INTEGRATED ANNUAL REPORT 2023 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS CONTENTS LAND BANK’S OPERATIONS 38 FOREWORD BY THE CHIEF EXECUTIVE OFFICER 40 ACHIEVEMENT AGAINST KEY PERFORMANCE ABOUT THIS REPORT 6 INDICATORS 43 INTRODUCTION 8 DEVELOPMENT EFFECTIVENESS - OUR STORIES Basis of Preparation 8 OF IMPACT 47 Determining Materiality 9 Forward-Looking Statements 9 OPERATING ENVIRONMENT 52 Assurance 9 SECTOR OVERVIEW 54 Statement of Responsibility 10 The Macro-Economic Environment 54 Board Approval 11 The Policy Environment 54 THE AGRICULTURAL SECTOR OVERVIEW 55 PERFORMANCE OVERVIEW 12 HIGHLIGHTS FOR THE PERIOD 14 STAKEHOLDER RELATIONS 58 CHALLENGES EXPERIENCED 15 Background 62 PERFORMANCE OUTLOOK 17 National Treasury 62 Parliament and the Legislature 62 ABOUT LAND BANK 18 Lenders 62 FOREWORD BY THE MINISTER 20 MINISTRIES AND SOES 62 FOREWORD BY THE CHAIRMAN OF THE BOARD 22 DALRRD 62 ORGANISATIONAL OVERVIEW 25 Provincial Value Chain Blended Finance Scheme 62 Land Bank’s Purpose 26 Provincial DFIS and Economic Development Agencies 62 Land Bank’s Mandate 26 Regional Cooperation and Participation 63 Land Bank’s Vision 26 Farmer Organisations 63 Land Bank’s Mission 26 Corporate Social Investment Initiatives 63 NATIONAL DEVELOPMENT PLAN AND SUSTAINABLE DEVELOPMENT GOALS OUR CAPITALS 64 ALIGNMENT 27 INTELLECTUAL CAPITAL 66 OUR LEADERSHIP 28 Land Bank’s Use of Technology 66 VALUE CREATION MODEL 34 NATURAL CAPITAL 67 LAND BANK’S FOOTPRINT 35 Building Climate Resilience 68 LAND BANK DEVELOPMENT EFFECTIVENESS: HUMAN CAPITAL 69 HIGHLIGHTS 36 OVERVIEW 69 Organisational Capacity 69 Attrition and Retention 71 Employee Value Proposition 72 Remuneration 72 Fixed Remuneration 72 2 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Variable Pay 72 EXTERNAL RISK 98 Talent Management 72 BUSINESS RISK 98 Other Benefits 74 COMPLIANCE GOVERNANCE 99 Human Capital Governance 74 Consequence Management 74 LAND BANK’S RISK MANAGEMENT 100 Culture 74 LAND BANK’S RISK MANAGEMENT 102 RISK STRATEGY AND PHILOSOPHY 102 FINANCIAL CAPITAL 75 FOREWORD BY THE CHIEF FINANCIAL OFFICER 75 GOVERNANCE 110 GROUP RESULTS 77 Governance Framework 112 Banking Operations 77 Land Bank Board Committees 115 Net Interest Income 77 Audit and Finance Committee 115 Net Impairment and Recoveries 77 Risk and Governance Committee 116 Non-interest Income 77 Human Resources and Remuneration Operating Expenses 77 Committee 116 Investment Income 78 Nominations Committee 117 Cash and Cash Equivalents 78 Social and Ethics Committee 118 Investments 78 Credit Investment Committee 118 Net Loans and Advances 78 Land Bank Board and Committee Attendance 120 Non-Performing Loans 78 LAND BANK INSURANCE BOARD PROFILES 121 TREASURY REPORT 79 Land Bank Insurance Board Committees 122 Audit and Risk Committee 122 LAND BANK INSURANCE PERFORMANCE 80 Investment and Actuarial Committee 123 OVERVIEW OF THE LAND BANK INSURANCE 82 Human Resource and Remuneration Committee 124 LBIC AND LBLIC FINANCIAL PERFORMANCE 83 Nominations Committee 124 Land Bank Life Insurance Company 83 Land Bank Insurance Committee Membership 124 LBIC Investments Performance 85 Land Bank Insurance Board and Committee Attendance 125 LBIC Capital Management and Solvency 85 Remuneration Report 126 LBLIC Financial Performance 86 KING IV CODE™ DISCLOSURES FOR THE LBLIC Investments Performance 86 YEAR ENDED 31 MARCH 2023 126 LBLIC Capital Management and Solvency 86 Task Force on Climate-Related Financial Disclosures 127 PERFORMANCE AGAINST STRATEGY 88 KING IV CODE™ PRINCIPLES 128 STRATEGY AND VALUE CREATION 91 Leadership, Ethics and Corporate Citizenship 128 Our Strategy 91 Strategy, Performance and Reporting 129 Human Capital 92 Stakeholder Relationships 132 Enterprise Risk Management Approach 95 LBIC’S THREE LINES OF ASSURANCE 97 FINANCIAL STATEMENTS 134 STRATEGIC RISK 98 3 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LIST OF ACRONYMS AAMP Agricultural and Agro-processing Master Plan ACI Agribusiness Confidence Index AFC Audit and Finance Committee AGOA African Growth and Opportunity Act AGSA Auditor-General of South Africa AGP Annual Guaranteed Package AML Anti-Money Laundering ARC Audit and Risk Committee ASUF Agri-Sector Unity Forum BCP Business Continuity Plan CA Conservation Agriculture CCMA Commission for Conciliation, Mediation and Arbitration CDBB Commercial Development and Business Banking CEO Chief Executive Officer CFO Chief Financial Officer CPI Consumer Price Index CRISA Code for Responsible Investing in South Africa DALRRD Department of Agriculture, Land Reform, and Rural Development DFI Development Finance Institution CFT Combating the financing of terrorism CRM Customer Relationship Management DoP Delegation of Powers EAD Exposure at Default ERM Enterprise Risk Management ESG Environmental, Social, and Governance ESMS Environmental and Social Management System ESRA Environmental and Social Risk Assessment ESS Environmental and Social Sustainability EU European Union 4 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS EVP Employee value proposition NDP National Development Plan EXCO Executive Committee NED Non-Executive Director FMD Foot and Mouth Disease NII Net Interest Income FN Foreign Nationals NIM Net Interest Margin FSCA Financial Sector Conduct Authority NPL Non-Performing Loans FSI Financial Soundness Standards for Insurers NT National Treasury FSP Financial Services Providers OHS Occupational Health and Safety GDP Gross Domestic Product ORSA Own risk and solvency assessment GHG Green House Gases PA Prudential Authority GIS Geographic Information Systems PFMA Public Finance Management Act GOI Governance and Operations standards for Insurers PRB Principles for Responsible Banking GRI Global Reporting Initiative PRMAF Pension Fund Retirement Medical Aid Fund HAF Heads of Actuarial Functions RA Regenerative Agriculture HRRC Human Resources and Remuneration Committee RGC Risk and Governance Committee IMF International Monetary Fund SADC South African Development Community IR Integrated Reporting SAM Solvency Assessment and Management ISF InsuResilience Solutions Fund SAWS South African Weather Services IT Information Technology SCR Solvency Capital Requirement JSE Johannesburg Stock Exchange SDG Sustainable Development Goals KPI Key Performance Indicators SLA Service Level Agreement KZN KwaZulu-Natal SOC State-Owned Companies LBI Land Bank Insurance SOCRIG State-Owned Companies Remuneration and Incentives Guidelines LBIC Land Bank Insurance Company SOE State-Owned Enterprises LBLIC Land Bank Life Insurance Company TAT Turn Around Times MCR Minimum Capital Requirement TCFD Task Force on Climate-Related Financial Disclosures MoA Memorandum of Agreement UMA Underwriting Management Agency MoF Minister of Finance UNPRI United Nations Principles for Responsible Investments MoU Memoranda of Understanding YTD Year to Date MPCI Multi-Peril Crop Insurance PDII Pasture Drought Index Insurance 5 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 1 ABOUT THIS REPORT 6 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 7 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS ABOUT THIS REPORT Matters considered to be of material value, as well as those that may significantly impact the Bank’s stakeholders in relation to sustainability, have been reported herein. Value creation is the consequence of the way in which Land Bank Group applies and leverages its resources, strategy, and business model toward delivering holistic value for its stakeholders – including financial performance. The current strategy and business model are aligned to the needs and expectations of a wide and diverse range of stakeholders. This report highlights matters of material value and potential significant impacts on our stakeholders in relation to sustainability. It demonstrates how Land Bank Group utilises its resources, strategy, and business model to deliver holistic value for stakeholders, including financial performance. Our current strategy and business model are tailored to meet the diverse needs and expectations of our stakeholders. This report is an integrated narrative of the Land and Agricultural Development Bank of Compiled in accordance with the King IV Code™ of governance, Integrated Report South Africa (Land Bank) for the period 1 April 2022 to 31 March 2023 by expanding framework, and Global Reporting Initiative (GRI) standard, this report ensures all material matters upon the value creation of the Bank for its stakeholders. The report aims to combine are communicated to shareholders. Updates have been provided where necessary, considering the financial (quantitative) and sustainability (qualitative) information, as well as the details from previous integrated reports. intangible value created. It is produced in accordance with the principles of King IV and the Integrated Reporting framework. The reader will gain insight into the effects of the Bank’s business on its internal and external environments. The Board, with the support of the Audit and Finance Committee (AFC), is accountable for the effectiveness of the Bank’s combined assurance, which supports the integrity of the information in the Integrated Annual Report. This includes the design and operation of our internal control system The Land and Agricultural Development Bank of South Africa (Land Bank), along with its Insurance to prevent material misstatement and loss. The Bank’s management and internal audit function play a Subsidiaries, Land Bank Insurance SOC Limited (LBIC), and Land Bank Life Insurance SOC Limited crucial role in assessing the effectiveness of this internal control environment. The assurance applied (LBLIC) (collectively, Land Bank Group), is pleased to present its Integrated Annual Report for the to this report covers both figures and factual statements. financial year ending 31 March 2023. This report offers a comprehensive overview of our performance, value creation, and societal contributions for the year, with a focus on matters relevant BASIS OF PREPARATION to shareholders, capital providers, regulators, and clients. It provides a balanced assessment of our ability to create sustainable value through our business model and the execution of our statutory This report showcases Land Bank’s adoption of integrated thinking and its application. It mandate under the Land Bank Act. focuses on issues that significantly affect the Bank’s capacity to create and sustain value for stakeholders. The content is sourced from the Bank’s records, including quarterly The report encompasses the financial and operational activities of Land Bank Group, including Land reports submitted to the National Treasury, and encompasses details of the operational Bank, Land Bank Insurance SOC Limited (LBIC), and Land Bank Life Insurance SOC Limited (LBLIC). context, strategic performance, risks and mitigation measures, stakeholder engagement, and While these entities are legally and governance-wise distinct, they are collectively referred to as Land identified business opportunities. Contributions from the Executive Management team are Bank Group. The report outlines our financial and non-financial performance, strategy, opportunities, incorporated, with all information reviewed by various committees and ultimately approved material risks, governance, and social and environmental issues, all of which significantly influence our by the Board. value creation. There have been no significant changes in our scope, size, structure, or shareholding during the reporting period that would affect comparability with the previous year’s report. The Land Bank Board strives to provide an accurate and transparent account of the Bank’s performance for the period. 8 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS DETERMINING MATERIALITY The Bank has formulated the Delegation of Powers (DoP) Framework, the Materiality Framework, and the Risk Appetite Framework, in which the materiality determination process is defined in line with Section 54(2) of Public Finance Management Act (PFMA) and Treasury Regulation 28.3. The reference to material, major, significant, and substantial events is determined through a consideration of the event’s strategic relevance, intrinsic value, magnitude, impact, and implications. Operating businesses reporting boundary for the 2023 Integrated Report In line with Section 54(2) of the PFMA, the following is deemed material: a. Establishment or participation in the establishment of a company; b. Participation in a significant partnership, trust, unincorporated joint venture, or similar arrangement; c. Acquisition or disposal of a significant shareholding in a company; d. Acquisition or disposal of a significant asset; e. Commencement or cessation of significant business activity; f. A significant change in the nature or extent of its interest in a significant partnership, trust, Land Bank unincorporated joint venture, or similar arrangement; Group g. All instances of theft, fraud, and corruption (regardless of amount); h. Transaction’s positive and negative effects of 0,5% on total revenue; and We however stress that these i. Transaction’s positive and negative effects of 1% on total assets. are separate entities from a legal and governance point of view – as recognised by the Prudential FORWARD-LOOKING STATEMENTS authority. This report contains various forward-looking statements concerning potential future financial positions, business operations, strategies, and management plans. These statements are not factual at present, as they are based on current estimates, assumptions, and expectations for the Bank, Land Bank contingent on future circumstances. Land Bank does not commit to publicly updating or revising these statements to reflect new information, future events, or otherwise. ASSURANCE The Land Bank Integrated Annual Report for FY22/23 is compiled in line with the Bank’s ethical Land Bank values, statutory legislative frameworks, and best reporting practices. The Board of Directors has Land Bank Life Insurance reviewed the report and believes, to the best of its knowledge, that it accurately and truthfully Insurance Company represents the organisation’s position. The financial statements included have been assured through Company (LBIC) an audit conducted by the Auditor-General of South Africa (AGSA). (LBLIC) 9 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS STATEMENT OF RESPONSIBILITY Applicable External Assurance applied to Legislation/ reporting validate the integrity Outcome The Board promotes integrated thinking, which supports good corporate citizenship, stakeholder Regulation/ suite of reporting inclusivity, sustainable development, and integrated reporting. It has a comprehensive understanding Framework/Standard of the Bank’s strategy, resources, control system, reporting processes, and stakeholders. The Board Annual Financial • PFMA 1999 • Auditor-General Directors’ guides the Bank in overseeing material and potential risks and opportunities, ensuring the Bank Statements for • Companies Act, 2008 • Land Bank Board approval remains sustainable, responsive, and relevant. It strives to steer the Bank towards success while the year ended • Companies Regulations • Audit and Finance managing its status to optimise sustainable operations. 31 March 2023 2011 Committee • International Financial • Executive Committee The Board has evaluated the content of the FY22/23 report, confirming that it addresses all material Reporting Standards • Combined assurance matters, the Bank’s integrated performance, its strategy, and its short-, medium-, and long-term value (IFRS) – application of Land creation and opportunities. Consequently, the FY22/23 Integrated Annual Report was unanimously Bank’s three lines of approved by the Board on 23 August 2023. defence, including risk- based internal audit Approval Framework 2023 King IV • Land and Agricultural • Land Bank Board Directors’ Applicable Disclosures Development Bank Act, • Audit and Finance approval External Assurance applied to Legislation/ 2002 Committee reporting validate the integrity Outcome Regulation/ • Companies Act, 2008 • Risk and Governance suite of reporting Framework/Standard • Public Finance Committee 2023 Integrated • International Integrated • Land Bank Board Directors’ Management Act, 1999 • Executive Committee Annual Report Reporting Council’s • Land Bank Insurance approval • Insurance Act, 2017 Integrated Reporting Board • Prudential Standards of Framework • Audit and Finance the Prudential Authority: • The Johannesburg Stock Committee Governance and Exchange (JSE) Debt • Risk and Governance Operational Standards Listing Requirements Committee • King IV Report™ on • Executive Committee Corporate Governance • Combined Assurance for South Africa 2016 – application of Land (King IV) Bank’s three lines of • JSE Debt Listing defence, including risk- Requirements based internal audit 10 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS BOARD APPROVAL NAVIGATING THIS REPORT This report contains feedback pertaining to the six capitals as prescribed in the various reporting frameworks. This report was approved by the Land Bank Board of Directors (Board) and authorised for release Each of these capitals is indicated as follows: on 23 August 2023.The Board acknowledges its responsibility to ensure the integrity of the FY22/23 Integrated Annual Report and supplementary information referenced therein. The Board has reviewed the report’s contents and believes it provides a fair representation of the Bank’s material Natural Capital Intellectual Capital issues, performance, and prospects. The Bank’s AFC reviewed the report and recommended it to the Board for approval. The Risk and Governance Committee (RGC) reviewed the 2023 King IV Code disclosures and recommended them to the Board for approval. The Board has thoroughly considered the Integrated Annual Report, considering the operating context, strategy, and value Social and creation model. It has evaluated the completeness of the material aspects addressed in the report Human Capital and the relevance and reliability of the reported performance information. Environmental Capital As a result, the Board is satisfied that the FY22/23 Integrated Annual Report addresses material matters that have, or potentially have, a significant effect on the Bank’s ability to create value, and that Manufacturing Capital Financial Capital the information in the report accurately represents the Bank’s strategy and integrated performance. To the best of the Board’s knowledge and belief, it confirms that all information and amounts disclosed in this report are consistent with the Annual Financial Statements for the financial year ended 31 March 2023, which have been audited by the office of the Auditor General of South Africa and COMBINED ASSURANCE MODEL approved by the Board on 31 July 2023. The Board approved the 2023 Integrated Annual Report, incorporating the 2023 King IV Code disclosures, on 23 August 2023. Combined Assurance Model 1st Line of Divisional senior management Defence including Executives and Seniors Ms. Rethabile Nkosi Chairman of the Board 23 August 2023 2nd ERM, EXCO and EXCO Line of Sub-Committees Strategic Defence Risk Register 3rd Line of Independent Assurance providers: Defence • Internal Audit • Board and Sub-Committees • External Audit • Rating Agencies, etc. 11 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 2 PERFORMANCE OVERVIEW 12 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 13 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Reduced NPL: Our strategy to remediate the non-performing loan portfolio proved to be effective, resulting in a reduction of R2,6 billion (20,8% year-on-year) in non-performing loans during FY22/23. This accomplishment is commendable; however, it is important to note that our non-performing loan ratio currently stands at 51,9%, which remains high because of the overall reduction in our loan book. Considering this, we are continuing the implementation of our remediation intervention programme into FY23/24 to further address this issue. Sustained bottom-line performance: During the FY22/23, the Bank and its subsidiaries achieved a total comprehensive income of R492 million, following a restated total comprehensive income of R1,2 billion in FY21/22.This notable financial performance can be attributed, largely, to our intensified efforts in building a new loan portfolio focused on development clients as well as the impairment releases of R368 million achieved in the current year, articulated in detail on the CFO statement below. Our total operating expenses amounted to R553,4 million, representing a positive variance of R131 million compared to the budgeted amount of R630 million. It is also noteworthy that our operating expenses were R9,3 million lower than the previous year’s figure of R562,7 million. PERFORMANCE OVERVIEW Operational efficiency gains: One area where we have made significant progress is in reducing our HIGHLIGHTS FOR THE PERIOD turnaround times for new loan applications. We have successfully decreased the average processing time from 90 days to 60 days, from due diligence to committee decision, despite relatively low During the review period, significant progress was made in several areas, some of which are further transaction volumes. We do, however, anticipate that an increase in transaction volumes in the first explained hereafter. quarter of F24 may exert pressure on this key performance indicator. Resumption of lending activities: Our lending activity resumed with a renewed focus on attracting Insourcing of SLA Loan Book: As mentioned in the FY21/22 Integrated Annual Report, the new development clients while also prioritising the preservation of the quality of the Bank’s existing Bank successfully concluded the termination of its intermediary SLA contracts in FY20/21. As part client portfolio. We implemented a comprehensive strategy to remediate the Bank’s non-performing of this transition, clients previously managed by intermediary partners were insourced, with their loan portfolio, which has yielded significant results. One notable highlight of our lending activity was funding now consolidated on the Bank’s balance sheet. Notably, the Suidwes, GroCapital, and Obaro the launch of the blended finance facility in October 2022, in partnership with the DALRRD. The Loan Books were insourced during FY20/21. In the subsequent fiscal year, clients from Unigro, who Blended Finance Scheme aims to support the commercialisation and expansion of agri-businesses represented the largest SLA exposure with Land Bank, were also insourced. We are pleased to owned by Black and majority Black entities. The scheme combines grant funding support from the report that progress on this matter has been consistent and substantial. Department with loans provided by the Bank. However, due to a delayed launch, we were unable to meet our disbursement target for FY22/23. In addition to the tightening of credit management controls through the Bank’s direct management of the portfolio, the insourcing of the portfolio has contributed to the reduction of our cost base with To support the deployment of the Blended Finance Scheme the Bank has designed and commenced approximately R30 million of annual SLA management fees being removed from our operating costs. with the implementation of pre- and post-finance support offering to applicants, reflecting our dedication to providing holistic support to our valued clients. We have carefully selected our technical Improved reputational coverage: The Bank has implemented a comprehensive reputation partners who will play a vital role in delivering this service. management plan which involves bespoke stakeholder engagement interventions to address key expectations of the Bank’s stakeholders. We have evidenced significant traction in improved relationships with our key stakeholders in the last couple of years, and the resumption of lending activities in the financial year is positively contributing to rebuilding the Bank’s reputation with our clients. Whilst the Bank still has significant work to be done in regaining the positive reputation that 14 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS we enjoyed prior to the debt default, we are encouraged that the media reporting on the Bank While the Liability Solution discussions persist, the Bank has managed to maintain interest payments presents positive developments that have led to an improvement to the Bank’s net reputation score and has successfully repaid 58% (R23,5 billion) of the debt outstanding at the time of default. – increasing from 3% in FY21/22 to 7% in FY22/23. Regrettably, this has led to a significant contraction of the loan book. Despite these challenges, the Bank is actively rejuvenating itself by resuming loan origination. Despite the hindrance of the default Establishment of foundational reporting frameworks for development effectiveness: We status, the Bank’s resilience prevails as it strives to rebuild and bolster its support to the sector. have successfully developed the Development Indicator Framework, which serves as a crucial tool for measuring our progress and impact. Addressing data gaps for reporting purposes has been a key Gross Loan Book: The Gross Loan Book decreased by 27.2% year-on-year driven largely by focus, and considerable strides have been made in this regard. customer settlements. This has in turn significantly improved the cash position of the bank, as well as enable further funding debt reduction. This together with improved non-performing loans owing to Alignment with the Agricultural and Agro-processing Master Plan (AAMP): In line with our the NPL remediation programme implemented by the Bank has resulted in a decreased Expected strategic plan, the Bank has aligned 95% of our new lending approvals with the priority commodities credit loss provision. The Bank has also continued to implement focused efforts in reducing overall identified in the AAMP. This strategic alignment ensures that our lending activities contribute to the operating expenditure. This resulted in the Bank realising profits, albeit this has reduced year-on-year growth and development of the agricultural sector in a targeted and impactful manner. owing to the loan book starting to stabilise post the event of default. Internal controls and governance: Our continued implementation of a rigorous remediation plan Non-Performing Loans (NPLs): Nominally the NPL book has decreased by 20.8% year-on-year, to address the credit management and internal control deficiencies has resulted in the Bank achieving to R 9,8 billion (March 2022: R12,4 billion).The NPL ratio increased from 47,8% (restated) at the end an unqualified audit outcome for FY22/23. of March 2022, to 51,9% at the end of March 2023. This increase can be attributed to a reduction of R7,0 billion in the gross loan book. We recognise the significance of addressing this issue to ensure CHALLENGES EXPERIENCED the health and stability of our loan portfolio. The reporting period presented the Bank with various challenges, and we acknowledge the Blended Finance Scheme: The Bank launched its Blended Finance Scheme, in collaboration with importance of addressing these issues. As we embark on interventions and mitigation plans, we the Department of Agriculture, Land Reform and Rural Development. The Blended Finance Scheme remain vigilant in monitoring these matters to ensure that they are addressed and progressed. Key constitutes an extensive funding initiative characterised by the fusion of grants and loans which challenges experienced are unpacked hereafter. seeks to bolster the commercial feasibility of agricultural transactions for emerging and historically disadvantaged farmers. However, disbursement has been slower than expected and disbursement Conclusion of the liability solution: Since the April 2020 default, the Bank, with Shareholder targets not achieved owing to a combination of factors. These include the launch and implementation support, has actively engaged with Lenders to navigate the intricate debt restructuring process, of the programme having happened later in the financial year than was originally envisaged; the referred to as the Liability Solution. Due to the intricate nature of this process, involving multiple capacity gap in the origination network has hindered the level of transaction throughput in an lenders and diverse financial instruments, its conclusion has extended beyond initial expectations. operating environment where processes and digitalisation solutions have not yet reached optimal This delay is regrettable as it hampers the Bank’s ability to provide vital sector funding. Ongoing efficiencies; and the slower fulfilment of pre-disbursement conditions by clients. A remediation plan negotiations with lenders show signs of progress, and the Bank acknowledges and values the patience to address these areas has been adopted by the Bank and is being implemented. and support exhibited by lenders post-default. Organisational culture: Improving our organisational culture remains a priority, particularly in Throughout this journey, the Shareholder’s commitment to the Bank remains evident. A noteworthy addressing matters impacting staff retention and enhancing employee engagement initiatives, in R10 billion recapitalisation has been allocated to the Bank, with R9 billion transferred so far, and the light of the Bank’s position. We are committed to expediting these efforts to foster a positive and remaining R1 billion slated for FY23/24. Notably, R5,1 billion of these recapitalisation funds currently inclusive culture across the organisation. Leveraging our talent management strategy we strive to reside in an ESCROW account, awaiting the finalisation of the liability solution. The 2021 Ministry of promote comprehensive professional development programmes, provide clear growth pathways, Finance’s appropriation of R7 billion to Land Bank underpins the objective to rectify the default and and enhance work-life balance for our employees to ensure wellness. Additionally, initiatives fostering reinstate the Bank’s development and transformation mandate. diversity, equity, and inclusion will be woven into our cultural fabric, making Land Bank an even more welcoming and supportive workplace. 15 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE OVERVIEW Organisation Indicator Targets FY21/22 RAG Colour Targets FY22/23 RAG Colour Actual Actual (Restated) Bank Net Profit -R407m 1.1bn -R275m R473.3m Net interest Margin 1.2% 1.4% 2.3% 2.1% Cost to Income 180.1% 95.7% 82.9% 76.7% LCR > 90% 66.1% > 90% 68.7% NSFR > 100% 95.7% > 100% 94.6% Gross Loan Book 32,9bn 25,875bn 24,8bn 18,831bn NPL Percentage < 10% 47.8% < 10% 51.9% LBIC Gross Premiums R540m R607m R631m R793m LBLIC Net Profit R27m R81,19m R91m R18,95m Legend Achieved Not Achieved 16 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS PERFORMANCE OUTLOOK Optimising the Bank’s funding model: Land Bank is in the final stages of preparing a proposed funding model, which will undergo consultation with the Shareholder and Looking to the upcoming year, Land Bank is committed to further stabilising its relevant stakeholders to secure their support. The funding model combines different operations and improving performance. The Board approved a transformative sources of funds, including Shareholder capital, grants, and borrowings. This approach strategy in 2022. This strategy is to realign and fortify the institution’s trajectory will ensure that the Bank is properly funded and able to fulfil its policy mandate hinging balancing financial sustainability and development effectiveness. These while being responsive to the development financing needs of the agricultural sector. ambitions are distilled into three pivotal phases: The Bank will require the continued support from its Shareholder, key sector role players, lenders, policymakers, and lawmakers in its turnaround efforts. By adopting a Stabilisation (FY23 to FY24): Immediate priorities will be addressed to more diversified funding model, we will provide financial services to clients through establish stability. Initiatives taken will prevent further decline, setting the stage a blended finance approach (debt and grant/equity). This model has proven effective for improved alignment with the mandate and better financial and operational in enhancing affordability, managing risks, and facilitating non-financial support to performance. farmers. This reduces failures associated with new entrants in the market. Consolidation (FY25 to FY27): Assuming successful resolution of funding liabilities and default, this phase solidifies gains and repositions the bank. Revenue diversification: In line with its financial sustainability goals, the Bank will Operational adjustments will aid progress towards the desired state. The explore new revenue generation streams to diversify its income. Leveraging its funding model will be revised for sustainable development delivery. expertise and network, the Bank will work towards the provision of value-added Growth (FY28 onwards): Building on achievements, the bank will expand services and innovative financial products that cater to the evolving needs of its clients. through partnerships, diverse funding, and broader ecosystem focus, By embracing emerging trends such as sustainable finance and digital transformation, contributing to a resilient and inclusive agricultural sector. the Bank will position itself as a leader in the agricultural finance sector, contributing to the growth of a more resilient and inclusive economy. Accelerating efforts to deploy an effective Liability Solution: In the upcoming financial year, we will continue stakeholder engagements to socialise Operating Model transformation: To enhance operational effectiveness and create and build confidence in the liability solution. The Bank’s objective is to resolve a distinct client value proposition aligned with the Bank’s DFI role, Land Bank has contested matters with lenders, and obtain alignment with National Treasury initiated an overhaul of its Operating Model, adopting a “Farmer First” approach. This to finalise the agreement within FY23/24. A dedicated multi-disciplinary internal client-centric approach involves decentralising operations and increasing the use of team, led by the Board, will continue to drive this important initiative. digital channels to enhance the clients’ experience and access. While personal contact will remain a primary approach to foster good relations clients, digital channels will complement face-to-face engagements.The Bank aims to finalise the operating model and organisational structure so that implementation may commence in FY23/24. Operating performance and execution capability: The Bank will continue to implement improvement initiatives to strengthen its origination capability and enhance the credit assessment processes, enabling increased disbursements and accelerated growth of the new blended finance por tfolio. By focusing on these strategic initiatives, the Bank is determined to drive positive change, enhance its impact, and contribute to the sustainable development of the agricultural sector. We appreciate the continued support and collaboration of our stakeholders as we work towards achieving these goals. 17 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 3 ABOUT LAND BANK 18 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 19 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS FOREWORD BY THE MINISTER Despite robust economic recovery following the scarring caused by In addition to progress made on the economy-wide reforms introduced the COVID-19 pandemic, South Africa’s medium-term economic by Operation Vulindlela, I have been encouraged by progress made on growth outlook remains subdued. Notwithstanding this anaemic growth a number of sector-specific initiatives detailed in the Agriculture and environment, National Treasury, in formulating its fiscal strategy, has Agro-processing Master Plan, spearheaded by the Hon Thoko Didiza and Mr Enoch Godongwana remained committed to the eradication of poverty, unemployment and the Department of Agriculture, Land Reform and Rural Development. Minister of Finance inequality. While significant strides have been made in each of these The Agriculture and Agro-processing Master Plan details a clear path to areas since the dawn of our democracy, continued progress will require bolster agricultural growth and to bring underutilised arable land into a renewed commitment to the implementation of growth-enhancing production while also prioritising market access and transformation. reforms complemented by a prudent fiscal stance which will ensure the I commend the entity for its continued sustainability of public finances over the long term. While structural reforms and a conducive policy environment are financial discipline in FY22/23, important for macroeconomic and sector growth, the existence of as evidenced by its reported To address the key inhibitors of economic growth, President Ramaphosa capable state institutions to drive execution is crucial. Land Bank, as group profit of R492,3 million informed a joint sitting of Parliament on 15 October 2020, of the one such state institution, remains a key driver of agricultural growth, and the reduction of funding implementation of Operation Vulindlela as a joint initiative of The Presidency development and transformation. Following its debt default in 2020, the liabilities by 58% since the debt and NationalTreasury. Since its inception, OperationVulindlela has accelerated entity has commenced with the execution of its turnaround plan and reforms in the priority areas of electricity, water, telecommunications, has undertaken measures to enhance its long-term financial sustainability. default. transport and immigration. Not only will these reforms position South The Board has also worked to refine the Bank’s strategic focus to more Africa’s economy on a higher growth trajectory, they will further serve to closely align with the developmental objectives of the Land Bank Act. enhance the competitiveness and output of the agricultural sector, a sector The Bank’s launch of its Blended Finance Scheme, in collaboration with which remains pivotal to South Africa’s economic growth strategy due to its the Department of Agriculture, Land Reform and Rural Development, in labour intensity and unique ability to revitalise rural economies. 2022 marked an important step in this direction. 20 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS While the Bank is yet to cure its state of default with its lenders, I commend the entity for its financial discipline in FY22/23, as evidenced by its reported group profit of R492,3 million and the reduction of funding liabilities by 58% since the debt default. I further note the Bank’s diligent efforts to improve the quality of its loan book and to uphold good governance and internal controls which lead another unqualified audit outcome in the financial year. Notwithstanding the Bank’s notable achievements under exceptionally challenging circumstances, the sustained recovery of Land Bank relies greatly on its ability to successfully restructure its debt and to cure its current state of default. National Treasury continues to support Land Bank in this process and has allocated R10 billion to the Bank since financial year 2021 to assist in its debt restructuring and to support its developmental funding activities, subject to specific conditions being met. I wish to express my appreciation to the Board of directors and management team of Land Bank for their dedicated service and commitment. I further wish to thank the Hon Thoko Didiza and her team for the policy direction and support provided to the Bank. Work continues to further strengthen Bank and over the next years, the organisational reforms introduced in recent times will serve to solidify the Bank’s significant role in the agricultural sector and the South African economy at large. Mr Enoch Godongwana Minister of Finance 21 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS FOREWORD BY THE CHAIRMAN OF THE BOARD Strategic repositioning A number of initiatives aimed at remedying the abovementioned challenges were undertaken in the last decade.These recent interventions Since its founding in 1912, Land Bank has undergone numerous periods included the insourcing of a large proportion of the debt book, the of transition, some necessitated by policy and sector-wide dynamics, and reduction of operating costs and the recalibration of its credit models Ms Rethabile Nkosi others brought about by challenges within the entity itself. Throughout and finance systems. While these interventions have proven effective in Chairman these transitions, Land Bank has remained critical to the effective curbing the further deterioration of the entity, it was evident that in order functioning of South Africa’s agricultural sector and as a financier, the Bank for the Bank to realign with its strategic mandate and position itself for has vastly contributed to the growth and commercialisation of South long term sustainability, a more holistic restructuring of the entity, at its Africa’s agricultural value chain. core, was required. 60% of the beneficiaries of the approved Blended Finance Following a number of years of stable financial results, Land Bank in 2020 To this end, the Board in June 2022, approved a revised strategy that will Scheme transactions were defaulted on its funding liabilities and encountered significant financial serve to position the Bank as an effective development finance institution made up of Women and Youth. challenges. While there were long-standing factors which contributed to that balances development effectiveness and financial sustainability. Through these high impact these challenges to varying degrees, extensive analysis conducted by the This strategy entails a Bank-wide phased recovery plan focused on transactions the Bank will Bank since 2020 revealed that two main overarching factors lay at the stabilisation, consolidation and sustained growth over the long term. The core of the Bank’s difficulties: its funding model and its operating model. Bank’s strategy also details the operational, structural, funding and policy- contribute to an estimated It was evident that despite reportedly healthy financial performance, related changes to be undertaken by the Bank over the next five years to 104 permanent jobs and 484 Land Bank had become increasingly fragile as its funding and operating achieve optimal performance. The bold plans set out in the new strategy seasonal jobs. models had led to the entity’s inability to properly fulfil its mandate. The aim to create a Land Bank that is appropriately funded and enabled to Bank’s funding structure and origination activities also led to a significant fulfil its policy mandate, responsive to the developmental financing needs mismatch between its loan assets and its liabilities. of the agricultural sector and financially sustainable over the long-term. 22 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Operating performance From the launch of the Blended Finance Scheme in October 2022 to the end of the 2023 financial year, the Bank approved Blended Finance transactions to the value of R255.4m made up of R121.7m While South Africa’s agricultural sector showed remarkable resilience in the face of past economic in loans and R133,7m in grants. Approvals were provided to a total of 30 Blended Finance applicants challenges, the past year proved a challenging one for the sector. Persistent energy shortages, escalating during this period, with women and youth making up 60% of the beneficiaries of the total approved input costs, logistical challenges, geopolitical tensions and the proliferation of animal diseases tested transactions. In addition, it is projected that through these high-impact Blended Finance transactions, the resilience of farmers across the agricultural spectrum. the Bank will contribute to the creation of an estimated 104 permanent jobs and 484 seasonal jobs across the country. Over the coming years, the Bank will continue to offer comprehensive post- Although the Land Bank Board has made significant strides in stabilising the entity since its event of funding support to its Blended Finance clients to minimise sector and business risks. default in 2020, the Bank has not been immune to the challenges posed by the subdued operating environment. Sector-wide challenges and constraints to loan book growth in the first half of the While the financing of clients through Blended Finance initiatives forms a significant part of the financial year negatively affected the Bank’s financial performance in the period under review. The Bank’s new strategy going forward, Land Bank maintains its commitment to its commercial client Group reported a net profit of R492,3 million in FY22/23 compared to R1,21bn in the preceding base and continues to work to enhance its offering to this critical segment of the market. The Bank’s financial year. While the rand value of the Bank’s Non-Performing Loans (NPLs) decreased by R2,6 latest offering, targeted at both commercial and developing clients, is the Agro-Energy Fund which billion, the NPL ratio worsened to 51.9% during this period compared to 47.8% in the previous will be launched in the second quarter of FY23/24. The Agro-Energy Fund, which will be introduced year. To address this challenge, the Bank has initiated targeted initiatives to remediate loan book in collaboration with the Department of Agriculture, Land Reform and Rural Development, is a performance and to optimise loan book growth over time through the introduction of new lending blended finance fund made up of R500m of grants provided by the Department, complemented by products and the successful restructuring of its outstanding debt. R710m of loan facilities. This fund is established to provide support to farmers in response to the energy challenges facing the country. The focus of the Agro-Energy Fund will be on energy intensive The Land Bank Insurance businesses, Land Bank Insurance Company (LBIC) and Land Bank Life agricultural activities, including irrigation, intensive agricultural production systems and cold chain Insurance Company (LBLIC), which complement the Bank’s financial services by providing insurance related activities. and risk management solutions to the agricultural sector within the borders of South Africa, posted a combined profit of R19m in FY22/23 compared to R81m in FY21/22. This decrease was largely Conclusion of the Liability Solution driven by poor investment returns experienced in the bonds and equities portfolios – these form part of the R1.3bn investment assets held by the Life business. Following subdued growth in FY21/22, Successfully restructuring the Bank’s outstanding debt and the curing of the Bank’s current state of the Gross Written Premiums for both LBIC and LBLIC increased by 31% and 11% respectively in default remain key priorities of the Board. The conclusion of a suitable Liability Solution is central to FY22/23, mainly resulting from a surge in commodity prices and more competitive pricing in the Life the Bank’s financial sustainability and its ability to effectively service the agricultural sector. As such, business. we continue to work closely with the Bank’s lenders to find a Liability Solution that will enjoy the support of all lenders while also minimising financial risk for the Bank. The Board is appreciative of Resumption of lending activities the ongoing support of the Minister of Finance and National Treasury in this process and is confident that agreement will be reached with lenders in the coming months. Having halted new lending activities in 2020 in order to address the immediate challenges posed by the debt default, the Bank resumed its lending activities in October 2022 with the launch of the Notwithstanding the continued state of default, the Bank’s current financial position remains healthy. Blended Finance Scheme in collaboration with the Department of Agriculture, Land Reform and Rural This allowed the entity to make a further capital repayment to its lenders in June 2023, resulting in a Development. The Blended Finance Scheme is a broad funding programme that entails the use of a 58% reduction in outstanding debt since the default in 2020. blend of grants and loans to enhance the commercial viability of agricultural transactions for emerging and previously-disadvantaged farmers. Through the Scheme, the Bank also reduces lending risk by providing comprehensive farmer support in partnership with commodity organisations and other strategic partners to leverage their capability and tailored resources to support the Bank’s clients. 23 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Strengthening of the executive leadership team Following the departure of the Bank’s previous CEO in 2022, the Board successfully filled the role of CEO and welcomed Mr Themba Rikhotso as Chief Executive on 1 April 2023. Mr Rikhotso brings to the Bank a wealth of experience in the financial services sector and enjoys the full support of the Board as he leads the Bank in its strategic repositioning. Additionally, the appointment of the Chief Audit Executive has been finalised, with the incumbent assuming the role on 1 July 2023. Land Bank Insurance also welcomed its new Managing Director, Mr Pascal Siphugu, who is a seasoned insurance practitioner with industry experience spanning almost two decades. These appointments will strengthen the capacity of the Bank’s management team and enhance operating performance and risk management across the Bank. Acknowledgements On behalf of the Board, I wish to express our appreciation to the Bank’s executive team and the broader Land Bank team for their dedicated service through what has been a very challenging period for the Bank.The commitment of Land Bankers to the success of the Bank and the agricultural sector is truly inspiring and I am proud of what we have been able to achieve over the past year. I particularly also wish to thank Ms Khensani Mukhari who acted as Chief Executive Officer in FY22/23. Her leadership over the past year has greatly contributed to the stabilisation of Land Bank. The Board’s sincere gratitude also goes to the Minister of Finance, Hon Enoch Godongwana, and the National Treasury team for their guidance, collaboration and unwavering support throughout the year. The Bank has also received immense support from the Department of Agriculture, Land Reform and Rural Development led by Hon Thoko Didiza and DG Mooketsa Ramasodi. For that, the Board is thankful. We are also grateful for the meaningful input and support provided by our lenders, clients, and partners.Your continued support is invaluable as we strive to rebuild the Bank into a developmentally effective and sustainable agricultural DFI. Lastly, I also wish to thank the members of the Boards of the Bank and its subsidiaries for their wise counsel and the courageous manner in which they navigated the various challenges faced by the Group. Their cohesion, robust engagement and commitment to good governance are an embodiment of the culture of Land Bank and will serve the entity well on its path to revitalisation. Ms Rethabile Nkosi Chairman of the Board, Land Bank South Africa 24 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS ORGANISATIONAL OVERVIEW The Land Bank, a government-owned Development Finance Institution (DFI), fosters inclusive agricultural and rural development to enhance food security and economic growth. Its Insurance Subsidiaries, LBIC and LBLIC, both State-Owned Companies (SOCs), supplement the Bank’s financial services by offering insurance and risk management solutions to the agricultural sector. Operating within the primary agriculture and agribusiness sectors, the Bank is regulated by the Land and Agricultural Development Bank Act of 2002 and the Public Finance Management Act of 1999. INDIRECT LENDING WFF LAND BANK INSURANCE COMPANY Financial solutions to large-, medium-, and small holder farmer client segments via Land Bank Insurance Company (a provincial lending network. Further segmented short-term insurance company) is into direct and indirect lending channels. registered with the Financial Sector Conduct Authority (FSCA) and is the second largest crop insurer in the country; CORPORATE BANKING AND providing cover to farmers for hail, fire, and STRUCTURED INVESTMENTS yield losses due to weather conditions. Provides debt, structured finance and INDIRECT LENDING SLA equity solutions to agri-corporate and PARTNERS mega- and large-farmer client segments. Loans obtained from SLA partner balance sheets, appoint them to originate loans on Bank’s behalf. SLA partners assist with end-to-end credit process from loan disbursement, monitoring, collection, and legal recoveries. Partners are paid a management fee. Risk and profit sharing ensure COMMERCIAL DEVELOPMENT quality assets. LAND BANK LIFE AND BUSINESS BANKING INSURANCE COMPANY Land Bank Life Insurance Company is a licensed life assurance provider that has DIRECT LENDING been providing individual and group credit life insurance products, as well as disability Financial solutions to large-, medium-, and small cover to Land Bank clients and farmers. holder farmer client segments via provincial lending network. Further segmented into direct and indirect lending channels. N.B: Note that the Bank’s lending activities through SLA and WFF Partners currently account for less than 10% of the Bank’s total lending portfolio. 25 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS The Bank continues to strive for financial sustainability by expanding the development loan book, LAND BANK’S PURPOSE aiming for it to become a dominant portfolio within the total loan book. The Land Bank, guided by the Land and Agricultural Development Bank Act, No. 15 of 2002, serves as a responsible DFI with the purpose of providing suitable financial services to: • Increase agricultural land ownership among previously disadvantaged individuals, transforming the agricultural sector. • Encourage a more inclusive agricultural sector by promoting the participation of previously disadvantaged individuals. LAND BANK’S LAND BANK’S • Advocate for sustainable agrarian reform. VISION MISSION • Develop land and other agricultural resources sustainably. • Promote a competitive and profitable agricultural sector. LAND BANK’S MANDATE To be a world-class To collaborate with all stakeholders to build an agricultural development As a specialist agricultural DFI, Land Bank uses financial services and products to address a crucial adaptive, transformed, bank that stimulates market failure in the economy, fostering the development and transformation of agriculture. This sustainable, and competitive development, growth, and includes promoting the inclusion of historically disadvantaged individuals in the agricultural economy agricultural sector that transformation; one that and enhancing agricultural land ownership and use. The Bank aims to provide: drives environmental, social, drives solid performance and economic development, and spurs innovation. • Affordable finance; and contributes to food • Products to bridge the equity contributions and collateral gaps of clients; security. • Facilitation of access to productive agricultural land and high socio-economic impact commodities, contributing significantly to socio-economic outcomes; and • Support programmes pre- and post-finance to minimise the risk of entrepreneurial failures for new market entrants. The Bank’s mandate aims to achieve the following outcomes: • Inclusion of historically disadvantaged individuals; • Contribution to the Gross Domestic Product (GDP); • Job creation and an increased economically active population; • Food security; and • Environmental stewardship. 26 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS The objectives of the Land Sustainable Bank Act are the promotion, National Development Plan Development Goals facilitation, and support of: • Programmes that contribute • Support job creation to agricultural aspects of rural in the upstream and development and job creation downstream industries • Agricultural entrepreneurship • Develop strategies that • Enhancement of productivity, give new entrants access profitability, investment, and to product value chains innovation in the agricultural and support from better and rural financial systems resourced players • Commercial agriculture • Commercialise some • Land access for agricultural underused land in NATIONAL DEVELOPMENT PLAN AND purposes communal areas and land • Better use of land reform projects SUSTAINABLE DEVELOPMENT GOALS • Pick and support the commercial agriculture ALIGNMENT sector and regions that have the highest There is a clear alignment between the objectives of the Land Bank Act, the Sustainable Development potential for growth and Goals (SDG), and the National Development Plan (NDP). employment • Food security • Everyone should, at all The objectives of the Land Sustainable times, have access to Bank Act are the promotion, National Development Plan Development Goals sufficient, nutritious, and facilitation, and support of: safe food • Equitable ownership of • Making land reform work • Promote and develop the • Expand irrigated agricultural land, particularly to unlock the potential environmental sustainability agriculture and find increasing the ownership of for a dynamic, growing of land and related natural creative partnerships agricultural land by historically and employment creating resources between opportunities disadvantaged persons agricultural sector • Agrarian reform, land redistribution or development programmes aimed at historically disadvantaged persons for the development of farming enterprises and agricultural purposes • Removal of the legacy of past racial, gender and generational discrimination in agriculture 27 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS OUR LEADERSHIP Board Members Ms Rethabile Nkosi Mr Lehlohonolo Andrew Makenete Ms Mathane Makgatho Ms Dineo Maithufi Ms Thulisile Njapa Mashanda Qualifications Qualifications Qualifications Qualifications Qualifications • Master in Business • MSc in Agricultural Management; • Master’s Degree in • BCom (Hon.) Accounting; • BA (Hon.) Accounting; Administration (MBA) • BSc in Agricultural Economics Development Finance, • CA (SA) • BA Accounting; • BSc in Agricultural Economics; • BCom (Hon) Economis; • Certified Director; • Postgraduate Diploma from • BCom Accounting, Economics • CA (SA) GIBS and Business Committee Membership Committee Membership Committee Membership Committee Membership Committee Membership Board Sub Committees: Chair Board Sub Committees: Chair Joint Land Board Sub Committees: Chair Credit Board Sub Committees: Chair Board Committees: Risk and Nominations Committee, Human Bank, Land Bank Insurance and Land and Investment Committee; Audit Risk and Governance, Credit and Governance Committee Member, Resources and Remuneration Bank Life Insurance Social and Ethics and Finance Committee Member Investment Committee Member Audit and Finance Committee Committee Member, Joint Land Committee Nominations Committee Member Bank and Land Bank Insurance and Member Land Bank Life Insurance Social and Ethics Committee 28 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Prof Johann Kirsten Dr Monde Tom Ms Nonthuthuzelo Motshegoa Ms Egashnee Pillay Adv Dimitri Wilhelm van der Westhuizen Qualifications Qualifications Qualifications Qualifications • PhD Agricultural Economics; • PhD Technology and • Agripreneur • BCom (Hon) Accounting Qualifications • MSc Agric; Innovation management; • BCom Accounting • LLB PMB • BSc Agric (Hon); • Masters in Financial Economics; • CA (SA) • Admitted Advocate of the • BSc Agric. • PG Dip Economic Principles High Court of South Africa • BSc Applied Mathematics and Physics • ND in Cost and Management Accounting Committee Membership Committee Membership Committee Membership Committee Membership Committee Membership Board Committees: Credit and Board Sub Committees: Chair Board Sub Committees: Previous Board Committees: Chair: Audit and Board Sub Committees: Human Investment Committee Member Human Resources and Remuneration chair Joint Land Bank and Land Finance Committee and LBI Board Resources and Remuneration Committee Member, Nominations Bank Insurance and Land Bank Chair Committee Member, Risk and Committee Member Life Insurance Social and Ethics Governance Committee Member Committee (up to Nov 22), Credit and Investment Committee Member (Up to Nov 22) 29 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS OUR LEADERSHIP Executive Committee Mr Themba Rikhotso Ms Khensani Mukhari Mr Sydney Soundy Ms Elizabeth Dlamini Mr Faride Stiglingh Chief Executive Officer Chief Financial Officer Executive Manager: Strategy and Executive Manager: Human Capital Executive Manager: Post Investment Communications and Acting Management Services Qualifications Executive Manager: Commercial Qualifications • Master of Business Leadership: Qualifications Development and Business Banking • Bachelor of Arts (Social Science) Qualifications Strategy, and Leadership • Master of Business Leadership • Masters Diploma in Human • Executive Management • Bachelor of Commerce: • CA (SA) Qualifications Resources Management Development Programme Accounting and Information • Master of Business • Advanced Diploma in Business • Senior Management Systems Personnel Area Administration Management Development Programme • Executive Development Finance, Treasury and IT • Bachelor of Administration • Programme in Advanced • Senior Retail Development Programme Honours in Industrial Marketing Management Programme • International Executive Psychology • Leadership Development • Product Development Development Programme • Graduate Diploma in Programme for Senior Managers Programme Marketing Management (Land Bank) • Corporate Governance Personnel Area • Global Executive • International Executive Programme Office of the Chief Executive Development Programme Development Programme Personnel Area Personnel Area Personnel Area Post Investment Management Strategy and Communications Human Capital Service 30 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Mr Theunis Coetzee Mr Sakhumzi May Mr Sakhumzi Diza Mr Stephen Sebueng Acting Executive Manager: Acting Executive Manager : Chief Risk Officer Executive Manager: Corporate Banking and Structured Agricultural Economics & Advisory Legal Services Investment Qualifications Qualifications Qualifications Qualifications • MPHIL in Development • Bachelor of Science Honours • LLB • Bachelor of Economic Science Finance in Agricultural Economics • Admitted Attorney of the • Bachelor of Accounting • International Executive • Master of Science in High Court of South Africa Science Development Programme Agricultural Economics • Advanced Company Law • Post Graduate Diploma in • Bachelor of Science Honours Certificate Financial Accounting in Agricultural Economics Personnel Area • Management Development • Bachelor of Science in Risk Management Personnel Area Programme Agricultural Economics Legal Services • Leadership Development Programme for Senior Personnel Area Managers Agriculture Economics & Advisory • Financial Management in Rural Development Personnel Area Corporate Banking & Structure Finance 31 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Our accomplished Executive Leadership team at Land Bank is committed to guiding our institution towards greater resilience, growth, and positive impact. With their diverse expertise, strategic acumen, and unwavering dedication, they drive our mission to support agricultural development, stimulate economic progress, and contribute to a sustainable future for South Africa. LAND BANK BOARD Company Chief Executive Officer Chief Audit Executive Secretary (FTC) Themba Rikhotso Yaasir Haffejee Executive Manager: Executive Manager: Executive Manager: Chief Risk Officer Executive Manager: Executive Manager: Executive Manager: Chief Financial Officer Executive Manager: Agricultural Commercial Strategy and (Executive Manager: Portfolio Corporate Banking Human Capital: (Executive Manager: Legal Services: Economics and Development and Communication: Risk Management): Management and Structured Finance, Treasury and Advisory Acting: Business Banking Services: Investments Acting: IT): Acting: Sakhi May Sydney Soundy Sydney Soundy Sakhumzi Diza Faride Stiglingh Theunis Coetzee Mpule Dlamini Khensani Mukhari Stephen Sebueng Figure 1: Executive Structure [As at the time of compiling the report] 32 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Below is Executive Managers overview. Name Designation Appointed in role Mr TR Rikhotso Chief Executive Officer 01 April 2023 Ms K Mukhari Chief Financial Officer 03 February 2020 *Acting Chief Executive Officer 01 May 2022 till 31 March 2023 Mr S Diza Chief Risk Officer: Risk 17 August 2020 Mr SN Sebueng Executive Manager: Legal Services 1 January 2018 Mr SCE Soundy Executive Manager: Strategy & Communications 17 August 2015 *Acting Executive Manager: Commercial Development and Business Banking 01 February 2023 Ms ETM Dlamini Executive Manager: Human Capital 15 August 2013 Mr F Stiglingh Executive: Post Investment Management Services 01 June 2016 *Acting Executive Manager: Intermediary / Channel Partnerships 15 February 2019 Mr T Coetzee *Acting Executive Manager: Corporate Banking and Structured Investments 14 February 2023 Mr M Mzaidume Company Secretary (FTC) 09 October 2017 Mr Y Haffejee Chief Audit Executive 01 July 2023 *Acting arrangement and Consultant appointment were in place for 2022/2023 financial year. June 2022 to June 2023 Resignations Name Designation Appointed Termination Date Mr A Kanana Chief Executive Officer 1 March 2020 30 April 2022 Ms U Magwentshu Executive Manager: Corporate Banking and Structured Investments 1 March 2019 13 February 2023 Mr Lwandiso Makupula Acting: Executive Manager: Commercial Development and Business Banking *Acting: 07 January 2020 31 January 2023 33 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS VALUE CREATION MODEL Land Bank follows a value creation model, that holds its mission at the core, to facilitate agricultural and rural development while maintaining financial sustainability. The key elements of the Bank’s value creation model are expressed hereafter. The Bank provides specialised financial products and services tailored to the agricultural sector. By offering loans, credit facilities, and other financial instruments, the Bank enables farmers, agri-businesses, and rural communities to access the capital needed for agricultural production, expansion, and modernisation. Land Bank plays a crucial role in improving access to finance for the agricultural sector, particularly Financing for smallholder farmers and previously disadvantaged individuals. By offering inclusive financial agriculture Access to solutions, the Bank supports the growth and transformation of the agricultural industry, helping to finance address historical disparities and promote economic empowerment. EL Developmental The Bank's value creation model goes beyond financial services. It actively contributes OD impact to the socio-economic development of rural areas and the agricultural sector. Land Bank aims to foster sustainable agriculture, rural livelihoods, job creation, poverty EATION M reduction, and food security through its financing initiatives and associated programmes. Land Bank manages and mitigates the inherent risks associated with agricultural finance. Risk By leveraging its expertise in the sector, the Bank assesses the viability, and risk profiles mitigation of agricultural projects and accordingly structures financing solutions. Through risk sharing mechanisms, insurance products, and technical assistance, the Bank aims to E CR minimise the risks for borrowers and lenders alike. U Partnerships and Land Bank recognises the importance of collaboration with various stakeholders to L collaboration A maximise its impact. It forms partnerships with government agencies, agricultural V associations, DFIs, private investors, and other key players in the agricultural value chain. These collaborations enable the Bank to leverage resources, share knowledge, and Sustainability develop innovative solutions that drive sustainable agricultural development. Innovation and technology The Bank places emphasis on long-term sustainability in its value creation model. It seeks to balance its social and developmental objectives with financial viability. By promoting sustainable agricultural practices, environmental stewardship, and climate resilience, the Bank contributes to a more sustainable and inclusive agricultural sector. The Bank embraces innovation and technology to enhance its value creation. It leverages digital solutions, data analytics, and automation to streamline its operations, improve efficiency, and provide convenient access to financial services for its customers. By staying at the forefront of technological advancements, the Bank aims to remain relevant and responsive to the evolving needs of the agricultural sector. 34 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND BANK’S FOOTPRINT Inputs Production/ Outputs Outcomes The Land Bank Group headquarters are based in Centurion, Pretoria. The Bank operates in all Processing • Capital • Credit and Investment • Loan Book • Socio-economic provinces where it has nine provincial offices, and 12 satellite offices to ensure that its clients are • Borrowings • Revenue and Income impact for society • Grants Assessment from client • Financial adequately reached and supported. • Lending to clients at repayments at • Human and Sustainability for the acceptable risk risk-rated margins Intellectual Capital enterprise appetite POLOKWANE Outcomes will be measured across selected capitals to evidence development effectiveness going forward. NELSPRUIT VRYBURG PRETORIA MPUMALANGA GAUTENG NORTH WEST UPINGTON FREE STATE KWAZULU-NATAL PIETERMARITZBURG BLOEMFONTEIN NORTHERN CAPE EASTERN CAPE EAST LONDON WESTERN CAPE CAPE TOWN OPERATES Nine Provinces Permanent Employees Fixed-term Employees 137 Females 164 Males 301 Total 15 Females 16 Males 31 Total 35 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND BANK DEVELOPMENT EFFECTIVENESS: Key Theme 2: Aligning with Global Standards for Performance Management HIGHLIGHTS By adhering to the LBDIF, the Land Bank upholds best practices in performance management and evaluation. The framework adopts the Results-Based Management and Logic Framework model, Establishment of foundational reporting frameworks for development effectiveness: allowing the Bank to monitor and assess its progress in line with international standards. This Enhancing Development Impact: Land Bank’s Landmark Indicator Framework. alignment with global benchmarks reinforces the Bank’s commitment to contributing to the National Development Plan (NDP) and Sustainable Development Goals (SDGs). In 2019, the Land Bank embarked on a transformative journey to enhance transparency and accountability in its operations. Central to this effort was the establishment of a structured Key Theme 3: Supporting Agricultural Development and Economic Growth development reporting requirements procedure, reflecting the Bank’s commitment to excellence. This pivotal initiative gave birth to the Land Bank Development Indicator Framework (LBDIF), a The LBDIF’s approval in 2021 marked a significant milestone, signifying the Bank’s dedication to dynamic and comprehensive tool designed to measure progress and impact effectively. measuring and reporting its developmental impact. Currently, the Bank is actively implementing the framework through the Data Management and Information Framework.This strategic implementation Key Theme 1: Bridging Data Gaps for Comprehensive Reporting enables the Bank to report on the social and natural capital indicators outlined in the LBDIF, providing a comprehensive understanding of its performance from a developmental perspective. One of the Bank’s key focuses was addressing data gaps for reporting purposes. Through diligent efforts, considerable strides were achieved in this area. The LBDIF serves as a valuable repository, outlining the indicators and data needed for collection and reporting. This ensures a structured and focused development narrative, continuously evolving to include additional indicators for a holistic presentation of the Bank’s impact. 36 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS In summary, the Land Bank’s Development Indicator Framework is more than just a tool; it Key highlights: exemplifies the Bank’s commitment to empowering sustainable transformation. By focusing on • Leveraging grant funding: The scheme strategically leverages grants to amplify financing agricultural development, food security, and land reform, the Bank addresses barriers to economic accessibility, effectively providing affordable financial solutions to black producers. These grants growth and competitiveness. The LBDIF allows the Bank to measure and report its developmental act as equity contributions on behalf of these producers, significantly bolstering their growth impact accurately, contributing meaningfully to the Developmental State as outlined in the NDP and overall success. and aligned with the SDGs. As the Bank’s journey of transformation continues, the LBDIF serves • Diverse funding scope: the scheme covers a broad range of funding needs, from acquiring as a crucial platform for monitoring progress and facilitating informed decision-making for a more agricultural land parcels to expanding production on existing farms. It supports start-up prosperous future. operations, capital equipment, infrastructure, and working capital, ensuring comprehensive financial assistance. Blended Finance Scheme: Driving development effectiveness • Land bank’s implementation role: as an administrator, the Bank will leverage its ecosystem coordinator role to ensure efficient implementation of the scheme. Lessons learned from the The bank initiated a Blended Finance Scheme, in October 2022, which strategically combines grants pilot have been valuable in refining the newly launched initiative. and loans to bolster agricultural transactions for emerging and previously-disadvantaged farmers, • Transformation and inclusivity efforts: the Bank is actively addressing challenges to include significantly enhancing commercial viability. This scheme is a pivotal driver in ensuring sustainable financing for land under claims, particularly in provinces like Limpopo and Mpumalanga. commercialisation of black producers’ farming enterprises, concurrently promoting food security Engagements with relevant authorities are underway to address this issue. and wealth generation. It also effectively reduces lending risk by providing comprehensive support to • Enhancing implementation: the Bank is continuously improving its credit policy to be farmers through strategic collaborations with commodity organisations and partners. From its launch more development-oriented. Regionalisation of credit committees and simplified origination until the close of FY22/23, the bank sanctioned blended finance transactions amounting to R255,4 processes are being piloted, resulting in improved turnaround times. Pre- and post-finance million, distributed as R121,7 million in loans and R133,7 million in grants. Within this timeframe, support services and frontline staff capacitation further strengthen implementation efforts. approvals were extended to 30 applicants, where women and youth comprised 60% of beneficiaries. The prospective impact of these transactions encompasses the creation of approximately 104 The Blended Finance Scheme stands as a pivotal driver of development effectiveness in the agricultural permanent jobs and 484 seasonal jobs nationwide. The bank’s strategic outlook encompasses sector. By seamlessly merging grants and loans, the scheme has the potential to revitalise agricultural continued robust post-funding support to curtail sector and business risks, fostering resilience among transactions, bolstering the viability of emerging and historically-disadvantaged farmers. The bank’s its blended finance clients. ongoing commitment to refining strategies and addressing challenges reaffirms its dedication to driving transformative change in the sector. 37 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 4 LAND BANK’S OPERATIONS 38 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 39 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS FOREWORD BY THE CHIEF EXECUTIVE OFFICER I am honoured to take up the role of Chief Executive Officer of the This strategic evolution of the Bank is pivotal to the comprehensive Land Bank Group effective from 1 April 2023, which is after the financial fulfilment of our mandate, as well as to secure the essential capital for our year under review. growth and that of the sector. In the pursuit of the Bank’s transformation, we are orchestrating a thorough reconstruction of our business model, THEMBA RIKHOTSO I thank the Land Bank Board for the confidence they have extended to reimagining client offerings, refining funding and operational frameworks, Chief Executive Officer me as I take up the responsibility to lead and turn around this strategically all within a meticulously phased strategy. important institution tasked with a mandate to develop the Agricultural Sector, drive economic growth, and to provide food security to South Our transformation journey unfolds across three pivotal phases: African citizens, and the citizens of many other countries that are the Despite these external destiny export markets of our Agricultural produce. Going forward, I • Phase 1 - Stabilisation (FY23 to FY24): Our foremost attention adversities, and the Bank’s expect our role of providing food security to expand and reach more centers on stabilising the Bank’s bedrock, arresting any further decline, continued debt default status, countries as many of our valuable clients (the Farmers) take advantage and constructing a robust platform that aligns seamlessly with our Land Bank has demonstrated of export trade opportunities presented by Africa Continental Free mandate while enhancing our financial and operational prowess. resilience, successfully Trade Area (AfCFTA) and the BRICS trading block. • Phase 2 - Consolidation (FY25 to FY27): Assuming the successful restructuring of our funding obligations and resolution of the debt resuming lending activities Amidst the intricate challenges that the Bank faces, I step into my role default situation, this phase will amalgamate our achievements, towards the end of FY22/23 with a resolute vision. Land Bank’s aspiration is to shape itself into a setting the stage for future triumphs. Alterations to our operational dynamic Agricultural Development Finance Institution, expertly balancing structure will prop up our trajectory towards the envisioned state. development effectiveness and financial sustainability and contributing to • Phase 3 - Growth (FY28 onwards): Capitalising on proven financial substantial advancements in South Africa’s agricultural sector. achievements and developmental milestones, the Bank will amplify its scope through strategic alliances, a diverse funding ecosystem, and a broader engagement framework. 40 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS These phases form the crux of our transformation roadmap, ensuring a comprehensive, structured • Insourced SLA Loan Book: We successfully insourced the management of the SLA book approach to navigate the intricate terrain ahead from SLA intermediary partners. This has resulted in a significant savings on SLA management fees and tightened the credit management of this portfolio. It is with pleasure that I present the Land Bank of South Africa’s Integrated Report for FY22/23, a • Resumption of Lending Activities: In October 2022, we launched the Blended Finance year that has been filled with both challenges and opportunities. Despite the prevailing uncertainties, Scheme in partnership with DALRRD. However, largely due to delays in launching the I am proud to share our achievements, resilience, and steadfast commitment to our mission of Blended Finance Scheme, we did not achieve the target for debt and grant disbursements facilitating agricultural and rural development while maintaining financial sustainability. to development clients. Applications to the value of R255,4m in support of Black producers, comprising R121,7m in loans and R133,7m in grants, were approved by the end of FY22/23. The year 2022 ushered in considerable disruptions and transformations, both globally and locally.The The majority of new lending approvals (95%) align with the AAMP priority commodities (per ongoing Russia-Ukraine war continues to disrupt global supply chains, exacerbating pressure on costs the strategic plan). for agricultural inputs through the disruption of Black Sea agricultural exports. Locally, load shedding • Business Pipeline: The Bank has fostered a healthy pipeline of applications going into FY23/24. has constrained economic growth across all sector. The impacts have been most pronounced in the • Process Streamlining: We continuously streamline the origination process; making it easier production processes of more intensive industries such as poultry and dairy. The ongoing power for clients to do business with the Bank. We reduced the turnaround times for new applications interruptions are also negatively impacting the irrigation of crops, orchards, and vineyards. The latter from an average of 90 days to 60 days—from due diligence to the decision being made by the part of the year saw an increase in load shedding, which further intensified the impacts. Consequently, relevant credit committees. South Africa’s agricultural gross value added, on a seasonally adjusted basis, contracted by 3,3% from • Organisational Capacity: Since the debt default in 2020, the Bank experienced an attrition the third to the fourth calendar quarter of 2022; marking the largest decline amongst the various of talent as employees sought alternative employment opportunities in response to the sectors of the economy. uncertainties that had befallen the Bank. With the support of the Board, we initiated and implemented targeted employee retention strategies to mitigate the risk of continued loss of Despite these external adversities, and the Bank’s continued debt default status, Land Bank has skills and talent, which has negatively impacted capacity in critical areas of the Bank’s human demonstrated resilience, successfully resuming lending activities towards the end of FY22/23. This resources structure.The Bank has also shifted its focus to ensuring a fit for purpose organisational enabled vital financing support to the agricultural sector, while furthering the Bank’s development structure to ensure delivery on its mandate. and transformation mandate. Way Forward Progress Made Reflecting on our accomplishments in FY22/23, we acknowledge that there is yet a great deal of work • Liability Solution: Despite delays in the conclusion of the liability solution, the Bank has to be done.The agricultural sector continues to evolve, presenting both opportunities and challenges. significantly reduced its funding liabilities in line with the reduction of its loan book. The bank We are, however, confident in our ability to adapt and innovate, and we remain committed to driving has achieved a 58% repayment of its liabilities since its default in 2020. positive change in the agricultural sector in the years to come. • Audit Outcome: Our persistent implementation of a robust remediation plan to rectify the credit management and internal control deficiencies that led to the Bank’s Disclaimer of Audit Despite its current reality, the Bank strives to reinforce its position as a specialist agricultural Opinion outcome by the Auditor-General in FY19/20 has yielded a unqualified audit outcome Development Finance Institution. It uses financial services and products to address a critical market for the past two financial years (FY21/22and FY22/23). gap in the economy for the development and transformation of agriculture, including agricultural • Financial Discipline: We have maintained a solvent business, including the containment of land ownership and use. This is done by promoting the inclusion of Historically Disadvantaged operating costs, which yielded a reduction of 16% on last year’s operating costs. Persons in the agricultural economy. We remain committed to turning the Bank around to ensure • Loan Repayment Recovery: The Bank continued to diligently collect scheduled loan it is able to take its rightful place in the country and fulfil its mandate of ensuring food security and repayments and to recover funds from defaulting customers. Effective implementation for the transformation of the agricultural sector. NPL remediation strategies reduced the Rand value of NPLs by R2,6bn for the financial year. Due to the R5.7bn reduction in the gross loan book, the NPL ratio, however, increased from the restated 47,8% at the end of March 2022 to 51,9% at the end of March 2023. 