Presentation to

Standing Committee on Finance

24 May 2011

Table of contents

• Overview of Land Bank

• The turnaround strategy

• Sustainability (FFF) and Development (REM)

• Major Corporate KPIs

• Way Forward

• Appendices

2

Regulatory framework

• Wholly owned by the South African government

• Founded in 1912 and provides retail and wholesale financing

• Finance development and commercial farmers

• Regulated by:

– Land and Agriculture Development Act (2002) (“Land Bank Act”)

– Public Finance Management Act (1999)

– National Credit Act (2005)

• Fitch Rating Agency:

– Long-Term (AA (zaf))

– Short term (F1+ (zaf))

Rating confirmed

on 18 March 2011

3

The turnaround strategy

Sept 2009 Mar 2012

Sept 2008 Mar 2010

4

Phases of the turnaround strategy

Clean Up Stabilisation Sustainability

• Audit reports qualification

• Audit report – Other matters

• Management letters of the auditors

• SCOPA resolutions/Parliamentary

Committees

• Government guarantee conditions

• Forensic investigation

• Improved staff capacity

• Information technology

• Balance sheet

• LDFU

• Funding dynamics

• Cost-to-income ratio

• Building the loan book

• Fit For Future (FFF) (Appropriate

operating and business models)

• Development (Ring-fenced)

Sept 2008 Mar 2010

Sept 2009 Mar 2012

5

• Increasing loan book shows evidence of stabilisation

• Efforts to improve the loan book quality are bearing fruit (lower NPL’s & improving

margins)

Building the book

17,0

16,1 14,2 13,7

14,9

13,5% 18,0% 22,5%

13,1%

10,3%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

FY07 FY08 FY09 FY10 *Q4 FY11

Loan Book Performance

Total Loan Book (Rbn) % of NPL

*Estimate

Sustainability

6

Loan Book Movements (R’bn)

13 266

12 836

12 015

15,151

10 000

11 000

12 000

13 000

14 000

15 000

16 000

March 10 Collections Major client movement March 11

7

Balance sheet analysis

Capital adequacy

12% 11%

22%

10% 10%

20%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY08 FY09 FY10

Equity and reserves Guarantee Target ratio

22% 21%

42% Total Government guarantee = R3.5bn

• R1 bn received in FY09/10

• R750m will be received in FY10/11

• R750m will be received in FY11/12

(R400 received May 2011)

• R1 bn will be received in FY13

15,0 14,9 14 11,9 12,3 13,9

1,6 2,1 2,1

2,3 1,4 1,1

9,6% 12,4% 13,0% 16,2%

10,2% 7,2%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

16,0%

18,0%

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

FY06 FY07 FY08 FY09 FY10 *Q4 FY11

Impairment trend

Net loan book (Rbn) Impairments (Rbn) % impairment of gross loan book

*Estimate

8

Sustainability (FFF) and Development

9

Fit For Future (FFF)

A growing business that is based on clear

achievable targets.

Predictable, & enhanced customer

interaction

A Sustainable delivery channel network

Development Impact

2010/11

2014/15

How to get to the destination

• Establish a business unit focused on emerging farmers

• Optimise branch back office activities through technological means and process efficiency

• Optimise Land Bank’s delivery channel

• Stabilise and enhance the service capacity and capability of the Business and Corporate Banking unit

• Establish a high performance, people oriented culture

10

Organizational Structure

Office of the CEO

Retail Emerging Market (REM)

Retail Commercial Bank (RCB)

Business & Corporate Banking

(BCB)

11

Retail Emerging Markets (REM)

• Restructured Land Bank – Retail Emerging Markets REM The REM business aims to, in the face of market failure, assist black

emerging farmers to become established retail farmers through the provision of tailored financing solutions.

