Land Bank

1. Land Bank Presentation to SCOPA November 2008

2. The current situation at Land Bank has led to a crisis point which we now have to manage Issues with what Land Bank has been doing (strategy) Issues with how Land Bank has been doing it (execution) Limited progress on Development objective Lack of adherence to mandate of Land Bank Act of 2002 on LDFU strategy No clear funding and financial stability strategy Operating model uncompetitive, high cost and directly competing with better- positioned commercial Banks People and capacity issues unresolved Previous turnaround strategies not sufficiently actioned Substantial evidence that core business and management processes not in place, leading to a qualified audit and other sources of challenge The organisational structure has contributed to lack of accountability The Assurance Implications • Declining loan book & High NPL’s • 27% employee turnover for 2007/08 vs. industry benchmark of 7-9% • Capital adequacy at 11.18% as at March 2008 • Informing and assuring stakeholders • Tracking and governance • Recovery milestones • Support required from stakeholders

3. Create partnerships to access opportunities and fully support clients  • Focus n the Agri value chain & play a role in the consolidation of the sector, focus on aftercare • Provide corporate Banking, investment Banking and retail Banking businesses  • Move to development whilst maintaining capacity in the commercial space • Avoid competing with commercial Banks   • Address market failure • Improve organisational health and people capacity issues   • org structure to be informed by strategy, Performance management systems to enhance productivity Core focus Enablers • Focus on development as core product offering    • Mainstream development into CFU & Retail • Stick to mandate laid out in 2002 Act  • to address development as core, Exit LDFU • Target short-term turnaround activities  • Implement clean-up & stabilisation quick-wins • Align stakeholders around strategic priorities  • Develop partnerships at all levels • Upgrade IT systems   • Efficient IT systems required to enable faster delivery and turnaround times • Implement risk management    • Integrate enterprise-wide risk management, ensure statutory & regulatory compliance, Identify & quantify relevant strategic & operational risk • Revitalise brand   • Positioning LB in the minds of stakeholders • Fix cost: income funding dynamics  • Diversify funding sources, increase revenue & reduce costs • Deal with legacy issues  • Clean-up & Stability • Implement new business model  • Future strategy on sustainability to address development as core Previous turnaround strategies not actioned until now Reports-McKinsey 2005 Land Bank ExCo 2007 Comments extracted DFI 2007 Land Bank Comments

4. Products • Transaction and savings account • Complete suite of short, medium and long-term loans for production and mortgage • Revolving credit facilities for working capital finance • Vehicle and asset finance • Wealth creation and estate planning products • Commodities trading and hedging facilities • Crop insurance and life assurance products • 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 helping facilities • International Banking • Short-term production loans • Revolving short-term cash credit accounts • Medium-term instalment sale financial loans • Medium-term establishment loans • Lon²耀term mortgage loans • Livestock financing • LBIC – Insurance services Price • Competitive market-related interest charges • Transaction and service fees • Competitive market-related interest charges • Transaction and service fees • Low service fees, but Land Bank interest rates currently priced above rest of the market especially on long term loans against the industry norm Service delivery • Quick processing and turnaround time • Quick processing and turnaround time • Poor systems and slow loan processing pace • Significant internal bottlenecks in processes Agriexpertise • 20 specialist managers, 22 agricultural economists, 120 agricultural Bankers • 53 agricultural business specialists • 28 agricultural officers across 27 branches ( need to review) • 4-person AERIS unit (Insufficient) Channels • Leverages off wide retail distribution network • Technology-centric proposition including internet Banking, electronic Banking, cell phone Banking • Leverages off wide retail branch network • Very sophisticated and technology driven, including internet Banking, electronic Banking (using custom software) • No internet Banking, telephone or cell phoneBanking (Explore) • People Soft system is inadequate in loan processing (Need for proper MIS) Operating model uncompetitive, high cost and directly competing with better-positioned commercial Banks Standard Bank 'Agri-Plan' ABSA 'Agri-Business' Land Bank • Limited revenue streams • Limited product diversity • Limited opportunity for cross subsidisation

