Credit information – Results and Asset slides IN RESPECT OF THE LIABILITY SOLUTION OF THE LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA 14 September 2020 Disclaimer: The March YE 2020 and June Q1 2020 results in this presentation are preliminary and unaudited. Preliminary unaudited credit information 1
Outline 1. Governance and financial overview at 31 March 2020 2. Asset information at 31 March 2020 3. Financial results Q1 ending 30 June 2020 and asset information Please refer to https://landbank.co.za/Pages/Investor-Relations.aspx for the latest Integrated Group Report for the year ending 31 March 2019 and 30 Sept 2019 Unaudited Interim Results as well as other relevant investor information Preliminary unaudited credit information 2
Governance Shareholder Executive Authority Minister of Finance Accounting Board of Directors Directors - Term Ended/Resigned Authority Mr. MA Moloto Ms. D Hlatshwayo Ms. SA Lund Mr A Kanana Ms. D Motau Ms. T Ngcobo Chairperson Deputy Chairperson Dr. S Cornelius Ms. M Makgatho Mr. M Makgoba Ms. K Mukhari (*) Ms. N Mtetwa Adv. S Coetzee Board Committees Audit and Finance Human Resources Social & Ethics Credit and Investments Risk and Governance Committee Committee Committee Committee Committee Monitor, review Monitor, review • Review and recommend credit • Internal and External • • • Enterprise Risk Management and oversee all and oversee all policies, frameworks as well as Audit matters Framework, Governance Human Capital Social, Ethics and prudential limits and guidelines • Accounting policies Architecture, Risk Appetite and Review and approve or and methodologies matters Environmental • Tolerance Framework matters recommend credit facilities in Financial matters Approve the Bank’s Risk Management • • line with Delegations of Power Plan • Monitoring • Review and Monitor the management of all Risks in the organisation All Board Committees are accountable to the Board Exco Accountable to Executive Committee Board Mr. F Stiglingh Mr. A Kanana Ms. K Mukhari Mr Sakhumzi Diza Ms. M Dlamini Mr. S Sebueng EM: Post Investment Management CEO CFO CRO EM: Human Capital EM: Legal services Services Mr. S Soundy Dr. L Magingxa Ms. U Magwentshu Mr Lwandiso Makupula Acting EM: Mr. M Rakgalakane EM: Strategy & EM: Agri Economics EM: CB&SI CDBB MD: Land Bank Insurance company Communications Note: The Company Secretary and Head of Internal Audit are standing invitees in the Executive Committee, appointed by the Board and are non-voting members of the Executive Committee * – K Mukhari has not been formally appointed to the Board Preliminary unaudited credit information 3
Governance All Board appointments are governed by the Land Bank Board Charter which is informed by: 1) the King Report on Governance for South Africa, 2016; 2) the Land and Agricultural Development Bank Act, 15 of 2002 (The Land Bank Act) 3) The Public Finance Management Act, No 1 of 1999 (PFMA) Executive Committee changes All appointments into vacant positions are in accordance with the provision of the Land Bank recruitment policy • Mr Sakhi Diza was appointed as Chief Risk Officer, effective 17 August 2020 • Appointments to Board • Mr Ayanda Kanana was appointed as Chief Executive Officer, effective 1 March 2020. The appointments complied with the provisions of the Land Bank Recruitment Policy and Land Back Act for the CEO • The Minister of Finance appointed the CEO as Executive Director effective 1 March 2020 • Ms Khensani Mukhari joined the Land Bank as CFO on 03 February 2020 • Key management changes • Appointment of Ms. Dorothy Kobe : General Manager Treasury effective from 17 August 2020 Preliminary unaudited credit information 4
Financial Overview Salient Features – Group Year End Results % change 20-Mar 19-Mar YonY ZAR’m ZAR’m Net interest income 794 1 174 -32% Impairments -1 810 -316 472% Operating expenses -713 -699 2% Profit / (Loss) from Continuing Operations (incl R300m inter-co dividend -1 948 46 eliminated in Banking operations) - Banking Operations -1 882 8 Profit from operations after inter-company dividends from LBIC -1 582 8 Dividend income from LBIC -300 - - Insurance Operations -66 38 Cash 723 3 213 -78% Investments 2 157 3 182 Net loans and advances 42 651 44 173 -3% Total assets 47 275 52 068 Capital and reserves 3 640 6 257 -42% Liabilities 43 636 45 811 - Funding liabilities 41 284 44 258 -7% - Other liabilities 2 352 1 553 Total equity and liabilities 47 275 52 068 -9% 1) Net interest income continues to decline due to margin compression and due to inability to pass on funding cost increases 2) Refer slide 6 for non performing loan and impairment analysis 3) Capital and reserves declined due to the loss for the year as well as direct adjustments to equity 4) The cash position dropped significantly due to a reduction in ability to refinance as credit ratings started falling Preliminary unaudited credit information 5
