Presentation to the Portfolio Committee on Agriculture and Land Affairs, 6 May 2008

1. Presentation to the Portfolio Committee on Agriculture and Land Affairs, 6 May 2008

2. CONTENTS • 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

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 • 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

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. SUPPORTING VALUES • 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

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

13. Food security and food prices • 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

14. LAND BANK PRODUCT AND SERVICE OFFERING RELATIVE TO THAT OF THE COMMERCIAL BANKS • 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 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 • 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 Bank 1 Bank 2 Land Bank Solutions Reduce cost of funds through government support and raising funds for dev separately, & MAFISA Implement an adequate IT system Hubs and satellite offices Recruit relevant resources in economics, agriculture science and banking business. • 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 Price • Slow processing and turnaround time • Quick processing and turnaround time Service delivery • 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 Agric expertise * According to interviews with commercial farmers Source: Adapted from Team Analysis (Mckinsey : 2005)

16. LAND BANK PRODUCT AND SERVICE OFFERING RELATIVE TO THAT OF THE COMMERCIAL BANKS Bank 1 Bank 2 Land Bank Solution Introduction of hubs or satellite offices within reasonable proximity to target market – 47 municipalities, partner with other local municipalities Overhaul IT systems • 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 • Leverages off wide retail distribution network • Technology-centric proposition, incl. internet banking, electronic banking, cell phone banking Channels • Low brand strength • Negative publicity Brand • Good brand • Good brand

17. Historical Performance 2005 – 2007

18. COST OF FUNDING COST OF FUNDS • 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.

19. 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 Business • Deliver on development • Review the funding model

22. 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. STABILISING THE BUSINESS PRIORITIES 2008/9 MITIGATION 2008/9

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 STABILISING THE BUSINESS PRIORITIES 2008/9 MITIGATION 2008/9

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 STABILISING THE BUSINESS PRIORITIES 2008/9 MITIGATION 2008/9

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 STABILISING THE BUSINESS PRIORITIES 2008/9 MITIGATION 2008/9

27. STABILISING THE BUSINESS PROGRESS TO DATE • Liquidity position of the bank stabilized • Interventions to address key non-performing loans taking place to recover outstanding debts • Stabilization of the Finance department taking place • External audit firms

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 Fraud GM HR Gross insubordination/negligence Snr Manager Retail Dishonesty Snr Manager IT x 2 Fraud Snr Manager LDFU Gross Misconduct Snr Manager CFU Gross Misconduct In Progress: CFO Gross Misconduct/Dishonesty GM IT Fraud Snr Manager HR Gross Negligence Area Manager Tzaneen – Financial Irregularities Specialist - IT Dishonesty New Cases: 3 Administrative staff Gross Misconduct/Dishonesty 1 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. CONTRIBUTION TO AGRICULTURAL DEVELOPMENT • 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

33. PERFORMANCE INDICATORS • Grow development Book by R3 billion • Profitability • Cost to income • After restructuring costs • Non performing loans

34. FUNDING • Recapitalisation • Government guarantees • Donor funding • DoA/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