5. Conditions on Government guarantee Consolidation of policies Portfolio Committee undertakings SCOPA resolutions Forensic investigations Internal audit reports Management letter Development mandate not adhered to Cumulative audits Substantial evidence that core business and management processes not in place, leading to a qualified audit . . . consistently indicate poor operating and management processes . . . . . . culminating in qualified audit opinion Sources of evidence . . . Key themes • IT Systems procurement control breakdown & irregularities • Procurement and payroll control breakdown, documentation shortcomings and irregularities • LDFU mandate and legality • Control breakdown, documentation shortcomings and irregularities of funds administered on behalf of DoA • Lack of robust operational procurement & HR policies • Failure to respond to previous audit findings and recommendations • Failure to implement SCOPA resolutions • Irregular fruitless and wasteful expenditure • PFMA non-compliance reportable matters • Weak governance structure • Breakdown of controls particularly in relation to procurement and payroll • IT system implementation irregularities • Irregular expenditure, e.g., procurement policy non adherence • Fruitless expenditure, e.g., travel and subsistence, consulting fees • Absence of effective declaration of interest system • Moratorium on collection of debts • Absence of approval of payments to previous CEO and acting CEO • Lateness and material changes on financial statements • Lack of available information for auditors • Poor governance structure • Lack of HR policy • Lack of other policies • Number of 'special investigations' ongoing

6. Land Bank must effect a turnaround across the board to respond to this context 'We need to change to become development-focused to deliver on our mandate to support poverty eradication and food security, and focus on un-banked sector of society whose only alternative is a Land Bank supported investment' Strategic Intent Development as core to business Stop the Bleeding Legacy issues (Clean-up & Stabilisation) 'Our operating model and execution capabilities need to change to enable us to deliver against this purpose in an economically prudent and financially robust way' Elements of execution Operating model strategy • Wider footprint • Operational efficiency • Turnaround time • Quality management • Project orientated approach • Seamless-end-to end lending processes • Post funding support Management system strategy • Performance managementprocesses • Consequence management • Management information systems • Business process automation Partnering and stakeholder relations strategy • Sector consolidation • Strategy for intermediaries (for on lending/wholesaling) • Joint ventures • Syndication • Post funding/handholding support services People and skills strategy • Attraction • Acquisition • Development & • Retention of talent Funding & financial sustainability strategy • Improved Liquidity Management • Diversified Sources of funding • Revenue generation • Cost containment Strategic execution – the pillars which enable us to deliver the purpose Governance, Compliance & Risk management • Integration of Enterprise-wide risk management • Statutory & regulatory compliance • Identify & quantify risk

7. Integrate Land Bank’s business into development and ensure Development impact in jobs, output, trade • Assist emerging farmers and new entrants by upholding land and agrarian reform principles • Adjust products and services to withstand volatile markets, suit agri-business and meet specific needs of the sector • Lay foundations for long-term development success through capability building, advocacy and partnerships • Job creation and preservation • Entrepreneurship • Focus on areas of economy where market failure has occurred • Integration and consolidation of agricultural sector • Economic access and ownership of HDIs • Broad-based black economic empowerment • Contribution to rural and broader economy • Contribution to success of government programmes • Participation extended throughout agricultural value chain • Rural development • Targeted programmes for resource – poor regions of the country Mainstream Transformation Innovation Foundation Strategic purpose ‘Development’ We have made early progress on getting to a policy framework Description Impact

8. Strategic purpose ‘Development’ In addition we have identified some principles and early ideas around initiatives which will begin to move us in the right direction Intervention and programme ideas • Establish an Agricultural Development Function to provide guidance (and funding) for the Bank • Launch an Emerging Farmer Support (incubation) programme to help farmers grow into commercial • 5-7 years incubation per farmer • Discounted interest rates, training and extension support • Programme life expectancy 10-15 yrs • Provide Development indicators for funding assessment for existing and new business • Establish Development management system • Board level, management level, Development forum at operational and branch level • Charter for Committee and Board • Support team to guide the Board • Introduce a Development monitoring system to track and communicate progress in development impact • Partner with other institutions • To leverage funding • To arrange non-financial services • Establish a ‘Land Bank Development Foundation’ • Consolidate CSI programmes • Focus on capacity building, farming community projects, basic farming infrastructure, advocacy Principles • Leverage funding for agriculture and rural development • Support government priorities in land and agrarian reform • Ensure sustainable development • Promote and enhance partnerships • Mainstream Development throughout business • Identify, quantify and monitor Development impact • Alleviate poverty and advocate food security

9. Development as core to business plan • Short to medium term (0-7 Years): • Partnerships with Agribusiness and other stakeholders • Hand-holding and aftercare services • Medium to long term (7years and longer) • A DFI with a wider footprint across the country • One-stop agricultural shop

