Problems at South Africa's Land Bank

Three senior Land Bank officials were suspended in South Africa on March 28, including CEO Alan Mukoki. The suspensions come as another blow to the bank, which has been under severe strain under Mukoki, a former MD of Nedcor’s Peoples' Bank division. The bank’s financial woes have been highlighted in three consecutive audit reports. It has also been involved in a scandal over an 800 million rand ($110 million) loan it made to Pamodzi Investment Holdings, in which ruling party African National Congress (ANC) secretary-general Kgalema Motlanthe and senior party member, Manne Dipico, held shares.

Agriculture minister Lulama Xingwana asked Mukoki to “step aside” for an undefined period, while the Land Bank board asked chief financial officer Xolile Ncame and head of risk Godfrey Masilela to also take leaves of absence. Xingwana said she was taking “an active interest” in the turnaround of the institution, saying she had delegated a team to the bank "to strengthen the board and management.”

She also confirmed that government would have to inject R700m into the Land Bank to “support its turnaround strategy and provide a prudent level of capital adequacy. Her spokesman said the decision on Mukoki was taken because “the minister, as the Land Bank’s shareholder, was not happy with the bank’s performance. She asked him to step aside in order for her to look at the root cause of this poor performance,” he said.

The decision to effectively suspend the three officials comes days before the Land Bank was to close its books for the end of its financial year to March. That Xingwana took the decision now is likely to spur speculation that government may have been alerted to the fact that the Land Bank’s financial performance was even worse than last year’s. The auditor-general qualified the Land Bank’s accounts for the year to March 2006, saying its income statements did not comply with proper accounting standards, particularly when it came to how the organisation handled its loans.

Within an overall dismal performance, the bank’s capital adequacy has been a particular weakness. Last year’s Land Bank results showed that in the five years from 2001 to 2006, its capital fell from R3,1bn to R1,1bn because of “significant impairment provisions and bad debt write-offs.” This forced Land Bank directors to note in 2006 that this “indicated the existence of uncertainties which may cast doubt on the Land Bank’s ability to continue as a going concern.” To shore up the low levels of capital, government said it would have to fork out more than another R1,5bn in guarantees to increase capital reserves.

In July 2005, it emerged that the Land Bank had lent R800m to Pamodzi Investment Holdings to allow the company to buy a 49% stake in Foodcorp. This blew up into a scandal for a number of reasons, including the fact that the loan was for a non-agricultural investment, therefore not in conformity with the bank’s mandate. Making matters worse, the R800m loan amounted to 33% of the institution’s total R2,4bn capital base at the time, leading ratings agency Fitch to say it “was concerned about the level of concentration risk to single borrowers” and that the credit risk of some of the exposures were high.

The opposition Democratic Alliance issued a scathing statement yesterday, saying Mukoki’s suspension “marks the end of a long period of mismanagement at this formerly proud, 90-year-old institution”. DA spokesman Kraai van Niekerk, a National Party agriculture minister before 1994, said the bank had “steadily deteriorated”. He said “government now needs to focus the activities of the Land Bank back on its core functions : to provide affordable finance for the development of the agricultural sector.”

Mukoki was paid R3m in 2006, including the R1m bonus. Ncame earned R1,69m , including the R390,000 bonus. Masilela was paid R788,050.

Business Day