Land and Agricultural Development Bank of SA on expenditure of budgetary allocations

Meeting report

Opening remarks

The Chairperson welcomed the Members of the Standing Committee, the delegation from the Land Bank of South Africa, and representatives of National Treasury to the meeting. He said that the Committee had approved appropriations of R3 billion and R7 billion to the Land Bank, because of the bank’s importance to food security and its role in stimulating the economy and supporting development and transformation. He said that the Committee needed to establish the bank’s financial situation to see if it was still in a position to achieve its objectives, as there was naturally an overwhelming interest in the bank being able to carry out its mandate. The Committee would interact with the bank on an ongoing basis to ensure that it was able to reach its objectives. He said that the Committee had already had a glimpse of the status of the bank in the previous week when National Treasury briefed the Committee on state owned enterprises.

Presentation by Land Bank

Mr Mabotha Moloto, Chairperson, Land Bank, introduced the team from the bank. 

Mr Ayanda Kanana, CEO, Land Bank, provided an overview of the Land Bank’s financial position as at the end of March 2021 as well as a progress report on the restructuring of the bank and the filling of critical positions. The presentation also highlighted the measures introduced to assist with the implementation of the South African Economic Reconstruction and Recovery Plan, a general update on financial and liquidity challenges, a profile of the Land Bank’s loan book, appropriations for an injection of equity, as well as the progress made and remaining challenges.

Mr Kanana noted the following challenges as crucial:

• The Bank was unable to access new funding from the financial markets – and would only be able to do so once the default status had been cured.
• The support of the shareholder remained crucial for the bank to conclude a liability solution with its lenders.
• Land Bank’s liquidity constraints had a relatively significant negative impact on the agricultural sector – with 28 percent of the sector’s debt being supported through the Bank.
•  The Bank did not have the liquidity to fully support the agricultural sector with financing requirements at a time of high finance needs in the planting cycle.

He said that since the Bank’s briefing of the Standing Committee on Appropriations in May 2020, the following key challenges remained:

• A liquidity challenge and default position
• Protracted Negotiations to conclude the liability solution
• Financial Performance. There were losses in the 2019/2020 financial year, and further losses were projected up to 2023/2024.
• The risk of an unsustainable bank – and the need for state support in a constrained fiscal environment.
• Significantly reduced support to the agricultural sector.
• A disclaimer of opinion audit outcome for 2019/2020 was issued by the Auditor General (AG). This followed more than a decade of unqualified audit opinion outcomes for the bank.

Ms Khensani Mukhari, CFO, Land Bank dealt with the financial aspects of the presentation, including the financial performance overview, a maturity analysis of loan book and funding liabilities, a remediation plan, as well as the R3 billion and R5 billion appropriations.

She said that a remediation plan had been developed and adopted to address the AG’s Audit findings and implemented for completion within the time period for the 2020/2021 audit. A revised liability solution to restructure repayments of debt was being negotiated with lenders. Corrective interventions were aimed at overall enhancement of internal controls, and were focused on enhanced management of expected credit losses.

A detailed validation exercise of the Bank’s entire loan book portfolio was undertaken to confirm the accuracy of correct staging classification and collateral management at individual account level. The plan involved the termination of some service level agreements (SLAs) and in-sourcing their management. 

Discussion

Mr A Sarupen (DA) asked what the Land Bank had put in place to prevent a second exodus of executives and to ensure executive level stability. This had been identified as one of the key problems that led to all the challenges at the bank. In terms of oversight by National Treasury, he would like to get an understanding of the relationship between the Land Bank and the Treasury now. From the perspective of the Land bank, what was National Treasury doing to ensure that they met the conditions and targets as presented. With regard to loan repayments, he said that one of the big challenges that led to the deterioration of its financial position was a drought which made it difficult for farmers to pay back loans.  He wanted to know how the bank intended to assess its work going forward in terms of choosing projects that were going to be sustainable and resistant to climate change as a form of long-term climate change mitigation. There were bigger problems at play, and if the bank did not include these issues in their risk models and operating models, they might be back to square one.