10. Development progress report • Land Bank Turnaround strategy approved by the Board with Development as core to the business • Formulated a Development policy framework • Established a Development Committee • Identified pilot projects • Communicated to Branches • Engaged other stakeholders such as investors, Banks, clients, Departments (now targeting farmer organisations) • In the process of establishing partnerships

11. The Turnaround Plan

12. Phase III: Sustainability Phase II: Stabilisation Phase I: Clean-up The Turnaround Plan Movement towards future strategy Objective • Land Bank operating within government guidelines, regulations and policy, reducing the risk • Stabilise the core operations, management systems, human capital and funding • Build a foundation for sustainability • To deliver a transformed Bank in the long term with development being core to the business Note: Some of the work on stabilisation and clean-up will happen in parallel Priority activities • Clean-up based on audit reports, forensic audits, SCOPA resolutions and investigations • Put in place execution foundations to help ensure overall effectiveness for the long term health of Land Bank • Change the fundamental value proposition and focus of Land Bank and introduce a Development orientation Sep 08 – Jul09 Sep 09 - tbd Mar 09- Sep 09 Timeline

13. Objective: Land Bank operating within Government guidelines, regulations and policies • Phase I – Clean-up • Phase II – Stabilisation • Phase III – Sustainability Focus on cleaning up based on audit reports, forensic audits, SCOPA resolutions and investigations Anticipated timing: Sept 08- Sept 09

14. Turning the Land Bank around Clean up Stabilisation Sustainability People Systems Processes Three phases of turnaround Stabilisation Clean up Sustainability • HR Capacity • IT-Procurement and HR • Funding Dynamics • Balance Sheet • Cost to Income Ratio • LDFU • Norms and Standards • 2008 Audit report matters (qualifications & other) • Management letter • Internal audit reports • SCOPA resolutions • Forensic investigations recommendations • Policy shortcomings • Conditions of the Gov Guarantee • Portfolio committee undertakings • IT • HR • Credit • Risk • Treasury • Operations (CFU & Retail) • Internal Audit • Legal • Communications • AERIS

15. Overall approach and nature of the clean up History (1 April 08 to current) Present & Future (FYE and beyond) Facilitate and track progress of: • Verification of transactions ito validity, completeness, accuracy and PFMA compliance. • Construction of a paper audit trail to support transactions and the 2008/2009 external audit process. • Identification of shortcomings and possible irregularities. • Corrective action ito documentation and authorisation shortcomings. • Resolution of possible irregular and fruitless and wasteful expenditure. Facilitate and track progress of: • Update of existing and drafting of new policies & procedures. • Implementation of new & improved approved policies, procedures and controls. • Monitor and control of adherence to improved procedures. • Maintenance of a paper audit trail for the full financial period (until 31 March 09) • Items 3 to 5 under past column. • Independent assessment of clean up and improved processes by internal audit. • Early establishment of a working relationship with AG & SCOPA.

16. Immediate priority of the clean up • Immediate priority: Audit report matters • Objective: “Cleaner” audit report for 31 March 2009 year end • Qualification: LDFU, new system costs capitalised, procurement & payments, payroll & funds under administration • Qualification: Non compliance with legislation (PFMA for irregular & fruitless and wasteful expenditure) • Other matters: • Ineffective governance (audit committee, internal audit, late submission of AFS, non implementation of audit findings & SCOPA resolutions). • Manual work created by inappropriate banking module. • Non compliance with legislation, addressing: (late submission of corporate plan & shareholder compact, declaration of interests, moratorium on development loans, payments to the former CEO’s). • Ineffective performance management of strategic objectives • Forensic investigations completed and in progress

17. Payroll projects status

18. Procurement projects status Other audit report matter projects status

19. Objective: • Stabilise the core operations, management systems, human capital and funding. • Build a foundation for sustainability • Phase I – Clean-up • Phase II – Stabilisation • Phase III – Sustainability Focus: Put in place execution foundations to help ensure overall effectiveness for the long term health of Land Bank Anticipated timing: Mar 09 – Sept 09

20. Stabilisation • HR • IT • Cost to income • Land for Development Finance Unit (LDFU) • Funding • Balance Sheet

21. Implement a performance management system Recruitment: Fill critical vacancies Ensure an accurate SAP HR system Organisational Structure: Align organisational structure strategy Ensure an adequate SAP Finance & Procurement system Audit history Compliance to PFMA SAP Banking assessment Implement SAP- Segregation of duties e.g. order & payment. IT HR