41 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Looking ahead, we will maintain focus on concluding the liability solution with our lenders, we are confident that the work done so far and the commitment shown by all our lenders have moved us closer to reaching an agreement soon. We aim to complete developing a proposal, in consultation with the shareholder, aimed at realising a revitalised funding model for the Bank. This model should support our development effectiveness and enhance our financial resilience. This endeavour will be underpinned by the redesign and restructure of the organisation in order to deploy a new operating model that aligns with our strategic objectives, enabling us to resource the organisation with fit-for- purpose skills and technology; enabling us to better serve our clients. In line with the objective to increase development effectiveness and build a loan portfolio that will enhance the Bank’s financial sustainability, we will pursue the implementation of continuous improvement initiatives. These initiatives will strengthen our origination capability and enhance our credit assessment processes, enabling increased disbursements and accelerated growth of the new Blended Finance portfolio. We are deeply committed to exploring new avenues for revenue diversification. By leveraging our expertise and network, we will provide value-added services and innovative financial products that cater to our clients’ evolving needs. By embracing emerging trends such as sustainable finance and digital transformation, we will position ourselves as leaders in the agricultural finance sector, contributing to the growth of a more resilient and inclusive economy. To achieve these aspirations, we recognise the importance of strengthening our partnerships within the financial sector and across the entire agricultural value chain. Collaborating with government agencies, industry associations, and development finance institutions will enable us to leverage resources, share knowledge, and maximise our impact. In conclusion, I extend my deepest gratitude to our dedicated team, whose unwavering commitment and hard work have been instrumental in our success. I also express my appreciation to our valued shareholders, customers, lenders, and all stakeholders for their continued support and trust in Land Bank. Together, we will continue to drive agricultural development, empower rural communities, and contribute to the prosperity of South Africa. Sincerely, Themba Rikhotso Chief Executive Officer Land Bank 42 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS ACHIEVEMENT AGAINST KEY PERFORMANCE INDICATORS The Bank’s performance was measured against the following Key Performance Indicators (KPIs) for FY22/23. KPA WEIGHT OBJECTIVE WEIGHT KPI TARGET ACTUAL COMMENTS Disbursements to development R750m clients: • The conclusion of the Blended Finance Scheme agreement with 5% R53,6m Establishment and DALRRD was delayed. This resulted in a delay to the resumption development of small 1. Debt disbursements of lending activities which in turn led to negligible disbursements and medium-scale, 2. Grant disbursements in FY22/23. majority Black-owned (External Dependency: R500m • Interventions to improve the origination and processing of farmers 5% DALRRD, EC and Agri Youth R46m applications have been implemented. A relatively good pipeline of 20% Fund – Grant allocation and transactions has been built for FY23/24. agreement to be approved) • The Memorandum of Agreement with DALRRD for the Sustain food security COVID-19 Grant disbursements COVID-19 Relief Fund was not extended for the financial year by assisting farmers Development Effectiveness 5% to qualifying farmers R90m R6,7m resulting in no further disbursements from this Fund. through disaster relief (development and commercial) • An initiative to establish a universal disaster fund is being support considered to enable support to affected clients. Finance priority New loan approvals are commodities in line aligned to the AAMP priority Performance: with the AAMP 2,5% commodities (% of Rand value 80% >95% • 97,4% of loan approvals for FY22/23 are aligned to the AAMP objectives, to ensure approved is for producers of priority commodities. food security priority commodities) Progress: • The Development Effectiveness Report served at the Social and Implement the Land Bank Ethics Committee in January 2023 and was recommended to the Development Indicator Board. Framework on monitoring • The development effectiveness scorecard was updated and Enhance development 2,5% systems to enable reporting 31 March 2023 tested with the Indicators from the Land Bank Development effectiveness reporting 1. Development effectiveness Indicator Framework. report submitted to Board by Next steps: 31 March 2023 • Embed indicator updates in due diligence and monitoring tools and systems to improve data collection. • Finalise reporting and dashboards. 43 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS KPA WEIGHT OBJECTIVE WEIGHT KPI TARGET ACTUAL COMMENTS Progress: Implement the Liability • Engagements are continuing between the Bank, National Solution milestones, as per the LS4 tracker and Timeslines Treasury, and the lenders. Completed 1. Independent review by • R5,1bn of equity injection from National Treasury has been Conclude the liability milestones in EY completed secured in an escrow account to be accessed once the solution, to cure the time, as per 2. Heads of agreement between the Bank Liability Solution agreement is concluded. default and enable 10% timeline and lenders drafted • Consultation is underway to address outstanding matters resumption of lending 3. Obtain NT equity conditions approval tracker by pertaining to the Term Sheet. activities 4. ENS legal drafting completed 31 Mar 23 Next Steps: (External dependency): agreement by local • The focus, in FY23/24, will be on finalising the outstanding lenders, international lender and National items in the Term Sheet to enable the conclusion of the Treasury) Liability Solution agreement. Finalise the revised funding model strategy: Enable the Bank to fulfil 1. Finalised quantification of the cost of Progress: its mandate as a DFI, by development • A detailed business case for the proposed Funding Model 7,5% 31-Mar-23 Financial Sustainability resolving the funding 2. New funding model proposal approved will be completed in FY23/24 for appropriate consultation model by the Bank Board and submitted to with the Shareholder / National Treasury. National Treasury by 31 March 2023 30% Performance: • NPL’s reduced from R12.3bn (Mar’22) to R9,71bn (March’23) a R2,6bn reduction. Improve the quality of Manage non-performing loans (stage 3) in 90% end) • Annual reviews form part of the preservation strategy targeted at the Provide effective 79% Extensions and overdue Bank’s existing clients. support to all existing timelines to be documented • Capacitation of the client coverage business units will assist to catch up clients in SOP with on the outstanding reviews. Stakeholder Management & Client Centricity • The disbursements to existing clients will remain significantly challenging Loan approvals to existing whilst the Bank’s cost of funds remain at the current level. It is critical 2,5% R295m and new clients for the Bank to finalise the liability solution to enable appropriate cost R1,3bn of funds. Progress: Improve Turnaround Time for • The average Turnaround Time for the year amounted to 60 working Improved client service new funding applications: days 15% 3,3% < 75 Days days, from Initial Assessment to first Disbursement. to new clients from initial assessment to last • The Bank’s improvement plan for the origination and application disbursement 60 days process making progress. Progress: Develop the Pre- and Post- • The pre- and post–support offering was approved by Board by 30 Enhance the client finance technical support September 2022. value proposition with 3,3% offering. 30-Sep-22 Action Plan: pre- and post-finance 1. Approved by Board by • Engagements with provincial departments of agriculture and commodity support 30 September 2022 organisations to formalise collaboration for offering the services. • Implementation of the programme. Performance: Improve stakeholder Improve the Bank’s net • A Net Reputation Score of 7% was achieved FY22/23. engagement to restore reputation score (as 3,3% 5% 7% Action Plan: the reputation of the measured by the media • Continued implementation of the Bank’s Reputation Management Bank monitoring company) Strategy and Action Plan. 45 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS KPA WEIGHT OBJECTIVE WEIGHT KPI TARGET ACTUAL COMMENTS Amongst others, the uncertainties associated with the Bank’s protracted <10% vacancies in critical state of default and the reducing of the loan book may have contributed to Retention of critical roles and key staff (i.e., >90% 5% <10% 38,5% the attrition of critical staff. skills and key staff of critical roles filled). The Bank is the process to fill critical roles, and has implemented retention Organisational Capacity & People measures to reduce attrition. Revised organisational operating model approved by Operating model 5% 31-Dec-22 the Board by 31 December 2022. Whilst the high-level principles were approved by the Board, the delays in the finalisation of the detailed operating model as well as the organisational Revised Structure approved structure will be rectified with the work to finalise these being undertaken Design the structure by Board by 31 March 2023 in FY23/24. in line with the revised 5% 1. Design the Macro and 31-Mar-23 operating model Microstructure 2. Finalise the phased implementation plan Classify 0,1% (R value) Performance: Create an effective of expenses as irregular, 5% <0,1% 0,01% R5,63m of Irregular Expenditure over Opex of R512m was recorded. control environment unauthorised and fruitless Fruitless and Wasteful Expenditure of R6 000 was recorded. and wasteful expenditure Unqualified audit Audit outcome as per the Improved FY22/23 outcome Governance AGSA Audit Report External Audit 10% with no The bank achieved an unqualified audit opinion with findings. 20% (External Dependency: LS4– outcome findings Going concern) (clean outcome) Enterprise Risk Management controls effectively Entrench Enterprise 5% implemented: ERM Score: 3 3 The ERM maturity has been rated at a level 3. Risk Management 1. Enterprise Risk Management tool Legend Achieved Not Achieved 46 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS DEVELOPMENT EFFECTIVENESS - OUR STORIES OF IMPACT BACKGROUND Koketso Moloko, a resilient and determined entrepreneur, inherited her family farm in Rustenburg, Bojanala Platinum District, after her father’s passing in 2011. Her journey of learning and self-discovery led her to become the successful owner of Lekung Food Group, a thriving 10-hectare farm in Case Study 1: Empowering Farmers for a Resilient Food Supply Chain Rustenburg, Bojanala Platinum District, renowned for producing fresh produce and livestock. Despite lacking prior farming experience, she took on the challenge of managing the farm and pursuing her Theme: Strategic Partnerships Driving Agricultural Empowerment dream of becoming a successful farmer. However, like many farmers, Moloko encountered challenges, particularly the lack of funding for essential infrastructure and compliance requirements. INTRODUCTION THE LAND BANK’S SUPPORT In its pursuit of fostering inclusive ownership and success in the agricultural sector, Land Bank has formed strategic partnerships with technical support Organisations like Khula APP (Pty) Ltd. These Recognising the potential in Moloko’s venture, Land Bank included her in the CSI Market Readiness collaborations aim to provide pre and post-investment services, agricultural education, business Programme. This program offered vital support, preparing her business to become market-ready. development, market links, and global gap certification to empower farmers from historically Through the collaboration with Khula APP (Pty) Ltd, Moloko received agricultural education, business disadvantaged backgrounds.The success story of Koketso Moloko, the owner of Lekung Food Group, development resources, market connections, and global gap certification. The comprehensive exemplifies the transformative impact of the Bank’s CSI Market Readiness Programme and how assistance empowered her to supply formalised local and export markets. strategic partnerships are driving agricultural empowerment. 47 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS IMPACT AND TRANSFORMATION THE FUTURE VISION Market Expansion and Increased Production: With the backing of the Land Bank, Moloko’s business projects a substantial increase in turnover. This Empowered by the Market Readiness Programme, Moloko’s business experienced significant growth. projected growth will enable her to enhance infrastructure and processing capabilities, contributing The program enabled her to establish crucial connections with pack houses and expand her clientele, to a more resilient and sustainable food supply chain. Moloko’s long-term goals include erecting which, in turn, resulted in increased production. Her hard work and dedication paid off, as Lekung more tunnels, building a pack house, purchasing a medium-sized truck, and expanding the range of Food Group is now projecting an impressive 30% increase in turnover for the season, thanks to an processed goods, such as chillies and tomatoes. offtake agreement secured through the Khula Fresh Produce Marketplace. Koketso Moloko’s success story exemplifies the transformative power of strategic partnerships and LAND BANK’S SUPPORT AND GLOBAL GAP COMPLIANCE the Land Bank’s unwavering commitment to empowering farmers. Through initiatives like the CSI Market Readiness Programme and collaborations with Organisations like Khula APP (Pty) Ltd, the To further bolster her business, Moloko received vital financial support from the Land Bank for Bank is driving agricultural empowerment and inclusive ownership. The vision is to create a resilient acquiring seedlings, fertilisers, and chemicals necessary to fulfill her offtake agreement. Additionally, food supply chain that not only empowers individual farmers but also contributes to the overall through funding from the Land Bank’s CSI programme, Moloko achieved global gap compliance. growth and transformation of the agricultural industry. This achievement not only ensured regulatory compliance but also provided her with access to a consistent formal market, paving the way for future exports. Case Study 2: Empowering Black Women in Agriculture Theme: Fostering Gender Empowerment and Agricultural Growth INTRODUCTION The Land Bank’s commitment to empowering entrepreneurs from historically disadvantaged backgrounds is exemplified by its pivotal role in supporting a 100% black women-owned business in agriculture. In 2018, the Bank assisted this business in acquiring its first extensive farming land, and in 2023, the support extended to the purchase of a second irrigation farm for pecan nuts and cash crops. This case study showcases the Bank’s dedication to fostering gender empowerment and driving agricultural growth through strategic and sustained support. EMPOWERING BLACK WOMEN Through the Bank’s assistance, this 100% black women-owned business was given the opportunity to establish a strong foothold in the agricultural sector. The acquisition of extensive farming land in 2018 marked a significant milestone in their journey. The continued support, leading to the purchase of a second irrigation farm in 2023, reflects the Bank’s unwavering commitment to empower black women in agriculture and provide them with equal opportunities for success. 48 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS DRIVING AGRICULTURAL GROWTH INCLUSIVE ENTREPRENEURSHIP The strategic involvement of Land Bank has been instrumental in the development progression The Bank’s commitment to inclusive entrepreneurship is reflected in its support to this black-owned of this business. By dedicating the second irrigation farm to pecan nuts and cash crops, the Bank business, where male and female entrepreneurs equally share ownership. By promoting equal has facilitated the expansion of their agricultural operations. This strategic focus on specific crops participation, the Bank actively contributes to breaking down barriers and advancing transformation enhances the business’s growth potential and contributes to the overall development and growth of in the agricultural sector. the agricultural sector. TRANSFORMATIVE IMPACT Case Study 3: Fostering Inclusive Ownership and Success The Bank’s involvement has had a transformative impact on this business. With the Bank’s support, Theme: Inclusive Entrepreneurship and Transformation the business has flourished, becoming a noteworthy player in the agricultural industry.The accolade of being named the Development Farmer of the Year by SA Raisins in 2018 underscores the business’s INTRODUCTION remarkable achievements, further solidifying the transformative impact of the Bank’s assistance. The Land Bank’s dedication to fostering inclusive ownership and success is evident through its These case studies demonstrate the Land Bank’s dedication to promoting empowerment and support to a 100% black-owned business owned equally by both male and female entrepreneurs. In inclusion in the agricultural sector. Through strategic and sustained support, the Bank empowers 2011, the Bank provided crucial assistance in the purchase of an irrigation farm specialising in raisins, black women and promotes equal ownership for both male and female entrepreneurs. The success wine grapes, pecan nuts, and cash crops.The continued support from the Bank has been instrumental stories of these businesses exemplify the transformative impact of the Bank’s involvement, driving in the business’s remarkable success, leading to prestigious accolades and international expansion. agricultural growth and contributing to the overall development and transformation of the industry. As the Bank continues to foster gender empowerment and inclusive ownership, it plays a pivotal role in building a more inclusive and thriving agricultural landscape. Case Study 4: Empowering Youth Agri-preneur for Sustainable Growth Client: Andile Bernard Ndzunga BACKGROUND Andile Bernard Ndzunga, a talented and ambitious young agripreneur, joined the Land Bank’s Rural Enterprise and Development (REM) program as a development youth client. Starting his journey at a young age, Andile’s dedication and passion for agriculture have been instrumental in his remarkable success. Now 35 years old, Andile continues to be classified as a youth, reflecting the Land Bank’s commitment to nurturing and supporting young talent in the agricultural sector. 49 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS GROWTH JOURNEY BACKGROUND Andile began his farming journey by leasing a farm property. The Land Bank played a crucial role in Ditaung Agricultural Co-Operative Limited is a 100% black-owned family entity, comprising four his growth by providing the initial loan in 2014. This financing was used to secure production inputs brothers and a sister. In 2017, the cooperative approached the Land Bank with a vision to expand for 50 hectares of grain. Impressed by Andile’s dedication and exceptional progress, the Land Bank their agricultural operations and make a meaningful impact in the Vaalharts Irrigation Scheme. continued to support his ventures with production facilities granted for the past eight seasons. GROWTH JOURNEY EXPANDING AGRICULTURAL OPERATIONS The cooperative’s existing farm property, covering 25 hectares, was facing profitability challenges. Through strategic financing and support from the Land Bank, Andile’s agricultural operations have However, an opportunity arose to purchase an additional 201 hectares of irrigation property. flourished. Today, he plants an impressive 200 hectares of maize annually, showcasing substantial Recognising the potential of this expansion, the cooperative sought financial support from the Land growth compared to his initial 50-hectare venture. Additionally, Andile has ventured into Bank to realise their vision. mechanisation contracting, covering 350 hectares of land. This diversification has contributed to increased productivity and improved agricultural practices in the region. SUPPORT FOR GROWTH ONGOING SUPPORT AND EXPANSION The Land Bank provided blended funding to Ditaung Agricultural Co-Operative Limited. This financial backing empowered the cooperative to invest in expanding their land under irrigation, focusing on grain The Land Bank’s commitment to Andile’s success remains unwavering. From an initial facility, the and pecan nuts production. financing has now grown substantially per season, reflecting the bank’s trust in Andile’s capabilities and the significant growth potential of his agribusiness. CONCLUSION Andile Bernard Ndzunga’s journey from a young participant in the REM program to a successful and dynamic agripreneur is a remarkable testament to the transformative power of strategic financing and development support. The Land Bank’s dedication to empowering youth in agriculture and providing ongoing support for sustainable growth has been instrumental in Andile’s achievements. As Andile continues to thrive, his success story serves as an inspiration to other young agripreneurs, highlighting the Land Bank’s commitment to driving inclusive and sustainable agricultural development in South Africa. Case Study 5: Ditaung Agricultural Co-Operative Limited - Empowering Black Farmers for Sustainable Growth Client: Ditaung Agricultural Co-Operative Limited 50 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS CONTRIBUTION TO FOOD SECURITY AGRICULTURAL EXCELLENCE With the support of the Land Bank, Ditaung Agricultural Co-Operative Limited successfully expanded Phophi Raletjana’s dedication to excellence and sustainable farming practices has been instrumental in their operations. Today, they significantly contribute to food security through their successful her success. Her farm currently employs 14 permanent workers and provides seasonal employment cultivation of grains and pecan nuts. Their commitment to sustainable farming practices has made a to 160 workers, contributing to local livelihoods and economic growth. positive impact on regional food production. DIVERSE MARKET SEGMENTS TRANSITION TO COMMERCIAL FARMING Phophi’s farm is involved in the cultivation of multiple commodities, catering to various market Ditaung Agricultural Co-Operative Limited’s journey exemplifies the Bank’s mission to empower segments. Her produce includes: development clients to transition into commercial ventures. With sound financial planning and strategic support, the cooperative achieved profitability and emerged as a successful commercial • Potatoes: Sold to agro-processing companies, Mozambican wholesalers, and fresh produce farming enterprise. markets in South Africa, ensuring a wide reach and sustainable income streams. • Peppadew: Planted on contract for Miami Canners, a renowned processing company that CONCLUSION exports the product to Germany and other European countries, contributing to international trade and recognition. The success story of Ditaung Agricultural Co-Operative Limited showcases the transformative • Tomatoes: Cultivated for Miami Canners and Rhodes, two reputable brands, while also power of strategic funding and dedicated support from the Land Bank. Empowering black farmers supplying fresh produce markets in Gauteng and Limpopo, enhancing food accessibility in local for sustainable growth, the cooperative has evolved from a family-owned entity facing challenges to communities. a thriving commercial agricultural operation. Their remarkable journey stands as a testament to the • Livestock: Sold at local auctioneers like Vleissentraal, benefiting local communities and fellow Land Bank’s commitment to driving inclusive and impactful agricultural development in South Africa. By farmers, strengthening the agricultural ecosystem. empowering entities like Ditaung Agricultural Co-Operative Limited, the Land Bank continues to play a crucial role in fostering food security and economic prosperity for the nation. EMPOWERING BLACK COMMERCIAL FARMING Case Study 6: Phophi Raletjana - Empowering Black Commercial Farmer for Agricultural Phophi Raletjana’s success story stands as a testament to the Land Bank’s commitment to empowering Excellence black commercial farmers.Through a working capital funding, the Bank supported Phophi’s vision and enabled her to scale her farming enterprise, fostering agricultural excellence. Client: Phophi Raletjana CONCLUSION BACKGROUND Phophi Raletjana’s journey exemplifies the transformative power of strategic funding and sustainable farming practices. As a black commercial farmer, Phophi has emerged as a role model and a driving Phophi Raletjana is an established black commercial farmer with a passion for farming potatoes force in the agricultural sector. Her farm’s diverse market segments and positive social impact through and cash crops in the scenic Capricorn District of Limpopo Province. Her farming enterprise spans employment showcase the comprehensive support provided by the Land Bank. By empowering across a vast 1400 hectares, with 240 hectares under irrigation, creating a significant impact in the talented farmers like Phophi, the Bank plays a pivotal role in driving inclusive growth, food security, agricultural sector. Phophi’s farm is managed by a team of highly skilled and experienced individuals, and economic prosperity in South Africa. who play a crucial role in the value chain, making her enterprise a reliable player in the market. 51 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 5 OPERATING ENVIRONMENT 52 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 53 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS THE POLICY ENVIRONMENT In 2020, under the leadership of Minister Thoko Didiza, the National Agricultural Marketing Council embarked on the formulation of the Agricultural and Agro-processing Master Plan (AAMP). This innovative endeavour sets out to steer the sector toward inclusive growth, sustainable employment, and food security. Rooted in an array of policy reforms spanning market dynamics, financial systems, infrastructure, skills development, natural resource management, research and development, and technology integration, the AAMP finds resonance with national priorities such as the National Development Plan and the Medium-Term Strategic Framework. Providing Ensuring food comprehensive security, expanded farmer support, production and development employment finance, R&D creation, decency and extension and inclusivity services Ensuring markets Creating enabling SECTOR OVERVIEW infrastructure expansion, improving market access and trade facilitation THE MACRO-ECONOMIC ENVIRONMENT Resolving policy Developing localised 6 ambiguities and food, import The Land Bank’s outlook for 2023 is intricately woven into the global economic fabric. While there creating investment replacement and are faint indications of a soft landing in the global economy, the prevailing high inflation rates and friendly climate expanded agro-processing exports recent upheaval in the financial sector have cast a shadow over this possibility. The burden of high debt levels further constrains the ability of fiscal policymakers to navigate new challenges, adding another layer of complexity to the global economic landscape. Pillars Geopolitical tensions, Russia-Ukraine conflict, continue to permeate the global atmosphere, casting a pall over international trade and affecting commodity prices, thus reverberating through the agricultural sector. As certain economies show signs of convalescence and supply chains gradually This comprehensive plan dovetails with ongoing land and agrarian reform initiatives, complemented regain stability, the land bank must consider its role in facilitating farmers’ access to inputs and markets, by tailored Commodity-driven Master Plans and sector-specific strategies. The overarching mission ensuring they can leverage these improved conditions. is to cultivate competitive agricultural and agro-processing sectors that stimulate market-oriented production, foster rural economic development, safeguard food security, and provide platforms for The continued spectre of the COVID-19 pandemic remains a formidable threat, especially as new employment and entrepreneurship. This mission inherently aligns with the Land Bank’s fundamental variants spark renewed outbreaks. Nevertheless, economies that weathered the pandemic’s fury are objective of nurturing agricultural and rural advancement, thereby reinforcing its pivotal role in exhibiting signs of rejuvenation, a dynamic that could alleviate supply chain disruptions and thereby realising the objectives of the AAMP. benefit the agricultural sector by enhancing input availability and market reach. Policymakers have taken decisive measures to shore up the banking system and address financial stability issues, a proactive stance indispensable for sustaining confidence in the banking sector, and enabling institutions like the land bank to fulfil their mandates effectively. 54 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS AAMP Commodity prioritisation–Principles considered include the following: In tandem with this, SAWS indicates that the El Niño–Southern Oscillation (ENSO) currently rests in a neutral state, though forecasts indicate a possible transition to a weak El Niño phase in late winter • Facilitating transformation in agriculture and agro-processing. and early spring, possibly intensifying into a strong El Niño for the summer season. It’s noteworthy, • Boosting South Africa’s food security. however, that ENSO predictions during this period carry less certainty. As a prudent measure, • Expediting market access and favorable conditions. vigilance in monitoring ENSO forecasts until August/September is advisable, given that predictive • Enhancing competitiveness through technological innovations, infrastructural expansion, and accuracy typically improves during this timeframe. digitisation. • Escalating farmer support mechanisms and agro-processing incentives. This anticipated shift in weather patterns, transitioning from relatively abundant rainfall to drier and • Creating inclusive and decent employment opportunities, even amid climate change and warmer conditions, could significantly influence South Africa’s agricultural landscape in the 2023/24 technological shifts. production season. This transition follows a period of favourable rainfall and soil moisture that may • Strengthening the safety of farming communities and curbing livestock theft. have been conducive to planting conditions. Given this, the Land Bank’s capacity to comprehend and • Cultivating an adept governmental framework and a conducive policy environment. adapt to these evolving climate dynamics is critical for the formulation of strategies that effectively • Fostering climate change resilience and optimal natural resource management support farmers and agri-businesses. By aligning its strategies with these principles and strategic goals of the AAMP, the Land Bank not Exchange Rate Impact: The depreciation of the South African rand, driven by factors like load only moulds its actions but also contributes substantively to the broader national vision, promoting shedding and geopolitical tensions, carries direct implications for farmers and agri-businesses. This inclusive growth, addressing unemployment and inequality, and fortifying food security through weaker currency augments the costs of imported inputs, including essentials like fuel and machinery, sustainable agricultural and agro-processing expansion. thereby exerting financial pressure on farmers. On the flip side, the devaluation could serve as a catalyst for agricultural exports, potentially bolstering incomes for exporters. The price trajectory of fertilisers in 2023 is projected to display a decline of around 37%, providing a measure of respite THE AGRICULTURAL SECTOR OVERVIEW for the ongoing and imminent planting seasons. However, challenges could arise if the previous high input costs fail to be offset by concomitant declines in grain prices. It’s anticipated that the currency’s The agricultural sector assumes a pivotal role in South Africa’s socioeconomic landscape, contributing depreciation could curtail the extent of input cost reductions. In navigating these currents, the Land significantly to food security, employment generation, rural development, and export earnings. In 2022, Bank’s role as a supportive partner is to ensure that farmers are equipped to manage associated risks agriculture, forestry, and fishing collectively contributed 2.57% (R171 billion) to the country’s GDP, while capitalising on export prospects. exerting cascading effects on sectors like food processing, transportation, and retail. However, despite this significance, the sector encountered a 12.3% contraction in Q1 2023, attributed to reduced Load Shedding’s Agricultural Impact: The centrality of electricity to modern agriculture is economic activities in field crops and animal products, a consequence of persistent load shedding undisputed, making the scourge of load shedding an acute concern. It substantially disrupts the that continues to undermine production. Indicators like the Agbiz/IDC Agribusiness Confidence Index entire agricultural value chain, most acutely impacting irrigation, intensive farming operations (such reflect waning optimism among industry stakeholders, signalling a challenging path ahead. as poultry and piggery), dairy production, and cold chain logistics. As a consequence, operational expenses surge, exacerbating the financial strains on farmers. In this intricate milieu, the Land Bank’s Climatic Conditions: The South African Weather Services (SAWS) forecasts above-average rainfall opportunity lies in proffering alternative energy financing solutions that alleviate the load shedding for the winter and early spring seasons in June 2023, with particular benefits anticipated for the burden. The establishment of the Agro-Energy Fund, targeting energy-intensive agricultural activities, southern and southwestern regions of the country. Such projections hold considerable implications is an illustrative example, furnishing grants and loans that bolster the sector’s resilience against energy for both crop and livestock production, potentially amplifying agricultural outputs and enhancing challenges and enhance its overall sustainability. food security. Input Costs and the Grain Industry: Forecasts suggest a decline in fertiliser prices in 2023, offering a ray of hope for the impending planting season. The mood is cautiously optimistic for summer grain crops, with maize prices projected to decrease due to augmented domestic supplies and a parallel descent in international prices. 55 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Livestock Industry: The sustainability of livestock farming in South Africa grapples with the Emerging Risks: The recently convened citrus summit unveiled a fresh wave of risks. Notably, the weight of animal diseases such as Foot and Mouth Disease, Avian Influenza, and Avian Swine Fever. viability of citrus exports faces uncertainty due to unresolved EU regulations mandating extended Addressing these afflictions necessitates substantial investment in disease surveillance, prevention, and cooling periods for citrus. The imposition of such regulations could potentially strain the financial the establishment of resilient farming systems that underpin the production of healthy animals and stability of producers during the critical export season. Furthermore, the unremitting challenge grant access to markets. While strides have been made in addressing these challenges, it’s noteworthy of load shedding has seriously compromised packing operations and, when compounded by port that, as of May 31, 2023, there were 124 ongoing outbreaks of African Swine Fever (ASF) and 199 delays, has significantly eroded the quality of exported fruits. outbreaks of Foot and Mouth Disease (FMD), exerting a tangible impact on the sector. Moreover, 5 outbreaks of Highly Pathogenic Avian Influenza (HPAI) were reported in chicken farms. Amid these The European Union’s Farm2Fork strategy, which occupies a pivotal place within its sustainability issues, the availability of livestock vaccines has been hampered by production challenges. Feed grain policy framework, casts a direct impact on South African fruit growers. As South Africa ranks as prices appear to be on a downward trajectory, offering relief and potential profit enhancement. a prominent fruit exporter to the EU, the industry confronts escalating regulatory demands and Nevertheless, the prices of cattle and sheep meat remain under pressure due to the broader compliance requirements that carry palpable financial implications for growers. In light of these economic struggles. Load shedding compounds these challenges by constraining consumer spending, multifaceted challenges, vigilance and adaptability emerge as twin imperatives to navigate this intricate while disease outbreaks introduce both adversities and opportunities for the sector. The Land Bank, terrain effectively. through its active support of livestock farmers in devising and implementing disease control measures, stands poised to navigate these complexities and provide strategic guidance. In the context of these trials, the Land Bank’s role gains prominence in offering tailored financing solutions and unwavering support to horticultural stakeholders. By orchestrating its offerings to Horticulture Industry: The horticulture sector, represented by Fruit SA, grapples with a constellation holistically address these intricate challenges, the Land Bank significantly contributes to the sector’s of challenges encompassing the effects of EU policies, fiscal limitations, consumer income constraints, fortitude and sustainable expansion. persistent unrest, load shedding, and water management dilemmas.These factors have collectively pushed growers and industry stakeholders into a survival mode, as reflected in the deliberations of a recent citrus Outlook: The immediate and medium-term outlook is permeated with notable risks. Load shedding summit. Within this framework, additional vulnerabilities have surfaced, including port issues, escalating and the impending transition to drier El Niño conditions could potentially dampen production labour costs, input price hikes, cold chain disruptions stemming from power cuts, surging transportation prospects. Though input costs are on a declining trajectory, the pessimistic trajectory of grain prices outlays, adverse weather conditions, intensified market competition, and geopolitical variables. might dissuade expansive planting, potentially constraining profitability for producers. 56 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Critical Measures: The decisive containment of animal diseases through rigorous surveillance, prevention, and control measures, coupled with ensuring the availability of vaccines, remains central to the sustainable and lucrative advancement of South Africa’s livestock farming sector. AGOA Concerns: The potential loss of the African Growth and Opportunity Act (AGOA) is a grave concern for South Africa. The nation is actively engaged in safeguarding its access to AGOA benefits, with close attention directed at ongoing negotiations. Notably, the deliberations around AGOA have reverberations within the agricultural sphere, with South African fruit exporters closely monitoring these discussions. The value of agricultural exports from South Africa to the United States reached a considerable sum of 559 million USD in 2022. The outcome of AGOA negotiations holds the potential to dramatically influence trade relations and the economic tapestry between the two nations within the realm of agriculture. The Bank’s substantial exposure, totalling R924 million, to commodities influenced by AGOA underscores the economic linkages and potential reverberations. This amplifies the significance of the Land Bank’s role in diligently monitoring developments, conducting comprehensive scenario analyses, and engaging in strategic mitigation to withstand any potential disruptions or capitalise on newfound opportunities. In light of these dynamics, the Land Bank’s function as a pivotal enabler of agricultural transformation, rural development, and financial stability is incontrovertible. By aligning its strategies and interventions with the evolving policy landscape and sector-specific challenges, the Land Bank can effectively advance its overarching mission. This entails bolstering inclusive growth, addressing unemployment and inequality, and fortifying food security through sustainable agricultural and agro-processing expansion. In doing so, the Land Bank not only serves its core objectives but also contributes substantively to the broader national vision. As a beacon of financial support, strategic guidance, and innovative solutions, the Land Bank stands poised to steer South Africa’s agricultural landscape toward a resilient and prosperous future. 57 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 6 STAKEHOLDER RELATIONS 58 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 59 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS STAKEHOLDER RELATIONS Based on the approved Stakeholder Engagement Strategy, Land Bank’s engagements with key partners are being implemented, monitored, and reported on a quarterly basis. The engagements are aimed at addressing identified key partnership areas. Regular interactions with prioritised stakeholder segments allow Land Bank to attend to partnership concerns and to explore business opportunities. Stakeholder Engagement Strategy KEY STAKEHOLDER/ STAKEHOLDER EXPECTATIONS/NEEDS/ TARGET AUDIENCE KEY ISSUES TO ADDRESS HOW THE BANK ENGAGES HOW THE BANK CREATES VALUE Shareholder (NT/Minister of Finance) • Sound leadership. • Quarterly Performance Reports. • Fulfilment of the mandate • Clear strategy and execution. • Annual General Meetings. • Good governance and ethics. • Strategy Engagement Sessions. • Financial management and operational efficiency. • Advancement of development and transformation of the agricultural sector. Department of Agriculture Land Reform • Fulfilment of the Bank’s mandate in support of • Engagement meetings. • Strategic alignment and fulfilment of and Rural Development/ Third Party the sector’s programmes. • Reports on programmes administered mandate. Funders • Administrator and implementer support for the and implemented by the Bank for the • Support for sector priority programmes. execution of sector programmes. Department and other third-party • Strategic alignment and collaboration. funders. Legislators/ Parliament • Fulfilment of the Bank’s mandate. • Reports, presentations, and oversight • Deployment of funds in government • Appropriate deployment of fiscal support. engagements through the relevant and agricultural sectors’ development • Good governance and ethics. Parliamentary Committees – in particular, programmes. committees of Finance and Agriculture, Land Reform and Rural Development. Funders/Lenders • Financial performance and sustainability. • Lender and investor meetings. • Financial performance. • Good risk management and governance. • Integrated report. • Lenders’ Return on Investment. • Adhere to funding agreements / repayment of • Results announcement sessions. debt. Clients • Access to value adding financial products and • Client engagement sessions and events. • Financial inclusion. services. • Sector events. • Client experience. • Accessibility, reliability, and responsiveness. • Client surveys. • Financial support to contribute to • Quality client service and relationship • Client correspondences. sustainability of clients’ businesses. management. • Provincial offices and points of presence. 60 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS KEY STAKEHOLDER/ STAKEHOLDER EXPECTATIONS/NEEDS/ TARGET AUDIENCE KEY ISSUES TO ADDRESS HOW THE BANK ENGAGES HOW THE BANK CREATES VALUE Organised Agriculture • Financial support of the sector. • Organisational engagement sessions. • Financial support towards sector • Collaboration and support for organised • Sector events. growth and development, and sector agriculture’s key programmes. transformation. Employees/ Labour Representatives • Good working environment and employee • Staff engagement sessions. • Employee well-being. satisfaction. • Union / employee representative • Employee development and growth. • Responsiveness to employee needs. engagement structures. • Productive employees. • Transparent and honest engagements / sharing of • One-on-one employee engagements. • Fair remuneration, rewards, and information. • Team and divisional engagements. recognition. • Sustainable organisation to ensure job security. • Climate and employee surveys. • Experienced and evident transformation. Society/ Communities • Support for sustainable development goals. • Corporate social investment projects. • Social and community programmes. • Environmental and social sustainability. • Social and environmental assessments as • Opportunities for SMME suppliers / • Corporate social investments. part of due diligence on transactions. service providers • Business opportunities for local suppliers. • Supply Chain Management advertisements. • Provincial offices and points of presence. Media • Transparency and responsiveness. • Media releases. • Media well-resourced with organisational • Information and knowledge sharing. • Media engagements. information. • Marketing and advertisements. • Informed public, clients and stakeholders • Updated contents on the Bank’s website. about the Bank’s role and its products and services. 61 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS BACKGROUND LENDERS Minister Thoko Didiza of the Department of Agriculture, Land Reform and Rural Development (DALRRD), Engagements with lenders has continued in an attempt to resolve the areas of the liability solution launching the transformative Blended Finance Scheme in collaboration with Land Bank. where agreement has not yet been achieved. The engagements with stakeholders provide Land Bank partners with a good understanding of the Bank’s business and thus help to strengthen and maintain business relations while managing stakeholder expectations. There is a general view from the Bank’s stakeholders that Land Bank MINISTRIES AND SOES requires government support (both financial and non-financial) to advance sector transformation. DALRRD Key elements of the stakeholder programme include the following: Land Bank and DALRRD have initiated the process to strengthen their collaborative efforts to achieve their individual and collective objectives through a formal collaborative programme of action. NATIONAL TREASURY The key areas of focus include: The Land Bank Board, through its Chairman, has maintained a very close and accessible relationship • Legislative and Policy alignment and influencing/lobbying; with the Minister of Finance (MoF). A sound and responsive relationship exist between the Executive • Land Reform Programme; team, led by the acting Chief Executive Officer (CEO), and the NT team. • Farmer Funding Support; and • Non-Finance Programmes, such as Extension Services. The Shareholder has continued to provide support to Land Bank’s attempts to get out of the current default position and has actively engaged with the Bank to explore solutions to the areas of contestation Land Bank continues to provide fund management services for DALRRD, including the Blended between the Bank and its funders as the negotiations for the liability solution continue. Finance Scheme, AgriBEE, Emerging Farmer Support Facility, and the COVID-19 Relief Fund. PARLIAMENT AND THE LEGISLATURE PROVINCIAL VALUE CHAIN BLENDED FINANCE SCHEME The Bank is embarking on a process aimed at the establishment of partnerships to support agricultural development and commercialisation of small to medium farmers in each province. Draft Memoranda of Understanding (MOUs) and discussions with the provinces are in progress to determine the nature and timing of the implementation of these collaborative arrangements. PROVINCIAL DFIS AND ECONOMIC DEVELOPMENT AGENCIES Land Bank has engaged Provincial DFIs, Agricultural Colleges, universities (faculties of agriculture Minister Thoko Didiza of the Department of The CEO of Land Bank (Mr Themba Rikhotso) and and environment) and Land Reform beneficiary groups (Community Property Associations and Agriculture, Land Reform and Rural Development DG of DPME (Mr Robert Nkuna) at the conclusion (DALRRD), launching the transformative Blended and signing of a collaboration MoU between the two Community Trusts) to explore potential partnerships in eco-tourism, youth employment, Agri Finance Scheme in collaboration with Land Bank. organisations. business development, etc. These agencies possess several properties that are either not in use or are not in optimal use. These facilities include township education centres (Animal Farms), AgriParks, In FY22/23 the Bank participated in engagements with Parliamentary oversight committees including resorts (youth training facilities), small farms, conference facilities, and similar facilities. the Select and Standing Committees on Finance, where the Bank provided an update of the state of the Bank and progress on negotiations with lenders for a liability solution. 62 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS It is envisaged that the Land Bank’s Corporate Social Investment programme may utilise the CORPORATE SOCIAL INVESTMENT INITIATIVES mentioned facilities for the initiatives such as the township and inner-city Agri seminars/workshops and undertake youth and agricultural graduate placements in various facilities to further support In our commitment to corporate social investment (CSI) initiatives, we have established strategic community-based young agricultural entrepreneurs. Discussions are still underway. partnerships with Organisations such as the Agricultural Research Council (ARC) and the Department of Basic Education. Through these collaborations, we have developed our School and REGIONAL COOPERATION AND PARTICIPATION Household Food Garden programme, aimed at enhancing community-based food security. Working together, we are devising a sustainable strategic plan to expand outreach, provide advanced nutrition Land Bank has been a member of the South African Development Community’s (SADC) DFI education, increase food production, and support local communities.This initiative plays a pivotal role Network, a forum established in 2003 under the SADC Protocol on Finance and Investments. The in supplying school feeding schemes and optimising income generation for schools and households. Bank, with the concurrence of the MoF, has resolved to suspend participation in this forum in the interim, given the Bank’s state of default and the inhibiting cost of the membership in the context of In partnership with Fruit and Trees For Africa and AGFRI, we have successfully installed water supply the Bank’s current financial challenges. systems in two primary schools in Limpopo. Expansion activities are scheduled to take place in additional schools located in the North West, Gauteng, and Eastern Cape provinces under the FARMER ORGANISATIONS guidance of the ARC. Additionally, we have collaborated with the Imbeleko Youth Academy to establish a community food garden and nursery, providing support to subsistence farmers affected by floods Land Bank has provided secretariat and coordination support to the Agri-Sector Unity Forum in the Valley of 1000 Hills in KwaZulu-Natal. Through our Subsistence Farmer Support Programme, (ASUF) since 2018. ASUF is a representative organisation of agricultural unions in South Africa, conducted in conjunction with the IDC and implemented by Khula, we have offered assistance to currently consisting African Farmers Association of South Africa (AFASA), TAU SA, Fruit SA, The ten young farmers. These farmers have benefited from business development workshops, financial Vegetable Roundtable, Agri SA, and the National African Farmers Union of South Africa (NAFU management training, Global Gap certification, agricultural inputs, and access to markets for their SA). Its main objective is to engage government on both policy and its implementation in areas of products. Some of the participants have successfully advanced their farming enterprises, reaching a land reform, agricultural skills development, farm security, food security, job creation, sector growth, level of readiness to apply for commercial finance. market, and farmers support – among many others. Expanding our reach, we have explored a partnership with the Tshwane University of Technology It aims to develop consensus policy positions on strategic issues in agriculture and to become a (TUT) to engage agricultural graduates in agri awareness programmes within townships and provide mouthpiece for the sector, representing the interests of all farmers. Members of ASUF have farmer training within the areas of the university’s operation. Additionally, our Flood Relief Support committed to work together to develop a national development strategy and a delivery plan for the pilot Programme has been initiated to aid growers affected by floods in KwaZulu-Natal, Eastern agricultural sector for South Africa. Cape, and Limpopo provinces, collaborating closely with the respective provincial departments of Agriculture and Rural Development. The forum had developed an integrated agricultural suppor t package and framework for the agricultural sector through an established Agricultural Sector Planning Committee that will Our CSI programme has extended suppor t to Community Proper ty Associations in livestock repor t to the agricultural key stakeholders i.e. the public, sector players, State depar tments, and and youth agri programmes. Fur thermore, we aim to enhance our assistance to beneficiaries of the SA Presidency. the Depar tment of Agriculture, Land Reform, and Rural Development’s land reform programme in the future. Land Bank will continue to provide sector policy inputs, share research material, expose regional and international best practice, while supporting all activities of the forum. Through these impactful initiatives, we remain dedicated to making a positive difference in the lives of communities and contributing to the sustainable development of the agricultural sector. In the course of FY22/23 the Bank engaged with some of the farmer organisation to share the Bank’s Strategy, as well as to increase collaboration on sectoral issues in which the Bank has a significant role to fulfil. 63 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 7 OUR CAPITALS 64 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 65 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Building upon the achievements of Phase 1, Phase 2 of the IT Strategy commenced in 2021 and is dedicated to enhancing client-facing capabilities through the adoption of an omni-channel strategy. This phase leverages the existing internal business operations system capabilities and incorporates necessary technology enhancements alongside targeted business process optimisation interventions. The key initiatives include: • Deployment of the Client E-services Portal, enabling clients to access a range of digital services such as loan inquiries, smart application forms, document uploads, notifications, queries, and complaints. Future sprints are already in the planning phase to introduce additional value-added LAND BANK’S USE OF TECHNOLOGY services. • Implementation of the Acceleris system, which automates loan technical and financial assessments, streamlining the loan approval process. • Ongoing project to commercialise GIS reports and offer them to clients through a subscription- based model, providing valuable insights for informed decision-making. • Conducting a priority review of all planned IT projects, as recommended by the Board, to determine their execution priority and ensure alignment with strategic objectives. These initiatives demonstrate Land Bank’s commitment to harnessing technology to improve efficiency and deliver exceptional digital experiences to our customers. As we progress through Phase 2, we will continue to prioritise the adoption of innovative technologies and optimise our IT infrastructure to support the evolving needs of our clients and the organisation as a whole. The Revised IT strategy Land Bank has embraced a revised IT Strategy aimed at implementing critical enabling technologies within the organisation. This strategy is designed to achieve operational efficiency gains across the business and, ultimately, enhance service delivery to our valued customers. The IT Strategy will be executed in two distinct phases, each with specific objectives and outcomes. Phase 1, which commenced in 2019 and spanned 24 months, focused on enabling various technologies to deliver immediate benefits by automating internal business operations. This included the implementation of key systems such as CRM for loan origination and customer service management, OnBase for customer-centric document and records management, Excalibur for collections and recoveries management, GIS for farm technical data used in assessments, and enterprise data staging for operational master data management. Additionally, new internet and intranet sites were developed for Land Bank and Land Bank Insurance (LBI). 66 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS • A total of 114 ESRA reviews were completed (this included 67 new ESRA reviews and 36 monitoring reports). Of this, 100 reviews were categorised as low risk (category C) and one review was categorised as medium risk (category B) with an additional one review being categorised as a high risk (category A). • Of the 67 new ESRA reviews, six were non-compliant regarding environmental approvals (i.e., failing to obtain/provide proof of environmental authorisations or water rights). In terms of compliance with labour legislative requirements (Occupational, Health and Safety Act, Basic Conditions of Employment Act, Labour Relations Act and Minimum Wage Act), four cases of non-compliance were identified as a result of a lack of adequate Occupational Health and Safety (OHS) measures; eight cases of failing to document employment contracts; and four cases of remuneration not being correctly aligned with minimum wage. Mitigation measures have been included in the ESRA reports that address the identified non-compliances. • Three ESRA reports were amended/reassessed due to additional information being received or changes to the nature of these applications. • Five queries were attended to which entailed providing guidance/support on ES due diligence requirements and technical ES issues. ESRA reviews - Year on Year Comparison 2 214 0 2022/23 FY 65 33 1 1 2021/22 FY 58 60 4 2020/21 FY 150 The following section explores the Bank’s progress in achieving the objectives as set out in its Environmental and Social Sustainability (ESS) Strategy. 2019/20 FY 49 377 6 The Bank has identified a need, and continually strives to improve the management of environmental 2018/19 FY 58 326 6 and social risks to ensure compliance with environmental and social contractual obligations, as well 0 100 200 300 400 500 as in an effort to lead the sector as a responsible corporate citizen. Direct - Medium risk (B) Direct - Low risk (C) Indirect An important part of the Environmental and Social Management System (ESMS) is the implementation Amendment Queries of Environmental and Social Risk Assessment (ESRA) reviews, which provide the Bank with an Monitoring DALRRDJF 3rd Party Evaluation indication of the potential ESS risks involved in its loan portfolio. 67 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS BUILDING CLIMATE RESILIENCE Land Bank has identified climate change as an important impact area for its survival as a business entity and has developed a draft Climate Change Policy to guide it on management of risks and opportunities related to climate change after careful consideration of the risks and opportunities of the changing natural environment. In addition, Development and Transformation has been identified as its most immediate and important key impact area. This is a focus on inclusivity through offering products and services to previously marginalised and excluded farmers based on race, gender, age, a remnant of the apartheid laws in South Africa. The EU financed FOCUS AFRICA Research between WITS, CSIR and Land Bank relating to climate vulnerability of maize farmers in the North West province. There is preliminary evidence of a statistical relationship between average annual temperature changes, changes in the yield of maize resulting in destressed farmers. This was discussed in June 2022 at the third FOCUS Africa Stakeholder conference drawing in the Regional Department of Agriculture, famers and international stakeholders from the World Meteorological Organisation. In response to the need to provide improved services to clients towards climate change resilience, the Bank drafted a Green Finance Facility that intends to create opportunities for funding climate- smart practices. The Bank has embarked on the updating of systems to ensure the inclusion of indicator and data for As the Bank progresses towards maturity in its response to becoming a responsible and climate the Natural Capital Indicators that will facilitate improved reporting on climate resilience. resilient bank, the Bank has embarked on ESG governance through the development of a Climate Change Policy. This policy provides enablers for building on existing practices while enhancing governance requirements as per the Principle for Responsible Banking. The policy is in alignment with the SDGs and the Paris Agreement which will provide a firm foundation for the Bank to institutionalise climate resilient practices. Climate change affects the Bank system through two main channels. The first involves physical risks, arising from damage to property, infrastructure, and land. The second, transition risk, results from changes in climate policy, technology, and consumer and market sentiment during the adjustment to a lower-carbon economy. Identification and Management of these channels are a part of the main features of the Task Force on Climate-Related Financial Disclosures (TCFD) that the Bank continues to work towards. Aligned to the identification and management, the critical function of monitoring must be included in this process. To this end Natural Capital indicators have been developed and approved. 68 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS including 16 permanent and 17 fixed-term contractors. Out of these, 11 external permanent appointments were made. At Land Bank, we highly appreciate our internal talent, and within the permanent appointments, five internal employees were promoted to higher positions, fostering career advancement. Employee Overview: Gender 164 16 180 Male Male Male OVERVIEW 137 Permanent 15 Fixed-Term 152 Total Capacity Employees Employees Female Female Female 301 31 332 Total Total Total Employee Age Range 25 to 40 Years 55 to 65 Years 55 to 65 25 to 40 55 to 65 63 4 79 55 59 Permanent Fixed-Term Total Employees Employees Capacity Land Bank Staff engagement initiatives 11 16 183 194 Organisational capacity 41 to 54 25 to 40 The Human Capital Division remains a strategic partner to the organisation and the employees.The focus 41 to 54 Years 41 to 54 is on contributing to Land Bank being sustainable and ensuring that there is adequate capacity and that human resources are optimised. The employee-life cycle underpins the management of talent through– attraction, on-boarding, development, performance management, remuneration, and separation. Land Bank’s organisational capacity comprised 301 permanent staff and 31 fixed-term contractors. A significant portion of the permanent workforce has been with the Bank for over a decade, and this long-term commitment is acknowledged through our long service award policy. Furthermore, we have managed to retain institutional knowledge, with 77.41% of permanent employees having served for more than six years. However, staff attrition remains a challenge, and efforts are underway to bolster organisational capacity. In total, 33 appointments were made to fill vacant positions, 69 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Internal Permanent External Fixed Term Contract Female Male Total ACI Female Male Total ACI Appointments Appointments Category and Level A I W A W Category and Level A I A I W Senior Management (P4-P5) 1 1 Professionally qualified and Professionally qualified and experienced specialists and 3 4 1 1 9 40,00% experienced specialists and 1 1 1 1 4 mid-management (P6-P7) mid-management (P6-P7) Skilled and qualified Total 1 1 2 1 5 workers, junior management, 94,12% 4 1 2 7 supervisors, foremen, superintendents (P8-P9) External Permanent Semi-skilled and discretionary Female Male Total ACI 1 1 Appointments decision making (P10 to P12) Category and Level A I A I W Total 8 1 6 1 1 17 Senior Management (P4-P5) 1 1 The Bank in addition ensured that critical vacancies were capacitated through acting arrangements Professionally qualified and to ensure business and leadership continuity. The acting arrangements served not just as provision experienced specialists and 3 2 5 of capacity and leadership, but at the same time exposed internal employees to personal career mid-management (P6-P7) 100% development. Acting positions ranged from semi-skilled level to middle management, Senior Skilled and qualified Management, and Top Management. workers, junior management, 2 2 1 5 supervisors, foremen, Land Bank remains committed to transformation. The Employment Equity and Skills Committee superintendents (P8-P9) monitors progress made on the three-year employment equity plan for the Bank. ACI represented Total 5 5 1 11 73,19% of the workforce. Land Bank Staff engagement initiatives Land Bank Staff engagement initiatives 70 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Female Male % Total ACI W FN ACI ACI W FN ACI ACI White FN Employment Equity Representation per race, gender and occupational level Females Males Total Total Top Management (P1 –P3) 2 4 Senior Management (P4 – P5) 5 2 3 1 Professionally qualified and experienced specialists and middle management (P6 – P7) 40 13 43 3 Skilled and qualified workers, junior management, supervisors, foremen, superintendents 41 7 1 124 10 1 119 (P8 – P9) 73,19% 25,00% 1,81% Semi-skilled and discretionary decision making (P10 to P12) 34 5 Unskilled and defined decision making (P13 – P14) 2 Total 124 27 1 37,35%1 119 56 5 35,84%2 1. ACI Females representation against active headcount = 37.35% 2. ACI Males representation against active headcount = 35.84% Attrition and Retention The financial year was a particular difficult time for the Bank whereby staff attrition increased compared against previous years. The attrition particularly increased with regard to early retirements. A total of 56 permanent employees exited the Bank. A total of 52 voluntary attrition relating to resignations (40), early retirement (11) and (1) dismissal. The attrition rate for the year ended at 17,28%. Permanent Employees Voluntary Attrition Female Male % Total A C I W ACI A C I W ACI Occupational category and level Females Males ACI W Total Total Top Management (P1 to P3) 1 1 Senior Management (P4 – P5) 2 1 5 1 2 2 5 3 8 Professional qualified and experienced specialists and middle management (P6 – P7) 16 18 65,38% 34,62% Skilled and qualified workers, junior management, supervisor, foremen, superintendents 4 3 2 4 2 4 (P8 – P9) Semi-skilled and discretionary decision making (P10 to P12) 1 1 Total 10 1 5 4 30,77% 13 3 2 14 34,62% 71 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS The Land Bank considered attrition over a two-year period and a strategic decision was implemented philosophy and approach. The Remuneration and Compensation policy was reviewed during the on retention of critical skills and key individuals. The retention engagements were supported by financial year and submitted to the MoF for approval. The Remuneration and Compensation policy the Land Bank Board. A total of 113 employees formed part of the strategic retention Initiative. provides for the remuneration philosophy and principles for matters related to compensation. Employees that received a retention payment entered into a twelve-month work-back agreement. The initiative resulted in the retention of 94,69% of these employees. Fixed Remuneration The Bank is using an Annual Guaranteed Package approach and offering benefits within the Annual Employee Value Proposition Guaranteed Package parameters set out by the organisation. Participation in the employee benefit arrangements is compulsory for permanent employees and participation is regulated in accordance with the relevant benefit scheme rules and within the constraints of Tax Legislation. The benefits offering for permanent employees includes the closed medical aid scheme of Bankmed, retirement fund and risk benefits cover which includes life, disability, dread disease and funeral cover. An across- REMUNERATION How we pay? the-board annual increase of 4% for qualifying staff were implemented for the financial year. Fixed: Annual Guaranteed package including retirement Variable Pay and risk benefits, cell phone allowance The Bank recognises long service as per the Long service award policy. A total of 40 employees were Variable Pay: Long recipient of these award and a total of R247 500.00. service awards Talent Management TALENT At Land Bank, we prioritise the growth and development of our employees by fostering a culture of MANAGEMENT OTHER BENEFITS continuous learning and career advancement. Our commitment to talent management is exemplified How we grow our talent? Additional benefits: Employee children study assistance; by our support for employees pursuing higher education. In the past year alone, we have proudly Staff Studies; Generic and Technical Training; Leadership Flexible and remote working facilitated the enrolment of 11 employees in tertiary studies that are strategically aligned with the Development arrangements; Wellness skillsets essential for the Bank’s success. Furthermore, 20 employees have been recipients of the Bank’s support for tertiary qualifications, commonly referred to as staff studies. This initiative has resulted in a substantial investment of R689,985.02, underlining our dedication to empowering our workforce with the knowledge and skills necessary to excel in their roles and contribute meaningfully LEAVE BENEFITS to the Bank’s growth and success. What do we provide? Annual leave exceeding These educational pursuits encompass a diverse array of fields that directly correspond to the BCEA; Sick leave & other statutory leave; Study leave expertise required within the Bank. Ranging from programs such as Bachelor of Business Administration, Bachelor of Commerce, Bachelor of Laws, to specialised areas like National Diploma in Real Estate, Postgraduate Diploma in Risk Management, and Postgraduate Diploma in Development Finance, these educational pathways contribute to a well-rounded and highly skilled workforce. Our dedication to enabling career growth through education not only benefits our employees on Remuneration an individual level but also enhances our organisational capabilities. By supporting employees in their Land Bank Remuneration strategy is informed by the State-Owned Entities Remuneration and pursuit of academic excellence, we ensure that the Bank remains equipped with the latest knowledge Incentives Guidelines (2018). Remuneration management within Land Bank is integrated into other and skills, enabling us to deliver the highest level of service and innovation to our valued clients and people management processes such as the performance management and talent management stakeholders. processes within the ambit of the overall Human Capital policies and will be based on a total rewards 72 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Female Male ACI % ACI % ACI Female Male Spend Spend Permanent Employees Staff Studies A C Female A C Male Rand Rand Value Rand Value Value Professional qualified and experienced specialists and middle management (P6 – P7) 1 R17 140,00 7 5 R455 733,11 R472 873.11 Skilled and qualified workers, junior management, supervisor, foremen, superintendents (P8 – P9) 1 R76 100,00 R76 100.00 20,46% 79,54% Semi-skilled and discretionary decision making (P10 to P12) 6 R119 645,00 R119 645.00 Total 7 13 R668 618.11 100% The Bank invested a total of R100 517,45 on training intervention related to generic and technical training and workshops/conferences. Most of the investment was made to ACI employees of which Female ACI were 59,33%. Employee demographic by training spend Female: Number of Interventions Male: Number of ACI Rand % ACI % ACI Non- ACI Interventions Value and % Female Male Generic Training, Leadership Development, Technical Training, Spend Spend Workshops and Conferences ACI W FN Female Rand ACI W Male Rand Value Value Top Management (P1 –P2) 3 R40 000,00 R20 682,18 Senior Management (P4 – P5) 1 R3 980,00 1 R4 217,39 Professional qualified and experienced specialists and middle management 4 1 R18 650,27 4 1 R26 489,79 R80 195,27 59,33% 20,45% (P6 – P7) Skilled and qualified workers, junior management, supervisor, foremen, 1 1 R7 180,00 superintendents (P8 – P9) Total (number of interventions) 8 2 1 R69 810,27 4 2 R30 707,18 79,78% 20,58% The Land Bank Induction programme is designed to facilitate the integration of new employees into the organisation. The Induction programme is presented at the Bank for new employees every month. 73 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Mitigating action plans are monitored and implemented and progress reports are provided to the internal governance Committees. The Compliance matrix register outlines all elements related to legislative and regulations compliance for the function. Human Capital, as a strategic business partner, ensures that policies are in place to guide the organisation. As such, policies and procedures are regularly reviewed. Human Capital reviewed nine policies and standard operating procedures during the year. Policy/SOP Category Performance Management 1 – Board Harassment Policy 2 – EXCO Dress Code Standard 2 – EXCO Flexible and Remote working arrangement 2 – EXCO Secondment and Rotation 2 – EXCO Remuneration and Compensation Policy 1 – Board Recruitment, Attraction and Selection 1– Board Other Benefits Grievance Policy 1– Board Land Bank assists employees’ children to further their education at tertiary level. The children are sponsored for their undergraduate qualification. In the period under review, the Bank assisted 24 Post-Retirement Medical Aid 2 – EXCO employees’ children to a total amount of R 698 546, 20 to study at registered tertiary institutions. Consequence Management Employees are provided with the flexible and remote working arrangements as guided by policy.The The Human Capital Division, together with the Legal Division, facilitates matters related to discipline Bank supports a work-life balance, and the flexible and remote working policy contributes to strikes and grievances. The Bank deals with consequence management in line with the relevant labour the balance between output and employee family obligations. relations legislation, as well as Land Bank policies and procedures. During the financial year seven disciplinary matters were concluded relating to misconduct. One employee was dismissed as a result Land Bank continues to provide employees with employee wellness programmes through a service of absence from work. Two (2) Grievance matters were concluded. There are two matters at the provider. The programme includes a contact centre whereby employees are encouraged to make Labour Court of which the Bank is awaiting a date for the proceedings. use of the service available for counselling. Several mental and financial health seminars were made available to staff during the year. Culture The Bank implemented initiatives from the climate and culture survey conducted in 2020. These Human Capital Governance initiatives included the revision of the DoP Section 2 whereby the operational management Human Capital is an environment that is highly regulated by legislation, policies, and procedures; and enables Management decision making to decrease decision making turnaround times. Various staff it ensures that fairness in the working environment is adhered to. Human Capital has embedded engagement sessions were completed whereby matters of key strategic focus were shared with Enterprise Risk Management through the Bank’s Strategic Risk register and the Human Capital employees. In the next financial year, the Bank will commence with the review and establishment of Operational Risk register. Human Capital included staff attrition as a Strategic Risk. Matters related the desired future culture. to performance management, recruitment, employee wellness, and leave management are contained in the Operational risk register. 74 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS FOREWORD BY THE CHIEF FINANCIAL OFFICER Land Bank continued to operate under a state of default for the year • Improved liquidity position, through collections, settlements, and under review. Despite this and the difficult micro and macro environment capital injection with cash sitting at ~R15 billion at 31 March 2023, impacting its operations the Bank has witnessed an improvement in the including the R5,1 billion held in ESCROW; 2023 financial year: • The Bank has repaid 58% (R23,5 billion) of debt owing at default, to date and has continued to service interest commitments; • The Bank continues to operate despite the state of default and to • The NPL remediation strategy has yielded results with the NPL implement the strategy as approved by the Board. nominal number reducing by R2,6 billion year on year. • Lending has resumed as signified by the launch of the Blended Finance Scheme in partnership with the DALRRD during October The Bank is however not without challenges: 2022; • Filling of critical vacancies to ensure delivery and to strengthen the Operating under a state of default means that the Bank’s ability to internal control environment; support the sector is significantly constrained due to the inability to • The Bank has successfully insourced the majority (98%) of its loan raise much needed funding. This is regrettable. Resolution of the event of book that was previously managed by intermediaries also known default has taken way longer than initially anticipated. Negotiations with KHENSANI MUKHARI as Service Level Agreement (SLA) partners, thereby strengthening lenders continue and we are encouraged by the continued support and Chief Financial Officer controls around the management and monitoring of the loan book. patience of our lenders regarding this process. Regarding financial performance and liquidity the following is important We are working hard and are hopeful that this process will conclude to note: soon. • Improved financial performance with FY21/22 and FY22/23 showing profits; The Bank is also reviewing its funding model to ensure it is appropriate to • During the year under review, the Shareholder transferred support the Bank’s mandate of driving development and transformation R6 billion of the R7 billion appropriated to Land Bank during February in agriculture into the future. 2021, with the remaining R1bn to be transferred during FY23/24. R5,1 billion is held in an ESCROW account pending fulfilment of Although the audit outcome for FY22/23 remains unqualified the Bank attached conditions for the release of the funds for utilisation by the has lost its clean audit status (unqualified without findings) due to Bank. In total R9 billion of the R10 billion appropriated to Land Bank adjustments that needed to be made on the FY22/23 Annual Financial since the default has been received by the Bank to date; statements. This is unfortunate as the Bank has worked hard with an 75 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS objective to maintain the clean audit status. Improvements are being made in the internal control environment to ensure the Bank regains and maintains its clean audit status going forward. In conclusion, the Bank continues to rebuild itself and to grow from strength to strength as it strives to deliver on its mandate. This bears testament to the dedication and commitment of the Land Bank team who continues to work tirelessly to rebuild the organisation, to whom I extend my thanks and sincere gratitude. The continued support of the Shareholder is a source of strength and encouragement for us, for which we are grateful. Khensani Mukhari Chief Financial Officer Land Bank South Africa 76 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS GROUP RESULTS Non-interest Income Administrative fee expenses incurred amounted to R13,5 million. This was R58 million lower than The Group achieved an overall profit for FY22/23. The Bank’s margins continue to experience the R71 million incurred in the prior year, mainly due to the decline in the SLA book as the Bank pressure due to the declining loan book, changes in portfolio mix, and high cost of funding. The continued to in-source management of the SLA book. The fee expenses were also lower due to a Group’s net profit of R492million (compared to the prior year restated profit of R1,21 billion) was substantial reduction in the SLA loan book owing to customer attrition. driven mainly by a net impairment release of R368 million, and a decrease in interest expense of R225 million. The Group’s Net Interest Income stood at R616 million compared to the restated Operating Expenses R508 million reported in March 2022. Interest expense decreased from R2,4 billion to R2,1 billion, Total operating expenses stood at R499 million, which is a decrease compared to the prior year a reduction of R225 million, as funding liabilities reduced by R6,7 billion due to capital repayments figure of R531 million. The main drivers for the decrease in operating costs are lower personnel made to investors. The Group’s operating expenses were slightly higher than the previous year, at costs due to vacancies as only critical roles were filled, and lower rentals as the head office moved R553 million, predominantly due to costs incurred on the restructuring of the Bank and the work to more affordable accommodations. The Bank negotiated discounts on services that were not fully over the remediation of the loan book. required due to the lockdown. The Group’s assets for the financial year 2023 amounted to R34,6 billion, showing a slight increase Fruitless and wasteful expenditure (F&WE) from restated R34,3 billion reported at 31 March 2022, primarily due to a net loan book reduction The F&WE relates to isolated incidences where penalties and interest were levied on late payments of R5,7 billion and an increase in cash and cash equivalents to R15,4 billion (FY22: R10 billion), mainly of utility accounts. due to collections received from clients and capital injection from the shareholder that is currently invested in the ESCROW account pending conclusion of the debt restructuring process. Group Company 2023 2022 2023 2022 Banking Operations Opening balance 66,932 66,868 66,909 66,845 The performance of banking operations continued to improve for the year under review, with a net profit of R473 million, primarily driven by credit impairment provision releases. Excluding the Expenditure deemed as F&WE relating to 2,441 - 2,441 - impairment releases, the Bank has made a profit of R105 million. prior year discovered in the current year1 2 Expenditure deemed as F&WE relating to 8 82 8 82 Net Interest Income current year1 2 Net interest income for the year amounted to R607 million, which is R104 million above the prior Less: amounts recovered in current year (4) (18) (4) (18) year’s restated figure of R503 million. Closing balance 69,377 66,932 69,354 66,909 Net Impairment and Recoveries The net impairment release for the year amounted to R368 million, mainly due to the improvement None of the above fruitless and wasteful expenditure has been condoned in the current year. The of under-performing loans, write-offs, and Bad debts recovered from customers; compared to the closing balance is currently under investigation to conclude on the matter. prior restated net impairment charge of R1,2 billion as at 31 March 2022. The gross impairment release was largely driven by continued client settlements. 77 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Reconciliation of irregular expenditure Investments 2022/2023 2021/2022 2020/2021 The Bank’s R1,3 billion investment portfolio consisted of R353 million in PRMAF assets, Description R650 million investments in the Insurance Subsidiaries, and equity investments in the following R’000 R’000 R’000 entities: Opening balance 974,962 986,082 766,380 As Restated 974,962 - Ideafruit Rhodes Food Group Add: Irregular expenditure confirmed 5,602 8,359 219,702 (R51 million) (R68 million) Less: Irregular expenditure condoned - (19,479) - Closing balance 980,564 974,962 986,082 Acorn Agri Afgri Siloco (R73 million) (R85 million) None of the above irregular expenditure has been condoned in the current year.The closing balance is currently under investigation to conclude on the matter. Investment Income The investment associated with the PRMAF portfolio was established to hedge against the Bank’s post- Total investment income for the period under review amounted to R18 million, higher than the prior retirement medical aid liability (a defined contribution fund), which amounted to R279 million. The year of R15,4 million. This investment income is primarily driven by the Pension Fund Retirement investment is managed by an independent fund manager on behalf of the Bank, while independent Medical Aid Fund (PRMAF) assets, which has increased in value, contributing to the current year actuaries evaluate the liability annually. Total investments decreased from R1,295 billion as results. at 31 March 2022 to R1,280 billion due to fair value losses on some of the other remaining investments. This was partially offset by an increase in the value of the Bank’s PRMAF investments The Net Interest Margin (NIM) of 2,1% dropped slightly in the year under review due to the and other investments. The Bank maintains its strategy of disposing of non-core investments to reduction in the gross loan book, due to customer settlements. The operating expenses of reinforce liquidity reserves to honour funding maturities. R496 million for the year against the Net Interest Income (NII) of R607 million and non-interest income of R10,8 million resulted in a Cash Return on Investment ratio of 70%. The NPL ratio at Net Loans and Advances 51,9% (31 March 2022: 47,8% restated), was higher than the previous year due to an overall loan Net loans and advances declined to R14,7 billion from the restated R20,4 billion repor ted at book reduction from R25,9 billion in March 2022 to R18,8 billion in March 2023. The same effect 31 March 2022. The primary contributor is the reducing loan book due to customer settlements as was observed for the ECL coverage ratio, which increased from the restated 20,8% in March 2022 clients move to other institutions for funding. Gross loans decreased by R7 billion to R18,8 billion to 21,6% in March 2023. from the R25,8 billion reported at 31 March 2022, mainly due to customer settlements. Cash and Cash Equivalents Non-Performing Loans Cash and cash equivalents stood at R15 billion as at the end of March 2023, an increase of NPLs decreased by R2,6 billion (20,8%) to R9,8 billion for the year under review, from R12,3 billion R5,5 billion from the R9,8 billion recorded on 31 March 2022. The increase mainly comprises of at 31 March 2022, predominantly due to cures and client settlements which were offset by roll-ins. R8,8 billion collected from clients as well as other income of R1,2 billion (interest swaps, rental, and The NPL ratio increased from 47,8% reported as at 31 March 2022 to 51,9% due to decreased sundry income). This was partially offset by customer disbursements of R700 million, capital and gross loans, even though the absolute value of NPLs has declined. Prioritising the finalisation of interest repayments of R7,8 billion, and R1 billion utilised in running the operations of the Bank. the Liability Solution is crucial, as it will allow the Bank to resume some normalcy in conducting its business. The Bank needs to sustain an effective strategy to halt the loan book quality deterioration and to continue improving collections to facilitate faster repayment of funding liabilities. To address further loan book deterioration and achieve a substantial reduction of under-performing loans and NPLs, management has initiated the deployment of the following six strategies/solutions. 