Mr O Mathafa (ANC) said that currently, the country had very high unemployment rates and it had been proven before that the agricultural sector had four times the labour absorption rate of any other sector of the economy. He wanted to know about the impact of lower loan disbursements on new entrants, especially those that would have seen agriculture as a viable option to turn their economic fortunes around, and create employment for themselves and for those around their  farming operations. He wanted to know how much of the money that was disbursed for production, or any other loans, was disbursed to emerging farmers. The agenda of the governing party, as well as one of the commitments that the Land Bank and the Department of Agriculture had made, was to transform the agricultural sector. New entrants and emerging farmers were the ones that could contribute to the transformation agenda. He wanted to know how much of the R6 billion that was disbursed was spent on existing or new clients and how much spoke to the agenda of transformation and development of farmers.

Mr Mathafa said that while new loans were not being initiated by the bank, the assumption was that there were new applications. He asked for an estimation of the number of new applications that would be ignored because of this new strategic position of not initiating new loans. He asked for a breakdown of the transformation and development loan book. He wanted to know what kind of farmers were being targeted, whether vegetable, livestock, or grape farmers, so that there could be an understanding of the areas that were overpopulated and the areas that were of less interest to farmers in terms of food security. This way the bank would be able to know which commodities were attractive or unattractive to farmers and find a way to assist. He also asked for a breakdown between the domestic and export market that the clients were servicing.

Mr X Qayiso (ANC) wanted to know how the Land Bank made it easy for youth, women, and people with disabilities to access funding and be allowed the opportunity to become emerging farmers. He asked for clarity about the blended finance programme and its status. He also wanted to know the provincial strategy of the transformation agenda. He said that the private sector was very monopolistic and was almost impenetrable, but through the transformation agenda, the Land Bank could play a catalytic role in levelling playing fields so that even the emerging farmers would be able to access that sector. He wanted to know how the recent unrest had affected small and emerging farmers and whether any intervention by the bank was required.

Ms N Hlonyana (EFF) asked for a breakdown of the 28 percent of the sector that the Land Bank supported and wanted to know the number of women and black people who were receiving that support. She also wanted to know how many debts owed by black women farmers had been written off. What strategies had been put in place by the bank to upgrade its credit status? She also wanted to know the number of people who had lost their jobs at the bank because of its current financial situation. Regarding the appointment of a Corporate Finance Advisor to design and implement the emergency liquidity funding solution, she wanted to know whether this was an individual or a consultancy. If it was a consultancy, she wanted to know the name and how much it cost to hire them. She wanted to know which non-core equity investments had been disposed of. In closing, she said that the Land Bank should find a balance. The Committee understood that they were trying to put their house in order, but there should be a serious balance between putting their house in order and making sure that there was stability in the sector.

Ms D Peters (ANC) wanted to know what percentage of the bank’s loan book was made up of emerging farmers. She wanted to know where the footprint of the loan book was in the country. She said that she had a keen interest in knowing what was happening in the Free State, Northern Cape, and parts of the Northwest Province which had had serious challenges with regards to the drought. She wanted to know whether any of the emerging farmers in the Land Bank loan book had been affected by the July 21 unrest, and the destruction of property. If any were affected, she wanted to know what kind of support the Land Bank was giving to them and how the bank was mitigating the risk that the farmers might not be able to service their debts. Regarding the R6 billion disbursement, she wanted to know whether the disbursements were made to existing or new clients and how much of the R6 billion constituted the development and transformation mandate of the bank.

Ms Peters wanted to know the extent to which the COVID-19 outbreak had affected the execution of the agricultural extension services and the movement of agricultural produce to market, especially for the emerging and small holder farmers. She wanted to know whether some of the bank’s emerging farmers support programs were already market ready and whether they were being given the necessary support in terms of access to markets. She wanted to know if there were strategies by the Land Bank and the Department of Agriculture to deal with the impact of COVID-19 and ensure that economic recovery was realised. Lastly, taking into consideration the fact that there had been restrictions on gatherings, she wanted to know how the bank had been doing training, especially in support of emerging farmers.