Non Performing loans & impairments FY20 FY19 FY18 Non Performing Loans NPL % (IFRS 9) 11.4% 8.8% 6.7% • Management commissioned an independent review of Land Bank’s credit book to assess the adequacy of the provisioning level. This resulted in an additional R1.0bn being raised as a general portfolio overlay, including the potential impact of Covid-19 • The trend in NPL’s can be seen in the graph (bottom left). The trend in non -performing loan coverage has been decreasing. With the above additional credit provisioning the March 2020 provisioning has now increased to levels of pre FY2015 Trend NPL’s versus Provisioning to NPL’s Capital and reserves reconciliation ( R’m ) Opening Bal. 1 April 2019 6 257 12.0% 100.0% NPL provisions as a & of NPL 10.0% 80.0% Operating loss -1 948 NPL ratio (%) 8.0% 60.0% 6.0% 40.0% Impairments to equity holdings (*) -669 4.0% 20.0% 2.0% Closing Bal. 30 March 2020 3 640 0.0% 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 * – Non-listed equity holding is largely driven by the Land Bank NPL ratio NPL provisions as a % of NPL investment strategy, with limited portion of this portfolio also coming through distressed positions where debt is converted to equity in a restructuring process. Land Bank has written these holding down to Linear (NPL ratio) Linear (NPL provisions as a % of NPL) estimated realizable value Preliminary unaudited credit information 6
Outline 1. Governance and financial overview at 31 March 2020 2. Asset information at 31 March 2020 3. Financial results Q1 ending 30 June 2020 and asset information Please refer to https://landbank.co.za/Pages/Investor-Relations.aspx for the latest Integrated Group Report for the year ending 31 March 2019 and 30 Sept 2019 Unaudited Interim Results as well as other relevant investor information Preliminary unaudited credit information 7
Introduction Agriculture’s prominent, indirect role in the economy is a function of backward and forward linkages to other sectors. Purchases of goods such as fertilisers, chemicals and implements form backward linkages with the manufacturing sector, while forward linkages are established through supplying raw materials to the manufacturing industry. About 70% of agricultural output is used as intermediate products in the sector. South Africa’s agriculture is therefore a crucial sector and an important engine of growth for the rest of the economy, and as one of the major funders in the sector (currently funding 29% of loans in the agricultural sector), Land Bank remains a main thread within the social-economic tapestry of the sector. The sector has experienced severe challenges (i.e. drought, poor market conditions and disease outbreaks) over the last decade, and being the only specialist development finance institution focused on the agricultural sector means Land Bank was not immune to these challenges. If it was not for the Bank’s investments in agricultural technical changes over the last 10 years, internal strong governance and risk management structures, as well as investment in enhancement of credit and risk management processes and systems, we believe the Bank would not have been able to deal with most of these challenges. As the world moves towards the fourth industrialisation, which will bring about accelerated technical change, specialisation and productivity, it is important that the agricultural sector continues to be supported financially by Land Bank to ensure that: - Farmers are resilient to ongoing challenges (i.e. unpredictable climate and market conditions), - South Africa remains a food secure country, - Farmers remain part of the country’s industrial development strategy, and - Agricultural sector continues to contribute to the country’s socio-economic development agenda. Preliminary unaudited credit information 8
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