78 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS NPL Strategies Adopted Strategy Purpose of the adopted strategy Preservation Strategy Prevent Roll In and prevent Asset Reduction Provide Soft restructures to Stage 2 Rehabilitation Strategy (Includes solutions for technical arrears) Forced Attrition Strategy Exit High-Risk Clients, reprice and refinance Restructure low risk and solvent Clients Forbearance Strategy (Include solutions for technical arrears) Asset Disposal Strategy Sell fully provided Legal NPLs Accelerated Foreclosure Strategy Perfect Collateral on good quality Legal collateral TREASURY REPORT Land Bank has been in default since April 2020 and negotiations with all lenders and the shareholder to find a solution to cure the default are ongoing. Since the default, the Bank has managed to reduce its liabilities by 45% (R18,1 billion) of the original amount outstanding. As at 31 March 2023, total nominal debt that has reached maturity is R14,19 billion and the total nominal debt stands at R22,14 billion. Further capital reduction totalling R5,4 billion was made to all lenders in June 2023 reducing the outstanding debt to R16,741 billion (42% of the April 2020 debt). Accumulated cash as at 31 March 2023 amounted to R9,97 billion. Cash is invested in instruments which aim to deliver better rates while preserving capital, such as, call accounts and bank deposit notes offered by banks and asset management companies. 79 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 8 LAND BANK INSURANCE PERFORMANCE 80 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 81 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS During the year under review, we saw the rise in central bank rates in an effort to curb rampant LAND BANK INSURANCE PERFORMANCE inflation. Over and above this, Russia-Ukraine conflict continues to weigh heavily on global economic activity as well as post-COVID-19 economic recovery efforts. Worsening supply-demand imbalances, OVERVIEW OF THE LAND BANK INSURANCE including those stemming from the war, and further increases in commodity prices, could lead to persistently high inflation. Overview of our business Global economic activity is experiencing a broad-based and sharper-than-expected slowdown. Land Bank Insurance (LBI) is the name we use to refer to our two operating insurance entities within According to the International Monetary Fund (IMF), global growth is forecast to slow to the Land Bank. Land Bank Insurance SOC (LBIC) is a Non-life insurance company registered with the 3.2 percent in 2022 to 2.7 percent in 2023. This is the weakest growth profile since 2001 except regulators (Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) in terms for the global financial crisis and the acute phase of the COVID-19 pandemic. Beyond 2023, global of the Insurance Act 18 of 2017). LBIC is a niche insurer of crop risks in the country, providing cover growth is forecast to decline, employment and output will typically remain below pre-pandemic to farmers for hail and fire (among others), and yield losses due to weather conditions. Land Bank trends through 2026. Life Insurance SOC (LBLIC) is a licensed life assurance provider that has provided individual and group credit life insurance products, as well as disability cover to Land Bank clients and other farmers Despite the negative shock to global activity in 2022, there is essentially no rebound projected in since its inception in 1954. The Insurance Companies complement the Bank’s financial services by 2023, as many headwinds, in particular, high commodity prices and continued monetary tightening are providing insurance and risk management solutions to the agricultural community within the borders expected to persist. Moreover, the outlook is subject to various downside risks, including intensifying of South Africa. geopolitical tensions, growing stagflation, rising financial instability, continuing supply chain strains, and worsening food insecurity. Our Mandate This and other macro-economic realities are expected to impact the agricultural sector, but at the Our mandate is to support an inclusive agricultural sector by promoting greater participation of same time presenting opportunities to innovate and deliver dynamic agricultural insurance and risk previously disadvantaged persons (transform the industry) and at the same time provide innovative management solutions to ensure broader sectoral sustainability. risk mitigating solutions to commercial farming enterprises in South Africa. As a subsidiary of Land and Agricultural Bank of South Africa, we are a State Owned Entity reporting to the National Treasury. Industry trends Mission - LBIC and LBLIC exist to fulfil the objectives of the Land Bank, as envisaged in the Land Bank South Africa is one of the few agricultural markets in the world where there is no government Act, tasked to provide insurance and risk management solutions to the Agricultural Sector. support in respect of premium subsidies for crop insurance, particularly Multi-Peril Crop Insurance (MPCI), which is comprehensive insurance and includes insurance cover for drought and floods. In Vision - The vision is to be sustainable specialist insurers of agricultural risks in support of the the absence of subsidies and against the context of rising insurance premiums, most farmers settle objectives in the Agricultural Sector. for less comprehensive insurance, typically this being cover for hail and fire. The Macro environment Over the last decade there has been a noticeable increase in the frequency and severity of weather- related risks. This trend is expected to continue as heat wave conditions are more likely, dry spell To ensure the LBI ‘s sustainability, we monitor our external environment and consider this context in durations lengthening and rainfall intensity increasing. It is expected that climate change impacts our annual strategy development processes to ensure we remain agile and adaptable while executing will reduce the amount of land suitable for arable and pastoral agriculture, in addition to reducing our long-term strategy. We continue to adapt to our changing environment to ensure LBI’s relevance the length of the growing season and decreasing crop yields. Changing rain patterns and increased into the future. evaporation will increase the likelihood of extreme droughts. Agriculture is one of the main sectors greatly impacted by climate change and variability because of its size and sensitivity. Therefore, the subject of climate risk and related mitigation and adaptation actions is rapidly becoming a critical point of discussion in local and global discourse. 82 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS The heightened climate risk environment elevates and puts into sharp focus the importance of crop The project team remains up to date and closely monitors all technical developments from the insurance as a tool for building climate resilience against climate shocks. However, recent economic Internal Accounting Standards Board (IASB) and industry to evaluate the effects of such developments realities are among key factors that constrain farmer’s profit margins and act as a barrier for crop and, where applicable, aligns the policy and methodology papers accordingly. The tax implications insurance uptake.The knock-on effect in a contracting agricultural insurance market where benefits of regarding the adoption of IFRS 17 have been considered and will not apply given the LBI is tax- risk pooling are reduced, hence crop insurance premium rates are on the increase, further alienating exempt. The full impact of IFRS17 on LBI’s operations, balance sheet and income statement is in the small-scale farmers from formal risk insurance markets, and inadvertently increasing exposure to process of being established, including transition and parallel calculations. vulnerability in an environment of climate risk. LBIC AND LBLIC FINANCIAL PERFORMANCE Our view is that different risk transfer alternatives for smallholder farmers are urgently required. This requires the development of new and innovative solutions with broader emphasis on financial Land Bank Insurance Company inclusion, greater intergovernmental collaboration as well as local and international partnerships to build farmer resilience against the impacts of climate change. Crop Insurance Regulatory environment Agriculture is inherently exposed to pervasive weather vagaries resulting in overexposure to climate risk. Over the years’, various formal and informal risk mitigation approaches have been formulated to IFRS 17 reduce production-related climate shocks. While both approaches have merit, informal techniques, IFRS 17 Insurance Contracts (effective 1 January 2023 and to be applied retrospectively) addresses mainly, the reduction of production in times of uncertainty limits agricultural production and the establishment of principles for the recognition, measurement, presentation, and disclosure of perpetuates cycles of underinvestment in the sector. Consequentially and over the long-term, this insurance contracts within the scope of the standard. The LBI portfolio comprises mainly of crop reduces and in some instances significantly reverses progressive efforts to strengthen food security insurance, which are generally short-term insurance contracts and therefore, the Premium Allocation systems. On a comparative basis, formal risk management approaches, mainly, risk transfer mechanisms Approach (PAA) will be applied to the bulk of the insurance book for LBIC, whilst for LBLIC it will such as crop insurance promote sustained agricultural production, create an improved environment be predominantly be the General Measurement Model (GMM) for individual credit life products and for investment in quality inputs, mechanisations and technology. Therefore, the pronounced role of the PAA for group credit life products. formal risk management and its relationship to sustainable agriculture cannot be overemphasised, especially in the context of climate change and the role of crop insurance as a climate mitigation tool The standard introduces a new, more granular system of reporting for both insurance revenue and with a positive impact on income distribution and sustained livelihoods. insurance contract liabilities and does not only impact accounting and actuarial reporting but has a significant impact across the LBI’s operating model. Due to the fundamental changes required and As average temperatures rise and acute hazards in the form of drought, hailstorms and flooding to ensure successful implementation, an IFRS 17 project team was established in conjunction with increase in frequency and severity, so does the importance of crop insurance as a risk mitigation an implementation partner. This is supported by LBI’s Audit and Risk committee, Investment and and transfer tool. Volatile climatic conditions experienced over the past decade have resulted in Actuarial committee and an IFRS 17 steering committee comprise of senior management from increased uncertainty and risk. This uncertainly and poor long-term loss experience of the crop various functions. Accounting policy papers, actuarial methodologies and disclosure requirements insurance market, in particular, Multi-Peril Crop Insurance (MPCI) has resulted in significant increases have been prepared to be consistently implemented throughout the LBI entities. of insurance premiums over the years to levels that are unsustainable and uneconomical to farmers. South Africa is one of the few agricultural markets in the world that has no government support or subsidies for crop insurance, especially MPCI which covers various risks including drought, excessive rain, as well as pests and disease. In the absence of such subsidies, most farmers settle for named- peril insurance, which is cover taken against specific risks such as hail, fire and frost. Due to high transactional costs and high premiums, LBIC took a decision in 2022 to de-risk and completely exit the MPCI market to focus on named-peril insurance, specifically, hail cover. South Africa is prone to 83 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS hailstorms; this can cause extensive damage to growing crops. Hail occurrences are higher in the Summer premiums were impacted by a surge in commodity prices due to international market interior of KwaZulu-Natal, the northern and western parts of the Eastern Cape, central and eastern pressures and macroeconomic factors: The global outlook for commodity supplies is negative on the Free State, Mpumalanga, and the Highveld areas of Gauteng. The current hail products offered by back of expectations of supply shortages originating from Russia-Ukraine war. This directly affected LBIC as at 31 March 2023 are as follows: maize and sunflower supply. A weaker rand-dollar exchange rate and elevated inflation have pushed up the price of agricultural commodities. LBIC Products as at 31 March 2023 Management is committed to portfolio management actions that result in a geographically diversified, Hail Cover Description Start End adequately priced and a well balance crop portfolio, therefore, continuous actions are underway to Grown in winter and harvested in late spring/early optimise performance, pool risk more effectively and work with the reinsurance market to optimise Winter summer July January capital, reduce volatility to catastrophe risk and enhance product features and benefits to improve Wheat, Barley, Oats, Canola, Rye etc. the quality of risk transfer. Grown in summer and harvested in winter Summer August July Asset product Maize, sunflower, beans, sorghum etc. Typically no planting date, depends on pollination LBIC is committed to providing comprehensive risk management solutions to the agricultural sector. Fruit July August This includes adequate commercial and personal lines insurance for farm infrastructure, vehicles, Apples, grapes, citrus, pecan and macadamia nuts etc. including livestock and liability cover. LBIC has a strong presence across South Africa and through its intermediary base and is looking to scale its asset offering and provide much needed insurance cover Number of crop insurance policies in an environment of evolving risks. Number of Policies 2021/22 2022/23 Crop Hail MPCI Total Hail MPCI Total LBIC Financial Performance Winter 288 - 288 427 - 427 FY21/22 FY22/23 Summer 4 648 2 4 650 3 797 - 3 797 LBIC Gross Written Premiums R607m R793m Fruit 499 - 499 472 - 472 Net Premium Income R153m R202m Total 5 435 2 5 437 4 696 - 4 696 Operating expenses R24m R35m Underwriting loss (R59m) (R34m) Hail insurance can be taken any time during the growing season with cover commencing at 10:00 Total comprehensive loss (R29m) (R5m) on the 7th (Seventh) day after the Date of Acceptance, or after Emergence of the insured crop, whichever event occurs last. Only visible Quantitative Damage caused by the direct mechanical Loss ratio 96% 81% action of hail is covered with frost cover as an optional peril. Investments R254m R332m Significantly higher premiums (27% higher than previous season) have been written in this financial year, • Gross Written Premiums increased by 31% as compared to FY21/22, mainly driven by the surge attributable to a high number of written policies, increased premium rates and insured hectares for in commodity prices. Winter crops (+104%); higher written premium (+25%) in Summer crops driven largely by elevated • Operating expenses increased by 45% as a result of investments made in capacity to support commodity price thereby increasing the sums insured, even though the number of issued policies growth and professional fees relating to the implementation of IFRS 17. has declined. Overall portfolio growth is further attributable to farmers increasingly understanding the value of insurance, coupled with strong intermediary relationships and marketing efforts. • The underwriting loss improved as compared to FY21/22, mainly attributable to a lower loss ratio experienced in FY22/23. 84 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LBIC Investments Performance LBIC Capital Management and Solvency LBIC follows a policy of managing its investment portfolio in a diversified manner. We aim to optimise Solvency Assessment and Management (“SAM”) reporting is required to be conducted quarterly and investment income within the approved risk appetite profile. The asset allocation is also managed annually and it follows the most recent Financial Soundness Standards for Insurers (“FSI”) provided by and monitored from an asset-liability perspective.This ensures that sufficient liquid funds are available the Prudential Authority (“PA”) as prescribed by the Insurance Act (18 of 2017). LBIC is to maintain to meet LBIC’s insurance liabilities and shareholder’s funds are not unduly exposed to investment a level of capital well in excess of the minimum regulatory capital requirement. The purpose of these risk. Due to LBIC’s Rand denominated business, no foreign currency assets are held to back foreign buffers is to minimise any regulatory interventions, but most importantly to ensure that all current and currency insurance business, thus currency risk is immaterial to LBIC’s business. future policyholder claims will be met. LBIC should meet its regulatory minimum capital requirement (MCR) coverage ratio of 100% at all times, whereas the regulatory solvency capital requirement (SCR) The LBIC’s investment fund comprises of local highly liquid instruments to meet LBIC’s liabilities coverage ratio is tolerable between 130%-170%. If the Business were to move out of this range, then which are comprised of mostly short-term obligations.The LBIC’s investment is managed outsourced there are a series of available actions which can be used to restore the solvency to within the optimal by an approved asset manager whose performance is monitored and reported to the Investment range in a reasonable timeframe. and Actuarial Committee and Board every quarter. The overall performance of the fund managers against the mandates is monitored and tracked The LBIC actively manages the key drivers of its capital requirements such as mix of business, asset by management and reported to the LBIC Actuarial and Investment Committee and Board allocation, counterparty exposure and reinsurance programme. The LBIC uses the SCR coverage every quarter. As at 31 March 2023, the LBIC’s investment fund had a value of R333 million ratio as a measure of capital adequacy in accordance to the FSI framework issued by the PA. The (FY21/22: R254 million): LBIC remains committed to efficient capital management and predefined threshold levels have remained unchanged from the prior year. The Actuarial Control Function who is external and led by the Head of Actuarial Function provides independent review and assurance as per the Insurance Act (18 of 2017). Benchmark Investment Net Cash Year-End Opening Closing Market Market Return Alpha Value Value flows As per the previous year, methodologies follow those prescribed by the Prudential Standards. As SAA Net per the previous year and the own risk and solvency assessment (“ORSA”), the standard formulae 31-Mar-2022 R430 682 160 -R201 110 724 R253 659 832 5.40% 3.90% 1.50% per the Prudential Standards assumes that the LBIC is exposed to similar risks as the average non- 31-Mar-2023 R253 659 832 R59 311 195 R332 652 658 7.60% 6.60% 1.10% life insurer in South Africa. The table below shows the high-level summary of the SAM balance sheet since the previous year, showing that LBIC’s regulatory SCR coverage ratios remain well in excess of the 130%-170% risk tolerance despite having reduced from 5.71 in March 2022 to 4.18 With inflation having run high since the early part of 2022, the portfolio has struggled to out- in March 2023: perform its CPI based objective however over the long-term it remained fairly close, lagging by about 1%. Based on the total gross investment return which includes capital appreciation and net of investment expenses and average assets of LBIC held over the period, the return achieved on LBIC’s assets amounts to 7.6% per annum, against its strategic benchmark which returned 6.6%, showing an outperformance of 1.1% (FY21/22: 1.5%). LBIC appointed an investment consultant to craft a new investment strategy which is expected to be implemented during FY23/24, and new asset manager appointments in FY24/25. 85 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS R’000 SAM Solvency Capital Position FY21/22 FY22/23 LBLIC Investments Performance Total Assets 1 313 921 1 637 851 LBLIC has a number of asset managers who manage a portfolio of equities, bonds, cash, money Net Technical Provisions (124 014) (155 609) market instruments, derivatives and global assets according to stated investment mandates and Current Liabilities (660 913) (961 146) guidelines. With CPI having run well above long-run averages over the last 12 months, all the managers have struggled to out-perform over that period. The outlook for the next 3 years is that Basic Own Funds 528 994 521 096 maintaining returns of CPI+4% will be difficult in the context of low economic growth in South LBIC Eligible Own Funds to meet SCR and MCR 528 994 521 096 Africa, weak currency, rising socio-economic challenges of unemployment and poverty that lead to Solvency Capital Requirement (SCR) 92 632 124 612 an unstable political landscape. SCR Coverage Ratio 5,71 4,18 The outlook, therefore, warrants a revision of the investment strategy in favour of preserving Minimum Capital Requirement (MCR) 24 763 31 153 capital as the principle priority and revising targets for the next 3 years in line with a conservative MCR Coverage Ratio 21,36 16,73 approach to market risk. An investment consultant was appointed to assists LBLIC in crafting a revised investment strategy during FY24/25. New asset managers will be appointed during FY24/25 LBIC’s stress and scenario testing framework assesses the impact on the capital position of the following a revised investment strategy. LBIC under a range of different possible risk events. In the recent ORSA calculations that project the company’s capital requirement according to the business strategic plan including stresses and LBLIC Capital Management and Solvency scenarios, the company remains in a healthy acceptable solvency capital position over the next five years. Due to LBLIC’s small underwriting risk in relation to the asset base, COVID-19 has had no material impact on the overall profitability and solvency. LBLIC has held a short-term COVID-19 reserve LBLIC Financial Performance since Sep 2020 to cater for uncertainty in claims experience as a result of the COVID-19 pandemic. However, due to LBLIC’s immateriality of COVID-19 on LBLIC’s claims experience, this reserve has FY21/22 FY22/23 now been released. LBLIC Gross premiums R3.8m R4.3m During the measurement phase, the LBLIC actuarial team calculates the capital requirements and Net Premium Income R1.8m R2.1m compare this to the Risk Tolerance of 150%-200%. The SCR calculations are independently reviewed Operating expenses R9.7m R13.9m by the appointed HAFs. Due to LBLIC’s small credit risk business relative to large balance sheet Underwriting profit/(loss) R18m R39m assets, the SCR is driven by market risk: Market risk contributes to 99% of the overall SCR due to Investments Income R128m R63m LBLIC’s significant balance sheet assets relative to the small underwriting risk. As a result, LBLIC’s Net Profit R109m R24m liquidity shortfall indicator continues to show a healthy liquidity position. Excess assets of liabilities R1.1bn R1.2bn The table below shows the high-level summary of the SAM balance sheet since the previous year, Investments R1.2bn R1.3bn showing that LBLIC’s regulatory SCR coverage ratios remain well in excess of the 150%-200% risk tolerance increasing from 3.15 in March 2022 to 3.84 in March 2023: • The in – force book is on a downward trajectory and the 13% increase in Gross Written Premiums is driven by pricing rather than volume. • Operating expenses increase of 43%, as with LBIC, is driven by investments in capacity and the IFRS 17 implementation. • Investment income has declined in line with the volatile market environment, severe losses has been experienced in the bond and equity portfolios 86 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS R’000 SAM Solvency Capital Position FY21/22 FY22/23 Total Assets 1 245 023 1 297 354 Net Technical Provisions (68 856) (93 245) Current Liabilities (5 596) (6 441) Basic Own Funds 1 170 571 1 197 668 LBLIC Eligible Own Funds to meet SCR and MCR 1 170 571 1 197 668 Solvency Capital Requirement (SCR) 371 176 312 088 SCR Coverage Ratio 3,15 3,84 Minimum Capital Requirement (MCR) 92 794 78 022 MCR Coverage Ratio 12,61 15,35 The SCR cover ratio remains stable from year to year as the balance sheet assets are large relative to liabilities. Consequently, LBLIC reports a regulatory SCR cover ratio above internal minimum 150% and well in excess of the regulatory limit of 100%. In the recent ORSA calculations that project the company’s capital requirement according to the business strategic plan including stresses and scenarios, the company remains in a healthy solvency position over the next five years, including in the event that LBLIC issues new policies as a result of the growth from strategic initiatives. 87 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE AGAINST STRATEGY LBI Company Corporate Scorecard Corporate Scorecard KPAs KPI Weighting Measures FY - 2023 Update RAG Contributing to Black Broker Programme 10% Train and accredit a minimum 22 black brokers. Total of 22 brokers have been trained. However as at March 2023 transformation in the only 4 brokers were accredited. agricultural insurance sector (15) Black Assessor programme 5% Appoint a supplier for the practical training and Practical training provider was appointed and the program was complete the training. successfully completed. Financial Sustainability Gross Written Premium 10% R631m R793m as at end of March 2023 (30) (LBIC) Total Comprehensive 10% R90m R24.8m Profit as at end of March 2023. Income (LBLIC) Diversification of premium 5% >1% of total gross written premium With the exponential premium growth in the crop portfolio, the income across product lines diversification target of greater than >1% of total gross written premium was not achieved. Whilst the Asset Insurance and Credit Life portfolios showed some positive movements it has not generated meaningful premium income as yet. LBIC SCR 5% 1.3 - 1.7 The audited LBIC SCR coverage ratio is 4.18 as at the end of March 2023 Insurance Model Integration Improved Insurance Model 5% Performance against Bancassurance Management continues to track performance in terms of leads (5) Performance Metrics (incl. Financial and and conversion to insurance policies. Projects to optimise the lead Risk Measures) Tracked, Monitored and reports generated from CRM have also been initiated to ensure Performance-managed. that the blind spots in the original design have been addressed. 88 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Corporate Scorecard KPAs KPI Weighting Measures FY - 2023 Update RAG Corporate Governance Irregular expenditure 5% Annual cumulative incidents relating to No irregular, fruitless, wasteful and unauthorised expenditure (20) procurement, irregular, fruitless, wasteful and incurred as at 31 March 2023. unauthorised expenditures 0% of Gross Written Premium Ethical behaviour 10% No findings on unethical behaviour by a staff No unethical behaviour reported as at 31 March 2023. member Audit 5% Rating according to the scale of Auditor The AG presented its Audit opinion as well as Management General: Report to the LBIC/ LBLIC Audit and Risk Committee on the 5 = Unqualified opinion with no findings (clean 17 July 2023. In their (AG) Audit opinion, both companies audit) obtained a Clean Unqualified Audit Opinion. Final AFS approval is 4 = Financially unqualified opinion with findings due to presented to Board on the 24th July 2023 3 = Qualified opinion 1 = Adverse opinion 1 = Disclaimed opinion Insurance Regulatory Compliance with Insurance 5% 1. Draft 2022/23 to be obtained annual The annual compliance plan for 2022/23 has been approved by Compliance Regulations compliance and monitoring plan and obtain Audit and Risk Committee. (25) ARC approval by 30 April 2022. 2. Implement the 2022/23 approved The 2022/23 approved compliance and monitoring plan has Compliance and monitoring Plans. been fully implemented Governance and Operations 10% Review GOI policies annually and have them All GOI policies have been approved by Board. standards for Insurers approved by Board (The Q4 tranche will be presented in April Board). Own Risk and Solvency 10% Conduct an Own Risk Assessment exercise for The ORSA reports for both entities have been approved Board Assessment FY21/22 and have it approved by board and and subsequently submitted to the Prudential Authority on the submitted to the PA on or before 14 December 2022 31 December 2022 89 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Corporate Scorecard KPAs KPI Weighting Measures FY - 2023 Update RAG Talent management (5) Develop and implement a 2,5% • Organisation Structure capacitated • The current Board approved business structure is in place Fit for purpose structure in • Required training undertaken and remain to be fit for purpose. support of the Insurance • Pipe-line developed for critical roles • CPD training has been concluded. Companies strategy. • The Talent process was concluded in March 2023 and the MD: LBIC has approved the succession plan in March 2023, which will be submitted to HRCC and Board for noting in April 2023. • The succession plan will be reviewed once units within LBIC has been capacitated as per the new approved positions in the structure. Embed talent management 2,5% Implementation of Remediation Plan for Survey The remediation plan was implemented and the overall 94% of practices Outcomes the survey outcomes was achieved as at March. 90 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS The Bancassurance Model has gained traction in the last financial year as the necessary systems to STRATEGY AND VALUE CREATION distribute the leads were developed and streamlined. The overall processes were mapped, and the relevant resources were identified across the insurance companies (LBIC and LBLIC) and Land Bank OUR STRATEGY to support the launch. The first phase of the implementation plan was successfully delivered in line with the strategic blueprint. Maintaining Financial Sustainability Thirdly, we would like to improve our product diversification through the introduction of the Whole Both LBIC and LBLIC remain key players in supporting the Agricultural sector and being financially of Life proposition. The introduction of this product will assist in providing scale to our LBLIC sustainable is vital in achieving this objective. business and also provide the diversification we need and give customers more compelling value propositions. To this end, management ensures that assets are well managed to achieve optimal returns, underwriting is sound, reinsurance is optimal and appropriate risk engineering techniques are applied Management is well aware of the impact of climate change and the risk it poses to financial to reduce claims, operating costs are well maintained and all necessary governance processes are in sustainability. There is a strong focus on developing a climate change toolkit with a view to integrate place to achieve effective internal financial controls. and incorporate Climate Change Risk Management in all strategies, policies, and decision making, including modelling future impacts on climate risk on business performance. The LBIC Gross Written Premium is predominantly derived from crop insurance. We will continue to support crop farmers as part of our mandate to ensure food security is guaranteed. However, Contribution to Development and Transformation the focus for the coming financial year and going forward will be on diversification, specifically into asset insurance and life insurance products. In this regard, we have been engaging with intermediaries LBI has continued in its efforts to support the Land Bank in its pursuit of the transformation and in the open market to improve our distribution network and with focus on growing the agricultural development strategy. We remain committed to transform the insurance sector and support the asset insurance portfolio. development of smallholder and medium-scale farmers. In this regard, we have two key initiatives to support the transformation and these are the Black Broker Development Programme and the The second area of focus is on the Bancassurance opportunity. Working with our Shareholder, Black Assessor Programme. Through these programmes, the organisation identifies and develops The Land Bank, we kicked off the plan in the past year. In the pursuit of diversifying the insurance previously disadvantaged individuals for inclusion into both the financial and the agricultural sectors. company insurance risk portfolio and generating additional revenue, the insurance companies (LBIC and LBLIC) in collaboration with the Land Bank have entered a Bancassurance model arrangement. Crop insurance in South Africa is distributed primarily through intermediaries or brokers who have A strategic blueprint was developed to outline the business case and the implementation plan of historically privileged backgrounds. In March 2016, LBIC embarked on an ambitious Black Broker the model. The Bancassurance model received support from the Boards of the insurance companies Development Programme in an attempt to transform this critical part of the insurance sector. Thus (LBIC and LBLIC) and the Land Bank. far, LBIC has trained and accredited over 100 Financial Services Providers (FSP’s) from historically disadvantaged backgrounds and has made significant progress to develop women-owned FSP’s. In essence, Bancassurance is a bi-lateral partnership between a bank and an insurance company allowing the insurance company to insure the insurance risks of the Bank’s client base. The insurance The other area of the agricultural insurance market value chain, which LBIC has targeted for company develops and distributes products and the Bank provides access to its customer database. transformation impact is the assessors used to estimate damage to crops after any risk events such The Bank is typically able to generate non-interest review whilst providing their customers with more as hail. At this stage there are approximately 900 assessors used by the crop insurance providers in than banking products and thereby benefiting from improved customer satisfaction. South Africa and this has a similar profile to the crop insurance broker sector. 91 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LBIC commenced with the Black Assessor Development Programme in March 2019. The business Organisational capacity invested significantly to support the first cohort of trainee black assessors. The first leg of the program which deals with theoretical application was delivered in partnership with Walter Sisulu The Human Capital Division remains a strategic partner to the organisation and the employees. University, while the second leg was structured in the form of on-field practical training. A total of The focus is on contributing to LBI being sustainable and ensuring that there is adequate capacity 16 candidates completed the Agricultural Assessment Insurance Programme. The certification of the and that human resources are optimised. The employee-life cycle underpins the management of assessors will assist in transforming the crop insurance value chain by introducing new assessors to talent through attraction, on-boarding, development, performance management, remuneration, and the sector and simultaneously creating job opportunities separation. Parametric Insurance for Smallholder and Emerging Farmers The approved LBI permanent headcount is 33. Capacity consisted of 21 permanent and 2 fixed term contractors. In order to improve access to agricultural insurance for smallholder farmers, LBIC successfully applied Employees for grant funding from KfW Development Bank under its flagship InsuResilence Solutions Fund 12 1 13 (ISF). The ISF grant, structured under a co-funding model with LBIC was used to develop innovative Male Male Male parametric drought insurance solutions for crop and livestock to smallholder farmers. An Area- Yield Index Insurance (AYII) is proposed for crops and Pasture Drought Index Insurance (PDII) for livestock. Through the co-funding model, LBIC partnered with CelsiusPro to design the products 9 Permanent Employees 1 Fixed-Term Employees 10 Total Capacity and systems in order to respond to the need for drought cover. Drought has hampered sustainable Female Female Female growth for smallholder farmers. The two products are subject to approval by the Minister of Finance and the regulators as parametric 21 2 23 Total Total insurance is not yet recognised as a class of insurance business in South African legislation. Total HUMAN CAPITAL Tenure 11 to 39 Years 6 to 10 Years 11 to 39 Years Our values, culture and ethics 6 to 10 Years 2 2 We believe an ethical culture is critical to doing business responsibly. Our values are key to building an 6 to 10 Years 2 3 ethical work environment, and we ensure that we lead with integrity and respect to drive employee, Permanent Fixed Term Total 1 Contractors 1 Capacity customer and shareholder confidence in our business. Employees 17 18 Our ethics Ethics set the standards for our corporate governance. We strive to conduct our business responsibly <5 Years <5 Years and ethically and ensure our behaviour is consistent with our policies and code of ethics and relevant <5 Years regulations applicable to both our entities. 92 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Age Range Permanent and Fixed Term Female Male 25 to 40 Years ACI 25 to 40 Contractors: Occupational category ACI Males 55 to 65 41 to 54 ACI Females ACI 1 and level Total 2 Total Top Management (P1– P2) 1 6 6 Permanent Total Employees 1 Fixed-Term Employees 1 Capacity Senior Management (P4 – P5) 1 5 Professional qualified and experienced 15 14 specialists and middle-management 1 2 41 to 54 Years (P6 – P7) 55 to 65 Years 25 to 40 55 to 65 Skilled and qualified workers, junior 43,48% 56,52% management, supervisors, foremen, 6 5 The LBI reviewed the organisation structure during the financial year. The review of the structure superintendents (P8 – P9) was presented to Board and approved. The revised structure made provision for the increase of Semi-skilled and discretionary decision permanent capacity from 21 to 33. Upon the approval of the structure, the development and review 2 making (P10 – P12) of the job profiles commenced. The provision of capacity continued through the year and a total of Total 10 13 7 external appointments were made. Attrition and Retention External Appointments - Permanent Female Male Total ACI Category and Level A A C Staff attrition decreased from the previous financial year. There were only 2 resignations during the Senior Management (P4 – P5) 1 1 2 year. The attrition rate for the year ended at 9.52% Professional qualified and experienced 2 2 specialists and mid-management (P6 – P7) Permanent Voluntary: Resignation Female Skilled and qualified workers, junior Occupational category and level A ACI Females Total 100% management, supervisors, foremen, 1 1 2 Professional qualified and experienced specialists and superintendents (P8 – P9) 2 middle-management (P6 – P7) 100% Semi-skilled and discretionary decision Total 2 1 1 making (P10 – P12) Total 2 4 1 7 LBI values employees and a strategic decision was implemented on retention of critical skills and key individuals. The retention engagements were supported the by the LBI Board. LBI has maintained transformation during the financial year. The Employment Equity & Skills Committee monitors progress made on the three-year employment equity plan. ACI represented 100% of the workforce. 93 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Employee Value Proposition Fixed Remuneration: LBI uses an Annual Guaranteed Package (AGP) approach and offers benefits within the AGP parameters set out by the organisation. Participation in the employee benefit arrangements is compulsory for permanent employees and participation is regulated in accordance with the relevant benefit scheme rules and within the constraints of Tax Legislation. The benefits offering for permanent employees includes the closed medical aid scheme of Bankmed, retirement REMUNERATION How we pay? fund and risk benefits cover which includes life, disability, dread disease and funeral cover. An across Fixed: Annual Guaranteed the board annual increase of 4.40% for qualifying staff were implemented for the financial year. package including retirement and risk benefits, Variable Pay cell phone allowance Variable Pay: Long LBI recognises long service as per the Long service award policy. One employee received a long service awards service award for 5 years of service. TALENT FY2021-2022 Performance Incentives: LBI recognises performance and through the relevant policy MANAGEMENT OTHER BENEFITS and governance processes, short-term incentives were awarded to qualifying staff for FY21/22 and How we grow our talent? Additional benefits: Employee implemented during this financial year. Staff Studies; Generic and children study assistance; Technical Training; Leadership Flexible and remote working Development arrangements; Wellness Talent Management LBI continued to invest in development of internal capability and enable employees to build their skills. A Senior Manager received the benefit from the payment for tertiary qualifications (staff studies) to the amount of R110 070.00. The fields of studies are towards a Master’s in Business Administration. LEAVE BENEFITS In addition to that, LBI also invested a total of R28 926.09 on training which included the regulatory What do we provide? Annual leave exceeding compulsory CDP training. BCEA; Sick leave & other statutory leave; Study leave Generic Training, Leadership Development, Number of Interventions Technical Training, Workshops and Conferences ACI Rand Value Top Management (P1 –P2) 8 R10 400,00 Senior Management (P4 – P5) 29 R4 226,09 Remuneration: Skilled and qualified workers, junior management, 11 R14 300,00 LBI Remuneration strategy is informed by the State Owned Entities Remuneration and Incentives supervisor, foremen, superintendents (P8 – P9) Guidelines (2018) and includes the principles of the GOI Standards and principle. Remuneration Total (number of interventions) 48 R28 926,09 management within LBI is integrated into various other people management processes such as the performance management, talent management processes and within the ambit of the overall Human Capital policies. The Remuneration and Compensation policy were reviewed during the financial year and approved. The Remuneration and Compensation policy provides for the remuneration philosophy and principles for matters related to compensation. The LBI remuneration philosophy is aligned to remuneration best practices. 94 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Succession Management ENTERPRISE RISK MANAGEMENT APPROACH LBI progressed on the identification and assessment of potential successors for Top Management and Senior Management roles. The process was finalised at the end of the financial year and the The Board, through the Audit and Risk committee (ARC), oversees the LBI’S risk management succession programme will commence in the new financial year. This area is quite key for the activities. The ARC reviews and recommends the risk strategy and risk policy suite to the LBI Board transformation of our business for approval.The ARC provides the oversight of the risk management system and risk taking activities across both Non-life and Life entities. Human Capital Governance Human Capital is an environment that is highly regulated by legislation, policies, and procedures; and Our Risk Management Strategy it ensures that fairness in the working environment is adhered to. Human Capital has embedded Enterprise Risk Management in collaboration with LBI on both Strategic Risks and Operational Risks LBI’s strategy is informed by the risk strategy (appetite), thereby establishing an integrated link register. Matters related to performance management, recruitment, employee wellness, and leave between our business operations, risks and strategy. management are contained in the Operational risk register. Our risk strategy follows a top-down approach. It guides risk-taking activities and ensures that we Mitigating action plans are monitored and implemented and progress reports are provided to the sustainably deliver on our strategic objectives. The guiding risk principles that underpin our risk internal governance Committees. The Compliance matrix register outlines all elements related to strategy are: legislative and regulations compliance for the function. • We focus on risks that align with our business strategy, areas of competitive advantage and Human Capital, ensures that policies are in place to guide the organisation. As such, policies and evolving skills procedures are regularly reviewed. Human Capital reviewed nine policies and standard operating • We optimise returns on a risk-adjusted basis procedures during the year. • Our tolerance for uncertainty is informed by the maturity and growth of our businesses • We use risk mitigation techniques to manage risk exposures Policy/SOP Category • We recognise the value of diversification and the challenges of risk interconnectedness to avoid excessive risk concentration and ensure sustainability Performance Management 1 – Board • We protect our reputation by maintaining trust with all our stakeholders Harassment Policy 2 – EXCO Dress Code Standard 2 – EXCO Flexible and Remote working arrangement 2 – EXCO Secondment and Rotation 2 – EXCO Remuneration and Compensation Policy 1 – Board Recruitment, Attraction and Selection 1 – Board Consequence Management: The Human Capital Division, together with the Legal and Compliance function, facilitates matters related to discipline and grievances. Consequence management is dealt with in line with the relevant labour relations legislation, policies and procedures and other applicable regulations. During the financial year there were no consequence matters reported. 95 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS Our Risk Strategy Approach Risk Management Process Determining our risk preference for each risk category - The risk classification model forms the basis An effective risk management system supports the sustainability and growth of our business and the of our risk management system. We have a documented risk preference for key types. ability to create long-term value for all our stakeholders. Our risk management process is designed to continuously monitor the internal and external environment for the purpose of identifying any Quantifying the risk appetite metrics for financial soundness, earnings at risk and liquidity - Risk conditions or changes that may require us to mitigate the related risks. This ensures that we remain appetite defines the level of risk exposure we are willing to accept in meeting our strategic objectives. within our risk appetite, achieve our corporate plans and realise our strategic objectives. Our financial resources and risk appetite determine the nature and level of growth that can be targeted, as they reflect the impact that assumed risk has on capital requirements and earnings volatility. We use stress and scenario testing to evaluate the earnings and balance sheet resilience in relation to our business plans and risk-taking activities. Creating target ranges for our earnings at risk and statutory capital requirements - Our risk appetite Identify & Risk metrics measure capital requirements, earnings and liquidity risks and ensure compliance with the Assess Risks Measurement Prudential Financial Soundness Standards. These are calibrated to allow us to manage an extreme downside scenario with sufficient resources to avoid regulatory intervention. Risk Monitoring Appetite and Reporting Stress and Link to Scenario Business Testing Strategy Risk Measurement Business and risk strategy alignment is the process of ensuring that the risks assumed in our corporate plans reflect our risk preferences, considering the interconnectedness of risks and points of leverage within our risk mitigation activities. Risk identification is focused on the identification of the key obstacles that can prevent us from achieving our business strategy and objectives. We categorise all our risks using our risk classification model to ensure consistent classification of risks. 96 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Risk measurement and response is focused on quantifying risks by considering the likelihood and LBIC’S THREE LINES OF ASSURANCE impact of the risk and deciding on mitigating actions. LINE 1 – Management LINE 2 – Internal LINE 3 – Independent Risk monitoring is the ongoing process of assessing the control environment and the effectiveness Assurance Provider Assurance Providers of mitigating actions being taken to determine a residual risk rating. It considers the impacts of materialised risks, assurance work, indicators and changes in the external and internal environment Management is responsible Internal assurance providers Independent assurance on both our risks and controls. for implementing an effective are responsible for assuring providers are responsible for system of internal control, the appropriateness and independent assurance of the Risk reporting is focused on comparing the residual risk exposures to our risk appetite, as articulated risk identification and risk effectiveness of the risk effectiveness of governance, in our risk strategy, reporting on risks that are either outside of the targeted range or outside of our management daily across the management system, ensuring line one and two functions risk appetite Risk management process. business. This line also includes that policies and procedures and the system of internal specialist and functions such as are followed, and that control. This line includes Stress and scenario testing is the process of evaluating the impact of specified scenarios on our legal, information security and reporting is accurate and internal and external audit financial position using several statistically defined probabilities. This facilitates the assessment of quality assurance functions. complete. This line includes functions. the resilience of earnings and our balance sheet based on our business plans and the various risk- the risk, compliance and taking activities. actuarial oversight. Combined Assurance Top Residual Risk Top risks are identified based on their likelihood of materialising in a reasonably short timeframe, Our combined assurance framework is approved by the Audit and Risk Committee. Our philosophy with a magnitude that materially impacts the Business. Our top risks are assessed and reviewed at is to build and sustain an integrated and coordinated approach across all three lines of assurance at least quarterly. all levels in the organisation. Our key focus is on collaboration and sharing information while ensuring appropriate coverage and avoiding duplicate work. 97 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS STRATEGIC RISK EXTERNAL RISK 1. Execution Risk - The risk of failing to effectively deliver on strategic initiatives/projects in a 3. Climate Risk - The risk that global warming, extreme weather events and the transition to timely manner to achieve our strategic objectives. a low carbon economy will adversely impact economic growth and insurance profitability. These, in combination with increased costs of doing business could threaten the resilience and Business Perspective – Business (LBIC) made submissions and received provisional approval from the sustainability of our business. Prudential Authority to pilot index products subject to approval by the Minister of Finance. Business is still waiting for MoF approval. Business Perspective: Increased frequency and intensity of severe weather events could cause business disruption, and adversely impact claims experience and pricing of insurance products, particularly the Key Management Actions: Crop business. Business operates within a highly volatile crop insurance environment affected by Once the necessary approval is received, LBIC will commence with the 24- month pilot with a a wide range of adverse climatic conditions. The current season has experienced unprecedented view of submitting enough data to the Prudential Authority thereafter to consider licensing index severe weather conditions that has led to large losses suffered within the crop insurance market. insurance as a class of agricultural business.Thus addressing market failure and the protection gap for smallholder and medium-scale farmers. Key Management Actions: • Assessing the impact of climate-related risks and opportunities on our businesses, strategy, 2. People Risk - This risk arises from not attracting, developing and retaining the skills necessary to financial outcomes, and developing response plans implement our strategic objectives, and the depth and strength of succession planning required • Reviewing policy terms and conditions in conjunction with pricing to ensure these accurately to achieve the LBI strategy and objectives. reflect the risk exposures • Continue with the extensive portfolio review focusing on multi claimants, new clients, high value Business Perspective - Specialist skills are required to deliver our strategic objectives, and improve crops and structure of policy excesses; our employee value proposition (EVP). • Structured proportional re-insurance to allow business to write business at a particular level, in addition to this a stop loss is in place to ensure that business losses are kept at an acceptable Key Management Actions: level and LBIC protects its whole account. • Organisational Structure Capacitation – Retain 90% of our critical resources • Incidence of risk – risk premium is reviewed on an annual basis prior to start of the season, with • Job Profiling and Evaluation – Review all existing job profile and where necessary re-evaluate margins for uncertainty on risky business to ensure alignment with the organisation strategy. • Review pricing in line with the risk exposure. • Develop retention strategy – Align the retention mechanism with the EVP and remuneration • Continuous engagement with the relevant stakeholders in the sector i.e. SAIA and National and compensation policy Treasury on the climate risk management initiatives and interventions. • Employee development – 100% of regulatory and continuous professional development training interventions completed BUSINESS RISK • LBI Culture: Implement culture remedial plan • Succession Management – Roll out of the succession management programme 4. Growth Risk (Non-Life) - The risk of being unable to achieve and maintain sustainable growth in the non-life business. Business Perspective: Growth remain stagnant on the agri-asset portfolio, which has been developed as a diversification tool for the non-life business. With the exponential premium growth on the crop portfolio, the set diversification set target for FY22/23 has not been achieved. 98 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Key Management Actions: • The Compliance Control Functions provides quarterly reports to the LBI Audit & Risk Committee, • Growth - portfolio balance between volatile and stable insurance. giving the necessary assurance and status updates on the level and status of compliance within • Risk Diversification in terms of client mix (40% Commercial & 60% Medium and Smallholder the LBI business using its Compliance Risk Management Plans and the Regulatory universe. formers). • The function is also responsible for ensuring the submission of all regulatory returns and reports • A new Index based insurance is being developed, business is still awaiting feedback from the to the various regulators in order to maintain the necessary regulatory licenses held with LBI. Minister of Finance. • Value chain diversification (Black Broker/Assessor Programmes). Forward view • Initiatives like Bancassurance and the Blended Finance Scheme are expected to support efforts LBI is committed to supporting a sustainable and inclusive agricultural sector, and is in this regard in generating premium from product lines other than crop insurance. positioning itself to bringing to the market innovative and relevant propositions to both the commercial market and the emerging farmer segment. To achieve this requires strong institutional capability 5. Life business sustainability - The risk relating to inability to generate enough revenue to and operational capacity supported by wider collaboration with key sector stakeholders. Work is support the life business cost structure underway to ensure our operating model is fit for purpose and capacity is aligned accordingly. In the coming year, we will on-board a new insurance system to support the growth of our crop insurance Business perspective - The life portfolio structure consists of Group life and Individual life. Over the business. Parallel this, we will continue to make improvements in our claims management processes years’ growth of the credit life book remain stagnant. This is due to the heavy dependency on Land and further incorporate data led portfolio management actions to improve profitability. We have Bank Bancassurance model. Furthermore, business has developed a new Whole of Life business, plans to increase distributions footprint and specific areas where our data shows opportunity for which is pending regulatory approval. profitable growth. Key Management Action The insurance entities remain steadfast in their support for commercial farming by providing effective • Once the regulatory approval has been obtained, prepare to launch the Whole of Life product products to transfer risk. In a broader perspective, this aids the segment to not only maintain to the market competitiveness in global markets, especially in the areas of fruit, vegetable and grain exports but • Bancassurance Model – The objective is to create synergies between Land Bank and Insurance to increase production capacity and investment in improved production methods and technologies entities efficiencies to provide impactful services and product provisions to clients. supported by an enabling environment for risk transfer and risk sharing. • Identify strategic UMA partner to provide binder function for Whole of Life product. We continue to embed risk management in business processes to ensure that it is being practiced COMPLIANCE GOVERNANCE and made part of the culture of LBI. • The Compliance Control Function is led by the Head of the Compliance Control Function A key part of our forward plans is about driving up sector inclusivity by introducing affordable appointed in consultation with the LBI Board as required by Prudential Standard GOI 3. solutions such as Index Insurance and tailored whole of life products with the view of building • The compliance risk is managed through an annual compliance coverage plan and monitoring resilience and reducing vulnerability of farmers to losses that undermine the sustainability of the plan approved by the LBI Audit & Risk Committee. agricultural sector as a whole. These initiatives are underpinned by sound underwriting principles, • The Compliance control function is governed by a Compliance Policy approved by the LBI actuarially fair pricing and prudent capital management to ensure the long term financial sustainability Board. of LBI. • The functions ensure that all key Persons meet the fit and proper requirement as per Prudential Standard GOI 5 and the necessary governance changes are notified to regulators. • The function also facilitates the necessary training of Key Persons within LBI to ensure that they have the necessary understanding of the insurance regulatory framework. 99 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 9 LAND BANK’S RISK MANAGEMENT 100 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 101 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS The Land Bank and its Board are devoted to the principles of good corporate governance, viewing LAND BANK’S RISK MANAGEMENT Enterprise Risk Management (ERM) as an integral part of all organisational business processes and decision-making. The Board continues to sustain a robust risk management and control environment through its ERM approach. This integrated risk management method has helped the Bank not only maintain but also continually improve its risk management and control environments. Moreover, present and future activities of ERM, aimed at enhancing risk maturity at the Bank, have been initiated by the Board based on its risk maturity strategy.This strategy outlines a clear and disciplined approach to implementing, monitoring, and maintaining effective risk management practices, propelling the Bank towards achieving its mandate, strategic objectives, and evolving into a risk-intelligent organisation. Risk Governance Oversight The ultimate responsibility for the Bank’s risk governance lies with the Board, which is accountable for the Bank’s overall risk governance in line with the NT Public Sector Risk Management Framework. Its main duty is to employ its specialist expertise to guide risk management oversight and leverage benefits and opportunities. When opportunities arise, they are evaluated so that the Bank can manage them effectively to improve performance. Risk Categories The risk management process is iterative, ensuring continuous alignment with the Bank’s strategic goals. Usually, risk assessment and risk management strategy maintain a medium-term (three-year) focus, fostering a culture of building risk foresight. As per the ERM Framework, the Bank’s risk universe The Bank believes that risk management provides a process of proactively identifying risk issues, comprises Credit and Investment risk, Model risk, Financial risk, Operational risk, and Strategic risk. opportunities, and events, which if not well managed can adversely impact the achievement of business objectives. By applying the risk management process, the Bank is able to proactively manage Credit and Investment Risks risks and issues that may impact the achievement of its goals. The risk management processes Credit risk refers to a loss suffered by a party whereby the counterparty fails to meet its financial continue to enhance the overall control environment and governance in a more structured manner obligations to the party under the contract. Credit risk may also arise if there is an increased risk of across all areas of business. default by the counterparty throughout the contract. Credit risk management is a process, effected by the Board, Management and other personnel, applied RISK STRATEGY AND PHILOSOPHY in credit strategy setting and across the credit risk value chain, designed to identify potential events that may affect the Bank and manage risk to be within its credit risk appetite, to provide reasonable The Bank recognises that a proactive approach to risk management is crucial for identifying risk assurance regarding the achievement of the Bank’s objectives. Credit risk management deals with issues, opportunities, and events that could adversely impact the achievement of business objectives. risks and opportunities affecting value creation or preservation. The credit risk management process By implementing this process, the Bank is equipped to proactively manage risks and issues that may ensures that there is regular and continuous identification, measurement, management, monitoring affect the realisation of its goals. This ongoing process continually enhances the control environment and reporting of credit risks which is aimed at improving the ability to reduce the impact on the Bank and governance structure in a systematic way across all business areas. should credit risks materialise. Credit risk management also ensures that the credit risk process is continuously embedded into the Bank’s culture. All credit applications follow an approved governance structure in line with delegation of authority. 102 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Credit Governance Structure which may not necessarily prevail throughout the model’s lifespan. The models within Land Bank are monitored at least semi-annually as a minimum requirement. The results of this monitoring are presented to the Model Technical Committee for review and then further submitted to EXCO for BOARD approval and recommendations. Financial Risks The Bank maintains a conservative approach towards market and liquidity management and has a Credit & Investment Audit & Finance Risk & Governance low tolerance for risks from open positions, including market risk and funding risks. Open market Committee CIC Committee AFC Committee RGC positions are only tolerated in connection to the core regular business activity of the Bank. The treasury function manages the Bank’s assets and liabilities, balancing its liquidity and market risk Executive Committee EXCO exposures accordingly. The Bank’s historically high reliance on short-term funding exposes it to the risk of interest rate volatility, and it has a low tolerance for a high reliance on short-term funding. Operational Risks Executive Credit Regional Credit Provincial Credit Credit Risk Monitoring Operational risk is the risk of loss due to inadequate or failed processes, systems, people, or external Committee ECC Committee RCC Committee PCC Committee CROM events, including legal risk. This risk is managed through ERM committees which oversee all activities and operational risk registers and operational incidents reported. Land Bank Board took a decision to decentralise lending activities to regional offices to enable efficiencies and enhance risk management at the point of origination. The Board sub-committee on Strategic Risk profile Credit and Investment is an oversight structure for all credit risk activities. The Board conducted a risk assessment to identify potential threats that could hinder the implementation and realisation of strategic goals laid out in the Strategic Plan. This process enabled Model Risks the organisation to establish control measures and risk mitigations to address existing risk issues, Model risk refers to the potential for financial loss or misguided business strategy due to the failure remedy them, and prevent potential or emerging risks from occurring in the future. Consequently, of a financial model to capture a particular phenomenon accurately. To mitigate this risk, Land Bank the organisation has implemented several controls, which include the following: has comprehensive Model Governance Frameworks and policies in place. • Approved and implemented revised credit and accounting policies in line with existing standards To maintain financial sustainability, Land Bank needs to measure its expected loss accurately to and industry best practice; incorporate this into its loans. This Model Governance Framework covers the development, • Improved its credit risk strategy to further guide its lending activities and management of implementation, and use of the IRFS 9 models and tools used to measure expected loss provisions, impairments; as per the International Accounting Standards Board for IFRS9. From time to time, unexpected losses • A plan of action to improve the risk management maturity through annual Risk Management occur due to unforeseen circumstances. Land Bank, therefore, needs to measure the amount of Plans; capital required to cover this unexpected loss portion.The Model Governance Framework considers • An ethics risk management strategy and ongoing focus on prevention of fraud and corruption; the models used in measuring the credit risk inherent in its loan granting activities, as represented in • Anti-Money Laundering Framework (AML) and Combating the financing of terrorism (CFT) the PD, LGD, and EAD metrics, and the use of rating tools to rate the Bank’s clients. and Sanctions Risk Management and Compliance programme (RMCP); • Embedded the risk management architecture and reporting (Board risk governance oversight Model Monitoring and risk systems); Land Bank follows an established process for model development, validation, and monitoring. • A description of the risk management modality and user guidelines as part of its Risk Model validation and monitoring are conducted within the risk function and are processed through Management Policy Framework; and governance structures. Ongoing model monitoring is necessary to mitigate model risk as a model • Developed and implemented Risk appetite framework and risk tolerance limits. developed at a certain time will reflect the market, business, and economic conditions at that time, 103 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS The above approach and philosophy have assisted the Bank in its process of identifying and preventing of key strategic risks, and continue managing and treating them despite these difficult conditions. The strategic risks are summarised below: LB Corporate Strategic Risk Name and Description: Risk Responses Objectives (risk rating) 1. Financial Sustainability 1. Financial Sustainability (High Risk). • Appropriation of R5bn of the approved equity and capital injection Solvency and liquidity positions, including the • Conclusion of agreements on the proposed liability solution 4 (LS4) within the set-timeframes conclusion of the liability solution, event of default, going concern status. • Voluntary capital reduction by the Bank to manage negative carry (high interest payments on liabilities) and maintain gearing • Development of the funding strategy and model (mixed sources of funding) • Established Risk appetite framework and Risk bearing capacity and risk threshold indicators monitored by Board • Develop Stress testing Framework • Perform stress testing model and scenario planning 2. Credit Risk (High Risk). • Increased collections, recoveries, disposals and in line with internal policies Quality of the loan book, including credit • Pre and Post approval monitoring recoveries and disposal of quality loans. • Revise credit tools and models, and credit/origination systems • Regular review of loans and exposures • Establishing Strategic partnerships with key off-takers and other sister entities to support both development book and non-performing book going forward 2. Organisational Capacity 3. Optimisation of Human Resources • Capacitate the approved organisation structure and People (High Risk). Insufficient Human Resource (HR) capacity and • Tracking of Attrition capability to execute organisational strategy, • Review of Job Profiles and skills assessment and gap analysis including staff attraction and retention strategy (i.e. EVP). • Implementation of remedial plans in line with the Climate and Culture Survey • Benchmark and revise the pay scale and rewards annually • Talent pipeline management 104 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LB Corporate Strategic Risk Name and Description: Risk Responses Objectives (risk rating) 4. Effectiveness of Organisation • Process optimisation: (1) Client-facing enablement–omni channel Operations (High Risk). Inadequate business systems and processes • Workflow optimisation through system integration undermining ability to execute mandate. • Implementation of first phase of the IT infrastructure refreshment programme • Accelerate process optimisation, automation, and digitisation to enable/ improve service delivery through implementation of ITC Moderation Strategy: • Ongoing e-services portal enhancements • Implementation of CRM enhancements • Implementation of Acceleris (Technical and Financial assessment tool) 3. Development 5. Funding Risk (High Risk). • Initiatives on strategic partnership including negotiated MoA with key players and the Department of Agriculture, Land Effectiveness Misalignment of expectations between Reform, and Rural Development (DALRRD) to enable funding, technical support Shareholder (i.e. National Treasury) and Land Bank/ stakeholders, including unfunded • Creating an effective farmer support and agro-processing incentives; climate change and technology innovation transformational mandate. • Embedding and ongoing monitoring of the ESG principles in credit granting 6. Diminishing Relevance of the Bank • Revision of Land Bank value proposition (Medium Risk). Unclear positioning and value proposition in • A detailed revision of the product and services offering, which will be informed by the Board’s adopted strategy the agricultural market. • Collaboration with government departments and other DFI in securing grants and partnerships to support development farmers. Blended Finance/ Agro-Energy Fund 4. Stakeholder 7. Managing Stakeholder Relations • Ongoing implementation of the Reputation Management Strategy and Action Plan as approved by the Board Management and Client (Medium Risk). Centricity Managing of reputational risk, mapping and • Employee strategic alignment and engagement sessions satisfying expectations of primary, secondary • Management’s Strategy Execution Oversight Programme and reporting and tertiary stakeholder (Outcome of management of operational/ strategic risk • Ongoing Board oversight on the execution of specific key components of the Strategic Plan and stakeholder management and expectation of business mandate and organisational strategy). • Climate change policy. • Strengthen the execution capability and resourcing in the organisational structure • Media monitoring • Ongoing Client survey and engagements 105 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LB Corporate Strategic Risk Name and Description: Risk Responses Objectives (risk rating) 5. Governance 8. Governance Risks (Medium Risk). • Management of Annul corporate calendar Compliance, risk management, control • Regular tracking of statutory returns with business by compliance environment, oversight, and accountability. • Review number of management committees and streamline • Capacitating approved organisational structure • Perform fraud risk assessments • AML, CFT and Sanction screening compliance process • Ongoing engagement with the Regulators • Ongoing review policy and regulatory universe • Application of Combined assurance model. CA Forum. CA reporting to EXCO and AFC/ RGC • ERM Policy Framework implementation • Risk Appetite Framework implementation • Risk training and awareness 106 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LB Corporate Strategic Risk Name and Description: Risk Responses Objectives (risk rating) 9. ICT Risk (High Risk). • Development of ICT Architecture and ICT Strategy aligned to business and organisational strategy Ineffective IT systems and processes exposing • Test BCP and DRP the Bank to both external attacks and internal inefficiencies due to system unreliability and • Develop and implement the Cyber Security strategy, including implementation of High Tech security tools capability. • Information Security Incident Management Response Recovery Plan • Cyber-specific insurance coverage • Implement the approved three (3) year IT Data centre infrastructure and bank wide laptop refresh • Fit-for-purpose review of IT organisational structure • Training and development of staff technical skills • Development and Implementation of the ICT Governance framework and strategy • IT Steerco (Management committee and reporting to EXCO and Board Committees) • Vulnerability scans and initiate remediation • Data and systems backup and restoring capabilities • Cyber scenario testing • Penetration testing/ conduct ethical hacking • IT control performance: Detective and preventive OTHER CONTROLS: • Anti-virus, IPS/IDS, Firewalls, real-time monitoring and alert tools, Access controls, Patch management, and a threat intelligence programme that includes regular user awareness training • Rolling IT strategy and its implementation–including Business re-engineering /optimisation initiatives • Purchase and implementation of Enterprise Resource Planning • Internet line redundancy: Head Offices/Provincial offices • Business process re-engineering 107 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LB Corporate Strategic Risk Name and Description: Risk Responses Objectives (risk rating) 6.External Events 10. External Events (Medium Risk). • Climate change policy developed External events affecting the operating environment of the Bank. • Embedding ESG as part of credit origination–ES assessments quarterly report. To EXCO and the Board • Agriculture Master Plan - adoption of priority commodities • Agricultural Disaster monitoring • Adoption of internal BCM measures • Agricultural conditions report published on a quarterly basis to inform decision making • Ongoing updates on the load shedding report and the impact on the agricultural sector • Issued agri alerts and updates 108 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 109 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PART 10 GOVERNANCE 110 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 111 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS GOVERNANCE FRAMEWORK The Subsidiary Companies are managed by a Board appointed by the Land Bank as sole Shareholder, and it consists of persons who are, in equal proportion, Directors of the Land Bank and persons who are The Land Bank is managed by a Board of Directors appointed by and accountable to the Minister. not members of the Board of Directors of the Land Bank.The Non-executive directors are independent The majority of Directors are Non-Executive. as contemplated in King IV and in the Governance Standards for Insurers (GOI). The Land Bank Board appoints one among its number as the chairperson of the Board of the Insurance Companies. The The Board consists of no fewer than seven and no more than twelve persons, appointed for a period Managing Director of the Insurance Companies is appointed by the Board of Directors of the Land Bank of no more than five years. The CEO and CFO are members of the Board, the former by virtue of in consultation with and at the recommendation of the Board of the Insurance Companies. his or her office and the latter in terms of the power of the Minister to appoint any other employee of the Bank as a director. The Chief Executive Officer is appointed by the Minister in consultation Members of the Boards of Directors of the Bank and the Insurance Companies stand in a fiduciary with and at the recommendation of the Board. The Minister designates one of the directors as relationship to the Bank and to the Insurance Companies. They also owe a duty of care, skill and chairperson and another as deputy chairperson to act as chairperson whenever the chairperson is diligence to the Bank and the Insurance Companies. unable to. The relationship between the Bank and its Subsidiary Companies is governed by a Group Governance The Subsidiary Companies are managed by a Board appointed by the Land Bank as sole Shareholder, Framework which recognises the need for the Insurance Subsidiaries to align themselves with the vision and it consists of persons who are, in equal proportion, Directors of the Land Bank and persons and goals of the Bank, while at the same time acknowledging that such subsidiaries are juristic persons who are not members of the Board of Directors of the Land Bank. The Non-executive directors distinct from the Bank, and that the Directors of the Subsidiaries stand in a fiduciary relationship and are independent as contemplated in King IV and in the Governance Standards for Insurers (GOI). owe a duty of care, skill and diligence not to the Land Bank, but to the Insurance Companies. The Land Bank Board appoints one among its number as the chairperson of the Board of the Insurance Companies.The Managing Director of the Insurance Companies is appointed by the Board The Boards of Directors of the Bank and the Insurance Companies are responsible for providing of Directors of the Land Bank in consultation with and at the recommendation of the Board of the prescient and ethical leadership, strategic direction, policy approval, oversight and accountability over Insurance Companies. the entities so that the good governance outcomes of an ethical culture, good performance, effective control and legitimacy with stakeholders are achieved. 112 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS The chairpersons of the Boards of Directors are responsible for leading the Board in the objective During the year under review, the Boards focused on, among others, the areas described hereafter. and effective discharge of its governance role and responsibilities. a. Conclusion of the Liability Solution The Chief Executive Officer of the Bank and the Managing Director of the Insurance Companies play The need to secure the agreement of lenders to a Liability Solution following the April 2020 event a critical and strategic role in the operations and success of the Bank and the Insurance Companies. of default and its expeditious implementation. They are responsible for the day-to-day management of the Bank and the Insurance Companies. Both of them consistently strive to achieve the financial and operating goals and objectives of the b. Book Quality and NPLs Bank and the Insurance Companies and to ensure that the day-to-day business of the Bank and the The need to address book quality deterioration and the growth of the NPLs through improved Insurance Companies is appropriately managed. portfolio management and remediation efforts. The members of the Boards of Directors of the Bank and the Insurance Subsidiaries have c. Staff Attrition adopted Board Char ters, Directors’ Codes of Ethics and Business Conduct, Conflict of Interest The need to reduce the attrition of critical staff. Targeted employee retention strategies were Policies and Board Manuals which guide them in fulfilling their duties to the Land Bank and the introduced and the EVP was reviewed to speak to the challenging conditions that the Bank was Insurance Companies. The Charters, Codes, Policies and Manuals apply to all members of the dealing with. Boards without exception. d. Audit Findings The Boards have delegated some of their responsibilities to Board Committees, individual The need for the audit findings of the prior year to be remediated, for internal controls to be Directors, other ad hoc structures and management in terms of approved delegations of powers strengthened, and ensure a clean audit Outcome for FY22/23. frameworks.The Delegations of Power frameworks are founded on the law, on what is appropriate for the Bank and the Insurance Companies, and on what is necessary for achieving the purposes e. Accountability of the delegations. The need to expedite the resolution of outstanding instances of confirmed or potential misconduct and to improve the effectiveness of the consequence management processes. The Boards, their Committees and Management are assisted by a company secretary who provides independent, professional corporate governance advisories and f. Strategy Implementation company secretarial support to them as required by the Companies Act of 2008 and The need to formulate, adopt and roll out an organisation-wide strategy which addresses past recommended by the King Report on Corporate Governance for South Africa, 2016. deficiencies and places an emphasis the on the mandate as set out in enabling legislation. Sound operating procedures have been deployed at all levels of the Bank and its Insurance g. Culture Subsidiaries. These are continuously monitored and reviewed. The need to ensure that the culture and values of the Bank are aligned with the Bank’s new strategy. h. Reputation The need to work towards regaining a positive reputation through increased market presence; proactive sector engagement; communication of the new Bank strategy; and improved customer service. 113 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS i. Funding Model The need to determine a Land Bank “steady state” funding requirements and to define a funding model which is aligned to the Bank’s strategy. j. Financial Performance The need to improve the financial and operating performance of the Bank, including execution capability and readiness of the Bank for resumption of lending activities, as well as appropriate cost containment. k. IT Infrastructure The need for the IT infrastructure to be updated/upgraded to respond to the needs of the organisation and the strategic direction that the Bank has chosen to pursue in particular. l. Innovation The need to develop new and innovative ways of doing business in order to ensure that the strategic objectives that the Board has adopted are achieved. The Board is committed to the continued improvement of own its performance and effectiveness, and that of its supporting structures. It believes that a highly effective Board is essential if Land Bank and its subsidiaries are to produce sustainable returns for the shareholders, their broad range of stakeholders, as well as the wider society. Corporate governance outcomes and the quality of the Land Bank and Subsidiary Boards is an important evaluation factor for funders and institutional investors. Towards that end, the Boards evaluate their own performance and the performance of their Committees at least one every financial year. 114 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS The governance structure of the Land Bank Board is as set out in the diagram below: Executive Directors M F B I C W Mr TM Rikhotso   SHAREHOLDER Minister of Finance Ms KH Mukhari   Mr AC Kanana   Company Board of Head of Secretary Directors Internal Audit LAND BANK BOARD COMMITTEES Board Committees The Board is supported by five standing committees, namely: an Audit and Finance Committee, a Human Resource and Remuneration Committee, a Nominations Committee, a Risk and Governance Committee, a Credit and Investment Committee, and shares a Social and Ethics Committee with the Board of the Insurance Companies. From time to time, the Board also establishes temporary structures such as ad hoc committees, project teams and task teams to deal with specific time bound issues. Risk and Audit and Human Credit and Social and Nominations Governance Finance Resource and Investment Ethics Committee The Committees of the Board and the Board’s ad hoc structures are governed by Charters or Committee Committee Remuneration Committee Committee Committee terms of reference approved by the Board. The Charter or terms of reference set out the purpose, authority, responsibilities, composition, constitution of meetings, frequency of meetings, conduct of meetings, decision-making, record keeping, and reporting and communication by a structure on Demographic composition of the Board of Directors of the Land Bank : its activities to the Board. The Charters of Board Committees are available at tps://landbank.co.za/ About–Us/ Pages/ Corporate-Governance.aspx. Board Demographic Non-Executive Directors M F B I C W AUDIT AND FINANCE COMMITTEE Ms NR Nkosi   The primary role of the Committee is to provide oversight over the financial reporting process, Mr AL Makenete   the audit process, the Bank’s system of internal control, the financial position of the Bank, and the Bank’s investments and returns. The Committee has authority to: Prof JF Kirsten   Ms ME Makgatho   a. Review and make recommendations to the Board regarding financial risk management in the Bank within the parameters of the risk appetite approved by the Board to maximise investment Ms D Maithufi   returns and earnings for given levels of risk. Ms TN Mashanda   b. Review and make recommendations to the Board regarding effective liquidity risk management in the Bank to ensure that the Bank is able to fund increases in assets and meet its cash flow Ms NP Motshegoa   obligations as they become due without incurring unacceptable losses. Ms EM Pillay   c. Review and make recommendations to the Board regarding the capital adequacy of the Bank in order to ensure that the Bank is able to pay its debts as they fall due and able increase its Dr MM Tom   assets through additional lending. Adv DW van der Westhuizen   d. Direct and control the system of internal audit which complies with and operates in accordance with Regulations and Instructions prescribed in terms of sections 76 and 77 of the PFMA. e. Oversee the system of internal controls. 