The state-owned Land Bank has successfully concluded a debt restructuring agreement with its lenders, set to take effect on September 16, effectively ending its debt default status. This development marks a significant step toward stabilising South Africa’s primary agricultural finance institution and restoring its role in the sector.

The South African government has provided R10 billion to stabilize the bank and reduce its contingent liabilities, primarily through settling state-guaranteed loans. Additionally, R3.7 billion from these funds will be allocated to the Blended Finance Scheme, supporting the bank’s agricultural development and transformation mandate. Finance Minister Enoch Godongwana emphasised that the government prioritized self-help measures for the bank while keeping fiscal support minimal, but noted that its funding model remains a priority going forward.

The new operating model, led by CEO Themba Rikhotso and his executive team, with strong support from the board, will drive the Land Bank’s recovery. Currently, more than 50% of the bank’s loan book, amounting to about R8 billion out of a total R17 billion, is classified as non-performing. This situation significantly contributed to the bank’s debt default.

“As part of our liability solution, we have developed extensive plans with lenders to address our non-performing loans, with various programs in place to restructure these loans,” Rikhotso explained. The Land Bank will closely monitor its loan portfolio and support clients who demonstrate potential for productive agricultural activities to cure the recoverable non-performing loans.

The Land Bank has already taken decisive steps to manage its debt by liquidating its “good” loan book, using the proceeds to repay over 60% of its outstanding debt. Despite this, the bank’s loan portfolio is showing signs of growth, with R1.5 billion in new funding (half in grants and half in loans) recently approved.

Moving forward, the Land Bank will make scheduled repayments to lenders every six months through March 2028, with the government’s equity contribution playing a critical role in positioning the bank for sustainable growth.

Since its debt default in April 2020, the Land Bank has reduced its loan book from R45.2 billion to R17 billion by June 2024, allowing it to repay over 60% of its debt. Despite downsizing, the bank resumed limited lending in October 2022 through the Blended Finance Scheme, supported by grant funding from the Department of Agriculture.

With the debt restructuring plan finalized, the Land Bank is now focused on executing its turnaround strategy to fulfill its mandate and drive development and transformation within the agricultural sector. The turnaround strategy, launched in the 2023 financial year, is structured into three key phases:

1. Stabilisation Phase (up to 2024): Focus on balancing debt repayment obligations and re-establishing limited lending.
2. Consolidation Phase (2025-2027): Concentrate on improving operations and strategic execution.
3. Growth Phase (2028 onwards): Aim for a diversified funding model and business growth, with expanded development outcomes.

“All parties have shown patience and good faith, with lenders respecting a standstill arrangement since the bank defaulted on its debts in April 2020. We believe the solution reached is in the best interest of all stakeholders and the agricultural sector,” stated Land Bank Chairperson Thabi Nkosi.

Finance Minister Godongwana acknowledged that the Land Bank’s impact on socioeconomic progress had been reduced due to the temporary suspension of lending activities but underscored the government’s measured approach to supporting the agricultural bank. While state support is necessary, the bank’s debt restructuring solution is largely driven by its remedial measures.

“Through its own cash flow from collections and client settlements, the bank has managed to repay 60% of its funding liabilities since the debt default, which is a commendable achievement,” Godongwana noted. “However, this has resulted in reduced support for the agricultural sector. Therefore, we have ensured that a significant portion of the R10 billion fiscal support is dedicated to the bank’s agricultural development and transformation mandate through the deployment of at least R3.7 billion to the Blended Finance Scheme.”

The Minister emphasised the need for closer collaboration between the Land Bank, the Department of Agriculture, and other state entities to ensure coordinated efforts that maximize the impact of public and private sector resources in the agricultural sector.

“A successful Land Bank is essential for transforming the agricultural sector, particularly by financing historically disadvantaged individuals and enhancing their inclusion in the sector. It also fills a critical gap during periods when commercial banks and other financial institutions reduce agricultural lending due to sector challenges,” Godongwana concluded.

He highlighted that the Land Bank plays a vital role in protecting the interests of the agricultural sector and ensuring the country’s food security, serving as a catalyst for rural economic development and job creation.