Mr Z Mlenzana (ANC) said that the Standing Committee on Appropriations had taken a decision in 2019 that it would no longer appropriate money without following up on what was being done with it. “We are also interested in impact,” he said. The topic of economic transformation had been spoken about a lot. The Committee was not going to forsake the Land Bank because it had a key responsibility in the economic transformation of the country. He wanted to know whether the Land Bank had internal audit and risk management procedures and if that was the case, he wanted to know how often the bank implemented such procedures. He wanted to know whether the Land Bank had a “fund-following business plan.” He said that the Land Bank’s presentation showed a picture of serious capacity challenges and wanted to know why there were such challenges.

The Chairperson asked National Treasury’s Chief Financial Officer (CFO) when the Land Bank would  get out of financial ICU. He wanted to know the extent to which the Land Bank could provide finance, as well as the magnitude of applications that the bank had received, and the number and amounts for the applications that were approved. He asked for the exact targets and timelines in development and transformation. He wanted to know how the separation of the commercial, development, and transformation functions at the bank would make the bank sustainable. Considering that the Land Bank was considering winding up commercial banking, he wanted to know what would happen to the commercial farmers that it had been funding. He said that getting a qualified audit report was bad, but it was even worse for a bank to get a disclaimer of audit opinion. He asked the CFO to explain how this had happened. He said that the bank had impairments that were growing and wanted to know what the drivers of those impairments were, as well as which loans were being impaired. He asked for clarity on the bank’s wholesale book and how it worked. He asked the CFO whether it made sense to default on one side while having R5.6 billion in cash in the bank. It seemed as if something was not balancing there. He wanted to know where the investments of R2.3 billion and R5.6 billion were made.

The Chairperson said that the bank had R42.2 billion in total assets on its balance sheet and asked whether all those assets were critical for the running of the core business of the bank, which was funding farmers. He wanted to know whether the bank had looked at the disposal of non-core assets in its attempt to reorganise and strengthen its balance sheet. He wanted to know what the sources of the non-performing loan book were and who was responsible with regard to commercial and emerging farmers. He also wanted to know what actions had been taken regarding the non-performing loan book and whether there were different consequences if the non-performers were emerging or commercial farmers. He said that R5 billion had been appropriated to the bank in the current financial year and asked whether the delay in transferring the money to the bank was not exacerbating a situation that was already bad, because they were already about six months into the current financial year. He said that the bank also received R100 million for COVID-19 relief, but nothing had been done with the funding. He said that this acted against the mandate of the fund, as it was supposed to be used for its intended purpose.

Responses

Mr Moloto said that the oversight that was done by National Treasury over the Land Bank was robust. As an example, when he joined the Bank in 2015, there were challenges that were raised by the Treasury around the Bank’s gearing ratio, as well as the organisational review that the bank needed to perform. The Treasury set certain targets for the Land Bank. He said that there had been various dynamic interactions with the National Treasury. “As we speak now, they are part of the restructuring committee of the Land Bank to ensure that solutions are found to cure the default situation that the land bank is facing.”

Ms Tshepiso Moahloli, Deputy Director-General: Asset and Liability Management, National Treasury, said that the assertion that there was lack of oversight by National Treasury over the Land Bank was incorrect and devoid of evidence. She said that oversight did not mean running the business, and performing the roles and responsibilities of the board and management. The work of National Treasury, empowered by the Public Finance Management Act, was to be held accountable in relation to the legislation. “I think there is also a misunderstanding that National Treasury has a magic wand when it comes to instructions about what entities need to do,” she said. She added that they did not have a lot of tools, but they did use guarantees and guarantee conditions, as well as conditions for the equity that they provided. One of the conditions that the Minister of Finance had set was that the lenders needed to have an agreement in terms of curing the default, otherwise it would not be known where the money was going. An amount of R3 billion had already been given to the Land Bank to assist in paying some of the interest payments that had been guaranteed and the capital that had been guaranteed. Once agreements were finalised, the Minister could then release funds. The Minister was accountable to this Committee and had a responsibility to make sure that those funds were directed to that which had been agreed. In the Budget, the Minister had made it very clear that those funds needed to assist with the curing of the default and reestablish the mandate of development and transformation within the Land Bank. The delay was not contrary to what the minister had stated at the time of the Budget.

Ms Moahloli said that Treasury’s role was to present the facts and the tradeoffs that needed to be made to the Cabinet and the Ministers’ Committee on the Budget (MinComBud). The Land Bank Act did not only talk about the development and transformation aspect, but the commercial book was also important in the context of that Act and in the context of providing food security to the country. There was no instruction that said the Treasury should do away with the commercial book, but given where the Land Bank was, and given the constraints of the fiscus, they needed to be able to fund and pay what was owed to the lenders. “We do not foresee a Land Bank that is only focused on development and transformation, it is just not possible,” she said. The delineation of that transformation and development and the commercial book helped. There was a developmental mandate that needed to be funded. There would not be anything to motivate for in front of the Committee and Cabinet if there was no way to tell how much it would cost. Once those books were separated, it was easy to see what you were looking for, because while the commercial book might assist the developmental book, it was also the responsibility of the state to fund the development and make sure that it was supported.

Ms Dudu Hlatshwayo, Deputy CEO, Land Bank, said that the bank had had only one vacancy at Tier 1 and 2 which occurred when the previous CEO resigned. At that point the bank was very stable with attrition rates within the acceptable range of three percent. To cover for the position of the CEO, the bank then appointed the CFO as the acting CEO. Within a space of less than a year, the bank saw a huge exodus. The acting CEO resigned at the same time as approximately eight other very senior and critically skilled employees exited the bank to go to the same employer. “This was a move that at the time we believed was well orchestrated,” she said. Soon after that, the Chief Risk Officer position was also lost by natural attrition. These vacancies affected the bank to a very large degree, but the bank was able to reshuffle and move its resources around and it was able to continue to operate. There was no amount of succession planning or detection policy that would have prepared the bank for this kind of loss of key skills. “To avoid a recurrence of the exodus of key skills, we are continuing to reward appropriately and within reason, given the constraints that organization is finding itself in.” she said. “We are also able to counteract the offers that are given to people from the market reasonably where we are able to do so,” she added. So far during this restructuring period, no employees had lost their jobs through retrenchments.

Mr Kekana said that the bank had managed to maintain stability at a senior level and worked as a collective to try and resolve the issues that it was currently facing. He referred to a summary of liability solutions on slide seven of the presentation and said version three had not been accepted by lenders yet. They had asked as a precondition to entering any arrangement that there be an independent review of the loan book of the Land Bank. It was a moving target, but there was a view that by the end of October in the current year, the Bank would have sealed the envelope for the commitment agreement. The bank was currently starting the tender process for the independent review. The AG’s office had commenced their audit, looking at the financial year that ended 31 March 2021, and the outcomes were also expected in October. In terms of the internal processes, the bank was starting the process of setting the book into divisions to make sure that they did not scramble for information when the time came. He said that the partners that they were sourcing to work with them were excited, but they had to put them on hold until the bank was clear of the liability issue. The bank did not want to create new loans on the back of funds that they knew did not belong to the bank. “We want to insulate development and transformation, we want to provide and to protect it,” he said.

Mr Kekana said that the bank strategy was available, and they could present it to the Committee. It relied on two things. It talked about aggregation. The bank wanted to aggregate farmers so that if one farmer from the West Rand was applying for a particular loan, the bank would check the surroundings in terms of the other farmers in that area. It would check who could expand hectarage to benefit from an offtake that the Land Bank had negotiated with a food producer. The second part of this strategy was working directly with the producers. “We are inserting ourselves in the value chain because it is important that we do so,” he said. “We are building relationships with offtakers, we are aggregating our clients or farmers in the middle, we are offering pre and post finance support, and we even go as far as saying, before you pay those farmers, pay the Land Bank because we want that money to recirculate back into the system.” The idea was not to fight the monopoly but to work with it.