115 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS f. Oversee the financial and non-financial reporting process. g. Oversee the quarterly and integrated reporting process. The Committee discharged all its responsibilities, but its primary focus during the year under h. Manage the relationship with the AG and other external assurance providers. review was the development, implementation and monitoring of a Risk Management Policy, Risk i. Facilitate combined assurance by overseeing integration between the external audit, internal Management Plan and Strategic Risk Register which are informed by an assessment of the operating audit, compliance and risk management functions. environment the Bank, the challenges and opportunities posed by such an environment, and the j. Advise the Board on the strategic alignment of information and technology with the business Corporate Strategy that the Bank had adopted. Most important were risks posed by the liquidity of the Land Bank. challenges facing the Bank, and related sustainability and reputational issues. k. Evaluate and advise the Board on the value gained by the Bank through significant investments in technology and information, including the evaluation of projects throughout their life-cycles. HUMAN RESOURCES AND REMUNERATION COMMITTEE The Committee discharged all its responsibilities, but its primary focus for the year under review was The primary role of the Committee is to assist the Board of directors of the Land Bank in the the resolution of adverse audit findings, the enhancement of the Bank’s Information and Technology discharge of its duty to oversee the establishment of appropriate human resources policies and environment, and the review and strengthening of internal controls. strategies that provide the Bank with the capability to achieve its short-and long-term business objectives. Its responsibilities include: RISK AND GOVERNANCE COMMITTEE a. Overseeing the overall human capital management strategy which is linked to the business The primary role of the Committee is to advise the Board of directors of the Land Bank on strategy of the Bank including recommending an appropriate structure to the Board for enterprise-wide risk management and good corporate governance practice. The Committee is approval. responsible among others for the following: b. The development, implementation, monitoring, evaluation and annual review of all human capital management policies and guidelines of the Bank, which are designed to support and a. Setting the tone and the development of a culture of the enterprise vis-à-vis risk, the promotion facilitate the implementation of the overall business strategy and the human capital management of open discussion regarding risk, the integration of risk management into the organisation’s strategy of the Bank. goals and compensation structure, and the creation a corporate culture such that people at all c. Overseeing and advising the Board on the attraction, recruitment, development to optimal levels manage risks rather than reflexively avoid or heedlessly take them on. capability, retention and termination of employees in order to ensure a market-competitive b. Overseeing risk governance in relation to opportunities and associated risks that are to be approach to the sourcing and retention of requisite levels of talent. considered when developing organisational strategy, and the potential positive and negative d. Overseeing the development of workforce skills and capabilities such that employees are able effects of risks and opportunities in the achievement of the organisational strategy. to perform their duties and achieve their individual level of potential, and perform the work c. The coordination of the development, implementation and annual review of a Risk Management expected of them to the required standards. Policy and Risk Management Plan which promote value creation and is an integral part of e. Overseeing the creation of a culture and an environment which enhances employee morale organisational processes. and the retention of scarce skills. d. The continuous monitoring of risks and risk management capabilities within the Bank, including f. Ensuring that Management has effective systems and has made adequate provision for ensuring communication about escalating risk and crisis preparedness and recovery plans. the overall mental, physical, emotional, and economic health of employees. e. Obtaining reasonable assurance from management that all known and emerging risks have g. Ensuring that the values of the Bank as defined by the Board are communicated to all employees been identified and mitigated or managed. of the Bank, understood by them, embedded in the fabric of the Bank and that any deviations f. Coordinating the development, implementation, monitoring, evaluation and annual review of from the norm are appropriately addressed. the corporate governance instruments of the Bank and making such recommendations to the h. Overseeing Management efforts to ensure that employees have a sense of purpose, a sense of Board in respect of such instruments as it considers appropriate. belonging, a commitment to the Bank, and the willpower or drive to deliver on that purpose g. Monitoring and advising the Board on the reputation of the Bank. or commitment. h. Monitoring, reporting on and making recommendations to the Board on all issues of compliance with legislation, regulation, codes of best practice, Board policy and Board directives. 116 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS i. Overseeing the development and implementation of effective and efficient systems and the Bank and its subsidiaries, and the markets in which they operate; practices to ensure the health and safety of all the employees of the Bank and its invitees, and for e. Overseeing the process for nominating, electing and appointing members of the Board ensuring compliance with all the law, regulation, and best practice applicable or recommended including conducting independent reference, qualification, criminal and other background in this regard. checks; and requesting confirmation from candidates of any other professional commitments j. Overseeing the development of a high-performance culture that drives and recognises success, or directorships held and considering whether they have sufficient time available to fulfil the and regularly receives reports, assess and if necessary, make recommendations to the Board on responsibilities required by the Board; the value generated by employees within defined parameters. f. Overseeing the induction, training and continuing development of directors (including regular k. Overseeing and ensuring that diversity remains a key component of the Land Bank’s human briefings on legal and corporate governance developments, risks and changes in the external resources strategy. environment of the Bank and its subsidiaries); l. Overseeing programmes for the induction and ongoing leadership and capability development g. Ensuring that inexperienced directors are developed through training or mentorship, where of executives and key senior management. considered necessary; m. Overseeing the development of succession plans for executives and key senior management h. Identifying, developing and nominating for the recommendation to the Minister by the Board, to foster an appropriate balance of skills, experience, and expertise to support the ongoing candidates to fill Board vacancies as and when they arise; successful management of the Land Bank. i. Keeping under review the leadership needs of the organisation, both executive and non- n. Reviewing and recommending to the Board for approval a remuneration framework, philosophy executive, with a view to ensuring the continued ability of the organisation to deliver on its and policy for all members of staff of the Land Bank including fixed and variable remuneration mandate and to compete effectively in the marketplace; components. j. Ensuring that each non-executive director receives a formal letter of appointment setting o. Satisfying itself that all governance, accounting, legal, approval and disclosure requirements in out clearly what is expected of them in terms of time commitment, committee service and relation to remuneration are complied with. involvement outside Board meetings; p. Reviewing, and if deemed appropriate, recommending to the Board, the terms, and conditions k. Keeping under review all legislative, regulatory and corporate governance developments that might of the contracts of employment of all members of staff of the Land Bank affect the Bank’s operations, striving to ensure that the Bank is at the forefront of best practice; l. Ensuring that the standards and disclosures required by the King Report on Corporate The Committee discharged all its responsibilities, but focused in particular on issues pertaining to Governance for South Africa (2016) are observed and reflected in disclosures made in the staff attrition and the remuneration of employees. Integrated Report; m. Overseeing the annual performance assessment of the Board, Board Committees and individual NOMINATIONS COMMITTEE non-executive members and making recommendations to the Board based on the results of these assessments; The primary responsibility of the Committee is to manage the appointment, Committee placement, n. Making recommendations to the Board concerning: development, performance management, rotation, suspension and removal of members of the i. Plans for succession for both executive and non-executive directors, including for the key Board of directors of the Land Bank. The responsibilities of the Committee include: roles of Chairman and Chief Executive Office; ii. Suitable candidates for the role of Senior Independent Director where required; a. The regular review the structure, size and composition (including the skills, knowledge, iii. Membership of Board Committees in consultation with the chairpersons of those committees; experience, independence and diversity) required of the Board compared to its current iv. The re-appointment by the Shareholder of any director having due regard to their position and make recommendations to the Board with regard to any changes; performance and ability to continue to contribute to the Board in the light of the b. Succession planning for directors and other senior executives, taking into account the challenges knowledge, skills and experience required and the need for progressive refreshing of the and opportunities facing the Bank, and what skills and expertise are therefore needed on the Board (particularly in relation to directors being re-elected for a term beyond six years); Board in the future; v. Any matters relating to the continuation in office of any director at any time including the c. Ensuring that appropriate succession plans are established, formalised and implemented at suspension or termination of service of an executive director as an employee of the Bank Board level as well as at executive and management level; subject to the provisions of the law and the executive director’s contract of employment; d. Keeping up to date and fully informed about strategic issues and commercial changes affecting 117 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS vi. The remuneration of Board members; and standards (Code of Ethics) and ensuring that the Land Bank and the Insurance Companies take vii. The appointment of any employee of the Land Bank as an executive director. measures to achieve adherence to these in all aspects of the business, thus achieving a sustainable viii. The Committee discharged all its responsibilities, but focused in particular on the ethical corporate culture within the Land Bank and the Insurance Companies; recruitment of a candidate to fill the vacancy of CEO and ensuring that appropriate acting j. Reviewing and making recommendations to the Boards policies, strategies and structures arrangements were in place during the transition period. to manage the reputation of the Land Bank and the Insurance Companies, reviewing the reputational risks of the Land Bank and the Insurance Companies and ensuring that such risks SOCIAL AND ETHICS COMMITTEE are managed as part of the risk management programme of the Land Bank and the Insurance Companies; The Committee’s primary role is to review and make recommendations to the Board of Directors k. Annually obtaining external assurance of ethics performance of the Land Bank and the Insurance of the Bank and its subsidiaries on matters relating to social and ethics policies and strategies Companies, and facilitation of the inclusion in the Integrated Report of an assurance statement amongst other things; and to assist the Boards with creating value in a sustainable manner taking into related to the ethics performance of the Land Bank and the Insurance Companies; and consideration the triple context of the economy, society and natural environment within which the l. Ensuring that the ethics of the organisation are managed in a way that supports the establishment institutions operates. The responsibilities of the Committee include: of an ethical culture. a. Reviewing and making recommendations to the Boards policy, strategy, and structure to manage The Committee discharged all its responsibilities, but focused in particular on issues impacting on the social and ethics issues in Land Bank and the Insurance Companies; fair treatment of clients and the reputation of the Bank. b. Monitoring the activities of the Land Bank and the Insurance Companies with regard to social and economic development as determined by legislation or prevailing codes of best practice; CREDIT INVESTMENT COMMITTEE c. Monitoring the standing of the Land Bank and the Insurance Companies in terms of the goals and purposes of the ten principles set out in the United Nations Global Compact Principles; The purpose of the Committee is to assist the Board of Directors discharge its responsibilities the OECD recommendations on corruption; the Employment Equity Act; and the Broad-Based regarding the funding of the Bank, the provision of credit by the Bank and investing by the Bank. The Black Economic Empowerment Act; Committee ensures that the investment goals of the Bank are met; that the quality of the Bank’s d. Monitoring the activities of the Land Bank and the Insurance Companies with regard to good credit portfolio and the trends affecting that portfolio are continually reviewed; that credit-related corporate citizenship including: policies are effective and properly administered. The Committee is responsible for: i. The promotion of equality, prevention of unfair discrimination, the reduction of corruption; the development of the communities in which they operate; sponsorships, donations and a. Recommending credit frameworks, strategies, policies, practices including prudential credit limits charitable giving; and and guidelines to the Board; ii. Sustainable development; stakeholder relations; fraud prevention; responsible and b. Making recommendations to the Board regarding the revision of the Credit Model methodology transparent tax practices; fair remuneration; climate change; pollution; waste disposal and and the pricing model; the protection of biodiversity. c. Ensuring that the quality and management of the credit portfolio is in accordance with the e. Monitor the impact of the activities and products of the Land Bank and the Insurance Companies Credit Policies and Risk Philosophy of the Bank; on the environment, health and public safety; d. Ensuring that there are adequate controls and risk management of credit risk; f. Monitoring the relationships of the Land Bank and the Insurance Companies with consumers, e. Approving requests for the extension of credit facilities within delegated limits; their compliance with consumer protection laws, as well as the nature of their advertising and f. Approving requests for the restructuring of credit facilities within delegated limits; public relations efforts; g. Making recommendations to the Board on all requests for the extension of credit facilities g. Monitoring the practices of the Land Bank and the Insurance Companies with regard to labour beyond its delegated limits; and employment; h. Making recommendations to the Board regarding the restructuring of all credit facilities beyond h. Monitor the standing of the Land Bank and the Insurance Companies with regard to the its delegated limits; International Labour Organisation Protocol on decent work and working conditions; i. Approving new loans, credit facilities and credit limits or credit risk exposures within its delegated i. Determining for approval by the Boards and from time to time reviewing clearly articulated ethical 118 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS limits, and making recommendations to the Board regarding the granting of new loans, credit facilities and credit limits beyond its delegated limits; j. Approving the write-off of loans within its delegated limits and recommending to the Board the write-off of loans beyond its delegated limits; k. Regularly reviewing the quality and performance of the Bank’s credit portfolio; l. Regularly reviewing credit risk management and stress testing reports, and making recommendations to the Board as considered necessary; m. Biannually reviewing all credit decisions of the Bank; n. Overseeing the implementation of the approved model governance framework including the formulation, implementation and monitoring of the credit models, calibration of models; as well as to review the framework where necessary; o. Monitoring all credit decisions taken by Management in the exercise of delegated authority; p. Recommending to the Board the investment frameworks, strategies, policies and practices including prudential investment limits and guidelines; q. Overseeing the management of the Bank’s investment holdings portfolio including devising short- or long-term strategies for acquiring and disposing of portfolio holdings to achieve the Bank’s specific investment objectives, and make recommendations to the Board in that regard; r. Reviewing trends in asset and portfolio composition, quality, and growth, NPLs, concentration risk prudential limits and Watch List (including workout and restructuring exposures), large exposures and any other emerging risk and direct Management action where deemed necessary; s. Monitoring all investment decisions taken by Management in the exercise of delegated authority; t. Regularly review the quality and performance of the Bank’s portfolio of investments; u. Ensuring that the quality and management of the investment portfolio is in accordance with the Investment Policy and Philosophy of the Bank; and v. Biannually reviewing all investment decisions of the Bank (valuations), and taking such action, or making such recommendations to the Board and Management as it may consider necessary. The Committee discharged all its responsibilities, but focused in particular on the remediation of NPLs including collections. 119 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND BANK BOARD AND COMMITTEE ATTENDANCE Attendance of Land Bank Board and Board Committee sessions was as follows: Land Bank Board Attendance FY22/23 Board AGM Board Risk and Audit Credit and Land Bank Social and Workshops Governance and Investment Human Ethics and Finance Committee Resources Committee Strategy Remuneration Sessions Committee 15 0 1 9 16 21 12 7 Non-executive Directors Ms R Nkosi 15 - 1 1 - 3 9 7 Mr A Makenete 15 - 1 - - 3 2 7 Ms D Maithufi 15 - 1 8 - 21 - - Prof J Kirsten 14 - 1 - - 19 - 1 Dr M Tom 13 - 1 1 5 1 10 - Ms N Motshegoa 15 - 1 - - 16 0 4 Adv D van der Westhuizen 14 - 1 9 - 3 11 - Ms E Pillay 15 - 1 - 16 4 - 4 Ms T Mashanda 14 - 1 8 15 - 3 - Me M E Makgatho 15 - 1 - 16 21 - - Executive Directors Mr A Kanana1 - - - - 1 1 1 1 Ms K Mukhari 2 14 - 1 9 16 17 9 7 1. Resigned as a member of the Board of Directors of the Land Bank effective 1 May 2022. 2. Ms Mukhari acted as Chief Executive Officer from 1 May 2022 – 31 March 2023. A review of Committee memberships was conducted during the course of the financial year.The outcomes of the review were reassignment of Committee duty and changes of membership in some instances. This largely accounts for the less than perfect meeting attendance record for those members that were affected by them. The Board and its Committees usually meets once a quarter, however, due to the liquidity challenges face the Bank, fallout from the event of default and the urgency to find a liability solution there was a need for the Board and its Committees to meet more frequently. 120 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND BANK INSURANCE BOARD PROFILES Ms Egashnee Pillay Mr Sakhile Masuku Mr Krishen Sukdev Mrs Melanie Bosman Mrs Deshni Subbiah Prof Johann Frederick Adv Dimitri Wilhelm van Kirsten der Westhuizen Ms Pillay is a Chartered Mr Masuku is a qualified Mr Sukdev is an actuary Ms Bosman is a Chartered Ms Subbiah is a qualified Accountant and holds a Chartered Accountant and holds a Master in Accountant (SA) and holds Actuary and holds a BSc Prof Kirsten holds a PhD Advocate van der BCom (Hon) Accounting and holds a BCom (Hon) Business Administration a BCom (Hon) Accounting Actuarial Science, a Master in Agricultural Economics, Westhuizen holds an LLB and BCom Accounting. Accounting Science and (MBA) and BA Business and BCom Accounting. in Business Administration MSc Agric, BSC Agric (PMB) and is an of the High BCom Accounting Science. (MBA) and a PD in (Hon) Court of South Africa Committee Membership Committee Membership Business Administration Board Chair and Member Committee Membership Committee Membership Member of Audit and Risk and General management Committee Membership Committee Membership Joint LB/LBIC Social and Chairperson of the LBIC/ Chairman of Actuarial and Committee, Actuarial and Member of Joint SEC Board Sub Committees: Ethics Committee LBLIC Audit and Risk Investment Committee, Investment Committee Committee Membership Human Resources and Committee, Member of Member of Audit and Risk and Human Resources and Member of Audit and Risk Remuneration Committee Investment and Actuarial Committee Restructuring Committee Committee, Actuarial and Member, Risk and Committee Investment Committee Governance Committee and Human Resources and Member. Restructuring Committee 121 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS The governance structure of the Land Bank Insurance Board is as set out in the diagram below: Executive Directors M F B I C W Mr MA Rakgalakane   SHAREHOLDER Mr P Siphugu Land Bank   The term of office of Mr Rakgalakane as a member of the Board of directors of the Insurance Companies expired on 30 June 2023. Company Board of Head of Secretary Directors Internal Audit Mr Siphugu was appointed as Managing Director and member of the Board of directors of the Insurance Companies effective 1 June 2023. Board Committees LAND BANK INSURANCE BOARD COMMITTEES The Board is supported by four standing committees, namely: an Audit and Risk committee, an Investment and Actuarial committee, a Human Resource and Remuneration Committee and a Audit and Risk Investment and Human Social and Nominations Nominations Committee. It shares a Social and Ethics Committee with the Land Bank. The Committee Actuarial Resource and Ethics Committee committees are established in terms of Sections 76(4) (d) and 77 of the PFMA, section 94 of the Committee Remuneration Committee Companies Act of 2008, Clause 7 of GOI 2 and Section 15 of the Land Bank Act. From time to Committee time, the Board also establish temporary structures such ad hoc committees, project teams and task teams to deal with specific time bound issues. The membership of the Board of Directors of the Insurance Companies during the year under review was as follows: The Committees and ad hoc structures are governed by Charters or terms of reference approved by the Board. The Charters or terms of reference set out the purpose, authority, responsibilities, Insurance Companies: Board of Directors composition, constitution of meetings, frequency of meetings, conduct of meetings, decision-making, Non-Executive Directors M F B I C W record keeping, and reporting and communication by a structure on its activities to the Board. Ms EM Pillay   Mr K Sukdev   AUDIT AND RISK COMMITTEE Ms M Bosman   The primary role of the Committee is to provide oversight over the financial reporting process, Ms D Subbiah   the audit process, the Bank’s system of internal control, enterprise-wide risk, the financial position Mr SC Masuku of the Bank, and the investments and returns of the Insurance Companies. Its responsibilities among   others to: Prof JF Kirsten   Adv DW van der Westhuizen a. Review and make recommendations to the Board regarding financial risk management in the   Insurance Companies; Mr AC Kanana   b. Review and make recommendations to the Board regarding effective liquidity risk management Ms KH Mukhari in the Insurance Companies;   c. Review and make recommendations to the Board regarding the capital adequacy of the Ms Mukhari resigned as Non-Executive Director on 29 August 2022. 122 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS Insurance Companies in order to ensure that the Insurance Companies are able to pay their the resolution of adverse audit findings, the enhancement of the Insurance Companies Information debts as they fall due and able increase its assets through investments; and Technology environment, and the review and strengthening of internal controls. d. Direct and control the system of internal audit which complies with and operates in accordance with Regulations and Instructions prescribed in terms of sections 76 and 77 of the PFMA and INVESTMENT AND ACTUARIAL COMMITTEE GOI3; e. Oversee the system of internal controls; The financial and non-financial reporting process and The primary responsibility of the Committee is to the quarterly and integrated reporting process; a. Review and advise the Board on compliance with actuarial guidance, ensuring capital adequacy, f. Manage the relationship with the AG and other external assurance providers; reviewing embedded value calculations and considering the results of actuarial investigations g. Facilitate combined assurance by overseeing integration between the external audit, internal including, but not limited to, policyholder liability valuations and related earnings; audit, compliance and risk management functions; b. Ensure the reliability and accuracy of any significant and material statutory reporting to the h. Advise the Board on the strategic alignment of information and technology with the business Prudential Authority; of the Insurance Companies; c. Consider the methodologies and underlying models used as well as the assumptions made in i. Evaluate and advise the Board on the value gained by the Insurance Companies through the calculation of technical provisions. significant investments in technology and information, including the evaluation of projects throughout their life-cycles; The duties of the Committee include: j. Oversee the development of a risk management framework, strategy and appropriate policies a. Regularly review and recommend to the Board for approval an Actuarial Mandate; and make recommendations to the Board in that regard; b. Regularly review and recommend to the Board for approval an underwriting policy, re-insurance k. Advise the Board on the implementation and adequacy or otherwise of such risk management and other forms of risk transfer policy, a capital management policy, the ORSA policy, the ORSA frameworks, policies; scenario and planning framework, the credit risk policy and the liquidity risk policy; l. Oversee the development and implementation of a risk management system; c. Ensuring that sound actuarial governance principles and best practices are adhered to and m. Ensure that enterprise-wide risk assessments are performed annually; consistently applied; n. Advise the Board on the adequacy and effectiveness of such system; d. Evaluating of the adequacy and completeness of the annual quantitative regulatory returns to o. Identify, monitor, and advise the Board on the build-up and concentration of the various risks to the PA in terms of the applicable laws and regulations; which the Insurance Companies are exposed; e. Reviewing the reports of the HAF on the results of actuarial investigations, including the p. Identify and monitor all material risks to ensure that the Board’s decision-making capability and validation of actuarial models; accuracy of reporting is adequately maintained; f. Reviewing reports on compliance with actuarial guidance in the preparation of financial q. Facilitate and ensure the appropriate segmentation of duties of the risk management function statements; from operational business line responsibilities, and ensure that the segregation is observed; g. Evaluating the capital adequacy and solvency of the Insurance Companies, including stresses and r. Facilitate the introduction of measures to enhance the independence, adequacy, and effectiveness scenarios to be used for the ORSA process of the Insurance Companies and recommending of the risk management function; these to the Board for approval; s. Oversee risk management on an enterprise-wide and individual business unit basis; h. Monitoring and reviewing underwriting conditions and advising the Board on underwriting t. Oversee, approve, and report to the Board on the appointment, remuneration, disciplining, strategy and policy; evaluation, and removal of the head of the internal audit and risk management function; i. Monitoring and reviewing underwriting and re-insurance arrangements as well as actuarial u. Review and advise the Board on the information to be included in the integrated report related related audit finding; to risk management; j. Recommending investment strategies and policies for the Insurance Companies; v. Facilitate the complete, timely, relevant, accurate and accessible disclosure of risks to stakeholders; k. Reviewing the investment policy, guidelines, objectives and strategies of the Insurance Companies; w. Annually review the capacity and performance of the risk management function (in respect of l. Advising on the appointment and delegation to independent investment advisers of the the expertise, resource, and experience); and authority to execute individual investment transactions on behalf of the Insurance Companies; x. Be available to meet with the Prudential Authority on request. m. Receiving periodic reports from management and/or the independent investment advisers The Committee discharged all its responsibilities, but its primary focus for the year under review was 123 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS of the Insurance Companies, on the conformance of the invested assets of the Insurance LAND BANK INSURANCE COMMITTEE MEMBERSHIP Companies to its investment policy, strategies and objectives; n. Reviewing periodic reports on the performance of the invested assets the Insurance Companies; Land Bank Insurance Committee membership was the following during the year under review: o. Reviewing periodically compliance with respective requirements; p. Overseeing the management of the investment portfolio of the Insurance Companies and Committee Audit Investment Human Social and Nominations compliance by management and/or independent investment advisers, if applicable, with and Risk and Actuarial Resource and Ethics Committee applicable investment codes and regulations, and with the investment policies and guidelines of Committee committee Remuneration Committee the Insurance Companies; Committee q. Reviewing and making recommendations to the Board on the Asset-Liability Management, Ms EM Pillay   Liquidity Risk, Credit Risk and Investment Policies in terms of prudential standards at least on annual basis; Mr K Sukdev   r. Considering significant actuarial and financial risks and the appropriateness and effectiveness of Mr SC Masuku    the management of those risks; and s. Making recommendations to the Board regarding the appointment and dismissal of the HAF Ms M Bosman    and actuarial fees where applicable. Ms D Subbiah    The Committee discharged all its responsibilities and focused in particular on the development of an Prof JF Kirsten  actuarial mandate and role clarity of the HAF. Adv D van der   Westhuizen HUMAN RESOURCE AND REMUNERATION COMMITTEE The role and responsibilities of the Committee are mutatis mutandis no different from the roles and responsibilities of the Land Bank Human Resources and Remuneration Committee. NOMINATIONS COMMITTEE The role and responsibilities of the Committee are mutatis mutandis no different from the roles and responsibilities of the Land Bank Nominations Committee 124 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND BANK INSURANCE BOARD AND COMMITTEE ATTENDANCE Attendance of LBI Board and Board Committee sessions was as follows: Board Audit and Risk Investment Human Social and Nominations Strategy AGM Committee and Actuarial Resources Ethics Committee Sessions committee Remuneration Committee Committee 8 meetings 6 meetings 4 meetings 6 meetings 7 meetings 2 meetings 2 meetings 1 meeting Non-executive directors Ms EM Pillay1/2 5 1 1 - 4 - 1 1 Mr S Masuku 8 6 4 1 - - 2 1 Mr K Sukdev 8 6 4 3 - 2 2 1 Ms M Bosman 8 6 4 6 - 2 2 1 Ms D Subbiah 8 6 4 6 - 2 2 1 Prof J Kirsten2 3 - 2 - - - 1 1 Adv D van der Westhuizen 2 5 - - 3 - - 1 1 Mr A Kanana 4 1 Executive directors Mr A Rakgalakane 8 4 4 5 4 2 2 1 Ms K Mukhari 3 2 - - - 6 - - 1 1 Board Chairperson from 1 October 2022 2 Newly appointed NED from 9 June 2022 3 Resigned as LBIC-LBLIC Director 29 August 2022 4 Resigned as director 30 April 2022 125 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS REMUNERATION REPORT KING IV CODE™ DISCLOSURES FOR THE YEAR The Bank adheres to a Total Remuneration approach, considering both monetary and non-monetary ENDED 31 MARCH 2023 rewards within the Bank’s EVP in alignment with the Corporate Strategy. The Bank’s Board is committed to alignment with the corporate governance philosophies and The Bank’s Remuneration strategy is informed by the State-Owned Entities Remuneration and principles contained in the King IV Report on Corporate Governance for South Africa (2016) (King Incentives Guidelines (2018). Remuneration management at the Bank is integrated into other people IV Report) and to achieving the 17 principles set out in the King IV Code of Corporate Governance management processes such as performance management and talent management, falling within (King IV Code) contained in the King IV Report, and their associated good governance outcomes. the broader Human Capital policies, and is grounded in a total rewards philosophy and approach. The Remuneration and Compensation policy underwent review during the financial year and was The Bank has reviewed its current corporate governance practices to assess its degree of alignment submitted to the Ministry of Finance (MoF) for approval. with each of the 17 Principles, and with the Recommended Practices associated with each Principle. The Board’s assessment of the Bank’s application of each of the King IV Principles towards the The remuneration policy aligns with the King IV Code of Corporate Governance, incorporating its achievement of the King IV governance outcomes is summarised in the disclosure reference table relevant principles for the governance of remuneration and reward. The Integrated Annual Report below. provides transparency in disclosing the Bank’s remuneration policies and practices, along with their implementation. Remuneration guidelines are regulated by the SOCRIG requirements, PFMA, and These Disclosures include cross-references to where additional or other corporate governance the Bank Act, relating to the remuneration of the Board and Executives. disclosures are available within the Bank’s suite of external reports published for the 2023 reporting period, specifically: Directors’ remuneration is paid in accordance with National Treasury guidelines on remuneration for SOE board members, as determined by the MoF. These Disclosures include cross-references to where additional or other corporate governance disclosures are available within the Bank’s suite of external reports published for the 2023 reporting In accordance with the Act, the MoF determines the remuneration, allowances, and associated period, specifically: benefits of the CEO, and approves the bonuses of the CEO, CFO, and Executive Management. This process represents a deviation from King IV, which states that it is the Board’s responsibility to 1. The 2023 Land Bank Annual Integrated Report; approve CEO and Executive remuneration. The Bank continues to engage with the Minister to find 2. The Land Bank’s audited Annual Financial Statements for the year ended 31 March 2023; an appropriate resolution that will ensure that the interests of all relevant parties are considered 3. The Board takes ultimate responsibility for the good governance of the Land Bank Group; when approving remuneration to give effect to the intention and spirit of the King IV Code, principles, 4. The Board has delegated the some of its responsibilities to various structures and functionaries. and recommended remuneration policy practices. These include the AFC, the SEC, the RGC, the CIC and the Human Resource Committee, individual Directors and members of Management. All Delegations of Power are in writing and For details of the Board remuneration, please refer to the Annual Financial Statements included in are reviewed and approved by the Board on a n annual basis; this report. 5. All delegations of authority are in terms of the Land Bank Act, the PFMA, Treasury Regulations and best practice; 6. All Board Committees function in terms of a comprehensive written terms of reference (Charter) which is reviewed and annually approved by the Board; 7. The Committees of the Board operate in terms of Work plans which are approved by each Committee on an annual basis and revised in-year if and when circumstances dictate; 8. The focus areas of each Board Committee are agreed upon by each Committee on an annual basis; 126 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 9. Board Committees approve such matters as may have been delegated to them by the Board; The Bank is implementing various action in order to adopt this approach as progress is made 10. At least once every quarter or as often as is considered necessary, Board Committees receive towards reporting on Natural Capital elements. Progress to date in this regard is as follows: reports from Management regarding the matters set out in the Committee Charters and Draft Committee Work plans; Development This policy provides an integrated approach to funding and 11. Committees can make such recommendations and give such directions to Management on Effectiveness reporting, drawing on the Natural Capital elements. matters that fall within the ambit of their authority as they may consider appropriate; Strategic Strategy 12. At least once every quarter or as often as is considered necessary committees report to the progress This policy provides a holistic approach to the strategy and Board on their activities and on how they have discharged their responsibilities; Draft Climate operational process to infuse climate adaptation, climate 13. Committees also make recommendations to the Board on matters that are reserved for the Change Policy mitigation and climate resilience across the Bank and Board and on such others as it may consider appropriate; and operations. 14. The Board exercises oversight over the functions and activities of all Board Committees and This indicator framework provides relevant and inclusive Management in terms of its own Work plan which it develops and approves on an annual basis. Land Bank indicators for data capturing and reporting purposes. The The Board Work plan can be reviewed and amended in-year when circumstances dictate. Development Natural Capital indicators are included in this document and Indicator provides a basis for collection of climate-related data for TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES Framework the Bank. In the context of IR, the King IV Report provides detail of the organisation’s uses and/or effects on The Bank became a signatory in September 2019. At a Principles of all capitals. Within Land Bank, and Agricultural sector at large, the Natural Capital is of significant high level the PRB requires all Banks to align their strategy, Responsible importance. The King IV Code™ is designed to promote good corporate governance in South process and procedures to the Paris Agreement and the Banking African companies. Such governance encompasses the roles and responsibilities of the Board of SDGs. Directors, strategy, performance, reporting, and stakeholder relationships. Land Bank strives to Tactical The study aims to identify through modelling the expected comply to the Code and ensure that an integrated governance process is instituted. progress Case Study on changes in temperature and the results and effect on maize Climate Services yields for the North West province. This will allow the Bank Acknowledging the governance for Natural capitals with regards to The TCFD is critical. The TCFD is for Land Bank to start integrating the associated risks into the Banks credit an industry-led initiative created to develop a set of recommendations for voluntary climate-related modelling and decision making. financial disclosures. These are aimed at all financial actors, from companies and investors to asset The study aims to identify through modelling the expected owners and managers, as the goal is to provide consistent and transparent information to global changes in temperature and the results and effect on maize markets. The TCFD is aligned to King IV, as a deliberate response to addressing climate adaptation, yields for the North West province. This will allow the Bank climate resilience, and sustainable financing as per NT’s Handbook on Sustainable Finance. TCFD to start integrating the associated risks into the Banks credit governance element relates to Disclosing the organisations governance around climate-related risks modelling and decision making. and opportunities. Understanding This is a survey understanding by the Bank with clients to Operational climate adaptation assess the effect of climate change on their operations, their progress responses and response, and their future needs to adapt to climate change. needs. The Environmental and Social Risk Assessment Tool is imbedded as part of due diligence process and tools. This ESRA aims to identify the risks that the Bank is exposed through the funding and to enable mitigation of risks through cooperation. 127 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS References: PRINCIPLE 2: The Board Should Govern Land Bank’s Ethics in a Way That Supports the King Committee. 2021. Guidance paper on the responsibilities of governing bodies in responding to Establishment of an Ethical Culture. climate change. The Boards have approved Codes of Ethics and Business Conduct for themselves and for members of staff. Board members and members of staff are duty bound to adhere to the prescripts of the KING IV CODE™ PRINCIPLES Codes. Implementation of the Codes in all aspects of the Business of the Bank and the Insurance Companies is supervised and enforced through the Joint Social and Ethics Committee of the Bank LEADERSHIP, ETHICS AND CORPORATE CITIZENSHIP and the Insurance Companies. PRINCIPLE 1: The Board Should Lead Ethically and Effectively. An Ethics Office has been established which, among others, has the responsibility of developing and implementing programmes, guidelines and practices that are in line with the policies of the Bank and The conduct of the Board is governed by, among others, a Board Charter, a Board Code of Ethics the Insurance Companies on ethics. The Social and Ethics Committee of the Bank and the Insurance and Business Conduct, a Board Conflict of Interest Policy and a Board Manual. This is over and above Companies, and the Risk and Governance Committee of the Bank receive and review reports on the fact that the Board subscribes to the principles advocated in among others, the King Report on the ethics performance of the Bank on a quarterly basis, and make recommendations to the Board Corporate Governance for South Africa, 2016. on all material risks pertaining to ethics. The reports deal with, among others, AML issues including PIPs (Politically Influential Persons) and PEPs (Politically Exposed Persons). The Risk and Governance Board members have an individual and collective responsibility of setting the tone for an ethical Committee of the Bank ensures that ethics risks that have been identified are managed as part of organisational culture, both at board level and across the Group. Board members hold each other to the overall risk management strategies and programmes of the Bank and the Insurance Companies. account for their actions in particular those actions which may be viewed to be in conflict with their fiduciary responsibilities as Directors. PRINCIPLE 3:The Board Should Ensure That Land Bank Is and Is Seen to Be a Responsible Corporate Citizen The Board engages at least once a year with employees regarding the goals and strategic objectives of the Bank which are driven by the Board unapologetic approach and the adherence to high ethical The Board recognises its dependence on the environment and the resources that it provides for standards. The Boards will not hesitate to act against employees regardless of their designation or the achievement of its objectives. The Board also acknowledges its obligation to act as a responsible level where it is considered that these standards have been breach.The Land Bank and the Insurance corporate citizen. Companies pride themselves on the governance processes in place and that in the face of any corporate governance lapses, the Boards do not hesitate to take disciplinary action and dismiss Towards that end, the Board has adopted the United Nations Principles for Responsible Banking individuals where necessary. (PRB) and approved an ESS Policy and Programme in support of the initiative. The Board believes that by subscribing to this initiative, the Bank can demonstrate its support for human rights and has Board members discloses their financial and external interests annually, and where there are instances an opportunity to play an important role in promoting land stewardship, protecting the environment of conflict of interests the Board as a collective and/or the relevant Board Committees mitigate the and the communities impacted by its activities, and help secure the long-term sustainability of natural risk appropriately in the best interest of the Bank and of the Insurance Companies. Furthermore, resources, communities and society in general. Board members are required to declare their interests with regard to any matters that are on the agenda of that meeting. This promotes accountability and transparency. 128 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS STRATEGY, PERFORMANCE AND REPORTING PRINCIPLE 6: The Board Should Serve As the Focal Point and Custodian of Corporate Governance in Land Bank PRINCIPLE 4: The Board Should Appreciate That Land Bank’s Core Purpose, Its Risks and Opportunities, Strategy, Business Model, Performance and Sustainable Development The Board has ultimate accountability and responsibility for performance and affairs of the Land Are All Inseparable Elements of the Value Creation Process. Bank, including its adoption and implementation of good governance practices and principles under applicable law and regulation, and the King IV Code. The strategic planning processes of the Bank are governed by the National Treasury Framework for Strategic and Annual Performance Plans (2010) which seeks to ensure that strategic and annual The Board has assumed this responsibility fully. It has, among others, adopted a Board Charter and performance planning is aligned to the outcomes-oriented monitoring and evaluation approach led other supporting instruments which in conjunction with the requirements of the Land Bank Act, the by the Presidency in particular the National Development Plan. Public Finance Management Act and other applicable law and regulation defines the governance roles, responsibilities and processes and best practice. The Board also subscribes to the recommendations The mandate of the Bank of the Bank includes among others the empowerment of previously of the King Report on Corporate Governance for South of 2016 in terms of the principles and disadvantaged communities, the promotion of emergent farmers, the sustainability of commercial practices of good corporate governance. agriculture and food security. The Corporate Strategy of the Bank is informed by these imperatives, is prepared by Management for consideration and approval by the Board and seeks among others PRINCIPLE 7: The Board Should Comprise the Appropriate Balance of Knowledge, to ensure that Bank responds to stakeholder expectations and that there is a viable platform for it Skills, Experience, Diversity, and Independence for It to Discharge Its Governance Role to create value over the short, medium and long-term. and Responsibilities Objectively and Effectively. PRINCIPLE 5:The Board Should Ensure That the Reports Issued by Land Bank Enable Its Section 8(6) of the Land Bank Act provides that the Land Bank Board must, when viewed collectively, Stakeholders to Make Informed Assessments of Land Bank’s Performance and Its Short-, represent a broad cross section of the South African population; be suited to serve on the Board by virtue Medium-, and Long-term Prospects. of qualifications, expertise, and experience; and be committed to the objectives of the Land Bank. The Boards have diverse skills in terms of qualifications, experience and overall strong value add. In addition, The Board and its Committees have oversight over reporting legislated and regulatory reporting, and the Boards are diverse with different races, ages, and good representation from a gender perspective. To the publication of information pertaining to its affairs to third parties. ensure skills are developed a skills matrix has been developed to address the following areas: Reporting is governed by the Land Bank Act, the PFMA, National Treasury Regulations, and National 1. Determining board and Board Committee optimal structures Treasury Guidelines for Annual and Quarterly Reporting. All external reports are first reviewed by 2. Identifying the current skills, knowledge, experience and competencies of the board and Board the Committees of the Board for accuracy, usefulness, timeliness and completeness before they are Committees tabled before the Board for approval and release. Where applicable, such reports are first validated 3. Identifying the skills gaps at board and Board Committee level by assurance providers such as the internal audit function and the Office of the Auditor General 4. Designing programmes to close skills gaps before they are tabled before the Board and its Committees for consideration and approval. 5. Informing programmes for the continuing development of Directors 6. Integrating board evaluation with succession planning The Board acknowledges that the regression in audit outcomes from a clean audit to an unqualified 7. Providing guidance for: audit with findings is undesirable. The findings related to misstatements in the collateral values used i. The recruitment of Directors for subsidiary entities as in inputs in the ECL (Expected Credit Loss) Model. These were subsequently corrected and the ii. The assignment of Directors of the parent entity to the boards of subsidiaries Auditor General found the models and assumptions used by the Bank to determine the allowance iii. Recommending Directors to the Minister for appointment, reappointment, and termination to be reasonable and consistent with its expectations. The Board has resolved that it needs to be iv. The assignment of Directors to among others Board Committees, Board task teams and more vigilant going forward, ensure that such errors do not recur and commits to the restoration Board working groups of a clean audit status. 129 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS v. Nominating Directors for appointment to third-party entities where the Bank has equity PRINCIPLE 9: The Board Should Ensure That the Evaluation of Its Own Performance interests and That of Its Committees, Its Chair and Its Individual Members, Support Continued vi. Selecting advisers to the Board, Board Committees and Management; and Improvement in Its Performance and Effectiveness. vii. Identifying and developing potential director talent in and outside the Bank. The Boards believes that appraising its performance helps clarify the individual and collective roles It should be noted that regardless of all of the above, in terms of the Land Bank Act the exclusive and responsibilities of individual Directors, and better knowledge of what is expected of Directors authority to appoint members of the Board of directors of the Land Bank ultimately resides in the helps the Boards become more effective. It assists in identifying skills and capacity gaps which when Minister. Members of the Board of directors of the Insurance Companies are appointed by the filled enables the Boards to be better positioned to deliver on their mandate, goals and strategic Board of directors of the Land Bank as representative of the Land Bank, the sole shareholder. objectives. There were no vacancies on the Board of directors of the Land Bank during the reporting period The assessment of the performance of the Board for the period under review is work in progress. under review, but the term of office of one Board member is due to expire on 7 December 2023. There is one vacancy on the Board of directors of the Insurance Companies which is in the process PRINCIPLE 10: The Board Should Ensure That the Appointment of, and Delegation to, of being filled. Management Contribute to Role Clarity and the Effective Exercise of Authority and Responsibilities. PRINCIPLE 8: The Board Should Ensure That Its Arrangements for Delegation Within Its Own Structures Promote Independent Judgement and Assist With Balance of Power The Boards have approved a written Delegation of Powers to the Chief Executive Officer of the and the Effective Discharge of Duties. Bank and the Managing Director of the Insurance Companies. The written Delegations of Powers ensures that there is role clarity and promote effective arrangements for the management of the The business and affairs of the Land Bank and the Insurance Companies are managed by or under day-to-day management of the affairs of the Bank and of the Insurance Companies. the direction of the Boards, which have the authority to exercise all of the powers and perform any of the functions of the Land Bank, except to the extent that a Land Bank Act otherwise provides.The The Boards acknowledge the authority vested in the CEO in terms of Section 18 of the Land Bank Board acknowledges its authority and responsibility to control, manage and direct its own affairs. The Act. The section provides firstly that the CEO is responsible for the day-to-day management of Board is however, cognisant of the fact that it is entitled to discharge such responsibility by way of the Bank subject to the direction of the Board and secondly that the CEO has control over all the express delegation of its authority to control, manage and direct its own affairs. employees of the Bank. Towards that end the Boards have approved primary delegations of power which comprehensively Delegations to the CEO and to the Managing Director are made in the interests of ensuring that the set out the powers that it has reserved for itself, and the powers that have been delegated to Board CEO and the Managing Director are able to perform his duties devoid of undue hindrance by the Committees in terms of Committee Charters. Boards, on the understanding that the CEO and the Managing Director will discharge their duties ethically and with due observance of the law, and are made subject to the limitations imposed in the The Boards are guided by a skills matrix in its decisions on appropriate committee structures and CEO and the Managing Director in the written delegations of power. matters of committee leadership and composition. The Delegations of Power are supported by a system of checks and balances to ensure good governance and pre-empt undue concentration of powers. They promote role clarity and effective arrangements for the management of the Bank. 130 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS PRINCIPLE 11: The Board Should Govern Risk in a Way That Supports Land Bank in The Boards recognises that compliance risk is a significant risk category for the Bank and the Setting and Achieving Its Strategic Objectives. Insurance Companies due to the highly regulated nature of the environment in which they operate. This requires among others that significant compliance risks should be regularly and systematically Risk oversight is a primary Board responsibility, and the Boards develop and continuously improve monitored and any incidents of non-compliance identified during these regular reviews appropriately the practices to establish well-defined and effective oversight functions.The Boards play a critical role addressed. in influencing Management’s processes for monitoring risks, and clearly defines which risks the full Boards should discuss regularly, versus risks that can generally be delegated to a Board Committees. Compliance is not optional.The Board insists that exceptions permitted by the law and shortcomings An extensive externally facilitated risk assessment exercise led by the Risk and Governance in the law are handled in a responsible manner. The Board defines the approach and approves the Committee and the Audit and Risk Committee was undertaken during the year under review. policy for the management of compliance. PRINCIPLE 12: The Board Should Govern Technology and Information in a Way That PRINCIPLE 14:The Board Should Ensure That Land Bank Remunerates Fairly, Responsibly, Supports Land Bank Setting and Achieving Its Strategic Objectives. and Transparently to Promote the Achievement of Strategic Objectives and Positive Outcomes in the Short, Medium, and Long Term. Information and technology governance are the responsibility of the Board and Management. It is an integral part of the overall governance structures of the Land Bank and of the Insurance Companies, The Boards regularly review and approves: and the Boards take an active role in information and technology strategy and governance through the offices of the Audit and Finance Committee and the Audit and Risk Committee. • Remuneration strategies and policies for all members of staff of the Land Bank and of the Insurance Companies. The Boards ensure the proper value delivery of information and technology, that the expected • The remuneration arrangements of Executives including fixed and variable remuneration return on investment from information and technology projects is delivered and that the information components, performance measures and targets for incentives, having regard to the outcome and intellectual property contained in the information systems is protected. of the annual performance review of the Executives. • The terms and conditions of the employment contract of the Chief Executive Officer and the The Boards govern technology and information in a way that supports the setting and achieving the Managing Director strategic objectives of the Bank and the Insurance Companies. To this end the Boards have, through • The remuneration arrangements of the Chief Executive for approval by the Minister. the offices of the Audit and Finance Committee, appointed an expert to advise it on information • The remuneration arrangements of the Managing Director technology focusing in particular on the alignment of the Information and Technology Strategy with the long-term strategy, business objectives and future requirements of the Bank and of the Insurance The Boards consider, and if deemed appropriate, approve. Companies. • The terms and conditions of the contracts of employment of other members of the Executive PRINCIPLE 13:The Board Should Govern Compliance With Applicable Laws and Adopt, and Senior Management. Non-binding Rules, Codes and Standards in a Way That Supports Land Bank Being • The remuneration arrangements for other members of the Executive and Senior Management, Ethical and a Good Corporate Citizen. as recommended by the Chief Executive Officer and the Managing Director. With regard to their responsibility of ensuring and having oversight over compliance, the Boards The Board satisfies itself that: are supported by the Risk and Governance Committee and the Audit and Risk Committee which provide direction on and oversight over the implementation by Management of Board-approved • All governance, accounting, legal, approval and disclosure requirements in relation to compliance strategies and policies, ensure that compliance is integrated into the fibre of the Bank, remuneration are complied with. that compliance is used as a lever for the attainment of the goals and strategic objectives of the • Any new or varied contracts with the Chief Executive Officer are disclosed in accordance with Bank, and that the compliance systems employed by Management are effective, and conducive to any governance, accounting, and legal requirements. compliance with applicable laws, regulations and best practice. 131 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS The Boards oversee management’s preparation of the Remuneration Report for inclusion in the Negative publicity raised by media reports has been addressed to prevent reputational damage and Integrated Report, reviews the Remuneration Report to ensure it is consistent with the information to ensure continuous improvement. known to them, and appropriately reflects the decisions of the Boards and the outcomes of those decisions. STAKEHOLDER RELATIONSHIPS The Boards manage engagements and communications with key stakeholders in relation to the PRINCIPLE 16: In the execution of its governance role and responsibilities, the Board content of the Remuneration Report. should adopt a stakeholder–inclusive. PRINCIPLE 15: The Board should ensure that assurance services and functions enable The Board has adopted an inclusive approach to stakeholder management. an effective control environment, and that these support the integrity of information for internal decision-making and of Land Bank’s external reports. The Board has approved a Communication Policy which governs all its interactions with stakeholders, internal and external. The Boards have adopted a Combined Assurance Model which consists of 3 lines of defence, viz. 1. people, systems and controls; The Board exercises oversight over the Group Communication function through the offices of the 2. risk management and compliance function; and Social and Ethics Committee which receives and reviews the following quarterly reports: 3. internal audit function 1. Labour and Employment Practices Report The combined assurance model ensures that there is a coordinated approach to all assurance 2. Marketing and Communications Report activities. The Combined Assurance model is based on: 3. Stakeholder Management Report 1. identified risks; 4. Development and Transformation Report 2. how assurance is achieved for the particular risk; 5. Environmental and Social Sustainability Report 3. an identified assurance provider for the risk; and 6. Corporate Social Investment (CSI) Report 4. where this assurance is reported. 7. Research Report 8. Organisational Integration and Project The Boards seek to ensure that the assurance which is provided by the lines of defence is credible. This is achieved by ensuring that the skill and experience levels of the assurance providers are The relationship between the Bank and the Insurance Companies is governed by a Group Governance appropriate for the work to be performed, and that the extent of the work performed will address Framework approved by both Boards. The Group Governance Framework has been prepared the potential and actual exposures. strictly in accordance with the guidelines provided by the IoD in January 2019 and recognises the independence of the subsidiaries and the corresponding fiduciary duties of the Directors of the The Board also ensures that there is a comprehensive plan for combined assurance, which includes Board of Directors. the risk-based assurance coverage analysed per assurance provider and the management/governance committee responsible. PRINCIPLE 17: The Board should ensure that responsible investment is practiced by land bank to promote good governance and the creation of value by the companies in The Audit and Finance Committee and the Audit and Risk Committee approves and oversees the which it invests. combined assurance initiative. From an operational point of view, internal audit acting in consultation with risk management reviews the continued relevance of the combined assurance plan and makes The Land Bank Board performs oversight of the Banks investment management activities through recommendations to the Audit and Finance Committee and to the Audit and Risk Committee about its nominated asset managers and investment managers, including by ensuring that they support improvements. the principles of responsible investment and are either signatories of the United Nations Principles for Responsible Investments (UNPRI), or subscribe to the Code for Responsible Investing in South Africa (CRISA). 132 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS 133 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 PART 11 FINANCIAL STATEMENTS 134 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 135 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Contents GENERAL INFORMATION 137 – 138 DIRECTORS’ RESPONSIBILITIES AND APPROVAL 139 – 143 CERTIFICATE BY COMPANY SECRETARY 144 AUDIT & FINANCE COMMITTEE REPORT 142 – 146 REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON THE LAND 147 – 154 AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA STATEMENTS OF FINANCIAL POSITION 155 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 156 STATEMENTS OF CHANGES IN EQUITY 157 STATEMENTS OF CASH FLOWS 158 – 159 SEGMENT REPORTING 160 – 169 ACCOUNTING POLICIES 170 – 189 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 190 – 307 136 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 General Information Shareholder National Treasury, Government Department Public entity Governed by the Land and Agricultural Development Bank Act, 2002 (Act No. 15 of 2002) and is a schedule 2 Public Entity in terms of the Public Finance Management Act (PFMA). Country of incorporation and domicile The Republic of South Africa Nature of business and principal activities The Land Bank provides retail and wholesale finance to emerging, commercial farmers and Agri-Businesses. In addition to its banking operations, the Land Bank extends its services to the insurance sector through its subsidiaries. Head office physical address 272 Lenchen Avenue Lakefield Office Park, Building A, First Floor Die Hoewes Centurion Postal address P. O. Box 375 Tshwane 0001 Bankers First National Bank Limited, a division of First Rand Limited ABSA Limited, Nedbank Limited, The Standard Bank of South Africa Limited 137 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 General Information Funding sponsors The Standard Bank of South Africa Limited Auditors The Auditor-General of South Africa Company secretary Mashumi Mzaidume (appointed 9 October 2017) Land bank subsidiaries Land Bank Life Insurance Company (SOC) Limited (LBLIC) 1954/003095/06 Land Bank Insurance Company (SOC) Limited (LBIC) 2012/115426/30 All of the above entities are incorporated in the Republic of South Africa Holding company Land and Agricultural Development Bank of South Africa (the Land Bank or the Bank) Nature of business and principal activities Land Bank Life Insurance Company (LBLIC) and Land Bank Insurance Company (LBIC) operate in the insurance sector. LBLIC offers credit life insurance products and LBIC offers primarily crop insurance products to the wider agricultural sector. LBLIC and LBIC are incorporated in terms of the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and are schedule 2 Public Entities in terms of the PFMA. Head office physical address 272 Lenchen Avenue Lakefield Office Park, Building A, First Floor Die Hoewes Centurion Postal address P. O. Box 375 Tshwane 0001 Bankers LBLIC: ABSA Bank Limited LBIC: RMB Private Bank, division of First Rand Limited Auditors The Auditor-General of South Africa 138 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Directors’ Responsibility for Financial Reporting The Directors are required by the South African Companies Act of responsibilities within a clearly defined framework, effective The consolidated financial statements have been prepared to maintain adequate accounting records and are responsible accounting procedures and adequate segregation of duties to in accordance with the requirements of the International for the content and integrity of the consolidated and separate ensure an acceptable level of risk. These controls are monitored Financial Reporting Standards (IFRS) (with consent from the annual financial statements and related financial information throughout the Group and all employees are required to maintain Accounting Standards Board per Directive 12 of 2015) and the included in this report. It is their responsibility to ensure that the the highest ethical standards in ensuring the Group’s business is interpretations issued by the International Financial Reporting consolidated and separate annual financial statements satisfy the conducted in a manner that is above reproach in all reasonable Interpretations Committee (IFRIC), applying the accrual basis of financial reporting standards as to form and content and present circumstances. accounting, the going– concern principle, and using the historical- fairly the consolidated and separate statement of financial cost basis, except where specifically indicated otherwise in the position, results of operations and business of the Group, and The focus of risk management in the Group is on identifying, accounting policies. explain the transactions and financial position of the business of assessing, managing and monitoring all known forms of risk across the Group at the end of the financial year. The consolidated and the Group. While operating risk cannot be fully eliminated, the The consolidated annual financial statements were prepared separate annual financial statements are based upon appropriate Group endeavours to minimise it by ensuring that appropriate under the supervision of the Bank’s Chief Financial Officer. accounting policies consistently applied throughout the Group infrastructure, controls, systems and ethical behaviour are applied and supported by reasonable and prudent judgements and and managed within predetermined procedures and constraints. The financial statements set out on pages 155 to 307, which estimates. have been prepared on the going concern basis, were approved In order for the Board to discharge its responsibilities, management by the board of directors on 31 July 2023 and were signed on The Directors acknowledge that they are ultimately responsible has developed and continues to maintain a system of internal their behalf by: for the system of internal financial control established by the control. The Board has ultimate responsibility for the system of Group and place considerable importance on maintaining a internal control and reviews its operation, primarily through the robust control environment. To enable the directors to meet Audit and Finance Committee and various other risk-monitoring these responsibilities, the board sets standards for internal committees. Management enables the Directors to meet these Ms Rethabile Nkosi Mr Themba Rikhotso control aimed at reducing the risk of error or loss in a cost- responsibilities. Chairperson of the Board Chief Executive Officer effective manner. The standards include the proper delegation 31 July 2023 31 July 2023 139 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Directors’ Report The directors have the pleasure of presenting this report on the remain confidential between the Land Bank and the Shareholder. Funding the bank Annual Financial statements of the Land and Agricultural Bank of A material uncertainty exists as negotiations to cure the state of South Africa for the year ended 31 March 2023. default are still ongoing. The Board approved a new strategy of the Bank and operating model. The Bank is working on a new funding model to enable The directors would like to highlight the following areas: The Bank continues to receive support from its lenders. As the execution of its development and transformation mandate. mentioned in the previous year reports only one lender has to This work will be supported by an expert, and will help address State of default and impact on the going concern date accelerated their debt. All other lenders remain committed to a long-standing challenge, in that, to-date the Bank has not been of the Bank working with the Bank to find an amicable solution to the default appropriately funded to fulfil its DFI mandate. challenge.There has been progress achieved over the past financial year in advancing the liability solution. An agreement on the liability Macro environment The Bank is still operating under a state of default which occurred solution is expected to be concluded by 31 March 2024. in April 2020. Unfortunately, the liability solution intended to cure the default has taken longer than initially anticipated to During the year under review and subsequently, the Bank Despite its challenges, the Bank has been able to accumulate conclude, and remains under negotiation. However, supported has had to contend with the outbreak of diseases and other sufficient cash that enabled the repayment of ~45% of debt by the Shareholder, the Bank continues to work together with macroeconomic challenges to the Agricultural sector. The impact outstanding at default, the Bank continues to service interest lenders to find a solution that is suitable for all stakeholders. on the Bank is outlined below: payments– and capital payments for the Development Finance Successful closure of the liability solution (curing the event of Institutions (DFIs), pay its suppliers and staff and the Bank has default) will ensure the Land Bank remains a going concern by Avian influenza outbreak – Poultry farming been able to continue to operate. It is on this basis that the allowing the Bank to transition to implementation of the solution. directors have a reasonable belief that the Bank has adequate The Shareholder has been very supportive through this process An outbreak of Avian Influenza was reported in the Western resources to continue as a going concern for the foreseeable as evidenced by the continued engagements with all stakeholders Cape on 25 April 2023 for commercial poultry farmers, future and also based on forecasts and available cash resources. through the restructuring process as well as by the R10 billion 120 000 birds have been destroyed (culled) as a result. Further The Land Bank board has approved a fifth capital reduction of allocated to recapitalise Land Bank. R3 billion was transferred investigations are being conducted by the South African Poultry R5,4 billion to be paid to the lenders by the 7th of June 2023.This to Land Bank in September 2020, R6 billion was transferred Association to ascertain whether there are any more affected will take the total debt repayment since default to over R23bn during 2023 and the remaining R1 billion will be transferred cases. The Land Bank’s current exposure to the poultry industry which is 58%. during FY23/24. R5,1 billion of the R6 billion transferred in as of 31 March 2023 was about R402m, which is under 2% of FY22/23, has conditions precedent before it can be utilised by the total book. No Land Bank client has been affected to-date. During the FY20/21 financial year, the Minister of Finance has in Land Bank and has therefore been ring-fenced in an Escrow The Bank will continue to monitor the developments concerning terms of Section 92 of the Public Finance Management Act No. account pending compliance with those conditions, the main Avian Influenza Outbreak through client visits and engagements. 1 of 1999, exempted Land Bank from submitting the FY22/23 one being curing the event of default. There are a total of seven and FY23/24 Corporate plans as required by Section 52 of the conditions attached to these funds, the Bank has already met African Swine Fever (ASF) same Act until Land Bank is cured of its default position and more three and is comfortable that it will meet at least six of them certainty is gained regarding the future structure of the Bank. by the end of FY23/24. Engagements are in progress regarding South Africa is currently facing an outbreak event of ASF. An event Owing to the state of default the Bank is still operating under, the last condition, which if not revised could negatively impact was reported in January 2023 affecting the Gauteng province. the exemption remains in place. The Bank however continues to the debt restructuring process, which could then affect the going The spread of the disease seems to have slowed down. Control contract with the Shareholder on annual performance targets concern position of the Bank. The Bank is comfortable that this measures are based on quarantine and movement controls, with and to account to Parliament. matter will be successfully addressed. At present, the conditions 140 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Directors’ Report (continued) awareness drives to highlight essential biosecurity measures to oil prices started in June 2022, and averaged $81.4 per barrel Bank, such as loan extensions, refinancing options, or flexible enable pig owners to prevent infection of their pigs. The impact for Q1 2023 compared to $88.4 per barrel for Q4 2022 and repayment terms, to alleviate the burden of rising input costs. of this outbreak has been assessed as not significant. $112.7 per barrel for Q2 2022. Fertiliser prices are normally Farmers may even be forced to reduce output. Farmers also linked to fundamentals of crude oil prices hence we see them have the impact of load shedding which adds extra costs to Heavy rainfall and floods benefiting from this trend. Although still high, fertiliser prices their operations to keep business running. The ability to invest in have fallen from their 2022 peaks, and we are observing lower new technologies, equipment upgrades, and innovative farming The past summer season has been characterised by excessive averages on the domestic market in 2023. The continued practices may be restricted, limiting their productivity, efficiency, rains in some parts of the country, more so during February weakening of the rand is likely limiting the extent of the declines and competitiveness. However, the bank will continue to monitor 2023. Six provinces have been severely affected by the floods, of these prices, as weaker currency results in higher prices for sector developments and their impact on clients which will largely in the urban and semi-urban areas in terms of damage imported agricultural inputs such as fertiliser, machinery and fuel. inform which risk mitigation strategies to deploy to minimise the to homes, basic infrastructure, roads and bridges and in certain Grain SA has previously confirmed that South African farmers increase in non-performing loans and provisions. regions crops and livestock were impacted. These are, KwaZulu import over 80% of the inputs they require. -Natal, Eastern Cape, Northern Cape, Limpopo, Mpumalanga South African Energy crisis and North West. The Provinces that reported impact on clients With that being said, South Africa’s 2022/23 summer grain were North West and Northern Cape. In certain instances, some production planting was aligned with record high input prices and For a while now, South Africa has been experiencing an energy clients indicated that instalments will not be paid and will require therefore, the recent drop in the grain price overall is negative crisis with load shedding being a regular occurrence in the country. a forbearance program. Although clients have been impacted, for farmers. Domestic South African yellow maize prices for This has a huge impact on farmers due to their dependency on the volumes are very low, with some clients having welcomed example have fallen about 27% since the start of the planting technology for farming purposes. The bank assessed the impact the rains in the Free State and Gauteng provinces. The financial season (October 2022) to an average R3670/t during May 2023. of load shedding on its customers, and the key findings were that impact was assessed as not significant. The current declining input costs will bring relief for next season, while in general all clients were affected by load shedding in one however, for the current season, many farmers will be left in a way or another, the key industries that were heavily impacted are Rising input costs tight position due to lower grain prices, if the farmer has an open irrigation farmers, intensive farming units (poultry, piggery) and position or no contract in place, after having paid higher prices dairy. At this stage, none of the Banks clients has raised concerns South African farmers have battled higher input costs since the for inputs. on whether they might not be able to service their loans. start of 2020.This picture was made worse by the Russia-Ukraine conflict which has exacerbated the situation. The rising cost of inputs has a number of negative effects on our Ukraine/Russian war clients. High input costs make it difficult for farmers to generate In the April 2023 edition of the Global Commodity Market sufficient revenue to cover their loan payments, potentially The Russia-Ukraine conflict has exacerbated COVID-19-induced Outlook, the World Bank indicated that the price of Brent crude leading to loan delinquency or default. Farmers’ profit margins socioeconomic conditions in many countries and limited the oil in U.S. dollars is expected to average $84 a barrel this year, are diminished by high input costs, making it harder to repay contributions of Russia and Ukraine to the global production and down 16% from the 2022 average. Fertiliser prices are also loans, invest in farm improvements, or expand their operations. trade of fuel, fertilisers, and other food commodities.The war has projected to fall by 37% in 2023, which would mark the largest This, also considering increases in interest rates in the market also limited global food trade, particularly in the Black Sea region, annual drop since 1976. However, fertiliser prices are still near recently. Farmers may struggle to manage cash flow, meet and increased global food prices and price volatility. Although their recent high last seen during the 2008-09 food crisis. Brent financial obligations, and maintain the viability of their farms, international trade agreements such as the Black Sea Grain crude oil prices have seen a sustained downward trend from the increasing financial stress and raising concerns about long-term Initiative, the EU Solidarity Lanes initiative, and the memorandum highs induced by the ongoing Ukraine war. The easing of crude sustainability. Farmers may require additional support from the of understanding between Russia and the Secretariat of the 141 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Directors’ Report (continued) United Nations have limited trade disruptions, much uncertainty clients with instalments falling due during the restriction period Internal controls and audit outcome remains. As part of the Black Sea Grain Initiative and the Solidarity were contacted to establish if they will be in a position to settle Lanes, Ukraine was able to export more than 58 million tonnes the instalments. Where applicable, short-term extensions were During the past financial year, Land Bank was able to improve the of grain, oilseeds, and related goods between May 2022 and allowed. Restrictions were largely lifted on the affected Provinces. audit outcome from a qualified opinion to an unqualified (clean) the end of March 2023. While these efforts have helped ease The latest surveillance report as of 30 April 2023 from the audit opinion. This was as a result of the continued focussed high global food prices, their continuation will be critical for the DALRRD shows that South Africa had 200 open FMD outbreaks and extensive remedial plan under the Audit and Finance sub- foreseeable future. in the previous FMD free zone. The outbreaks affect Limpopo, committee of the Board, that was implemented by the Bank to NW, Gauteng, Mpumalanga, FS and KZN. Notwithstanding the address identified control deficiencies. The remedial process was In the short run, actions such as the removal of trade restrictions above, this impact has been assessed as not significant. extended to the current financial year to ensure residual gaps in and slower global growth could continue to push food prices the control environment are closed and to embed the control lower, but if the Russia-Ukraine conflict continues, along with its COVID-19 environment enhancements in business as usual to ensure we many uncertainties, wheat, maize, oilseed, and fertiliser markets sustain the clean audit. could remain unstable. Additionally, on the 17th May 2023, the The Land Bank customers that were affected by COVID-19 Black Sea Grain Initiative was extended by another two months. restrictions were limited to livestock and this impact was not It is on this basis as well as information and explanations received The news came a day before the agreement, first penned in July material. There are customers still dealing with the aftermath from management that the Directors are of the opinion that the last year, was due to expire. and recovery, otherwise, normal operations have resumed for system of internal control provides reasonable assurance that the all. Most countries have lifted Covid restriction measures and financial records are reliable for the preparation of the annual The above initiative, better harvests in other major grain- goods are flowing through the ports. To this effect, in addition financial statements. However, any system of internal financial producing countries, and lower energy prices, have helped reduce to measures implemented by Land Bank to assist its clients, the control can provide only reasonable, and not absolute, assurance agricultural commodity prices from their early-2022 peaks, which Bank received R100m COVID-19 relief fund from DALRRD in against material misstatement or loss. we also saw spill over in our domestic market. In summary, there order to support its clients who have been negatively impacted has been progress in terms of movement or redirection of trade by COVID-19 pandemic. The Bank continues to monitor any Recommencement of lending of key commodity exports from Russia and Ukraine, but there is new developments in COVID-19 that could negatively impact s-till uncertainly in the market on the way forward. the agricultural sector. The Bank has recommenced origination in both the commercial and development sector. In the development space, the blended Foot and mouth disease The above macroeconomic factors impact all clients in some form finance project in collaboration with DALRRD was launched in or the other, but the impact will differ from farmer to farmer based October 2022 and is currently being rolled out. South Africa is currently facing three outbreak events of on – the strength of cash flows. The Bank has deployed various FMD. South Africa has so far resolved 12 infected premises in risk mitigation strategies, and the Bank continues to monitor the Furthermore, the Honourable Minister Thoko Didiza of three FMD outbreak events and closed them with the World impact on its clients closely, any challenges have already been the Department of Agriculture, Land Reform and Rural Organisation for Animal Health (WOAH). The FMD outbreak reported and considered in the financial statements. Development (DALRRD), announced on the 9th of May 2023, impacted livestock clients in Provinces such as KZN, Limpopo, the establishment of the Agro Energy Fund worth R2,5 billion in Gauteng, NW and FS which resulted in restrictions on livestock grants, with R500 million allocated to be blended within the Land movements. Due to the short-term nature of the restrictions, 142 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Directors’ Report (continued) Bank, this further demonstrates the government’s confidence in credit loss provision. The Bank has also continued to implement The Land Bank board with its management are still committed the mandate and future of the Land Bank. A memorandum of focused efforts in reducing overall operating expenditure. This to seeing the Land Bank cross over onto the new dawn as it agreement to effect this allocation is being finalised between the resulted in the Bank realising profits, albeit this has reduced year- strengthens its control environment and recommences lending Land Bank and DALRRD. on-year owing to the loan book starting to stabilise post the towards a sustainable development bank. event of default. Leadership and capacity The financial indicators are: Land Bank appointed its new CEO, Mr Themba Rikhotso effective • Expected credit losses on financial assets at amortised 1 April 2023, following the resignation of its previous CEO who cost reduced to R4,0 billion (31 March 2022: R5,3 billion – left the Bank at the end of April 2022. Other executive manager restated); Ms Rethabile N. Nkosi Mr Themba Rikhotso • NPL ratio worsened to 51,9% (31 March 2022: 47,8% – Chairman of the Board Chief Executive Officer roles have become vacant during the year. In addition to interim restated); nominally the NPL book has decreased by 20.8% 31 July 2023 31 July 2023 measures taken by the Bank to close the gap, a recruitment process is underway for these roles.This applies to all critical roles year-on-year in the organisation. The Board is prioritising addressing matters • ECL Coverage Ratio increased to 21,6% (31 March 2022: related to the Human Capital of the Bank, and is currently in 20,8% – restated); the process of appointing an organisational design expert to • Cash flows generated from operations reduced to R6,2 billion assist with a fit for purpose organisational structure to enable the (31 March 2022: R11,1 billion – restated), although total cash strategy of the bank. equivalents increased to R15 billion, inclusive of the ring- fenced capital injection from the shareholder. • Net interest income increased by more than 21% to Financial results R607 million (31 March 2022: R503 million – restated); • Net profit of R0,482 billion (31 March 2022: R1,2 billion profit The financial results of the group are fully disclosed on – restated); pages 155 to 307 The key financial indicators as are • Cost to income ratio for the bank improved to 70% outlined below. The performance of the bank was largely (31 March 2022: 96%); driven by the following factors: • Banking Gearing Ratio has improved to 706% (31 March 2022: 1152% – restated); The Gross Loan Book decreased by 27.2% year-on-year driven • Solvency Ratio has improved to 88% (31 March 2022: 92% – largely by customer settlements. This has in turn significantly restated); improved the cash position of the bank, as well as enable further • Basel II CAR significantly improved to 13.9% (31 March 2022: funding debt reduction. This together with improved non- 11,4% – restated); performing loans owing to the NPL remediation programme • LCR improved to 68.7% (31 March 2022: 66%); implemented by the Bank has resulted decreased Expected • NSFR dropped to 94.6% (31 March 2022: 95,7% – restated); 143 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Group Secretary’s Certification Audit & Finance Committee Report In terms of section 88(2)(e) of the Companies Act 71 of 2008, I herewith present the report of the Land Bank Audit and Statutory duties hereafter referred to as the Companies Act, I declare that to Finance Committee (the Committee) for the financial year the best of my knowledge, for the year ended 31 March 2023, ended 31 March 2023. The Committee acts in consultation • The Committee is constituted as a statutory committee of the the Land and Agricultural Development Bank of South Africa has with other committees of the entity in particular the Risk and Land Bank in line with the Principles of King IV, the Companies lodged with the Registrar of Companies all such returns as are Governance Committee. Act 71 of 2008 and the Public Finance Management Act no.1 required of a State-Owned Company in terms of the Act and of 1999, and is accountable in this regard, to both the Board that such returns are true, correct and up to date. The committee is responsible for overseeing: and the Land Bank representative shareholder, the Ministry of Finance. It is a committee of the board regarding all the • Quality and integrity of the entity’s integrated planning and duties that the Board assigns to it and has been delegated reporting, including its financial statements and sustainability extensive powers to perform its functions per the Companies reporting; Act, and the National Treasury Regulations issued in terms of • Appointment, remuneration, independence and performance the Public Finance Management Act. Mashumi Mzaidume of the external auditor and the integrity of the audit process, • The Committee also provides oversight of the entity’s Company Secretary including the approval of non-audit services; information and technology (IT) functions. In this regard, the 22 December 2021 • Effectiveness of the entity’s governance, in particularly, that Committee reviews management’s IT reports, IT Governance, the internal audit function is adequately resourced and and IT systems controls. capacitated. • The Committee has adopted appropriate formal terms of • The entity’s information and technology (IT) functions. In this reference in our charter, in line with the requirements of regard, the Committee reviews management’s IT reports, IT section 51(1)(a) of the PFMA and Treasury Regulation 27.1. Governance, and IT systems controls. We further report that we have conducted our affairs in • Review and make recommendations to Board about the compliance with this charter. which is reviewed annually and entity’s financial risk, liquidity risk, and capital risk management approved by the Board. practices. • The functions of the Committee are outlined in its charter, which is available on the Land Bank website. The Committee, acting in consultation with the Risk and Governance Committee of the Bank, provided significant The Audit and Finance Committee has continued to include in oversight and monitoring of the following key areas: its audit plan oversight and monitoring of the Board approved remediation plan intended to ensure the Bank sustains an • The volatile macro-economic environment and management’s adequate and effective internal control environment. Accordingly, responses thereto; this remained one of the key focus areas for the committee with • Internal controls, risk management and compliance processes, regular meetings held with management to track and assess delegations of authority, combined assurance and business progress on implementation of the remediation plan to ensure continuity; and adequate resolution of any residual risks remaining or that • Controls to prevent irregular, fruitless and wasteful expenditure. arise during the year, and to ensure embedding of processes of internal controls to avoid a regression in future. 