The Banking CouncilThe Banking CouncilSouth AfricaSouth Africa

BANKING COUNCIL SUBMISSION TO THE PORTFOLIO COMMITTEE ON AGRICULTURE AND LAND AFFAIRS

(NATIONAL ASSEMBLY) PUBLIC HEARINGS ON ROLE OF THE PRIVATE SECTOR IN AGRICULTURE

10 JUNE 2003

PRESENTATIONPRESENTATION

1. This presentation has six parts to it:

2. The Banking Council

3. The contribution of banks to agricultural development

4. The activities of banks in agricultural development

5. The relationship with the Department of Agriculture

6. The future involvement of banks

7. Other comments banks are bring to the attention of the portfolio committee

BANKING COUNCIL BANKING COUNCIL MEMBERSHIPMEMBERSHIP

35 BANKS• “Big 5• ABSA• FIRST NATIONAL BANK• NEDCOR• INVESTEC• STANDARD BANK

INDEPEDENT BANKS• Independent bankers forum

FOREIGN BANKS• Foreign bankers’ association

BOARD OF DIRECTOR’SBOARD OF DIRECTOR’S

One member from any bank whose liabilities to public exceeds 3% of industry total

TWO MEMBERS OF FBA

TWO MEMBERS OF IBF

ROLE, MISSION ROLE, MISSION

AND APPROACHAND APPROACH

To establish and maintain the best possible platform on which bank groups can do competitive, profitable and responsible banking

REPRESENTING INDUSTRY

PARTNERSHIP

POSITION PAPERS

STRUCTURESTRUCTURE

C H IE F E X E C U T IV E O F F IC E R

GENERAL MANAGER

Support Services

GENERAL MANAGER

Financial Markets

GENERAL MANAGER

Communications

GENERAL MANAGER

Banking Operations

GENERAL MANAGER

Transformation

GENERAL MANAGER

Market Conduct

SUPPORT STAFF

BANKING INDUSTRYBANKING INDUSTRY

The Banking Industry in South Africa employs an estimated 250 000 people on a fulltime basis and procures services on an annual basis for over R10 billion which provides work for many thousands more people.

The Banking Sector is an important asset in many ways including job creation, economic institutional infrastructure and the capacity to become a financial servicing point for many countries in Africa.

THE CONTRIBUTION OF BANKS TO THE CONTRIBUTION OF BANKS TO

AGRICULTURAL DEVELOPMENTAGRICULTURAL DEVELOPMENT

Banks involvement in agricultural development is demand driven, no specific budget allocated.

National Department of Agriculture (NDA) figures on total farming debt as at Dec 2002 R28.3 billion. About 33% of this amount sourced from the Land Bank and the erstwhile Agricultural Credit Boards. The remainder of 67% of the funding drawn from commercial banks, cooperatives and private investment.

Between June 1995 and June 2002 average indebtedness to banks 36% with the percentage of debt to the banks increasing from 33% in 1995 to 42% of total farm debts in 2002.

NDA figures not specified as indebtedness for agricultural production, could include indebtedness for acquisition of land, equipment, production costs, distribution costs and processing costs.

Similar difficulty will pertain to data obtained from banks and their exposure in this sector. Total exposure of the commercial banks in agricultural sector was close to R11 billion as at December 2002. Banks currently have difficulty giving a breakdown by race of their exposure in the agricultural sector.

THE CONTRIBUTION OF BANKS TO THE CONTRIBUTION OF BANKS TO

AGRICULTURAL DEVELOPMENT (cont.)AGRICULTURAL DEVELOPMENT (cont.)

N E P A DN E P A D

The Comprehensive Africa Agriculture Development Programme (CAADP) prepared by the Food and Agriculture Organisation for the NEPAD discussions states:

• Between 2002 and 2015 an estimated annual investment of US $17 billion will be required for agriculture in Africa

• Investment in agriculture in South Africa in 2002 was about US$3.5 billion

• With over US$251 billion of ivestment required in the continent over the next 13 years South Africa’s banking infrastructure could play a significant role

ACTIVITIES OF BANKS IN ACTIVITIES OF BANKS IN

AGRICULTURAL DEVELOPMENTAGRICULTURAL DEVELOPMENT

Banks have been engaged in a wide range of activities in support of agricultural development. These are recorded in the submission under the headings of:

• Farmers support and development

• Land reform

• Training

• Publications

• Sponsorships

RELATIONS WITH DOARELATIONS WITH DOARELATIONSHIP WITH THE DEPARTMENT OF

AGRICULTURE

The Banking Council has and continues to enjoy a positive relationship with the National Department of Agriculture.