In terms of the audit and risk management, he said that when they received the audit opinion from the AG for the 2019/2020 financial year, they did not waste any time. They had to go back three years before they could start worrying about the future. They had to deal with remedial issues that the AG had raised as not having been responded to, and they did that. “Our models have been re-calibrated and validated and the results of that have been put in the financial statements,” he said. “We are hoping for better results and an improved audit.” They had gone back and addressed all the AG’s findings and addressed any accounting errors. In terms of the strategy for non-performing loans, he admitted that the pace in getting legal judgments was slow. Before a matter got into the legal system, there was a workout and restructuring team that attempted to help to cure whatever the issue was with the client. “We put in a lot of effort to try to make sure that the client is able to meet their objectives,” he said. 

In terms of the COVID-19 funds, he said that they had had a very difficult Exco discussion about the movement of the funds. There were stringent processes where the bank used its credit systems to evaluate whether they should release the grants, and at times those processes became slow and did not allow for timeous or expeditious release of those funds. There was also the inability to ascertain whether a client’s problems were related to COVID-19 or if the client was just going through a distressed position at the time. Teams used banking or credit processes to try and ascertain whether the farmer could be assisted and that often took too much time in the system. Clients already going through stress for whatever reason believed that the COVID-19 funds would help them, yet those funds were not for general curing of stress, they were COVID-19 specific. They had to investigate the cases a little bit more than they normally would and there were a lot of delays.  The bank was perhaps too guarded because it did not want audit issues about the funds. The bank needed to find a way to relax these controls so that it could be able to govern the use of the funds.

In terms of the book split, Mr Keklana said that the corporate plan that they presented to the NationalTreasury was talking of a split of 70 percent for development and transformation and 30 percent for commercial lending. This was moving from 80 percent commercial and 20 percent development and transformation. That swing was quite a significant one for the Land Bank and the need to focus on it was  what drove the language that suggested that perhaps the bank was focusing on one and not the other. The bank was not trying to keep emerging farmers in that space, but was trying to prepare them by giving them commercial offtakes, giving them a little bit of a runway, even if it was two to three years while the bank supported them. When they got to that point and beyond, they would be deemed to be commercial farmers. There would be a commercial wing within the bank to service or support those trials. At some point it might be difficult to distinguish commercial from developmental. “It is not commercial because we are talking about negotiating commercial offtakes, but there is a middle piece which is the pre and post finance support that requires us to put resources in place to be able to help,” he said. He said that the non-performing loans book was split between about 25 percent for developmental loans and 75 percent for commercial. 

Ms Mukhari said that regarding the debt write-offs, she did not have the information on the number of black farmers and women affected and added that she would have to revert to the Committee. Regarding the strategies for the Land Bank to upgrade its status, having gone through various credit downgrades, she said that the approach was to first cure the event of default. It had been about 18 months since the Land Bank defaulted, and the bank was still trying to find a solution with the lenders. It was important to cure that event of default and it was also critical for the bank to be stabilised. The Land Bank was not being rated. It had temporarily cancelled the rating that it had in place because it would be a waste of money, considering that the bank was in default. On the corporate advisors, she said that the bank appointed legal advisors as well as corporate finance advisors. The legal advisors were ENS, and the corporate finance advisors were RMB, a division of the First Rand Group. She said that the work was still in progress and the bank would provide the cost once the work had been concluded. The non-core assets that were disposed included investments with Cavalier, Mouton, Southern Cross, and Afri-fresh. The bank was currently left with four investments excluding the investment in the insurance subsidiaries. She said that these were not very big investments. As at March 2021, there was about R2 billion, of which R650 million was invested in the insurance subsidiaries and about R303 million was an investment related to the post-retirement medical fund. 