144 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Audit & Finance Committee Report (continued) Composition The Committee confirms that it has assessed and confirms the improved control environment and the committee is pleased appropriateness of the going concern basis for the preparation with the success and is currently monitoring its continued The Committee comprises of independent non-executive of the Annual Financial Statements.This is based on the on-going sustainability. directors who are elected annually at the company’s Annual discussions that the Bank is having with its lenders to ensure General Meeting (AGM). The Committee members are Ms successful conclusion of the liability solution to take Land Bank The Committee considered the maturity of combined Michelle Pillay (Chairperson), Ms. Mathane Makgatho, and Ms. out of its event of default and the R10 billion recapitalisation of assurance in the Group and the specific attestations from Thulisile Mashanda. The qualifications of the members are the Bank by the Shareholder, of which R3 billion was received Internal Audit, External Audit and Risk regarding the adequacy listed in the Land Bank Governance Report. These members during September 2020 and R6 billion transferred in FY22/23. and effectiveness of the internal controls within the Group. We collectively possess the experience and expertise needed to The remaining R1 billion will be transferred during FY23/24 are comfortable that these controls are in place, but there is execute their duties in relation to the Committee’s mandate. financial year. The R5 billion transferred in FY22/23 has certain room for improvement to strengthen the control environment conditions precedent before the bank can utilise the funds. and to realise the full benefits of combined assurance. Executive directors comprising of the Chief Executive Officer Currently the R5 billion is held in Escrow. The R10 billion capital (CEO) and the Chief Financial Officer (CFO) are permanent injection together with the successful conclusion of the liability External audit invitees to the Committee meetings but are excluded from the solution will ensure that the Land Bank continues to operate as Committee’s private sessions with the Auditor-General and a going concern. Despite operating in a state of default the Bank The Auditor General of South Africa (AGSA) is the external the head of Internal Audit. The Committee has met all legal has been able to accumulate sufficient cash reserves amounting auditor for Land Bank. The Committee nominates the external and regulatory requirements in respect of independence and to R10,2 billion at year end. Over and above that, the bank was auditor to the Board for appointment by the shareholder, corporate governance experience. able to repay over R18,1 billion in capital to its lenders to date and the Committee approves the terms of engagement and along with servicing all interest due. remuneration for the external audit services. The Committee Annual confirmation of key functions for the year has assessed the external auditor’s independence and has The committee presided over the board instituted remediation obtained the assurance that the auditor’s independence is not plan over the past three financial years. The remedial plan was impaired. Financial control, financial reporting and the Integrated instituted to address deficiencies identified on the loan book Report during the FY19/20 and FY20/21 financial years. The committee Internal audit through its oversight on the work conducted by managements’ The Committee reviews the Annual Financial Statements, and national task team and the Credit and Investment Committee Integrated Report, and recommends these to the Board for The Chief Audit Executive reports to the Committee and the (CIC) has seen a significant improvement in the internal control approval. This role includes an assessment of the accounting Committee is responsible for the review and approval of the environment pertaining to the management of the loan book. In policies and key assumptions applied in the preparation of the internal audit charter, the internal audit plan as well as the addition, a significant portion of the Land Bank book previously financial statements, as well as dealing with technical reporting resources of the internal audit department. The Committee managed by intermediaries has been insourced (under 2% matters. In doing so, the Committee also confirmed compliance evaluated the internal audit function’s independence and is remains outsourced), as part of the remedial work, which has of the Annual Financial Statements with International Financial satisfied with its independence. brought management closer to the root cause of the previously Reporting Standards (IFRS). identified deficiencies. This insourcing also contributed to the 145 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Audit & Finance Committee Report (continued) Other key audit matters as reported by the external auditors A permanent Chief Audit Executive has been appointed and commenced his duties on 01 July 2023, this will further Material uncertainty on going concern strengthen the internal audit function in the Bank. The AG highlighted the existence of a material uncertainty Expertise and experience of the finance function with regards to the ability of the Land Bank to continue as a Ms Michelle Pillay going concern as disclosed in note 3, sighting the cross default Chairman Audit and Finance Committee and the Group Chief Financial Officer as some of the reasons casting doubt on the entity’s ability 31 July 2023 to continue as a going concern. Land Bank is undergoing a The Committee has considered the expertise and experience restructuring process to take it out of its event of default. A of the Chief Financial Officer and has concluded that the liability solution continues being negotiated with the lenders in appropriate requirements have been met. this regard. The Committee will continue to monitor progress of the liability solution. All critical roles in the Finance function have been filled, with the General Manager – Business Performance having been filled In conclusion during the current year. Filling of these roles bolsters the control environment in the organisation and ensures adequate skills and The Committee acknowledges the unqualified audit outcome focus is given to support and enable the organisation. with findings. The Committee will continue to ensure there is continuous improvement regarding the controls around overall External audit report management of the loan book and its key inputs to ensure that these results are improved towards helping the Land Bank External audit opinion achieve its mandate. Land Bank received an “Unqualified opinion with findings” The Committee is satisfied it has fulfilled its responsibilities in audit outcome from the Auditor General of South Africa terms of its charter during the year under review and believes on the FY22/23. This is a regression from the clean audit that it complied with its legal, regulatory and governance opinion received in the prior year’s audit because of material responsibilities as set out in the Companies Act and Public misstatements identified on the collateral registers. The material Finance Management Act. misstatements have been corrected. The Board instituted a remediation plan to improve the internal control environment and this will continue being implemented to address any specific residual deficiencies that remain. The committee will continue to monitor progress regarding those matters. 146 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa I Report on the audit of the consolidated and separate financial statements Key audit matters Opinion 6. Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the consolidated and separate financial statements for the current period. These matters were addressed in the context of my audit of the consolidated and separate financial 1. I have audited the consolidated financial statements of the Land and Agricultural Development statements as a whole and in forming my opinion. I do not provide a separate opinion on these Bank of South Africa and its subsidiaries (the group) set out on pages 155 to 307, which matters. comprise the consolidated and separate statement of financial position as at 31 March 2023, consolidated and separate statement of profit or loss and other comprehensive income, Key audit matter How the matter was addressed in the audit statement of changes in equity and statement of cash flows for the year then ended, as when as Expected credit losses (ECL) of loans and advances notes to the consolidated and separate financial statements, including a summary of significant accounting policies. The group determines the ECL relating to loans Due to complexity of the calculation of the ECL and advances in line with the requirements and uncertainty of the inputs used to calculate it, 2. In my opinion, the consolidated and separate financial statements present fairly, in all material of IFRS 9, Financial instruments (IFRS 9). This I had to follow a fully substantive audit approach respects, the financial position of the group as at 31 March 2023, and its financial performance determination is complex and requires a high in the current audit cycle. and cash flows for the year then ended in accordance with the International Financial Reporting level of judgement and assumptions. Standards (IFRS) and the requirements of the Public Finance Management Act 1 of 1999 The group uses various models and assumptions I evaluated the design, implementation and (PFMA) and sections 27 to 31 of the Companies Act 71 of 2008. to estimate the EGL. They apply judgement operating effectiveness of the following controls: to determine the assumptions used in these • The governance processes for expected Basis for opinion models, including assumptions that relate to key credit models credit risk drivers. • Accounting authority oversight over ECL 3. I conducted my audit in accordance with the International Standards on Auditing (ISAs). My The major components of the ECL include the My substantive audit approach included detailed responsibilities under those standards are further described in the responsibilities of the auditor probability of default (PD}, exposure at default testing of the data that is used for EGL inputs general for the audit of the consolidated and separate financial statements section of my report. (EAD) and loss given default (LGD). The PD such as loan staging, risk ratings, collaterals, is defined as an estimate of the likelihood of loan modification and outstanding balances. 4. I am independent of the group in accordance with the International Ethics Standards Board for default over a given time horizon. The EAD is I have critically considered the bank’s policies Accountants’ International code of ethics for professional accountants (including International an estimate of the exposure at a future default and their application on collateral, staging and Independence Standards) (IESBA code) as well as other ethical requirements that are relevant date considering expected changes in the modification when testing these inputs. to my audit in South Africa. I have fulfilled my other ethical responsibilities in accordance with exposure after the reporting date. The LGD is these requirements and the IESBA code. an estimate of the loss arising in the case where default occurs at a given time. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. 147 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Key audit matter How the matter was addressed in the audit Key audit matter How the matter was addressed in the audit Expected credit losses (ECL) of loans and advances Expected credit losses (ECL) of loans and advances Given the combination of the inherent I engaged an auditor’s expert to assess the The disclosures associated with the ECL The expert’s conducted the following subjectivity in the valuation and the material appropriateness and reasonableness of the ECL allowance on loans and advances are set out in procedures: nature of the balance, I considered the audit models and assumptions used by the Bank in the following notes to the financial statements: of the expected credit loss to be a key audit determining the ECL. Before I placed reliance • Reviewed the bank’s approved ECL matter in my audit of the financial statements. on the work of an auditors’ expert, I assessed calculation methodology documentation their independence, objectivity and competency for the probability of default (PD), the in line with the requirements of ISA 620 and I loss given default (LGD) and exposure at was satisfied with this. 1 assessed the expert’s default (EAD) and reviewed this against work by evaluating significant assumptions the requirements of IFRS 9. and methods as well as the relevance and • Reviewed the bank’s EGL model in light of reasonableness of those assumptions and the requirements of IFRS 9 including key methods in the circumstances. elements such as portfolio segmentation, modelling approach adopted, behavioural life including time on book post default, effective interest rate (EIR) and related discounting of cash flows, the use of forward-looking information, default and significant increase in credit risk {SICR), and other key judgements and assumptions relevant for the models. • Independently calculated the EGL estimate based on the approved methodology and data provided by the bank. Misstatements were identified on the collateral values used as inputs to the ECL model; however, these were subsequently corrected by management. I found the bank’s ECL models and assumptions used to determine the allowance to be reasonable and consistent with my expectations. 148 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Material uncertainty relating to going concern disclosure notes of the annual financial statements. Only the current year and prior year figures are required to be disclosed in the notes to the financial statements. Movements in respect 7. I draw attention to the matters below. My opinion is not modified in respect of these matters. of irregular expenditure and fruitless and wasteful expenditure are no longer required to be disclosed in the notes to the annual financial statements. The disclosure of these movements 8. As disclosed in note 3.2 to the consolidated and separate financial statements, a material (e.g., condoned, recoverable, removed, written off, under assessment, under determination and uncertainty relating to going concern of the public entity exists due to the default position that under investigation) is now required to be included as part of other information in the annual has not been cured. Towards the end of April 2020, the bank experienced a liquidity shortfall, report of the auditees. which resulted in the bank defaulting on some of its obligations. This triggered a cross default and resulted in de-facto stand still on capital and interest payments to its funders. At the date 13. I do not express an opinion on the disclosure of irregular expenditure and fruitless and wasteful of this report, the liability solution to cure the default is still in progress and finalisation is expenditure in the annual report. dependent on signing the commitment agreements with lenders. These events or conditions as set forth in note 3.2 indicate that a material uncertainty exists that may cast significant doubt Responsibilities of the accounting authority for the consolidated and separate on the public entity’s ability to continue as a going concern. financial statements Emphasis of matter 14. The accounting authority is responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with the IFRS and the 9. I draw attention to the matter below. My opinion is not modified in respect of this matter. requirements of PFMA and Companies Act; and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate Restatement of corresponding figures financial statements that are free from material misstatement, whether due to fraud or error. 10. As disclosed in note 42 to the consolidated and separate financial statements, the corresponding 15. In preparing the consolidated and separate financial statements, the accounting authority figures for 31 March 2022 have been restated as a result of an error in the financial statements is responsible for assessing the group’s ability to continue as a going concern; disclosing, as of the public entity at, and for the year ended, 31 March 2023. applicable, matters relating to going concern; and using the going concern basis of accounting unless the appropriate governance structure either intends to liquidate the group or to cease operations, or has no realistic alternative but to do so. Other matters Responsibilities of the auditor-general for the audit of the consolidated and 11. I draw attention to the matters below. separate financial statements National Treasury Instruction Note 4 of 2022-23: PFMA Compliance and 16. My objectives are to obtain reasonable assurance about whether the consolidated and separate Reporting Framework financial statements as a whole are free from material misstatement, whether due to fraud or error; and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high 12. On 23 December 2022 National Treasury issued Instruction Note No. 4: PFMA Compliance level of assurance but is not a guarantee that an audit conducted in accordance with the ISAs and Reporting Framework of 2022-23 in terms of section 76(1)(b), (e) and (f), 2(e) and (4)(a) will always detect a material misstatement when it exists. Misstatements can arise from fraud and (c) of the PFMA, which came into effect on 3 January 2023. The PFMA Compliance and or error and are considered material if, individually or in aggregate, they could reasonably be Reporting Framework also addresses the disclosure of unauthorised, irregular and fruitless .and expected to influence the economic decisions of users taken on the basis of these consolidated wasteful expenditures. Among the effects of this framework is that irregular, fruitless, and wasteful and separate financial statements. expenditure incurred in previous financial years and not addressed is no longer disclosed in the 149 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 17. A further description of my responsibilities for the audit of the consolidated and separate Annual financial statements and annual reports financial statements is included in the annexure to this auditor’s report. 23. The financial statements submitted for auditing were not prepared in accordance with the IFRS, Report on the audit of the annual performance report as required by section 55(1) (b) of the PFMA. 18. The Land Bank is not required to prepare a report on its performance against predetermined 24. Material misstatements of loans and advances to customers (expected credit losses) and objectives, as it was exempt from submitting its corporate plan in terms of section 92 of the collateral disclosure items identified by the auditors in the submitted financial statement were PFMA. As a result of the exemption, I did not audit and report on the usefulness and reliability subsequently corrected. of the performance information for the public entity. The exemption was published in the Government Gazette 44799 dated 2 July 2021. 25. Material disclosure misstatements were identified on the cash flow statement and financial instrument and risk management note, and these were subsequently corrected by management. Report on compliance with legislation Other information in the annual report 19. In accordance with the PAA and the general notice issued in terms thereof, I must audit and report on compliance with applicable legislation relating to financial matters, financial 26. The accounting authority is responsible for the other information included in the annual report. management and other related matters. The accounting authority is responsible for the public The other information referred to does not include the consolidated and separate financial entity’s compliance with legislation. statements, the auditor’s report that have been specifically reported on in this auditor’s report. 20. I performed procedures to test compliance with selected requirements in key legislation in 27. My opinion on the consolidated and separate financial statements and the report on compliance accordance with the findings engagement methodology of the Auditor-General of South Africa with legislation, do not cover the other information included in the annual report and I do not (AGSA). This engagement is not an assurance engagement. Accordingly, I do not express an express an audit opinion or any form of assurance conclusion on it. assurance opinion or conclusion. 28. My responsibility is to read this other information and, in doing so, consider whether it is 21. Through an established AGSA process, I selected requirements in key legislation for compliance materially inconsistent with the consolidated and separate financial statements, or my knowledge testing that are relevant to the financial and performance management of the public entity, clear obtained in the audit, or otherwise appears to be materially misstated. to allow consistent measurement and evaluation, while also sufficiently detailed and readily available to report in an understandable manner. The selected legislative requirements are 29. I did not receive the other information prior to the date of this auditor’s report. When I do included in the annexure to this auditor’s report. receive and read this information, if I conclude that there is a material misstatement therein, I am required to communicate the matter to those charged with governance and request that 22. The material findings on compliance with the selected legislative requirements, presented per the other information be corrected. If the other infonT1ation is not corrected, I may have to compliance theme, are as follows: retract this auditor’s report and re-issue an amended report as appropriate. However, if it is corrected this will not be necessary. 150 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Internal control deficiencies Audit related services and special audits 30. I considered internal control relevant to my audit of the consolidated and separate financial 35. As requested by the Land and Agricultural Development Bank of South Africa (SOC) Ltd, a statements, annual performance report and compliance with applicable legislation; however, my limited assurance engagement in respect of compliance with the National Credit Act 34 of objective was not to express any form of assurance on it. 2005 was conducted for the twelve months ended 31 March 2022. The report was submitted to the accounting authority on 29 September 2022. 31. The matters reported below are limited to the significant internal control deficiencies that resulted in the material findings on compliance with legislation included in this report. 32. Management did not implement adequate internal controls over the preparation and review of collateral registers to ensure that recorded balances are accurate and valid which resulted in material adjustments on the financial statements submitted for audit. These were subsequently corrected by management. 33. Management did not implement adequate internal controls over the preparation and review Pretoria of financial statements as material misstatements were identified in the cash flow statement 31 July 2023 and financial instruments and risk management note. These were subsequently corrected by management. Other reports 34. I draw attention to the following engagements conducted by various parties. These reports did not form part of my opinion on the consolidated and separate financial statements or my findings on the reported performance information or compliance with legislation. 151 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Annexure to the Auditor’s Report • conclude on the appropriateness of the use of the going concern basis of accounting in the preparation of the consolidated and separate financial statements. I also conclude, based on the audit evidence obtained, whether a material uncertainty exists relating to events or conditions Auditor-General’s responsibility for the audit that may cast significant doubt on the ability of the public entity and its subsidiaries to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw Professional judgement and professional scepticism attention in my auditor’s report to the related disclosures in the consolidated and separate financial statements about the material uncertainty or, if such disclosures are inadequate, to As part of an audit in accordance with the ISAs, I exercise professional judgement and maintain modify my opinion on the consolidated and separate financial statements. My conclusions are professional scepticism throughout my audit of the consolidated and separate financial statements based on the information available to me at the date of this auditor’s report. However, future and the procedures performed on reported performance information for selected objectives and on events or conditions may cause a public entity to cease operating as a going concern. the public entity’s compliance with selected requirements in key legislation. • evaluate the overall presentation, structure and content of the consolidated and separate Financial statements financial statements, including the disclosures, and determine whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that In addition to my responsibility for the audit of the consolidated and separate financial statements as achieves fair presentation. described in this auditor’s report, I also: • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial • identify and assess the risks of material misstatement of the consolidated and separate financial statements. I am responsible for the direction, supervision and performance of the group audit. statements, whether due to fraud or error; design and perform audit procedures responsive I remain solely responsible for my audit opinion. to those risks; and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, Communication with those charged with governance misrepresentations or the override of internal control. I communicate with the accounting authority regarding, among other matters, the planned scope • obtain an understanding of internal control relevant to the audit in order to design audit and timing of the audit and significant audit findings, including any significant deficiencies in internal procedures that are appropriate in the circumstances, but not for the purpose of expressing an control that I identify during my audit. opinion on the effectiveness of the public entity’s internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting I also provide the accounting authority with a statement that I have complied with relevant ethical estimates and related disclosures made. requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on my independence and, where applicable, actions taken to eliminate threats or safeguards applied. 152 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Compliance with legislation - selected legislative requirements The selected legislative requirements are as follows: Leglslation Sections or Regulations Public Finance Management Act 1 of 1999 (PFMA) Section 50(3); 50(3)(a); 50(3)(b) Section 51(1)(a)(ii); 51(1)(a)(iii); 51(1){a){iv); 51(1)(b); 51(1)(b)(i); 51(1)(b)(ii); 51(1){e)(iii) Section 52{b) Section 54(2} (c); 54(2){d) Section 55{1)(a); 55(1)(b); 55(1)(c)(i) Section 56 Section 57(b); 57(d) Section 66(3)(a) Treasury Regulations for departments, trading entities, constitutional institutions and public entities (TR) Regulation 29.1.1; 29.1.1(a); 29.1.1(c); 29.2.1; 29.2.2; 29.3.1 Regulation 31.2.5; 31.2.7(a) Regulation 33.1.1; 33.1.3 Prevention and Combating of Corrupt Activities Act 12 of 2004 (PRECCA) Section 34(1) Construction Industry Development Board Act 38 of 2000 (CIDB) Section 18(1) Section 22(3) CIDB Regulations Regulation 17; 18{1A)1; 25(1}; 25(5) & 25{7A) Preferential Procurement Policy Framework Act 5 of 2000 Section 1(i); 2.1(a); 2.1(b); 2.1(f) 153 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Compliance with legislation - selected legislative requirements (continued) Leglslation Sections or Regulations Preferential Procurement Regulation 2017 Paragraph 4.1; 4.2 Paragraph 5.1; 5.3; 5.6; 5.7 Paragraph 6.1; 6.2; 6.3; 6.5; 6.6; 6.8 Paragraph 7.1; 7.2; 7.3; 7.5; 7.6; 7.8 Paragraph 8.2; 8.5 Paragraph 9.1; 9.2 Paragraph 10.1; 10.2 Paragraph 11.1; 11.2 Paragraph121and122 Preferential Procurement Regulation 2022 Paragraph 3.1 Paragraph 4.1; 4.2; 4.3; 4.4 Paragraph 5.1; 5.2; 5.3; 5.4 PFMA SCM Instruction Note 03 2021/22 Paragraph 4.1; 4.2; 4.2 (b); 4.3; 4.4; 4.4 (c};4.4(d}; 4.6 Paragraph 5.4 Competition Act 98 of 1998 Section 4(1)(b)(ii) NT SCM Instruction 4A of 2016/17 Paragraph 6 NT SCM Instruction Note 03 2019/20 Paragraph Par 5.5.1{iv); 5.5.1(x) NT SCM Instruction Note 11 2020/21 Paragraph 3.1; 3.4 (a}; 3.4{b); 3.9; 6.1; 6.2; 6.7 PFMA SCM Instruction 08 of 2022/23 Paragraph 3.2 Paragraph 4.3.2; 4.3.3 NT Instruction Note 4 of 2015/16 Paragraph 3.4 Second amendment of NTI 05 of 2020/21 Paragraph 4.8; 4.9; 5.1; 5.3 Erratum NTI 5 of 2020/21 Paragraph 1 Erratum NTI 5 of 2020/21 Paragraph 2 NT Instruction Note 5 of 2020/21 Paragraph 5.1 and 5.3 154 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Statements of Financial Position Group Company 2023 *2022 *2021 2023 *2022 *2021 Notes R’000 R ‘000 R ‘000 R ‘000 R ‘000 R ‘000 Assets Cash/and cash equivalents 4 15 481 241 9 983 760 5 589 889 15 355 038 9 845 216 5 558 401 Trade and other receivables 5 1 615 811 1 353 026 1 049 425 412 395 421 406 206 492 Short-term insurance assets 6 341 301 266 040 159 014 – – Investments 7 2 235 627 2 133 387 2 318 659 1 280 455 1 295 063 1 431 304 Derivatives 8 1 321 9 896 11 340 1 321 9 896 11 340 Loans and advances 9 14 765 230 20 488 496 30 700 438 14 765 230 20 488 496 30 700 438 Non-current assets held-for-sale and assets of disposal groups 10 11 359 9 609 4 058 11 359 9 609 4 058 Long-term insurance assets 17 1 493 4 855 4 987 – – Investment property 11 98 010 97 400 95 100 98 010 97 400 95 100 Property, plant and equipment 12 34 768 29 149 21 855 34 720 29 059 21 755 Right of use assets 13.1 28 296 3 909 20 746 28 296 3 909 20 651 Intangible assets 14 1 555 1 615 2 766 1 555 1 615 2 766 Total assets 34 616 012 34 381 142 39 978 277 31 988 379 32 201 669 38 052 305 Equity and liabilities Equity ` Accumulated loss 15 (2 690 864) (3 192 024) (4 450 274) (3 773 401) (4 255 612) (5 432 709) Capital Fund 15 8 286 785 7 397 655 7 397 655 8 286 785 7 397 655 7 397 655 Revaluation reserve 15 143 058 140 941 133 080 143 058 140 941 133 080 Fair Value Through Other Comprehensive Income (FVTOCI) 15 (748 351) (737 412) (682 072) (748 351) (737 411) 682 072 Total equity 4 990 628 3 609 160 2 398 389 3 908 091 2 545 573 1 415 954 Liabilities Trade and other payables 16 1 100 812 833 544 770 814 138 863 171 591 116 695 Other financial liability 16.1 5 110 870 – – 5 110 870 – – Short-term insurance liabilities 6 475 551 373 907 Long term policyholder's insurance liabilities 17 102 298 75 804 Funding liabilities 18 22 495 625 29 162 958 36 074 791 22 495 625 29 162 958 36 074 791 Lease liabilities 13.2 28 966 4 932 23 176 28 966 4 932 23 071 Provisions 19 32 398 34 181 140 456 27 100 29 960 137 794 Post-retirement obligation 20 278 864 286 655 284 000 278 864 286 655 284 000 Total Liabilities 29 625 384 30 771 982 37 579 887 28 080 288 29 656 096 36 636 351 Total equity and liabilities 34 616 012 34 381 142 39 978 277 31 988 379 32 201 669 38 052 305 *Restated. Refer to note 42 for details. 155 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Statement of Profit or Loss and Other Comprehensive Income Group Company 2023 2022* 2023 2022* Notes R’000 R’000 R’000 R’000 Net interest income 616 155 508 308 607 233 503 383 Interest income 21 2 765 925 2 883 155 2 757 002 2 878 230 Interest expense 22 (2 149 770) (2 374 847) (2 149 770) (2 374 847) Net impairment charges, release, claims and recoveries 9 368 324 1 210 050 368 324 1 210 050 Total income from lending activities 984 479 1 718 358 975 556 1 713 433 Non-interest expense 23 (13 555) (75 934) (13 555) (71 358) Non-interest income 24 24 366 30 781 24 366 30 781 Operating income from banking activities 995 290 1 673 205 986 367 1 672 856 Other income 24 42 412 37 209 32 386 30 668 Net insurance premium income 25 203 742 158 299 – – Net insurance claims 25 (164 289) (151 139) – – Other costs from insurance activities 25 (64 384) (51 063) – – Investment income and fees 26 103 326 98 596 17 909 15 357 Interest on post-retirement obligation 20 (27 823) (27 548) (27 823) (27 548) Interest on lease liabilities 13 (547) (1 138) (547) (1 135) (Losses)/ gains on financial instruments 27 (2 933) 20 821 (2 933) 20 821 Fair value (losses)/gains 27 (2 778) 89 394 (5 297) 21 667 Operating income 1 082 016 1 846 636 1 000 062 1 732 686 Operating expenses 28 (553 408) (562 775) (499 156) (530 575) Net operating income 528 608 1 283 861 500 906 1 202 111 Non-trading and capital items 29 (8 055) 2 330 697 2 299 Income before taxation 520 553 1 286 191 501 603 1 204 410 – Indirect taxation 30 (19 407) (27 910) (19 407) (27 315) Income for the year 501 146 1 258 .281 482 196 1 177 095 Other comprehensive income Items that will not be reclassified into profit or loss Revaluation gains of land and buildings 2 117 7 861 2 117 7 861 Actuarial Gain on the post-retirement obligation 20 17 811 7 582 17 811 7 582 Total items that will not be reclassified to profit 19 928 15 443 19 928 15 443 Items that may be reclassified to profit or loss: Net loss on financial assets designated at fair value through other comprehensive income (28 752) (62 922) (28 752) (62 922) Total Items that may be reclassified to profit: (28 752) (62 922) (28 752) (62 922) Other comprehensive loss (8 824) (47 479) (8 824) (47 479) Total comprehensive income for the year 492 322 1 210 802 473 372 1 129 616 * Restated. Refer to note 42 for details. 156 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Statements of Changes in Equity Fair Value through Other Comprehensive Capital Fund Revaluation Reserve Income Accumulated Loss* Total Equity* R’000 R’000 R’000 R’000 R’000 Group Opening Balance at 30 April 2021 7 397 655 133 080 (682 072) (4 262 872) 2 585 791 Correction of prior period error* (187 421) (187 421) Restated Opening Balance at 30 April 2021 7 397 655 133 080 (682 072) (4 450 293) 2 398 370 Restated Profit for the year* – – – 1 258 281 1 258 281 Other comprehensive income/(loss) for the year – 7 861 (55 340) – (47 479) Total comprehensive income/(loss) for the year – 7 861 (55 340) 1 258 281 1 210 802 Opening Balance at 30 April 2022 7 397 655 140 941 (737 412) (3 192 010) 3 609 174 Shareholder Equity Injection** 889 130 – – – 889 130 Profit for the year – – – 501 146 501 146 Other comprehensive income/(loss) for the year – 2 117 (10 941) – (8 824) Total comprehensive income/(loss) for the year 889 130 2 117 (10 941) 501 146 1 381 452 Balance at 31 March 2023 8 286 875 143 058 (748 351) (2 690 864) 4 990 628 Company Opening Balance at 30 April 2021 7 397 655 133 080 (682 072) (5 245 269) 1 603 375 Correction of prior period error* (187 421) (187 421) Restated Opening Balance at 30 April 2021 7 397 655 133 080 (682 072) (5 432 690) 1 415 973 Restated Profit for the year* – – – 1 177 095 1 177 095 Other comprehensive income/(loss) for the year – 7 861 (55 340) – (47 479) Total comprehensive income/(loss) for the year – 7 861 (55 340) 1 177 095 1 129 616 Opening Balance at 30 April 2022 7 397 655 140 941 (737 412) (4 255 595) 2 545 589 Shareholder Equity Injection** 889 130 – – – 889 130 Profit for the year – – – 482 196 482 196 Other comprehensive income/(loss) for the year – 2 117 (10 941) – (8 824) Total comprehensive income/(loss) for the year 889 130 2 117 (10 941) 482 196 1 362 502 Balance at 31 March 2023 8 286 875 143 058 (748 351) (3 773 401) 3 908 091 * Restated. Refer to note 42 for details. ** The shareholder repaid guaranteed lenders directly on behalf of the Land Bank during the year. The corresponding debit was a reduction of the funding liabilities. There were no direct cash-flows to the Land Bank. Refer to note 18 for the movement in funding liabilities. 157 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Statements of Cash Flows Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Income/(Loss) for the year 501 146 1 258 281 482 196 1 177 095 Adjustments to reconcile profit to net cash flows: (898 607) (1 468 778) (845 011) (1 308 161) Interest expense 2 149 770 2 374 847 2 149 770 2 374 847 Interest income (2 765 925) (2 883 155) (2 757 002) 2 878 230 Net impairments raised/ released (278 223) (854 519) (278 223) (854 519) Interest on lease liabilities 547 1 138 547 1 135 Fair value movement (financial instruments) (78,943) (89 394) 2 933 (21 668) (Losses)/gains on financial instruments 5 297 (20 821) 5 297 (20 821) Dividends received (13 184) (29 337) (13 184) (10 034) Interest received (4 725) (69 259) (4 725) 5 323 Depreciation and amortisation 11 772 21 246 11 736 21 132 Loss on transfer of asset 83 – – – Fair value adjustments on properties (610) 8 073 610 8 073 Movement in provisions (2 755) (106 275) (2 860) 107 834 Movement in post-retirement medical aid liability 27 832 27 548 27 823 27 548 Profit on properties (90) (130) (90) (130) Losses on Foreign exchange 3 7 3 7 Impairment relating to loan commitments and guarantees 13 573 157 658 13 573 157 658 Impairment of other assets 1 (12) 1 12 Movement in policyholders' liabilities 36 787 (6 379) – – 144 492 (184 704) 87 163 (160 019) Changes in working capital (Increase)/decrease in Trade and other receivables (262 785) (303 601) 9 011 (214 915) (Decrease)/Increase in Trade and other payables 378 828 62 730 78 152 54 896 Increase in short-term and long-term insurance liability 101 029 163 061 – – (Increase)/Decrease in short-term and long-term insurance assets (71 899) (106 894) – – Cash generated from operations (252 969) 395 201 (275 648) 291 085 158 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Statements of Cash Flows (continued) Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Cash flows from operations 6 468 342 11 570 402 6 468 362 11 567 341 Interest expense paid (2 094 619) (2 325 392) (2 094 619) 2 325 392 Interest income received 2 965 925 2 918 884 2 965 946 2 915 820 Interest on lease liabilities paid (547) (1 138) (547) (1 135) Dividends received 6 041 3 750 6 041 3 750 Decrease in funding to clients 5 591 542 10 974 298 5 591 542 10 974 298 Cash inflow from operating activities 6 215 373 11 175 201 6 192 714 11 276 256 Cash flow from investing activities Purchase of property and equipment (6 559) (1 752) (6 559) (1 752) Proceeds from sale of financial instruments 25 000 300 000 – – Purchase of financial instruments (60 000) (100 000) – – Cash inflow/(outflow) from investing activities (41 559) 198 248 (6 559) (1 752) Cash flow from financing activities Decrease in funding received from funders (5 778 203) (6 960 124) (5 778 203) (6 960 124) Lease liability repaid (9 000) (19 454) (9 000) (27 565) Equity injection1 5 110 870 – 5 110 870 – Cash outflows from financing activities (676 333) (6 979 578) (676 333) (6 987 689) Net (decrease) / increase in cash and cash equivalents 5 497 481 4 393 871 5 509 801 4 286 836 Cash and cash equivalents at beginning of year 9 983 760 5 589 889 9 845 216 5 558 401 Cash and cash equivalents at end of year 15 481 241 9 983 760 15 355 038 9 845 216 * Restated. Refer to note 42 for details. 1 The equity injection is R5,1 billion received from National Treasury, however, it has certain conditions attached to it that makes it not available for use by Land Bank by 31 March 2023. This results in a financial liability should the conditions not be met; the funds will be returned to National Treasury. Refer to notes 3.2, 4 and 16.1 on the details around the appropriated cash to the Land Bank by the shareholder. 159 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segment Reporting Business The Group reports in four distinct segments, grouped according to the nature of products and services provided by the respective business units and divisions. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Operating Officer, supported by the executive committee. The four segments are: 1) Commercial Development Banking, which consists of 9 Regional Offices and 16 satellite branches spread across the country, provides finance to developing and commercial farmers. 2) Corporate Banking, which consists of two branches, provides finance to the corporate agri-related businesses. 3) Group capital consists of the treasury, finance and other central functions. 4) Insurance Operations consists of LBLIC and LBIC which provides Life and Non-Life Crop Insurance respectively. Reporting to the Board is based on segments which engage in business activities that generate revenues and incur expenditure. None of the operating segments meet the criteria for aggregation. 160 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segment Reporting Business (continued) Commercial Corporate Banking Group Capital Development and and Inter– and Business Structured Segment Total Insurance Total Banking Investment Eliminations1 Bank Operations2 Group R’000 R’000 R’000 R’000 R’000 R’000 Group – 2023 Statement of profit or loss and other comprehensive income Net interest income/(expense) 394 422 212 811 – 607 232 8 923 616 155 Interest income 1 823 306 933 697 – 2 757 002 8 923 2 765 925 Interest expense (1 428 884) (720 886) – (2 149 770) (2 149 770) Impairment releases/(charges) on loans and advances 395 322 (26 997) 368 324 – 368 324 Total income from lending activities 789 744 185 813 – 975 556 8 923 984 479 Non-interest expense (13 555) – – (13 555) (13 555) Non-interest income 12 481 7 288 36 983 56 752 56 752 Operating income from banking activities 788 669 193 101 36 983 1 018 752 8 923 1 027 675 Other income – 10 026 10 026 Operating profit from insurance activities – – – – (24 931) (24 931) Investment income 13 184 – 4 725 17 909 85 417 103 326 Interest in Post Retirement Obligation – – (27 823) (27 823) (27 823) Interest on Lease Liability (211) (97) (239) (547) (547) Gains and losses on financial instruments (2 933) – – (2 933) (2 933) Fair value loss – – (5 297) (5 297) 2 519 (2 779) Operating income 798 710 193 004 8 349 1 000 062 81 954 1 082 016 Operating expenses (13 127) 694 (128 407) (140 840) (140 840) Staff costs (71 492) (13 660) (261 428) (346 580) (54 252) (400 832) Depreciation and amortisation (3 000) (1 809) (6 928) (11 736) (11 736) Net operating income/(loss) 711 091 178 229 (388 414) 500 906 27 702 528 608 (131) (0) 829 697 (8 752) (8 055) Non-trading and capital items Net profit/(loss) before indirect taxation 710 960 178 229 (387 586) 501 604 18 950 520 554 Indirect taxation – – (19 407) (19 407) – (19 407) Net profit/(loss) 710 960 178 229 (406 993) 482 196 18 950 501 146 Other comprehensive income – (8 824) (8 824) – (8 824) Actuarial losses on the post-retirement obligation – – 17 811 17 811 17 811 Revaluation of land and buildings – – 2 117 2 117 2 117 Profit on financial assets at fair value through other comprehensive income – – (28 752) (28 752) – (28 752) Total comprehensive income/(loss) for the year 710 960 178 229 (415 817) 473 372 18 950 492 322 161 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segment Reporting Business (continued) Commercial Corporate Banking Group Capital Development and and Inter– and Business Structured Segment Total Insurance Total Banking Investment Eliminations1 Bank Operations2 Group R’000 R’000 R’000 R’000 R’000 R’000 Group – 2023 Statement of financial position Assets Segment assets 11 375 059 54 093 457 (33 480 137) 31 988 379 2 627 633 34 616 012 Working capital (incl. net loans and advances) 11 343 420 53 761 309 (34 570 745) 30 533 984 1 329 619 31 863 603 Investments – 136 800 1 144 156 1 280 455 955 172 2 235 627 Investment properties 31 244 – 66 766 98 010 – 98 010 Property and equipment 396 9 560 53 060 63 016 48 63 064 Non-current assets held-for-sale – – 11 359 11 359 – 11 359 Intangible assets – – 1 555 1 555 – 1 555 Insurance assets – – – – 342 794 342 794 Liabilities Segment liabilities 14 485 408 7 187 312 6 407 567 28 080 287 1 545 096 29 625 383 Working capital (incl. funding liabilities) 14 473 062 7 175 244 6 097 052 27 745 358 961 949 28 707 307 Provisions 9 723 2 190 15 187 27 100 5 298 32 398 Post-retirement obligation – – 278 864 278 864 – 278 864 Lease liabilities 2 622 9 878 16 464 28 965 0 28 965 Insurance liabilities – – – – 577 849 577 849 1 Includes reconciliation to Group results in terms of IFRS 8. 2 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short term asset and Crop Insurance). 162 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segment Reporting Business (continued) Commercial Corporate Banking Group Capital Development and and Inter– and Business Structured Segment Total Insurance Total Banking Investment Eliminations1 Bank Operations2 Group R’000 R’000 R’000 R’000 R’000 R’000 Group – 2022 Statement of profit or loss and other comprehensive income Segment assets 666 738 (163 355) – 503 383 4 925 508 308 Interest income 2 245 223 633 007 – 2 878 230 4 925 2 883 155 Interest expense (1 578 485) (796 362) – (2 374 847) (2 374 847) Impairment releases/(charges) on loans and advances 1 264 059 (54 010) 1 210 049 1 210 049 Total income/(loss) from lending activities 1 930 797 (217 365) – 1 713 433 4 925 1 718 357 Non-interest expense (71 358) – – (71 358) (4 576) (75 934) Non-interest income 12 076 5 144 44 229 61 449 6 541 67 990 Operating income/(loss) from banking activities 1 871 514 (212 221) 44 229 1 703 523 6 890 1 710 413 Other income – 0 0 Operating profit from insurance activities – – – – (43 903) (43 903) Investment income 0 4 269 11 088 15 357 83 239 98 596 Interest in Post Retirement Obligation – – (27 548) (27 548) – (27 548) Interest on Lease Liability (487) (241) (407) (1 136) (3) (1 139) Gains and losses on financial instruments 19 090 1 731 – 20 821 – 20 821 Fair value loss – – 21 667 21 667 67 727 89 394 Operating income/(loss) 1 890 117 (206 461) 49 030 1 732 685 113 950 1 846 636 Operating expenses (13 656) 472 (160 108) (173 292) (14 394) (187 686) Staff costs (67 235) (13 742) (255 172) (336 150) (17 546) (353 696) Depreciation and amortisation (4 664) (1 833) (14 635) (21 132) (260) (21 392) Net operating (loss)/income 1 804 561 (221 565) (380 886) 1 202 111 81 750 1 283 861 Non-trading and capital items (75) (11) 2 386 2 300 31 2 331 Net profit/(loss) before indirect taxation 1 804 487 (221 576) (378 500) 1 204 410 81 781 1 286 191 Indirect taxation – – (27 315) (27 315) (595) (27 910) Net profit/(loss) 1 804 487 (221 576) (405 815) 1 177 095 81 186 1 258 281 Other comprehensive income – – (47 479) (47 478) – (47 478 Actuarial losses on the post-retirement obligation – – 7 582 7 582 – 7 582 Revaluation of land and buildings – – 7 861 7 861 – 7 861 Profit on financial assets at fair value through other comprehensive income – – (62 922) (62 922) Total comprehensive income/(loss) for the year 1 804 487 (221 576) (453 294) 1 129 616 81 186 1 210 802 163 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segment Reporting Business (continued) Commercial Corporate Banking Group Capital Development and and Inter– and Business Structured Segment Total Insurance Total Banking Investment Eliminations1 Bank Operations2 Group R’000 R’000 R’000 R’000 R’000 R’000 Group – 2022 Statement of financial position Assets Segment assets 14 207 406 9 397 124 8 597 140 32 201 669 2 179 473 34 381 142 Working capital (incl. net loans and advances) 14 175 888 9 023 044 7 566 082 30 765 014 1 070 164 31 835 178 Investments – 141 779 1 153 283 1 295 063 838 324 2 133 387 Investment properties 31 244 – 66 156 97 400 – 97 400 Property and equipment 274 1 263 31 430 32 967 90 33 057 Non-current assets held-for-sale – – 9 609 9 609 – 9 609 Intangible assets – – 1 615 1 615 – 1 615 Insurance assets – – – – 270 895 270 895 Liabilities Segment liabilities 18 944 188 9 445 908 1 265 999 29 656 096 1 115 886 30 771 982 Working capital (incl. funding liabilities) 18 930 893 9 441 324 962 332 29 334 549 661 954 29 996 503 Provisions 10 156 2 791 17 013 29 960 4 221 34 181 Post-retirement obligation – – 286 655 286 655 – 286 655 Lease liabilities 3 139 1 793 0 4 932 0 4 932 Insurance liabilities – – – – 449 711 449 711 1 Includes reconciliation to Group results in terms of IFRS 8. 2 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short term asset and Crop Insurance). 164 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segmental information The Group’s reportable operating segments are strategic business units that offer products to various classes of clients. These are managed separately since each segment requires different marketing and technical strategies to service a client base with unique needs. The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies. In addition, the cost of funding is allocated based on the monthly average cost of funding for Land Bank and the segment’s loan book net of non-performing loan balances as at 31 March 2023. The identified reportable segments are how the Group’s businesses are managed and reported to the Chief Operating Decision Maker (CODM). Segmental reporting Geographic According to the client’s location, the geographical segments consist of 9 provincial offices and 14 satellite offices within the boundaries of the respective provinces of the Republic of South Africa. Group Capital and Insurance Operations is included in the Northern segment, as the head office is situated in Pretoria. All revenue per geographical segment is attributable to the Republic of South Africa. All non-current assets are located in the Republic of South Africa. 165 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segmental information (continued) Impairment Non–interest Operating (charges)/ Income/ Income from Interest Interest Net Interest Releases, Claims (expense) and Insurance Income Expense Income and Recoveries Other Income Activities R’000 R’000 R’000 R’000 R’000 R’000 Statement of profit or loss and other comprehensive income Group – 2023 Northern region 2 032 141 (2 130 031) (97 890) 394 537 47 577 (24 931) Southern region 733 784 (19 738) 714 045 (26 212) 5 645 – Total operations 2 765 925 (2 149 770) 616 155 368 324 53 222 (24 931) Non-current Assets Held-for-sale, Investments, Intangible Assets, Investment Properties and Working Capital Property and (incl. loans and Total Equipment Advances Assets Statement of financial position R’000 R’000 R’000 Assets Northern region 2 736 805 10 800 589 13 537 395 Southern region 15 604 21 063 013 21 078 617 Total operations 2 752 409 31 863 603 34 616 012 Working Capital Other Total (incl. funding) Liabilities Liabilities R’000 R’000 R’000 Liabilities Northern region 21 022 019 902 716 21 924 731 Southern region 7 685 289 15 360 7 700 649 Total operations 28 707 307 918 075 29 625 380 166 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Operating Interest on Fair Value Gains, Expenses and Post Investment Indirect Taxes Retirement Income and Excluding Medical Aid Depreciation Other Other Non–trading and Depreciation and and Lease and Net Profit/ Comprehensive Comprehensive Capital Items Amortisation Liability Amortisation Staff Costs (loss) Income Income R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 91 423 (178 141) (28 118) (8 461) (329 374) (133 374) (8 824) (295 967) (1 864) (6 357) (252) (3 714) (46 768) 634 522 – 750 141 89 559 (184 498) (28 370) (12 174) (376 143) 501 150 (8 824) 492 322 167 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Segmental information (continued) Impairment Non–interest Operating (charges)/ income/ Income from Interest Interest Net Interest Releases, Claims (expense) and Insurance Income Expense Income and Recoveries Other Income Activities R’000 R’000 R’000 R’000 R’000 R’000 Statement of profit or loss and other comprehensive income Group – 2022 Northern region 2 285 146 (1 822 490) 462 656 1 560 128 15 705) (43 903) Southern region 598 008 (552 357) 45 651 (350 079) 7 761 – Total operations 2 883 155 (2 374 847) 508 308 1 210 049 (7 944) (43 903) Non-current Assets Held-for-sale, Investments, Intangible Assets, Investment Properties and Working Capital Property and (incl. loans and Total Equipment Advances) Assets Statement of financial position R’000 R’000 R’000 Assets Northern region 2 537 212 8 262 430 10 799 642 Southern region 8 751 23 572 749 23 581 500 Total operations 2 545 962 32 203 260 34 381 142 Working Capital Other Total (incl. funding) Liabilities Liabilities R’000 R’000 R’000 Liabilities Northern region 20 041 725 765 520 20 807 245 Southern region 9 954 777 9 960 9 964 737 Total operations 29 996 502 775 480 30 771 982 168 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Operating Interest on Fair Value Gains, Expenses and Post Investment Indirect Taxes Retirement Income and Excluding Medical Aid Depreciation Other Other Non–Trading and Depreciation and and Lease and Net Profit/ Comprehensive Comprehensive Capital Items Amortisation Liability Amortisation Staff Costs (loss) Income Income R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 208 356 (202 773) (28 059) (16 829) (318 440) 1 605 445 (47 479) 1 557 966 2 755 (5 330) (628) (4 563) (42 753) (347 165) – (347 165) 211 111 (208 101) (28 687) (21 392) (361 193) 1 258 280 (47 479) 1 210 802 169 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies Corporate information • Derivative financial instruments; financial statements when they become effective. The Group has • Equity investments; assessed, where practicable, the potential impact of all these new 1. Basis of Preparation standards, amendments and interpretations that will be effective • Land and buildings, and/or investment property; in future periods. • Non-current assets held for sale The consolidated and separate financial statements have been prepared in accordance with IFRS (with consent from the • Post-retirement medical aid benefit investment; and 3.1 New standards and interpretations not yet adopted National Treasury for all Schedule 2 public entities) and the • Funeral benefit and post-retirement medical aid liability. interpretations issued by the International Financial Reporting The Group has assessed, where practicable, the potential impact Interpretations Committee (IFRIC), applying the accrual basis of The methods used to measure fair values are detailed in notes. of all these new standards, amendments and interpretation that accounting, the going-concern principle, and using the historical- will be effective in future periods. cost basis, except where specifically indicated otherwise in the 2.1 Functional and presentation currency accounting policies. A summary of significant accounting policies IFRS 17 Insurance contracts is set out in note 3. The consolidated and separate financial statements are presented in South African Rand, the Group’s functional currency. Introduction The preparation of financial statements in accordance with All financial information presented in Rand are rounded to the IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with IFRS requires the use of certain critical accounting estimates nearest thousand (R’000), unless otherwise stated. amendments to the standard issued in June 2020 and December and assumptions. It also requires management to exercise 2021. Following the amendments, IFRS 17 is effective for annual its judgement in applying the Group’s accounting policies. 2.2 Distinction between current and non-current reporting periods beginning on or after 1 January 2023 and is Accordingly, the notes to the financial statements set out applied retrospectively, with comparatives restated for the 2022 areas involving a higher degree of judgement or complexity, or The Group presents the assets and liabilities in decreasing financial period. areas where assumptions and estimates are significant to the order of liquidity as it provides information that is more reliable consolidated group and bank financial statements. These policies and relevant than a current/non-current presentation because Implementation project progress have been consistently applied to all the years presented, unless the Group does not supply goods or services within a clearly Management together with QED South Africa, the preferred IFRS otherwise stated. identifiable operating cycle. In addition, other similar financial 17 service provider, are currently in the process of finalising the institutions also provide the information in this manner, and implementation of the new standard.The implementation project Full disclosure relating to the directors’ going concern assessment hence it is more comparable. team comprises of senior management from finance, risk and can be found in Note 3.2. operations who are closely monitoring all technical developments and updates from the IASB, regulatory bodies and the industry to 3 Summary of Significant accounting policies The Annual Financial Statements have been prepared on the ensure alignment and compliance with the standard. historical cost basis, except for the following items, which were The Group has not applied the following new, revised or The IFRS 17 implementation project team will focus on the measured at fair value: amended pronouncements that have been issued by the following key areas during the 2023 reporting period: International Accounting Standard Board (IASB) as they are • Financial instruments held at fair value through profit or loss; not yet effective for the financial year beginning 1 April 2021. • Refine the accounting policy papers and actuarial methodologies • Financial instruments designated at fair value through profit or The Board anticipates that the new standards, amendments that will be applied. loss; and interpretations will be adopted in the Group’s consolidated • Finalise the 2022 transition balances. 170 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.1 New standards and interpretations not yet adopted internal controls have not been fully operational for a full to Group Credit Life and Reinsurance. Based on assessments (continued) reporting cycle and may still need more fine-tuning.These factors performed to date, LBLIC does not expect to have contracts could cause the actual impact of adopting IFRS 17 to change. which meet the definition of insurance or investment contracts • Enhance the internal financial controls to ensure accuracy of with discretionary participation features. reporting. IFRS 17 Insurance contracts: accounting policy overview relating to • Complete the IFRS 17 compliant annual financial statements insurance and reinsurance liabilities and assets Therefore, LBLIC does not anticipate that the variable fee layout and disclosures. This section includes the draft key accounting policies to be approach (VFA) measurement model will be applied to insurance • Finalise the management reporting format and key applied to contracts within the scope of IFRS 17. These draft contracts. Insurance revenue and insurance service expenses are performance measures. accounting policies are subject to change until the publication of recognised in the statement of comprehensive income based on • ngage external auditors for the sign-off of the comparative the annual financial results for the year ended 31 March 2023. the concept of services provided during the period.The standard results for 2022. also recognises losses earlier on contracts that are expected to • Finalise and implement future financial and data governance Classification and measurement be onerous. processes and accountabilities. LBLIC applies IFRS 17 Insurance contracts to insurance contracts issued and reinsurance contracts held. All references to insurance Critical accounting estimates and judgements Transition approach contracts in financial statements apply to insurance contracts The main changes in the critical estimates and judgements to LBLIC will apply IFRS 17 as of 1 April 2023 on a fully retrospective issued or acquired, and reinsurance contracts issued or held, be made to LBLIC’s accounting policies in terms of IFRS 17 – basis for all of its portfolios that are measured using the Premium unless specifically stated otherwise. Once a contract has been Insurance contracts are summarised below. Allocation Approach (PAA). For life term assurance portfolios classified as an insurance contract, the classification remains which are measured under the General Measurement Method unchanged for the remainder of its lifetime, even if the insurance Contract boundaries (GMM), the fair value approach will be applied as the fully risk reduces significantly during the coverage period, unless the LBLIC used the concept of contract boundary to determine what retrospective method is deemed impractical. Comparative terms of the contract are modified. A contract is classified as cash flows should be considered in the measurement of groups of figures for 2022 will be restated as required by the transitional an insurance contract where the company provides insurance insurance and reinsurance contracts. The assessment is reviewed provisions of IFRS 17 and any changes to the carrying amounts coverage by accepting significant insurance risk when agreeing at each reporting date. Cash flows are within the boundary of of insurance and reinsurance assets and liabilities at the date of with the policyholder to pay benefits if a specified uncertain an insurance contract if they arise from substantive rights and transition (being 1 April 2022), will be adjusted in the opening future event (the insured event) adversely affects the policyholder obligations that exist during the reporting period in which the balance of retained earnings. or other beneficiary. company can compel the policyholder to pay premiums; or the company has a substantive obligation to provide the policyholder Estimated impact of adopting IFRS 17 The accounting model applied to these insurance contracts, with insurance contract services. A substantive obligation ends The impact that the initial application of IFRS 17 will have on the including reinsurance contracts issued and/or held, for liability when: financial statements as at 1 April 2022 (the transitional impact) is measurement purposes is the General Measurement Model in the process of being finalised. Since the transition assessment (GMM) unless the Premium Allocation Approach (PAA) applies. 1. the company has the practical ability to reprice the risks of the has not yet been completed, the expected transitional impact The PAA is a modification of the GMM that allows the use of a policyholder or change the level of benefits so that the price is currently in the tentative stage. The new accounting policies, simplified approach for measuring the insurance contract liabilities fully reflects those risks; or assumptions, judgements, and estimation techniques used are for certain eligible types of contracts. Based on the analysis of insurance policies issued, LBLIC applies the GMM approach to 2. both of the following criteria are satisfied: subject to change until the finalisation of the 31 March 2023 annual financial statements. The new systems and associated Individual life term assurance products and the PAA approach 171 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.1 New standards and interpretations not yet adopted 2. has a substantive right to terminate the coverage. 1. contracts that are onerous at initial recognition; (continued) Most reinsurance contract boundaries will align with the contract 2. ccontracts that at initial recognition have no significant • The company has the practical ability to reprice the boundary of the underlying direct insurance contracts. Certain possibility of becoming onerous subsequently; or contract or a portfolio of contracts so that the price risk– attaching treaty reinsurance contracts, however, cover • the pricing of premiums up to the date when risks are underlying direct business that begins during a one-year coverage 3. a group of remaining contracts. reassessed does not reflect the risks related to periods period of the reinsurance contract (risk-attaching reinsurance contracts). Because of this feature, the contract boundary of These groups represent the level of aggregation at which beyond the reassessment date. these reinsurance contracts can be more than one year. Such insurance contracts are initially recognised and measured. Such In assessing the practical ability to reprice, risks transferred from contracts will be subjected to the PAA eligibility test, described groups are not subsequently reconsidered. For each portfolio the policyholder to the company, such as insurance risk and below. The contract boundary of stop– loss treaty reinsurance of contracts, the company determines the appropriate level at financial risk, are considered. Other risks, such as lapse, surrender contracts, is equal to the coverage period of the reinsurance which reasonable and supportable information is available to and expense risk, are not included. The company considers the contact.That is, losses must occur within the treaty’s cover period. assess whether these contracts are onerous at initial recognition legal rights and the commercial substance of the contracts in and whether non-onerous contracts have a significant possibility this assessment. Cash flows outside of the boundary of the Premium allocation approach (PAA) eligibility assessment of becoming onerous. This level of granularity determines sets of insurance contract relate to future insurance contracts and are The company will apply the PAA to measure a group of contracts. The company uses significant judgement to determine recognised when those contracts meet the recognition criteria. insurance/reinsurance contracts issued or reinsurance held if, at at what level of granularity the company has reasonable and For the majority of the insurance contracts issued, LBLIC has inception of the group: the coverage period of each contract supportable information that is sufficient to conclude that all the practical ability to reassess the risks of a policyholder and in the group of insurance contracts is one year or less; or the contracts within a set are sufficiently homogeneous and will be set an appropriate premium to reflect those risks on short company reasonably expects that the PAA would produce a allocated to the same group without performing an individual notice. Consequently, for these insurance contracts, the contract measurement of the liability or asset for remaining coverage for contract assessment. boundary will be shorter than a year. The practical ability to a group of insurance contracts that would not differ materially reprice is not removed when management makes a commercial from the measurement that would be achieved by applying the Liability for incurred claims requirements of the GMM. Where the cover period is greater The best estimate provision for LIC relates to claim events that decision to price, or not price, at a certain level. than one year, the company will assess the appropriateness of the have occurred before or at the reporting date – whether the Cash flows are within the contract boundary if they arise from PAA measurement model by comparing the results produced claims arising from these events have been reported or not substantive rights and obligations that exist during the reporting for calculating the projected LRC under GMM with PAA to (incurred but not reported – IBNR). All future claim payouts period in which the company is compelled to pay amounts to determine in the difference approaches yield large differences. and claim administration costs related to these occurrences are the reinsurer or has a substantive right to receive services from included in the cash flow estimates. Allocated loss adjustment the reinsurer. A substantive right to receive services from the Unit of account expenditures, which have previously been incurred for historical reinsurer ends when the reinsurer: The company manages insurance contracts issued by product claims, are implicitly projected into the future with the claims lines within an operating segment, where each product line payments. The best estimate liability also includes directly 1. has the practical ability to reassess the risks transferred to it includes contracts that are subject to similar risks. All insurance attributable claims management expenditures to account for the and can set a price or level of benefits that fully reflects those contracts within a product line represent a portfolio of contracts. cost of managing the final run-off of the claim’s provisions. The reassessed risks; or Each portfolio is further disaggregated into groups of contracts total of the discounted claims and expenditure provisions is the that are issued within a calendar year (annual cohorts and are: best-estimate liability. 172 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.1 New standards and interpretations not yet adopted 2018-2020 annual improvements cycle Since Land Bank went into default in April 2020, the Shareholder (continued) On 14 May 2020, the IASB issued ‘Annual Improvements to has been very supportive through this process as evidenced by IFRS Standards 2018–2020’. The pronouncement contains the continued engagements with all stakeholders through the Expense allocation methodology amendments to four International Financial Reporting Standards restructuring process as well as by the R10 billion allocated to Acquisition costs can either be expensed as they arise, or (IFRSs) as result of the IASB’s annual improvements project. recapitalise Land Bank. R3 billion was transferred to Land Bank capitalised and amortised over the coverage period. For groups in September 2020, R6 billion was transferred in March 2023 containing contracts longer than one year, acquisition costs must Non-current Liabilities with Covenants (Amendments to and the remaining R1 billion will be transferred during FY23/24. be capitalised. Management’s preference under IFRS 17 will be IAS1) The Bank continues to receive the support of its lenders. As to record the acquisition costs straight under insurance service On 31 October 2022, the IASB issued Non-current Liabilities mentioned in previous year reports only one lender has to expenses as and when incurred unless the costs are significant, in with Covenants to clarify how conditions with which an entity date accelerated their debt. All other lenders remain committed which case an asset will be created and released with the passage must comply within 12 months after the reporting period affect to working with the Bank to find an amicable solution to the of time. Directly attributable acquisition cashflows for issuing and the classification of a liability. The amendments are effective for default challenge.There has been progress achieved over the past underwriting costs have been determined and all attributable and reporting periods beginning on or after 1 January 2024. financial year in advancing the liability solution. An agreement on non-attributable expenses have been identified and allocated the liability solution is expected to have been concluded by 31 to insurance and reinsurance portfolios. The most appropriate Classification of Liabilities as Current or Non-current March 2024. allocation method identified for expense attribution is based on In January 2020 the International Accounting Standards Board the amount of premium written. issued amendments to IAS 1 Presentation of Financial Statements, It is important to highlight that, R5,1 billion of the R6 billion to clarify its requirements for the presentation of liabilities in the transferred in FY22/23, has conditions precedent before it can be Discount rates statement of financial position. utilised by Land Bank and has therefore been ring-fenced in an The bottom-up approach was applied in the determination of Escrow account pending compliance with those conditions, the the discount rates for all relevant portfolios. No discounting was The amendments are effective from annual reporting periods main one being curing the event of default. There are a total of applied for PAA as settlements are within one year. beginning on or after 1 January 2024. seven conditions attached to these funds, the Bank has already met three and is comfortable that it will meet at least six of them Risk adjustment for non-financial risk 3.2 Going Concern by the end of FY23/24. Engagements are in progress regarding The risk adjustment for non-financial risk is the compensation the last condition, which if not revised could negatively impact that the company requires for bearing the uncertainty about In determining the appropriate basis of preparation of the the debt restructuring process, which could then affect the going the amount and timing of the cash flows of groups of insurance financial statements, the directors are required to consider concern position of the Bank. The Bank is comfortable that this contracts. The risk adjustment reflects an amount that an insurer whether the Group can continue in operational existence for matter will be successfully addressed. At present, the conditions would require to remove the uncertainty that future cash flows the foreseeable future. The going concern basis presumes that remain confidential between the Land Bank and the Shareholder. will exceed the expected value amount. A stochastic simulation funds will be available to finance future operations and that of reserves was applied for general insurance. LBLIC applies the the realisation of assets and settlement of liabilities, contingent Land Bank received an Unqualified (clean) audit outcome simplified method based on SAM capital charges. obligations and commitments will occur in the ordinary course from the AGSA on the 2022 Financial Year Audit, this was an of business. improvement from a Qualified Audit Opinion received on the 2021 Financial Year Audit. 173 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.2 Going Concern (continued) R5.1bn is sitting in an ESCROW account pending fulfilment of 3.3 Business combinations attached conditions for the release of the funds for utilisation The Group recorded a net profit of R0,501 billion (2022: R1,2 by the Bank. In total R9bn of the R10bn appropriated to Land Subsidiaries are all entities (including structured entities) over billion – restated) for the year ended 31 March 2023, mainly Bank since default has been received by the Bank to date. which the Bank has control. The Group controls an entity when driven by material impairment releases as the loan book reduces. • Improved liquidity position, through collections, settlements, the Group is exposed to, or has rights to, variable returns from and capital injection with cash sitting at ~R15 billion at 31 its involvement with the entity and has the ability to affect those Despite the above challenges, the Bank’s business and operational March 2023, of which R5,1 billion is ring-fenced as outlined returns. Subsidiaries are fully consolidated from the date on which fundamentals remain strong, and further measures have been above. Refer to notes 4 and 16 for additional details. control is transferred to the Group. They are deconsolidated adopted to manage the Bank’s financial sustainability. • The Bank has repaid 45% of debt owing at default, to date, from the date that control ceases. with another debt repayment of R5,4 billion to be made by Since default, the Bank has achieved the following: the 7th June 2023. This will take the total debt repayment The Group applies the acquisition method to account for business since default to over R23bn which is 58%. combinations. The consideration transferred for the acquisition • Board approval of the new strategy of the Bank and operating • Improved financial performance with FY21/22 and FY22/23 of a subsidiary is the fair values of the assets transferred, the model. Work to be supported by an expert is currently showing profits. liabilities incurred to the former owners of the acquiree and underway for a strategy refresh and a business case, including • The NPL remediation strategy yielding results with the the equity interests issued by the Group. The consideration a new funding mode l of the Bank.The Bank is currently in the nominal number reducing by R2bn YoY. transferred includes the fair value of any asset or liability resulting process of appointing a firm to assist with a fit for purpose • It is important to note the loan book attrition since default; from a contingent consideration arrangement. Identifiable assets organisational structure for the Bank. the Bank is however rebuilding itself as outlined above. acquired and liabilities and contingent liabilities assumed in a • Lending has resumed and was signified by the launch of the • The Shareholder has continued to reiterate its support for business combination are measured initially at their value at the blended finance scheme in partnership with the DALRRD the Bank and continues to work with the Bank to find an acquisition date. during October 2022. amicable debt restructuring solution with lenders in order to • Appointment of a permanent Chief Executive Officer effective cure the default. The Group recognise any non-controlling interest in the acquirer 1 April 2023 • Lenders remain in support of the Bank with only one lender on an acquisition-by-acquisition basis, either at fair value or at the • Appointment of a permanent Chief Audit Executive effective having called on their debt during FY20/21. The remaining non– controlling interest proportionate share of the recognised 1 July 2023 lenders continues to work with Land Bank to find a solution amounts of acquiree identifiable net assets. • Appointment of critical senior management roles to to cure the default. strengthen the internal control environment where gaps were Consolidated financial statements comprise the financial identified and to ensure continued operations of the Bank The directors are of the view that the initiatives reflected above statements of the Land Bank and its subsidiaries, LBLIC and LBIC and delivery of services. will ensure Land Bank meets the going concern requirement in as at 31 March 2023. Intra-group transactions are eliminated • Amidst the attrition of staff, the Land Bank remains committed the foreseeable future, being 12 months from the approval of upon consolidation. to attract and retain a skilled workforce, and ensuring that these annual financial statements, although a material uncertainty vacant roles are filled at acting capacities whilst recruitment is exists. Given already received and expected capital injections Investments in subsidiaries are measured at cost at acquisition in progress. from National Treasury as well as current cash sources available, and subsequent measurement on each reporting date. • During March 2023, the Shareholder transferred R6bn of Land Bank is expected to have sufficient cash resources to be the R7bn appropriated to Land Bank during February 2021, able to meet its liquidity requirements. with the remaining R1bn to be transferred during FY23/24. 