22. Increase net Income Enhance existing revenue streams Add new revenue streams Reduce Cost of Funds Reduce Operational Expenses Assess Critical Cost Increases To enhance product offering To improve service delivery Additional Income Improve Liquidity Position Lengthen Maturity Profile Minimise short term refinancing risk Increase Roll-overs and Issue New Funding Funding Dynamics Cost to Income Ratio

23. Determine Land Bank’s legal standing on LDFU contracts Re-assess valuations Segment loan book Complete disposal of the book Take legal action LDFU disposal strategy Why divest • Mandate issues • Financial instability • Reputation risk • AFS qualification There is a rigorous process in place to work through the disposal Action • Now in negotiations across the board • Early resolution probable for some loans • 25% of the book expected to be settled in current fiscal year • Total book expected to be collected by end of March 2010

24. 1 954 LEGAL RETAIL LDFU CFU Non Performing Loans: Context & Progress Balance Sheet Context/Progress Action area Recoverability • Transfer of some assets in progress • LB already intervene to dispose • Others being refinanced • Restructuring • Portfolio segmented • Arrangement • Auction • Settlement • Insolvencies Low Probability to recover High

25. 1 954 HR IT Cost to income Funding Dynamics LDFU Balance sheet Progress on Stabilisation Action area Progress to date • Blue print for performance management system developed • 35 of the 114 critical positions filled. Intention to fill all critical positions by June 2009 • SAP HR system fixed • Organisation structure pending approval of the strategy by the Minister • All weaknesses on the SAP HR & finance systems have been plugged • Appointed a service provider to assess the SAP system • Propose external process for validation • Major cost contributors identified, isolated and are being managed • Maintained costs within the approved budget • Cost to income ratio improved to 73% as at September 2008 • Liquidity position at R2.6 Billion • Maturity profile extended beyond 3 months up to 1yr • Minimised refinancing risk • 100% rollover rate & new issues • Increased investor confidence, appetite & amounts invested • Negotiations for settlements with all clients taking place • 1st account to be settled soon • 2 more accounts to may be settled before the end of financial year • Biggest non performing loan being settled • Declining impairments (see un-audited financial results 30 September 2008) • Already seeing positive impact on the Bank’s equity

26. Objective: To deliver a transformed Bank in the long term and focus on development as core to the business • Phase I – Clean-up • Phase II – Stabilisation • Phase III – Sustainability Focus Change the fundamental value proposition and focus of Land Bank and introduce a Development orientation

27. Sustainability is guided by six strategic imperatives emanating from the corporate plan 2. Improve service delivery and stakeholder engagement 3. Maintain Financial Sustainability 1. Implement Development as core to business Clean-up , Stabilise & Sustain the Business 6. Ensure Sound Governance, Risk Management and Compliance 4. Enhance Human Capital 5. Implement systems solutions, drive research and innovation

28. 2. Ensure quality and improve service delivery (efficiencies) 1. Implement the 3.Maintain business model on financial development sustainability (manage costs Stabilise , Grow and revenue) & Transform the Business 6. Ensure sound corporate 4.Develop/enhence Governance, risk human capital management And (enhancing compliance management capacity) 5. Implement (including processes systems solutions, and policies) embrace technology and drive research, development and innovation Sustainability is guided by six strategic imperatives Implement Development as core to business Improve service delivery and stakeholder engagement Maintain financial sustainability Develop and enhance human Capital Systems, technology research & innovation Corporate Governance & Risk management Addressing issues of the core mandate as per the Land and Agriculture Development Bank Act No 15 of 2002. Participating in areas of market failure, contributing to poverty eradication, rural development and land reform. Optimise processes, organisational efficiency and effectiveness & ensure visibility with stakeholders, beneficiaries and interest groups Addressing issues Manage and reduce operational costs and increase revenue. Exercise financial prudence, ensure adherence to PFMA and related Regulations. Ensure the attraction, acquisition, development and retention of relevant, adequate personnel Ensure adequate Management Information Systems for the core business Minimise & risk issues and introduce controls

29. The Land and Agricultural Development Bank Financial Results – 30 September 2008

30. Income statement for the period ended 30 September 2008

31. Balance sheet as at 30 September 2008

32. Thank You!!!