On the issue of impairments, Ms Mukhari said that there was a period of a couple of years when the North West Province was hit by drought which contributed significantly to the deterioration of the loan book. There were also several diseases that infested the animal production sector. The model of the book was insourced and some of it was managed by the wholesale intermediaries. The bank found that in certain instances in terms of staging, the book was not necessarily in line with the bank’s lending policy. In terms of cash management, she said that the observation of the Committee was spot on because the bank defaulted in the previous year and at the end of the following year was sitting with R5.6 billion. She said that the bank had changed strategies in how it managed cash and how it deployed the cash. The bank was not supporting the sector fully. It collected from its customers and then allocated a portion to service interest payments monthly, as well as to carry the operations of the bank. Another portion was allocated to disbursements, but the bank had not been able to find new clients. The bank was trying to support the existing customers to maintain the book and support the sector as far as practically possible. The bank also had a burden of having to repay its debt.

Mr Moloto said that the bank had had to dispose of some assets to help itself. In consultation with the shareholder, the bank had engaged in a self-help mechanism of disposing assets so that it could honour its liabilities, as there was no inflow of capital from anywhere else.

Mr Sydney Soundy, Executive Manager: Strategy and Communication, Land Bank, said that the bank had an environmental and social sustainability system to ensure that the transactions and the projects that the bank assessed had also been assessed from environmental and social impacts perspectives. The Land Bank was one of the first banks to join in the United Nations Environment Programme Finance Initiative which promoted responsible banking practices. The bank was developing an implementation plan that was linked to these requirements. In terms of blended finance, he said that the Department of Agriculture, Land Reform and Rural Development (DALRRD) had resumed the programme. The launch of the Agri Industrial Fund by the Industrial Development Corporation (IDC) together with the DALRRD was part of the programme. The challenge was that there was a grant component as well as a loan component, and when the DALRRD provided funds, the other partner also needed to provide funding from the loan perspective. This impacted the ability of the bank to contract with the Department around the extent to which the bank could commit funds for this program. At this stage the bank was unable to commit the specific loan component to match the grants that came with a blended finance programme.

On the intermediaries, Mr Soundy said that at some point when the bank had grown its loan book to something like R46 billion of loan assets, about 50 percent of those loan assets were undertaken through intermediates. The reason why intermediaries were used was that they had the market access capability, so commercially it made sense to go through an intermediary arrangement to ensure that there was appropriate monitoring. Some of the challenges were in relation to the management of the SLAs. The bank later had to deal with the decreasing viability of the commerciality between itself and the SLA partners, as the cost of funding was increasing after as the bank shifted from a largely short-dated liability profile into a long-dated liability profile.

Dr Litha Magingxa, Executive Manager: Agricultural Economics and Advisory, Land Bank, said that in 2012, the development and transformation portion of the bank’s loan book stood at four percent. Over the years, this had grown to approximately 22 percent. When projecting over the medium term, this picture started changing a lot towards development and transformation. Looking at the bank’s models, the expectation was that this would be between 55 and 60 percent of the book. Approximately 980 black owned enterprises or farmers, represented about 24 percent of clients compared to over 3 000 corporate and commercial clients. “This is where we think we are going to see a significant change going into the future,” he said. In terms of the domestic and export markets, he said that the bank did not have this data, but the agri-business chamber or some of the export focused industry bodies would be able to provide the bank with the information. About half of the Land Bank loan book involved grains, followed by livestock and various other anchor businesses. As a result of this concentration in terms of commodities, the loan book was mostly concentrated on provinces such as the Free State, Mpumalanga, Northwest and, to a lesser extent, the Northern Cape and Limpopo. Gauteng also featured very highly, particularly when dealing with corporate clients, because most of the agri-businesses that had been funded by the Land Bank would be headquartered in the province. However, the actual agricultural operations were not necessarily located in the province, so the data might be deceiving in that regard.