The larger member banks of the Banking Council are participating in the technical task teams that have been established by the Department of Agriculture.

Member banks are also engaged with Provincial Departments of Agriculture.

Still under discussion with the Department of Land Affairs is the agency agreement on accessing LRAD funds.

The Banking Council appreciates and acknowledges the challenging and significant role that the Department of Agriculture has to play for agricultural development and transformation at both the national and provincial levels of government.

FUTURE INVOLVEMENTFUTURE INVOLVEMENT

Banks are investigating the possibilities of partnerships with other interested parties which can add value and assist in risk mitigation. Banks will also consider the mobilisation of donor funds that can be channelled into agricultural development. The most significant work being done within the banks is around the BEE Financial Sector Charter. This document is in the process of being finalised as a draft for discussion with government. One of the areas of special attention will be agricultural development. At this point it will be inappropriate to discuss the details of this Charter.

OTHER ISSUESOTHER ISSUES

LAND BANK ACT AMENDMENTSLAND BANK ACT AMENDMENTS

THE LAND BANK ACT

The banks have had differences over certain provisions of the Land Bank Act, -unlevel playing field

The Land Bank is persistent in its preferent attitude and gone to the High Court

This legal action by the Land Bank in securing its preference confirms the worst concerns of the commercial banks

We believe that this matter will require legislative intervention in making amendments to the Land Bank Act that will allow the commercial banks to be role players in agricultural lending rather

than forcing them out of lending for agricultural development.

OTHER ISSUESOTHER ISSUES

Farmer Support and DevelopmentFarmer Support and DevelopmentFARMER SUPPORT AND DEVELOPMENT

Need for a range of support services

Financial literacy and numeracy poses a communication problem between the Bank and prospective borrowers.

Advisory and technical support services are some of the necessary ingredients of financing developing farmers.

A public-private partnership approach is necessary for the success of developing farmers.

The importance of a management team, particularly in group projects cannot be overemphasised.

Mentoring is essential at the early stages of the transfer of ownership (at least 2 years).

Post transfer support (working capital, training in hard and soft skills, mentorships) 

OTHER ISSUESOTHER ISSUES

Markets, Monitoring and LRADMarkets, Monitoring and LRADMARKETS Off-take agreements (market) are necessary to ensure that

projects have secure markets.

 MONITORING Monitoring and progress reports are important for the success of

projects.

Development projects should form part of the key performance areas of bank's staff.

Verification of business plans

LRAD LRAD has become a numbers game. There are needs e.g. equity

fund to supplement LRADand to reduce the numbers

Availability of LRAD grants

OTHER ISSUESOTHER ISSUES

The Role of GovernmentThe Role of Government

THE ROLE OF GOVERNMENT

Strengthen the present agricultural insurance services

Initiate and develop guarantee schemes specifically designed to meet agricultural needs of the emerging and black commercial farmer.

Find ways in which to securitise communal land rights.

Strengthen the co-operative movement in terms of membership, training and management.

Consider linking water usage rights to land title/rights

Government should consider obtaining certification to potential markets (countries) for exporters of agricultural products especially if we are to achieve transformation. At present this cost is borne by the exporters.

The Department of Trade and Industry should be positioned in such a manner that it can respond to the need for tariff changes faster and efficiently.

The National Department of Agriculture needs to position itself to serve as agriculture’s voice to government and the public in general.

OTHER ISSUESOTHER ISSUES

The Role of Government (cont.)The Role of Government (cont.)

CONCLUSIONCONCLUSION

 The Banking Council is committed to playing its part in the

transformation of agribusiness in South Africa and would like to

be party to the implementation of the Strategic Plan for South

African Agriculture. In order to compete in the agricultural

development market in a way that will create shareholder value in

the medium to long-term, the banks are amending their strategies

to finance and support transformation of agriculture.

The banks are committed to increasing the number and quality of

developing agriculture clients who have commercial farming as

their main objective.