2 background purpose key elements of our corporate plan scanning the environment and building...
TRANSCRIPT
2
Background Purpose Key elements of our Corporate Plan Scanning the environment and building
capacities Supporting values Operating principles Objectives Financial resources and sources of income
(refer to budget presentation) Conclusion
CONTENTS
3
BACKGROUND
Over the past five years the Land Bank has had low levels of capital and has been making losses
Land Bank is currently not delivering effectively on its development mandate
• About R821m are development loans• Funding development in the financial markets
presents challenges for the Land Bank
The Land Bank has lost its market share over the past five years due to the following:
• Growth of the financing in the sector outpaced that of the Bank
• Constraints of financial resources• Removal of Government subsidies and financial
support to farmers
4
BACKGROUND (Cont)
Demand for agricultural finance has increased due to
» Improved farm incomes » Rising input costs» Expanding production
5
PURPOSE
The objects of the Bank are the promotion, facilitation and support of
• Equitable ownership of agricultural land, in particular the increase of ownership of agricultural land by historically disadvantaged persons
• Agrarian reform, land redistribution or development programmes aimed at historically disadvantaged persons or groups of such persons for the development of farming enterprises and agricultural purposes
• Land access for agricultural purposes• Agricultural entrepreneurship • Removal of the legacy of past racial and gender
discrimination in the agricultural sector
6
PURPOSE (Cont)
• enhancement of productivity, profitability, investment and innovation in the agricultural and rural financial systems
• Programmes designed to stimulate the growth of the agricultural sector and the better use of land
• Programmes designed to promote and develop the environmental sustainability of land and related natural resources
• Programmes that contribute to agricultural aspects of rural development and job creation
• Commercial agriculture• Food security
7
KEY ELEMENTS OF CORPORATE PLAN
MissionTo promote and facilitate access to ownership of land by PDI for agricultural purposesTo increase the levels of productive land useTo support emerging farmersTo support commercial agricultureTo promote agricultural entrepreneurship
Strategic Goals Ownership of land (PDI) Agrarian reform and
development programmes for emerging farmers
Financial Services for the rural economy
Support Commercial agriculture Ensure food security Support creation of employment
opportunities
External Driving Forces & Internal Constraints
Energy prices
Interest rates
Rising commodity prices
Financial performance of the bank
Capacity to deliver•Skills shortage •Inadequate systems
Reputation of the Bank
Fin
Plan/
Budget
Shareholder Compact
KPA’s & KPI’s
Our vision is to promote, facilitate and support the achievement of sustainable food production and security, development of rural economies and growth of the agricultural sector
Short/Medium Term Objectives
Stabilising the business
New Funding Model
Service delivery /Development
Management Capacity
Controlling Costs
Information Systems
Managing risks
8
SUPPORTING VALUES
Guided by Batho Pele • Integrity
– Honest and ethical conduct in all of our interactions. Honoring the dignity and worth of all. Ensuring fairness and equitable access to our services
• Professionalism and Service excellence– Executing all activities in a professional manner
thereby ensuring that we exceed delivery expectations for quality, responsiveness and value to our customers.
• Accountability– Taking personal ownership to meet commitments
9
• Cost consciousness – Using all our resources in the most cost
effective manner
• Innovation – Open and receptive to new ways of
conducting ourselves and our business, seeking to continuously improve our service delivery
SUPPORTING VALUES
10
Scanning Environment and Building
Competencies
11
ECONOMIC FACTORS
OUTLOOK
• Slow down in international and local growth• Increase in commodity prices• Increase in input costs• Increase in inflation• Increase in interest rates• Higher producer prices
12
Current trends in agriculture: To 2006, long-term agricultural profit margins declined despite overall
growth in gross farming income In 2007 profitability improved, while production costs are also rising
Removal of government intervention has exposed agriculture to inherent
volatility Increasing consolidation and sophistication among commercial farmers Favourable opportunities for wheat, other grains (maize) and oil seeds Livestock improvement programme of DoA One municipality one product concept of DoA/DLA
Agriculture sector performance
Food is increasingly getting beyond reach for the poorest nations as consumers worldwide grapple with the spike in prices of basic commodities, attributable to:
•Freak weather conditions•Dramatic changes in the global economy, including higher energy prices, lower food reserves and growing consumer demand•Changes in consumer needs and diet patterns influenced by changes in income levels and settlement patterns •Increasing production costs
Food security and food prices
14
LAND BANK PRODUCT AND SERVICE OFFERING RELATIVE TO THAT OF THE COMMERCIAL BANKS
Land Bank has a very narrow product range that consists of a simple debt products vs. a holistic offering by commercial banks that become the primary bankers for farmers
BANK 1
•Transaction and
savings account
•Complete suite of
short, medium and
long-term loans
for production and
mortgage finance.