174 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.3 Business combinations (continued) risk (both own and counterparty), volatilities and correlations • Decrements require management to make estimates. Changes in assumptions Assumptions with regard to future mortality and lapse rates The financial statements of LBLIC and LBIC are prepared using about these factors could affect the reported fair value of are consistent with the experience for the five years up to the consistent accounting policies to the Land Bank. Furthermore, financial instruments. current financial year-end. Mortality rates are adjusted to allow the annual financial statements have been prepared in for expected deterioration in mortality rates as a result of AIDS. accordance with the requirements of both the Short– and i) Unlisted investments Long-term Insurance acts respectively. The valuation of unlisted shares, as applied by the company’s • Expenses asset managers, comply with International Private Equity and “Per policy” expenses are based on the latest actual expenses Venture Capital Valuation guidelines. Various valuation techniques and escalated at the estimated annual expense inflation rate 3.4 Critical accounting judgements and key sources of are used to arrive at the fair value of investments, including: estimation uncertainty Policyholder liabilities in respect of non-life insurance - Price of recent investment; contracts The most significant judgements and estimates are summarised - Earnings multiple; - Net assets; One of the purposes of insurance is to enable policyholders to below: - Discounted cash flows; protect themselves against uncertain future events. Insurance 1) Impairment losses on loans and advances - Industry benchmarks; and companies accept the transfer of uncertainty from policyholders At each reporting date, the Group assesses whether there - Available market prices. and seek to add value through the aggregation and management has been a significant increase in credit risk for financial assets of these risks. The uncertainty inherent in insurance is inevitably since initial recognition by comparing the credit risk of default Policyholder liabilities in respect of life insurance contracts reflected in the financial statements of the Group, principally in occurring over the expected life between the reporting and respect of the insurance liabilities of the Group. initial recognition. In determining whether credit risk has The following process is followed to determine the valuation Insurance liabilities include the provisions for unearned premiums, increased significantly since initial recognition, the Group uses assumptions: • Determine the best estimate for a particular assumption; unexpired risk, and outstanding claims and incurred but not its internal credit risk grading system, external risk ratings and • Prescribed margins are then applied; and reported (IBNR) claims. Unearned premiums represent the forecast information to assess deterioration in the credit quality • Discretionary margins may be applied as required by the amount of income set aside by the Group to cover the cost of a financial asset. Please refer to note 36 for more details. valuation methodology or if the statutory actuary considers such of claims that may arise during the unexpired period of risk of 2) Fair value of financial instruments margins necessary to cover the risks inherent in the contracts. insurance policies in force at the statement of financial position The fair value of financial instruments that are not quoted in The best estimate of future experience is determined as follows: date. At each statement of financial position date, an assessment active markets are determined by using valuation techniques. is made of whether the provisions for unearned premiums are Where valuation techniques are used to determine fair values, • Investment return adequate. When it is anticipated that unearned premiums will be the valuation models are validated and periodically reviewed by Future investment return assumptions are derived from market- insufficient to cover anticipated costs and fees, unexpired risk is qualified personnel independent of the area that created them. related interest rates on fixed-interest securities with adjustments also set aside. All models are calibrated to ensure that outputs reflect actual for the other asset classes. The appropriate asset composition of data and comparative market prices. To the extent practical, the various asset portfolios, investment management expenses models use only observable data, however, areas such as credit and charges for investment guarantees are taken into account. 175 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.4 Critical accounting judgements and key sources of The ultimate cost of the claim may therefore vary from this initial The IBNR reserve distributions are multiplied by the quota share estimation uncertainty (continued) estimate. Adjustments resulting through this review are reflected percentages to set the different quota share reserve distributions. in the statement of profit or loss and other comprehensive Sine the reinsurance structure is 70% for all crop types, the Outstanding claims represent the Group’s estimate of the cost income as and when identified. sufficiency margin is the same for gross of reinsurance and net of of settlement of claims that have occurred by the statement of reinsurance technical provisions. financial position date, but that have not yet been finally settled. The provision for outstanding claims is initially estimated at In addition to the inherent uncertainty of having to provide for a gross level. A separate calculation is carried out to estimate Premium provisions – short-term future events, there is also considerable uncertainty concerning reinsurance recoveries. The calculation of reinsurance recoveries The group raises provisions for unearned premiums on a basis the eventual outcome of claims that have occurred but had not considers the type of risk underwritten, the year in which the that reflects the underlying risk profile of its insurance contracts. yet been reported to the insurer by the statement of financial loss claim occurred and under which reinsurance programme The estimate for unearned premium provision (“UPP”) is the position date. the recovery will be made as well as the size of the claim, and portion of claims not incurred as yet by the end of March each whether there will be a stop loss recovery based on the overall year. UPP”) is created at the commencement of each insurance Process to determine significant assumptions loss ratio of the portfolio. contract and is released as the risk covered by the contract Insurance risks are unpredictable and the Group recognises that expires according to the remaining days method for the assets it is not always possible to forecast, with absolute precision, future Claims incurred but not reported (IBNR) policies. The unearned premium for crop policies is calculated claims payable under existing insurance contracts. Using historical The Incurred But Not Reported (IBNR) Claims Provision is held according to the claims occurring patterns based on an historic data, the insurance companies aim to establish provisions that in respect of those claims that have occurred but are yet to be claims analysis of claims incurred. Historical data indicates that have an above average likelihood of being adequate to settle all reported by the measurement date.The number IBNR claims are the premiums for Winter crops are fully end by the 31 March of contractual insurance obligations. determined with reference to claim reporting delays patterns as each year, and therefore no UPP has been historically held. The per recent claims experience, to which the severity of the claims earnings curve assumption is not entirely critical on its own since Outstanding claims is applied to arrive at the IBNR Claims Provision. A separate an assessment for the need to set-up the Additional Unexpired Claim provisions are determined based upon previous claims calculation is carried out to calculate the reinsurance portion of Risk Provision (“AURP”) is more important in ensuring sufficiency experience, knowledge of events, the terms and conditions of the IBNR reserve. of reserves than the earning of written premiums. the relevant policies and on interpretation of circumstances. Each notified claim is assessed on a separate case-by-case basis with The calculation of insurance liabilities is an inherently uncertain At each statement of financial position date an assessment is due regard to the specific circumstances, information available process. The Company seeks to provide adequate levels of made of whether the provisions for unearned premium are from the insured and/or loss adjuster and experience with similar insurance provisions by taking into account all known facts adequate. If the premium level is deemed to be insufficient based cases. and experience from a variety of sources as well as statutory on information available at the statement of financial position requirements. date, to cover the anticipated claims and operating expenses, a The Group’s estimates for outstanding claims are continually separate provision (“AURP”) is made for any estimated future reviewed and updated as future developments take place and Actual experience post valuation date is taken into account and underwriting losses relating to unexpired risks. This assessment better information becomes available regarding the current the actuarial estimation is limited (i.e. data to include a month includes estimates of future claims frequency and claims severity circumstances. experience following the Valuation Date). The IBNR is further and other factors affecting the need for a provision for unexpired increased by a 75% sufficiency margin, from a joint historic risk and performed annually. Actual unexpired risk experience bootstrap of the number of claims and claim amounts. post valuation date is taken into account and the actuarial estimation is limited (i.e. data to include a month experience 176 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.4 Critical accounting judgements and key sources of expected rates of return of assets, future salary increases, mortality (i) Fee and commission income. estimation uncertainty (continued) rates and medical cost trends. All assumptions are reviewed at Fees and other income which are integral to the effective interest each reporting date. rate on a financial asset are included in the measurement of the effective interest rate. following the Valuation Date). Simulations of aggregate claims are Management expense provisions and accruals done by simulating both the number of claims that may arise At each statement of financial position date, the Group might Other fee income, including account servicing fees, investment from a Poisson distribution as well as the claim amounts thereto be exposed to various liabilities of uncertain timing or amount. management fees, sales commission, placement fees and (historical bootstrapping), utilising the inflated claims data. Such liabilities are provided for if a present obligation has arisen, syndication fees, is recognised as the related services are payment is probable and the amount can be reliably estimated. performed. When The average of the simulated aggregate claims is the best estimate Management uses its discretion to estimate the expenditure unexpired risk provision. As per APN 401 of the Actuarial Society required to settle the present obligation as at year-end, i.e. a loan commitment is not expected to result in the drawdown of South Africa, for the financial reporting basis a margin is held at the amount that the Group would rationally pay to settle the of a loan, loan commitment fees are recognised on a straight-line a 75% sufficiency margin. obligation. basis over the commitment period. The provision for unearned premiums is first determined on a Revenue recognition (ii) Dividend Income. gross level and thereafter the reinsurance impact is recognised Dividends are recognised in the period when the shareholders’ based on the relevant reinsurance contract. Interest income right to receive payment is established. In terms of IFRS 9 interest income is recognised in profit or The deferred acquisition cost (“DAC”) can be thought of as the loss using the effective-interest method taking into account Dividend income from financial assets classified at fair value amount of commission recoverable from intermediaries if the the expected timing and amount of cash flows. The effective- through profit or loss is recognised on the last date to register. company had to refund premiums to all its policyholders. The interest method is a method of calculating the amortised cost company calculates the DAC based on the premium earnings of a financial asset (or group of financial assets) and of allocating (iii) Investment surpluses. curve in a similar manner as the UPP calculation, using the the interest income over the relevant period. Interest income Investment surpluses consist of net realised gains and losses on percentage of premium payable to. LBIC calculates the DAC include the amortisation of any discount or premium or other the sale of investments and net unrealised fair value gains and based on the Premium Earnings Curve in a similar manner as differences between the initial carrying amount of an interest- losses on the valuation of investments at fair value, excluding the UPP calculation, using the percentage of premium payable bearing financial instrument and its amount at maturity calculated dividend and interest income. These surpluses are recognised in to UMAs and to brokers. DACs are amortised at incidence of on an effective-interest-rate basis. the statement of profit or loss and other comprehensive income risk basis and are deferred over the period in which the related on the date of sale or upon valuation to fair value. premiums are earned. IFRS 15 Revenue from Contracts with Customers The group is able to identify the contract when both the client (iv) Rental income. Post-employment medical benefits and the group have accepted the terms of the agreement. The Rental income arising from operating leases on investment The cost of defined benefit post-employment medical benefits contract will also identify all the services (performance obligations) properties is accounted for on a straight-line basis over the as well as the present value of the post-retirement medical aid the group will render to the client. Based on this, the transaction lease term and is recorded in the statement of profit or loss and obligation is determined using actuarial valuations. The actuarial price is allocated to each identified performance obligation. The other comprehensive income in ‘Non-interest income Revenue valuation involves making assumptions about discount rates, group recognises the revenue once the performance obligation is recognition. satisfied, which may occur over time or at a point in time. 177 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.4 Critical accounting judgements and key sources of (i) Commission Land and buildings comprise owner occupied property. Land and estimation uncertainty (continued) Commission is payable to brokers and underwriting managers buildings are shown at fair value, based on valuations by external on non-life insurance business. Commission is recognised for independent valuators, less subsequent depreciation for buildings. Realised gains and losses on all in– force policies in the financial period during which it Valuations are performed with sufficient regularity to ensure that The realised gain or loss on disposal of an investment is the is incurred. Acquisition costs for non-life insurance business is the fair value of a revalued asset does not differ materially from difference between the proceeds received, net of transaction deferred and amortised over the period in which the related its carrying amount. Any accumulated depreciation at the date of costs, and its original cost or amortised cost as appropriate premiums are earned. revaluation is eliminated against the gross carrying amount of the and is recorded in the statement of profit or loss and other asset, and the net amount is restated to the revalued amount of comprehensive income. 3.6 Fruitless and wasteful and irregular expenditure the asset. All other property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is (v) Unrealised gains and losses Items of expenditure which meet the requirements of the Public directly attributable to the acquisition of the items. Unrealised gains or losses represent the difference between Finance Management Act (PFMA) for fruitless and wasteful as the carrying value at the year end and the carrying value at the well as irregular expenditure are separately disclosed in the notes Subsequent costs are included in the asset’s carrying amount or previous year end or purchase value during the year, less the to the financial statements. “Fruitless and wasteful expenditure” recognised as a separate asset, as appropriate, only when it is reversal of previously recognised unrealised gains and losses in means expenditure which was made in vain and would have probable that future economic benefits associated with the item respect of disposals during the year and is recognised in the been avoided had reasonable care been exercised. “Irregular will flow to the Group and the cost of the item can be measured statement of profit or loss and other comprehensive income. expenditure” means expenditure, other than unauthorised reliably.The carrying amount of the replaced part is derecognised. expenditure, incurred in contravention of or that is not in All other repairs and maintenance are charged to the statement (vi) Insurance premium income: Refer to accounting policy accordance with a requirement of any applicable legislation or of comprehensive income during the financial period in which note 3.20 internal policy. they are incurred. 3.5 Expenses When discovered, irregular expenditure is recognised as an Increases in the carrying amount arising on revaluation of land asset in the statement of financial position until such time as and buildings are credited to other comprehensive income and the expenditure is either condoned by the relevant authority, shown as Revaluation Reserves in the Statement of Changes (i) Administration costs recovered from the responsible person or written off as in Equity. Decreases that offset previous increases of the same Administration costs on short-term insurance business consist irrecoverable in the statement of profit or loss and other asset are charged in other comprehensive income and debited of directly attributable costs payable to the underwriter and are comprehensive income. against Revaluation Reserves directly in equity; to the extent that deferred over the period in which the related premiums are decreases exceed the Revaluation reserve the decreases are earned. 3.7 Property, plant and equipment charged to the statement of comprehensive income. Each year the Administration costs that are directly attributable to long- difference between depreciation based on the revalued carrying term recurring premium insurance policy contracts are Items of property and equipment are initially recognised at cost amount of the asset charged to the statement of comprehensive recognised directly to the statement of profit or loss and other if it is probable that any future economic benefits associated with income, and depreciation based on the asset’s original cost is comprehensive income. the items will flow to the group and they have a cost that can be transferred from other reserves to retained earnings. measured reliably. 178 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.7 Property, plant and equipment (continued) net disposal proceeds, if any, and the carrying amount of the item. accounts for such property in accordance with the policy stated On derecognition any surplus in the revaluation reserve in t of an under property and equipment up to the date of change in use. Reversals of impairment loss on a revalued asset is recognised individual item of property and equipment is transferred directly Owner occupied property is classified as investment property in other comprehensive income and increases the revaluation to retained earnings in the statement of changes in equity. when the owner occupies less than an insignificant portion of the surplus of the asset. However, to the extent that an impairment property (less than 50%). loss on that asset was recognised directly in profit and loss, that 3.8 Investment property reversal shall be to profit and loss. The assets’ residual values, This threshold was set due to the Group’s intention to let out useful lives and methods of depreciation are reviewed, and Investment properties (properties that are not owner-occupied), any excess office space, which exists at the Group’s properties. adjusted if appropriate, at each financial year-end, the 31 March are properties which are held to earn rental income and/ or for 2023. capital appreciation. Investment properties are measured initially 3.9 Intangible assets at cost, including transaction costs. The carrying amount includes Depreciation is provided on the straight-line basis, which, it is the cost of replacing part of an existing investment property at An intangible asset is recognised if it is probable that the expected estimated, will reduce the carrying amount of the property and the time that cost is incurred if the recognition criteria are met future economic benefits that are attributable to the asset will equipment to their residual values at the end of their useful lives. and excludes the costs of day-to-day servicing of an investment flow to the Group and the cost of the asset can be measured property. Subsequent to initial recognition, investment properties reliably. Items of property and equipment are depreciated from the are stated at fair value, which reflects market conditions at the date that they are installed and available for use. Land is not reporting date. All revaluations are performed by independent Intangible assets that are acquired and have finite useful lives are depreciated as it is deemed to have an indefinite life. Where an qualified experts. initially recognised at cost with subsequent measurement at cost item of property and equipment comprises major components less any accumulated amortisation and any impairment losses. with different useful lives, the components are accounted for as Gains or losses arising from changes in the fair values of Intangible assets are derecognised upon disposal or when no separate items of property and equipment. investment properties are recognised in the statement of profit future economic benefits are expected from its use or disposal. or loss in the period in which they arise. Any gain or loss arising on derecognition of the asset (calculated The major categories of property and equipment are depreciated as the difference between the net disposal proceeds and the at the following rates: Investment properties are derecognised either when they have carrying amount of the asset) is included in the profit or loss in been disposed of or when the investment property is permanently the year the asset is derecognised. Building 2.5% per annum withdrawn from use and no future economic benefit is expected Motor vehicles 20% per annum from its disposal. The difference between the net disposal (i) Computer software Computer equipment 33.3% per annum proceeds and the carrying amount of the asset is recognised in Costs associated with maintaining computer software Leasehold improvements Equal months in relation to the statement of profit or loss and other comprehensive income programmes are recognised as an expense as incurred. Computer lease period in the period of derecognition. software license fees are paid for in advance, recognised as a Furniture and fittings 20% per annum prepayment and expensed to the statement of profit or loss Transfers are made to or from investment property only when and other comprehensive income over the period of the license Items of property and equipment are derecognised on disposal there is a change in use. For a transfer from investment property agreement. Should the license agreement extend beyond 12 or when no future economic benefits are expected from their to owner occupied property, the deemed cost for subsequent months, the software license would be capitalised as an intangible use or disposal. The gain or loss on derecognition is recognised accounting is the fair value at the date of change in use. If owner asset and amortised on a straight-line basis over the period of in profit or loss and is determined as the difference between the occupied property becomes an investment property, the Group the license agreement. 179 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.9 Intangible assets (continued) In assessing value in use, the expected future cash flows from loss being recognised in profit or loss when an asset is newly the asset are discounted to their present value using a discount originated. (ii) Amortisation rate that reflects current market assessments of the time value Intangible assets are amortised on a straight-line basis in profit of money and the risks specific to the asset. An impairment loss (i) Amortised cost and effective-interest rate or loss over their estimated useful lives, from the date that they is recognised whenever the carrying amount of an asset exceeds The amortised cost of a financial instrument is the amount at are available for use. The estimated useful lives for the current its recoverable amount. which the financial instrument is measured on initial recognition and comparative years are as follows: Tier 1 asset – Software minus principal repayments, plus or minus the cumulative relating to core business applications for which any change to a A previously recognised impairment loss is reversed if the amortisation using the effective-interest method of any difference different application suite would require a significant investment recoverable amount increases as a result of a change in the between the initial contractual amount and the maturity amount, in resources and time. estimates used to determine the recoverable amount, but not less any cumulative impairment losses. to an amount higher than the carrying amount that would have Tier 2 asset – Software that is directly integrated with the core been determined (net of depreciation) had no impairment loss The effective-interest rate is the rate that exactly discounts financial systems and additional developments and modules may been recognised in prior years. estimated future cash payments or receipts through the expected have be added. Other – Commodity software. life of the financial asset or financial liability to the gross carrying 3.11 Financial instruments amount of a financial asset (i.e. its amortised cost before any Amortisation methods, useful lives and residual values are impairment allowance) or to the amortised cost of a financial reviewed at each financial year end and adjusted if appropriate. Classification and measurement liability. The calculation does not consider ECLs and includes Financial assets and financial liabilities are recognised when transaction costs, premiums or discounts, fees and points paid Item Depreciation method Average useful life the entity becomes a party to the contractual terms of the or received that are integral to the effective interest rate, such instrument. Regular way purchase and sales of financial assets are as origination fees. Tier 1 asset Straight line 10 years recognised on trade date, the date on which the group commits Tier 2 asset Straight line 5 years When the group revises the estimates of future cash flows, the to purchase or sell the asset. Other Straight line 3 years carrying amount of the respective financial asset or financial At initial recognition, the group measures a financial asset or liability is adjusted to reflect the new estimate, discounted using Impairment of non-financial assets financial liability at its fair value plus or minus, in the case of a the original effective interest rate. Any changes are recognised in Intangible and tangible assets that are subject to amortisation financial asset or financial liability not at fair value through profit profit or loss. are reviewed for impairment whenever events or changes in or loss (FVTPL), transaction costs that are incremental and circumstances indicate that the carrying amount may not be directly attributable to the acquisition or issue of the financial (ii) Fair value recoverable. An impairment loss is recognised for the amount asset or financial liability, such as fees and commissions. The fair value of a financial instrument is the amount that by which the asset’s carrying amount exceeds its recoverable would be received to sell the asset or paid to transfer a liability amount. The recoverable amount is the higher of an asset’s fair Transaction costs of financial assets or financial liabilities carried in an orderly transaction between market participants at the value less costs of disposal and value in use. For the purposes at FVTPL are expensed in profit or loss. Immediately after initial measurement date. The fair value of instruments that are quoted of assessing impairment, assets are grouped at the lowest levels recognition, an expected credit loss (ECL) is recognised for in an active market is determined using quoted prices where for which there are largely independent cash inflows (cash- financial assets measured at amortised cost and investments they represent those at which regularly and recently occurring generating units). Prior impairments of non– financial assets in debt instruments measured at fair value through other transactions take place. (other than goodwill) are reviewed for possible reversal at each comprehensive income (FVOCI), which results in an accounting reporting date. 180 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.11 Financial instruments (continued) - contractual terms that give rise to cash flows on specified - Financial guarantee contracts and loan commitments. dates, that represent solely payments of principal and interest The group uses valuation techniques to establish the fair value on the principal amount outstanding; and (iii) Derivative financial instruments, strategic trading asset and of instruments where quoted prices in active markets are not - are held within a business model whose objective is achieved hedge accounting available. For a detailed discussion of the fair value of financial by holding to collect contractual cash flows. The Group elected an accounting policy choice under IFRS instruments, refer to note 36. 9 “Financial Instruments” to apply the hedge accounting Amortised cost is calculated by taking into account any discount requirements under IFRS 9 “Financial Instruments: Recognition Modification or premium on acquisition and fee or costs that are an integral and Measurement”. The group modifies the terms of the loans provided to its clients part of the effective interest rate (EIR). The EIR amortisation is due to commercial renegotiations or in cases of distressed loans, included in “Net interest income” in the statement of profit or As part of the requirements to apply hedge accounting, the with the aim of maximising recovery. Such restructuring activities loss and other comprehensive income. The losses arising from Group documents, at the inception of the hedge relationship, include changes in payment frequency, payment date, term, impairment are recognised in the statement of profit or loss and the relationship between hedging instruments and hedged items, interest rate or consolidation of borrower’s loan agreements into other comprehensive income. the risk being hedged, the Group’s risk management objective a single agreement to mitigate credit risk. and strategy for undertaking hedge transactions, and how Receivables arising from insurance contracts are also classified effectiveness will be measured throughout the life of the hedge The modified asset is assessed to determine whether it constitutes in this category and are reviewed for impairment as part of the relationship. a substantial or non-substantial modification by considering both impairment review of loans and receivables. quantitative and qualitative features. For example, if the present All derivatives are recognised in the statement of financial value of the new contractual cash flows discounted using the Investments in equity instruments: position at fair value and are classified as trading except where original effective interest rate, differs by 10% when compared For equity investments that are held neither for trading nor for they are designated as part of an effective hedge relationship and to the original contractual cash flows, the Land Bank deems the contingent consideration the group may irrevocably elect to classified as hedging derivatives. The carrying value of a derivative modification to be substantial and results in the de-recognition present subsequent changes in the fair value of these equity is measured at fair value throughout the life of the contract. of the original asset. If the present value is below 10% and the investments in Derivatives are disclosed as assets when the fair value is positive qualitative assessment performed does not deem it so, the Land and as liabilities when the fair value is negative. Bank deems the modification to be non-substantial and does not OCI. The cumulative gain or loss previously recognised in OCI result in de– recognition of the original asset. The modification is not reclassified from equity to profit or loss. However, it is The derivative assets and derivative liabilities are offset and the gain/loss will then be determined. reclassified into equity. net position is presented in the statement of financial position as the Group has a legal right to offset the amounts and intends to The gain/loss shall be derived by comparing the present value Financial liabilities settle on a net basis. Each swap has the same counterparty and of the restructured loan (discounted using the original effective Financial liabilities are classified as subsequently measured at the “net asset/ liability” is as a result of movements in FVTOCI. interest rate) to the carrying value at time of modification. amortised cost, except for: derecognition. All strategic trading asset and repurchase agreements are - Financial liabilities at FVTPL: This classification is applied to recognised in the statement of financial position at fair value Financial assets derivative financial liabilities, financial liabilities held for trading and are classified as trading. The carrying value of an asset is Debt instruments are measured at amortised cost where they and other financial liabilities designated as such at initial measured at fair value and are disclosed as assets when the fair have: recognition. value is positive and as liabilities when the fair value is negative. 181 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.11 Financial instruments (continued) When the Group has transferred its rights to receive cash flows The amount of Expected Credit Loss (ECL) is measured as the from an asset or has entered into a pass-through arrangement, probability-weighted present value of all cash shortfalls over (iv) Cash held under investments and has neither transferred nor retained substantially all the risks the expected life of the financial asset discounted at its original The “Cash” held under investments is held with the Asset and rewards of the asset nor transferred control of the asset, the effective interest rate.The cash shortfall is the difference between Managers (external party) to invest on the Group’s behalf. At asset is recognised to the extent of the Group’s involvement in all contractual cash flows that are due to the group and all the various stages as the markets move, the Asset Managers may the asset. In that case, the Group also recognises an associated cash flows that the group expects to receive. The amount of the buy and sell shares and bonds, and would invariably have cash on liability. The transferred asset and the associated liability are loss is recognised using a provision for “Expected Credit Loss hand at certain points in time. This cash is held in the possession measured on a basis that reflects the rights and obligations that account”. of the Asset Managers and is intended to be used for the the Group has retained. purpose of purchasing new financial instruments. The cash is not Financial instruments necessarily available to be used as working capital by the Group Continuing involvement that takes the form of a guarantee over Key principles of the group’s accounting policy for impairment of and therefore is not disclosed as “Cash and cash equivalents”. the transferred asset is measured at the lower of the original financial assets are listed below. Please refer to note 4. carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. The Group assesses at initial recognition of financial assets Derecognition of financial asset whether to use a 12-month expected loss approach or a lifetime Upon derecognition of equity instruments designated at fair Financial liabilities expected loss approach in order to calculate its impairment value through other comprehensive income, the cumulative fair A financial liability is derecognised when the obligation under the provision. value gains/ (losses) recognised in other comprehensive income liability is discharged or cancelled or expires. Where an existing is not subsequently recycled to profit or loss. financial liability is replaced by another from the same lender on A 12-month expected loss approach is used for the following substantially different terms, or the terms of an existing liability instruments: Financial assets are substantially modified, such an exchange or modification A financial asset is derecognised when: is treated as a derecognition of the original liability and the Purchased or newly originated financial assets that are not recognition of a new liability.The difference between the carrying credit impaired. A lifetime expected loss approach is used for - The rights to receive cash flows from the asset have expired. value of the original financial liability and the consideration paid is the following instruments: Purchased or newly originated credit - The Group has transferred its rights to receive cash flows recognised in profit or loss. impaired financial assets. Although some financial assets within from the asset or has assumed an obligation to pay the the Bank’s portfolio might meet the definition of low credit received cash flows in full without material delay to a third Impairment of financial instruments Impairment of financial risk, the Bank opted not to apply this in application of its ECL party under a ‘pass-through’ arrangement; and either: assets methodology as given the nature of the Bank’s business it is At each reporting date, the Group assesses whether there deemed not to be prudent not to consider whether a significant (i) The Group has transferred substantially all the risks and has been a significant increase in credit risk for financial assets increase in credit risk exits. rewards of the asset, or since initial recognition by comparing the credit risk of default occurring over the expected life between the reporting date For subsequent measurement, the group applies a three-stage (ii) The Group has neither transferred nor retained substantially and the initial recognition. In determining whether credit risk has approach to measuring expected credit loss (ECL) on debt all the risks and rewards of the asset, but has transferred control increased significantly since initial recognition, the Group uses instruments accounted for at amortised cost. Assets migrate of the asset. its internal credit risk grading system, external risk ratings and through the following three stages based on the change in credit forecast information to assess deterioration in the credit quality quality since initial *recognition: of a financial asset. 182 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.11 Financial instruments (continued) The group considers its historical loss experience and adjusts Collateral this for current observable data. In additional, the group uses Collateral refers to an asset bonded or pledged under a security Stage 1: 12months ECL reasonable and supportable forecasts of future economic document to the Bank by a borrower or surety in support of For exposures where there has not been a significant increase in conditions including experienced judgement to estimate the a loan granted. In the event of a default by a client or surety, credit risk since initial recognition and that are not credit impaired amount of an expected impairment loss. IFRS 9 introduces the collateral is a secondary source of repayment. upon origination, the portion of the lifetime ECL associate with use of macro-economic factors that which include but are not the probability of default events occurring within the next 12 limited to the World. All collateral items ceded to the Land Bank shall be valued months is recognised. or revalued within the frequency timelines, failing which will Food Index as well as the Volume of Imports of Goods and be regarded as stale and in non-compliance to the Collateral Stage 2: Lifetime ECL – not credit impaired Services, and requires an evaluation of both the current and Management policy. For credit exposures where there has been a significant increase forecast direction of the economic cycle. Incorporating forward- in credit risk since initial recognition but that are not credit looking information increases the level of judgement as to how Market values for properties (and ultimately fair value) must impaired, a lifetime ECL is recognised. changes in these macro– economic factors will affect ECL. The be conducted in line with industry standards as determined by methodology, assumptions and macro-indices, including any the South African Council for the Property Valuers Profession Stage 3: Lifetime ECL – credit impaired forecasts of future economic conditions are reviewed regularly. (SACPVP), as amended from time to time. This involves the use If the loan’s credit risk increases to the point where it is considered of comparable sales of similar properties (for Land Bank it’s 3 credit-impaired, interest revenue is calculated based on the loan’s If, in a subsequent period, credit quality improves and reverses recent comparable sales). amortised cost (that is, the gross carrying amount less the loss the previously assessed significant increase in credit risk since allowance). Lifetime ECLs are recognised, as in Stage 2. origination, then the ECL reverts from lifetime ECL to 12-months Fair value is determined by limiting collateral reporting to the ECL. lower of registered bond/ cession amount or forced sale value The group assesses whether the credit risk on a financial asset has (FSV). increased significantly on an individual or collective basis. For the Day 1 profit purposes of a collective evaluation of impairment, financial assets Where the transaction price in a non-active market is different The collateral valuation must take into account the forced are grouped on the basis of shared credit risk characteristics, from other observable current market transactions in the same sale margins (or liquidation cost provision) based on historical taking into account instrument type, credit risk ratings, date instrument or based on a valuation technique whose variables recovery and liquidation costs incurred by Land Bank to determine of initial recognition, remaining term to maturity, industry, include data from observable markets, the group immediately security value and /or forced sale value. These liquidations cost geographical location of the borrower and other relevant factors. recognises the difference between the transaction price and fair margins must be re-assessed annually. value (a ‘Day 1’ profit) in the statement of profit or loss and The amount of ECL is measured as the probability-weighted other comprehensive income under fair value gains and losses. Cash and cash equivalents present value of all cash shortfalls over the expected life of the In cases where use is made of data, which is not observable, Cash comprises cash on hand and at bank and demand deposits. financial asset discounted at its original effective interest rate. The the difference between the transaction price and model value Cash equivalents are short-term, highly liquid investments that cash shortfall is the difference between all contractual cash flows is only recognised in the statement of profit or loss and other are readily convertible to known amounts of cash and which are that are due to the Group and all the cash flows that the group comprehensive income when the inputs become observable, or subject to an insignificant risk of changes in value. Cash and cash expects to receive. The amount of the loss is recognised using a when the instrument is derecognised. equivalents are stated at carrying amount which is deemed fair provision for “Expected Credit Loss account”. value. 183 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.11 Financial instruments (continued) Funding Liabilities The Group recognises a right-of-use asset and a lease liability at The carrying values of all funding liabilities are measured at the lease commencement date. The right-of-use asset is initially Funds administered on behalf of related parties amortised cost in alignment with IFRS 9 requirements. measured based on the initial amount of the lease liability adjusted The Group manages funds on behalf of related parties. The for any lease payments made at or before the commencement net position in terms of legal right to offset of these funds The arranging fees that are paid upon acquisition of the liability date, plus any initial direct costs incurred and an estimate of costs administered on behalf of related parties are separately disclosed are deferred to the Statement of Other Comprehensive Income to dismantle and remove the underlying asset or to restore the in the notes to the annual financial statements. These funds are over the term of the loan facility and included in the interest underlying asset or the site on which it is located, less any lease not carried on the statement of financial position of the Group. expense line as these arranging fees form part of the “Effective incentives received. Interest Rate” of funding instruments.The prepaid arranging fee is Trade and other receivables carried as part of the funding liabilities. The assets are depreciated to the earlier of the end of the useful For trade and other receivables only, the Bank applies the life of the right-of-use asset or the lease term using the straight- simplified approach permitted by IFRS 9, which requires expected 3.12 Tax line method as this most closely reflects the expected pattern of lifetime losses to be recognised from the initial recognition of the consumption of the future economic benefits. receivables if there is no significant financing component. Under Income tax this approach the tracking of changes in credit risk is not required, The Land Bank is exempt from income tax in terms of sections The lease term includes periods covered by an option to extend instead lifetime expected credit losses are recognised. ECLs are 10(1) (cA) (ii) of the Income Tax Act, 58 of 1962. if the Group is reasonably certain to exercise that option. Lease recognised in profit or loss. The provision matrix will be used terms range from 2 to 5 years for offices and vehicles. In addition, to calculate the impairment for credit losses. The Bank will use The direct subsidiaries of the Land Bank are also exempt from the right-of-use asset is periodically reduced by impairment the historically observed default rates (actual write-off) over income tax in terms of sections 10(1) (cA) (ii) of the Income Tax losses, if any, and adjusted for certain remeasurements of the the expected life of the trade and other receivables adjusted as Act, 58 of 1962. lease liability. necessary to reflect current conditions to calculate the default rate in the provision matrix. Adjustments will be made for 3.13 Leases The group applies the cost model subsequent to the initial forward-looking information based on economic conditions. The measurement of the right of use assets. default rate calculated in the provision matrix will be adjusted Lessee accounting policies for economic conditions. The total book debt is segregated into The standard provides a single lessee accounting model, requiring The lease liability is initially measured at the present value of different categories of trade and other receivables and the default lessees to recognise assets and liabilities for all major leases. At the lease payments that are not paid at the commencement percentage is applied on the balance per category to calculate inception of a contract, the Group assesses whether a contract date, discounted using the interest rate implicit in the lease or, if the ECL allowance. is, or contains a lease based on whether the contract conveys that rate cannot be readily determined, the Group’s incremental the right to control the use of an identified asset for a period borrowing rate. Generally, the Group uses its incremental Trade and other payables of time in exchange for consideration. The Group has elected borrowing rate as the discount rate. The interest component Trade and other payables, including accruals, are recognised when to apply the practical expedient method to account for each of the lease liability payment is presented as part of operating the Group has a present obligation arising from past events, lease component and any non-lease components as a single lease activities on the cash flow statement. the settlement of which is expected to result in an outflow of component. economic benefits from the Group. 184 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.13 Leases (continued) 3.14 Related parties items or translating monetary items at rates different from those at which they were translated on initial recognition during the The lease liability is measured at amortised cost using the effective The Group operates in an economic environment currently period or in the previous financial statements are recorded in interest method. It is remeasured when there is a change in future dominated by entities directly or indirectly owned by the South profit and loss in the period in which they arise. lease payments arising from a change in an index or rate, if there African government. As a result of the constitutional independence is a change in the Group’s estimate of the amount expected to of all three spheres of government (national, provincial and local) in Non-monetary items that are measured in terms of historical- be payable under a residual value guarantee, or if the Group South Africa, only parties within the national sphere of government cost in a foreign currency are translated using the exchange changes its assessment of whether it will exercise a purchase, will be considered to be related parties. rates as at the dates of the initial transactions. Non-monetary extension or termination option. items measured at fair value in a foreign currency are translated Key management is defined as being individuals with the authority using the exchange rates at the date when the fair value was When the lease liability is remeasured in this way, a corresponding and responsibility for planning, directing and controlling activities determined. adjustment is made to the carrying amount of the right of– use of the Group. All individuals from Executive Management up to asset, or is recorded in profit or loss if the carrying amount of the the Board of Directors are key management individuals in their 3.16 Non-current assets (disposal groups) held for sale right-of-use asset has been reduced to zero. dealings with the Group. (NCAHFS) or distribution to owners The Group has elected to apply the practical expedient not Close family members of key management personnel are In the statement of profit or loss and other comprehensive income to recognise right-of-use assets and lease liabilities for short– considered to be those family members who may be expected of the reporting period, and of the comparable period, income term leases that have a lease term of 12 months or less. The to influence or be influenced by key management individuals in and expenses from discontinued operations are reported separate lease payments associated with these leases is recognised as an their dealings with the Group. from normal income and expenses down to the level of profit/ expense on a straight-line basis over the lease term. (loss) after taxes. Property and equipment and intangible assets Other related party transactions are also disclosed in terms of the once classified as held-for-sale are not depreciated/amortised. Lessor accounting policies requirements of IAS 24. The objective of IAS 24 and the financial Leases where the Group is the lessor and retains substantially all statements is to provide relevant and reliable information and Properties in possession the risk and benefits of ownership of the asset are classified as therefore, materiality is considered in the disclosure of these Unsold properties in possession are recognised once ownership operating leases. The Bank leases out its investment properties transactions. has been legally transferred to the Group and the underlying as operating leases, thus generating rental income. The rental debtor is then derecognised.These properties are included under income is recognised as income on a straight-line basis over the 3.15 Foreign currency transactions non-current assets held-for-sale at the outstanding loan balance, lease term. Initial direct costs incurred in negotiating operating which are then valued at the lower of the carrying amount and leases are added to the carrying amount of the leased asset Foreign currency transactions are translated into the functional the fair value less costs to sell. The fair value is determined using and recognised over the lease term of the same basis as rental currency using the exchange rates prevailing at the dates of the a market-based valuation performed by a sworn appraiser at the income. Contingent rents are recognised as revenue in the transactions or valuation where items are re-measured. statement of financial position date. Realisable value is determined period in which they are earned. using market-based valuations performed by a sworn appraiser Monetary assets and liabilities denominated in foreign currencies at the statement of financial position date. Maintenance costs are are retranslated at the functional currency spot rate of exchange expensed in the period incurred. The intention of the Group is ruling at the statement of financial position date. Foreign to sell these properties to recover the outstanding payments on exchange differences arising on the settlement of monetary the defaulted loans. 185 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.16 Non-current assets (disposal groups) held for sale i) Defined contribution plans. Management estimates the DBO annually with the assistance of (NCAHFS) or distribution to owners (continued) The Group pays fixed contributions into independent entities independent actuaries. This is based on standard rates of inflation, in relation to several state plans and insurance for individual salary growth and mortality. Discount rates are determined by Disposal of properties in possession employees. The Group has no legal or constructive obligations to reference to market yields at the end of the reporting periods on It is the Group’s policy to dispose of repossessed properties in pay contributions in addition to its fixed contributions, which are government bonds that have terms to maturity approximating to an orderly fashion on a willing buyer and willing seller basis. The recognised as an expense in the period that relevant employee the terms of the related pension liability. Remeasurement gains and property to be sold is advertised in the market. Upon receipt services are received. losses arising from experience adjustments and changes in actuarial of offers to purchase, the offers are evaluated and an offer that assumptions are recognised directly in other comprehensive makes the most economic sense is accepted. Retirement fund income. They are included as a separate component of equity in The Land Bank Retirement Fund which functions as a defined the statement of financial position and in the statement of changes The Group has satisfied the following IFRS 5 conditions to classify contribution plan and which is subject to the provisions of the in equity. Service cost on the net defined benefit liability is included the properties as NCAHFS: Pension Fund Act, 1956 (Act No.24 of 1956) came into operation in employee benefits expense. Net interest expense on the net on 1 November 1994. Defined obligations such as disability defined benefit liability is included in finance costs. • The appropriate level of management must be committed to and death in service were completely phased out during the a plan to sell the asset; and an active programme to locate a 2007 financial year. The Fund is now accounted for as a defined Medical aid fund buyer and complete the sale must have been initiated. contribution plan as it no longer has any obligation towards he Bank provides a post-retirement medical aid benefit to all • The asset must be actively marketed for sale at a price that is members for defined benefits. Contributions are recognised as employees who were either employees or pensioners of the reasonable in relation to its current fair value. an expense and as a liability to the extent that they are unpaid. Bank at 1 December 2005.The fund functions as a defined benefit • The sale should be expected to qualify for recognition as a scheme. The entitlement to these benefits is usually conditional completed sale within one year from the date of classification, The Land Bank Retirement Fund (“LBRF”) in an umbrella fund on the employee remaining in service up to retirement age. It is except where events and circumstances may extend the within the Alexander Forbes Retirement Fund (AFRF). the Group’s policy to pay the medical fund subscription fees on period to complete the sale beyond one year behalf of all pensioners in full and to fund the total obligation as • Actions required to complete the plan should indicate that it ii) Defined benefit plans. and when it arises actuarial valuations of the Bank’s liability are is unlikely that significant changes to the plan will be made or Under the Group’s defined benefit plans, the amount of pension conducted on an annual basis by an independent qualified actuary that the plan will be withdrawn. benefit that an employee will receive on retirement is defined by on the projected unit credit method. The liability recognised in reference to the employee’s length of service and final salary. The the statement of financial position in respect of defined benefit 3.17 Employee benefits legal obligation for any benefits remains with the Group, even if medical plan is the present value of the defined benefit obligation plan assets for funding the defined benefit plan have been set at the statement of financial position date. The benefit obligation aside. Plan assets may include assets specifically designated to at the statement of financial position date is not reflected net of Post-employment benefit plans a long-term benefit fund as well as qualifying insurance policies. assets since these assets are not held in a legally separate entity The Group provides post-employment benefits through various The liability recognised in the statement of financial position for that is not available to the Bank’s own creditors. The past service defined contribution and defined benefit plans. defined benefit plans is the present value of the defined benefit costs and interest costs are accounted for in the statement of obligation (DBO) at the reporting date less the fair value of plan profit or loss. Actuarial gains and losses arising from experience assets. adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the statement of profit or loss and other comprehensive income in full. 186 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.17 Employee benefits (continued) 3.18 Provisions other beneficiary are classified as insurance contracts. Insurance contracts issued provide personal and commercial benefits Short-term employee benefits Provisions are recognised when the Group has a present under crop and agri-assets policies, which included property, The cost of all short-term employee benefits is recognised during obligation (legal or constructive) as a result of a past event, it motor, engineering and liability cover. the period in which the employee renders the related service is probable that an outflow of resources embodying economic on an undiscounted basis. Accruals for employee entitlement benefits will be required to settle the obligation and a reliable Insurance contracts are classified into two main categories, to annual leave represents the present obligation, which the estimate can be made of the amount of the obligation. depending on the type of insurance risks, namely short-term or Group has to pay as a result of employees’ services, provided long-term. to the reporting date. The accruals have been calculated at Where the Group expects some or all of a provision to be undiscounted amounts based on current salary rates. A liability reimbursed, for example under an insurance contract, the Non-life insurance is recognised for the amount expected to be paid under short- reimbursement is recognised as a separate asset but only when term bonuses in the Group as the Group has a present legal the reimbursement is virtually certain. The expense relating to Gross written premiums constructive obligation to pay the amount as a result of past any provision is presented in the statement of profit or loss and Gross written premiums exclude value added tax. Earned service provided by the employee, and the obligation can be other comprehensive income net of any reimbursement. premiums are accounted for as income when the risk related to estimated reliably. A present legal constructive obligation to pay the insurance policy incepts and are spread over the risk period the amount as a result of past service provided by the employee, If the effect of the time value of money is material, provisions of the contract by using an unearned premium provision. All and the obligation can be estimated reliably. are discounted using a current pre-tax rate that reflects, where premiums are shown before deduction of commission payable appropriate, the risks specific to the liability. Where discounting is to intermediaries. Termination benefits used, the increase in the provision due to the passage of time is Termination benefits are payable when employment is terminated recognised as a finance cost. Commission by the Group before the normal retirement date, or whenever Commission is payable to brokers and underwriting managers on an employee accepts voluntary redundancy in exchange for Provision is made for onerous contracts when the expected non-life insurance business. Commission is accounted for on all these benefits. The Group recognises termination benefits at benefits to be derived from a contract are less than the in– force policies in the financial period during which it is incurred. the earlier of the following dates: (a) when the Group can no unavoidable costs of meeting the obligations under the contract. longer withdraw the offer of those benefits; and (b) when the Provisions are reviewed at the end of each financial year and are Acquisition costs for non-life insurance business is deferred entity recognises costs for a restructuring that is within the scope adjusted to reflect current best estimates. over the period in which the related premiums are earned on a of IAS 37 and involves the payment of termination benefits. In remaining days basis. the case of an offer made to encourage voluntary redundancy, 3.19 Insurance contracts the termination benefits are measured based on the number Fee income of employees expected to accept the offer. Benefits falling due Contracts under which the Company accepts significant risk from The reinsurance broker pays the brokerage fee they earn on more than 12 months after the end of the reporting period are another party (the policyholder) by agreeing to compensate the reinsurance premiums to the company in exchange for a flat discounted to their present value. policyholder or other beneficiary if a specified uncertain future brokerage fee earned over the period of the treaties. This fee event (the insured event) adversely affects the policyholder or income is earned quarterly on settlement of the accounts to reinsurers. 187 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.18 Provisions (continued) UMA. The assessed claims are the “Pending Claims” part of the Receivables and payables related to insurance contracts NOCP. Where a claim has been adequately assessed, it is unlikely Receivables and payables are recognised when due.These include Provision for unexpired risk that there is further variation to the claim estimate. As the claims amounts due to and from agents, brokers and insurance contract Unexpired risks refer to policies that have already been written, are assessed by suitable qualified, trained and competent assessors, holders and are included at amortised cost. but the period for which premium was received or is receivable there are hardly significant differences between the case estimates has not expired as at the measurement date and extends into the and what is eventually paid. The pending claims as reported by If there is objective evidence that the insurance receivable following period. The provision for unexpired risk could exceed the UMA are taken as they and no further actuarial assessment is impaired, the Group reduces the carrying amount of the the UPP if the premium basis upon which the original business is conducted. In instances where a notified claim is pending insurance receivable accordingly and recognises that impairment was written proves to have been inadequate. In this situation, the assessment and/or has a nil claim provision, it is considered as loss in the statement of profit or loss and other comprehensive UPP is increased to a level consistent with the true risk profile IBNER. Where there are nil claims provisions, LBIC’s actuarial team income. The Group gathers objective evidence that an insurance of the business through an AURP. The Unexpired Risk Provision estimates the IBNER by applying the average cost per claim to the receivable is impaired using the same process adopted for loans (URP) comprises of the Unearned Premium Provision (UPP) and number of IBNER claims. and receivables. the Additional Unexpired Risk Provision (AURP). The Unexpired Risk Provision (“URP”) is a provision for claims and expenses in The IBNER estimate considers claims data post the Valuation The impairment loss is also calculated according to the same respect of future periods for which premiums have already been Date. Those claims that have been assessed (paid or unpaid) method used for these financial assets. These contracts provide written/received (unexpired periods of risk cover). If the UPP since the Valuation Date are not treated as an IBNER and thus long-term life insurance benefits with fixed terms to cover is likely to exceed LBIC’s liabilities on the unexpired cover, then carrying no actuarial assessment. For the claims that remained natural persons who are indebted to the Group under mortgage URP = UPP. If the UPP is not sufficient to cover the URP, then unassessed, the sufficiency of the IBNER claims provision is tested loans, production loans and short-term loans. the AURP is held. by applying the average claim cost to the number of IBNER claims. A simulation of the claim amounts is done to test the Recognition and measurement Notified Outstanding Claims Provision IBNER at a 75% sufficiency level. The Notified Outstanding Claims Provision (NOCP) is held in Premiums respect of those claims that have been notified but have not Deferred acquisition costs (DAC). Premiums are recognised as revenue when they become payable been paid or fully settled by the measurement date. NOCP Deferred Acquisition Costs (DAC) consist of commissions by the contract holder, viz. at policy inception. Premiums are within LBIC include estimates for Pending Claims and Incurred and other variable costs directly connected with acquisition or shown before deduction of commission. But Not Enough Reported (“IBNER’). These are estimated based renewal of insurance contracts. Deferred acquisition costs are on management expert estimation andare actuarially reviewed amortised at incidence of risk basis and are deferred over the Fees and commission earned to be in line with recent historical claims experience. Where period in which the related premiums are earned, and recognised Insurance contract policyholders are charged for policy relevant, 75% sufficiency margins are held for the IBNER under as a current asset. All other costs are recognised as expenses administration services, surrenders and other contract fees.These the financial reporting basis. when incurred. fees are recognised as revenue over the period in which related services are performed. If the fees are for services provided for The outstanding claims list received from the UMA contains claims The DAC asset is tested for impairment annually and written future periods, then they are deferred and recognised over those which have been adequately assessed and those which are still down when it is not expected to be fully recovered from future future periods. waiting for an assessment. Case estimates are provided by the income. 188 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Accounting Policies 3.18 Provisions (continued) The Group assesses its long-term reinsurance assets for The best estimate of future experience is determined as follows: impairment annually. If there is objective evidence that the Underwriting benefits reinsurance asset is impaired, the carrying amount is reduced to • The investment return was set as per the implied yield curve Life insurance policy claims received up to the last day of each a recoverable amount, and the impairment loss is recognised in issued by the Prudential Authority (PA). financial period and IBNR claims are provided for and included the statement of profit or loss and other comprehensive income. • Assumptions with regard to future mortality rates are in underwriting policy benefits. Past claims experience is used as Reinsurance liabilities are premium payable for reinsurance consistent with LBLICs recent experience or expected the basis for determining the extent of the IBNR claims. Income contracts and are recognised as expenses when incurred. future experience if this would result in a higher liability. In from reinsurance policies is recognised concurrently with the particular, mortality rates are adjusted to allow for expected recognition of the related policy benefit. Life insurance liability deterioration inmortality rates as a result of AIDS; In terms of IFRS 4 – Insurance contracts, defined insurance • Persistency assumptions with regard to lapse rate are Liability adequacy test liabilities are allowed to be measured under existing local consistent with LBLIC’s recent experience or expected future At each statement of financial position date, the Group performs a practice. The Company used the FSV method, as described in experience if this would result in a higher liability. liquidity adequacy test to assess whether its recognised insurance the Standard of Actuarial Practice (SAP) 104 (version 10) issued • Expenses are set at a realistic level with reference to the liabilities are adequate in terms of the Financial Soundness by the Actuarial Society of South Africa (Actuarial Society), to recent expense investigation, making allowance for expected Valuation (FSV) basis as described in SAP 104. The FSV basis determine the actuarial value of the policyholders’ liabilities. The future expenses using an appropriate expense inflation rate meets the minimum requirements of the liquidity adequacy test. underlying philosophy is to recognise profits prudently over the that is consistent with the rate of interest rate used. If this assessment shows that the carrying amount of its insurance term of each contract consistent with the work done and risk • The expense inflation rate was set as per the implied liabilities are inadequate in the light of the estimated future cash borne. In the valuation of liabilities, provision is made for: inflation curve issued by the Prudential Authority (PA) as at flows, the entire deficiency is recognised in the statement of 31 March 2023. comprehensive income. • The best estimate assumptions which are guided by past experience and modified for any knowledge of or expectations • The interest rate assumption has been updated to correspond Reinsurance contracts held of future experience; to the yield curve as published by the PA as at 31 March 2023. Contracts entered into with reinsurers under which the Group • The compulsory margins prescribed in the Long-term • The economic basis is consistent with the regulatory valuation is compensated for losses on one or more long-term policy Insurance Act of 1998; and basis. contracts issued by the Group are classified as long-term • The FSV makes allowance for additional (discretionary) reinsurance contracts.The expected claims and benefits to which margins where the Actuary believes that the compulsory the Group is entitled to under these contracts are recognised margins are insufficient for the prudent release of profits or as assets. where policy design or company practice so requires. No discretionary margins were set. 189 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements An Additional Unexpired Risk Reserve (AURR) is held on group business with an operating ratio greater than 100%. An AURR is held if the current unearned premiums are considered to be insufficient to cover the unexpired risk. The additional reserve is set at such a level as to enable the Company to pay all future expected claims in respect of the unexpired risk. There has been no change in the AURR methodology. The COVID-19 reserve, initially set up 2 years ago, has been released as the Company’s target market is the agricultural sector with policyholders distributed geographically. The Company has not seen an increase in claims as a result of the pandemic. The reserve that had been set up was relatively immaterial. No margins are held on the AURR. The modelling of reinsurance rates was updated for Group Credit Life in line with the revised reinsurance treaty. An Incurred but Not Reported (IBNR) reserve is calculated for the Individual and Group business currently underwritten by the Company. The IBNR methodology splits out the average claim delay and average claim amount between Group and Individual business. A margin of 7.5% has been maintained Acquisition costs Referral fees are payable to Land Bank branches on the life insurance business. Referral fees and commission are accounted for on all in– force policies in the financial period during which it is incurred. The portion of the referral fees that is directly attributable to the acquisition of long-term recurring premium insurance policy contracts is recognised directly to the statement of comprehensive income. 4. Cash and cash equivalents Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Bank balances* 349 006 1 007 726 222 803 869 233 Short term deposits** 15 132 235 8 976 034 15 132 235 8 975 983 15 481 241 9 983 760 15 355 038 9 845 216 * Cash at banks are primarily held to mitigate the Bank’s refinancing/liquidity risk. Refer to note 36. for the credit risk ratings of the counterparties where bank accounts are held. Short-term investments are made for one day periods, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term investment rates. The average rate earned on invested cash in FY22/23 is 5.56% (FY21/22: 4.21%). Due to the short-term nature of cash and cash equivalents, their carrying amount is considered to be the same as their fair value. ** Included in short term deposits is an amount of R5,1 billion, which is an equity injection transferred on the 31 March 2023, by the Shareholder. During 2023, the Shareholder transferred R6bn of the R7bn appropriated to Land Bank during February 2021, with the remaining R1bn to be transferred during FY23/24. Of that R6 billion, R889 million was repaid directly to guaranteed lenders and the remaining R5.1bn is sitting in an ESCROW account pending fulfilment of attached conditions, which include amongst other, the curing of the state of default with lenders. The R5,1 billion is not available for use by the group until all the conditions are met. Refer to note 16 for the corresponding liability as well as note 3.2 for further details on the appropriation including the Directors’’ report. 190 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 5. Trade and other receivables Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Trade receivables 1 242 326 1 047 348 70 199 163 789 Accrued income* 69 027 36 807 69 027 36 807 Accrued interest – hedging** 1 172 18 944 1 172 18 944 Receivable – Disposal of equity investment – 108 038 – 108 038 Premium receivable*** 623 754 506 143 – – Reinsurance receivable*** 548 373 377 417 – – Other receivables**** 373 485 305 677 342 196 257 618 1 615 811 1 353 026 412 395 421 406 * Accrued income comprises of accrued interest on short-term investments and accrued fees from funds under admin. ** The accrued interest on the hedging derivatives are offset and the net position is presented as the Group has a legal right to offset the amounts and intends to settle on a net basis. *** The reinsurance and premium receivables have a low probability of default as the recovery is close to 100% year-on-year. **** Other receivables consists of prepaid expenses, staff loans, recovery second loss and sundry debtors. Due to the short-term nature of these assets and historical experience, these assets are regarded as having a low probability of default; therefore, ECL is insignificant on these balances, because recoverability is close to 100%, staff loans are collected from staff salaries month-on-month, second loss recovery is recovered from the SLA partners month-on-month. Classification of trade and other receivables Prepaid expenses 10 839 13 301 10 039 4 793 Accrued income 69 027 36 807 69 027 36 807 Accrued interest – hedging 1 172 18 944 1 172 18 944 Trade and other receivables net of non-financial instruments 1 504 181 1 283 974 332 158 360 862 191 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 6. Short-term insurance assets and liabilities Group 2023 *2022 R’000 R’000 Short-term insurance liabilities 475 551 373 907 Technical provision 464 361 365 139 Outstanding claims 398 647 314 878 Provision for unearned premiums 63 333 49 492 Provision for unexpired risk reserve – – Incurred but not reported claims 2 381 769 Unearned commission income 11 191 8 768 Less: Short-term insurance assets (341 301) (266 040) Reinsurers' share of technical provisions (325 468) (253 667) Outstanding claims (279 468) (218 489) Incurred but not reported claims (1 652) (533) Provision for unearned premiums (44 348) (34 645) Provision for unexpired risk reserve – ceded portion – – Deferred acquisition costs (15 833) (12 373) Net short-term insurance technical provisions 134 250 107 867 The crop unearned premium provision (UPP) is calculated on the claims occurring basis for the published accounts, based on historical claims occurrence tables, which are reviewed annually. The winter crop premium is fully earned by 31 March. Below are the provisions calculated according to the statutory basis. 192 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 6. Short-term insurance assets and liabilities (continued) Gross Reinsurance Net R'000 R'000 R'000 Unearned Premium Reserve movement Balance at 31 March 2023 49 704 (35 222) 14 482 Provision earned (49 704) 35 222 (14 482) New provision raised 49 492 (34 645) 14 847 Balance at 31 March 2022 49 492 (34 645) 14 847 Provision earned (49 492) 34 645 (14 847) Provision increased 63 333 (44 333) 19 000 Balance at 31 March 2023 63 333 (44 333) 19 000 Gross Reinsurance Net R'000 R'000 R'000 Deferred acquisition costs Balance at 31 March 2023 12 426 (8 806) 3 620 Provision earned (12 426) 8 806 (3 620) Provision increased 12 373 (8 768) 3 605 Balance at 31 March 2022 12 373 (8 768) 3 605 Provision earned (12 373) 8 768 (3 605) Provision increased 15 833 (11 191) 4 642 Balance at 31 March 2023 15 833 (11 191) 4 642 193 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 6. Short-term insurance assets and liabilities (continued) Claims development table The following tables show claims paid in the year that it occurred as well as one year thereafter. Historically, no claims have been paid more than one year after the end of each incident year. Group 2023 *2022 Gross claims paid R’000 R’000 Incident year – – At end of the incident year (159 399) (165 913) One year later (166 603) (271 128) Current estimate of gross cumulative claims paid (326 002) (437 041) Net claims paid Incident year – – At end of the incident year (47 820) (49 774) One year later (49 603) (81 338) Current estimate of net cumulative claims paid (97 423) (131 112) 194 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 6. Short-term insurance assets and liabilities (continued) Gross Reinsurance Net Outstanding claims movement R'000 R'000 R’000 Balance at 31 March 2023 (30 167) 22 757 (7 410) Movement in outstanding claims provisions 154 800 (108 076) 46 724 Balance at 31 March 2022 124 633 (85 319) 39 314 Movement in outstanding claims provisions 83 769 (58 244) 25 525 Balance at 31 March 2023 208 402 (143 563) 64 839 Gross Reinsurance Net Incurred but not reported movement R'000 R'000 R’000 Balance at 31 March 2023 (4 858) 3 479 (1 379.00) Movement in IBNR (702) 419 (283) Balance at 31 March 2022 (5 560) 3 898 (1 662) Movement in IBNR 1 610 (1 119) 491 Balance at 31 March 2023 (3 950) 2 779 (1 171) 195 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 7. Investments Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Investment in LBLIC – – 30 30 Investment in LBIC – – 650 000 650 000 Unlisted investments 209 150 221 828 209 150 221 828 Investment – Medical Fund 352 970 337 823 352 970 337 823 Investment in listed shares 68 306 85 382 68 306 85 382 Investments held by LBLIC 1 136 127 1 234 694 – – Investments held by LBIC 469 075 253 660 – – 2 235 627 2 133 387 1 280 455 1 295 063 Investment held with Coronation These are investments held with Coronation Asset Managers. Listed investments 315 316 313 004 315 316 313 004 Local equity 126 917 173 459 126 917 173 459 Local bonds 59 700 66 713 59 700 66 713 Foreign equity 128 699 72 832 128 699 72 832 Other 28 110 15 786 28 110 15 786 Commodities – 11 586 – 11 586 Local Hedge Funds 3 506 3 304 3 506 3 304 Foreign unit trusts 14 291 896 14 291 896 Local real estate 10 313 – 10 313 – Cash 9 543 9 032 9 543 9 032 Local 1 952 7 866 1 952 7 866 Foreign 7 591 1 166 7 591 1 166 352 970 337 823 352 970 337 822 The funds are entrusted to portfolio managers for investment purposes. The funds are earmarked to fund the future medical aid contributions of retired employees. The investments are classified at fair value through profit or loss and are measured and disclosed at fair value, except for cash which is measured at amortised cost.These investments are exposed to interest rate risk, equity price risk and foreign exchange risk. Refer to note 35 for more information on the related risks and mitigation strategies. 