• Dedicated division – • To address the following:

•Black emerging farmers •Active in primary agricultural sector • Inability to secure financing •Lack of security •Scale of operations too small to attract services • Insufficient access to resources •Relative lack of managerial, financial and/or agricultural skills to sustain a farming

enterprise •Provision of after care support •Clients can be individuals, trusts and other communal entities •Clients will include farming projects (land reform)

12

Retail Emerging Markets…continued

• Two innovative instruments give added effect to the Bank’s

new development focus:

a) The Emerging Farmer Support Facility (EFSF) which

incorporates Value Chain Financing (see appendices)

b) Wholesale Finance Facility (WFF)

• Approved by Cabinet

13

Sustainable Business Model (Long-Term): development funding

Land Bank

Retail Emerging

Markets

(REM)

BCB and

RCB

Land Bank

Insurance Company

(LBIC)

% profit for

development

% profit for

development

SU

BS

IDIA

RIE

S

Government

funding

Multilateral

Funding

14

Development Impact Measurements

• New tools developed:

• Assessment of applications on Development Impact Parameters Framework (DIPS)

• DIPS used to provide a social discount to development clients and clients with strong contributions to development

• The Bank in collaboration with DBSA is using a Social Accounting Matrix (SAM) to measure its overall development impact

15

Development NPLs

NPL : 58% of Total Development Loan

Book

369 mil

1.0 Bn

580 mil

16

Lending structure of the Land Bank

Land Bank

Retail

Developmental

Loan book =R1.0Bn

NPL = 58 %

Commercial

Loan book = R2.9Bn

NPL = 16%

CFU

Loan book = R10.2 Bn

NPL = 5%

Retail Book Corporate Finance Book

Development retail to be funded by a combination of

Government support, Value Chain Model, Land

Bank profits, and LBIC profits

The combined NPL’s for retail

commercial and CFU’s are 8.56%.

17

R 3 649

R 3 015

R 2 323 R 2 212 R 2 851

R 1 222

R 1 304 R 1 406

R 1 214

R 1 026

25,09% 30,19%

37,71% 35,45%

26,46%

0

0,05

0,1

0,15

0,2

0,25

0,3

0,35

0,4

0

1000

2000

3000

4000

5000

6000

FY07 FY08 FY09 FY10 FY11

R m

illio

n

Non performing book

R 11 387 R 10 190

R 8 650 R 9 688

R 10 755

R 776 R 1 540

R 1 822 R 581

R 658

6,38% 13,13% 17,40%

5,66%

5,76%

0

0,02

0,04

0,06

0,08

0,1

0,12

0,14

0,16

0,18

0,2

0

2000

4000

6000

8000

10000

12000

14000

FY07 FY08 FY09 FY10 FY11

R m

illio

n

Non performing book

Key performance area (KPA) KPI (March 2012) KPI (March 2013) KPI (March 2014)

Development 450 mil 500 mil 650mil

Grow the loan book 10% 10% 10%

Cost-to-income ratio 93.1% 83.4% 78.8%

Capital adequacy ratio 20% 20% 20%

Diversify income streams (year-on-

year)

8% 10% 10%

Reduce non-performing loans Reduce to 10.5% of total loan

book

Reduce to 9.5% of total loan

book

Reduce to 9.25% of total loan

book

Liquidity Maintain liquidity as per liquidity risk model

Major Corporate KPIs

18

Way forward

• Development

• Continue to grow the loan book and improve quality

• Improved efficiencies and enhance client relations management

• Diversify income stream

• Mitigate development risk with value chain finance

• Implementation of fit for future

• Revised business and operational models

19

APPENDICES

Government & donors

Collateral (50% - 90% of loan value)

Eligible Borrowers (Farmers & agribusiness)

Credit

assessment

Land Bank Land Bank

Funding flow

Collateral Guarantee Fund

Fund

administration +

participation

Agric Cooperatives

(+ intermediaries)

Technical Support

Lending through LB

branches,

municipalities & Ext

offices

Additional support {Off-take agreements SCF, ARC, NAMC, Univ, DAFF, Insurance}

LB to negotiate

partnership

LB to negotiate

partnerships

Emerging Farmers Support Facility - EFSF

21

Emerging Farmers Support Facility - EFSF

Government & donors

Suppl. Capital (up to 40 - 50% of loan

value) ***

Eligible Borrowers

(Farmers & agribusiness)

Credit

assessment

Land Bank Land Bank

Funding flow

Supplementary Capital Fund

Fund administration

+ participation

Agric Cooperatives

(+ intermediaries)

Technical Support

Lending through LB

branches,

municipalities & Ext

offices

Additional support {Off-take agreements CGF, ARC, NAMC, Univ, DAFF, Insurance}

LB to negotiate

partnership

LB to negotiate

partnerships

*** Statistically determined.

22