•Revolving credit
facilities for
working capital
finance
•Wealth creation,
and estate
planning products
•Commodities trading and hedging facilities
•Crop insurance and life insurance products
BANK 2
•Transaction and savings
accounts
•Production credit and
term loans for inputs, land
and fixed capital
•Silo certificate finance
•Revolving overdraft credit
for working capital
•Investment profit CTS
•Crop insurance and life
assurance products
•Grain trading and facilities
•International banking
LAND BANK•Short-term
production loans
•Revolving short-
term cash credit
accounts
•Medium-term
installment sale
finance loans
•Medium term
establishment loans
•Long-term mortgage loans
Livestock financing
•Land bank terms are in
general less stringent
than commercial banks.
•Land Bank allows longer
repayment periods on
mortgage
•Financing norms outdated
15
LAND BANK PRODUCT AND SERVICE OFFERING RELATIVE TO THAT OF THE COMMERCIAL BANKS
Price
Service delivery
Agric expertise
• Competitive market related interest charges
• Transaction and service fees
• Competitive market related interest charges
• Transaction and service fees
• Interest rates currently priced above the rest of the market
• No transaction fees
Bank 1 Bank 2 Land Bank
• Quick processing and turnaround time
• Quick processing and turnaround time
• 20 specialist managers, 22 agricultural economists, 120 agri-bankers
• 53 agri-businesses specialists
• 28 agricultural experts
• 7 person research unit
• Slow processing and turnaround time
*According to interviews with commercial farmersSource: Adapted from Team Analysis (Mckinsey : 2005)
Reduce cost of funds through government support and raising funds for dev separately, & MAFISA
Implement an adequate IT systemHubs and satellite offices
Recruit relevant resources in economics, agriculture science and banking business.
Solutions
16
LAND BANK PRODUCT AND SERVICE OFFERING RELATIVE TO THAT OF THE COMMERCIAL BANKS
Bank 1 Bank 2 Land Bank
Channels
• Leverages off wide retail distribution network
• Technology-centric proposition, incl. internet banking, electronic banking, cell phone banking
• Leverages off wide retail branch network
• Very sophisticated and technology driven proposition, inc. internet banking, electronic banking (using custom software)
• Limited number of branches
• No internet banking, telephone or cell phone banking
• Inadequate and outdated system and loan processing
Brand Good brand Good brand • Low brand strength• Negative publicity
Introduction of hubs or satellite offices within reasonable proximity to target market – 47 municipalities, partner with other local municipalities
Overhaul IT systems
Solution
17
Historical Performance 2005 – 2007
2005 2006 2007
Total Assets (Rbn) 20.1 17.6 19.1
Net Interest Margin Before Provisions (%) 3.3% 2.4% 2.8%
Net Profit/(Loss) (Rm) (208) (100) (99.5)
Cost to Income Ratio (%) 54.8% 58.9% 81.0%
Non Performing Loans (% of gross loan book)
14.0% 11.4% 15.3%
Capital Adequacy Ratio (CAR) excluding R1,5bn Gaurantee
7.30% 5,76% 5,95%
Capital Adequacy Ratio (CAR) including R1,5bn Guarantee
14.7% 13.6% 14.3%
18
COST OF FUNDSCOST OF FUNDING
AVERAGE COST OF FUNDING (NACM)
6
7
8
9
10
11
12
13
14
15
AUG '05 OCT DEC FEB '06 APR JUN AUG OCT DEC FEB '07 APR JUN AUG OCT DEC JAN '08 FEB MAR
%
SHORT MEDIUM LONG TOTAL PRIME
The total Cost of Funding (turquoise line) reflects the weighted average of Land Bank’s short, medium and long term portfolios. Although our spreads have recently been put under pressure, increases in market rates also contributed to the rise in Cost of Funding.
OPERATING PRINCIPLES
20
OPERATING PRINCIPLES
We operate on the principles of:• Accessibility
– A network of 27 Branches• Direct and indirect lending to agriculture
– Long term mortgage loans – Short and medium term production loans– Cash credit facilities to Agri-businesses and co-ops
• Forming alliances and partnerships– Cooperatives and agri-businesses (wholesale funding)– Permanent staff of 613 excluding vacancies
• Supporting emerging farmers– Targeting new markets– Including former homelands
21
STRATEGY
Stabilise the BusinessDeliver on developmentReview the funding model
OBJECTIVES (SHORT TO MEDIUM TERM)
23
Management stability - Filling critical vacancies, including specialists
Restore health of staff – culture, morale and performance
Improve credit granting & monitoring processes, and policies
Source Senior staff; Appoint interim consultants to fill critical areas.
