Reposition the Bank to grow the commercial and development books
4. Increase focus on financing BEE transactions, in terms of the Agri-BEE framework
8
Land Bank Priorities
6. Completing the Business Process Review by November 2004, to ensure: Improved productivity; Streamlined operations; and Enhanced customer service
7. Consolidate the management team CEO candidate identified -- appointment process close
to finalization Senior management positions to be filled by November
2004 8. 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 expertiseWorkforce that lacks tools, motivation, trainingBad debts resulting from adverse economic or
climatic conditionsExpectations that are not achieved in reasonable
timeframe International competitors in the face of increased
variability in net farm income and increased cost of debt
The Land Bank Turnaround Plan
15
17,93516,445
15,11115,21814,80114,653
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1999 2000 2001 2002/3 2003/4 Jan-05
Year
Lo
an
Vo
lum
e (
R m
)
March 2005 Target 16,835
Commercial Loan Book,Trend Line and March 2005 Target
16
2,535
1,0961,042
451413317
-500
-
500
1,000
1,500
2,000
2,500
3,000
1999 2000 2001 2002/3 2003/4 Jan-05
Year
Nu
mb
er
of
Lo
an
s (
R m
)
March 2005 Target 1,775
Development Loan Book,Trend Line and March 2005 Target
17
Arrears Amounts, Trend Line and March 2005 Target
1,490
1,009
1,561
2,551
1,506
749
-
500
1,000
1,500
2,000
2,500
3,000
1999 2000 2001 2002/3 2003/4 Jan-05
Year
Nu
mb
er
March 2005 Target Less than 4% of total book
18
Non Performing Loan Balances, Trend Line and March 2005 Target
3,003
3,001
3,376
4,939
4,0103,148
-
1,000
2,000
3,000
4,000
5,000
6,000
1999 2000 2001 2002/3 2003/4 Jan-05
Year
Lo
an
Ba
lan
ce
s
March 2005 Target7% of Loan Portfolio
19
Return on Assets, Trend Line and March 2005 Target
3.0%2.5%
1.9%
1.3%0.4%
-8.1%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Year
Pe
rce
nt
Re
turn
on
As
se
ts
1999 2000 2001 2002/ 2003/4 Jan-05
March 2005 Target 2.4%
20
Net Interest Margin, Trend Line and March 2005 Target
2.1%
3.3%
4.3%4.6%
4.9%
5.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
1999 2000 2001 2002/3 2003/4 Jan-05
Year
Ma
rgin
March 2005 Target 4.3%
21
Efficiency Ratio, Trend Line and 2005 Target
95.0%
43.0%37.8%
36.9%34.7%
28.0%
31.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
1998 1999 2000 2001 2002/3 2003/4 Jan-05
Year
Pe
rce
nt
22
Capital Adequacy, Trend Line and March 2005 Target
21.7%
12.0%
12.9%14.6%
21.8%
19.0%
16.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1998 1999 2000 2001 2002/3 2003/4 Jan-05
Year
Pe
rce
nt
March 2005 Target 17.7%
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 borrowersPersistent low commodity pricesA large drop in land values used as security for
loans Adverse consequences resulting from additional
changes in accounting treatmentContinued 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
The Land Bank Financial Objectives
36
Loan Growth
Loan Growth Mar. 2004 Mar. 2005 Mar. 2006
Retail (15.0%) (5.6%) 7.1%
Wholesale 13.9% 16.6% 0.2
Development 13.2% 22.9% 19.1%
Step Up 1.5% 4.1 15.2%
37
Business Efficiency
BusinessEfficiency
Mar. 2004 Mar. 2005 Mar. 2006
Cost to incomeratio
43% 108% 86%
38
Loan Quality
Loan Quality Mar. 2004 Mar. 2005 Mar. 2006Non performingloans
18.5 16.9% 12.1%
39
Profitability
Profitability Mar. 2004 Mar. 2005 Mar. 2006
Net interestmargin
4.3% 1.8% 2.4%
ROA 0.6% -5.8% 0.4%
ROE 5.5% -125.3% 7.1%
40
Capital Adequacy
CapitalAdequacy
Mar. 2004 Mar. 2005 Mar. 2006Mar. 2006 with capitalinjection of R2 billion
Capital Ratio 9.8% 4.6% 5.1% 16.4%
The Land Bank Non Financial
Objectives
42
Non Financial Indicators
Non-Financial Indicators Target - 2005/6
Development ProgramExpand outreach, loan volume, gender access, supportservices, household income and jobs in rural communities andagricultural businesses
Employee relations Improve job satisfaction based on survey results
Client relations Improve client satisfaction based on survey results
Safety and Health Promote better health and safety for clients and staff
Environment Make loan policies and Bank practices environmentally friendly
Transformation Lead financial institutions in AgriBEE initiatives
HIV/AIDS Implement program that demonstrates Bank commitment
Questions and Comments
Thank You
45
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