196 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 7. Investments (continued) Group Company 2023 2022 2023 2022 Investments held with Coronation are invested as follows: R’000 R’000 R’000 R’000 Local equities Financial (excl. real estate) 30% 26% 30% 26% Basic materials 15% 26% 15% 26% Industrials 3% 3% 3% 3% Consumer goods 15% 8% 15% 8% Health care 3% 2% 3% 2% Consumer services 16% 16% 16% 16% Telecommunications 4% 4% 4% 4% Technology 14% 11% 14% 11% Other securities 3% 6% 3% 6% Refer to note 20. for the post-retirement obligation disclosure. Unlisted investments Fair value Ordinary shares in Acorn Agri (Pty) Ltd 72 850 78 190 72 850 78 190 Ordinary shares in Ideafruit (Pty) Ltd 51 100 47 397 51 100 47 397 Ordinary shares in Afgri Grain Silo Company Pty Ltd 85 200 96 241 85 200 96 241 209 150 221 828 209 150 221 828 The above equity investments constitutes neither control, nor significant influence. Land Bank elected to apply its irrevocable right to designate these equity instruments at fair value through other comprehensive income. Acorn Agri & Food Ltd Land Bank holds 3.37% interest in Acorn Agri & Food Ltd. Acorn Agri & Food Ltd investment was valued as at 31 March 2023. The valuation was based on the market related Net Asset Value (NAV) of the company, resulting in an investment value of R72,8 million (FY21/22: R78 million) for the Bank. Ideafruit (Pty) Ltd Land Bank holds 19.9% interest in Ideafruit (Pty) Ltd and the investment was valued as at 31 March 2023. The valuation was based on the DCF valuations, resulting in an investment value of R51,1 million (FY21/22: R47 million) for the Bank. 197 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 7. Investments (continued) Afgri Grain Silo Company Pty Ltd Land Bank holds 19.9% interest in Afgri Grain Silo Company (Pty) Ltd and the investment was valued as at 31 March 2023. The valuation was based on the DCF and current asset valuations, resulting in an investment value of R85,2 million (FY21/22: R96 million) for the Bank. Listed Investment Rhodes Food Group Holdings Limited was valued in March 2023 based on the listed share price. The listed share price of Rhodes Food Group Holdings Limited as at 31 March 2023, was R8.80 per share (FY21/22:R11.00), resulting in an investment value of R68,31 million (FY20/21: R85,38 million) for the Bank. The shares are traded daily hence the share price is regarded as a fair share price. Group 2023 *2022 Investments held by LBLIC R’000 R’000 Equities 511 342 530 710 Commodities 30 004 22 130 Bonds 358 111 345 614 Collective investment schemes 141 042 131 999 Cash deposits and similar securities 231 965 204 221 1 272 464 1 234 673 Equities Equities comprise: Ordinary shares listed on the Johannesburg Stock Exchange (JSE) ¹ 511 342 530 710 511 342 530 710 Commodities Exchange traded funds (ETF's) – local ¹ 30 004 22 130 30 004 22 130 Collective investment schemes (“CIS”) Equity – foreign unit trusts 110 471 105 609 Balanced fund – foreign 30 571 26 389 141 042 131 999 ¹ Investments at market prices per the JSE. 198 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 7. Investments (continued) Group 2023 2022 R’000 R’000 Investments in interest bearing assets Bonds listed on the JSE Debt Market – at market value 358 111 345 614 Government 85 495 92 114 Corporate 272 616 253 .500 Cash, deposits and similar securities ¹ 231 965 204 221 Deposits with banks – local 122 576 119 643 Money market instruments 109 389 84 578 590 076 549 836 Classification of investments in interest bearing assets – Amortised cost instruments 122 576 119 643 – Fair value through profit or loss 467 500 430 193 590 076 549 836 Other investments Other non-cash 32 17 The other investments is classified at fair value through profit or loss. Investments in foreign equities were made utilising pooled funds. A register containing details of all investments is available for inspection at the registered office of LBLIC. Investments in interest bearing assets Total investment in interest bearing assets 332 652 253 660 Bonds – valued at fair value through profit and loss 280 436 199 738 Cash – valued at fair value through profit and loss 52 216 53 921 199 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 8. Derivative Assets The Bank’s main driver of earnings is net interest income, which is the difference between interest income received on assets and interest expense incurred on funding liabilities. The Bank is exposed to “basis risk” as a result of different underlying reference rates of interest earning assets and interest incurring liabilities with Prime and Jibar respectively. To manage the Bank’s exposure to “basis risk” and in an effort to protect the Bank’s net interest margin, the Land Bank Board approved an Interest Rate Risk Management Strategy during FY17/18; hedging the mismatch moderately between the lending and funding rate. The Bank’s Interest Rate Management Strategy was drafted and is reviewed annually in the context of the Corporate Plan, Risk Appetite Framework, Borrowing and Funding Plan and Treasury Policy Framework. The table below sets out derivative assets and liabilities by the type of hedge relationship in which they are designated. Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Hedging derivatives Interest rate swap 1 321 9 896 1 321 9 896 The nominal amount of derivatives designated in cash flow hedge relationships is as follows. Interest rate swaps – Asset 900 000 4 400 000 900 000 4 400 000 – Liability (900 000) (4 400 000) (900 000) (4 400 000) – – – – 200 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 8. Derivative Assets (continued) The following tables show the notional amount of derivatives in time bands based on the maturity of the derivatives. 0 to 12 Months 1 to 2 Years 2 to 3 Years 3 to 5 Years Total R’000 R’000 R’000 R’000 R’000 2023 Group and Bank Interest rate swaps – Pay – 800 000 – – 800 000 – Receive – 2022 800 000 – – 800 000 Group and Bank Interest rate swaps – Pay – 3 600 000 – 800 000 4 400 000 – Receive – 3 600 000 – 800 000 4 400 000 201 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances Group and Company Expected Credit Loss Gross Loans (ECL) Net Loans Gross loans per business segment R’000 R’000 R’000 2023 Corporate Banking and Structured Investments (CB&SI) 6 349 861 (1 007 578) 5 342 283 Commercial Development and Business Banking (CDBB) 12 541 380 (3 042 929) 9 498 450 Loan commitments and guarantees – (15 321) (15 321) Loan Modifications4 CB&SI (35 210) – (35 210) Loan Modifications4 CDBB (24 973) – (24 973) 18 831 058 (4 065 828) 14 765 230 2022 Corporate Banking and Structured Investments 8 928 203 (1 194 405) 7 733 799 Commercial Development and Business Banking 17 004 357 (4 012 150) 12 992 208 Loan commitments and guarantees – (180 260) (180 261) Loan Modifications4 CB&SI (35 210) – (35 210) Loan Modifications4 CDBB (22 040) – (22 040) 25 875 311 (5 386 815) 20 488 496 Average Term of Average Interest Rate Average Interest Rate Loan type Nature of Interest Rate Repayment 2023 2022 Short term loans Variable 1 year 11.83% 8.99% Medium term loans Variable 1 to 5 years 12.62% 9.20% Long term loans Variable/ Fixed > 5 years 11.25% 8.39% Loans by maturity profile Refer to note 35 for details about maturity analysis 202 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances (continued) Performing Loans¹ Under Performing Loans² Non–performing Loans³ Total Loans by credit quality R’000 R’000 R’000 R’000 2023 Corporate Banking and Structured Investments 3 190 847 945 805 2 213 208 6 349 861 Commercial Development and Business Banking 4 147 118 825 657 7 568 604 12 541 380 Loan Modifications4 CB&SI (21 485) (13 725) – (35 210) Loan Modifications4 CDBB (12 168) (7 941) (4 864) (24 973) Gross loans and advances 7 304 313 1 749 797 9 776 948 18 831 058 Expected Credit Loss (ECL) (92 766) (54 167) (3 903 574) (4 050 507) Net loans and advances 7 211 547 1 695 630 5 873 374 14 780 551 Guarantees – Loan commitments***** 897 558 Gross loan commitments and guarantees 897 558 Expected Credit Loss (ECL) (15 321) Net loan commitments and guarantees 882 237 * Performing loans: A significant increase in credit risk could not be recorded. These loans are of an acceptable credit quality. Repayment is expected in compliance with the credit agreement. ** Under performing loans: Loans are exposed to a significant increase in credit risk as identified based on probability of defaults (PDs) and warning signals that materialises between origination and reporting. As a minimum, loans that are in arrears for 30 days and more are classified as under performing loans. *** Non-performing loans: Loans that have failed to meet the terms and conditions of the credit agreement and there are further indicators of the unlikeliness to repay the loan. Loans that are as a minimum 90 days in arrears, are classified as non-performing. **** Refer to note 35 for modification disclosure. ***** The loan commitments are undrawn balances. 203 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances (continued) Performing Loans¹ Under Performing Loans² Non–performing Loans³ Total Loans by credit quality R’000 R’000 R’000 R’000 2022 Corporate Banking and Structured Investments 3 421 602 3 027 086 2 479 516 8 928 203 Commercial Development and Business Banking 5 137 983 1 990 022 9 876 352 17 004 357 Loan Modifications4 CB&SI (21 485) (13 725) – (35 210) Loan Modifications4 CDBB (12 056) (6 347) (3 637) (22 040) Gross loans and advances 8 526 044 4 997 036 12 352 231 25 875 311 Expected Credit Loss (ECL) (182 026) (551 416) (4 473 113) (5 206 555) Net loans and advances 8 344 019 4 445 620 7 879 118 20 668 756 Guarantees 4 290 Loan commitments***** 1 491 686 Gross loan commitments and guarantees 1 495 976 Expected Credit Loss (ECL) (180 260) Net loan commitments and guarantees 1 315 716 * Performing loans: A significant increase in credit risk could not be recorded. These loans are of an acceptable credit quality. Repayment is expected in compliance with the credit agreement. ** Under performing loans: Loans are exposed to a significant increase in credit risk as identified based on probability of defaults (PDs) and warning signals that materialises between origination and reporting. As a minimum, loans that are in arrears for 30 days and more are classified as under performing loans. *** Non-performing loans: Loans that have failed to meet the terms and conditions of the credit agreement and there are further indicators of the unlikeliness to repay the loan. Loans that are as a minimum 90 days in arrears, are classified as non-performing. **** Refer to note 35 for modification disclosure. ***** The loan commitments are undrawn balances. 204 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances (continued) Expected Credit Loss provision: reconciliation of movement per business unit Corporate Banking and Commercial Development Loan Commitments and Structured Investments and Business Banking Guanrantees Total Group and Company R’000 R’000 R’000 R’000 2023 Balance at the beginning of the year¹ 1 073 411 3 186 505 180 260 4 440 176 Movement for the year Credit losses written off: (84 946) (999 325) – (1 084 271) – Statement of financial position write off (utilisation) (46 183) (638 914) – (685 098) – Statement of comprehensive income write off (38 762) (360 411) – (399 173) Second loss sharing* – Net impairment raised to the statement of comprehensive income 55 282 (168 566) (164 939) (278 223) Balance at the end of the year¹ 1 043 747 2 018 614 15 321 3 077 682 2022 Balance at the beginning of the year¹ 797 532 3 929 320 576 924 5 303 777 Movement for the year Credit losses written off: (1 641) (7 441) – (9 081) – Statement of financial position write off (utilisation) – (2 159) – (2 159) – Statement of comprehensive income write off (1 641) (5 281) – (6 922) Second loss sharing* – Net impairment raised/ (released) to the statement of comprehensive income 277 520 (735 375) (396 664) (854 519) Balance at the end of the year ¹ 1 073 411 3 186 505 180 260 4 440 176 ¹ The balances exclude suspended interest of R988,1 million (FY21/22: R946,6 million). * Second loss sharing is a recovery of losses incurred on loans acquired through the SLA partners. 205 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances (continued) Impairment releases/(charges), claims and recoveries Corporate Banking and Commercial Development Loan Commitments Structured Investments and Business Banking and Guarantees Total Group and Company R’000 R’000 R’000 R’000 2023 Net impairments raised to the statement of comprehensive income 55 282 (168 566) (164 939) (278 223) Recoveries in respect of amounts previously written off1 – (40 573) – (40 573) Second loss sharing* – (49 528) – (49 528) 55 282 (258 667) (164 939) (368 324) 2022 Net impairments raised/ (released) to the statement of comprehensive income 277 520 (735 374) (396 664) (854 519) Recoveries in respect of amounts previously written off1 (213 968) (62 122) – (276 090) Second loss sharing* – (79 441) – (79 441) 63 552 (876 938) (396 664) (1 210 050) 1 Off balance sheet debt collection amounting to R261,6 million (2022 R61,7 million) that was previously written off is still subject to legal action. * Second loss sharing is a recovery of losses incurred on loans acquired through the SLA partners. Collateral held as security The Group holds collateral which it is entitled to sell in the case of default by the owner of the collateral. The amount and type of collateral held for the exposure depends on an assessment of the credit risk of the counterparty. Guidelines have been implemented regarding the acceptability of the types of collateral.The value of the collateral is determined with reference to the realisable value (recoverable amount) of security under forced-sale conditions. The Land and buildings is disclosed at the lower of bond value or security value after considering haircuts. The collateral policy of Land bank, is that collateral is valued at inception and in three-year intervals. The collateral is also valued when a facility is renewed or restructured. 206 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances (continued) The Group has the following assets held as security against its loan portfolio: Company 2023 2022 R’000 R’000 Nature of assets* Bank Guarantees 54 854 54 854 Biological Assets 1 753 951 1 573 936 Cash Deposits 217 974 214 550 Trade Debtors 156 014 391 883 Inventory 232 559 800 872 Land and Buildings 19 892 133 25 845 594 Office and Computer Equipment 34 – Plant and Equipment 264 357 462 410 Shares and investments 577 167 527 591 Vehicles and implements 66 912 132 101 23 215 955 30 003 791 The quality of the collateral has not deteriorated from previous years. The reduction in collateral values is primarily due to the attrition of the loan book through client settlements as Customers have sought assistance from other commercial banks.The Bank is also conducting frequent collateral valuations in line with the updated policies, thereby ensuring that the most recent Market Values, which takes into account prevailing market conditions, are relied upon. Refer to note 35 for details about the maximum exposure to credit risk for each class of financial instrument exposed to credit risk as at 31 March 2023. At the end of the Financial year ended 31 March 2023, loans where collateral held covered the carrying amount in full amounted to R116,5 million (2022: R113,4 million). 207 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 9. Loans and advances (continued) Collateral held as security and other credit enhancements relating to credit impaired financial assets. Gross Impairment Carrying Realisable Value of Exposure Allowance Amount Collateral Held R’000 R’000 R’000 R’000 2023 Loans and advances 9 776 948 (3 577 200) 6 199 749 6 562 008 2022 Loans and advances 12 352 231 (4 066 978) 8 285 253 9 390 971 Concentration of credit risk Land Bank’s business is exposed to credit concentration risk in the agricultural sector, as well as to certain counterparties / group of connected parties mainly within the Corporate Banking & Structured Investments portfolio. During the year under review, the Land Bank performed a concentration risk analysis to determine acceptable risk absorption capacity considering the current balance sheet size and income statement. In October 2022, the Board of Directors revised the Credit concentration limits for Corporate Banking and Structured Investments (CB&SI) from a single obligor limit of 7.5% down to 2.5% of the Capital base (excluding National Treasury guarantee). In addition, the Board further reduced the Commercial Development and Business Banking (CDBB) Single/Group Obligor limit from R150 million to 2.5% of the bank’s capital base which translates to R73m. The revised concentration limit applies only to new credit facilities. The Board of Directors thus condoned all existing exposures in excess of the approved limit with a strategy to gradually reduce them to the required level using the asset solution or sell down underway. As at the close of FY22/23, the top 18 CB&SI exposures were above the new Single/Group Obligor limit of R73m (being 2.5% of the Capital Base excluding National Treasury guarantee) and top 9 of the 20 CDBB exposures were above the Single obligor limit. As indicated above, the existing exposures were condoned by the Board as the new single obligor limit applies to new approvals with effect from 1 Nov 2022. 208 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 10. Non-current assets held-for-sale Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Properties in possession 11 359 9 609 11 359 9 609 11 359 9 609 11 359 9 609 Reconciliation of movement Opening balance 9 609 4 058 9 609 4 058 Plus: Additions 1 750 5 700 1 750 5 700 Less: Disposals – – – – Re-measurement recognised – (149) – (149) Reclassification from Investment Properties* – – – – Closing balance 11 359 9 609 11 359 9 609 Properties in possession These represent the properties brought in by the Group due to clients defaulting on their loan payments. The intention of the Group is to sell these properties to recover the outstanding payments on the defaulted loans. The Group exclusively hold these properties with a view to dispose of them. These properties in possession are farm holdings and the Group has no intention to occupy them. Some of these properties have been on sale for more than twelve months, and this is beyond the control of the bank, as the Group remains committed to sell these properties and continues to actively advertise them for sale. In view of the current volatile market conditions, the properties in possession will only be disposed of, as and when conditions render it economically viable. BP 1938 located in Pietermaritzburg BP 2102 located in East London BP 2116 located in Theunissen BP 2118 located in Theunissen BP 2119 located in Potchefstroom BP2120 located in Polokwane BP2121 located in Ventersburg BP2122 located in Polokwane BP2123 located in Fauresmith 209 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 11. Investment property Group Cost or Accumulated Fair Value Carrying 2023 Revaluation Depreciation Transfers* Adjustments Value Investment property 97 400 – – 610 98 010 Cost or Accumulated Fair Value Carrying 2022 Revaluation Depreciation Transfers* Adjustments Value Investment property 95 100 – – 2 300 97 400 Cost or Accumulated Fair Value Carrying 2023 Revaluation Depreciation Transfers* Adjustments Value Investment property 97 400 – – 610 98 010 Cost or Accumulated Fair Value Carrying 2022 Revaluation Depreciation Transfers* Adjustments Value Investment property 95 100 – – 2 300 97 400 The fair value of investment property was determined by using the net income capitalisation method. This is a combination of capitalisation and discounting. The inputs used are gross market rentals, operating costs, the perpetual vacancy, market capitalisation rate and net present value. Refer to note 36. 210 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 12. Property, plant and equipment Group 2023 2022 Cost/ Accumulated Carrying Cost/ Accumulated Carrying Revaluation Depreciation Value Revaluation Depreciation Value Land 4 479 – 4 479 4 383 – 4 383 Buildings 22 488 (1 267) 21 221 21 378 (911) 20 467 Furniture, fittings and office equipment 18 000 (15 843) 2 157 17 923 (15 849) 2 074 Motor vehicles 301 (241) 60 524 (419) 105 IT equipment 42 538 (36 183) 6 355 38 080 (36 020) 2 060 Leasehold improvements 1 313 (817) 496 795 (735) 60 Total 89 119 (54 351) 34 768 83 083 (53 934) 29 149 Company 2023 2022 Cost/ Accumulated Carrying Cost/ Accumulated Carrying Revaluation Depreciation Value Revaluation Depreciation Value Land 4 479 – 4 479 4 383 – 4 383 Buildings 22 488 (1 267) 21 221 21 378 (911) 20 467 Furniture, fittings and office equipment 18 000 (15 843) 2 157 17 664 (15 636) 2 028 Motor vehicles 301 (241) 60 524 (419) 105 IT equipment 42 179 (35 872) 6 307 37 743 (35 728) 2 015 Leasehold improvements 1 313 (817) 496 795 (735) 60 Total 88 760 (54 040) 34 720 82 487 (53 429) 29 058 211 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 12. Property, plant and equipment Reconciliation of property, plant and equipment – Group – 2023 Opening Revaluations/ Balance Additions Disposals Devaluations Depreciation Total Land 4 383 – – 96 – 4 479 Buildings 20 467 – – 2 021 (1 267) 21 221 Furniture, fittings and office equipment 2 074 262 (23) – (157) 2 157 Motor vehicles 105 – (45) – – 60 IT equipment 2 060 5 722 (19) – (1 408) 6 355 Leasehold improvements 60 576 (59) – (81) 496 Total 29 149 6 560 (146) 2 117 (2 913) 34 768 Reconciliation of property, plant and equipment – Group – 2022 Opening Revaluations/ Balance Additions Disposals Devaluations Depreciation Total Land 2 200 – – 2 183 – 4 383 Buildings 15 700 – – 5 678 (911) 20 467 Furniture, fittings and office equipment 2 306 53 – – (285) 2 074 Motor vehicles 105 – – – – 105 IT equipment 1 295 1 699 (11) – (923) 2 060 Leasehold improvements 249 – (184) – (5) 60 Total 21 855 1 752 (195) 7 861 (2 124) 29 149 212 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 12. Property, plant and equipment (continued) Reconciliation of property, plant and equipment – Company – 2023 Opening Revaluations/ Balance Additions Disposals Transfers* Devaluations Depreciation Total Land 4 383 – – – 96 – 4 479 Buildings 20 467 – – – 2 021 (1 267) 21 221 Furniture, fittings and office equipment 2 028 260 (23) 49 – (157) 2 157 Motor vehicles 105 – (45) – – – 60 IT equipment 2 015 5 722 (19) (37) – (1 374) 6 307 Leasehold improvements 60 576 (59) – – (81) 496 Total 29 058 6 558 (146) 12 2 117 (2 879) 34 720 Reconciliation of property, plant and equipment – Company – 2022 Opening Revaluations/ Balance Additions Disposals Transfers* Devaluations Depreciation Total Land 2 200 – – – 2 183 – 4 383 Buildings 15 700 – – – 5 678 (911) 20 467 Furniture, fittings and office equipment 2 256 53 – – – (282) 2 028 Motor vehicles 105 – – – – – 105 IT equipment 1 245 1 699 (11) (28) – (890) 2 015 Leasehold improvements 249 – (184) – – (5) 60 Total 21 755 1 752 (195) (28) 7 861 (2 088) 29 058 * These are intercompany transfers of assets from the parent company to the subsidiaries and vice versa as and when a need arises. This does not relate to reclassifying assets from one class to another. There are no restrictions on the title of the property and no property has been pledged as security. The Group does not have any contractual commitments for the acquisition of property. IFRS requires that the carrying values of land and buildings if they had to be carried using the historical cost method should be disclosed. As a result of the buildings being purchased many years ago, the latest being 1998, it is not possible for the Bank to determine and disclose the carrying values of each property and in addition to this the values at which the properties were purchased are negligible in comparison to the current carrying values disclosed using the revaluation method. Please refer to note 36 for the fair values applied on the valuations. 213 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 13. Leases 3.1 Right of use of assets (ROU) Group Buildings* Motor Vehicles Printers Total 2023 R’000 R’000 R’000 R’000 At 30 April 2022 3 909 – – 3 909 Additions 31 457 – 1 028 32 485 Depreciation (8 099) – – (8 099) At 31 March 2023 27 268 – 1 028 28 296 Buildings Motor Vehicles Printers Total 2022 R’000 R’000 R’000 R’000 At 30 April 2021 18 652 2 094 20 746 Additions 2 128 – 2 128 ROU derecognised (692) – (692) Depreciation (16 179) (2 094) (18 273) At 31 March 2022 3 909 – 3 909 Company Buildings* Motor Vehicles Printers Total 2023 R’000 R’000 R’000 R’000 At 30 April 2022 3 909 - - 3 909 Additions 31 457 - 1 028 32 485 Depreciation (8 099) - - (8 099) At 31 March 2023 27 268 - 1 028 28 296 Buildings Motor Vehicles Printers Total 2022 R’000 R’000 R’000 R’000 At 30 April 2021 18,653 1 999 - 20,652 Additions 2,128 - 2 128 ROU derecognised (693) - (693) Depreciation (16,179) (1 999) - (18 178) At 31 March 2022 3 909 - 3 909 214 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 13. Leases (continued) 13.2 Lease Liabilities Group Buildings* Motor Vehicles Printers Total 2023 R’000 R’000 R’000 R’000 At 30 April 2022 4 933 – – 4 933 Additions 31 457 – 1 028 32 485 Interest expense 540 – 7 547 Lease liability derecognised - – – – Lease payments (8 967) – (32) (9 000) At 31 March 2023 27 963 – 1 003 28 966 Buildings Motor Vehicles Printers Total 2022 R’000 R’000 R’000 R’000 At 30 April 2021 20 856 2 320 – 23 176 Additions 2 128 – – 2 128 Interest expense 1 072 66 – 1 138 Lease liability derecognised (918) – – (918) Lease payments (18 206) (2 386) – (20 592) At 31 March 2022 4 932 – – 4 932 215 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 13. Leases (continued) 13.2 Lease Liabilities (continued) Company Buildings* Motor Vehicles Printers Total 2023 R’000 R’000 R’000 R’000 At 30 April 2022 4 933 – – 4 933 Additions 31 457 – 1 028 32 485 Interest expense 540 – 7 547 Lease liability derecognised - – – – Lease payments (8 967) – (32) (9 000) At 31 March 2023 27 963 – 1 003 28 966 Buildings Motor Vehicles Printers Total 2022 R’000 R’000 R’000 R’000 At 30 April 2021 20 857 2 320 – 23 176 Additions 2 128 – – 2 128 Interest expense 1 072 66 – 1 138 Lease liability derecognised (918) – – (918) Lease payments (18 206) (2 386) – (20 592) At 31 March 2022 4 932 – – 4 932 Refer to note 35 for details about maturity analysis. * In the current year under review the Bank entered into 3 new building lease agreements for Head Office, Bellville and Nelspruit. In addition, the Bank also leased new printers across all the 9 provinces these new leases have resulted in the significant movement in the current year. Refer to note 35 for the lease maturities. 216 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 14. Intangible assets Group 2023 2022 Cost Accumulated Amortisation Carrying Value Cost Accumulated Amortisation Carrying Value Computer software 83 032 (81 477) 1 555 82 335 (80 720) 1 615 Company 2023 2022 Cost Accumulated Amortisation Carrying Value Cost Accumulated Amortisation Carrying Value Computer software 83 032 (81 477) 1 555 82 335 (80 720) 1 615 Reconciliation of Intangible assets Group – 2023 Opening Balance Additions Amortisation Total Computer software 1 615 697 (757) 1 555 Reconciliation of Intangible assets Group – 2022 Opening Balance Additions Amortisation Total Computer software 2 766 – (1 151) 1 615 Reconciliation of Intangible assets Company – 2023 Opening Balance Additions Amortisation Total Computer software 1 615 697 (757) 1 555 Reconciliation of Intangible assets Company – 2022 Opening Balance Additions Amortisation Total Computer software 2 766 – (1 151) 1 615 The Group reassessed the useful lives of all the intangible assets at the beginning of the FY21/22 financial year together in order to reflect the most correct estimated useful lives of all intangible assets. 217 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 15. Distributable and other reserves Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Distributable reserves from continuing operations Capital fund 8 286 785 7 397 655 8 286 785 7 397 655 Accumulated loss (2 690 847) (3 191 993) (3 773 418) (4 255 614) Total distributable reserves 6 057 080 4 573 718 4 973 695 3 510 130 FVTOCI (748 351) (737 412) (748 351) (737 411) Revaluation reserve 143 058 140 941 143 058 140 941 4 990 645 3 609 191 3 908 074 2 545 573 Accumulated loss Comprises of accumulated retained loss. Capital fund The Capital fund consists of an initial loan by government, which was converted to equity in 2006 as part of the government commitment to support the Bank as well as further capital injections from the National Treasury in FY14/15 and FY20/21. FVTOCI The reserve relates to the fair value adjustment on the unlisted and listed investments held by the Bank and actuarial gain on the post-retirement obligation. Revaluation reserve The revaluation reserve represents the net surplus arising on the revaluation of owner-occupied properties. The revaluation surplus on a property is transferred to the profit and loss only once that property is disposed of. 218 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 16. Trade and other payables Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Accrued expenses 36 880 50 871 33 882 44 143 Premiums received in advance 6 6 – – Amounts due to reinsurers 945 649 639 425 – – Trade payables 26 911 51 894 25 391 19 818 Deferred Income 1 288 1 176 1 288 1 176 Loan costs and fees received in advance 31 402 45 402 31 402 45 402 Other¹ 20 259 35 615 15 477 22 562 Breakage penalty fee payable 28 573 35 640 28 573 35 640 Amounts due to SASRIA 6 993 6 634 – – Client deposits for approved loans 2 850 2 850 2 850 2 850 1 100 811 833 544 136 298 171 590 ¹ Included in other payables is conditional deposits from the sale of repossessed properties. 16.1 Other financial liability Conditional equity injection¹ 5 110 870 – 5 110 870 – 5 110 870 – 5 110 870 – ¹ The R5,1 billion capital injection was transferred on the 31 March 2023 by the shareholder with certain conditions attached to it. During 2023, the Shareholder transferred R6bn of the R7bn appropriated to Land Bank during February 2021, with the remaining R1bn to be transferred during FY23/24. Of that R6 billion, R889 million was repaid directly to guaranteed lenders and the remaining R5.1bn is sitting in an ESCROW account pending fulfilment of attached conditions, which include amongst other, the curing of the state of default with lenders. The Bank expects to meet these conditions at the end of March 2024. The R5,1 billion is not available for use by the group. Refer to note 3.2 for further details on the appropriation including the Directors’ report. 219 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 17. Long-term policyholders’ liabilities Group 2023 2022 R’000 R’000 Policyholders’ liability excluding Incurred But Not Reported (IBNR) and notified claims Present value of policy liabilities 85 947 61 488 Plus: present value of future expenses 71 847 51 400 Less: present value of future premiums (64 229) (45 950) Liability excluding COVID reserve 93 565 66 938 Plus: Covid reserve 6 143 6 035 Less : reinsurance reserve (2 735) (3 223) Total policyholders’ liability excluding IBNR and notified claims 96 973 69 750 Movement in the long-term policyholders’ liability Balance at the beginning of the year 168 096 59 932 Movement in the long-term policyholders' liability (71 123) 9 818 Balance at the end of the year 96 973 69 750 Gross Ceded Net Movement in the IBNR R'000 R'000 R'000 2023 Balance at the beginning of the year 2 545 (1 488) 1 057 Movement in the IBNR 16 (5) 11 Balance at the end of the year 2 561 (1 493) 1 068 2022 Balance at the beginning of the year 2 682 (1 093) 1 589 Movement in the IBNR (137) (395) (532) Balance at the end of the year 2 545 (1 488) 1 057 220 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 17. Long-term policyholders’ liabilities (continued) Gross Ceded Net Movement in notified (outstanding) claims R’000 R’000 R’000 2023 Balance at the beginning of the year 287 (144) 143 Movement in the IBNR (258) 130 (128) Balance at the end of the year 29 (14) 15 2022 Balance at the beginning of the year 163 (82) 81 Movement in the IBNR 124 (62) 62 Balance at the end of the year 287 (144) 143 Gross Ceded Net Total long-term insurance liabilities R’000 R’000 R’000 2023 Long-term policyholders' liability 99 708 – 99 708 Notified claims 29 – 29 IBNR 2 561 (1 493) 1 068 Total long-term insurance liabilities 102 298 (1 493) 100 805 2022 Long-term policyholders' liability 72 972 (3 223) 69 749 Notified claims 287 (144) 143 IBNR 2 545 (1 488) 1 057 Total long-term insurance liabilities 75 805 (4 855) 70 949 221 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 At amortised cost* 22 495 625 29 162 958 22 495 625 29 162 958 * Towards the end of April 2020, the Land Bank experienced a liquidity shortfall, which resulted in the Bank defaulting on some of its obligations. This triggered a cross default and resulted in de-facto stand still on capital and interest payments to its funders. The significant movement on funding liabilities between current and the prior year is due to the capital reductions. Analysis of funding 2023 Opening Amortised Cost Repayment/ Accrued Effective Interest Prepaid Arranging Closing Commercial Funding Balance Re-alignment Settlements Interest Rate Adjustment Fees Balance Commercial Paper 10 511 469 (35 091) (2 077 466) 72 422 (13) – 8 471 322 Bills 994 421 23 009 (201 756) 7 447 – – 823 121 Call bonds 25 809 (91) (5 100) 129 – – 20 747 Floating rate notes – 1 year 1 259 859 (5 402) (220 186) 4 514 – – 1 038 785 Floating rate notes – 2 to 5 years 137 044 (1 970) (55 358) 1 455 (13) – 81 158 Promissory notes 8 094 336 (50 638) (1 595 066) 58 877 – – 6 507 510 "Deposits" 349 311 – (44 798) – – – 304 513 Agri-related business deposits 231 225 – (21 502) – – – 209 723 Forced stock sale deposits 117 675 – (23 359) – – – 94 316 Small institutional deposits 52 – 4 – – – 56 Rent deposits 358 – 60 – – – 418 Facilities 896 726 (5 727) (175 349) 5 591 – – 721 242 Committed 896 726 (5 727) (175 349) 5 591 – – 721 242 Uncommitted – – – – – – – 222 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding (continued) 2023 Opening Amortised Cost Repayment/ Accrued Effective Interest Prepaid Arranging Closing Commercial Funding Balance Re-alignment Settlements Interest Rate Adjustment Fees Balance DMTN Issuances 11 562 523 (117 493) (3 055 538) 90 155 (3 364) (257) 8 476 027 Floating rate notes 9 128 158 (29 983) (2 590 157) 31 056 774 (219) 6 539 630 – LBK15 987 537 (4 357) (194 964) 3 992 – – 792 207 – LBK18 525 750 (2 320) (103 796) 2 125 – – 421 759 – LBK22 406 664 (1 794) (80 286) 1 644 – – 326 228 – LBK23 437 408 (1 851) (86 371) 1 768 – – 350 954 – LBK26 175 410 (774) (34 630) 709 – – 140 715 – LBK27 1 441 654 (1 794) (285 524) 5 846 – – 1 160 181 – LBK30 219 376 (968) (43 310) 887 – – 175 984 – LBK31 656 837 (944) (130 064) 1 639 (153) (9) 527 307 – LBK32 359 566 (3 166) (70 674) 3 822 (17) (6) 289 525 – LBK33 539 703 (4 132) (106 204) 2 843 1 340 (41) 433 509 – LBK35 713 128 (328) (141 348) 736 (130) (34) 572 025 – LBK36 143 192 (632) (28 270) 579 – – 114 869 – LBK37 570 731 (490) (113 079) 589 (122) (45) 457 584 – LBK38 368 707 (2 791) (72 561) 1 486 – – 294 840 – LBK39U 699 279 (735) (684 500) 33 (144) (83) 13 849 – LBK40U 299 709 (333) (299 376) – – – – – LBK41U 583 507 (2 575) (115 199) 2 358 – – 468 092 Fixed rate notes 2 434 365 (87 510) (465 381) 59 099 (4 138) (38) 1 936 397 – LBK20 591,276 (23,239) (112,642) 2,306 – – 457,701 – LBK24 600,640 (26,455) (113,861) 22,451 (992) (20) 481,763 – LBK28 682,319 (22,979) (130,747) 20,961 (2,752) (15) 546,787 – LBK29 560,130 (14,837) (108,131) 13,381 (394) (3) 450,146 223 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding (continued) 2023 Effective Interest Opening Amortised Cost Repayment/ Accrued Rate Prepaid Arranging Closing Balance Re-alignment Settlements Interest Adjustment Fees Balance Term Loans – Amortising 2 681 497 189 287 (573 835) 8 189 94 523 (224 732) 2 174 929 7-year syndicated loan (Government guaranteed) (958) 958 – – – – – 10-year syndicated loan (MIGA supported 2 682 455 188 329 (573 835) 8 189 94 523 (224 732) 2 174 929 Term Loans – Bullet Term 715 038 (2 238) (141 348) 2 609 – – 574 061 3-year term facility 715 038 (2 238) (141 348) 2 609 – – 574 061 6-year syndicated loan (Government guaranteed) – – – – – – – Step Rate Notes 744 553 (13 038) (145 059) 6 508 – – 592 964 Step Rate Notes 744 553 (13 038) (145 059) 6 508 – – 592 964 Total Commercial Funding 27 461 117 15 700 (6 213 393) 185 475 91 146 (224 989) 21 315 056 Multilateral and Development Term Loans – Amortising 1 497 181 (3 900) (480 549) 8 546 (1 106) (4 340) 1 015 833 10-year term loan – KFW 598 200 5 081 (119 500) 262 (184) (4 340) 479 518 15-year term loan – AFDB 503 519 (3 519) (90 909) 5 489 (778) – 413 802 25-year term loan – World Bank 395 462 (5 462) (270 140) 2 796 (144) – 122 513 Total Multilateral and Disaster Relief Funding 1 497 181 (3 900) (480 549) 8 546 (1 106) (4 340) 1 015 833 Drought Relief 204 664 394 (40 663) 2 215 – (1 871) 164 740 10-year term loan – IDC 204 664 394 (40 663) 2 215 – (1 871) 164 740 Total Disaster Relief 204 664 394 (40 663) 2 215 – (1 871) 164 740 Total Funding Liabilities 29 162 962 12 195 (6 734 605) 196 237 90 041 (231 200) 22 495 629 224 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding 2022 Opening Amortised Cost Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Commercial Funding Balance Re-alignment Settlements Interest Premium Rate Adjustment Fees Balance Commercial Paper 12 906 768 27 032 (2 457 422) 60 682 (25 743) 152 – 10 511 469 Bills 1 164 854 91 232 (238 656) 2 134 (25 143) – – 994 421 Call bonds 31 848 (97) (6 033) 91 – – – 25 809 Floating rate notes – 1 year 1 504 806 (8 894) (241 455) 5 402 – – – 1 259 859 Split Floating rate notes – 2 to 5 years 222 189 (2 631) (84 484) 1 818 – 152 – 137 044 Promissory notes 9 983 071 (52 578) (1 886 794) 51 237 (600) – – 8 094 336 "Deposits" 429 260 – (79 949) – – – – 349 311 Agri-related business deposits 257 255 – (26 030) – – – – 231 225 Forced stock sale deposits 171 607 – (53 932) – – – – 117 675 Small institutional deposits 50 – 2 – – – – 52 Rent deposits 347 – 11 – – – – 358 Facilities 1 459 351 (7 351) (559 819) 4 545 – 896 726 Split Committed 1 459 351 (7 351) (559 819) 4 545 – 896 726 Split Uncommitted – – – – – – 225 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding (continued) 2022 Opening Amortised Cost Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Commercial Funding Balance Re-alignment Settlements Interest Premium Rate Adjustment Fees Balance DMTN Issuances 14 326 042 (196 379) (2 684 636) 118 277 – – (530) 11 562 523 Floating rate notes 11 285 362 (53 049) (2 134 140) 29 358 – 1 086 (459) 9 128 158 – LBK15 1 233 481 (19 679) (230 622) 4 357 – – – 987 537 – LBK18 647 486 (1 276) (122 780) 2 320 – – – 525 750 – LBK22 501 888 (2 048) (94 970) 1 794 – – – 406 664 – LBK23 540 731 (3 006) (102 168) 1 929 – (77) (1) 437 408 – LBK26 216 483 (883) (40 964) 774 – (487) – 175 410 – LBK27 1 780 947 (3 343) (337 745) 2 287 – – (5) 1 441 654 – LBK30 270 102 (462) (51 232) 968 – – – 219 376 – LBK31 811 612 (1 868) (153 851) 1 122 – (151) (27) 656 837 – LBK32 443 545 (3 545) (83 600) 3 096 – 86 (16) 359 566 – LBK33 665 428 (4 228) (125 628) 2 354 – 1 834 (57) 539 703 – LBK35 882 150 (2 150) (167 200) 486 – (90) (68) 713 128 – LBK36 176 721 (721) (33 440) 632 – – – 143 192 – LBK37 705 342 (1 342) (133 760) 679 – (106) (82) 570 731 – LBK38 454 622 (2 874) (85 832) 2 459 – 377 (45) 368 707 – LBK39U 864 331 (1 931) (163 856) 1 084 – (223) (126) 699 279 – LBK40U 370 355 (755) (70 224) 442 – (77) (32) 299 709 – LBK41U 720 138 (2 938) (136 268) 2 575 –– – – 583 507 Fixed rate notes 3 040 680 (143 330) (550 496) 88 919 – (1 337) (71) 2 434 365 – LBK20 758 161 (56 881) (133 243) 18 096 – 5 145 (2) 591 276 – LBK24 744 777 (35 907) (134 685) 27 986 – (1 498) (33) 600 640 – LBK28 845 417 (31 417) (154 660) 26 146 – (3 149) (18) 682 319 – LBK29 692 325 (19 125) (127 908) 16 691 – (1 835) (18) 560 130 226 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding (continued) 2022 Opening Amortised Cost Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Commercial Funding Balance Re-alignment Settlements Interest Premium Rate Adjustment Fees Balance Term Loans – Amortising 3 179 624 264 995 (573 835) 6 388 – 86 625 (282 300) 2 681 497 7-year syndicated loan (2 368) 2 368 – – – (958) (958) (Government guaranteed) – 10-year syndicated loan (MIGA supported) 3 181 992 262 627 (573 835) 6 388 – 86 625 (281 342) 2 682 455 Term Loans – Bullet Term 879 859 141 (167 200) 2 238 – – 715 038 3-year term facility 881 169 (1 169) (167 200) 2 238 – – – 715 038 6-year syndicated loan (Government guaranteed) (1 310) 1 310 – – – – – – Step Rate Notes 916 994 (13 889) (171 590) 12 832 – 206 – 744 553 Step Rate Notes 916 994 (13 889) (171 590) 12 832 – 206 – 744 553 Total Commercial Funding 34 097 898 74 549 (6 694 451) 204 962 (25 743) 86 732 (282 830) 27 461 117 Multilateral and Development Funding Term Loans – Amortising 1 724 797 (3 329) (228 187) 9 824 – (715) (5 209) 1 497 181 10-year term loan – KFW 734 663 5 896 (137 278) 327 – (199) (5 209) 598 200 15-year term loan – AFDB 594 826 (3 917) (90 909) 3 934 – (415) – 503 519 25-year term loan – World Bank 395 308 (5 308) – 5 563 – (101) – 395 462 Total Multilateral and Development Funding 1 724 797 (3 329) (228 187) 9 824 – (715) (5 209) 1 497 181 227 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding (continued) 2022 Opening Amortised Cost Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Disaster Relief Funding Balance Re-alignment Settlements Interest Premium Rate Adjustment Fees Balance Drought Relief 252 093 1 065 (48 100) 1 944 – – (2 338) 204 664 10-year term loan – IDC 252 093 1 065 (48 100) 1 944 – – (2 338) 204 664 Total Disaster Relief 252 093 1 065 (48 100) 1 944 – – (2 338) 204 664 Total Disaster Relief 252 093 1 065 (48 100) 1 944 – – (2 338) 204 664 Total Funding Liabilities 36 074 788 72 285 (6 970 738) 216 730 (25 743) 86 017 (290 377) 29 162 962 228 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Reconciliation of notes in issue¹ Company 2023 2022 R’000 R’000 Opening balance 11 445 026 14 129 662 LBK22 Capital Reduction (80 286) (94 970) LBK36 Capital Reduction (28 270) (33 440) LBK15 Capital Reduction (194 964) (230 622) LBK18 Capital Reduction (103 796) (122 780) LBK33 Capital Reduction (106 204) (125 628) LBK23 Capital Reduction (86 371) (102 168) LBK26 Capital Reduction (34 630) (40 964) LBK27 Capital Reduction (285 524) (337 745) LBK30 Capital Reduction (43 310) (51 232) LB41U Capital Reduction (115 199) (136 268) LBK28 Capital Reduction (130 747) (154 660) LBK31 Capital Reduction (130 064) (153 851) LBK29 Capital Reduction (108 131) (127 908) LBK32 Capital Reduction (70 674) (83 600) LBK20 Capital Reduction (112 642) (133 243) LBK39U Capital Reduction (684 500) (163 856) LBK40U Capital Reduction (299 376) (70 224) LBK24 Capital Reduction (113 861) (134 685) LBK35 Capital Reduction (141 348) (167 200) LBK37 Capital Reduction (113 079) (133 760) LBK38 Capital Reduction (72 561) (85 832) Closing balance 8 389 489 11 445 026 229 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) Company 2023 2022 R’000 R’000 Notes in default2 maturities LBK20 8 June 2017 8 June 2022 455 395 – LBK23 04 September 2017 05 September 2022 349 187 – LBK38 17 February 2020 16 June 2023 293 354 – LBK27 23 March 2018 23 March 2023 1 154 335 – LBK30 20 September 2018 20 September 2021 – (218 408) LBK15 12 October 2016 12 October 2021 – (983 179) 2 252 271 (1 201 587) Reconciliation of notes in issue¹ Opening balance 731 515 903 105 Notes redeemed: SRN 4, capital reduction 11 May 2017 11 May 2022 (72 571) – SRN 4, capital reduction 10 May 2017 11 May 2022 (72 488) – Notes issued: SRN 4, capitalised interest 11 May 2017 11 May 2022 – (85 845) SRN 4, capitalised interest 10 May 2017 11 May 2022 – (85 745) Closing balance 586 456 731 515 2 Notes that have matured but are in default. ¹ Excludes accrued interest, discount premium and prepaid arranging fees. 230 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 18. Funding liabilities (continued) 18.2 Weighted average interest cost of commercial funding (NACM) 2023 2022 * Spread to 3-month Jibar * Spread to 3-month Jibar Short-term: ≤ 1 year 1% 2% Medium-term: > 1 year ≤ 5 years 1% 3% Long-term: > 5 years 3% 6% Total Cost of Funding 1% 3% Weighted average interest cost of development and multilateral funding (NACM) Long-term: > 5 years** 1% 3% Weighted average interest cost of natural disaster relief funding (NACM) Long-term: > 5 years 2% 1% Development and multilateral funding Land Bank’s Multilateral funds are made up of the following: R1 billion loan with the African Development Bank. the purpose of the loan is was to on-lend to the Land Bank’s commercial and Development clients whom meet qualifying usage criteria. – $93 million funding line with the World Bank. This facility was earmarked to give financial aid to participating financial intermediaries and direct beneficiaries. As at 31 March 2023 R119,860 million has been utilised. The balance of the undrawn facility was cancelled in FY21/22. – R899 million funding line with KfW Development Bank.This facility is was earmarked to finance small-sized and medium sized agricultural enterprises.The facility has been fully drawn and disbursed to qualifying projects. As at 31 March 2023 the loan balance was R483,780 million. Disaster relief The Land Bank had secured a R400 million facility with the Industrial Development Corporation for the sole purpose of providing concessionary loans to drought affected customers and is applicable to declared disaster areas as per the Government Gazette. The loan was used for: • Production rehabilitation • Working capital and operational expenses required minimising further losses to current farming operations • Re-stocking of live stock • Preparing for future seasons necessary to continue the farmers’ normal sustainable farming operations • Enabling “carry-over” debt and consolidation of debt. Loans under this arrangement would only be extended where there is a viable business case with repayment ability, as well as sufficient collateral to cover the potential losses to the Bank. The facility was fully utilised, relief assistance closed on 31 March 2019 and the facility now is amortising. * Weighted average libar ** Only includes those funding lines for which there has been utilisation 231 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 19. Provisions Reconciliation of provisions – Group – 2023 Utilised during Reversed during Opening Balance Additions the Year the Year Total Staff Incentives* 2 400 3 000 (2 400) – 3 000 Leave pay** 31 781 6 037 (8 420) – 29 398 34 181 9 037 (10 820) – 32 398 Reconciliation of provisions – Group – 2022 Utilised during Reversed during Opening Balance Additions the Year the Year Total Staff Incentives* 1 201 1 199 – – 2 400 Leave pay** 34 256 2 553 (5 028) – 31 781 Litigation and claims* 104 999 – (55 000) (49 999) – 140 456 3 752 (60 028) (49 999) 34 181 Reconciliation of provisions – Company – 2023 Utilised during the Reversed during Opening Balance Additions Year the Year Total Leave pay** 29 960 3 739 (6 599) – 27 100 29 960 3 739 (6 599) – 27 100 Reconciliation of provisions – Company – 2022 Utilised during the Reversed during Opening Balance Additions Year the Year Total Leave pay** 32 795 2 950 (5 785) – 29 960 Litigation and claims*** 104 999 – (55 000) (49 999) – 137 794 2 950 (60 785) (49 999) 29 960 232 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 19. Provisions (continued) *Staff incentives The provision for discretionary performance bonuses is payable to employees and is determined by taking into account both the performance of the Bank as well as the performance of individual employees. **Leave pay Accumulated leave is payable to employees upon termination of services. Provision for leave pay is calculated on the leave days outstanding at the end of the year multiplied by the cost to company of the employees in terms of employment contracts. Litigation and claims*** Provision raised in respect of breakage fees of R50 million which became payable in FY21/22 and was reallocated to payables. 20 Post-retirement obligation Medical benefit plan The defined benefit obligation plan is unfunded. The estimated medical aid contributions for the next year effective 1 April 2023 amounts to R19,5 million (FY21/22: R15,9 million). The time value of money has not been taken into account as it is believed that the difference will be insignificant. Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Post-retirement obligation Medical Benefit Plan Movement in the present value of the: Defined benefit obligation 1 April 286 655 284 000 286 655 284 000 Service cost – PRMA 1 732 (1 408) 1 732 (1 408) Interest cost – PRMA 27 823 27 548 27 823 27 548 Actuarial losses and (gains) on post retirement obligation (17 811) (7 582) (17 811) (7 582) Benefits paid (19 535) (15 903) (19 535) (15 903) Defined benefit obligation 31 March 2023 278 864 286 655 278 864 286 655 233 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 20 Post-retirement obligation (continued) Total expenses resulting from the Group’s defined benefit plans charged to income statement can be analysed as follows: Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Components of net periodic medical benefit cost: Service cost – PRMA (1 732) (1 408) (1 732) (1 408) Interest cost – PRMA (27 823) (27 548) (27 823) (27 548) Total included in interest and staff costs (29 555) (28 956) (29 555) (28 956) Total expenses recognised in profit or loss (29 555) (28 956) (29 555) (28 956) Actuarial gain/(losses) recognised in other comprehensive income 17 811 7 582 17 811 7 582 Total expenses resulting from the Group’s defined benefit plans charged to income statement can be analysed as follows: 20.1 Maturity profile of members 2023 Membership Profile Average Past Service Average Number of Employee status Number Average Age (years) (years) Dependants Active 55 52 28 2 Pensioners 234 70 – 1 289 122 28 2 2023 Membership Profile Average Past Service Average Number of Employee status Number Average Age (years) (years) Dependants Active 92 52 27 2 Pensioners 244 70 – 1 336 122 27 3 The actuarial valuation report complies with the requirements of Advisory Practice Note (APN) 301 of the Actuarial Society of South Africa in all respects that are deemed to be in the context of the exercise undertaken. The valuation is based on the Projected Unit Credit valuation method, as prescribed by IAS19. The actuarial assumptions are unbiased and mutually compatible, as required. The results of the valuation depend on the assumptions used. 234 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 20 Post-retirement obligation (continued) 20.1 Actuarial key assumptions used: Medical inflation Contribution rates on the benchmark medical option, Bankmed, have increased by, on average, 3% – 4% over the period. This is less than the medical inflation assumptions of 7.8% and 7.5% made at the time of the last valuation. This resulted in a decrease in liability of approximately R2,6 million. Economic basis The net discount rate over the period has increased by 0.6% for active members. The average net discount rate has increased by 0.8%. This has caused an increase in liability of approximately R19,8 million. Mortality The liability decreased by approximately R3,5 million due to pensioner mortality being higher than expected over the period. Withdrawals There were more withdrawals than expected during the valuation year. This has resulted in an actuarial gain of some R17,8 million. 20.3 Sensitivity analysis Accrued Service Liabilities Accrued Service Liabilities In-Service and Continuation Members as at 31.03.2022. (R'000) % Increase as at 31.03.2021. (R'000) % Increase Assumptions as above Discount rate – increases by 1% p.a. 253,924 10% 257,741 -9% Discount rate – reduces by 1% p.a. 308,305 10% 315,285 11% Medical inflation – increases by 1% p.a. 306,940 -9% 314,006 11% Medical inflation – reduces by 1% p.a. 253,834 1% 257,624 -9% Retirement age – 64 282,518 1% 287,897 1% Retirement age – 66 275,566 -1% 280,389 -1% 235 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 21. Interest income Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Measured at amortised cost Interest from loans and advances* 2 198 631 2 520 860 2 198 631 2 520 852 Interest on short-term deposits 536 778 334 864 536 778 334 864 Interest from banks 30 382 26 901 21 593 22 514 Interest on premiums written 135 530 – – 2 765 925 2 883 155 2 757 002 2 878 230 * Included in the interest income is a charge of interest in suspense of R41,51m (FY21/22: charge of R19,69m – restated) 22. Interest expense Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Commercial funding 1 948 603 2 085 923 1 948 603 2 085 923 Development and multilateral funding 94 671 115 063 94 671 115 063 Interest on swaps & debentures 30 141 86 508 30 141 86 508 Arranging fees – effective interest rate method * – 63 209 – 63 209 Other** 76 355 24 144 76 355 24 144 Total interest expense 2 149 770 2 374 847 2 149 770 2 374 847 * These arranging fees form part of the “Effective Interest Rate” of funding instruments. ** Other consists of interest paid on Drought Relief funding, Government guarantee fee paid. 236 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 23. Non-interest expense Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Account administration & Net Interest Margin fee expense¹ 13 555 75 934 13 555 71 358 ¹ Account administration & Net Interest Margin fee expense relate to management fees paid to intermediaries in terms of service level agreements relating to the Bank’s acquisition loan books. Net interest income (interest income less interest expense) earned from, and impairments incurred on these books are included under note, 21 note 22 and note 9 respectively. Significant movement due to the SLA insourcing. These are expenses derived from banking activities 24. Non-interest income and Other income Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Fee and commission income (banking activities) 24 366 30 781 24 366 30 781 Account administration fee income 13 964 16 721 13 964 16 721 Fund administration fees 10 402 14 060 10 402 14 060 42 412 37 209 32 386 30 668 Other Income (non-banking activities) Administration fee from LBLIC 1 343 1 254 Investment property rentals 12 740 11 753 12 740 11 753 Sundry income* 29 672 25 456 18 303 17 661 * Net margin fee due to the Bank which was previously overcharged by an SLA partner, 237 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 25. Operating profit from insurance activities Group 2023 2022 R’000 R’000 Net premium income Gross written premium 783 770 611 555 Long-term insurance contracts 4 333 3 895 Short-term insurance contracts 779 437 607 660 Gross written premium 793 278 607 448 Change in the unearned premium reserve (13 841) 212 Change in the unexpired risk reserve (URR) – – Less: reinsurance premium 580 027 453 256 Long-term insurance contracts 2 272 2 005 Short-term insurance contracts 577 755 451 251 Reinsurance premium written 587 444 450 673 Change in the unearned premium reserve (9 689) 578 Change in the unexpired risk reserve (URR) – – 203 742 158 299 Net insurance claims Long-term insurance contract claims 931 (1 228) Claims paid 1 862 (2 455) Movement in notified claims (OCR) (931) 1 227 Short-term insurance contracts claims 163 359 152 368 Claims & assessment fees paid 137 342 105 927 Movement in IBNR 491 (283) Movement in outstanding claim provisions 25 526 46 724 164 289 151 139 Other costs from insurance activities Movement in policyholders' liability (27 106) (9 348) Net commission and administration fees (37 278) (41 715) (64 384) (51 063) 238 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 26. Investment income and fees Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 An analysis of revenue is as follows: Investment income from financial assets classified as at fair value through profit or loss: 105 590 106 749 20 132 17 507 Dividend income – other investments 37 600 29 337 13 184 10 034 Interest income1 67 989 77 412 6 948 7 473 Investment management and performance fees (2 264) (8 153) (2 223) (2 150) 103 326 98 596 17 909 15 357 1 These are assets invested with asset management companies. 2 The are settled on a net basis per the contractual agreement with the asset managers 27. Gains and losses on financial instruments Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Losses on financial assets measured at amortised cost* (2 933) 20 821 (2 933) 20 821 Fair value (losses) gains Designated at fair value through profit or (loss) (8 576) (1 444) (8 576) (1 444) Interest rate swap** (8 576) (1 444) (8 576) (1 444) Investment income 5 798 90 838 3 279 23 112 Realised gains 21 819 51 237 9 463 29 101 Unrealised fair value gains (losses) (16 021) 39 601 (6 185) (5 989) (2 778) 89 394 (5 297) 21 667 * These are modifications gains/(losses) on loans and advances. ** To manage the Bank’s exposure to “basis risk” and in an effort to protect the Bank’s net interest margin, the Land Bank Board entered into an interest rate swap arrangement; hedging the mismatch moderately between the lending and funding rate. IFRS 9 require gains and losses on this derivative to be recognised in profit or loss when hedge accounting is not applicable. 239 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 28. Operating expenses Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Depreciation – Owned assets (Note12) 2 914 2 121 2 881 2 088 Depreciation – Leased assets (Note 13) 8 099 17 973 8 099 17 892 Amortisation – computer software (Note 14) 757 1 152 757 1 152 Auditors remuneration – External auditors 19 752 16 875 16 913 14 391 Directors' emoluments 15 437 18 400 15 025 14 748 – Executive 4 358 10 583 4 358 7 251 – Non-executive 11 079 7 817 10 667 7 497 Management fees 6 101 117 – 117 Professional fees 19 254 27 031 13 899 24 144 Staff costs 357 455 346 143 331 401 328 899 – Salaries and contributions 349 750 338 396 324 174 321 729 – Staff related provisions and other 7 706 7 747 7 227 7 170 Other operating expenses 123 639 132 963 110 181 127 145 – Computer and data costs 24 634 31 196 21 659 29 825 – Repairs and maintenance 7 018 1 301 7 018 1 301 – Rates and taxes 6 558 7 128 6 558 7 128 – Travel and accommodation 7 829 2 222 7 463 2 131 – Corporate social investment 6 412 5 073 3 712 5 073 – Litigation and claims 11 651 11 014 10 735 11 014 – Other1 59 537 75 029 53 036 70 672 553 408 562 775 499 156 530 575 1 Other operating expenses includes sundry operating expenses such as security, short-term lease, cleaning and marketing amongst others. 240 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 29. Non-trading and capital items* Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Fair value gain/(loss) on investment properties 610 2 300 610 2 300 Foreign exchange gain / (loss) (3) 7 (3) 7 Impairment of other assets (8 739) 12 1 12 Non-current assets held-for-sale fair value adjustment – (149) – (149) Profit on disposal of property and equipment 77 130 90 130 (8 055) 2 300 697 72 299 * Transactions that are either annually or not periodic/frequent in nature. 30. Indirect taxation Major components of the tax expense Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Value Added Tax¹ (19 407) (27 910) (19 407) (27 315) ¹ Value-added taxation is levied on all non-interest income of the Land Bank, an input is claimed on an apportionment basis for Land Bank operating expenses 241 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 31. Funds under administration Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Asset 1 823 983 1 384 821 1 823 983 1 384 821 Liabilities DALRRD 1 823 983 1 384 821 1 823 983 1 384 821 1 823 983 1 384 821 1 823 983 1 384 821 Funds administered on behalf of DALRRD Agri-BEE 363 591 321 002 363 591 321 002 MAFISA Fund 16 050 15 192 16 050 15 192 Covid 19 92 510 94 092 92 510 94 092 Job Fund 17 083 29 570 17 083 29 570 Emerging Farmers' Support Facility & CGA Primary Project 155 356 161 973 155 356 161 973 Blended Finance 1 175 224 750 168 1 175 224 750 168 Kat River Farmers 4 168 12 824 4 168 12 824 1 823 983 1 384 821 1 823 983 1 384 821 Reconciliation of movement in funds under administration Agri-BEE Balance at the beginning of the year 321 002 275 563 321 002 275 563 Receipts 54 826 41 251 54 826 41 251 Accrued interest 18 410 9 791 18 410 9 791 Disbursements (30 647) (5 603) (30 647) (5 603) Balance at the end of the year 363 591 321 002 363 591 321 002 242 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 31. Funds under administration (continued) Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 MAFISA fund Balance at the beginning of the year 15 192 13 899 15 192 13 899 Accrued interest 858 503 858 503 Transfer from/(to) the fund – 790 – 790 Balance at the end of the year 16 050 15 192 16 050 15 192 COVID-19 Balance at the beginning of the year 94 092 95 522 94 092 95 522 Transfer from/(to) Land Bank – 388 – 388 Accrued interest 5 096 3 260 5 096 3 260 Disbursements (6 678) (5 078) (6 678) (5 078) Balance at the end of the year 92 510 94 092 92 510 94 092 Job fund Balance at the beginning of the year 29 570 33 667 29 570 33 667 Accrued interest 1 564 934 1 564 934 Disbursements (25 189) (18 252) (25 189) (18 252) Transfer from/(to) the fund 11 138 13 221 11 138 13 221 Balance at the end of the year 17 083 29 570 17 083 29 570 Blended Finance Balance at the beginning of the year 750 168 645 489 750 168 645 489 Accrued interest 50 583 14 301 50 583 14 301 Disbursements (35 458) (434 919) (35 458) (434 919) Transfer from/(to) the fund 409 931 525 297 409 931 525 297 Balance at the end of the year 1 175 224 750 168 1 175 224 750 168 243 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 31. Funds under administration (continued) Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Kat River Farmers Balance at the beginning of the year 12 824 – 12 824 – Accrued interest 359 446 359 446 Receipts – 35 000 – 35 000 Disbursements (9 015) (22 622) (9 015) (22 622) Transfer from/(to) the fund – – – – Balance at the end of the year 4 168 12 824 4 168 12 824 Description of the funds under administration Agri-BEE Fund Parliament approved a sector specific allocation for the Agri-BEE Fund that will allocate grants to promote the rural community-based empowerment groups.The Bank acts as an agent on behalf of the DALRRD in the administration of the Fund. Disbursements amounted to R30,6m (FY21/22:R5,6m). An injection of R54,8 million (FY21/22:R41,3 million) from DALRRD. MAFISA fund The MAFISA Fund has been set up on request of the DALRRD to invest money in approved projects of the Department through on-lending to individuals. Monies received from the DALRRD for the MAFISA Fund is invested in a separate bank account on behalf of the DALRRD. No on-lending has taken place during the period under review.There were no injections during the current period under review (FY22/23: Rnil). Blended Finance The Blended Finance fund has been set up on request of the DALRRD to provide blended support to Black Commercial Producers in the agricultural, forestry and fisheries sectors in an attempt to accelerate agricultural development and to transform these sectors. The support will include blended funding, skills and technical support required by these producers. The Land Bank is responsible for the utilisation of its own existing infrastructure and discretion to consider loan applications from Black Commercial Producers, and all funds are received in an interest-bearing account. The DALRRD injected R409,9 million (FY21/22:R525,3 million) which is used to support Black Commercial Producers either in the form of equity contributions or interest rate subsidy, technical support contributions. COVID-19 Sole purpose of the Fund is to provide relief to distressed farmers affected by the COVID-19 pandemic who are involved in the entire food value chain, from farm-related operations, agro-processing, food manufacturing, logistics and related services, wholesale and retail services to all support functions that ensure efficient delivery of the agro-food system, and are existing clients of Land Bank. COVID Relief Fund” is a fund created by DALRRD to be administered by Land Bank with the sole purpose being to address the challenges created for farmers and/or producers by the COVID– 19 Pandemic in South Africa. Disbursements amounted to R 6,7m (FY21/22:R5,1m). 244 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 31. Funds under administration (continued) Jobs Fund The specific goal of the Fund is to provide a mechanism that can identify and fund creative solutions to overcome identified short-term barriers to job creation and a better functioning labour market. Furthermore, the Fund’s aim is to catalyse innovation in job creation through structured and strategic Private and Public Sector Partnership. Disbursements amounted to R25,2 million (FY21/22:R18,3 million). Kat River Farmers The specific goal of the fund is to assist farmers with crop preparation and related input costs by making the crop preparation facility available for administration by Land Bank which shall be disbursed by the Land Bank to the Farmers Service Providers or the farmers as the case may be, as a grant. There was no injection (FY21/22:R35m) in the current period under review and disbursements amounted to R9m (FY21/22: R22,6m). Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 CGA Primary Project Facility Asset Cash balance held for the support facilities – – – – Liabilities Emerging farmers support facility 155 355 161 973 155 355 161 973 CGA Primary Project Facility – – – – 155 355 161 973 155 355 161 973 Emerging farmers support facility 161 973 190 811 161 973 190 811 Balance at the beginning of the year Accrued interest 8 383 6 162 8 383 6 162 Transfer from/(to) the fund (15 000) (35 000) (15 000) (35 000) Balance at the end of the year 155 356 161 973 155 356 161 973 Description of the emerging farmers support & REM wholesale finance support facility The Land Bank received R208 million from the Department of Rural Development and Land Reform on the 17th of August 2011. The transfer received is a guarantee for identified deserving emerging farmers which require rescue packages.The identified farmers all have mortgage loans with the Land Bank and the Bank can only access the guarantee after complying with conditions as set by the Department of Rural Development and Land Reform. 245 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 31. Funds under administration (continued) CGA Primary Project Facility** The Land Bank received a total of R150 million from the Department of Rural Development and Land Reform between October 2011 and July 2016 under this facility.The funds are meant to subsidise interest payable to the Land Bank and remunerate appointed intermediaries that identify and provide technical assistance to the Retail Emerging market farmers under this wholesale finance facility. The Land Bank and the appointed intermediaries receive interest of 4% p.a each on the loans disbursed by Land Bank to the intermediaries. The intermediaries charge the REM farmers 4% p.a. on the value of the loans disbursed for their role of supporting the emerging farmers with skills and other facilities that enhance their success. This interest is paid from the aforesaid funds. There were no injections into the fund during the current period under review (FY22/23: Rnil). There were no Disbursements in the current period under review (FY22/23: Rnil). ** CGA Primary Project Facility previously named REM wholesale finance support facility. 32. Contingencies Penalty fee: The contingent asset relates to an early withdrawal penalty fee charged on an investment that the Land Bank had made with one of the banks during FY19/20. This penalty fee was expensed in FY19/20. A process is underway to recover the R16.5m penalty fee. The recovery is contingent upon successfully litigation of the matter. The matter has been resolved post year-end. Land Bank has been awarded the penalty fee plus interest through an arbitration process. Therefore, an asset shall be recognised in the FY23/24 Financial year-end. CCMA and Labour Court cases During the period under review, there was one dismissal within the Land Bank. The Land Bank dealt with two CCMA cases during the period. One case was carried over from the previous financial year and has been resolved. There are three Labour Court matters that have been carried over from the previous financial years. On one matter an application was made to dismiss the case. As a result of this incidents, the Bank estimated a contingent liability still amounts to R8.7m. The labour court matters had not been resolved as at 31 March 2023 and it is still in progress. Default Interest There is a possible legal claim against Land Bank from National Credit Act (NCA) and non-NCA clients that were previously administered by a Service Level Partners (SLA) of the Land Bank. The possible claim could be that the SLA had charged clients default interest calculated based on the “total outstanding amount” instead of the “outstanding arrear amount”. This incident happened before the Bank took over the SLA loan book in February 2021. The clients could pursue this matter further and argue that the SLA did in fact act unlawfully by disregarding the NCA provisions. There are currently differing views between the Land Bank legal team and that of the SLA partner, the SLA partner stems that this is a widely used practice in the banking industry. The matter had not been resolved as at 31 March 2023 and is still in progress as the SLA is still of the view that they are not wrong. 246 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 33. Commitments 33.1 Loan commitments and guarantees Group Company 2023 2022 2023 2022 R’000 R’000 R’000 R’000 Guarantees¹ – 4 290 – 4 290 Loan commitments* 897 558 1 491 686 897 558 1 491 686 897 558 1 495 976 897 558 1 495 976 ¹ The above guarantees are included in the clients’ approved facility limits and it is unknown when the guarantees will be presented for payment. * Loan commitments relates to facilities that are undrawn for clients approved facilities. 34. Related party transactions Ownership Interest 2023 2022 R’000 R’000 The following represents the significant subsidiaries of the Bank: Land Bank Life Insurance Company (SOC) Limited (LBLIC) 100% 100% Land Bank Insurance Company (SOC) Limited (LBIC) 100% 100% Company Transactions with related parties other than key management personnel 2023 2022 R’000 R’000 Amounts received from related parties during the year i) Land Bank Life Insurance Company (SOC) Limited – Subsidiary1 Policy administration fees received by Land Bank 269 251 Portion of non-executive directors’ emoluments paid by LBLIC 80 80 Property and equipment transferred (from)/ to LBLIC (at NAV) 48 – Gross written premiums – Group credit life insurance provided to Land Bank Clients 2 472 – 2 869 331 247 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 34. Related party transactions (continued) Company 2023 2022 R’000 R’000 ii) Land Bank Insurance Company (SOC) Limited – Subsidiary1 Policy administration fees received by Land Bank 1 074 1 003 Portion of non-executive directors’ emoluments paid by Land Bank 320 320 Property and equipment transferred to LBIC (at NAV) (35) (28) 1 429 1 295 Capital contribution from Land Bank – Cash – – iii) National Treasury – Stakeholder Transactions during the year During 2023, the Shareholder transferred R6bn of the R7bn appropriated to Land Bank during February 2021, with the remaining R1bn to be transferred during FY23/24. Of that R6 billion, R889 million was repaid directly to guaranteed lenders and the remaining R5,1bn is sitting in an ESCROW account pending fulfilment of attached conditions, which include amongst other, the curing of the state of default with lenders. The R5,1 billion is not available for use by the group until all the conditions are met. Refer to notes 3.2, 4 and 16 for further details. 6 000 000 – iv) Other related parties The Bank obtains funding from institutions, of which the most significant nominal values are disclosed below: Funding received2 Corporation for Public Deposits 755 745 942 678 Industrial Development Corporation 335 830 418 898 National Housing Finance 68 574 85 536 Petro SA 547 091 682 414 Post Bank 591 967 738 390 Public Investment Corporation 4 291 603 5 388 768 Trans-Caledon Tunnel Authority 58 215 72 615 6 649 025 8 329 299 Other government related parties: African Development Bank 409 090 499 999 LAND BANK INTEGRATED ANNUAL REPORT 2023 7 058 115 8 829 298 248 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 34. Related party transactions (continued) Company 2023 2022 R’000 R’000 Amounts owed by/(to) related parties Subsidiaries Land Bank Life Insurance Company (SOC) Limited (LBLIC) 401 – Land Bank Insurance Company (SOC) Limited (LBIC) 1 604 1 522 Funds under administration DALRRD 1 646 876 1 210 024 Micro-Agricultural Finance Institution 16 050 15 192 Agricultural Broad Based Black Economic Empowerment 363 590 321 001 Blended Finance 1 157 642 750 169 Job Fund 17 083 29 570 Covid 19 92 510 94 092 155 356 161 973 CGA Primary Project Facility Kat River Farmers 4 168 12 824 1 806 400 1 384 821 i) Agricultural Broad Based Black Economic Empowerment (Agri-BEE) Bank balances of the Agri-BEE 363 590 321 001 Agri-BEE fund balance 363 590 321 001 ii) Micro-Agricultural Finance Institution (MAFISA) Bank balances of the MAFISA fund 16 050 15 192 MAFISA fund balance 16 050 15 192 249 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 34. Related party transactions (continued) Company 2023 2022 R’000 R’000 iii) CGA Primary Project Facility Bank balances of the CGA Primary Project Facility 155 356 161 973 CGA Primary Project Facility fund balance 155 356 161 973 vi) Blended Finance Facility Bank balances of the Blended Finance Facility 1 157 642 750 169 Cash balance held for the support facilities 1 157 642 750 169 vii) Blended Finance Facility Total amount owed to related parties 1 806 400 1 384 821 Total cash balance held for the support facilities 1 806 400 1 384 821 Services paid/ (received) to related parties LBLIC – Salaries 21 039 14 750 LBIC – Salaries (21 039) (14 750) – – Remuneration recharge to LBIC (21 039) (14 750) Transactions with key management personnel4 1 439 480 Short-term employee benefits Other long-term benefits – 5 Termination benefits 1 155 – 2 594 485 1 Transactions with subsidiaries are made in the ordinary course of business and on substantially the same terms, as those prevailing at the time for comparable transactions with other third parties. These transactions also did not involve more than the normal risk of collectability or present other unfavourable features. There was no ECL at the statement of financial position date and no bad debt expense in the year (FY21/22: Rnil) relating to this intercompany transaction. 2 The funding from related parties are all short-term financial instruments which are repayable within a year. The funding consists mainly of promissory notes and bonds. These transactions were made on terms equivalent to those that prevail in arm’s length transactions. 3 The intercompany account is held as a trading account between LBIC, LBLIC and its holding company, Land Bank. In terms of the shareholders’ agreement the loan is unsecured and has been sub-ordinated by Land Bank. Settlement will take place in cash. A decision was taken by the executive of the holding company that no interest would be charged on the outstanding loan balance during the current and prior financial periods under review. 4 Key management personnel comprises of the Group’s executive management (including executive directors) and non-executive directors. 250 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group Financial risk management Credit risk Credit risk refers to a loss suffered by a party whereby the counterparty fails to meet its financial obligations to the party under the contract. Credit risk may also arise if there is an increasing risk of default by the counterparty throughout the duration of the contract. The definition of credit risk includes: a) Credit evaluation risk: Risk related to the decreased credit worthiness (based on recent financial performance) of a counterparty to a transaction. A creditor may subsequently charge the downgraded entity a higher lending rate to compensate for the increased risk. For a creditor, downgrade risk may eventually lead to default risk. b) Credit concentration risk: Risk related to any single exposure or group of exposures large enough to cause credit losses which threaten the Bank’s capital adequacy or ability to maintain its core operations. It is the risk that a common factor within a risk type or across risk types fails or an event occurs which causes credit losses. c) Credit default risk: Risk related to the non-payment of interest and/ or capital on a loan by the borrower to the lender. This translates into a loss to the institution as a result of failure by a counterparty to meet its financial and/or contractual obligations. d) Counterparty risk: Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. In most financial contracts, counterparty risk is also known as default risk. As an important partner in the execution of the Bank’s development mandate, the bank however needs to comply with statutory and regulatory requirements to ensure that the Bank’s activities do not lead over indebtedness in this market segment. Policy and responsibility The key components of the current general credit policy are the following: • The primary role of the Bank is to provide finance to the agricultural sector; • In its mandate, the Bank seeks to satisfy the needs of its customer base while maintaining a sound credit portfolio; • The Bank insists on a thorough assessment of the client’s financial position and repayment ability during the loan decision process, resulting in better quality credit decisions which result in timeous loan repayments and reduced losses in the event of a default; • For the vast majority of the products, credit is granted on the basis of insight into the customer’s circumstances and of specific assessments that provide a context for such credits; • The facilities should match the customer’s credit worthiness, capital position or assets, and the customer should be able to substantiate his or her repayment ability, and • The Group may assume risks only within the limits of applicable legislation and other rules, including the rules of good practice for financial enterprises. 251 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Credit risk management process The credit risk management process has four stages. The stage can be summarised as follows: • Credit origination entails gathering of application information, pre-screening for viability and mandate fit, client assessment and validation of business case through a due diligence. • Credit assessment entails validation of submitted documentation from origination, risk rating and pricing, viability and affordability assessment, risk mitigation and determining appropriate terms and conditions within the Bank’s risk appetite. • Negotiating and contracting entails drafting and signing of legal documentation, ensuring all conditions precedence have been met in order effect disbursement of the loan. • Portfolio Monitoring entails ongoing monitoring and evaluation, including base line studies, to ensure social impact and financial expectations have been met, board representation, business development support by designated teams (agricultural, financial etc.). Risk classification The Bank monitors the repayment record of its customers on an ongoing basis to ensure that any deterioration in repayment records is detected as early as possible. As part of the collection process, customers are classified according to risk, and the classification is updated on receipt of new information about the customer. The main objectives of risk classification are to rank the Bank’s customer base according to risk so as to estimate the probability of default (PD) of each customer. The risk classifications used in the day-to- day credit process are based on point-in-time estimates. This means that the Bank uses a customer’s present general and financial situation as a starting point. A change in the customer’s situation or financial position therefore results in an upgrade or downgrade of that customer. The Bank adheres to the principle that all classifications should reflect the customer’s current situation to the greatest extent possible. Credit risk – insurance activities LBLIC is exposed to credit risk through its investment portfolios. To counteract this risk, investment portfolios are managed in terms of investment mandates that are aligned to Insurance companies’ investment strategy. Investment mandates provide guidelines in terms of the average credit quality of financial instruments in the portfolio as well as limits on concentration risk. The insurance companies are also exposed to credit risk in respect of their working capital assets from balances owed by counterparties. The following are some of the main credit risk management actions: The use of reinsurance exposes the Group to credit risk. The counterparty risks of reinsurers are managed through formal contractual agreements which have been set up between the Group and reinsurers. These agreements include terms and conditions which regulates the relationship between the Group and reinsurers. Credit risk in respect of reinsurance is further managed by placing the Group’s reinsurance only with companies that have high credit ratings. LBLIC and LBIC has quota share reinsurance treaties with internationally AA rated reinsurance companies. In addition to the proportional reinsurance treaty, another layer of reinsurance in the form of a stop loss is in place to limit the total exposure per individual claim. For overseas reinsurers, LBLIC retains 40% of ceded written premiums under quota share treaties and settles payments with the reinsurers 1 year after the placement in order to reduce the credit risk. LBIC has a stop loss insurance treaty on the crop business with internationally AA– rated reinsurance companies. For foreign reinsurers on the crop portfolio, LBIC retains 40% of ceded written premium as deposit premium on the quota share treaty, which is released twelve months later. A portion of the outstanding claims is also retained on the quota share accounts each quarter, which is recalculated the following quarter. For the foreign approved reinsurer, the company is issued with an updated bank guarantee through domestic AA rated bank for outstanding balances each quarter. 252 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) The maximum exposure to credit risk is 2023 2022 Gross Carrying Credit Loss Amortised Cost/ Gross Carrying Credit Loss Amortised Cost/ Amount Allowance Fair Value Amount Allowance Fair Value Asset class with asset credit risk exposure* 38 389 222 (4 065 828) 34 330 394 39 557 223 (5 386 815) 34 170 408 Loans and advances 18 831 058 (4 065 828) 14 675 230 25 875 311 (5 386 815) 20 488 496 Cash at bank 15 481 241 – 15 481 241 9 983 760 – 9 983 760 Trade and other receivables (excluding prepaid expenses) 1 504 181 – 1 504 181 1 283 974 – 1 283 974 Short-term insurance assets 341 301 – 341 301 269 407 – 269 407 Long-term insurance assets 1 493 – 1 493 1 488 – 1 488 Hedging derivatives 1 321 – 1 321 9 896 – 9 896 Investments 2 235 627 – 2 235 627 2 133 387 – 2 133 387 Add off balance sheet items exposed to credit risk Guarantees issued – – – 4 290 – 4 290 Loan commitments 897 558 – 897 558 1 491 686 – 1 491 686 Operating lease commitments – group as lessor – – – 716 – 716 Maximum credit exposure – selected items 38 293 780 (4 065 828) 35 227 952 41 050 054 (5 386 815) 35 663 239 Credit exposure is calculated on the basis of selected items on and off the balance sheet (guarantees and loan commitments). * This amount excludes the impact of any collateral held or credit enhancements. Refer to note 9 for collateral held against the loans and advances. 253 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Gross loan book exposure by agricultural sector 2023 Corporate Banking and Corporate Banking and Structured Investments Structured Investments Classification by Loan Performance Stage 1: Stage 2: Under Stage 3: Non– Direct Total Direct Indirect Total Total Performing performing performing Agricultural Sector R'000 R'000 R'000 R'000 R’000 R'000 R'000 R'000 R'000 Agri-Business 211 399 211 399 932 658 – 932 658 1 144 057 415 471 25 761 702 825 Citrus 49 852 49 852 192 628 7 521 200 149 250 001 128 172 28 281 93 549 Cotton – – 53 678 – 53 678 53 678 28 864 – 24 814 Dairy – – 508 417 – 508 417 508 417 121 677 11 714 375 026 Deciduous fruit 289 902 289 902 143 997 47 965 191 962 481 863 182 246 23 697 275 920 Equipment – – – – – – – – – Feedlot 94 035 94 035 31 867 – 31 867 125 902 105 120 2 136 18 645 Financial Services 10 142 10 142 460 242 – 460 242 470 384 319 081 54 320 96 983 Flowers – – 4 157 – 4 157 4 157 2 457 – 1 701 Fodder – – 212 085 – 212 085 212 085 44 391 17 921 149 773 Game – – 201 357 – 201 357 201 357 49 900 2 885 148 572 Grain 3 804 459 3 804 459 3 641 267 17 829 3 659 095 7 463 554 3 470 978 926 862 3 065 714 Livestock 238 188 238 188 2 787 707 1 054 2 788 761 3 026 949 1 189 615 198 559 1 638 775 Nuts 65 306 65 306 268 406 5 527 273 933 339 239 96 185 97 978 145 076 Ostriches – – 49 106 – 49 106 49 106 19 072 4 471 25 563 Other 481 947 481 947 813 037 32 949 845 986 1 327 933 160 886 46 277 1 120 770 Pork 70 553 70 553 29 064 – 29 064 99 618 74 239 20 25 359 Poultry 293 298 293 298 108 837 1 016 109 853 403 151 230 269 4 386 168 496 Subtropical Fruit – – 22 327 – 22 327 22 327 4 144 – 18 183 Sugarcane 366 653 366 653 266 876 – 266 876 633 529 168 297 31 542 433 690 Table grapes – – 310 379 50 807 361 186 361 186 103 750 8 679 248 758 Tea – – 21 932 – 21 932 21 932 18 117 – 3 815 Timber 194 767 194 767 86 176 – 86 176 280 943 24 986 194 835 61 122 Tobacco – – 125 776 – 125 776 125 776 – 5 172 120 604 Vegetables 144 150 144 150 786 312 1 290 787 602 931 752 163 325 50 680 717 747 Wine – – 268 106 24 054 292 160 292 160 183 073 13 619 95 467 Total 6 314 651 6 314 651 12 326 396 190 010 12 516 407 18 831 058 7 304 313 1 749 797 9 776 948 254 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Gross loan book exposure by agricultural sector 2022 Corporate Banking and Corporate Banking and Structured Investments Structured Investments Classification by Loan Performance Stage 1: Stage 2: Under- Stage 3: Non– Direct Total Direct Indirect Total Total Performing performing performing Agricultural Sector R'000 R'000 R'000 R'000 R’000 R'000 R'000 R'000 R'000 Agri-Business 206 254 206 254 1 350 061 4 809 1 354 870 1 561 124 194 202 280 201 1 086 721 Agro-processing – – – – – – – – – Citrus 74 981 74 981 249 737 18 001 267 738 342 718 180 058 3 212 159 448 Cotton 101 445 101 445 58 784 333 59 117 160 563 102 390 34 155 24 018 Dairy – – 388 714 169 990 558 704 558 704 139 576 5 754 413 374 Deciduous fruit 271 891 271 891 185 751 61 761 247 512 519 403 89 959 – 429 444 Equipment – – – 20 072 20 072 20 072 13 685 249 6 138 Feedlot 127 167 127 167 34 570 – 34 570 161 737 16 091 – 145 646 Financial Services 264 634 264 634 526 868 556 877 1 083 745 1 348 379 825 046 69 764 453 569 Flowers – – 4 237 – 4 237 4 237 2 603 – 1 634 Fodder – – 224 822 15 443 240 265 240 265 66 881 7 627 165 757 Game – – 195 818 1 442 197 260 197 260 53 928 8 213 135 119 Grain 5 622 359 5 622 359 5 013 718 229 987 5 243 705 10 866 063 3 514 813 3 171 802 4 179 448 Inputs supplier – – – – – – – – – Livestock 220 692 220 692 2 994 355 567 829 3 562 184 3 782 876 1 861 621 156 147 1 765 108 Logistics – – – – – – – – – Nuts 45 041 45 041 284 232 32 581 316 813 361 854 185 514 1 555 174 785 Ostrich/es – – 51 069 – 51 069 51 070 21 963 5 311 23 796 Other 444 866 444 866 1 236 029 20 865 1 256 894 1 701 761 58 906 307 068 1 335 787 Pork 69 679 69 679 27 571 – 27 571 97 251 73 527 146 23 578 Poultry 389 825 389 825 181 492 25 531 207 023 596 849 345 172 78 871 172 806 Subtropical Fruit – – 31 321 2 236 33 557 33 557 19 471 – 14 086 Sugarcane 337 745 337 745 291 289 –2 291 287 629 032 117 260 388 542 123 230 Table grapes – – 280 404 54 731 335 135 335 135 90 029 31 003 214 103 Tea – – 26 326 – 26 326 26 325 19 205 4 429 2 691 Timber 270 039 270 039 82 586 – 82 586 352 624 25 448 270 039 57 137 Tobacco – – 137 300 – 137 300 137 299 6 831 4 885 125 583 Vegetables 313 691 313 691 817 672 154 382 972 054 1 285 744 272 865 33 484 979 395 Wine 132 683 132 683 323 167 47 560 370 727 503 410 229 001 134 579 139 830 Total 8 992 8 892 992 14 997 893 1 984 428 16 982 321 25 875 311 8 526 045 4 997 036 12 352 231 255 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Credit exposure by geographic/regional distribution Corporate Commercial Banking and Development Structured and Business Stage 1: Stage 2: Under– Stage 3: Non– Investments Banking Total Total Performing performing performing 2023 R'000 R'000 R'000 % R'000 R'000 R'000 Province Eastern Cape 176 108 1 003 695 1 179 802 6% 549 435 104 497 525 870 Free State – 2 215 343 2 215 343 12% 686 236 163 043 1 366 064 Gauteng 1 791 035 906 258 2 697 293 14% 469 265 5 448 2 222 580 KwaZulu-Natal 366 653 536 637 903 290 5% 117 816 50 414 735 059 Limpopo 156 161 1 564 764 1 720 925 9% 479 404 32 719 1 208 802 Mpumalanga 3 086 769 1 524 204 4 610 973 24% 2 786 909 1 033 835 790 230 North West 118 763 2 031 338 2 150 100 11% 923 951 189 393 1 036 757 Northern Cape 284 803 1 598 349 1 883 153 10% 707 850 94 091 1 081 211 Western Cape 334 360 1 135 819 1 470 179 8% 583 447 76 356 810 376 Total 6 314 651 12 516 407 18 831 058 100% 7 304 313 1 749 797 9 776 948 Loan Performance Corporate Commercial Banking and Development Structured and Business Stage 1: Stage 2: Under- Stage 3: Non- Investments Banking Total Total Performing performing performing 2022 R'000 R'000 R'000 % R'000 R'000 R'000 Province Eastern Cape 403 610 1 399 456 1 803 067 7% 1 019 962 94 808 688 297 Free State 85 570 2 926 766 3 012 336 12% 947 165 211 225 1 853 945 Gauteng 5 661 685 1 079 694 6 741 379 26% 2 450 296 1 768 272 2 522 810 KwaZulu-Natal 337 745 705 272 1 043 017 4% 131 614 8.438 781 472 621 Mpumalanga 101 445 1 941 115 2 042 560 8% 315 888 288 365 1 438 308 Northern Cape 22 664 2 133 086 2 155 749 8% 600 789 427 953 1 127 008 Limpopo 1 085 715 3 251 998 4 337 713 17% 1 601 207 1 236 605 1 499 902 North West 284 094 2 228 679 2 512 773 10% 603 859 253 483 1 655 431 Western Cape 910 465 1 316 251 2 226 716 9% 855 264 277 543 1 093 909 Total 8 892 993 16 982 317 25 875 311 100% 8 526 044 4 997 035 12 352 231 256 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Credit risk concentration by credit rating (rated externally) The table below provides an analysis of the ratings attached to the Group’s exposure to instruments subject to credit risk: Cash Deposits Collective and Similar Investment Net Working Bonds Securities Schemes Capital Assets Total 2023 R'000 R'000 R'000 R'000 R'000 AAA 519 318 185 157 – – 704 475 AA+ 142 017 – 147 471 – 289 488 AA 93 475 39 769 – – 133 244 AA- – 3 808 – 1 202 871 1 206 679 A – 20 860 – – 20 860 BB- – 15 355 038 14 467 – 15 369 505 Other* – 14 765 230 32 – 14 765 262 Not rated** – 1 340 540 – 1 340 540 Total 754 810 31 710 402 161 970 1 202 871 33 830 053 2022 AAA 384 452 225 985 – – 610 437 AA+ 136 435 – 141 700 – 278 135 AA 92 076 31 886 – – 123 962 AA- – 7 163 – 930 106 937 269 A – 6 407 – – 6 407 A- – – – 2 638 2 638 BB- 9 845 216 9 845 216 Other* – 20 856 582 – – 20 856 582 Not rated** – 1 380 606 – – 1 380 606 Total 612 963 33 353 846 141 700 932 745 34 041 254 * This includes clients that are not rated externally. The Bank has its own credit rating system for these clients. The Bank performs a credit assessment by verifying security provision, cash flow forecasts the level of financial leverage which determines the level of financial risk and indicates the extent that debt is covered by assets. Please refer to note 9 and note 4. ** These assets do not have a formal rating and mainly relate to premium debtors. 