Develop and Implement a change management program.
Ensure consistent communication and better employee interrelations.
Design, develop/acquire and implement an appropriate risk rating system
Ensure adequate competency levels to execute credit risk management.
Enhance credit risk management systems
Accelerate predictive modeling, application scoring and risk rating.
PRIORITIES 2008/9 MITIGATION 2008/9
STABILISING THE BUSINESS
24
Improve internal controls and governance
Build capacity to manage risks associated with development funding
Implement Enterprise Risk Management Framework
Review Delegation of Powers
Form partnerships with Co-ops and other service providers
Internal capacity of development specialists in alignment with DoA extension officers and ARC
PRIORITIES 2008/9 MITIGATION 2008/9
STABILISING THE BUSINESS
25
Restructure high value non-performing loans
Maintain support to commercial
farmers
Interventions to address key non-performing loans taking place to recover outstanding debts
LDFU: Awaiting Senior Counsel opinion regarding legal matters and recovering the outstanding debt– 15 May 2008
Continuing to support commercial agriculture
PRIORITIES 2008/9 MITIGATION 2008/9
STABILISING THE BUSINESS
26
Managing operating costs
Overhaul IT infrastructure (12 - 18 months)
Review spending on consultants Costs are being managed down Instill culture of budget control
Implement core banking solution Customer Relationship
Management system Risk Rating system
PRIORITIES 2008/9 MITIGATION 2008/9
STABILISING THE BUSINESS
27
PROGRESS TO DATELiquidity position of the bank stabilized Interventions to address key non-performing loans
taking place to recover outstanding debtsStabilization of the Finance department taking
place• External audit firms
STABILISING THE BUSINESS
28
Employee Relations Update
Sixteen (16) cases in total
General Managers Four (4) Senior Managers Eight (8) Specialists One (1) Junior Managers Three (3)
Cases finalized = Seven (7)
Found guilty / dismissed:GM Risk FraudGM HR Gross insubordination/negligenceSnr Manager Retail DishonestySnr Manager IT x 2 FraudSnr Manager LDFU Gross MisconductSnr Manager CFU Gross Misconduct
In Progress: CFO Gross Misconduct/DishonestyGM IT FraudSnr Manager HR Gross NegligenceArea Manager Tzaneen – Financial Irregularities Specialist - IT Dishonesty
New Cases:
3 Administrative staff Gross Misconduct/Dishonesty1 Operations Managers Financial Irregularities
29
Critical Vacancies
GM Risk GM HR Credit Head – Corporate Banking Head – Internal Audit Head of Retail Senior Manager Finance
Contingency plan in place to ensure continuity of functions
Short term contracts Consultants on retainer
30
DEVELOPMENT
31
MINISTERIAL PRIORITIES The Bank must also contribute to the implementation of Land
and Agrarian Reform Policy (LARP), which has been initiated to accelerate agricultural development through a delivery mechanism that provides a “one-stop-shop” for agricultural and other support services close to farming and rural communities through (for the next two years):
• Redistribution of 5 million hectares of white-owned agricultural land to 10,000 new agricultural producers
• Increase Black entrepreneurs in the agri-business by 10%
• Provide universal access to agricultural support services to target groups
• Increase agricultural production by 10-15% • Increase agricultural trade by 10-15%
32
A key element and priority of this corporate plan is refocusing the Land bank onto the development mandate
• Financing emerging farmers along the value chain• Providing non-financial support to ensure success
Continuing to support commercial agriculture Success on this development mandate is dependent on
government support/grants The Land Bank will create business centres that will
focus on emerging farmer support (As per the Strauss Commission Report):
• Business Centre 1: Development Finance• Business Centre 2: Commercial Finance
Increase reach inline with the 47 district municipalities
CONTRIBUTION TO AGRICULTURAL DEVELOPMENT
33
PERFORMANCE INDICATORS Grow development Book by
R3 billion
Profitability
Cost to income• After restructuring costs
Non performing loans
R72m R84m R140m
68% 63% 60%
78% 67% 60%
12.1% 10.1% 7.7%
34
FUNDING
RecapitalisationGovernment guaranteesDonor fundingDoA/DLA Grants
35
CONCLUSION
One-stop-shop Stabilising the bank Alignment with the DoA/DLA, and other
stakeholders –ARC, DFI Focus on Presidential priorities, Apex priority 7 Focus on increasing agricultural production Long term strategy is to deliver on Land Bank’s
mandate