The Land Bank had developed a women and youth inclusion program which was piloted with the Limpopo Department of Agriculture. A project development facilitation unit in the land bank was started several years ago to provide project preparation support. The mandate of the unit had been expanded to also look at post finance support. Project preparation support referred to costs related to project preparation that would otherwise be paid for by the client. This was a self-funded capability by the Land Bank where it provided for clients that would otherwise not meet the requirements of bankability. This assistance was limited in scale and in terms of what funds were available. “We think there is an opportunity to expand on such capacity in order to support even more qualifying businesses,” he said.

Regarding the recent unrest, Mr Magingxa no specific reports had come to the bank. The DALRRD had been on the ground in the affected provinces of Gauteng and KZN to engage with different stakeholders to identify the extent of the disruption of food supply chains, which was also partly expressed in a certain level of panic buying. The concern was not necessarily about the availability of food but access due to disruptions in distribution centers and road networks. In terms of the impact of restrictions on gatherings on things such as group training in the agriculture sector, he said that most of that support was conducted by the Agricultural Research Council working with the DALRRD and provincial departments as well as some industry bodies. The Land Bank facilitated technical support partnerships to assist emerging farmers. The initial ban on auctions had an impact on some Land Bank clients whose income was delayed, but there was no significant impact. The alcohol and tobacco industries that experienced bans were obviously the most affected. The agricultural sector largely was operating at almost 100 percent. 

Ms Sue Lund, Chairperson of the Risk and Governance Committee, said that the Land Bank adopted a combined assurance approach and had four lines of defence. The first was function management and systems of control and there were skilled people in place for all the normal functions of the bank. The second was a dedicated risk management and compliance function headed by the Chief Risk Officer which reported to the Risk and Governance Committee of the board. The third line of defence was the internal audit function where the head of internal audit and the internal audit team reported directly to the board through the Audit and Finance Committee. The fourth line of defence was the independent audit conducted by the Auditor-General of South Africa. There was a risk governance framework and compliance framework to monitor the effectiveness of the measures taken by the bank. The bank regularly monitored the strategic risks facing it. In particular, the bank paid attention to those risks that were inside its control and could be managed. It then identified those that were outside its control and the measures that could be taken with stakeholders and others to address those. The bank also set risk tolerance levels and risk appetite frameworks and limits.

In terms of the Audit and Finance Committee (AFC), she said that there was direct oversight of the internal audit team, and its work plan was approved by the AFC annually. That work plan typically picked up on the findings of the Auditor General from the prior audit and then mitigation and remediation measures were put in place to address the findings of the AG. In the past year, because of the number of findings, the AFC oversaw the development of a full remediation plan, and it monitored every second week for performance and degree of the remediation plan in preparation for the next audit. The systems of audit and risk management were in place in the bank. Some very high risks had been highlighted and flagged repeatedly in the integrated report and to the shareholders. One of those high risks was undoubtedly the capital structure of the Land Bank and the heavy dependence of the bank on it. The raising of debt on land was at very low margins, and with no other source of income, that exposed the Land Bank to a systemic risk. The current appropriations were dealing with the current challenges that the bank was facing and the bank had very comprehensive plans for the application of those appropriations. In the longer term, from a risk and governance point of view, it was appropriate to highlight that going forward the Land Bank had not been adequately capitalised for the development mandate. It was something that would need to be addressed in the medium term.

Mr Moloto said that the bank raised money from debt capital markets and transformed that money into assets by loaning it to the farmers. What the farmers invested in became assets of the Land Bank. The challenge was that funding a long-term asset with short term money led to an asset/liability mismatch. This was what happened in the history of the Land Bank. In 2009 the book was around R16 billion. In 2014 it was doubled to R32 billion, and that was done on the back of short-term money. The assumption had always been that all the financial institutions would roll over bonds when they matured, but the business world was complex. The bank decided not to use its internal staff in finding the liability solution, because that would take them away from the operations. The bank needed experts to help with restructuring the liability and provide the board with advice. 

The Chairperson thanked the delegation from the Land Bank for the engagement and reassured them that the Committee would continue to support them.

The meeting was adjourned.