257 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Credit exposure by line of business – loan book 2023 2022 R’000 % Total R’000 % Total Gross loan book Corporate Banking and Structured Investments 6 349 861 34% 8 928 203 35% Commercial Development and Business Banking 12 541 380 67% 17 004 357 66% Loan Modification (60 183) (57 250) Total gross loan book from continuing operations 18 831 058 25 875 310 Less: Expected Credit Loss (ECL) (4 065 828) (5 386 815) Carrying amount of loans from continuing operations 14 765 230 20 448 496 Balance per annual financial statements – total carrying amount 14 765 230 100% 20 488 496 100% Balance as per the following notes The Bank’s Commercial Development and Business Banking division, which provides loans to agricultural cooperatives and agribusiness companies, continues to account for the bulk of the Bank’s overall credit exposure. Credit risk management practices in relation to the recognition and measurement of expected credit losses Methods used to determine Method Inputs Assumptions Estimation Techniques 12-month and lifetime Expected loss methods based on probability PD, LGD and EAD Current PDs are the output of the calibrated rating PDs: migration matrices for multi– expected credit losses at default (PD), loss given default (LGD) and model; PDs in subsequent years are determined based year migration effects, term structure exposure at default (EAD); expected credit over the lifetime of the on migration, seasoning and cyclicality effects. analysis for seasoning effect, macro– losses are discounted to the reporting date loan. economic overlay for cyclicality. using the effective interest rate. LGD: LGD model calibrated with own data history. EAD: credit conversion factor (CCF) modelling with own data, inclusion of repayment schedules. 258 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Methods used to determine Method Inputs Assumptions Estimation Techniques The current LGD is the output of the LGD model; analyses showed that the subsequent LGDs are The same as the first year’s LGD. Lifetime is the Contractual tenor of the loan; No prepayments assumed Whether a credit Risk 1.According to the Stage 2 definition; different Information on single While each loan is Firstly considered on its own, the Stage classification is fact based using has Increased significantly Land Bank specific identifiers including the loan Level, such as final classification Is performed on a client-level, i.e. the current flags and information since initial recognition minimum 30 days past due criteria have been Loans management worst stage of all loans is assumed to be the correct selected for the identification of SICR. risk indicators, arrears stage for all loans of the same client. Available in the Land Bank’s data base. information etc. Early Warning Indicators (a combination 1. Maximum stage across all loans per of macroeconomic factors (SA Maize client rule applies. Volatility Index – SAVI, Agricultural GDP, International Food Index, and business rules) have been implemented for the monitoring and classification of SICR. Whether a financial According to default definition; in general, Information on single While each loan is firstly considered on its own, the Stage classification is fact based using asset is a credit-impaired unlikeliness to pay as well as >90 days past due loan level, such as final classification is performed on a client-level, i.e. if current flags and information Available financial asset are the criteria considered; these criteria are Loans management one loan is considered to be credit-impaired (stage 3) in the Land Bank’s data base. Maximum interpreted in terms of Land Bank's identifier e.g. risk indicators, arrears then all loans of the same clients are considered to be stage across all loans per client rule for specific cases of unlikeliness to pay. information, etc. so as well. applies. Macro-economic factors IFRS 9 introduced the use of macro-economic factors when calculating ECL. The Group has used macro-economic factors in the ECL methodology. Such factors include but are not limited to the World Food Index as well as the Volume of Imports of Goods and Services, and requires an evaluation of both the current and forecast direction of the economic cycle. Incorporating forward-looking information increases the level of judgement as to how changes in these macro-economic factors will affect ECL. The methodology, assumptions and macro-indices, including any forecasts of future economic conditions are reviewed regularly. For information on financial assets’ credit risk exposure, including significant credit risk concentrations please see note 36. 259 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Write off policy The Group defines bad debt as an irrecoverable debt or uncollectable debt, where all the recovery processes and or steps are exhausted and the client or counter parties do not have any means whatsoever to repay the debt that is due and payable and there are no reasonable prospects of success. As a development bank, the Land Bank will endeavour to ensure continuity of agricultural production, and the Group shall only write off bad debt when in part or its entirety, when all reasonable steps have been taken to recover the debt. Land Bank considers the following indicators when determining whether there is no reasonable expectation of recovery: • Recovery of the debt is not economically justified; • Trace of the client is unsuccessful where efforts and channels to trace the client have been fully exhausted; or • It is to the advantage of Land Bank to effect settlement of its claims or to waive the claim; or • The sheriff has issued a nulla bona return to the effect that there are no further assets available to liquidate; or • The loan security and/or security documents are defective and no other basis for a claim exists; or • A shortfall emanating from the agreed settlement discount offered by Land Bank and/or a compromise has been reached between the client and Land Bank and a condition of such compromise is that Land Bank must write off a portion of the outstanding debt; or • The loan is secured by property where the asset has been “bought-in” following an auction or abandonment process; or • No security exists at the date of insolvency/liquidation/ or business rescue and/or existing security has been sold and the proceeds thereof received by Land Bank leaves a shortfall; • A deceased estate where there are no assets and there is no security or spouse married in community of property from which the outstanding balance may be claimed; or • A deceased estate where there are no assets however: i) The estate is insolvent and will be administered in accordance with Section 34 of the Administration of Estates Act 66 of 1965; or ii) If there are insufficient dividends for the estate and the assets within the estate are of minimal value and / or are not dispensable to the debtor’s dependants; or • The debt has prescribed as defined by the Prescription Act (68 of 1969) as amended; or • Any amount exceeding in-duplum inclusive of interest and costs; or • All avenues of recovery, including the realisation of security and sureties, have been exhausted and a shortfall exists; or • Any circumstance which in the opinion of the Chief Executive Office, Chief Financial Officer and/or Executive Manager Legal Services prohibits the recovery of the debt (authorisation in line with the DOP); or • Any circumstance which is in the public interest or may be required as a result of amendments or enactments of legislation. From time to time the Group has financial assets that are written off but may still be subject to enforcement activity. Such financial assets are written off when the aforementioned criteria have been met. Any recoveries due to enforcement activities are treated as bad debt recoveries in the year which such recoveries are made. This amounted to R40,5 million (FY21/22: R276,0 million) refer to note 9. 260 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Modification The gross carrying amount of loans modified and the related gains/(losses) recognised where no derecognition took place: Loss allowance: expected credit losses Gross Loans Gain/(loss) on Change in Expected Credit Modified Modification Loss due to Modification 2023 R’000 R’000 R’000 Stage 1 11 217 (640) 96 Stage 2 31 132 (1 065) 6 104 Stage 3 16 225 (1 227) 597 Total 58 575 (2 933) 6 797 Loss allowance: expected credit losses Gross Loans Gain/(loss) on Change in Expected Credit Modified Modification Loss due to Modification 2022 R’000 R’000 R’000 Stage 1 49 850 7 566 9 292 Stage 2 49 871 9 993 5 894 Stage 3 35 192 3 262 3 455 Total 134 914 20 821 18 642 261 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Stage migration (Gross loans and relating expected credit losses) Stage 1 ¹ Stage 2 ² Stage 3 ² Total Note R’000 R’000 R’000 R’000 Gross loans as reported for 2023 9 7 304 313 1 749 797 9 776 948 18 831 058 Net stage migration Stage migration – improvements 1 416 101 (774 001) (642 100) - Stage 2 to 1 1 072 754 (1 072 754) – -Stage 3 to 1 343 347 – (343 347) -Stage 3 to 2 – 298 753 (298 753) Stage migration – deterioration (435 665) (314 789) 750 454 -Stage 1 to 2 (206 786) 206 786 – -Stage 1 to 3 (228 879) – 228 879 -Stage 2 to 3 – (521 575) 521 575 Net stage migration 980 436 (1 088 790) 108 354 Expected credit losses as reported for 2023 9 (92 766) (54 167) (3 903 574) (4 050 507) Stage migration – improvements 51 673 (28 048) (23 625) - Stage 2 to 1 – – – -Stage 3 to 1 35 674 (12 049) (23 625) -Stage 3 to 2 15 999 (15 999) – Stage migration – deterioration (49 120) (110 615) 159 73 -Stage 1 to 2 – – – -Stage 1 to 3 (45 609) (114 126) 159 735 -Stage 2 to 3 (3 511) 3 511 – Net stage migration 2 553 (138 663) 136 110 262 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Stage 1 ¹ Stage 2 ² Stage 3 ² Total Note R’000 R’000 R’000 R’000 Gross loans as reported for 2022 8 526 044 4 997 035 12 352 231 25 875 310 Stage migration – improvements 2 949 721 (1 912 729) (1 036 992) - Stage 2 to 1 2 719 609 (2 719 609) – - Stage 3 to 1 230 111 – (230 111) - Stage 3 to 2 – 806 881 (806 881) Stage migration – deterioration (835 651) (651 059) 1 486 710 - Stage 2 to 1 (169 011) 169 011 – - Stage 3 to 1 (666 640) – 666 640 - Stage 3 to 2 – (820 070) 820 070 Net stage migration 2 114 069 (2 563 788) 449 718 Expected credit losses as reported for 2022 9 (182 026) (551 416) (4 473 113) (5 206 555) Stage migration – improvements - Stage 2 to 1 26 148 (15 831) (10 316) - Stage 3 to 1 22 709 (22 709) – - Stage 3 to 2 3 438 – (3 438) Stage migration – deterioration - Stage 2 to 1 (223 923) (236 900) 460 823 - Stage 3 to 1 (31 873) 31 873 – - Stage 3 to 2 (192 050) – 192 050 Net stage migration – (268 772) 268 772 ¹ 12 month expected credit losses ² Life time expected credit losses 263 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Liquidity risk relates to the Bank’s possible inability to meet its payment obligations when they fall due. This may be caused by the Bank’s possible inability to liquidate assets and/or to obtain funding to meet its liquidity needs. • The Group is exposed to liquidity risk via its: • Ability to borrow from the market, at market related interest rates; • Ability to attract wholesale funders at favourable interest rates; • Liquid assets ratios are not adequate for prudential requirements; • Ability to raise long term funding to match long term assets; • Lack of standby lines of credit. To manage liquidity risk, the Bank has a treasury policy that takes into account limits to manage its liquidity. The liquidity risk/going concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. Control and management The following control measures are in place: Corporate finance and legal advisors were appointed to provide expert guidance on the implementation of the liability solution of the bank The going concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. The committee meets on weekly or as required. The Shareholder is a standing invitee on the committee weekly meetings. Monitoring the liquidity position The going concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. The committee meets on weekly or as required. The Shareholder is a standing invitee on the committee weekly meetings. The Land Bank works closely with its lenders to come up with an amenable solution to the event of default of the Land Bank. 264 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Insurance activities Liquidity risk is first of all managed by matching the liabilities with assets that have similar maturity profiles. Expected cash flows are taken into account when reviewing the investment strategy annually for the allocation of financial instruments. Most of the insurance company’s assets are shareholder’s assets, which are held in highly liquid, open-ended instruments. The investment strategy, furthermore allocates assets backing policyholders’ liabilities to short-term liquid instruments in the form of cash and bonds in equal proportions. The insurance companies are exposed to daily calls on their available cash resources from claims. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The companies actively manage their cash resources split between short-term and long-term requirements to ensure that sufficient cash is at hand to settle insurance liabilities and operating expense obligations based on cash flow projections. Reinsurance quota share accounts are settled quarterly, 45 days in arrears. Cash calls can be made to reinsurers for claims in excess of R5 million per risk on the crop cover for LBIC. Both LBLIC and LBIC have sufficient cash resources to cover their obligations. Liquidity risk is managed by matching the liabilities with assets that have similar maturity profiles. LBIC invested its surplus cash in a portfolio of short-term interest-bearing assets in the current reporting period. The board decided to adopt a conservative investment strategy for the company considering the volatility of crop business. (i) Asset Liability matching risk Asset Liability Matching (ALM) risk is the risk that the company’s assets are not adequately matched to back the company’s insurance contract liabilities and financial liabilities The main factor effecting the ALM risk is the investment performance of financial assets backing the underlying insurance contract and financial liabilities. The investment policy allocates assets backing policyholder’s liabilities to cash and bonds. The bonds have varying maturities, but are all immediately tradeable on the bond market. The policyholders’ liability was calculated using the discounted mean term of the liability in the current year. In the prior year, the liability was calculated using the prevailing average medium and long-term government bond rates less fund manager fees. The risk is that the rate earned on the investments does not match the rate used to calculate the liabilities. There is a notional allocation of assets to liabilities, with sufficient surplus assets to cover any ALM mismatch. The remaining financial liabilities, most notably the intercompany loan, are backed by a mixture of cash, bonds and equity. Liquidity Coverage Ratio The LCR aims to ensure that banks maintain adequate levels of unencumbered high-quality assets (numerator) against net cash outflows (denominator) over a 30-day significant stress period. 265 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Deviation from the Banking Regulations Given the unique business model of the Land Bank, including the inability to take deposits and the requirement to have cash available, the Bank deviates from the Banking Regulations in the following areas: The Land Bank’s previous liquidity ratio required the Bank to invest surplus cash with counterparties with rating A and above. Due to operational requirements, investing surplus funds in government bonds will cause excessive trading in bonds which increase the market risk and potential capital losses on cash. The Bank shall therefore deviate from the Banks Act in terms of classifying cash deposits and available facilities as High Quality Liquid Assets. Acknowledge a deviation from the regulation in terms of assumptions made regarding rollover rates with investors to assess the likelihood of rollover. The Bank will always apply the minimum rollover rate (between historic rollovers and investor discussions) to the calculations of the LCR. These deviations from the Banking Regulations have been included in the funding agreements as financial loan covenants. Net Stable Funding Ratio The NSFR aims to establish a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution’s assets and activities over a one– year horizon. It aims therefore to limit over– reliance on short term wholesale funding during times of buoyant market liquidity and encourage better assessment of liquidity risk across all on and off-balance sheet items. Cash at bank The pool of liquid assets (in cash) is invested with reputable financial institutions as informed by the treasury policy. Trade and other receivables Past trends indicate that payment has been received timeously and that the fair values post year-end fairly reflect the amounts received. The housing loans have been discounted to the present value using the prime interest rate. Repurchase agreements, derivative assets, strategic trading assets and investments The amounts are receivable from reputable institutions and funds invested are managed by reputable asset managers. Past trends indicate that payment has been received timeously and that the fair values post year-end fairly reflect the amounts received. 266 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Maturity analysis is presented on undiscounted cash flows Less than 1 Year 1 – 5 Years > 5 Years Total Group – 2023 Notes R’000 R’000 R’000 R’000 Financial Liabilities Trade and other payables 16 1 100 884 247 – 1 101 131 Other financial liabilities 16.1 5 110 870 – – 5 110 870 Short-term insurance liabilities 6 475 551 – – 475 550 Long-term policyholders' liabilities 17 102 783 14 – 102 797 Funding liabilities 18 18 710 191 4 851 668 723 193 24 285 052 Lease liabilities 13 6 846 22 993 – 29 839 Total Financial Liabilities 25 404 342 4 874 922 723 193 30 677 244 Less than 1 Year 1 – 5 Years > 5 Years Total Group – 2022 Notes R’000 R’000 R’000 R’000 Notes Financial Liabilities Trade and other payables 16 833 545 156 – 833 701 Short-term insurance liabilities 6 373 907 – – 303 907 Long-term policyholders' liabilities 17 61 196 14 906 – 75 804 Funding liabilities 18 21 433 111 9 662 782 1 555 378 32 651 271 Lease liabilities 13 4 716 455 – 5 171 Total Financial Liabilities 22 706 474 9 678 001 1 555 378 33 939 853 267 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Interest rate risk When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates applicable to assets and liabilities can be adjusted in such a manner that the bank benefits from the expected interest rate view. The current interest rate risk mismatch limit is a maximum of 25%, i.e. that the Bank cannot hold more than 25% fixed rate funding as part of its funding mix. The funding split percentage as at 31 March 2023 was 91.14% floating (FY21/22: 89.54% floating). With the Bank in default, default bonds, FRN’s and loans receive fixed interest based on the last interest reset rate. If these default notes and loans are added to open fixed rate bonds, the funding split percentage as at 31 March 2023 was 29.69% fixed and 70.31% floating. Interest rate risk monitoring The Asset and Liability Management Committee (ALCO) consists of the Bank’s executive management and it monitors among other things, the implementation of the Bank’s interest rate risk policy. ALCO considers and formulates interest rate views as the official forecast of interest rates. Sensitivity analysis is performed by the Risk Management department where the interest rate risk mismatch limit (fixed vs floating) is set. Interest rate risk policy The Bank reviews its interest rate risk policy in line with market practices on an annual basis. Sensitivity analysis Annually an interest rate risk sensitive analysis is performed as part of the Risk Management input to the Annual Financial Statements. The purpose of the analysis is to indicate the Land Bank’s income sensitivity to interest rate changes. Calculations were performed to determine the Bank’s projected net interest income. An interest rate sensitivity analysis was performed by applying a parallel shift of 100 basis points up and down on interest rates to anticipate the projected impact on the Bank’s profitability. The expected view with four interest rate hikes concluding with 11.5% prime rate at 31 March 2023. The calculation includes assumptions that will have a positive or negative impact on the net interest income for Land Bank during the 2022/23 financial year. Market risk – Insurance activities For assets backing policyholders’ liabilities, the risk to the company is that the investment returns earned are below the actuary’s assumptions. For shareholder’s assets, the risk is that capital is not preserved and that investment returns earned are below expectations. The company manages market risk through the following: 268 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) I) An Investment and Actuarial Committee. The mandate of this Board sub-committee includes the following: – Implementation of an investment strategy which sets out the investment objectives of the company, the nature and term of liabilities and the risks to which the assets and liabilities of the company are exposed. Assets backing policyholders’ liabilities are limited to interest bearing assets, and are therefore exposed to limited market risks, while shareholders’ assets can include equity and are therefore exposed to greater market risks; – Appointment of investment managers and establishing investment mandates with each investment manager. Investment mandates set out investment guidelines which cover limitations on exposures to volatile assets, the use of derivatives; limits on asset concentration and limits on exposure to particular types of assets such as unlisted equities and property and hedge funds; – Monitoring of the performance of investment managers against “appropriate benchmarks” as well as compliance with mandates; and – Ensuring proper governance in the investment process. ii) Appointment of an independent investment advisor. The responsibilities of the investment advisor are set out below: – Monitor implementation of investment strategies; and – Monthly monitoring of and reporting on investment performance. The investment advisor provides quarterly feedback on the performance of investment managers to the Investment and Actuarial Committee who in turns provides quarterly feedback to the LBLIC Board. Interest rate risk policy The Bank reviews its interest rate risk policy in line with market practices on an annual basis. Sensitivity analysis Sensitivity analysis has been determined based on the exposure to interest rates for derivatives and other financial liabilities and assets at the statement of financial position date. A 100-basis point increase or decrease is used when reporting interest rate risk and represents management’s assessment of a reasonably possible change in interest rates on the Group’s net interest income. 269 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) The effect of a reasonable possible change in interest rates, as explained above, and all other variables held constant, the Bank’s profit would be as follows using data as at 31 March 2023: 31 March 2023 31 March 2022 Net Interest Income Effect on Equity Net Interest Income Effect on Equity Bank R’000 R’000 R’000 R’000 Incremental change in yield Expected NII 901 454 568 214 – Potential movement: 100 Basis point up 966 067 64 612 582 548 14 335 Potential movement: 100 Basis point down 836 843 (64 612) 553 879 (14 335) An interest rate sensitivity analysis was performed by applying a parallel shift of 100 basis points up and down on interest rates to anticipate the projected impact on the Bank’s profitability. The expected view with four interest rate hikes concluding with 11.5% prime rate at 31 March 2023. The table above is that the expected impact of a 100-basis points up and down shock in interest rates is around R64m (R14m for FY21/22). The Land Bank implemented an interest rate swaps program in the 2017/18 financial year with the implementation of the program being conducted on an increasing scale over a time period of five years, as per the Bank’s Interest Rate Risk Management Policy. The interest rate risk swaps program involves hedging the basis risk that emanates from the mismatch between the Bank’s JIBAR-linked funding liabilities and its prime-linked assets. The underlying nominal values of the Bank’s swaps remain too small to markedly influence the Bank’s interest rate risk sensitivity. Details of the Bank’s hedging program can be found in note 8. Interest rate risk – Insurance activities The company is subject to interest rate risk resulting in the fluctuation of the fair value of future cash flows of interest-bearing assets because of the change in interest rates. Interest rate risk arises primarily from investments in long-term fixed income securities, although the short-term money market instruments are also effected, albeit to a lesser extent. The company’s investments are mainly in short dated NCD’s and bonds, with a few longer dated corporate bonds. Most of the bonds have floating interest rates, with some carrying fixed interest rates. Exposure to interest rate risk is monitored through various methods including scenario and stress testing which calculates the market exposure based on interest rate movements. 270 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Sensitivity analysis on interest bearing assets The market exposure that was calculated at 31 March was as follows: Impact on the statement of profit or loss and other comprehensive income Impact on the Statement of Profit or Loss and other Comprehensive Income 31 March 2023 31 March 2022 LBLIC R’000 R’000 Incremental change in yield 250 Basis Points increase (412 611) (509 479) 150 Basis Points increase (247 566) (305 687) 250 Basis Points decrease 412 611 509 479 150 Basis Points decrease 247 566 305 687 LBIC Incremental change in yield 250 Basis Points increase 477 439 150 Basis Points increase 285 263 250 Basis Points decrease (477) (574) 150 Basis Points decrease (285) (345) A portion of the assets backing policyholders’ liabilities are held in bonds and the balance is held in cash and cash equivalents. The sensitivity analysis of the change in investment returns on the value of the policyholders’ liabilities is reflected under the Insurance Risks sensitivity analysis for long-term business. Currency risk The group is exposed to the risk of fluctuations in foreign currencies, as a result of future transactions and investments in foreign companies. The group makes use of forward exchange contracts to manage this risk. LBLIC is exposed to currency risk resulting in the fluctuation in the value of foreign financial instruments because of the change in foreign exchange rates. The company’s exposure to currency risk is in respect of foreign investments made in alignment with the investment strategy, approved by the Board, for seeking desirable international diversification of Investments. The fund managers make use of currency derivatives to limit the currency exposure of instruments in the pooled funds to United Stated Dollars. The following rand value of assets denominated in foreign currencies are included in the statement of financial position: 271 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) United States South African Dollar Rand Group US$’000 R’000 31 March 2023 Equities – unit trusts (USD base currency) 6 050 110 471 Balanced fund 1 674 30 570 Commodities – metals 259 4 733 Cash on deposit at call – – Foreign currency exposure 7 983 145 774 Exchange rates (ZAR:USD): Closing rate – 31 March 2023 17.79 0.06 Average rate 18.26 0.05 United States South African Dollar Rand Group US$’000 R’000 31 March 2022 Equities – USD base currency unit trusts 6 851 105 715 Balanced funds 1 712 26 416 Commodities – metals 307 4 737 Foreign currency exposure 8 870 136 869 Closing rate – 31 March 2022 Average rate 14.90 0.07 16.57 0.06 272 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Sensitivity analysis – currency risk The foreign currency exposure that was calculated at 31 March was as follows: Impact on the Statement of Profit or Loss and other Comprehensive Income 31 March 2023 31 March 2022 LBLIC R’000 R’000 Incremental change in yield * USD 10% decrease (14 577) (13 673) 5% decrease (7 289) (6 837) 10% increase 7 289 6 837 5% increase 14 577 13 673 Sensitivity analysis The sensitivity analysis on Expected credit loss has been determined based on the exposure to the percentage of the balance outstanding which the Land Bank expects not to recover when a loan defaults on its payment (loss given default – LGD) at the statement of financial position date. A 5% increase or decrease in the LGD is used when reporting impairment risk and represents management’s assessment of a reasonably possible change in impairment expenses on the Group’s loans and advances. ECL Loans and Advances Analysis R’000 R’000 31 March 2023 Scaled ECL (-5%) 3 325 849 14 532 219 Scaled ECL (+5%) 4 343 114 13 099 903 Analysis 31 March 2022 Scaled ECL (-5%) 4 298 840 21 576 471 Scaled ECL (+5%) 5 731 155 20 144 156 273 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Insurance risk Insurance risk – long-term LBLIC provides mortgage and credit life insurance for persons who take out loans with the Land Bank. Until 2008, LBLIC only had one product in issue which was a non-profit decreasing term assurance that paid the outstanding amount of a Land Bank mortgage loan at death. Since then, LBLIC in conjunction with its actuaries, has developed and issued a number of new generation mortgage and credit life products. Mortality risk Mortality risk is the risk to the Group that mortality experience in future is worse than provided for in premium rates. Higher than expected mortality will give rise to losses and will necessitate an increase in valuation assumptions. This risk is mitigated by the following factors: • Adequate reinsurance arrangements to limit exposure per individual and manage concentration of risks; • Adequate pricing and reserving; • Specific testing for HIV/ AIDS is carried out in cases where applications for risk cover exceed a set limit; and • Annual reviews of mortality and morbidity experience are conducted by the statutory actuary to ensure that corrective action is taken where necessary Persistency risk Persistency risk (lapse risk) relates to policies being terminated before their final due dates as a result of an increased number of mortgage loans that are paid up before their final settlement dates and an increasing number of farmers transferring loans to trusts, close corporations and companies which result in the cancellation of policies. The Group’s reserving policy is based on actual experience, adjusted for expected future changes in experience, to ensure that adequate provision is made for lapses. Expense risk Before expenses are incurred, they are checked for budget availability. For the exceptional expenses, the company has a certain approval process. This is monitored in monthly reporting by comparing actual and budgeted expenses. Reinsurance risk LBLIC has reinsurance cover to reduce risks proportionally, as well as to limit exposure per risk in order to limit the impact per life on the current year’s earnings. • Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance share. The structure is such that a significant portion of the risk is ceded to reinsurers relative to what is retained; and • Furthermore, additional layers of cover that limits the Life insurance company’s retention are in place to manage catastrophe risk. The Board approves the reinsurance renewal process on an annual basis. The reinsurance program is in place with a local reinsurer which has a credit rating of AA-. 274 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) LBLIC makes use of reinsurance to: • Access underwriting expertise; • Enable it to underwrite risks greater than its own risk appetite and • Protect its risk book against catastrophes. The use of reinsurance exposes the Company to credit risk. The counterparty risks of reinsurers are managed through formal contractual agreements which have been set up between the Company and Reinsurers. These agreements include terms and conditions which regulate the relationship between the Company and Reinsurers. Credit risk in respect of reinsurance is further managed by placing the Company’s reinsurance only with companies that have high credit ratings. LBLIC has a quota share on both the individual and group credit life business with a domestic AA rated company. Claims risk The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent claims are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating controls that are designed to contain and monitor claims risks. It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those assumed when these obligations were estimated. Estimated claims are monitored periodically and updated based on the latest information if needed. The company utilises independent assessors who appraise and confirm claims as well as quantification by the Underwriting Manager channel. Furthermore, an actuarial Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2023, the LBLIC believes that its IBNR liability for claims is adequate, as well as outstanding claims reserve and any other additional reserve held such as COVID-19 reserve and AURR. Sensitivity analysis The objective of the sensitivity analysis is to demonstrate the effect on the policyholders’ liability for changes in key assumptions underlying the valuation of liabilities. The sensitivity analysis illustrates the effect of a change in a particular assumption on the value of the policyholders’ liability as at 31 March 2023, but this cannot generally be used to determine how future earnings or profitability will be affected. The percentage change in the assumptions chosen for the sensitivity analysis is to illustrate the change in value given the change in assumption and does not represent the possible range of worst– or best-case experience expected. For a given change in one assumption, all other assumptions are left unchanged. No allowance has been made for any possible management action in response to a particular change. Lapse experience is not included in the analysis as lapses have not been modelled explicitly (the actuarial reserve for any policy that had a negative reserve was increased to zero, and there are no surrender values under any policies. Lapses and other terminations will therefore result in an actuarial surplus at each future valuation). The percentage change in the assumptions chosen for the sensitivity analysis is to illustrate the change in value given the change in assumption and does not represent the possible range of worst– or best-case experience expected. 275 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) For a given change in one assumption, all other assumptions are left unchanged. No allowance has been made for any possible management action in response to a particular change. Lapse experience is not included in the analysis as lapses have not been modelled explicitly (the actuarial reserve for any policy that had a negative reserve was increased to zero, and there are no surrender values under any policies. Lapses and other terminations will therefore result in an actuarial surplus at each future valuation). Insurance risk – short-term LBIC provides indemnity for crops, motor vehicles and property, as well as liability cover. LBIC manages insurance risks through its underwriting strategy and reinsurance arrangements The LBIC provides indemnity for crops while still on the field, against hail, drought, fire and excessive rain fall. Cover ceases as soon as harvesting has taken place, or when certain date limits have been reached. Liability covered risks relating to the incurring of a liability other than relating to a risk covered more specifically under another insurance contract. Insurance risk arises from: • Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations; • Inaccurate pricing of risks when underwritten; • Inadequate reinsurance protection; • Inadequate reserving; and • Fraudulent claim The risks under any one insurance contract are the frequency with which the insured event occurs and the uncertainty of the amount of the resulting claims. The principal risks the insurance companies face are that the actual claims and benefit payments exceed the premiums charged for the risks assumed and that the reserves set aside for policyholders’ liabilities, whether they are known or still to be reported, provide to be insufficient. Premium provision tables based on historical claims data are reviewed annually by external actuarial consultants. External assessors assist with quantifying the value of claims reported. By the very nature of an insurance contract, this risk is random and therefore unpredictable. Changing risk parameters and unforeseen factors, such as patterns of economic and geographical circumstances as well as climate change, may result in unexpected large claims. Insurance events are random and the actual number of claims and benefits will vary from year to year from the estimate established. (i) Pricing risk Both LBLIC and LBIC bases their pricing policy on the theory of probability, with consideration to historical claims data. Acquisition and administration costs, as well as reinsurance costs are included in the pricing considerations as well as a profit loading for the cost of capital. Underwriting limits are set for the underwriting manager and brokers. Underwriting performance is monitored continuously and the pricing is adjusted accordingly. Risk factors considered as part of the review include factors such as the type of asset covered and the related commodity price, past loss experiences and risk measures taken by the insured. 276 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) The net claims ratio for LBIC, which are important in monitoring insurance risk are summarised below: Loss history 2023 2022 LBIC: Net insurance benefits and claims on short– term business expressed as a % of net earned premiums 81% 97% Factors that aggravate insurance risk include a lack of risk diversification in terms of type and amount of risk, geographical location, catastrophic events and agricultural sectors covered. A stop loss reinsurance treaty mitigates the risk arising from this by capping the crop loss ratio to 105% for the season. Sensitivity analysis The objective of the sensitivity analysis is to demonstrate the effect on the underwriting result the change is in key assumptions. The sensitivity analysis illustrates the effect of change in a particular assumption on the underwriting result, but cannot be used to determine how future earnings or profits will be effected. The percentage change in an assumption for the sensitivity analysis is to illustrate the change in value given the change in assumption, but does not represent the possible range of best or worse case experience expected. For a given change in once assumption, all other assumptions are left unchanged. No allowance has been made for possible management action in response to a particular change. 2023 Underwriting result Loss Ratio Value R'000 Change R'000 % Reported results – (28 222) – – Gross Premium +10% (25 618) 2 604 –9.00% -10% (30 285) (2 604) 9.00% Gross Claims +5% (36 099) (7 877) –28.00% -5% (20 345) 7 877 28.00% Expenses +15% (33 510) (5 288) 19.00% -15% (22 394) 5 288 –19.00% 2022 Underwriting result Loss Ratio Value R'000 Change R'000 % Reported results – (60 595) – – Gross Premium +10% (58 599) 1 996 –3.29% -10% (62 591) (1 996) 3.29% Gross Claims +5% (68 046) (7 451) 12.30% -5% (53 144) 7 451 –12.30% Expenses +15% (64 237) (3 641) 6.01% -15% (56 954) 3 641 –6.01% 277 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) (i) Claims risk The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent claims are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating controls that are designed to contain and monitor claims risks. It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those assumed when these obligations were estimated. Estimated claims are monitored periodically and updated based on the latest information if needed. The Group utilises independent assessors who appraise and confirm claims as well as quantification by the underwriting manager channel. Furthermore, an actuarial valuation is done by an independent actuary annually. Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2023, both LBLIC and LBIC believe that their liabilities for claims are adequate. (ii) Reinsurance LBLIC and LBIC have third party reinsurance cover to reduce risks from single events or accumulations of risks that could have a significant impact on the current year’s earnings and capital. This cover is placed on the international reinsurance market. The core components of the reinsurance programme comprise of: Long-term insurance contracts Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance share. The structure is such that a significant portion of the risk is ceded to reinsurers relative to what is retained; and • Furthermore, additional layers of cover that limits the Life insurance company’s retention are in place to manage catastrophe risk. Short-term insurance contracts • Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance basis through a Quota Share.The structure is such that a significant portion of the risk is ceded to reinsurers relative to what is retained; and; • Furthermore, additional layers of non-proportional structures, in the form of a stop-loss are in place to limit retention exposures as well as manage catastrophe risk. The LBLIC and LBIC Boards approve the reinsurance renewal process on an annual basis. The major portion of the reinsurance programme is in place with foreign reinsurers which have a credit rating of no less than A+ for Life Insurance and AA– for short-term insurance. 278 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) LBIC Investment portfolio concentration risk The allocation of investment portfolio as at 31 March was as follows: 2023 2022 R’000 % % % Bonds – local 280 437 100 % 199 938 100% Fixed interest 100 552 36 % 87 235 44% Floating rate 179 885 64 % 112 703 56% Inflation linked – 0% – 0% Cash, deposits and similar securities – local 52 216 100 % 53 975 % NCD's 52 216 100 % 24 801 0% Other – 0% 29 174 0% Total LBIC 332 653 0% 253 913 0% Investment manager performance, portfolio and manager allocations are monitored and reported to the company management and Investment and Actuarial Committee on a regular basis by the company’s investment consultants. Upper and lower bounds are assigned to each asset class and are reviewed annually, with the investment policy. The upper and lower bounds in effect as at 31 March 2023 are stated below. All classes were within bounds as at 31 March 2023. 2023 LBIC Lower Bound Upper Bound Asset classes Equities – local 35% Bonds – local 20% Bonds – inflation linked 20% Cash, deposits and similar securities – local 25% 95% Foreign assets 10% 279 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 2023 LBIC Lower Bound Upper Bound Asset classes Equities – Local 30% 50% Bonds – Local 15% 15% Cash, deposits and similar securities – Local Foreign assets 10% 30% 5% 25% Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact heavily upon the company’s resources.The company operates in the long-term insurance business. Long-term insurance concentration risk The long-term insurance portfolio is based on credit life insurance. Although the company does not consider any aggregate concentration for catastrophic risks, the company does, however, consider the age bands of the client base for reinsurance rating purposes. Long-term insurance gross when written premium class of business by: 2023 2022 R’000 R’000 Portfolio Credit life insurance – Group 1 555 2 163 Credit life insurance – Individual 2 778 1 736 4 333 3 899 280 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Long-term insurance gross written premium by age bands 2023 2022 Value Average Value Average Number R'000 R'000 Number R'000 R'000 Portfolio 20 – 29 5 1 879 375 2 1 585 793 30 – 39 13 8 954 688 10 8 139 814 40 – 49 78 25 239 328 29 17 985 620 50 – 59 147 43 023 292 40 33 196 830 60 – 69 158 32 007 202 11 5 345 486 70+ 107 173 833 1 615 – – – 508 283 935 3 500 92 66 250 3 543 Short-term insurance concentration risk – LBIC Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact heavily upon the short– term company’s resources. The company operates on both crop and agri-asset insurance business Gross written premium by business 2023 2022 R’000 R’000 Portfolio Short-term insurance (crop) 793 264 607 843 Short-term insurance (assets) 14 212 793 278 608 056 281 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued Short-term crop insurance gross written premium by class of business 2023 2022 Gross Written Premium Net Written Premium Gross Written Premium Net Written Premium R’000 R’000 R’000 R’000 Portfolio Winter hail 80 625 45 378 39 492 22 227 Fruits & Nuts 56 553 9 897 62 121 10 871 Hail summer 656 085 155 000 505 262 119 368 Multi-peril summer – – 362 85 Total 793 263 210 275 607 236 152 552 Short-term asset insurance gross written premium by class of business 2023 2022 R’000 R’000 Portfolio Motor 4 64 Non-motor 10 149 14 212 Short-term crop insurance gross written premium by geographical segment 2023 2022 R’000 R’000 East 319 332 272 497 Mpumalanga 161 770 143 312 Gauteng 13 732 6 976 Natal 119 133 95 040 Eastern Cape 24 697 27 170 West 473 932 335 346 Free State 337 041 220 515 Limpopo 23 436 27 624 North West 50 903 48 217 Northern Cape 53 087 29 772 Western Cape 9 465 9 219 793 264 607 844 The equity risk exposures arise from the medical aid fund assets and the LBLIC investment portfolio. Equity price risk is the risk that the fair values of equities decrease as a result of changes in the levels of equity indices and the value of individual stocks. 282 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Price risk – LBLIC The company is subject to market price risk resulting from daily changes in the fair value of market prices of the instruments within its investment portfolios. The company’s objective is to earn competitive returns for the shareholder by investing in a diverse portfolio of high quality, liquid securities. The company holds a variety of equity derivatives for transaction management and hedging purposes. The company does not invest policyholders’ funds in equity. Sensitivity analysis on equity instruments Impact on the Statement of Profit or Loss and other Comprehensive Income 31 March 2023 31 March 2022 Portfolio R’000 R’000 Incremental change in price Excluding the impact of derivatives 10% decrease (51 134) (53 071) 5% decrease (25 507) (26 536) 5% increase 25 567 26 536 10% increase 51 134 53 071 Including the impact of derivatives 10% decrease (54 135) (55 284) 5% decrease (27 067) (27 642) 5% increase 27 067 27 642 10% increase 54 135 55 284 283 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Investment strategy LBIC The table below this shows the Company’s strategic and tactical asset allocation limits for the short-term insurance business. Long term target Lower Bound Upper Bound Benchmark Index Local equity 0% 0% 5% JSE Capped SWIX Local Nominal Bonds 40% 30% 50% All Bond Index (ALBI) Local Inflation Linked Bonds 0% 0% 10 % Inflation Linked Bond Index (ILBI) Local cash 60% 40 % 80 % STeFI Composite Foreign multi-asset class 0% 0% 5% 60% MSCI World +40% Citi Group Gov Bonds The assets of the fund are short term in nature and the fund therefore only invests in cash and short-term bonds. The fund benchmark is a long-term return objective of CPI + 1.0% net of fees. Fund Performance The investment was made during the FY17/18 and generated an annual equivalent of 8.35% as return. In the March 2023 year end, the investment reflected 4,4% return with a net disinvestment of R140m being made throughout the financial year. This performance was below the target of CPI + 1.0% which was 5.7%. The Investment Policy was updated and approved by the Board in 2020. In deriving the investment objective, the Company notionally allocated its assets into three buckets representing different levels of risk (Short-term, medium-term and long-term) as follows: Bucket Matching Assets Definition Short Cash & Bonds Policyholder & Current Liabilities plus SCR minus cash needed for Operations as defined in the Cash Management Policy Statement. Medium Cash & Bonds Additional capital needed to augment the short-term bucket should the business meets its short-term objectives. Long Exposure to growth assets such as equities targeting a long-term real Balance of assets to be invested long-term as the business was not likely to draw on these assets. return unless there are liabilities requiring a specific matching assets. The above allocations were consolidated to produce a target real return for the Company assets. 284 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) The Company will firstly aim to match its assets and liabilities and with the excess assets target an appropriate real return. With this in mind, the Company has selected the following investment objective: A real return, after investment fees and gross of tax of 4.0% per annum measured over rolling 3-year periods. For the purpose of calculating the real return in the primary objective, inflation will be taken as the published Consumer Price Inflation (CPI) rate. Investment strategy The Company has taken a risk-based approach to setting investment strategy. The Company investable assets will be notionally tiered into three buckets representing different levels of market risk. The notional allocation to these buckets will be reviewed at least annually. Each bucket will make use of a strategic asset allocation appropriate for the risk profile it represents. Expected Long-term Local Equity Local Bonds Local Cash Foreign Real Return Short term – 80% 120% – 6.1% Medium term – 110% 70% – 7.1% Long term 80% –42% 40% 28% 10.8% To measure the overall investment objective for all investable assets, the buckets will be consolidated into a single strategic asset allocation strategy. To manage the risk of deviation from the benchmark asset allocation, a tactical asset allocation range will be set for each asset class to allow some deviation from the strategic asset allocation.This will also allow managers to add value by making asset allocation decisions. Asset managers will be allowed to deviate outside the tactical limits. In such an event, the reasons for this will be communicated to the Investment Consultant and Investment Committee. The table below shows the Company’s strategic and tactical asset allocation limits for the long-term insurance business. Long Term Target Lower Bound Upper Bound Benchmark Index Local equity 40% 30% 50% J SE Capped SWIX Local bonds 25% 15% 35% All Bond Index (ALBI) Local cash 20% 10% 30% STeFI Composite Foreign multi asset 15% 5% 25% 60% MSCI World +40% Citi Group Gov Bonds Capital Management The primary source of capital used by the group is shareholder’s equity funds. The amount of capital required is directly linked to risks arising from insurance business underwritten, as well as the group’s credit and operational risk. Accordingly, risk management is an important component of effective capital management. 285 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Capital management objectives and approach The group has established the following capital management objectives and approach to managing the risks that affect its capital position: • To allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its capital providers and of its shareholder; • To align the profile of assets and liabilities taking account of risks inherent in the business; • To maintain financial strength to support new business growth and to satisfy the requirements of the policyholders and stakeholder; • To maintain healthy capital ratios in order to support its business objectives; and • To support the credit rating of the Bank. • To maintain healthy capital adequacy ratios in order to support its business objectives. • To comply with the requirements set by the regulator of the insurance markets where the company operates. The Group’s capital management policy for its insurance and non-insurance business is to hold sufficient capital to cover statutory requirements. The following main strategies were applied to achieve capital management objectives: • Effective management of credit risk; • Effective management of underwriting risk, • Effective management of operational risk – a sound internal control framework reduces operational risk, which in turn has a positive effect in the calculation of required capital; and • Routine forecasts of capital requirements, assessment against both available capital as well as the expected internal rate of return – including risk and sensitivity analyses. The purpose of the Group’s capital management is to ensure an efficient use of capital in relation to risk appetite and business development. The Group does not have to comply with any regulatory capital requirements. Capital Adequacy Requirements (CAR) – the Land Bank The Bank has adopted a Basel-like Total Capital Adequacy Ratio (TCAR) with Board approved deviations from the Regulations to determine the amount of capital needed to ensure solvency and liquidity. The TCAR calculation is underpinned by the Standardised Approach principles. The Bank targets a minimum total capital adequacy ratio of 15%. The Basel Accord requires that banks meet three minimum capital adequacy ratios, in order to ensure that banks have an acceptable mix between high quality, expensive capital and lower quality, less expensive capital, these are: • Common Equity Tier 1 (CET1) minimum = CET1 / total Risk Weighted Assets (RWA); • Tier 1 minimum = (CET1 + Additional Tier 1 (AT1)) / total RWA; and • Total minimum = (CET1 + AT1 + Tier 2) / total RWA. 286 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) The only deviation from the Banking Regulations with regards to total CAR is: Land Bank only has Government as shareholder and is not allowed to issue shares in the market to raise capital. Therefore, should the government guarantee be excluded from capital the only other resource of capital would be retained earnings. The Land Bank’s funding covenants all include the unutilised portion of government guarantees (those of capital/ sustainability nature) as a source of capital supply. Risk-weightings are risk sensitive, in other words, riskier assets receive higher weightings and the Basel Capital Accord allows for basic and advanced approaches to determine RWA dependent on the sophistication of a bank. The Land Bank (Bank) capital adequacy was estimated based on the following approaches: • Credit risk: The Standardised Approach; • Operational risk: The Basic Indicator Approach; • Equity risk in the banking book: The Simple Risk-weight Approach; • Market risk: Standardised approach; and • Credit and operational risk have been identified as the major risk types affecting the Land Bank. It is the intention of the Land Bank to move towards more sophisticated approaches, such as the Foundation Internal Ratings Based (F-IRB) approach for credit risk measurement. In this regard has the Bank already commenced with the development of Internal Ratings Based models. The Land Bank is a state-owned entity (SOE) and therefore does not have the ability to issue share capital. For this reason, the bank includes Government Guarantees which are not ring-fenced for funding purposes as Tier 1 Capital. To further strengthen capital management, the Bank adopted the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) 287 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Company 2023 2022 R’000 R’000 Capital adequacy Total capital adequacy 13 9% 11 4% Capital supply Ordinary shareholders' equity 8 286 785 7 397 655 Retained earnings (3 658 981) (4 188 274) Accumulated other comprehensive income (652 258) (635 852) Property revaluation reserve 143 058 140 941 Other reserves (795 317) (776 794) Common Equity Tier 1 (CET1) Capital: Instruments and reserves 3 975 546 2 573 528 Common Equity Tier 1 Capital: Regulatory adjustments (254 156) (394 424) Distributable reserves relating to the discontinued operation – – Threshold deductions (investments in subsidiaries) (252 601) (392 809) Intangible assets (1 555) (1 615) Total available Common Equity Tier 1 capital 3 721 390 2 179 105 Total available Tier 2 capital 162 254 378 923 General allowance for credit impairment 162 254 378 923 Total available capital 3 883 644 2 558 028 National Treasury guarantee – 1 300 000 288 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) Company 2023 2022 R’000 R’000 Capital demand Risk weighted assets Credit risk 24 520 933 30 286 018 Counterparty risk 11 167 27 796 Operational risk 990 317 1 527 595 Equity risk 544 648 568 571 Market risk 150 151 73 728 Other assets risk 696 928 699 031 Threshold items 993 498 642 978 Total 27 907 643 33 825 718 36. Fair value hierarchy of financial instruments Determination of fair value and fair value hierarchy The group’s financial instruments that are both carried at fair value and for which fair value is disclosed are categorised by the level of fair value hierarchy. The different levels are based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement: - Level 1: fair value measured using quoted prices (unadjusted) in active markets for identical financial assets or liabilities; Level 2: fair value measured using inputs other than quoted prices included within Level 1 that are observable for the financial asset or liability, either directly or indirectly; and Level 3: fair value measured using inputs for the financial asset or liability that are not based on observable market data. During the year, the Group had no significant transfers between instruments in Level 1, Level 2 or Level 3. 289 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Levels of fair value measurements Level 1* Financial assets Bonds 658 247 612 066 59 700 66 713 Local Equities 638 259 704 169 126 917 173 459 Foreign equities – 72 832 128 699 72 832 Commodities 58 114– 37.916 28 110 15 786 Listed Shares – 85 382 68 306 85 382 Total financial assets 1 296 506 1 474 486 411 732 414 173 Level 2* Financial assets Cash and cash equivalents 15 481 241 9 983 708 15 355 038 9 845 216 Derivatives 1 321 9 896 1 321 9 896 Cash deposits and similar securities – 267 175 9 543 9 032 Collective investment schemes 141 042 131 999 – – Investment policy 32 17 – – Total financial assets 15 623 636 10 392 795 15 365 902 9 864 144 290 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Level 3* Recurring fair value measurements Assets Financial assets Loans and advances 14 765 230 20 488 496 14 765 230 20 488 496 Unlisted shares – 221 828 – 221 828 Trade and other receivables 1 615 811 1 353 026 412 395 421 407 Insurance assets – 270 895 – – Total financial assets 16 381 041 22 334 245 15 177 625 21 131 731 Liabilities Financial liabilities Trade and other payables 1 100 812 833 544 138 863 171 591 Other financial liabilities 5 110 870 – 5 110 870 – Insurance Liabilities 577 849 449 711 – – Funding Liabilities 22 495 625 29 162 958 22 495 625 29 162 958 Lease Liabilities 28 966 4 932 28 966 4 932 Total financial liabilities 29 314 122 30 451 145 27 774 324 29 339 481 291 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Reconciliation of assets measured at level 3 Fair Value Adjustment for Reclassification Recognised in the Re-measurement on (to)/from other Opening Statement of Profit Recognised Category of Balance or Loss in OCI Purchases Disposals Property Closing Balance Group – 2023 Assets Investment property Investment property 97 400 610 – – – – 98 010 Property, plant and equipment Property, plant and equipment 24 850 – 850 – – – 25 700 Non-current assets held-for sale Non-current assets held-for sale 9 609 – – 1 750 – – 11 359 Equity investments at fair value through other comprehensive income Unlisted shares 221 827 – (12 678) – – – 209 150 Total 353 686 610 (11 828) 1 750 – – 344 219 292 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Gains/losses Gains/losses Recognised in other Opening Recognised in Profit Comprehensive Transfers into Balance or Loss Income Purchases Sales Level 3 Closing Balance Group – 2022 Assets Investment property Investment property 95 100 2 300 – – – 97 400 Property, plant and equipment Property, plant and equipment 17 900 – 6 950 – – 24 850 Non-current assets held-for sale Non-current assets held-for sale 4 058 (149) – 5 700 – – 9 609 Equity investments at fair value through other comprehensive income Unlisted shares 387 354 – (64 877) – (100 650) – 221 827 Total 504 412 2 151 (57 927) 5 700 (100 650) – 353 686 Valuation techniques used to derive level 2 fair values Level 2 investments are valued using a valuation technique based on assumptions that are supported by prices from observable current market transactions: • Cash deposits and similar securities: Value of cash deposited • Commodities: Foreign component at the market value of the investment determined by the asset manager. • Collective investment schemes (other than unlisted equities) (CIS) and Investment policies: Consists of unit trust that consist of underlying investments in Level 1 investments. The value of the -CIS is the aggregate of the underlying value of each Level 1 instrument at its quoted market price. • Unlisted equity: Previously listed shares that have been delisted, based on the fair value determined by the respective Asset Managers. • Money market instruments: The face value of the investment made. 293 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Description of significant unobservable inputs to level 3 valuations Group 2023 Unquoted Equity Valuation Technique Significant Unobservable Inputs Sensitivity of the Input to the Fair Value Acorn Agri (Pty) Ltd The implied Price-to book valuation of ACORN AGRI was calculated using the latest OTC share price information. In addition, similar agricultural companies that also trade OTCP/ BV was compared to that of ACORN AGRI.The reasons we have chosen this approach as primary valuation method is due to the fact that ACORN AGRI is an investment holding company and its shares are traded Over-The-Counter (“OTC”) as share transactions are negotiated directly and bilaterally between willing buyer and sellers of shares. Sensitivity analysis of discount rate are not applicable. Based on the calculations, an indicative fair value of 100% of ACORN AGRI as at 28 February 2023 is R 2.1bn. As at 28 February 2023, the fair value of the 3.37% is estimated to be R 72.8m after taking the discounts (marketability and minority) into account. Ideafruit (Pty) Ltd DCF. Operating entity, value derived from operating activities of the DCF valuation: Discount rates range between 13.7% and Discount rate: business (IS approach). 15.7% -1%: R62 513 000 +1%:R42 705 000 Afgri Grain Silo DCF. Operating entity, value derived from operating activities of the DCF valuation: Discount rates range between 15.0% and Discount rate: Company Pty Ltd business (IS approach). 15.5% -0.2%: R120 970 000 +0.2%: R54 431 000 Asset Valuation Technique Significant Unobservable Inputs Sensitivity of the Input to the Fair Value Property and equipment Net income capitalisation method Vacancy rate range: 6% – 12.5% Capitalisation rate: Income/expense ratio range: Capitalisation rates 17.9% – 30.5% +1%: R23 201 332 range: 11% – 12% '-1%: R27 615 984 Investment property Net income capitalisation method Vacancy rate range: 3% – 7.5% Capitalisation rate: Income/expense ratio range: Capitalisation rates 27.9% – 55.3% +1%: R90 686 130 range: 10.5% – 12.8% '-1%: R107 435 677 Properties in possession Comparable sales method Natural grazing land per ha.: Irrigated pasture R4 100 – R20 000 Market value per ha. of land: land per ha.: Farm yard land per ha.: Wasteland R7 000 – R30 000 R0 + R1000 p/ha.: R22 043 696 per ha.: R2500 – R90 000 R0 – R1000 p/ha.: R16 252 146 Crop Land Drylands R19 000 – R25 000 R4 Industrial land per ha.: R6 500 – R8 800 Construction price for dwellings per m2: R2 250 – R5 650 294 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Group 2022 Unquoted Equity Valuation Technique Significant Unobservable Inputs Sensitivity of the Input to the Fair Value Acorn Agri (Pty) Ltd The implied Price-to book valuation of ACORN AGRI was calculated using the latest OTC share price information. In addition, similar agricultural companies that also trade OTCP/BV was compared to that of ACORN AGRI. The reasons we have chosen the NAV approach as primary valuation method is due to the fact that ACORN AGRI is an investment holding company and its shares are traded Over-The-Counter (“OTC”) as share transactions are negotiated directly and bilaterally between willing buyer and sellers of shares. Sensitivity analysis of discount rate are not applicable. Based on the calculations, an indicative fair value of 100% of ACORN AGRI as at 28 February 2022 is R 2.32bn. As at 28 February 2022, the fair value of the 3.37% is estimated to be R 78.191m after taking the discounts into account. * Ideafruit (Pty) Ltd DCF. Operating entity, value derived from DCF valuation: Discount rates range between 12.7% and Discount rate: operating activities of the business (IS 14.7% -1%: R57 118 000 approach). +1%:R39 786 000 Afgri Grain Silo Company Pty Ltd DCF. Operating entity, value derived from DCF valuation: Discount rates range between 14.7% and Discount rate: operating activities of the business (IS 15.2% -1%: R105 550 000 approach). +1%: R84 511 000 295 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) Group 2022 Asset Valuation Technique Significant Unobservable Inputs Sensitivity of the Input to the Fair Value Property and Net income capitalisation method Vacancy rate range: 7.5% – 10% Capitalisation rate: equipment Income/expense ratio range: 20.9% – 37.2% +1%: R22 306 360 Capitalisation rates range: 11.0% – 11.8% '-1%: R26 556 624 Investment property Net income capitalisation method Vacancy rate range: 3% – 7.5% Capitalisation rate: Income/expense ratio range: 22% – 55.2% +1%: R91 051 650 Capitalisation rates range: 10.5% – 12.8% '-1%: R107 957 849 Properties in Comparable sales method Natural grazing land per ha.: R4 000 – R20 000 Market value per ha. of land: possession Irrigated pasture land per ha.: R6 500 – R35 000 + R1000 p/ha.: R18 635 287 Farm yard land per ha.: R0 – R1000 p/ha.: R13 965 361 Wasteland per ha.: R4 000 – R100 000 Crop Land R0 Drylands R20 000 Industrial land per ha.: R33 Construction price for dwellings per m2: R6 500 – R8 800 Construction price for other structures per m2: R2 250– R5 650 296 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 37. Fruitless and wasteful expenditure (F&WE) The F&WE relates to isolated incidences where penalties and interest were levied on late payments of utility accounts. Group Company 2023 *2022 2023 *2022 R’000 R’000 R’000 R’000 Reconciliation of amounts transferred to receivables for recovery Opening balance 66 932 66 868 66 909 66 845 Expenditure deemed as F&WE relating to prior year discovered in the current year 12 2 441 - 2 441 - Expenditure deemed as F&WE relating to current year 12 8 82 8 82 Less: amounts recovered in current year (4) (18) (4) (18) Closing balance 69 377 66 932 69 354 66 909 The financial year 2023 fruitless and wasteful expenditure mainly relates to the following events: 1) Mainly relates to the purchase of IT Software licenses in 2018/2019. However, these have not been utilised since purchase. 2) Employees received an overpayment an acting allowance amounting R1.7 thousand the total acting allowance overpayment was recovered. 3) Invoice late payment penalty fee amounting to R3.2 thousand. The financial year 2022 fruitless and wasteful expenditure mainly relates to the following events: 4) Mainly relates to a dismissed employee who had an outstanding study amounting of R58 thousand that could not be recovered. Legal is currently in the process of drawing up a repayment agreement. 5) Employees received an acting allowance amounting R18 thousand when the position acting in was filled. The total acting allowance overpayment was recovered. 297 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 38. Irregular Expenditure Reconciliation of irregular expenditure 2022/2023 2021/2022 2020/2021 Description R’000 R’000 R’000 Opening balance 974 962 986 082 766 380 As Restated 974 962 – Add: Irregular expenditure confirmed 5 602 8 359 219 702 Less: Irregular expenditure condoned – (19 479) – Closing balance 980 564 974 962 986 082 Reconciling notes to the annual financial statement disclosure 2022/2023 2021/2022 Description R’000 R’000 Irregular expenditure that was under assessment in 2021/2022 686 Irregular expenditure that relates to 2021/22 and identified in 2022/23 5 602 – Irregular expenditure for the current year – 7 673 Total 5 602 8 359 (1) During the year ended March 2023, Customisation Software amounting to R298 260 (Excl. VAT). did not have authorisation – Old case identified in FY22/23. (Request for condonation in progress.) (2) A three-quote procurement amounting to R29 565 (Excl. VAT), Process not followed for the renewal of licenses as per SCM guidelines and policy. (Request for condonation in progress.) (3) Fees charged for non-compliance amounting to R5 250 000. on utilisation of software license by Land Bank. (4) The Land Bank insurance company procured accommodation services amounting to R23 130 for students during examination period. However, procurement processes were not followed as three quotations as prescribed by Treasury regulations were not obtained and there was no approval for the deviation amounting to R23 thousand. The matter was referred to Internal Audit and it is under investigation. 298 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 38. Irregular Expenditure (continued) b) Details of current and previous year irregular expenditure (under assessment, determination, and investigation) 2022/2023 2021/2022 Description R’000 R’000 Irregular expenditure under assessment – 686 Total – 686 c) Details of current and previous year irregular expenditure condoned 2022/2023 2021/2022 Description R’000 R’000 Irregular expenditure condoned – (19 479) Total – (19 479) 39. Events after the reporting period On the 1 April 2023 the CEO of the Land Bank Mr. Themba Rikhotso commenced his duties. Post year end to date, in addition to the persisting load shedding there has been an outbreak of Avian Influenza in the Western Cape on 25 April with 120 000 birds having been destroyed (culled) so far. Further investigations are being conducted by the South African Poultry Association to ascertain whether there are any more affected areas. The Land Bank’s exposure to the poultry industry as at 31 March 2023 was ~R402m, which is under 2% of the total book. There is zero exposure in the affected areas so far. The Bank will continue to monitor developments concerning Avian Influenza Outbreak through client visits and engagements, to determine and quantify the clients that are affected and the impact to the bank. The bank performed an assessment of the impact of the persistent load shedding on its customers and the key findings were that while in general all clients were affected by load shedding in one way or another, the key industries that were heavily impacted are irrigation farmers, intensive farming units (poultry, piggery) and dairy. At this stage, none of the Banks clients has raised concerns on whether they might not be able to service their loans. Notwithstanding the above, the bank has provided an over-lay on the expected credit losses for the year, as the exposure affected are significant. The Honourable Minister, Thoko Didiza of the Department of Agriculture, Land Reform and Rural Development (DALRRD), announced on the 9 May 2023, the establishment of the Agro Energy Fund worth R2,5 billion in grants, with R500 million allocated to be blended within the Land Bank, this further demonstrates the governments confidence in the mandate and future of the Land Bank. The memorandum of agreement has not yet been concluded between DALRRD and the Land Bank. The board of the Bank has approved a 5th capital repayment of R5,4 billion to which was effected on the 7 June 2023. Post year-end the bank was awarded the contingent asset of the penalty fee with interest through an arbitration process, as disclosed in note 32. The matter has now been closed. 299 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 40. Group remuneration In accordance with the Land Bank Act, the Minister of Finance determines the remuneration, allowances and associated benefits of all non-executive Board Members and the Chief Executive Officer. The remuneration for Executives and Bank employees is determined through market benchmarking and best practice under the guidance of the Group Human Resources and Remuneration Committee. Table 1: Remuneration of Land Bank non-executive directors and executive directors for 2023 Other Benefits3 Audit & Risk & Credit & Ad Hoc Retention Fees & 2023 Non-Executive Directors Board Finance Governance Investment HRRC SEC Meeting Cash Salary Payment Expenses Total NR Nkosi 950 – 16 82 197 49 149 – – – 1 444 LA Makenete 375 – – 49 82 61 85 – – – 653 M Makgatho 375 197 – 330 – – 130 – – – 1 033 D Maithufi 375 – 183 296 – – 95 – – – 948 TN Mashanda 355 197 131 16 16 – 38 – – – 755 JF Kirsten 355 – – 296 – 22 47 – – 2 723 NP Motshegoa 375 – – 246 – 67 104 – – – 792 EM Pillay 355 279 – 82 – 33 73 – – – 822 M Tom 355 49 16 – 183 – 57 – – – 661 D Van Der Westhuizen 355 – 115 82 115 – 102 – – – 769 Subtotal 4 228 722 462 1 480 593 232 880 – – 2 8 599 Executive Directors A Kanana (Chief Executive Officer) – – – – – – – 308 – 10 318 K Mukhari (Chief Financial Officer and Acting Executive Officer) – – – – – – – 3 536 340 164 4 040 Total Land Bank 4 228 722 462 1 480 593 232 880 3 844 340 176 12 957 300 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 40. Group remuneration (continued) Table 2: Remuneration of Land Bank Insurance Services non-executive directors and executive directors for 2023 (R 000) Other Benefits Investment & Ad Hoc Retention Fees & 2023 Board AGM HRRC Audit & Risk actuarial Meetings Cash Salary Payments Expenses Total Non-Executive Directors EM Pillay 268 9 – 11 11 28 – 327 JF Kirsten 29 9 – – 32 28 – 99 D Van Der Westhuizen 29 9 56 – – 47 – 142 K Sukdev 327 9 49 53 105 66 – 611 M Bosman 147 9 94 53 64 57 – 424 D Subbiah 147 9 82 53 74 66 – 432 C Masuku 147 9 16 119 74 57 – 423 NR Nkosi – 9 – – – – – 9 Subtotal 1 097 76 298 288 360 350 – – – 2 468 Executive Directors A Rakgalakane – Managing Director 3 448 1 717 128 5 293 Total Land Bank Insurance Services 1 097 76 298 288 360 350 3 448 1 717 128 7 761 301 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 40. Group remuneration (continued) Table 3: Remuneration – Land Bank non-executive directors and executive directors for 2022 (R’000) Other Benefits Risk & Credit & Ad Hoc Fees & 2022 Board AGM Audit & Finance Governance Investment HRRC SEC Meetings Cash Salary Expenses Total Non-Executive Directors MA Moloto 483 9 – 49 171 49 49 28 – – 839 NR Nkosi 371 – – 16 16 16 16 47 – – 484 DR Hlatshawayo 138 9 82 – 115 73 73 38 – – 528 LA Makenete 175 – – – – 16 16 47 – – 255 SA Lund 138 9 82 73 – 33 16 38 – – 389 D Maithufi 175 – – 42 16 – – 57 – – 289 TN Mashanda 175 – 66 – – 16 – 47 – – 304 Prof JF Kirsten 175 – – – 49 – 25 47 – 1 297 NP Motshegoa 175 – – – 49 – 16 47 – – 288 EM Pillay 155 – 70 – 16 – – 47 – – 288 Dr M Tom 175 – 66 16 – 25 – 47 – – 329 D van der Westhuizen 154 – – 17 16 16 – 47 – – 251 ME Makgatho 293 9 186 49 189 – – 95 – – 822 ST Cornelius 138 9 82 – 116 49 – 38 – – 432 ME Makgoba 138 9 33 49 116– – 49 28 – – 432 Subtotal 3058 54 666 311 870 295 262 710 – 1 6227 Executive Directors A Kanana (Chief Executive Officer) – – – – – – – – 3,700 123 3,823 K Mukhari (Chief Financial Officer) – – – – – – – – 3,400 28 3,428 Total Land Bank 3058 54 666 360 738 278 245 653 7,100 152 13 478 1 Mr Ayanda Kanana, former CEO resigned and left at the end of April 2022. 302 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 40. Group remuneration (continued) Table 2: Remuneration of Land Bank Insurance Services non-executive directors and executive directors for 2022 (R 000) Other Benefits3 Investment & Ad Hoc Fees & 2022 Board HRRC Audit & Risk Actuarial Meetings Cash Salary Expenses Total Non-Executive Directors DR Hlatshwayo 343 – – – – – 343 ME Makgatho 29 – – 11 – – 40 D Subbiah6 147 – 42 42 9 – 241 S Masuku 147 – 108 42 9 – 308 M Bosman 147 74 53 42 9 – 327 K Sukdev 237 – 42 84 9 – 373 Subtotal 1 052 74 246 222 38 – – 1 632 Executive Directors A Rakgalakane – Managing Director 3 303 29 3 332 Total Land Bank Insurance Services 1 052 74 246 222 38 3 303 29 4 964 303 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 40. Group remuneration (continued) Table 5: Remuneration – Land Bank executive officers in 2023 (R’000) Cell Phone Title Guaranteed Package Retention Payments Allowance Other Benefits Total 2023 ETM Dlamini – Human Capital 2 951 – 24 89 3 064 SCE Soundy – Strategy and Communications 3 026 291 24 93 3 434 F Stiglingh – Portfolio Management Services 3 004 289 24 90 3 407 SN Sebueng – Legal Services 2 380 229 24 69 2 702 S Diza – Chief Risk Officer 2 392 230 24 69 2 715 U Magwentshu – Corporate Banking and Structured Investments 2 445 – 22 81 2 548 – – – – – Total 16 198 1 039 142 491 17 870 Table 5: Remuneration – Land Bank executive officers in 2022 (R’000) Title Guaranteed Package Retention Payments Cell Phone Other Benefits Total 2022 ETM Dlamini – Human Capital 2 838 – 24 4 2 866 SCE Soundy – Strategy and Communications 2 909 24 5 2 938 LC Makupula – CDBB 2 888 – 24 3 2 915 F Stiglingh – Portfolio Management Services 2 288 – 24 – 2 312 SN Sebueng – Legal Services 2 600 – 24 5 2 629 LL Magingxa – Agricultural Economics & Advisory 1 598 – 24 – 1 622 U Magwentshu – Corporate Banking and Structured Investments 2 700 – 15 – 2 715 Total 17 821 – 159 17 17 997 1 Ms Unathi Magwentshu resigned and left the bank at the end of February 2023 2 Mr Lwandiso Makupula resigned and left the bank at the end of January 2023 3 Mr Litha Magingxa resigned and left the bank at the end of May 2022 304 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 41. Extension and Procurement by other means This comprises of the reporting required by PFMA Instruction Note 3 of 2021/22. Proposed Contract Contract Original Contract Extension Contract Contract Preferred Type of Submission Name of Submission Value (R'000) Value (R'000) Value (R'000) Percentage Period Bidder Extension Contract Extension – Time and Value The Continuation for Financial Advisory Services - - 2 100 13.13 3 months Riskworx (Pty) Ltd Contract Extension – Excalsoft Development Time and Value Extension for the Riskworx Agreement 1 014 814 200 25% 3 weeks Proprietary Limited (above 15%) Extension of the Head Office furniture storage facility 432 324 108 33.33 3 months Khomanani X Ray Systems Extension of contract for Professional Evaluation and 456 - 76 17% 6 months FNB / RMB ABSA Research (PEAR) Media Monitoring Standard Bank Nedbank Contract Extension – Extension of the Joint Prosperity Agreements Rates - - Lima Rural Development Time and Value Foundation NPC (under 15%) Extension of contracts for 21st Century JEasy Rates based - - 6 months RMB Paterson Point Job Evaluation System License and Managed Integrity Evaluation Proprietary Limited Extension of contract for Monabo Hygiene Services 9 390 9 056 334 4% 2 months Joint Prosperity Contract Extension – Extension of the time relating to the Service Level - - - 4 months S&P Time only Agreement with Lima Rural Development Foundation NPC A further 1-year extension of the Marsh Insurance - - - 12 months Farmers Weekly Agri By Brokerage Agreement to the Land Bank – (No Agri SA Food for Mzanzi financial implications) Extension of Agriseker Onderskrywingsbestuurder (Pty) Boss Installation & Ltd Binder Agreement Rates based - - Transport Contract Extension Contract extension for Banking Services Contract For 917 2 533 917 24.67% 12 months 21st Century JEasy above 15% Land Bank Paterson Point Job Evaluation System MIE 305 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER ABOUT THIS REPORT ABOUT LAND BANK OVERVIEW OPERATIONS ENVIRONMENT RELATIONS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 41. Extension and Procurement by other means (continued) Proposed Contract Contract Original Contract Extension Contract Contract Preferred Type of Submission Name of Submission Value (R'000) Value (R'000) Value (R'000) Percentage Period Bidder Procurement by other means Single Source Single source deviation appointment relating for USD 25 – – 12 months Professional Evaluation and S&P Transition Matrices and Default rate data Research(PEAR) Promotional campaign on the resumption of 308 – – Monabo Hygiene Services lending activities Sole Source Debt collection system license renewal for a 895 – – 12 months Marsh Insurance Brokerage period of 12 months Appointing Khomanani X-Ray Systems for the 38 – – 36 months Agriseker maintenance of the X-Ray machine 42. Correction of prior period error During the year, the Land Bank recorded the following prior period error. (1) Loans and advances: The collateral disclosed in the current and prior periods was duplicated for certain contracts. The error occurred limited only to a group of exposures where multiple contracts are covered by the same collateral.The underlying collateral management system did not contain these duplications.This duplication was only on extraction of a summary report used for the disclosure on the AFS and the year-end ECL calculation. This error was identified to have also occurred in prior years. Consequently, prior year ECL and the disclosure of collateral in the Note 9 needed to be restated. These corrections have been applied retrospectively. The Bank corrected this error in the current year and restated the prior year’s balances as reflected below. The correction of the error(s) results in adjustments as follows: Statement of financial position • ’Loan and advances’’ • ‘’ Equity’’ Statement of profit or loss and other comprehensive income • ‘’Interest Income’’ • ‘’Net impairment charges, claims and recoveries’’ 306 LAND BANK INTEGRATED ANNUAL REPORT 2023 LAND BANK INSURANCE LAND BANK’S RISK FINANCIAL OUR CAPITALS GOVERNANCE PERFORMANCE MANAGEMENT STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Annual Financial Statements for the year ended 31 March 2023 Notes to the Financial Statements 42. Correction of prior period error (continued) The correction of the error results in the adjustments below: Group Company Previously Reported Correction Of Error Restated Previously Reported Correction of Error Restated R’000 R’000 R’000 R’000 R’000 R’000 2022 Statement of Financial Position Loans and advances 20 856 852 (368 086) 20 488 496 20 856 582 (368 086) 20 488 496 Accumulated loss (2 823 937) (301 094) (3 125 031) (3 887 525) (368 086) (4 188 619) Statement of Comprehensive Income Interest income 2 975 318 (92 163) 2 883 155 2 970 393 (92 163) 2 878 230 Net impairment charges, release, claims and 1 298 552 (88 502) 1 210 050 1 298 552 (88 502) 1 210 050 recoveries Statement of Changes in Equity Accumulated loss (2 823 937) (301 094) (3 125 031) (3 887 525) (368 086) (4 188 619) 2021 Statement of Financial Position Loans and advances 30 887 859 (187 421) 30 700 438 30 887 859 (187 421) 30 700 438 Accumulated loss (4 262 853) (187 421) (4 450 274) (5 245 288) (187 421) (5 432 709) 307 13926| IWW.CO.ZA | MS Land and Agricultural Development Bank of South Africa 272 Lenchen Avenue, Lakefield Office Park, Building A, First Floor, Die Hoewes, Centurion, 0157.​ Switchboard: (012) 686 0500 RP: 257/2023 Toll free: 0800 00 5259 www.landbank.co.za Enquiries: communication@landbank.co.za