South African Land Bank Sees Little Loan Stress Over Drought

  • State-owned lender says loan book grew ‘marginally’ in 2016
  • Bank sees farm income rising because of higher crop prices

Land and Agricultural Development Bank of South Africa sees little stress in its loan book despite the worst drought in memory damaging harvests, with the dry weather raising prices of crops in the continent’s biggest corn producer, its chief executive officer said.

“The interesting thing is that even though the grain-producing provinces have been affected, we have not seen any significant distresses in our loan book,” Tshokolo Nchocho said in an interview in Johannesburg. “Where farmers are unable to pay and we reschedule loans, we might adjust provisions upwards. Our provisions are still within the tolerance levels of the new accounting standards.”

About 70 percent of the bank’s loans are to farmers in areas such as the Free State province, which produced 40 percent of last year’s corn crop, and Mpumalanga, which accounted for 25 percent. Growth in the gross loan book of the state-owned lender to farmers was “marginal” in the year that ended in March from 12 months earlier, Nchocho said. That’s because growers planted crops on an area that was 28 percent smaller than in fiscal 2015 owing to the drought, Nchocho said. Despite this, farm income is “surprisingly” likely to go up due to the higher prices, he said.

South Africa last year had the least rainfall since records started in 1904, damaging crops and herds and raising food prices. Its farmers will need as much as 16.6 billion rand ($1.2 billion) in the year through March to subsidize feed purchases, provide grants and interest-rate subsidies to aid commercial growers in financial distress and help operators pay workers, a study by the AGRI SA lobby group and others showed.

The Land Bank’s gross loan book was at 37.8 billion rand on March 31, 2015. The results for the 12 months through March will be presented to lawmakers later this year.

About 2,000 of the nation’s farmers are in severe financial distress and won’t be able to access credit in the coming season because of the drought’s effect on their operations, according to the industry report. There are about 35,000 commercial farmers in the country. Fifteen thousand of these operators don’t have sufficient cash flow to support their farms any longer, Johannesburg-based Business Day reported Wednesday, citing AGRI SA Deputy CEO Christo van der Reede.

The Land Bank is in the final stages of securing a 1.3 billion-rand loan from the World Bank to support farmers and in March obtained 5 billion rand from the Public Investment Corp., which is the continent’s biggest fund manager and looks after South African government workers’ pensions, Nchocho said. The bank foresees that it will draw on this over the next three years. It has also set aside 400 million rand for drought relief, he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE