INTEGRATED ANNUAL REPORT 2022 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS INTEGRATED ANNUAL REPORT 2022 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS CONTENTS ABOUT THIS REPORT 8 OPERATING ENVIRONMENT 46 LAND BANK’S RISK MANAGEMENT 96 FINANCIAL STATEMENTS 132 INTRODUCTION 8 THE MACRO-ECONOMIC ENVIRONMENT 48 RISK GOVERNANCE OVERSIGHT 98 INDEX 134 BOARD APPROVAL 14 THE MICRO ECONOMIC PERSPECTIVE 48 RISK PHILOSOPHY 98 GENERAL INFORMATION 135 THE POLICY ENVIRONMENT 49 RISK CATEGORIES 98 DIRECTOR’S’ RESPONSIBILITY FOR PERFORMANCE OVERVIEW 16 THE AGRICULTURAL SECTOR 52 STRATEGIC RISK PROFILE 99 FINANCIAL REPORTING 137 CREDIT AND INVESTMENT RISKS 101 DIRECTORS’ REPORT 138 PERFORMANCE AT A GLANCE 18 STAKEHOLDER RELATIONS 56 OPERATIONAL RISKS 101 GROUP SECRETARY’S CERTIFICATION 140 HIGHLIGHTS FOR THE PERIOD 19 FINANCIAL RISKS 102 AUDIT AND FINANCE COMMITTEE REPORT 141 CHALLENGES EXPERIENCED 19 BACKGROUND 60 MODEL RISKS 102 REPORT OF THE AUDITOR-GENERAL 144 NOTEWORTHY PERFORMANCE UPDATES 19 NATIONAL TREASURY 60 STATEMENTS OF FINANCIAL POSITION 148 MINISTRIES AND SOES 60 LAND BANK’S OUTLOOK 104 STATEMENTS OF PROFIT OR LOSS INTERNATIONAL COOPERATION 61 AND OTHER COMPREHENSIVE INCOME 149 ABOUT LAND BANK 22 REGIONAL COOPERATION AND PARTICIPATION 61 DESIRED STATE 106 STATEMENTS OF CHANGES IN EQUITY 150 A PHASED JOURNEY 107 STATEMENTS OF CASH FLOWS 151 FOREWORD BY THE MINISTER 24 FARMER ORGANISATIONS 61 IMMEDIATE PRIORITIES 108 SEGMENT REPORTING BUSINESS 153 CHAIRMAN’S STATEMENT 26 ACCOUNTING POLICIES 162 ORGANISATIONAL OVERVIEW 30 OUR CAPITALS 62 GOVERNANCE 110 NOTES TO THE FINANCIAL STATEMENTS 181 NATIONAL DEVELOPMENT PLAN AND SUSTAINABLE DEVELOPMENT GOAL INTELLECTUAL CAPITAL 64 ALIGNMENT 33 NATURAL CAPITAL 65 OUR GOVERNANCE FRAMEWORK 112 VALUE CREATION MODEL 34 HUMAN CAPITAL 67 BOARD ETHICS 112 LAND BANK’S FOOTPRINT 36 FINANCIAL CAPITAL 75 BOARD RESPONSIBILITIES 112 FRAMEWORK 113 BOARD COMPOSITION 114 LAND BANK’S OPERATIONS 38 LAND BANK INSURANCE PERFORMANCE 80 BOARD PERFORMANCE 114 BOARD COMMITTEES 115 FOREWORD BY THE ACTING UNDERWRITING MANAGEMENT AGENCY 83 OUR GOVERNANCE FRAMEWORK BOARD PROFILES 120 CHIEF EXECUTIVE OFFICER 40 BANCASSURANCE MODEL 83 BOARD MEETING ATTENDANCE 122 ACHIEVEMENT AGAINST INTERNAL SYSTEMS CAPACITY BUILDING 84 REMUNERATION REPORT 122 KEY PERFORMANCE INDICATORS 43 LAND BANK INSURANCE COMPANY 84 KING IV CODE™ DISCLOSURES FOR LAND BANK LIFE INSURANCE COMPANY 87 THE YEAR ENDED 31 MARCH 2022 123 LBI APPROACH TO RISK 90 KING IV CODE™ PRINCIPLES, LEADERSHIP, ETHICS AND CORPORATE CITIZENSHIP 124 STRATEGY, PERFORMANCE AND REPORTING 125 STAKEHOLDER RELATIONSHIPS 129 TASK FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES 130 2 LAND BANK | INTEGRATED ANNUAL REPORT 2022 3 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LIST OF ACRONYMS ACI Asset Condition Index FIC Fixed Income and Currency AFASA African Farmers Association of South Africa FICA Financial Intelligence Centre Act AFC Audit and Finance Committee FSCA Financial Sector Conduct Authority AG Auditor-General FSI Financial Soundness for Insurers AGSA Auditor-General South Africa FSPs Financial Services Providers AML Anti-Money Laundering FY Financial Year ASUF Agri-Sector Unity Forum GCF Global Climate Fund ATF Agricultural Technical Forum GDP Gross Domestic Product B-BBEE Broad-Based Black Economic Empowerment GHG Green House Gases BCM Business Continuity Management GIS Geospatial Information System BEE Black Economic Empowerment GOI Governance and Operations standards for Insurers BFAP Bureau for Food and Agricultural Policy GOI Governance and Operations standards for Insurers BMEL Federal Ministry of Food and Agriculture GRI Global Reporting Initiative CCMA Commission for Conciliation, Mediation, and Arbitration GWP Gross Written Premiums CEO Chief Executive Officer HOD Head of Department CIC Credit and Investment Committee HRC Human Resources Committee CPI Consumer Price Index IAR Integrated Annual Report CRISA Code for Responsible Investing in South Africa IFC Internal Financial Controls CRMC Credit Risk Management Committee IFRS International Financial Reporting Standards CROM Credit Risk Monitoring Committee IIF Interest in Suspense CSI Corporate Social Investment IMF International Monetary Fund CSIR Council for Scientific and Industrial Research IR Integrated Report CTI Cost to Income IT Information Technology CTR Cash Threshold Reports JSE Johannesburg Stock Exchange DFI Development Finance Institution KYC Know-Your-Customers DALRRD Department of Agriculture, Land Reform and Rural Development KPIs Key Performance Indicators DG Director General LBG Land Bank Group DMTN Domestic Medium-Term LBI Land Bank Insurance DPSCOM Development Project Selection Committee LBLIC Land Bank Life Insurance Company DWS Department of Water and Sanitation LCR Liquid Coverage Ratio ECL Expected Credit Loss MAFISA Micro Agricultural Financial Institutions of South Africa EE Employment Equity MEGA Mpumulanga Economic Growth Agency EIA Environmental Impact Assessment MoF Minister of Finance EIC Equity and Investment Committee MIS Management Information Systems EME Exempt Micro Enterprise MTC Model Technical Committee ENSO El Niño - Southern Oscillation NACA Nominal Annual Compounded Annually ERC Enterprise Risk Committee NACM Nominal Annual Compounded Monthly ERM Enterprise Risk Management NCA National Credit Act ESG Environmental, Social and Governance NDP National Development Plan ESS Environmental and Social Sustainability NED Non-Executive Director ESMS Environmental and Social Management System NII Net Interest Income ESRA Environmental and Social Risk Assessment NIM Net Interest Margin EXCO Executive Committee NPLs None Performing Loans EY Ernst & Young NT National Treasury 4 LAND BANK | INTEGRATED ANNUAL REPORT 2022 5 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS ORSA Own Risk and Solvency Assessment PA Prudential Authority PGM Platinum Group Metals PPC Project Portfolio Committee PPI Producer Price Index PPROCC Policy and Process Change Committee PRB Principles for Responsible Banking PRMAF Post-Retirement Medical Aid Fund PWC PricewaterhouseCoopers PY Prior Year RGC Risk and Governance Committee RMB Rand Merchant Bank SADC Southern African Development Community SASBO The Finance Union (formerly the South African Society of Bank Officials) SCB Standard Chartered Bank SCM Supply Chain Management SCR Solvency Capital Requirement SDG Sustainable Development Goals SEC Social and Ethics Committee SLA Service Level Agreement SOC State-Owned Company TDFALM Technical Dialogue on Agricultural Finance Associated with Land Management ToR Terms of Reference UMA Underwriting Management Agency UN United Nations UNPRI United Nations Principles for Responsible Investments YTD Year to Date 6 LAND BANK | INTEGRATED ANNUAL REPORT 2022 7 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS ABOUT THIS 01 REPORT 8 LAND BANK | INTEGRATED ANNUAL REPORT 2022 9 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS ABOUT THIS REPORT This report is an integrated narrative of the Land and Agricultural Development Bank of South Africa (Land Bank) for the period 01 April 2021 to 31 March 2022, by expanding upon the value creation of the Bank for its stakeholders. The report aims to combine the financial (quantitative) and sustainability (qualitative) information, as well as the 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. INTRODUCTION Matters considered to be of material value, as well as those that may significantly impact the Bank’s stakeholders in The Land and Agricultural Development Bank of South relation to sustainability, have been reported herein. Value Africa (Land Bank) and its insurance subsidiaries (Land creation is the consequence of the way in which Land Bank Bank Insurance Company and Land Bank Life Insurance applies and leverages its resources, strategy, and business Company), collectively referred to as Land Bank Group, model toward delivering holistic value for its stakeholders herewith presents its Integrated Annual Report for the – including financial performance. The current strategy and Financial Year ended 31 March 2022. The report represents business model are aligned to the needs and expectations of the primary report to the Bank’s stakeholders and presents a wide and diverse range of stakeholders. an overview of Land Bank Group’s performance, the value created for stakeholders, and contributions to society for This report is compiled in accordance with The King IV Operating businesses reporting boundary for the Basis of preparation the year ended on 31 March 2022. The report has been Code™ of governance, Integrated Report framework, 2022 Integrated Report structured to provide relevant information in accordance and Global Reporting Initiative (GRI) standard. This ensures This report reflects the adoption, by Land Bank, of integrated with the King IV framework. It is prepared for all stakeholders, that all material matters are delivered to shareholders thinking and application of the process. In determining the focusing on matters pertinent to the shareholder, providers – including all relevant information. Details provided in content provided, issues that materially impact the Bank’s of capital, regulators, and clients. This integrated report previous integrated reports have been considered and, ability to create and maintain value for its stakeholders presents a concise and balanced assessment of the Bank’s where applicable, updates to matters have been provided. are considered. The information is drawn from the Bank’s ability to create sustainable value through the application of records, such as its quarterly reports submitted to the its business model, including the execution of Land Bank’s The Board, supported by the Audit and Finance Committee LAND BANK National Treasury (NT), and includes details of the operating statutory mandate and functions under Land Bank Act. (AFC), is ultimately responsible for the effectiveness of the GROUP context, strategic performance, risks and associated mitigation Bank’s application of combined assurance to support the measures, stakeholder engagement, and identified business Land Bank Group’s 2022 Integrated Annual Report integrity of the information presented in the integrated opportunities. Inputs from the Executive Management team incorporates the financial reporting boundary of Land Bank annual report. This responsibility extends to the design and are also included in this report. All information is reviewed Group and covers the period from 1 April 2021 to 31 March operating effectiveness of the Bank’s internal system of by various committees and ultimately approved by the Board. 2022 (FY2022) for Land Bank and its insurance subsidiaries. control to identify, evaluate, manage, and provide reasonable When referring to the Group, or Land Bank Group, reference assurance against material misstatement and loss. To the best of its ability, Land Bank Board provides an is made to the collective, i.e., Land Bank, Land Bank Insurance accurate and transparent account of the Bank’s performance Company (LBIC) and Land Bank Life Insurance Company The Bank’s management, together with the internal audit LAND BANK for the period. (LBLIC). It must, however, be stressed that these are separate function, plays a crucial role in assessing the effectiveness of entities from a legal and governance point of view – as the Bank’s internal control environment. Internal assurance recognised by the Prudential Authority (PA). applied to the integrated annual report includes coverage of figures, as well as factual statements. The report provides an overview of the financial and non- Land Bank Life Land Bank financial performance in the context of the Bank’s strategy, Insurance Company Insurance Company opportunities, material risks and outcomes, governance, as (LBLIC) (LBIC) well as social and environmental issues associated with key stakeholders who significantly influence the Bank’s ability to create value. No significant changes have been made in terms of the Bank’s scope, size, structure, or shareholding during the reporting period that would affect the comparability against Please note, when referring to the Group or Land Bank Group, reference is made to the collective, i.e. Land Bank, Land Bank the Bank’s FY2021 report. Insurance Company (LBIC) and Land Bank Life Insurance Company (LBLIC). We however stress that these are separate entities from a legal and governance point of view – as recognised by the Prudential authority. 10 LAND BANK | INTEGRATED ANNUAL REPORT 2022 11 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Determining materiality Assurance Table 1: Approval Framework The Bank has formulated the Delegation of Powers (DoP) Land Bank Integrated Annual Report for FY2021/22 is External reporting Applicable legislation/ Assurance applied to validate the Outcome Framework, the Materiality/Significance Framework, and compiled in accordance with the ethical values of the Bank, suite Regulation/framework/standard integrity of reporting the Risk Appetite Framework – in which the materiality statutory legislative frameworks, and reporting best practices. 2022 Integrated International Integrated Reporting Land Bank Board. Directors’ approval determination process is defined in line with section 54(2) of The Board of Directors (the Board) has reviewed the Annual Report Council’s Integrated Reporting Audit and Finance Committee. PFMA and Treasury Regulation 28.3. report and is satisfied that the information contained in this Framework. Risk and Governance Committee. report, to the best of its knowledge, is an accurate and true The Johannesburg Stock Exchange (JSE) Executive Committee. The reference to material, major, significant, and substantial representation of the organisation’s position, as they were Debt Listing Requirements. Combined Assurance – application events is determined through a consideration of the event’s appointed effective 8 December 2021. Financial statements of Land Bank’s three lines of defence, strategic relevance, intrinsic value, magnitude, impact and/or contained herein have been assured via the audit conducted including risk-based internal audit. implications. by the Auditor-General of South Africa (AGSA). Annual Financial Public Finance Management Act (PFMA) Auditor-General. Directors’ approval Statements for 1999. Land Bank Board. a. In line with Section 54(2) of the PFMA, the following is Statement of responsibility the year ended 31 Companies Act, 2008. Audit and Finance Committee. deemed material: March 2022 Companies Regulations 2011. Executive Committee. b. establishment or participation in the establishment of The Board encourages and supports the concept of International Financial Reporting Combined assurance – application a company; integrated thinking, which underpins good corporate Standards (IFRS). of Land Bank’s three lines of defence, c. participation in a significant partnership, trust, citizenship, stakeholder inclusivity, sustainable development, including risk-based internal audit. unincorporated joint venture, or similar arrangement; and integrated reporting.The Board has a clear understanding 2022 King IV Land and Agricultural Development Bank Land Bank Board. Directors’ approval d. acquisition or disposal of a significant shareholding in a of the Bank’s strategy, resources, system of control, internal Disclosures Act, 2002. Audit and Finance Committee. company; and external reporting process, and its stakeholders. The Companies Act, 2008. Risk and Governance Committee. e. acquisition or disposal of a significant asset; Board provides guidance to the Bank in relation to oversight Public Finance Management Act, 1999. Executive Committee. f. commencement or cessation of significant business of material and potential risks, as well as its opportunities, Insurance Act, 2017. activity; and it ensures that the Bank is sustainable, responsive, and Prudential Standards of the Prudential g. a significant change in the nature or extent of its interest relevant. The Board endeavours to guide the Bank toward Authority: Governance and Operational in a significant partnership, trust, unincorporated joint success, whilst managing its current status to better position Standards. venture, or similar arrangement; the Bank for sustainable operations. King IV Report™ on Corporate h. all instances of theft, fraud, and corruption (regardless Governance for South Africa 2016 (King IV). of amount); The Board has assessed the content presented in the JSE Debt Listing Requirements. i. transaction’s positive and negative effects of 0.5% on FY2021/22 report. It confirms that it addresses all material total revenue; and matters, the Bank’s integrated performance, its strategy, as j. transaction’s positive and negative effects of 1% on total well as its shor t-, medium-, and long-term value creation assets. and oppor tunity. As such, the FY2021/22 Integrated NAVIGATIONAL ICONS: Annual Repor t was unanimously approved by the Board Forward-looking statements on 31 August 2022. Contained in this report are various forward-looking statements. Such statements may relate to the possible future financial position, business operation and strategy, or management plans. Forward-looking statements are not, NATURAL CAPITAL HUMAN CAPITAL MANUFACTURING CAPITAL at this time, considered fact as they are based on current estimations, assumptions, and expectations for the Bank, and are dependent on circumstances that may or may not be realised in the future. Land Bank does not undertake to publicly update or revise such statements, whether to reflect new information, future events, or otherwise. INTELLECTUAL CAPITAL SOCIAL AND FINANCIAL CAPITAL ENVIRONMENTAL CAPITAL This report is guided by the recommendations of the King IV guidelines and framework.The navigational icons above indicate the capitals impacted by the various sections of the report. 12 LAND BANK | INTEGRATED ANNUAL REPORT 2022 13 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS THREE LINES OF DEFENCE AS SHOWN BELOW: COMBINED ASSURANCE MODEL Divisional Senior Management 1ST LINE OF DEFENCE including Executive and Senior ERM, EXCO and EXCO 2ND LINE OF DEFENCE Sub-Committees STRATEGIC RISK REGISTER 3RD LINE OF DEFENCE Independent Assurance providers: • Internal Audit • External Audit • Board and Sub-Committees • Rating Agencies etc. BOARD APPROVAL On this basis, the Board is satisfied that the FY2022 integrated annual report addresses material matters that have, or This report was approved by Land Bank Board of Directors potentially have, a material effect on the Group’s ability to (Board) and authorised for release on 31 August 2022. The create value, and that the information contained in the report Board acknowledges its responsibility to ensure the integrity fairly represents the strategy and integrated performance of of the FY2022 integrated annual report and supplementary the Group. To the best of the Board’s knowledge and belief, information referenced therein. The Board has reviewed it confirms that all information and amounts disclosed in this the report’s contents and believes it represents a fair report are consistent with the annual financial statements representation of the Group’s material issues, performance, for the year ended 31 March 2022, approved by the Board and prospects. The Bank’s AFC reviewed and recommended on 29 July 2022, which have been audited by the office of the report to the Board for approval. The Risk and the AGSA. The Board approved the 2022 integrated annual Governance Committee (RGC) reviewed the 2022 King IV report incorporating the 2021 King IV Code disclosures on code disclosures and recommended those disclosures to 31 August 2022. the Board for approval. The Board has applied its mind to the integrated annual report and considered the operating context, strategy, and value creation model in this process. The Board has considered the completeness of the material aspects addressed in the report. The Board has, furthermore, given due consideration to the relevance and reliability of the Ms Thabi Nkosi reported performance information. Chairman of the Board 31 August 2022 14 LAND BANK | INTEGRATED ANNUAL REPORT 2022 15 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS PERFORMANCE 02 OVERVIEW 16 LAND BANK | INTEGRATED ANNUAL REPORT 2022 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS PERFORMANCE OVERVIEW HIGHLIGHTS FOR THE PERIOD • The Bank remains in default as the Liability Solution has not yet been concluded. Good progress has been made Good progress was made in the following areas: with the Fourth Proposal to Lenders and NT, which is PERFORMANCE AT A GLANCE aimed for conclusion by the end of September 2022. • Good progress was made against actions associated • Non-performing loans (NPLs) have increased during with the Liability Solution. As a result, the Bank made the financial year, resulting in an increased NPL capital reduction payments of R3 billion in June 2021, percentage – particularly pronounced by the reduction and R2.7 billion in October 2021. A further capital in the overall Loan Book. This matter is receiving the reduction was implemented in May 2022, which has dedicated focus of the operational teams, and oversight resulted in a cumulative debt capital reduction of attention of the Board. 42.84% by the end of June 2022. • Sector Support, by means of disbursements to clients, • Good progress was made on the development of continues to be on a downward trajectory as many revenue diversification initiatives, including a Geospatial Corporate and Commercial Clients migrate to other Information System (GIS) and Bancassurance offering. financial institutions. This trend is evident despite all Non-interest income is expected to be generated from clients receiving confirmation from Land Bank that their these initiatives in the future. short-term facilities (production loans and working • Disbursements to Development farmers in the Kat River capital facilities) will be serviced to ensure that there is BANK LBIC Farms River Farms Grant Programme with Department no disruption resulting from a lack of financing towards of Agriculture, Land Reform and Rural Development the clients’ planting season requirements. TARGET 2022 ACTUAL 2022 ACTUAL 2021 TARGET 2022 ACTUAL 2022 ACTUAL 2021 • The Bank’s current financial state, and the prevailing (DALRRD) gained good traction along with Production Operating Income/(Loss) Loan disbursements to existing development clients. uncertainty, are significant contributors to the attrition Gross Premiums of critical staff. • The Bank is progressing well on its enablement of client R1.913m (R370m) engagements through the digital channel with the Bank’s R539m R607m R600m launch of a Client Portal. Further modules are being developed NOTEWORTHY PERFORMANCE UPDATES to support both existing and potential new clients. Net Profit • The FY2022 audit outcome of an Unqualified As reported in the FY2021 IAR, the Bank terminated its (Clean) Audit points to the significant improvements intermediary SLA contracts and insourced clients that were R1.310m (R920m) made in the Bank’s internal controls and signifies the previously managed by Intermediary partners, while they achievement of an acceptable level of governance of were funded on the Bank’s balance sheet. These clients are LBLIC the Bank, which was prioritised by the Board in support now directly managed by the Bank. Net interest Margin of the efforts put together by the Bank’s management for the successful remediation of audit findings from Land Bank introduced the intermediary business model in 2011, 1.2% 2.0% 0.04% Net Profit the last two financial years when a Disclaimer of Audit as a response to the financial challenges faced by the Bank at Opinion and a Qualified Audit Opinion were achieved that time. Since the inception of the SLA, the intermediaries R28m R109m R157m in FY2019/20 and FY2020/21, respectively. have acted as agents of Land Bank, responsible for originating Cost to Income • Clients from the Bank’s largest Service Level Agreement debtors, administering the Loan Book, providing relationship (SLA) Partner, Unigro, were insourced on 1 October 2021. management services to clients, handling all queries related 215% 95.6% -964.2% • Performance on Banking operations has improved to the Loan Book, collecting, and accurately allocating all significantly for the year under review, with a profit of instalments received from clients, etc. on behalf of Land Bank in Basel II CAR R1.310 billion, albeit driven by net impairment releases exchange for agreed administration and margin fees. In recent and recoveries. Excluding the net impairment releases and years, the Bank witnessed an increase in non-performing loans 9.7% recoveries, the Bank has made a profit of R11.7 million. from some SLA partners, reducing returns and, in some cases, >15% 12.2% losses to the Bank as well as the overexposure to certain counterparties, which resulted in the decision by the Board to LCR CHALLENGES EXPERIENCED insource the SLA loan book. >90% 66.1% 35.8% The following challenges were experienced during the reporting period, for which the Bank remains cognisant and will continue to monitor as it embarks on interventions and NSFR mitigation plans needed to make progress on these matters. >100% 95.8% 96.8% • The Bank’s future economic and financial viability is fundamentally dependent on resolving the Bank’s future Funding Model, that should be made up of an NPL % optimal blend of capital, grant funds, and commercial borrowings, with the current cost of funding indicative <10% 47.7% 32.5% of an unsustainable funding model. 18 LAND BANK | INTEGRATED ANNUAL REPORT 2022 19 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS The Suidwes, GroCapital and Obaro Loan Books were insourced during FY2021. During FY2022 clients were insourced from Unigro – who had the largest SLA exposure with Land Bank. The progress on this matter has been steady and status is shown below. As a result of the SLA insourcing, the movement in the Loan Book is evident with a year-on-year comparison. The Gross Loans as at the end of FY2021 and FY2022 respectively, are shown below. Corporate and Commercial loan Book: Gross Loans R13,43 R12,93 R11,96 Billions R4,07 R3,08 R1,66 R0,22 R0,03 FY2021 Q4 FY2022 Q4 CORPORATE DIRECT STRUCTURED INVESTMENTS CDBB DIRECT SLA Definitions: 1. Corporate Direct: Corporate clients (Turnover above R50 million per annum) managed through the Corporate Banking team. 2. Structured Investments: Equity ownership by Land Bank in Agriculture / Agro-Processing entities 3. CDBB Direct: Farmers with a Turnover of R1 million to R50 million per annum, managed through the Commercial, Development and Business Banking channel, via the Provincial Network. 4. SLA: Farmer loan book managed through Service Level Agreements via intermediary channel partners. 5. Corporate and Commercial Clients are deemed un-transformed entities (majority white-owned), opposed to Development and Transformation client segments that are majority black owned. The Corporate and Commercial Loan Book was reduced by 35% from 31 March 2021 to 31 March 2022.The decline in the Loan Book is attributed to, amongst other factors: • No new facilities were approved because of the Bank’s default position and liquidity challenges in the period under review. • Planned repayments and numerous early settlements. These contributed to cash reserves being restored, but have simultaneously contributed to the reduction in Gross Loans. • Higher attrition rates experienced from insourced clients. 20 LAND BANK | INTEGRATED ANNUAL REPORT 2022 21 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS ABOUT 03 LAND BANK 22 LAND BANK | INTEGRATED ANNUAL REPORT 2022 23 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS ABOUT LAND BANK Land Bank’s mandate to support, promote, and facilitate Looking Ahead the development and transformation of the agricultural sector remains crucial in the drive towards food security To the Board and management of Land Bank, I take the Land Bank is a specialist Development Finance Institution that effectively balances and economic growth. To this end, the Bank plans to play opportunity to express my sincere gratitude for the efforts financial sustainability and developmental outcomes to meaningfully contribute to a critical role with regard to sustainable food production made towards curing the Bank’s default position and the development and transformation of South African agriculture. by emerging farmers, as the effects of climate change are finalising a strategy that will stabilise the Bank in these trying more frequently experienced and are fast becoming a reality. times. I am also pleased by the Bank’s achievement of an The Bank’s current default position has affected its ability to unqualified (clean) audit outcome for the FY2021/22 which operate fully and resulted in significantly reduced support follows a qualified audit outcome for FY2020/21, and the to the agricultural sector over the past two Financial Years, Disclaimer of audit outcome experienced in FY2019/20. I which is regrettable. am aware that the nature of remediation work that was FOREWORD BY required to improve on the Bank’s previous two financial Current reality years’ audit findings involved a very onerous process. I wish to commend the Bank ‘s efforts in this regard and THE MINISTER The Bank remains in default on its liabilities since April 2020. The Board has prioritised the resolution and conclusion of encourage the Board to maintain the diligence required to sustain the levels of internal control and good governance the defaults with the creditors as a fundamental premise for of the Bank going forward. Mr Enoch Godongwana its going concern basis and the stabilisation necessary to kick start the Bank’s turnaround. Negotiations to conclude the As Land Bank moves towards concluding the Liability Sector Context Liability Solution are still ongoing and significant progress is Solution, it has the opportunity to renew the collaboration being made with lenders. I am encouraged by the progress with the Department of Agriculture, Land Reform and Rural that has been made by the Bank to reduce the outstanding Development to enable commercial successes of farmers, build As the world emerges from the COVID-19 pandemic, a debt to lenders with a cumulative debt capital reduction of the sector, create opportunities for transformation, and deploy little bruised but adapting to the aftermath of economic and 42.8% being achieved by June 2022. This achievement would innovation, and ensuring a responsive and purposeful approach financial volatility, it has been further affected by the ongoing not have been possible without the efficient collections of to climate change and food security. The continued support war in Ukraine. Whilst we’ve come through trying times, the client repayments and settlements of their accounts and the of the Honourable Minister of Agriculture, Land Reform and time for South Africans to look ahead with a restored sense of reduction of the Bank’s loan book.The consequence of this is Rural Development, Ms Thoko Didiza, and the National Treasury optimism is now. It is during this time that we must embrace the need for the Bank to implement a fit-for-purpose revised officials is appreciated and is important for the Bank. the challenges that we are yet to face, so that we can effect meaningful change and improve our country’s outlook. Operating Model in line with the size of its business and an appropriate operating costs structure for the business. As I look forward, I envisage a renewed Land Bank that works towards transforming and building a sustainable The positive strides made in agriculture through the National Treasury remains committed to support the Bank’s agricultural sector. Agricultural and Agro-Processing Master Plan (AAMP), provides not only hope but a guided path to success for Liability Solution process, to ensure that the default is cured, the agricultural sector. The AAMP, driven by the Honourable and the Bank is enabled to fulfil its mandate. Minister of Agriculture, Land Reform and Rural Development, Ms.Thoko Didiza, presents a structured approach to inclusive I am encouraged by the progress farming that fosters transformation including, for Black that has been made by the Bank women and youth farmers in the sector. Mr Enoch Godongwana to reduce the outstanding debt Minister of Finance The plan further promotes food security, climate response, to lenders with a cumulative debt and the upliftment of the sector through access to markets, capital reduction of 42.8% being technological innovation, and enabling policy environments. achieved by June 2022. Much of the AAMP objectives are shared by the Land and Agricultural Development Bank of South Africa (Land Bank) and will enhance the sector’s growth. Furthermore, the National Treasury Financing a Sustainable Economy – Technical Paper 2021” has been developed. This provides a framework for financiers to accelerate achievement of sustainable developmental goals. Within this context, Land Bank plays a pivotal role in sustaining the sector by executing on its mandate as a development finance institution. 24 LAND BANK | INTEGRATED ANNUAL REPORT 2022 25 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS The insourcing of the Bank’s portfolio from Service Level Looking Ahead Agreement (SLA) intermediaries also contributed to CHAIRMAN’S the increase in non-performing loans as a corrective The Board has finalised its strategy which will set the basis reclassification of clients’ status was undertaken on this for a future trajectory of a Bank that will transition to a portfolio following the Bank’s implementation of its prudent Development Finance Institution that will meaningfully STATEMENT management controls on this insourced portfolio. I am encouraged by the Bank’s achievement of a profit position contribute to the transformation of the agricultural sector on a sustainable basis. for the financial year. Management’s efforts to improve internal Our strategy has three phases covering the next five years: Ms Thabi Nkosi controls, increase collections and manage operating costs together with a significant contribution of impairment releases Stabilisation phase: The focus of this phase (FY2022/23 Opening Remarks resulting from a reduced loan book, have contributed to the and parts of FY2023/24) is to address immediate priorities profit position which sets an important basis of turning the that will set the baseline for the Bank’s stability going forward. The current Board of Land Bank assumed its responsibilities Bank into a financially sustainable institution. Our priorities for this phase include: in December 2021. Since its appointment, the Board has critically evaluated the challenges faced by the Bank, and has I should express appreciation to the Bank’s management team » The conclusion of the Liability Solution to get the adopted key priorities of focus and a defined strategy that for its successful efforts in the remediation of audit findings Bank out of its current debt default position; will be pursued by the Bank going forward. This strategy from FY2019/20 (Disclaimer of Audit Opinion) and FY2020/21 » Stabilisation and strengthening of the Bank’s entails a fundamental restructuring of Land Bank towards (Qualified Audit Opinion). The FY2021/22 audit outcome of an executive leadership team with the appointment becoming a sustainable vehicle for South Africa’s agricultural Unqualified (Clean) Audit points to the significant improvements of a permanent Chief Executive Officer and the growth and development. Having defaulted on its debt in May made in the Bank’s internal controls and signifies the achievement filling of other critical vacancies. 2020, the Bank has operated at sub-optimal levels since then of an acceptable level of governance of the Bank. » Resumption of lending activities focused on new as the entity sought to restructure its financial liabilities while development clients and the preservation of the repositioning its operations. While the road to full recovery The loss of key talent continues to be a concern for the Bank. quality of the Bank’s existing client portfolio through and sustainability remains long, the Board is encouraged by the The Bank lost two of its executives in the period under review. implementation of the strategy to remediate the early achievements the Bank has made during its short tenure. Key skills at general management and specialist levels are Bank’s non-performing loan portfolio; being lost, as without a concluded Liability Solution the Bank’s » Improvement of the Bank’s overall business and The Bank received an Reflections on the period under review operating environment remains challenging. The conclusion of operating performance; the Liability Solution with the Bank’s lenders will take the Bank » Strengthening of internal governance and controls, unqualified audit outcome Despite the Bank’s unresolved debt default status, Land out of its current debt default position and bring certainty on and the maintenance of an unqualified audit (clean audit) from the Bank continues to be a key agricultural financier and has the stability of the Bank as it implements its turnaround strategy. outcome; and Auditor-General of South persevered with diligence under trying conditions. As at the » Commencement of the phased implementation Africa for FY2022. end of the Financial Year (FY2021/22) the Bank had managed Immediate Priorities of the Bank’s revised Operating Model designed to reduce its outstanding debt with its lenders by 28.4% since to take the Bank, on a phased approach, from the start of the default. A further reduction of the lenders’ The Board continues to place priority on the conclusion its current state into an organisation fit for the debt after the end of the Financial Year resulted in a total of the Liability Solution. We are working together with the purpose of the desired state. capital reduction of 42.8% of the debt by June 2022. Bank’s lenders with the objective to reach agreement on the • Consolidation phase: This phase (FY2023/24 – Liability Solution by the end of 2022. FY2025/26) will follow the conclusion of the Liability The Group achieved a Net Profit of R1.4 billion. There were Solution to get the Bank out of default, and its focus is to also pleasing results from our Insurance businesses which We have further agreed with our lenders to resume new consolidate the changes to the Bank’s operating model posted a combined profit of R80 million and a clean audit. lending activities for the financing of the development segment in support of the journey towards the desired state. In supported by the Blended Finance programme in partnership this phase priorities will include: This achievement, which sets the basis for future financial with the Department of Agriculture, Land Reform and Rural » Improvement of the operating performance of the sustainability, is ascribed to the Bank’s commendable efforts Development, as well as other partners as a significant part of stabilisation phase, and ensure adherence to the to collect repayments and recover outstanding debts from our strategy to build a sustainable portfolio and advance the conditions of the liability solution; its clients, as well as to facilitate loan settlements of clients’ mandate of the Bank as a Development Finance Institution. » Embedding the revised operating model as the facilities. The cash generated from these efforts was used to This programme will enable the Bank to provide relatively Bank transitions to the desired state; reduce Land Bank’s debt to its lenders, thereby setting the affordable financing as the Bank increases its development » Increasing digitisation solutions to complement Bank on the path to sustainability. efforts and promotion of inclusivity in the agricultural sector. physical client engagements; The settlement of client facilities has had the obvious effect of » Deepening of the Bank’s role as an ecosystem We have also developed and begun the execution of the reducing the Bank’s loan book concomitant to the reduction catalyst in the agricultural sector, including the strategy to address the challenge of non-performing loans of its liabilities and has brought about an increase in the non- building up of strategic partnerships to provide that were predominantly originated by the Bank’s previous performing loan ratio.This challenge of a deteriorating overall loan origination, and pre- and post-finance support to cohort of intermediaries. As part of this programme, the Bank book quality has received special attention by the Board, and I am development clients; is placing significant effort on preserving the performing clients pleased that the Bank’s non-performing loans (NPLs) remediation » Reaching agreement, through the appropriate through appropriate interventions to assist them with financing efforts have begun to bear fruit with a reduction of the NPL book shareholder and state governance structures, on needs necessary to sustain their businesses. Additionally, the from R13 billion in February 2022, to R12.3 billion in March 2022 an appropriate funding structure for the Bank. Bank’s capacity to increase its debt collections and recoveries and subsequently R12.1 billion in June 2022. capability is receiving close attention and monitoring. 26 LAND BANK | INTEGRATED ANNUAL REPORT 2022 27 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS • Growth phase: Whereas the first two phases The Board remains committed to making Land Bank a will set the basis of the Bank’s journey towards the significant contributor to the development and transformation desired state, this phase (FY2026/27 and beyond) of the agricultural sector, as well as to the objectives of the is intended to demonstrate the tangible and visible National Development Plan and the Agriculture and Agro- elements of the Bank’s desired state, its financial Processing Masterplan. performance and development outcomes necessary to enable the Bank to fully leverage the capital Acknowledgements and appreciation markets in support of its diversified funding structure. At this point we hope to have provided sufficient The Board conveys its gratitude to the Minister of Finance, the evidence of the Bank’s successful performance track Minister of Agriculture, Land Reform and Rural Development, record and confirm the sustainability of the Bank’s the National Treasury team, and Parliament for all the support strategy, which will justify the viability of the Bank and guidance that it has received during the year. refinancing of its outstanding debts. The Board expresses appreciation to Land Bank employees, The above phases represent the notion of a Bank in as well as the Land Bank Insurance Companies’ Board transition towards the desired state, which funding structure and employees, for their commitment to the Bank and its and business model are aligned to its mandate. mandate during the time of significant challenges. Conclusion The Board also wishes to thank all its funders, clients and par tners, who have provided meaningful input to its The Board believes that it has developed and adopted a strategic planning process. We look forward to continued credible strategy that will enable it to navigate through the suppor t as we implement our strategy to transition the current and future challenges. This journey to transition the Bank towards a sustainable and effective agricultural Bank from its current challenges to its desired state will development finance institution. be possible with the important support of the Minister of Finance and National Treasury, Parliament, the Department of Agriculture, Land Reform and Rural Development, lenders, our clients, and all agricultural organisations, which represent the interests of the sector. Ms Thabi Nkosi Chairman 28 LAND BANK | INTEGRATED ANNUAL REPORT 2022 29 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS ORGANISATIONAL OVERVIEW Land Bank is a government-owned Development Finance Institution (DFI) that promotes inclusive agricultural and rural development for improved food security and economic growth. The insurance subsidiaries, Land Bank Insurance Company (LBIC) and Land Bank Life Insurance Company (LBLIC), which are State-Owned Companies (SOCs), complement the Bank’s financial services by providing insurance and risk management solutions to the agricultural community. The Bank operates in the primary agriculture and agribusiness sectors and is regulated by the Land and Agricultural Development Bank Act of 2002 and the Public Finance Management Act of 1999. LAND BANK LAND BANK INSURANCE COMPANY LAND BANK LIFE INSURANCE COMPANY Land Bank Insurance Company (a short-term Land Bank Life Insurance Company is a licensed insurance company) is registered with the life assurance provider that has been providing Land Bank’s Purpose • Affordable finance. Financial Sector Conduct Authority (FSCA) individual and group credit life insurance • Products to close the equity contributions and collateral and is the second largest crop insurer in the products, as well as disability cover to Land Land Bank’s purpose of existence and mandate is enunciated gaps of clients. country; providing cover to farmers for hail, Bank clients and farmers. in the Land and Agricultural Development Bank Act, No. 15 of • Facilitation of access to productive agricultural land, and fire, and yield losses due to weather conditions. 2002 (Land Bank Act), and is summarised as follows: Guided production of high socio-economic impact commodities by the Land and Agricultural Development Bank Act, No. 15 which will significantly contribute to the achievement of of 2002 (Land Bank Act), Land Bank’s purpose as a responsible socio-economic outcomes. CORPORATE BANKING AND COMMERCIAL DEVELOPMENT DFI is to provide appropriate financial services to: • Facilitation of pre- and post-finance support STRUCTURED INVESTMENTS AND BUSINESS BANKING • Transform the agricultural sector by increasing agricultural programmes to minimise the risk of entrepreneurial land ownership by previously disadvantaged persons. failures of new entrants in the market. Provides debt, structured finance and • Foster an inclusive agricultural sector by promoting equity solutions to agri-corporate and greater participation of previously disadvantaged persons. The intended outcomes of the Bank’s mandate include the mega- and large-farmer client segments. • Promote sustainable agrarian reform. following: • Develop land and other agricultural resources on a • Inclusion of historically disadvantaged persons. sustainable basis. • Contribution to the Gross Domestic Product (GDP). • Promote a competitive and profitable agricultural sector. • Job creation and increase in the economically active population. DIRECT LENDING DIRECT LENDING INDIRECT LENDING WFF Practical Enablement of Land Bank’s Mandate • Food security. • Environmental stewardship. Financial solutions to large-, Loans obtained from SLA partner Wholesale financing facility. Provides In order to provide a practical interpretation of the medium-, and smallholder farmer- balance sheets, appoint them to wholesale funding to intermediaries Mandate of the Bank, such that it is positioned as a unique Due to the Bank’s liquidity constraints (as reported during client segments via provincial lending originate loans on Bank’s behalf. SLA who on-lend to smallholder farmers. Development Finance Institution (DFI) intended to close a the 2019 to 2021 periods), the Bank will maintain a medium- network. Further segmented into partners assist with end-to-end credit Intermediaries give technical assistance specific gap in the economy, the Board has translated the term focus on: direct and indirect lending channels. process from loan disbursement, to these farmers to develop their Mandate of the Bank as follows: Land Bank is a specialist • Maintaining a healthy Development and Transformation monitoring, collection, and legal farming skills and provide market DFI that effectively balances financial sustainability and Loan Book; recoveries. Partners are paid a access. developmental outcomes to meaningfully contribute to • Supporting the Commercial book and continued management fee. Risk and profit- the development and transformation of South African support to the commercial sector sharing ensure quality assets. agriculture. • Reducing the number of non-performing loans against the gross Loan Book; and Land Bank utilises financial services and products to address • Securing funding for its liabilities. a critical market failure in the economy for the development and transformation of agriculture, including agricultural land The Bank continues to strive toward financial sustainability ownership and use, by promoting the inclusion of historically by increasing the Development Loan Book with a view to disadvantaged persons in the agricultural economy. The Bank this being a dominant portfolio within the total Loan Book. aims to provide amongst others: 30 LAND BANK | INTEGRATED ANNUAL REPORT 2022 31 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS NATIONAL DEVELOPMENT PLAN AND SUSTAINABLE DEVELOPMENT GOAL ALIGNMENT There is a clear alignment between the objectives of the Land Bank Act, and those of the Sustainable Development Goals (SDG) and the National Development Plan (NDP). The objects of the Land Bank Act are Agriculture and Agro- National Development Sustainable Development the promotion, facilitation, and support processing Master Plan Goals of: Plan • Equitable ownership of agricultural • Making land reform Pillar 1: Resolving land, particularly increasing the work to unlock policy ambiguities and ownership of agricultural land by the potential for a creating investment historically disadvantaged persons. dynamic, growing and friendly climate • Agrarian reform, land redistribution employment creating or development programmes agricultural sector 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. • Programmes that contribute • Support job creation Pillar 2: Creating to agricultural aspects of rural in the upstream enabling infrastructure development and job creation. and downstream • Agricultural entrepreneurship. industries. Pillar 3: Providing • Enhancement of productivity, • Develop strategies comprehensive farmer profitability, investment, and that give new entrants support, development innovation in the agricultural and access to product finance, R&D and rural financial systems. value chains and extension services support from better resourced players. • Commercial agriculture. • Commercialise some Pillar 5: Enabling Land Bank’s Purpose Statement • Land access for agricultural underused land in markets expansion, purposes. communal areas and improving market Land Bank is a specialist DFI that effectively balances financial sustainability and developmental outcomes to meaningfully contribute • Better use of land. land reform projects. access and trade to the development and transformation of South African agriculture. • Pick and support facilitation the commercial Pillar 6: Developing agriculture sector localized food, import and regions that have replacement and the highest potential expanded agro- for growth and processing exports. employment. • Food security. • Everyone should, at Pillar 4: Ensuring all times, have access food security, to sufficient, nutritious, expanded production and safe food. and employment Land Bank’s Values creation, decency and inclusivity • Contribute meaningfully: Continuously seek to add value in our engagements. • Empower: Seek to empower each other and ourselves in the way we undertake our work. • Promote and develop the • Expand irrigated • Build organisational synergy: Seek to create a sense of oneness and integration. environmental sustainability of land agriculture; find • Be accountable: Do what we say and follow through on our promises. and related natural resources. creative partnerships • Be proactive: Seek opportunities to improve performance at all levels, taking all conceivable measures to create new between opportunities. opportunities. 32 LAND BANK | INTEGRATED ANNUAL REPORT 2022 33 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS VALUE CREATION MODEL Land Bank Executive profiles VALUE CREATION MODEL Members: 10 Historically Male: 7 disadvantaged: 10 Female: 3 Land Bank aims to create value through sustainable development finance, to evidence development effectiveness. This will be achieved by: Sourcing the Attract and retain Strengthen core Optimise loan Provide client Monitor and appropriate critical skills and capabilities origination and centric-products evaluate outputs mix of funds to leadership across all needed through monitoring to and services that and outcomes to enable levels of the business.the operating ensure efficient address market ensure development model. service delivery. failure. development programmes. effectiveness. PRODUCTION/PROCESSING Lending to clients at acceptable risk appetite Ms K.H. Mukhari Mr B. Padachie Mr S. Diza Mr S.N. Sebueng Mr S.C.E. Soundy Acting Chief Acting Chief Financial Chief Risk Officer Executive Manager: Executive Manager: Executive Officer​ Officer​ Acting Chief Risk Legal Services Strategy and Officer: Credit Communications INPUTS OUTPUTS Appointed: Appointed: Appointed: Appointed: Appointed: • Capital Loan Book *Acting:1 May 2022 *Acting: 1 August 2022 17 August 2020 1 January 2018 17 August 2015 • Borrowings Revenue • Grants and Income from client repayments at risk-rated margins OUTCOMES • Socio-economic impact for society • Financial Sustainability for the enterprise Outcomes will be measured across selected capitals in order to evidence development effectiveness going forward: Ms E.T.M. Dlamini Mr F. Stiglingh Ms U. Magwentshu Mr G. Maritz Mr L. Makupula LAND BANK’S DEVELOPMENT INDICATOR FRAMEWORK Acting Executive Executive Manager: Executive: Post Executive Manager: Acting: Executive Human Capital Investment Management Corporate Banking Manager: Manager: Services and Structured Agricultural Commercial Acting Executive Investments Economics Development and Manager: and Advisory Business Banking Intermediary Channel FINANCIAL CAPITAL SOCIAL CAPITAL NATURAL CAPITAL Partnerships • Number of smallholder farmers • Number of permanent full-time • Volume of water used during the Appointed: Appointed: Appointed: Appointed: Appointed: • Number of medium farmers employees farming activity • Number of seasonal employees • Use of fertilizers (l/ha) - liters per 15 August 2013 1 June 2016 1 March 2019 *Acting: 1 April 2022 *Acting: 7 January 2020 • Number of women employed hectare/kg per hectare utilised 15 February 2019 (gender) • Use of pesticide’s (l/ha) - liters per • Number of employees trained hectare/kg per hectare utilised • Number of youths employed • Use of electricity (Agri-processing) kilowatts used during 34 LAND BANK | INTEGRATED ANNUAL REPORT 2022 35 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK’S FOOTPRINT The Land Bank Group headquarters are based in Centurion, Pretoria. The Bank operates in all Provinces where it has nine provincial offices, and 14 satellite offices to ensure that its clients are adequately reached and supported. POLOKWANE LIMPOPO 372 NELSPRUIT VRYBURG PRETORIA MPUMALANGA GAUTENG 440 NORTH WEST 203 654 UPINGTON FREE STATE KWAZULU-NATAL 940 231 PIETERMARITZBURG BLOEMFONTEIN NORTHERN CAPE 1 087 EASTERN CAPE 496 EAST LONDON 317 WESTERN CAPE CAPE TOWN Provincial offices Number of clients per province OPERATES Nine Provinces PERMANENT EMPLOYEES 154 Females 195 Males 349 Total 36 LAND BANK | INTEGRATED ANNUAL REPORT 2022 37 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK’S 04 OPERATIONS 38 LAND BANK | INTEGRATED ANNUAL REPORT 2022 39 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK’S OPERATIONS FOREWORD BY THE ACTING CHIEF EXECUTIVE OFFICER Ms Khensani Mukhari The agricultural sector plays a pivotal role in South Africa’s economy. Employment statistics for the fourth quarter of 2021, have revealed the ever-increasing importance of proposed for implementation before end of FY2022. As Despite these challenges the Bank continues to make agriculture to the creation of jobs. In this difficult climate, a result, a need arose for a new Liability Solution to be progress as outlined below. the employment growth in the sector for the fourth quarter constructed, and this is currently underway. The newly reveals that the sector remains capable of absorbing labour appointed Land Bank Board has implemented a collaborative Interest and debt repayment and providing much needed jobs to South Africans. The programme of engagement with lenders, including ongoing dominant message about South Africa’s agriculture over the workshops to consider all the concerns raised by the lenders Since the inception of the event of default in, April 2020, past few months has been of a thriving sector. The financial regarding the proposed Liability Solution. The delay in curing Land Bank has worked to repay all interest due on funding conditions of the sector have, however, been tough. Rising the default continues to have a negative impact on the Bank’s and has been able to reduce its debt to Lenders by 42.84% input costs (higher price of fuel, labour, fertiliser, energy, and ability to fulfil its mandate of supporting and transforming the in June 2022 (28.4% by March 2022). agrochemical) for those in field crops and horticulture are agricultural sector in the country. We have also seen a loss of placing significant pressure on already burdened producers. The financial performance of the Higher fuel prices particularly feed into various aspects of the critical skills in the organisation as a result. Liability Solution Land Bank Group has shown a food value chain - from planting, harvesting, to packaging. The Although Land Bank was not able to approve any new Land Bank is in a process of negotiating an acceptable Liability significant improvement with a profit Russia / Ukraine war has placed renewed upward pressure facilities during the Financial Year, we were able to support the Solution that will allow the Bank to progress out of the of R1.4 billion in the 2022 Financial on all input and value chain costs through disruption of Black production and working capital needs of our existing clients. current default position, and allow it to embark on a transition Sea agricultural exports. Russia and Ukraine may not be Year despite the default position. major suppliers of agricultural products to South Africa, but The default status has disabled Land Bank from sourcing new to rebuilding a financially-sustainable Development Finance funding, thus restricting it from fully supporting the funding Institution – to effectively fulfil its mandate.The Bank’s default they have strong ties with the global grains and oil seeds requirements of its clients. Since the default, the Bank has position served to magnify the underlying funding model market given their large export share contribution. This has been reliant on collections of instalments/repayments it challenges of the Bank and the need to address its business an important and significant bearing on commodity prices. receives from its clients, so that it may service interest and model such that it may reposition itself as a significant catalyst partial capital redemption of its debts, as well as cover its of transformation and growth of the Agricultural sector – as The onset of diseases in the sector as well as the impact of operating cost commitments. Sector Suppor t continues enunciated in the Land Bank Act. climate change such as droughts and flooding, poses a further to be on a downward trajectory as customers migrate to risk to food security in the country and the inability to export other financial institutions owing to the financial position Audit outcome SA agricultural products. of the Bank. In FY2022 the Bank disbursed an amount of R945 million to support the sector. This pales in comparison The Bank received an unqualified audit outcome (clean The Land and Agricultural Bank of South Africa (Land Bank) to previous financial year’s disbursements to the sector. In audit) from the Auditor General of South Africa for FY2022. plays a significant role in supporting agriculture and ensuring order to start reversing this trajectory, the Bank will resume This is a significant improvement from the past two financial food security and sector transformation in the country. The lending to new development customers during FY2023 as years where the Bank received a qualified and disclaimed past few years since default have been challenging for the first steps towards re-establishing itself and starting to fulfill audit opinion for FY2021 and FY2020 respectively. Our staff Bank. While there has been significant progress in some its mandate. and management teams have worked around the clock to areas, the year under review has had its difficulties. The Bank improve our control environment and reduce reliance on continued to operate under a state of default. The Bank and third parties.This aids to ensure we remediate all findings, and its lenders were unable to agree on the Liability Solution we hope to maintain clean audit outcomes going forward. 40 LAND BANK | INTEGRATED ANNUAL REPORT 2022 41 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Insourcing of the loan book Resumption of Lending ACHIEVEMENT AGAINST KEY PERFORMANCE INDICATORS The continued strategy to reduce reliance on third parties In addition to the continued support of our existing The Bank’s performance was measured against the following Key Performance Indicators (KPIs) for FY2022. led to the insourcing of our biggest SLA partner, Unigro, on clients, the Bank is gearing itself to resume lending to new 1 October 2021. This resulted in the increase of the book development clients during FY2023. FY22 LAND BANK CORPORATE SCORECARD under direct management of Land Bank to over 90%. Way forward KPA KPI Weight Measure FY2022 Status Comments Financial performance Despite its current reality, Land Bank aims to position itself 1 Financial Implement 7.5% Progress towards curing the event of Four out of five of the listed action The financial performance of the Land Bank Group has as a specialist agricultural Development Finance Institution, Sustainability Liability default by delivering on Liability Solution items were implemented before shown a significant improvement with a profit of R1.4 billion which utilises financial services and products to address a [30%] Solution action items by 31 March 2022: 31 March 2022. in the 2022 Financial Year despite the default position. The critical market failure in the economy for the development • Independent Loan Book review Bank’s margins however remain under pressure with the and transformation of agriculture, including agricultural land concluded. Following engagements with lenders, declining Loan Book and high cost of funding. An extensive ownership and use, by promoting the inclusion of Historically • Existing DFI loan agreements the agreement was however not amended. concluded, due to rejection of NPL remediation plan has been implemented to remedy the Disadvantaged Persons in the agricultural economy. We • New loan agreement with Stanlib Liability Solution 3. book’s performance. remain committed to turning the Land Bank around to ensure concluded. it is able to take its rightful place in the country and fulfil its • New offering circular submitted to Negotiations are continuing with the Value proposition mandate of ensuring food security and transformation of the Lenders. lenders to find a sustainable solution agricultural sector. • Revised commitment agreement for the Bank. Digital Channel - In our continued efforts to improve the prepared and shared with the value proposition to our customers, we added a digital The Bank is in the process of implementing its revised lenders for consideration channel for clients to engage with the Bank through a Client strategy in order to facilitate a successful turnaround journey 7.5% • Reduction of Corporate and The C&C Loan Book reduced to Portal. Further modules are being developed to support towards the desired future state, the Bank will prioritise its Commercial Loan Book – Maintain a R18.7 billion (by 31 March 22) to both existing and potential clients. efforts on areas that will ensure immediate stability and set C&C Gross Loan Book of: 40 The Bank is committed to ongoing engagements and • Top Management: Two in the positions of the vacant Service Years Years 39 Years Years BUILDING CLIMATE RESILIENCE working together with its clients and stakeholders to achieve Executive Manager: Commercial Development Number of the national commitments in relation to climate resilience and Business Banking. The acting arrangement for 149 35 152 13 Employees The Bank continues to build its climate resilience actions with readiness. This is being undertaken by encouraging the use of this position includes an acting Executive for the clients and partners, guided by its development of a climate climate-smart and regenerative agricultural practices. Intermediary Channel Partners (ICP) section and acting AGE PROFILE change policy.The policy will focus on the Bank’s commitment Executive for the Provincial Network. The Executive to managing climate change risks, identified opportunities, Manager: Agriculture Economics and Advisory served The majority of the Bank’s employees are aged between 41 and based on the potential exposure. notice following resignation, whereby the position and 54 (197 employees). The Bank retirement age is 65 years; was vacant from 1 April 2022. In addition, the Chief however, employees may apply for early retirement from the age Efforts towards achieving climate resilience will include the Executive Officer tendered his resignation, with the of 55 years. There are 60 employees in the retirement bracket reduction of greenhouse gas emissions generated by the position becoming vacant from 1 May 2022. of which 30 employees qualify for Post-Retirement Medical Aid Bank’s operations, as well as a reduction of financed emissions. • Senior Management: Eight acting arrangements in place. benefit, as per their employment terms and conditions. Furthermore, the Bank ensures ongoing risk identification so One of the acting positions (General Manager: Business that it is able to proactively measure, monitor, and disclose Performance in Finance) are currently in the process any matters that arise. In achieving this, the Bank is further of recruitment for the replacement of the permanent Age Range 26 to 40 41 to 54 55 to 65 exploring adoption of the Task Force on Climate Related employee that resigned. Financial Disclosures (TCFD) recommendations. • Middle Management: Eight acting arrangements in place. Number of • Semi-skilled: Two acting arrangements in place. These 92 197 60 Employees arrangements include support as Personal Assistants to Executive Managers. • From the above acting arrangement, 15 employees acting in higher positions are at P6 to P11 and five employees are P4 to P3. 66 LAND BANK | INTEGRATED ANNUAL REPORT 2022 67 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS TRANSFORMATION ATTRITION Land Bank embraces a diverse workforce. The Black (African, Coloured, Indian) workforce has representation at 68.19% of the There were 36 resignations by permanent employees, two of which were due to early retirement. total workforce. For the previous financial year, representation was at 70.83%. The decline is largely due to attrition – voluntary and non-voluntary. Voluntary: Gender and EE status Female Male Occupational category and level ACI White FN ACI White FN 13.89% Males Top Management (P1 –P2) 33.33% 0.00% 0.00% 66.67% 0.00% 0.00% Senior Management (P4 – P5) 20.83 8.33% 0.00% 50.00% 16.67% 4.17% Prof. qualified and experienced specialists 41.66% 23.08% 8.33% 0.00% 37.28% 28.99% 1.78% White and middle-management (P6 – P7) Skilled and qualified workers, junior 86.11% 58.34% management, supervisors, foremen, 43.16% 10.53% 1.05% 28.42% 15.79% 1.05% superintendents (P8 – P9) ACI Females Semi-skilled and discretionary decision 67.39% 10.87% 0.00% 19.57% 2.17% 0.00% making (P10 to P12) Unskilled and defined decision making 33.33% 0.00% 0.00% 66.67% 0.00% 0.00% (P13 – P14) ACI Females 52.78% against ACI Males 33.33%. (Total ACI representation = 86.11%). White Females 5.56% against White Males 8.33%. (Total White representation =13.89%). • ACI Females of the total permanent staff are 34.67% and ACI Males are at 34.67% (Total ACI representation = 69.34%). • White Females of the total permanent staff are 9.17%, and White Males are at 19.77% (Total White representation = 28.94%). Occupational Category • Foreign Nationals (FN) represent 1.72%. FOUR SENIOR MANAGEMENT TWENTY SIX MIDDLE MANAGEMENT RECRUITMENT AND ATTRACTION Land Bank filled 11 permanent positions, which were vacant, during the Financial Year. • Internal Appointments: The Bank aspires to provide career growth opportunities for employees. Two internal appointments were made – one White Male and one Black Female. In both placements, the employees were appointed in higher positions. 3 ACI Females 1 White Female 13 ACI Females 1 White Female 9 ACI Males 3 White Males • External Appointments: Of the nine external appointments, 100% were ACI; 44.44% were ACI Females; and 55.56% ACI No males resigned from this category. Males. Four of these positions filled were for critical roles. External Appointments Female Male Total ACI FIVE JUNIOR MANAGEMENT ONE SEMI-SKILLED ATTRIBUTION RATE Category and Level A I A Senior Management (P4-P5) 1 1 2 4 Prof. qualified and experienced specialists and mid- 10.32% 2 2 (At the end of management (P6-P7) 100% December 2021 = Skilled and qualified workers, junior management, 2 ACI Females 3 ACI Males supervisors, foremen, superintendents (P8-P9) 1 1 1 3 1 ACI Female 8.34%) 9 68 LAND BANK | INTEGRATED ANNUAL REPORT 2022 69 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS The Commercial Development Business Banking Division has the most voluntary exits with 10 employees.   Female Male % Total ACI ACI Occupational category and level ACI White Females ACI White Males ACI White Total Total Senior Management (P4 – P5) 8.33% 2.78% 33.33% Professional qualified and experienced specialists and 36.11% 2.78% 25.00% 8.33% middle-management (P6 – P7) Skilled and qualified workers. 52.78% 86.11% 13.89% junior management. supervisor. 5.56% 8.33% foremen. superintendents (P8 – P9) Semi-skilled and discretionary 2.78% decision making (P10 to P12) TALENT MANAGEMENT The spend on training reduced from the previous Financial Year. However, the Bank remained committed to upskill and train employees for efficiency. STAFF TRAINING INTERVENTIONS Employees are required to complete a personal development plan with their Line Managers with regard to learning initiatives to be undertaken to enable further building of skills and knowledge that can be applied in the employee’s positions and future growth. ACI Males R283 365.81 ACI 34.15% Total ACI 88.61% 54.46% ACI Females R451 919.45 Total ACI Spend R735 285.263 ACI Females: Total of R451 919.45 (54.46% of total spend) was paid for all learning and development initiatives. ACI Males: Total of R283 365.81 (34.15% of total spend) was paid for all learning and development initiatives. Total ACI: R735 285.263 (88.61% of total spend) was paid for all learning and development initiatives. 70 LAND BANK | INTEGRATED ANNUAL REPORT 2022 71 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS   Female Male Total Occupational Category African Coloured Indian White Foreign African Coloured Indian White Foreign   Top Management R15 675.36         R500.00           Senior Management R8 160.49 R3 066.66     R9 199.98 R6 133.32   R3 066.66   R6 566.66   Professionally qualified and experienced R179 677.48 R3 066.66     R4 023.19 R155 447.10 R14 589.32 R79 930.00   R8 353.62   specialists and mid-management Skilled and qualified workers, junior R118 052.43 R16 739.90   R13 900.00   R20 632.75     R45 526.00 R6 956.52   management, supervisor, foremen, superintendent. Semi-skilled and discretionary decision making R84 267.97   R23 212.50     R3 066.66           ACI Totals R451 919.45  R283 365.81    R829 811.23 54.46% 34.15% • Land Bank takes into consideration the individual’s Labour Relations current annual guaranteed package against Land Bank Pay EMPLOYEES’ CHILDREN scale when making an offer. The Bank aims to pay at the The Bank deals with consequence management in line with REMUNERATION midpoint of the Pay scale for the job role the relevant labour relations legislation, as well as Land Bank TERTIARY STUDIES GRANT • Land Bank has identified remuneration as one of the barriers policies and procedures. During the financial year a total of in the Employment Equity Plan and are in the process of eight disciplinary matters were recorded and the relevant developing a long-term plan to address the barrier. processes were followed to address the areas of misconduct. Land Bank assists employees’ children to further their Land Bank strives towards equal pay for equal work, or education at tertiary level. The children are sponsored for equal value and fair remuneration. The Bank arranged for an Employee count per years of service their undergraduate qualification. In the period under review, external law company to orientate the Employment Equity 13 the Bank assisted 30 employees’ children to a total amount and Skills Development Committee on the legislation about EMPLOYEE WELLNESS 152 of R886 002.00 to study at registered tertiary institutions. equal pay for work of equal value. • The Employment Equity Act 55 of 1998 (EEA) enshrines the notion that those who are equal should be treated EMPLOYEE STUDY equally and those who are unequal should be treated Land Bank continues to provide employees with employee unequally. Therefore, all employees doing the same wellness programmes through a service provider. The ASSISTANCE work should be similarly rewarded. programme includes a contact centre whereby employees 35 • However, the right to equality cannot preclude are encouraged to make use of the service available for employers from drawing distinctions between counselling. The Bank continued to comply with the relevant 149 Land Bank group provides financial assistance to employees employees or groups of employees or from treating COVID-19 regulations and therefore remote working who are furthering their studies towards a qualification at them differently, even in instances of remuneration. remained in place for the larger part of the financial year. Land 5 Years 6 to 10 Years 11 to 39 Years >40 Years undergraduate, Honours, Masters, and Doctoral level. The • Differences between employees in terms of Bank staff participated in the vaccination against COVID-19 Bank assisted 15 employees to a total amount of R587 719. remuneration illustrates the difficulties, as well as the through their medical aid scheme offerings. The employee count per age bracket importance, of distinguishing between differentiation and legitimate grounds for discrimination. 60 LEARNERSHIPS The above information is included to provide context against HUMAN CAPITAL the difference in AGP with regard to occupational level, GOVERNANCE gender, and race. 197 The Bank continues to have a cohort of graduates who • Land Bank paid performance-based increases up to are enrolled in a Learnership programme. The Learners are Human Capital is an environment that is highly regulated FY2019/2020. Therefore, the percentage increase given an opportunity to have practical on-the-job exposure, by legislation, policies, and procedures; and it ensures that per level and individual would have influenced by the to acquire skills and, where possible, are retained at the Bank fairness in the working environment is adhered to. Human performance score and the percentage increase. The in permanent or temporary positions. Due to the impact Capital, as a strategic business partner, ensures that policies revised Remuneration and Compensation policy, pending of COVID-19 where the Learners could not get proper are in place to guide the organisation. As such, policies and 92 approval from the Minister of Finance, would include an training during remote engagement, Land Bank extended the procedures are regularly reviewed. across-the-board increase and no longer a performance- 26 to 40 Years 41 to 54 Years 55 to 65 Years employment tenure of the Learners. The Learner contract based annual increases. No increases were paid for came to an end on 31 January 2022.The Bank has placed the FY2020/2021. At the time of reporting, the annual salary new intake on hold in accordance with the management of increases for FY2021/2022 were still in progress. the cost-to-income ratio. • The majority of the White males have a longer tenure at the Bank than ACI females and males. 72 LAND BANK | INTEGRATED ANNUAL REPORT 2022 73 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Performance Contracting FY2021-2022: The Bank and its Lenders are collectively working towards Long service awards 30 September 2022 for the conclusion and implementation • A risk of operating without performance contracts for of the Liability Solution 4. There is urgency for the Bank to FY2021/22 was noted and appropriately highlighted in conclude the Liability Solution 4, cure the event of default the Bank’s risk register. and enable it to restart the rebuilding process towards becoming a true DFI. Land Bank cannot commence with its POLICIES Developmental and Transformation initiatives if it is not cured from the default. Work is in progress between Land Bank, The Bank undertakes reviews of Human Capital policies Lenders and the Shareholder to develop a liability solution Liability Solution based on timeframes or changes in legislation. The Bank that will be acceptable to all stakeholders in order to cure R545 000.00 consults with the recognised union, SASBO, as and when In April 2020 Land Bank defaulted on certain payment the Bank’s default. policies are reviewed. All Human Capital policies will be obligations which triggered a cross default on substantially separated for Land Bank and the LBI ensuring that the • The solution will take cognisance of the conditions of all of Land Bank’s borrowings. Since the default the Bank has policies are aligned to legislative and regulations prescripts. the capital injection that were outlined by the Minister been in a de facto standstill with all its lenders (except for HUMAN CAPITAL RISK AND GOVERNANCE of Finance following the appropriation of the R7bn to one lender who has since been fully settled). be injected as equity into the Bank. Land Bank is gearing EMERGING RISKS itself to support clients’ working capital and production Since the event of default in April 2020, Land Bank has repaid loan financing needs for the current planting season. arrears interest and has resumed normal interest payments Operational Risk Register: • The Bank’s operating model will be highly impacted by on all funding. In addition to restoring interest payments the the implications of the conditions that may come with Bank has made the following four capital reduction payments • During the review period, progress made against risk the concluded Liability Solution 4. to the South African lenders: mitigation tasks were monitored. • A Strategic trajectory, which maintains a portion of • Compliance Risk Reviews: One incident was logged the Corporate and Commercial portfolio and grows 1. February 2021: 12% (R4.1 billion) of capital outstanding during the Financial Year under review, and this pertained the Development and Transformation portfolio going 2. June 2021: 10% (R3.0 billion) of the then capital to the SAP support environment. forward, is envisaged. outstanding • A Policy Risk Register is maintained on CURA. The 3. October 2021: 10% (R2.7 billion) of the then capital register was updated to include five policy reviews, Group Results outstanding during the reporting period. 4. A 4th capital reduction was implemented from May 2022, • Business Continuity has been captured on CURA. At The Group made an overall profit for the 2022 financial which has resulted in a cumulative debt capital reduction the time of reporting, confirmation was awaited from year; however, the Bank is still in a default position pending of 42.84% (R14.7 billion) of the original amount the Business Continuity Management (BCM) team. implementation of the Liability Solution 4.The Bank’s margins outstanding to South African lenders. continue to be under pressure as a result of a declining loan book, portfolio mix changes and high cost of funding. The Bank and its lenders were unable to agree on the The below listed policies were reviewed during the financial year or are in the process of being reviewed. 3rd solution proposed for implementation before the end The Group’s recorded net profit of R1.391 billion against a of FY2022 as initially envisaged. A need arose for a new Prior Year (PY) loss of R711.1 million) was driven primarily Policy/SOP Action Liability Solution (version 4) to be constructed. This is by net impairment release of R1.299 billion, a decrease in the Harassment Policy Review of policy currently in progress. non-interest expense of R 225.4 million and a R226.0 million Performance Management Review of policy decrease in the SLA admin fees as the Bank insourced the The newly appointed Land Bank Board is implementing an Recruitment, Attraction and Selection Review of policy loan book. improved and collaborative programme of engagement Remuneration and Compensation Policy Alignment to State Owned Organisation Remuneration and Incentive The Group made net interest income of R600.5million with lenders, including ongoing workshops to consider all Guidelines (draft 2021) compared to R167.6 million reported in March 2021. Interest the challenges raised by the lenders about the proposed Leave Benefits Management Policy in review as per EXCO request expense decreased by R692 million from R3.1 billion to R2.4 Liability Solution 4. billion, as Funding Liabilities reduced by R6.9 billion mainly Learning and Development Policy Policy in review as per EXCO request due to capital repayments made to investors. Secondment and Rotation Review of policy The main concerns raised were: • The independent review work undertaken during late Overtime Policy Review of policy The group’s operating expenses were slightly higher that 2021 was insufficient to properly assess the state of Acting Arrangement Policy Review of policy as per EXCO requirements prior year, at R562.7 million, mainly due to costs incurred on Land Bank and Liability Solution 3; the restructuring costs and the work over the remediation Employee Health and Wellness Policy Review of policy • Address the forecast risk associated with refinancing; of the loan book. • Finding a solution that is equitable and treats all lenders CLIMATE AND CULTURE equally and fairly; and • Finding a holistic and sustainable solution that will The results of the Climate and Culture survey were shared with EXCO. A remedial plan was developed with the aim to address address difficulties faced by the Land Bank. the areas that require improvement as well as the inputs provided by employees. 74 LAND BANK | INTEGRATED ANNUAL REPORT 2022 75 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Investment Income The investment related to the PRMAF portfolio was set up to hedge against the Bank’s post-retirement medical aid liability Total investment income for the period under review (a defined contribution fund), which amounted to R286.7 amounted to R15.4 million, which is marginally lower than million. An independent fund manager on behalf of the Bank the prior year of R16.0 million. This investment income is manages the investment and independent actuaries value mainly driven by the Pension Fund Retirement Medical Aid the liability annually. Total investments had decreased from Fund (PRMAF) assets, which has decreased in value hence R1.431 billion as at 31 March 2021 to R1.295 billion due to current year results. the sale of the investment in Riverside (R100.7 million), as well as a fair value loss on the other remaining investments. The Net Interest Margin (NIM) of 2.0% improved significantly This was partially offset by an increase in the value of the in the year under review due to the better-than-expected Bank’s investments PRMAF and other investments. The net interest income and loan book reduction. The operating Bank continues with its strategy of disposing of non-core expenses of R531m for the year against the Net Interest investments to bolster the liquidity reserves to honour Income (NII) of R595.5m and non-interest expense of R71.4m funding maturities. have resulted in a Cost to Income ratio (CTI) of 95.6%. Net loans and advances The Non-Performing Loans (NPL) ratio at 47.7% (31 March 2021: 32.5%), was higher compared to the prior year due Net loans and advances decreased to R20.8 billion from to an overall book reduction from R36.9 billion in March the R30.9 billion reported at 31 March 2021. The main 2021 to R25.9 billion in March 2022.This effect was the same contributor is the reducing loan book owing to restricted for the ECL coverage ratio, which increased from 16.4% in disbursements and customer settlements as clients leave March 2021 to 19.4% in March 2022. Land Bank for funding with other institutions. Cash and cash equivalents Gross loans decreased by R11.0 billion to R25.9 billion from the R36.9 billion reported at 31 March 2021. This was mainly Cash and cash equivalents were R9.8 billion as at the end due to constrained disbursements and customer settlements. Group assets for the financial year 2022 amounted to Interest expense: of March 2022, which is an increase of R4.2 billion from R34.7 billion compared to the R40.2 billion repor ted at the R5.6 billion recorded on 31 March 2021. The increase Non-Performing Loans 31 March 2021, mainly due to a gross loan book reduction Interest expense amounted to R2.4 billion, which is R692 million mainly comprises of R14.3 billion collected from clients as of R11.0 billion and cash and cash equivalents increased lower than the prior year’s amount of R3.1 billion. The Funding well as other income of R1.1 billion (interest swaps, rental NPL’s increased by R337.6 million (2.8%) to R12.3 billion for to R10.0 billion (FY2021: R5.6 billion) mainly due to Liabilities decreased to R29.2 billion, from the R36.1 billion reported and sundry income).This was partially offset by customer the year under review from R12.0 billion at 31 March 2021, collections received from clients. at 31 March 2021, resulting in the favourable interest disbursements of R945 million, capital and interest mainly due to clients migrating from Stage 1 and Stage 2 to expense variance against the prior year. repayments of R9.6 billion and R645 million utilised in NPL and also SLA accounts that were not reviewed resulting Banking Operations running the operations of the Land Bank. in them rolling to Stage 3. The NPL ratio has also increased Net impairment and recoveries from 32.5% reported as at 31 March 2021 to 47.7%. Performance on banking operations has improved significantly Investments for the year under review, with a profit of R1.310 billion, albeit Net impairment release for the year amounted to R1.299 The finalisation of the Liability Solution must be prioritised. driven by credit impairment provision releases. Excluding the billion, mainly due to the improvement of Under-Performing The Bank’s R1.3 billion investment portfolio consisted This will enable Land Bank to resume some normalcy in impairment releases, the Bank has made a profit of R11.7 million. loans, and Bad debts recovered from customers; compared of R337.8 million in Post-Retirement Medical Aid Fund conducting its business. The Bank needs to continue with an to the prior net impairment charge of R323.6 million as at (PRMAF) assets, R650.0 million investments in the insurance effective strategy to arrest the loan book quality deterioration. Net interest income 31 March 2021. The Gross impairment release was largely subsidiaries, and equity investments in the following entities: The Bank needs to improve collections to facilitate faster driven by client settlements. repayment of funding liabilities. Net interest income for the year amounted to R595.5 Ideafruit (R47.3 million) million, which is R432.9 million above the prior year’s amount Non-interest income/(expense) Management initiated deployment of the following 6 strategies/ of R162.6 million. solutions to address further loan book deterioration and Admin Fee expenses incurred were R71.4 million. This was Acorn Agri (R78.2 million) achieve substantial reduction of under-performing and non- Interest Income: R226.0 million lower than the R297.4 million incurred in the performing loans. prior year, mainly due to the decline in the SLA book as Interest income earned was R2.9 billion, which is R259 the Bank continued to in-source management of the SLA Rhodes Food Group (R85.4 million) million lower than the prior year’s amount of R3.2 billion. The book. The fee expenses were also lower mainly due to the unfavourable variance against prior year interest income was massive reduction in the SLA loan book owing to restricted Afgri Silico (R96.2 million) mainly attributable to the interest in suspense (IIS) release disbursements and customer attrition. of R72 million and R357 million interest earned from the investment of excess cash. 76 LAND BANK | INTEGRATED ANNUAL REPORT 2022 77 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Table – 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 The combined impact of these adopted solutions is expected to reduce Stage 2 and 3 exposures by approximately R8.5 billion over the short to medium term i.e. 6 to 12 months. Figure - NPL Remediation Strategies Impact on NPLs (Rbn) Accelerated Foreclosure Strategy R1,0bn Asset Disposal Strategy R1,5bn Forbearance Strategy R1,0bn Force Attrition Strategy R1,0bn Rehabilitation Strategy R2,0bn Preservation Strategy R2,0bn R0,0 R0,5 R1,0 R1,5 R2,0 Treasury Report Land Bank’s event of default has been underway for almost two years. The Bank, National Treasury and Lenders recently echoed their commitment to reach a liability solution that will deliver a fair outcome for all parties while also resulting in a more sustainable Land Bank that will be able to deliver on its mandate in the agricultural sector. As at 31 March 2022, the total debt that has reached maturity is R13.406 billion and the total debt stands at R28.826 billion. Due to the default position and the restructuring process that is currently in progress, the Bank is not able to invest in assets that yield higher rates for fear of exposing capital to market fluctuations. As a result, accumulated cash from customer collections, asset disposals and settlements are invested in instruments, such as call accounts and bank deposit notes that aim to deliver better rates whilst preserving capital. The Bank is constantly looking out for capital preserving investments with better interest rates offered by approved counterparties and has also made capital repayments to lenders worth R11.4 billion since the default to manage the negative carry down whilst preserving capital. The Bank is constantly looking out for capital preserving investments with better interest rates offered by approved counterparties and has also made capital repayments to lenders worth R11.4 billion since the default to manage the negative carry down. The Bank has a portfolio of swaps which were entered into over a number of years to manage the basis risk resulting from the mismatch in the interest earned on loan assets (mainly prime) and the rate paid on funding liabilities (Jibar). Since the Bank went into default, the portfolio has been reducing due to banks refusing to enter into new swap transactions with Land Bank. 78 LAND BANK | INTEGRATED ANNUAL REPORT 2022 79 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK 08 INSURANCE PERFORMANCE 80 LAND BANK | INTEGRATED ANNUAL REPORT 2022 81 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK INSURANCE Land Bank Insurance SOC (LBIC) is registered with the LBIC focuses all efforts to ensure a sustained underwriting result which should yield positive returns through any cycle. PERFORMANCE regulators being the Financial Sector Conduct Authority To achieve this goal within a competitive environment, LBIC (FSCA) and the Prudential Authority (PA) in terms of the needs to define firm walk-away positions and simultaneously Insurance Act 18 of 2017 and is the second largest insurer craft enough flexibility in order to retain the client base or of crop risks in the country, providing cover to farmers for Land Bank Executive profiles to fulfil the growth projections. The competitive interactions hail and fire (among others), and yield losses due to weather remain tactical and are not based on any price-reduction conditions. Land Bank Life Insurance SOC (LBLIC) is a strategy to undercut competitors in any region. licensed life assurance provider that has provided individual and group credit life insurance products, as well as disability Members: 7 Historically Male: 6 An important aim of LBIC and Agriseker is to protect the cover to Land Bank clients and other farmers since its disadvantaged: 7 Female: 1 premium base and avoid any competition based on price inception in 1954. The Insurance Companies complement offerings. The Company maintains its position to stabilise the the Bank’s financial services by providing insurance and risk Agriculture Insurance market in South Africa, and its decisions management solutions to the agricultural community. are geared and have proved to maintain this market stability – avoiding agriculture insurance market failures. Land Bank Insurance Company and Land Bank Life Insurance Company must ensure that specific Key Performance Indicators and Areas are monitored and achieved. These are BANCASSURANCE MODEL presented hereafter. In the pursuit of diversifying the insurance company insurance risk portfolio and generating additional revenue including addressing UNDERWRITING MANAGEMENT AGENCY market failures, the insurance companies (LBIC and LBLIC) in collaboration with the Land Bank have entered a Bancassurance LBIC has a long-term agreement with an Underwriting model. A strategic blueprint was developed to outline the Management Agency (UMA) to perform the main binder business case and the implementation plan of the model. The functions for LBIC. The relationship between the entities dates Mr A. Rakgalakane Mr C. Abdullah Ms T. Tisane Mr K. Ngwenduna Bancassurance model received support from the Boards of the back to March 2015, and the strategic relationship has grown over Managing Director: LBI Executive Manager: Head: Risk Head Acturial, Short insurance companies (LBIC and LBLIC) and the Land Bank. this period to include an even longer contractual agreement. Sales Term and Life Bancassurance is a bi-lateral partnership between a bank and an AgriSeker is a crop insurance specialist that performs the insurance company allowing the insurance company to insure the Appointed: Appointed: Appointed: Appointed: main binder functions for LBIC as envisaged in the binder insurance risks of the Bank’s client base. The insurance company 10 August 2016 15 July 2021 1 October 2019 1 December 2020 regulation. AgriSeker, in this role, maintains a wide service develops and distributes products with its insurance know-how network for Land Bank Insurance, and this positions LBIC to and the Bank provides access to its customer database and offer services to farmers throughout South Africa. touchpoints in the customer value chain to offer the value- added insurance products. The Bank is typically able to generate This partnership offers operational and insurance support non-interest review whilst providing their customers with more services, featuring a unique underwriting and management than banking products and thereby benefiting from improved system. Furthermore, it undertakes extensive research into customer satisfaction. The insurance company is able to grow its technological progress to satisfy clients’ ever-changing needs. It portfolio and increase revenue. also tests the utilisation of various satellite and ground-based data applications in modern IT and mobile technology. These The Bancassurance Model has gained significant traction in applications enable it to integrate information for the benefit the last financial year as the necessary systems to distribute of the farmer’s risk management and better underwriting. Mr L. Mnyandu Mpho Mr Ryan Engle the leads were developed and streamlined. The overall Head Legal and Manager: Finance processes were mapped, and the relevant resources were Mathithibane The LBIC-AgriSeker relationship transforms into an Compliance Executive Manager: Head identified across the insurance companies (LBIC and LBLIC) operational partnership which is firmly cemented into a pre- Operations and Land Bank to successfully implement the model.The first agreed strategy at the onset of every underwriting season. phase of the implementation plan was successfully delivered Appointed: Appointed: Appointed: This blueprint is carefully executed, and where tactical in line with the strategic blueprint. The Bancassurance model 1 July 2020 1 August 2022 4 April 2022 adjustments need to be effected, this is executed upon is another initiative to advance the development mandate of consultation and consensus agreement. the Land Bank and to improve its value proposition to clients. 82 LAND BANK | INTEGRATED ANNUAL REPORT 2022 83 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS The other area of the agricultural insurance market value LBIC Financial Performance chain, which LBIC has targeted for transformation impact is the assessors used to estimate damage to crops after any risk • The previous 2020/21 underwriting year was a peculiar events such as hail. At this stage there are approximately 900 one in that farmers were able to plant abundantly assessors used by the crop insurance providers in South Africa relative to previous years. Crop planting is dependent and this has a similar profile to the crop insurance broker sector. on rainfall, and this was largely due to the good rain LBIC commenced with the Black Assessor Development received in that period. Therefore, for the crop Programme in March 2019, the LBIC Board approved R3.8 production season 2020/21, an all-time high GWP of million for its funding. However, the COVID-19 pandemic and R600 million was experienced since the establishment lockdown regulations caused delays in the completion of the of the crop insurance portfolio by LBIC. programme. Despite this, twenty (20) candidates completed • In the 2021/22 financial year, the budget of R539 million the first leg of the program which deals with theoretical was exceeded by 13%, amidst persistent heavy rainfalls application.The second leg of the program deals with practical experienced from late 2021 to early 2022, benefitting application and will be facilitated by a suitable training service summer crop plantations. This is attributable to business provider and completed in FY2022/23. growth in the Western regions, particularly in North West and Free State. There was a small reduction in the Parametric Insurance for Smallholder and Emerging Winter and Fruit portfolios, attributable to wet conditions Farmers resulting from persistent heavy summer rains of 2021/22. • From an agriculture perspective, the impact of the Russia- In order to improve access to agricultural insurance for Ukraine war will be felt in the near term through the global smallholder farmers, LBIC has successfully applied for grant agriculture commodity prices channel. A rise in prices will funding from KfW Development Bank under its flagship be beneficial for farmers. For grain and oilseed farmers, InsuResilience Solutions Fund (ISF). The ISF grant, structured the surge in prices presents an opportunity for financial under a co-funding model with LBIC, will be used to develop gains. This will be particularly welcome given higher and market innovative parametric drought insurance solution fertiliser costs which have strained farmers’ finances. The for crop and livestock to smallholder farmers. An Area-Yield resultant effect is a potential growth between 5% and Index Insurance (AYII) is proposed for crops and Pasture 10% on expiring season’s premiums. INTERNAL SYSTEMS CAPACITY BUILDING LAND BANK INSURANCE COMPANY Drought Index Insurance (PDII) for livestock. • LBIC reported a net combined operating ratio of 138% in the current reporting period (FY2021: 84%) reflecting The non-life insurance company is in the process of making Land Bank Insurance contribution to Development To date, LBIC – together with its strategic partner CelsiusPro a net loss of R28.7 million (FY2021: R51.5 million profit). an offer to purchase the Crop system used by Old Mutual and Transformation have designed parametric crop and livestock insurance • Gross Written Premium (GWP) increased by 1.2% to Insurance (OMI), who have since divested from the Crop solutions providing cover against drought which is the main R607 million (FY2021: R600 million) while operating risk insurance. Should Land Bank Insurance be successful LBIC and LBLIC has continued in its efforts to support the peril affecting agricultural growth and sustainability. The two expenses increased in line with inflation i.e., 5.2% to R24 in acquiring the OMI Crop insurance system, this will meet Land Bank in its pursuit of the transformation and development products are subject to regulatory approval as first of its kind million (FY2021: R23 million). one of the Vision 2025 strategic objectives and the Insurance strategy. LBIC and LBLIC remains committed to transform the in the country since parametric insurance is not recognised in • The performance of the crop portfolio is 1.2% higher Company acquiring its own Crop Insurance policy management insurance sector and support the development of smallholder legislation. Following a submission to the Prudential Authority compared to the previous financial year. This is attributable system. This will reduce reliance on the system used by its and medium-scale farmers. Amongst these initiatives are the for regulatory approval, feedback was received in November to business growth in the Western regions, particularly in Underwriting Managers Agriseker. Furthermore, the Insurance Black Broker Development Programme and the Black Assessor 2020 indicating that the products cannot be accommodated North West due to a Summer business strategy to penetrate Company, following a tender process, appointed Brolink to Programme. In these programmes the organisation identifies in the current insurance regulatory framework as nonlife the West and further diversify the portfolio as those regions provide the Insurance Company with its own Crop, Assets and develops previously disadvantaged individuals for inclusion insurance business. However, regulatory relief can be granted are less susceptible to hail.There was a small reduction in the and Life policy management system. As at 31 March 2022, into both the financial and the agricultural sectors. to allow for testing of these products in order to obtain Winter and Fruit portfolios, attributable to lost market share the policy management system for crop has gone live, with sufficient data and experience to assess the functionality owing to stricter underwriting applied, especially on Winter the development for the other products still in development. Crop insurance in South Africa is distributed primarily and developmental impact under the classification of these Frost. The Summer GWP increases were exacerbated These activities are aimed at bolstering the insurance company through intermediaries or brokers who have historically products as business other than insurance. Following a by commodity price increases, which increased total sum Information Technology (IT) systems and complying with privileged backgrounds. In March 2016, LBIC embarked on consultative meeting between LBIC and the Prudential insured despite stable insured hectares. The 1.2% increase the insurance regulator objective requiring the insurance an ambitious Black Broker Development Programme in Authority, it was requested that LBIC seeks approval to also reflected flat premium increases applied at the start of companies to develop own data management system instead an attempt to transform this critical part of the insurance provide Index Insurance solutions to the SA market. the 2021/22 season, owing to better loss ratios. The asset of solely relying on third party contracted systems. sector. Thus far, LBIC has trained and accredited 80 Financial portfolio has remained flat, with the focus currently being Services Providers (FSP’s) from historically disadvantaged The reason for the request was that the Minister of Finance on marketing, partnering and the sales process which will backgrounds. With the passion to advance transformation, Mandate defined the suit of products that LBI may market enable the portfolio to gain traction in FY2023. LBIC focused on women-owned FSP’s. In the Financial Year as an insurance company in terms of the Insurance Act. • Claims paid increased by 114% in the current financial 2021/22, LBIC has trained and accredited 21 more FSP’s Therefore it makes it necessary for the Minister of Finance to year due to adverse weather conditions and is the sole from historically disadvantaged backgrounds. relax the conditions of the mandate to LBI. LBI has written to driver contributing to the current net loss position of the Minister of Finance through the Chairperson of the Land R28.7 million. Despite the high claims’ ratio, LBIC still Bank. LBIC awaits the approval from the Minister of Finance manages to maintain a healthy balance sheet and meets to commence with the pilot. all regulatory capital requirements. 84 LAND BANK | INTEGRATED ANNUAL REPORT 2022 85 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS • LBIC’s investment fund comprises of South African flexible income-bearing instruments. These consist of a mix of money Performance Highlights Business Challenges market, fixed and variable rate government and corporate bonds, inflation-linked bonds, listed property and preference shares. Investment income increased by 31% during the current year driven mainly by unrealised gains. • During FY2022, reached the highest premium ever • Growth remains stagnant on the agri-asset portfolio written to date and this was 13% higher than the which has been implemented as a diversification tool. FY21 FY22 budget and 1% higher than FY2021. With the exponential premium growth in crop, the • Adapted the risk under-writing processes to weather diversification set in March 2022 was not achieved. LBIC Gross Premiums R600m R607m volatility. The principle drivers were strict underwriting • Lack of risk management solutions to smallholder Net Premium Income R148m R153m controls, a centralised underwriting approach and the farmers. Operating expenses R23m R24m loss assessment procedures which were revised and • LBIC operates within a highly volatile crop insurance Underwriting profit/(loss) R24m (R59m) overseen by experienced staff members and hence market impacted by adverse weather events (e.g., Net profit/(loss) R51m (R29m) retrained assessment teams. excessive or untimely rainfalls affecting yields) and • Successfully de-risked from the MPCI business and climate change. Combined operating ratio 84% 138% carefully contained the existing client base. • The Russia-Ukraine war continues to put pressure in • Continued support from the reinsurance market, the agricultural community, coupled with the rising LBIC Solvency Capital Requirement (SCR) LBIC operates within a highly volatile crop insurance backed by excellent underwriting performance relative inflation, cost of electricity, high fertiliser prices, fuel costs, environment affected by a wide range of adverse climatic to the market. outbreak of locust swarms due to humid conditions, Adverse weather events of 2021/22 have exacerbated poor conditions. The 2021/22 season experienced unprecedented • Portfolio diversification into areas less susceptible to high input costs, and stock diseases. claims experience in the South African crop market with severe weather conditions that has led to large losses suffered hail risk. high risks of price increases expected in the forthcoming within the crop insurance market. Despite the volatile crop • On track with the IFRS17 implementation project. LAND BANK LIFE INSURANCE COMPANY crop underwriting season amidst risks and concerns due insurance market experienced in 2021/22, LBIC continually • On boarded an insurance administration to comply to the effect of the Russian/Ukrainian war on the farming reports a healthy solvency capital position, backed up by the with the Financial Sector Conduct Authority Short Term Land Bank Life Insurance Company SOC Limited (LBLIC) industry, high fertilizer prices and problems with fruit exports, existence of a diversified crop reinsurance programme and Insurance Regulations and Policyholder Protection Rules. is a licensed life assurance provider that has been providing stock diseases such as 3-day stiffness and tick born which a stop loss protection. • Relationship management on all tiers of operational and individual and group credit life insurance products to Land occurred due to the good raining season, persistent drought echelon management levels. Bank clients and farmers since its inception in 1954. LBLIC conditions in the Eastern parts of the country, excessive or As at 31 March 2022, the SCR Cover Ratio is five times • Achieved its objectives to expand the Black Broker was established at the request of the farming community to untimely rainfall affecting yields and quality, high input costs the minimum regulatory requirement of one, and well in Programme. LBIC has trained and accredited more than ensure the continuity of farming activities after the death of and the increase in the costs of electricity and fuel as well excess of internal risk appetite limits. In the recent ORSA 80 Financial Services Providers (FSPs) from historically the borrower of funds from the Land Bank. The debt to the as the outbreak of large brown locust swarms due to humid calculations that project the company’s capital requirement disadvantaged backgrounds. With the zeal to deepen Land Bank could be settled and the relatives could continue conditions. These conditions are expected to put pressure according to the business strategic plan including stresses transformation, LBIC focused on women-owned FSPs with the farming operations. on the agricultural sectors, with commodity prices likely to and scenarios, the company remains in a healthy solvency for the ambition. Under the COVID-19 lockdown increase sporadically, thereby increasing total sums insured position over the next five years. regulation and safety protocols during the crop Business depends significantly on obtaining insurance leads and premium income. season 2020/21, LBIC still managed to ensure business from the Land Bank. In the year that has just ended, a significant continuity by training and accrediting brokers. decline in credit life business was noted.This was due to Land • The Black Assessor Programme in partnership with Bank not disbursing any loans due to its liquidity challenges. Walter Sisulu University remains an important strategic Adding to this challenge were the changes brought by the objective in LBI’s development and transformation Trade and Industry regulation, which introduced compulsory agenda. The first leg of the programme was completed features for a credit life policy that included how businesses and the second leg, which includes practical aspect of would structure the pricing of the credit life policy. Due to the programme, is underway. this addition of certain conditions and those strict measures, • LBIC insurance is one of the participants in sector it has made the credit life policy more expensive than it discussions with National Treasury (NT) to bring about previously was. The Bancassurance model is expected to insurance solutions for smallholder farmers. LBIC is improve LBLIC’s sales volume and financial sustainability. proud to contribute to this initiative and are excited about the potential of the initiative for the greater good of the sector. The business hopes to disclose details of the initiative in the next reporting cycle. • The Bancassurance Model objective is to make use of the synergies between Land Bank and Insurance entities efficiencies to provide impactful services and product provisions to clients. The effectiveness of the Bancassurance model is a fundamental strategy to the sustainability of non-life and life business. For the year ending 2022, the first phase of the Bancassurance model was implemented. • LBIC received clean audits (FY2020: unqualified with no findings). 86 LAND BANK | INTEGRATED ANNUAL REPORT 2022 87 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Whole of Life Financial Performance In the past, it was mandatory for individuals to have an LBLIC • LBLIC reported a net profit of R109 million during credit life policy if they were granted a loan from Land Bank. current reporting period (FY2020/21: R157 million net The insurance premium was capitalized to the loan accounts profit) annually, in arrears. With the introduction of the National • Gross Written Premium (GWP) declined by 22% Credit Act 34 of 2005 (NCA), the company had to develop to R3.8 million (FY2020/21: R4.9 million) due to the new credit life products and offer clients an attractive value cancellation of some cancellation of the group life proposition to compete favourably with other industry schemes and muted growth players. The limited product offering combined with the • Operating expenses increased by 36.1% to R9.8 million effect of the NCA has had a severe impact on the financial (FY20/2021: R7.2 million) sustainability of LBLIC over the past decade and the update • Investment income reduced by 34% to R127.9 million of the Credit Insurance by the general market. compared to R193.9 million reporting in FY2020/21. The reduction should be read in context with market To counter this, LBLIC has developed a Whole of Life performance during FY2020/21 where yields in bond product which will cover death, disability, critical illness, and market were very attractive temporary disability to the agricultural sector to farmers with • Total excess assets over liabilities increased to an agricultural loan. LBLIC is currently awaiting a variation of R1.168 million (FY2020/21: R1.059 million), as a direct license approval from the Prudential Authority for the launch result of the investment increased by 11.6%. of this product. This is expected to boost LBLIC’s financial sustainability. Performance Highlights Business Challenges FY21 FY22 LBLIC Gross premiums R4.9m R3.8m • Maintained market share and increased premium LBLIC’s product offering is limited by its ministerial mandate Net Premium Income R2.5m R1.8m income by slightly more than in FY2021. which severely affects its ability to grow the book. The • Managed to penetrate Western regions. limited product offering combined with the effects of the Operating expenses R7.2m R9.7m • Adapted the risk under-writing processes to weather National Credit Act has had a severe impact on LBLIC’s Underwriting profit/(loss) (R37m) (R18m) volatility. financial sustainability over the past decade as the entity has Investments Income R193m R127m • Managed to settle all claims when incurred. not written new business since the inception of the NCA Net Profit R157m R109m • The Bancassurance Model objective is to make use in 2017. Excess assets of liabilities R1bn R1.1bn of the synergies between Land Bank and Insurance entities efficiencies to provide impactful services and Credit insurance is only accessible to farmers who have Investments R1.1bn R1.2bn product provisions to clients. The effectiveness of the access to funding (commercial farmers), therefore excluding Bancassurance model is a fundamental strategy to the the entire smallholder farmer, which remains not catered for. The SCR cover ratio remains stable from year to year as sustainability of non-life and life business. For the year LBLIC SCR the balance sheet assets are large relative to liabilities. ending 2021, a comprehensive strategic blueprint has The COVID-19 environment, Russia-Ukraine war, rising Consequently, LBLIC reports an SCR cover ratio above been designed and approved by both Boards of the inflation and slow pace of economic continues to put Due to LBLIC’s small underwriting risk in relation to the 200% and well in excess of the regulatory limit of 100%. entities. The Land Bank has completed the necessary pressure on consumers new business and environment. asset base, COVID-19 has had no material impact on the work streams during FY2022, to gear for the launch overall profitability and solvency. LBLIC has held a short-term In the recent ORSA calculations that project the company’s of the Bancassurance distribution channel in the first COVID-19 reserve since Sep 2020 to cater for uncertainty capital requirement according to the business strategic plan quarter of FY2023. The key work streams have been in claims experience as a result of the COVID-19 pandemic. including stresses and scenarios, the company remains in a listed below: healthy solvency position over the next five years, including » Processes and procedures have been defined; The capital of the company is invested in various assets classes, in the event that LBLIC issues new policies as a result of the » Standard Operating Procedures have been defined; mainly investments such as equity, bonds and money market Bancassurance model and whole of life product following » Staff training and assessments were conducted; instruments. The asset allocation objective is to maximise the PA’s approval. » Systems were developed to facilitate real-time lead investment return since there is no probable event that would distribution; lead to the company’s capital position to change significantly. » A mutually beneficial fee structure was developed and concluded; and LBLIC has a well a diversified investment portfolio of assets » LBIC received a clean audit (FY2021: unqualified worth at least R1.2 billion as at 31 March 2022.The size of the with no findings). assets is small relative to the credit risk business. Therefore, LBLIC is sufficiently capitalised in terms of the Insurance Act 18 of 2017. 88 LAND BANK | INTEGRATED ANNUAL REPORT 2022 89 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LBI APPROACH TO RISK Quantifying the risk appetite metrics for financial Risk Monitoring - is the ongoing process of assessing the Life critical mass – Risk relating to inability to generate soundness, earnings at risk and liquidity control environment and the effectiveness of mitigating enough revenue to support the life business costing structure. The Risk Management Strategy seeks to set out the types actions being taken to determine a residual risk rating of risk that the business is willing to retain in implementing Risk appetite defines the level of risk exposure that the and considers the impacts of materialised risks, assurance Mitigation Actions its business plan, and the way in which it will manage those business is willing to accept in meeting the strategic objectives. work, indicators, and changes in the external and internal • Enhance the distribution channels through the risks. Material risks that are central to the business’s risks LBIC’s financial resources and risk appetite determine the environment on both risks and controls. Bancassurance Model. management strategy include the lines of insurance the nature and level of growth that can be targeted, as they reflect Risk Reporting - is focused on comparing the residual risk • Introducing Whole of Life (WoL) insurance with business plans to engage in, and the mix of insurances it the impact that assumed risk has on capital requirements and exposures to risk appetite, as articulated in the risk strategy, additional benefits. Submission of application to add the is targeting. earnings volatility. Stress and scenario testing is also used to reporting on risks that are outside of the business’ risk risk class of business (variation of license) is pending evaluate the earnings and balance sheet resilience of business appetite or target limit. regulatory review and approval. The Audit and Risk Committee is responsible for approving plans and the various risk-taking activities. Stress and Scenario Testing - is the process of evaluating the Risk Strategy and Risk Policy Suite, as well as providing the impact of specified scenarios on LBIC’s financial position Insourcing Risk – The inability to build internal capacity and oversight of the Risk Management System and risk-taking Creating target ranges for earnings at risk and using several defined probabilities. This facilitates the skills to deliver on the crop strategic objectives, which results activities for both LBIC and LBLIC. statutory capital requirements assessment of the resilience of earnings and the balance in heavy dependency on the UMA. sheet to business plans and the various risk-taking activities. The risk strategy is underpinned by four risk principles: The risk appetite metrics measure capital requirements, Business and Risk Strategy Alignment - is the process Management Action • Prudent approach towards risk management and capital earnings, and liquidity risks and ensure compliance with the of ensuring that the risks assumed as a result of the • Finalising systems acquisition transaction. management. LBIC wishes to avoid taking excessive Prudential Financial Soundness Standards.They are calibrated business plans reflecting LBIC’s risk preferences, taking • Test systems and bring in elements of policy risks that could threaten the financial security of the to allow us to manage an extreme downside scenario with into account the risks and points of leverage within its administration e.g., premium management. Business in very adverse financial conditions. However, sufficient resources to avoid regulatory intervention. risk mitigation activities. • Full claims assessment capability. the business strategy also requires us to ensure that it • New business and quoting system integration. covers, and addresses market gaps and failures and LBIC The sustainability and growth of LBIC’s businesses and the LBIC’s Three Lines of Assurance • Most functions operating optimally. will not be able to successfully do so if the risk strategy ability to create value for all its stakeholders is dependent is too prudent; on an effective risk management system and prudent LINE 1 – Management - Responsible for implementing EXTERNAL RISK • To protect LBIC’s reputation by maintaining trust with financial management. This is particularly important because an effective System of Internal Control, as well as risk all stakeholders; there are many challenges in the external environment and identification and management on a day to-day basis across Climate risk – In the year just ended LBI has experienced • Recognition of the value of diversification to avoid significant change and adaption within the internal operating the business. persistent heavy rainfalls throughout the country leading to excessive risk concentration, so that the business environments of the businesses. LINE 2 – Internal Assurance Provider - Responsible for hail incidents and adverse claims experience for all of winter, does not depend excessively on matters going right the appropriateness and effectiveness of the risk management summer, and fruit harvests.This resulted in a high observation in a particular area, and the sustainability of the whole The risk management process is designed to continuously system, ensuring that policies and procedures are followed, of loss ratio compared to the previous three seasons. business is not undermined if something does go wrong monitor both the internal and external environment to and that reporting is accurate and complete. in an area; and identify any conditions or changes which require us to LINE 3 – Independent Assurance Providers - Provides Management Actions • Use of risk mitigation techniques to manage respond to mitigate the related risks and both stay within its assurance (through the internal and external audit) on • Continue with the extensive portfolio review focusing risk exposures. risk appetite and also stay the course to achieve corporate the effectiveness of governance, risk management and on multi claimants, new clients, high value crops and plans and realise the businesses strategic objectives. compliance functions, and the system of internal control. It structure of policy excesses. The following reviews were made to the Risk Strategy in 2022: reports to the LBI Board committee. • Structured re-insurance to allow sales to write business Risk Management Process at a particular level, in addition to this a stop loss is Classification of the risks that LBIC is exposed to Top Residual Risks in place to ensure that business losses are kept at an Risk Identification - is focused on the key impediments to acceptable level. Risk Classification Model (RCM) forms the basis of the risk LBIC’s ability to achieve its business strategy and objectives. STRATEGY RISK • Incidence of risk – risk premiums are reviewed on an management system, ensuring consistent classification of risks These risks are then measured in three dimensions: annual basis prior to start of the season, with margins and ability to aggregate similar risks across both entities to • Inherent: considering the likelihood of occurrence and Diversification Risk - Growth remains stagnant on the for uncertainty added on risky business. understand their full impact. The RCM and the classification impact (financial and non-financial) that the risk may agri-asset portfolio which has been implemented as a • Premiums are increased where loss ratio is lower than remain fit for purpose the business. have on the business. diversification tool. With the exponential premium growth in 65% and historical loss cost is higher than current • Residual: considering the likelihood of occurrence crop, the diversification set FY2022 was not achieved. premium rates. Determining risk preferences for each risk category and impact the risk may have on the business, after • From an external perspective LBIC continue to be considering the control environment and any mitigating Management Actions part of SAIA interventions in climate risk management A few risk preferences were modified to reflect changes actions. • A new Index based insurance product has been initiatives. in how the business approaches these particular risks in • Residual risk vs tolerance: which compares the developed and concluded. The product is pending executing the corporate plans. residual risk to the risk appetite and preferences that Minister of Finance approval. People Risk - Critical skill acquisition and retention - are stipulated by the policy for that category of risk. • Entering into a co-insurance business model with Genric Key people risks identified are around the attraction and Risk Measure and Response - relates to the process of Insurance Company Limited to expand on distribution retention of key and critically skilled staff and the depth and quantifying risks by considering the likelihood and magnitude channels. strength of succession required to achieve the LBI strategy of the risk. Once quantified LBIC will focus on those risks • Appointed Brolink to provide the Insurance Company and objectives. with higher ratings to implement appropriate mitigating with its own Crop (data hosting), Assets and Life policy actions as a response. management system. Management Action • Develop a robust Board-approved Retention Strategy (recognition programme). 90 LAND BANK | INTEGRATED ANNUAL REPORT 2022 91 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS COMPLIANCE RISK Land Bank Insurance (LBI) strives to adhere high compliance standards in order to ensure its sustainability and continued Regulatory Breaches - The Prudential Authority has service to its customers. As part its compliance strategy, LBI imposed penalties for alleged of the repealed section 23(1) has adopted the following policies: of the Short-Term Insurance Act 53 of 1998, section 14 and • Compliance Policy; 16 of the Insurance Act 18 of 2017. Both penalties of R 2 000 • Fit and Proper Policy; 000 and R688 000 were paid to the PA. However, LBI has • Conflict of Interest Policy appealed against these penalties through the Reconsideration • Whistleblowing Policy; Applications as provided for in section 230 of the Financial • Insurance Fraud Risk Management Policy; and Sector Regulation Act 9 of 2017. • Outsourcing Policy. Mitigation Actions The compliance team is guided by the Annual Compliance • Bolster the Risk and Compliance function. and Monitoring Plans, which are approved by LBI’s Audit and • Continuous regulatory engagements. Risk Committee. • Escalate and monitor resolution of any compliance breaches. Table - Land Bank Insurance Company Corporate Scorecard Corporate Scorecard FY2022 - LBIC and LBLIC KPAs KPI (FY2022) Weighting Measures FY2022 Update as at March 2022 RAG Contributing to Black Broker programme. 10% Train and accredit a minimum 20 black 42 FSPs have been identified and a minimum of 20 brokers have been targeted to be on boarded, trained, and Achieved transformation in the brokers. accredited. 20 brokers were on boarded, trained, and accredited. agricultural insurance sector Black Assessor programme. 5% Appoint practical’s training provider and The Board has approved the financial implications of R3.6 million. The tender process is underway to appoint Not achieved (15%). finalise training program, training schedule a Practical Training Provider. The application was approved by Project Portfolio Committee (PPC) and was and logistics for the black assessors. presented at the Procurement Committee in January 2022. The open tender advertisement is expected to be completed in Q1 of FY23 subject to the appointment of a suitable provider. The following is expected to be concluded in Q1 of FY2023: Appoint a suitable practical training provider. • Develop the training program. • Develop the training schedule. • Finalise logistics (student transport, accommodation, and data etc.). • Finalise graduation protocols with WSU and identify graduation period. The following is expected to be concluded in FY2023: • Actual practical training and conclusion of programme. Financial Sustainability Gross Written Premium (LBIC). 10% R539 million. R607 million. Achieved (30%). Total Comprehensive Income 10% R28 million. R110 million. Achieved (LBLIC). Diversification of premium 5% >1% of total gross written premium. <1% Not achieved income across product lines. LBIC SCR. 5% 1.3 The SCR cover ratio amounted to 5.71 (FY2021, 5.75).The reduction in the SCR cover ratio had been impacted Achieved by the high reported crop claims (higher technical liabilities) of 2021/22, however, this is still well in excess of the regulatory limit of 100% and higher than the internal benchmark target of 150%. Insurance Model Integration Improved Insurance Model. 5% Implementation of phase 1 of the The Bancassurance project team had completed the last few significant work streams for the completion of Achieved (5%). Bancassurance Strategy. Phase 1 of the implementation plan. The key work streams that were concluded in Q4 were developing the relevant systems (CRM). Training of staff bank wide and the development and finalisation of the commercial structure that will exist between LBI and LB (Referral Fee).The Referral Fee was approved by both EXCOs and a Referral Fee agreement was signed. All phase 1 implementation objectives were completed. 92 LAND BANK | INTEGRATED ANNUAL REPORT 2022 93 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Corporate Scorecard FY2022 - LBIC and LBLIC KPAs KPI (FY2022) Weighting Measures FY2022 Update as at March 2022 RAG Corporate Governance Irregular expenditure. 5% Annual cumulative incidents relating to Expenditure incurred in form of binder fee prior to NT approval amount to R7.6 million, which will be regarded Not achieved (20%). procurement, irregular, fruitless, wasteful, as irregular. and unauthorised expenditures 0% of Gross Written Premium. Ethical behaviour. 10% No findings on unethical behaviour by a No unethical behaviour reported for the year ended March 2022. Achieved staff member. Audit. 5% Rating according to the scale of Auditor The Auditor General (AG) has completed the audit of both, the Land Bank Insurance (SOC) Ltd (LBIC) and   General: Land Bank Life Insurance (SOC) Ltd (LBLIC) for the financial year ended 31 March 2022. The AG presented its 5 = Unqualified opinion with no findings Audit opinion as well as Management Report to the LBIC/LBLIC Audit and Risk Committee on 22 July 2022. In (clean audit). their (AG) Audit opinion, both companies obtained a clean unqualified Audit Opinion with no findings. 4 = Financially unqualified opinion with findings. 3 = Qualified opinion. 1 = Adverse opinion. 1 = Disclaimed opinion. Insurance Regulatory Compliance with insurance 5% 1. Draft 2021/22 annual compliance The plans for 2021/22 have been drafted and approved in ARC. Achieved Compliance regulations. and monitoring plan and obtain ARC (25%). approval by 30 April 2021. 2. Implement the 2021/22 approved Both the Monitoring Plan and the Compliance Plan have been concluded and achieved. Achieved Compliance and monitoring Plans. Governance and Operations 10% Review GOI policies annually and have All GOI policies have been reviewed and approved by Board.The Remuneration Policy was delayed due to NT Achieved standards for Insurers (GOI). them approved by Board (Q4 tranche will input on remuneration requirements. This policy will be tabled at HRC in April 2022. be presented in April Board). Own Risk and Solvency 10% Conduct an Own Risk Assessment exercise Own Risk and Solvency Assessment report for FY2021 has been approved by Board and submitted to the PA Achieved Assessment. for FY2021 and have it approved by Board in December 2021. and submitted to the PA on or before 31 December 2021. Talent management Develop and implement a fit for Board-approved organisational structure. The current Board approved business structure is in place and remain to be fit for purpose. Achieved (5%). purpose structure in support of 2.5% the Insurance Companies strategy. Embed talent management Organisation Culture Survey – development Organisational culture survey results have been shared with LBI EXCO. Climate and Culture Remedial plan  Achieved practices. 2.5% and commencement of the implementation developed and approved. 60% of milestones have been implemented as at March 2022. of remediation plan for survey outcomes. 94 LAND BANK | INTEGRATED ANNUAL REPORT 2022 95 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND 09 BANK’S RISK MANAGEMENT 96 LAND BANK | INTEGRATED ANNUAL REPORT 2022 97 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK’S RISK STRATEGIC RISK PROFILE MANAGEMENT Whilst various critical mitigations were implemented during the year, the overall strategic risk profile remains exceptionally high (indicated in red). This is resultant from outstanding management action plans that materially expose the Bank. These risks will be The key risks and opportunities that are specific to the Bank, prioritised in the upcoming year. including those that relate to the Bank’s effects on, and the continued availability of, quality and affordability of relevant Risk Name and Description Management Action Plans: capitals in the short, medium, and long term, are explored and Residual risk rating: [To address control issues, root causes and mitigate likelihood and impact of risks] in this section. Strategy and execution • Board strategy workshop for strategic alignment concluded. risk: • The Strategic Plan outlining future strategy including corporate budget concluded by The Bank assesses the likelihood of a risk or opportunity being the Board. realised and evaluates the magnitude of its impact should it • Concluding discussions with industry partners, sister organisations, and private sector come to fruition. Once key items are identified, mitigation on future funding options to support the strategy. measures and/or planning may begin. Such identification includes associated strategic objectives, strategies, policies, Legal and Litigation risk: • The Bank continue to honour interest obligations, and partial capital reduction on targets, and key performance indicators. All items are outstanding debt. Significant portion of capital already being paid from cashflows. continually monitored, and efforts are assessed for efficacy. • Ongoing discussions to conclude agreements on the Liability Solution (L/S4). • Continuous quality reporting on credit and financial information reflecting improving trend to lenders. RISK GOVERNANCE OVERSIGHT Land Bank is reliant on all parties involved to help cure the default. Progress made by the The Board is ultimately responsible for the risk governance of Bank since inception of the crises through its self-help mechanisms has managed to bring the Bank and is accountable for the Bank’s overall governance debt down while maintaining operations – i.e. increased collections, increased repayments, of risk in accordance with NT’ Public Sector Risk Management improved audit outcome, stability in leadership. Framework. Its primary responsibility is to bring its specialist expertise to guide the risk management oversight and to Flight risk and People • Payscale benchmarking on an annual basis to ensure Land Bank compares with the leverage benefits and opportunities. Where opportunities risks and Resource market concluded. are identified, these are assessed so that the Bank may constraints: • Process to review the remuneration and compensation policy for alignment against the effectively manage them to enhance the Bank’s performance. draft State-Owned Entities Remuneration and Incentive guidelines commenced. • Retention policy to enhance retention mechanism concluded. • Human Capital continues to support business on their requests, where it is critical to RISK PHILOSOPHY fill the capacity gap. • The final determination and approval of operating model and structure is under The Bank believes that risk management provides a process consideration as part of overall strategy. of proactively identifying risk issues, opportunities, and events, which if not well managed can adversely impact Financial sustainability • Revision of pricing model being concluded to align costing and improve pricing margins the achievement of business objectives. By applying the risk: High cost to income, where permissible. risk management process, the Bank is able to proactively gearing, poor quality • Insourcing of SLA exposures to reduce cost and improve controls on loan book manage issues that may impact the achievement of its goals. book. management The risk management process enhances the overall control • Develop white labelling strategy - on hold until restructure in place. environment and governance in a more structured manner • Ongoing cost containment across the organisation. across all areas of business Liquidity and funding • Ongoing syndication of exposure with other banks for selected corporate clients to risk: due to the inability enable asset solution where possible. RISK CATEGORIES of the Bank to raise new • Monitoring of cash-flows, and collections by restructuring Board committee funding as a result of the • Seeking alternatives funding sources to support future growth on the Development The risk management process is iterative in nature to default position. and Transformation book, pre and post default. ensure continued alignment with the Bank’s strategic goals. • Removed exclusivity clause on SLA agreements to enable settlement of facilities and Typically, the risk assessment and risk management strategy reduction of liability. have a medium term (three year) focus to foster the culture • Sale of the non-core equity book. Ongoing disposal of non-core assets of building risk foresight. In terms of the Enterprise Risk Credit default risk: High • Ongoing recovery of instalments on non-performing. Management Framework, the Bank’s risk universe consists of: rate of impairments. • Prioritising disbursements on production and working capital facilities for performing • Strategic risk, and selected underperforming book. • Operational risk, • Ongoing stratification of the NPL book by agri-division to refocus mitigations where • Credit and Investment risk, necessary. • Model risk, and • Closing skills gap in critical areas – i.e. recoveries, workout, business and risk through • Financial risk. targeted recruitment and procurement. 98 LAND BANK | INTEGRATED ANNUAL REPORT 2022 99 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Risk Name and Description Management Action Plans: Risk Name and Description Management Action Plans: and Residual risk rating: [To address control issues, root causes and mitigate likelihood and impact of risks] and Residual risk rating: [To address control issues, root causes and mitigate likelihood and impact of risks] Development and • Focus on leveraging third party funding support, including grant support, and CSI support Third Party Funding: • Engagement with DALRRD on blended finance. Transformation Risk: for non-financials; facilitate alternative funding opportunities to drive development, Challenges in expanding • Concluded phase 2 of the COVID-19 Relief Fund MoA and implementing as per the Development and • Collaboration with private sector in securing off-take agreements for the development and retaining the third- envisaged Implementation Plan. Transformation risk farmers as well Enterprise and Supplier Development funds. party funding and support • Ensuring responsibilities alignment with partners to minimise duplication in processes due poor or low levels • Adoption of the value chain and aggregation approach for scales and efficiency. for the development and (due diligence etc.). of development and • Farmers to be afforded pre and post investment support. transformation agenda of • Revision of credit policy and credit processes to build efficiency on various programs. transformation. • Pro-active and targeted origination being explored to build future pipeline. the Bank. • Ongoing improvements on Bank’s poor turnaround time through continued oversight • Review of the credit origination process. and monitoring and introduction of systems. • Implementation of the operating model, regionalisation and streamlining of key roles in • Banks continue to service programs already contracted despite ongoing liquidity the value chain ongoing. challenges to adhere to contractual obligation and sustain development/transformation External event risk: • Adoption of internal Business Continuity Management (BCM) measures led by the under those funds. COVID19 pandemic impact COVID task –team. • Ensuring adequate capacity in the teams involved in partnership deals to ensure delivery. on the operations, Loan • Continuous review the Internal Alert levels for the Bank to support staff in managing Operational inefficiencies • Implementation of a three-year infrastructure rollout (refresher plan/program) will be Book-clients’ ability to repay our business. and IT risk: executed in phases and prioritised based on the hosted systems criticality. loans resulting in NPLs • Revised process on the COVID-19 Relief Fund to create efficiency and support • Process: review and • Approval of the reviewed IT Strategy and Implementation of the Rolling IT strategy. increase. affected farmers. simplification of • Automation of client facing enablement (Omni Channel) and back-end enablement: • Quarterly/Monthly COVID-19 reporting on all portfolios. business processes (re- » Client facing: Implementation of E-Services Portals and Contact centre capability– Stakeholder and • Reviewed and activating shareholder engagement strategy and communication plans. engineering). concept developed and approved, reputational risk: Negative • On-going engagements with the shareholder and Department of Agriculture Land • IT: automation of » Backend business process enablement: (OnBase, Customer Relationship stakeholder sentiment due Reform and Rural Developments (DALRRD) at Ministerial and Director General (DG) manual processes. Management, GIS). to the ongoing challenging levels, and other key stakeholders. • Human Capital: • Automation of back-end tools and manual business processes. environment. • Shareholder participation in restructuring engagement and various lenders meetings. alignment of resources • Regionalization approach of credit mandates-decentralized strategy to better service to ensure operational clients. Intermediary/ SLA risks: • Reduced the exposure from SLA/intermediaries by resizing the assets through efficiency. • Training of existing staff where necessary. Commercial risks emanating disposals/settlements and insourcing. • Capacitation (required capabilities and resources) in Systems Architecture and from the intermediary • Improving commercial and credit terms, on remaining SLAs through approved remedial Programme Management. model. plan-work concluded. • Standardising credit risk and governance processes vial SLA remedial plan, with options to fully insource or sell down. CREDIT AND INVESTMENT RISKS OPERATIONAL RISKS • Validation of source data from SLA intermediaries, to improve quality of information presented were implemented in the year under review, while busy insourcing. During the reporting period, Management has reviewed Operational risks are managed using a bottom-up approach Non-compliance risk: • Filing of the outstanding statutory returns. and updated the credit committee charters to enable the and are monitored and reported on by the Enterprise Risk Non-compliance with the • Finalising the Compliance Maturity Roadmap. envisaged regionalisation of credit mandate to the provincial Committee, which recommend the top risks to EXCO and regulatory requirements with • Finalised the NCA audit. and regional offices.This will improve application turn-around Board Risk committees. regards to submission of • Reviewing of delegation of authority to align with the strategy and mandate of the Bank. times and client service. Ongoing reviews on credit processes statutory returns, etc • Enhanced risk management processes. underway. • Some of the Client files received from the SLA partners did not meet all the compliance requirements. Data Integrity risk: • Ongoing IT improvements and roll-out of revised processes and system updates. Both Obaro and Unigro were fully insourced, and the The missing files for FICA screening and Know-Your- • Implementation of data Automation to enable data exchange between systems (CRM, facilities were integrated onto the Bank’s platforms. The Bank Customers (KYC) for the on-boarded SLA clients GIS, backend tool automation) to avoid data recapturing and inconsistencies. was, however, saddled with performing a number of annual remained a concern for non-compliance. In addition, • Continue to apply Land Bank’s Standard Annual Review Process when On-boarding facility reviews and renewals for revolving facilities. Due to NCA treatment of customer accounts still under review, SLA clients current and future. the unanticipated workload, not all reviews were conducted, creates potential exposure to contravention. Clean up • Internal quality assurance of clients’ file plans. this work is ongoing. To support the Bank’s asset and liability work in this regard underway to ensure any possible • Utilise lessons learnt to optimise the subsequent in-sourcing of SLA clients including solution, the Corporate Book continues to reduce, and gap is closed and addressed adequately. exploring automation and transfer of files on the IT platforms. all annual reviews in this portfolio were conducted with • The Bank experienced a high staff turnover, including the increased pricing above the cost of funding as per revised departure of two Executives members (one of whom pricing model. being the CE), which may result in the loss of organisational knowledge and negatively impact upon business continuity, The low uptake in disbursements resulted in increased however adequate transitioning has occurred with process pressure being placed on the Non-Performing Loan (NPL) to secure permanent CEO underway. book which closed at 47.7% compared to 32.5% in FY2021. • An Ethics Risk Assessment was conducted to assess the In order to mitigate this risk, the NPL remediation strategy ethics environment. The aim of the assessment was to has been implemented, with oversight for the Credit and gain insight for use in improving organisational ethics Investment Committee. and guiding the Bank’s Ethics Risk Management Strategy and Plan for the upcoming two to three years. 100 LAND BANK | INTEGRATED ANNUAL REPORT 2022 101 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS FINANCIAL AND LIQUIDITY RISKS MODEL RISKS Land Bank’s default continues while the Bank and its lenders The model risk management was enhanced within the remain committed to reach a solution to cure the default. As Bank, with the approval of the reviewed Model Governance a result of the default position and the restructuring process Framework by Board and subsequent introduction of that is currently in progress, the Bank is not able to raise new the Model Technical Committee (MTC). The MTC has funding the in the market. been established to assist EXCO with oversight on model related matters of Land Bank and to ensure that models Liquidity risk is defined as the risk of incurring losses resulting are monitored and recalibrated as prescribed in the from the inability to meet payment obligations in a timely framework. As a result of the change in the default definition, manner when they become due or from being unable to do the Model Validation Unit performed the validation of the so at a sustainable cost. Land Bank is currently experiencing following models: the PD direct model; PD indirect model; liquidity crisis in that: PD seasonality model; PD macroeconomic model; and PD • It is unable to repay matured debt; transition model, and the reports were approved by the • It’s in a de-facto standstill; Board. Work in this environment is ongoing. • It is not able to raise new funding in the market; and is in the process of implementing a solution to cure the default. The Bank’s only source of funding is from: • Collections from customers; • Sale of assets; • Funding from National Treasury (equity injection). In order to manage liquidity under the current situation, there’s reduced disbursements to customers and only interest repayments are made to lenders with occasional capital reduction when possible. Accumulated cash from customer collections, asset disposals and settlements are invested in instruments that aim to deliver better rates whilst preserving capital, call accounts and Bank deposit notes offered by banks and asset management companies. The Bank is avoiding to invest in assets that yield higher rates for fear of exposing capital to market risk. The Bank is constantly looking out for capital preserving investments with better interest rates offered by approved counterparties and have also made capital repayments to lenders worth R14.8 billion (42.84%) since the default in its effort in repaying outstanding debt while also managing the negative carry, given the cost of borrowing versus investment rates. The Bank’s liquidity challenges have significantly affected the Bank’s ability to fund emerging farmers and foster external relationships. The Bank is currently finalising the liability solution, which remains critical in restoring stability to the Bank. 102 LAND BANK | INTEGRATED ANNUAL REPORT 2022 103 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK’S 10 OUTLOOK 104 LAND BANK | INTEGRATED ANNUAL REPORT 2022 105 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS LAND BANK’S OUTLOOK Business model component 3 – Operations: To enhance its operational effectiveness and to create a distinct client DESIRED STATE value proposition, aligned with the Bank’s DFI role, Land Bank has begun to overhaul its Operating Model, and is adopting a Farmer First approach. This client-centric approach entails The Land Bank aims to position itself as an agricultural a decentralization of operations and stronger move to digital Development Finance Institution that effectively balances channels of delivery to enhance client experience and access. financial sustainability and developmental outcomes In its restructuring of operations, the Bank has also prioritized to meaningfully contribute to the development and the building of organisational competencies that are critical transformation of South African agriculture. This will allow to successful development origination, credit management, the Bank to meet all elements of its mandate and enhance fund management and technical monitoring. the entity’s ability to source the future capital required for OPERATING MODEL its growth and refinancing needs. To realise these ambitions, Business model component 4 – Origination and loan the Bank is required to redesign all major components of its book management: All origination and monitoring will take BLENDED FUNDING MODEL • Distinct Client Value Proposition, aligned OUTCOMES business model as summarized below: place on Land Bank’s systems, to ensure transparency and the (Predominantly through with Specialist DFI role traceability of funds deployed. This will significantly improve Shareholder Capital, Soft Loans • Predominant focus on Development and • Inclusion of Historically Business model component 1 – Funding: It is crucial that monitoring and evaluation, and ensure accurate reporting and Grant Funding) Transformation Disadvantaged Persons the Bank’s funding model supports its mandate and policy of the Bank’s performance and development effectiveness. • Fund Strategic Programmes with • Contribution to the GDP objectives. This requires a diversified stream of funding which To increase scale, the Bank will partner with commodity • Shareholder Capital partners • Joob Creation and Increased includes fiscal and concessionary funding as well as revenue organisations and agribusinesses to facilitate access to their • Local and International DFI • Origination and Pre- and Post Finance economically active from value-added services provided by the Bank. With a development farmers, off-takers and significant pre-and post- Debt Support via Commodity organisations population more diversified funding model, the Bank will predominantly finance technical support infrastructure. • Grant Fuding • Commercial Risk-based Pricing on Land • Food Security render its financial services through a blended finance • ESD Funding bank loans • Environmental Stewardship model (Debt and Grant/Equity) which has proven effective Loan book management will be improved by entrenching • Green Funding • Empowered Regions/Provinces • Financial Sustainability in enhancing affordability and managing risk. Blended funds a relationship banking model supported by pro-active • Commercial Debt • Digital presence and Value add services reduce the cost of funding, enabling pricing subsidisation and monitoring of loan book performance. Monitoring will be • Fulfil Catalyst Role in the Sector to enhancing the Bank’s ability to provide non-financial support enhanced to not only include collections, but also provide Coordinate Eco System to farmers, which is crucial for reducing failures associated technical support to clients. Technology will also be deployed • Implementation agent for Sustainable with new entrants in the market. to ensure controlled disbursements, aligned to the assessment Land Reform of on-the-farm conditions and the purpose of the loan. Linked to its funding model, the effective management of the Bank’s cost structure remains a priority. Over the transition period, the Bank aims to reduce operating costs by 17% through numerous streamlining initiatives including revision of the operating model and structure, process optimization, system automation and strategic partnering. A PHASED JOURNEY Business model component 2 – Products: In order to In order to launch a successful turnaround journey towards the desired future state, the Bank will adopt a phased approach, at meet the objectives set in the Land Bank Act, the Bank must first, prioritising intervention in areas that will ensure immediate stability and set the basis for its change programme for the next be appropriately structured and positioned to provide: five years. • Phase 1 - Stabilisation: The focus of this phase (FY2022/23 and parts of FY2023/24) is the successful restructuring of the • Affordable and inclusive finance Bank’s funding liabilities and the initiation of several initiatives aimed at addressing the immediate priorities that will set the • Long-dated finance to enable historically disadvantaged baseline for the Bank’s stability, going forward. clients to acquire land and repay their debts in line with • Phase 2 - Consolidation:This phase (FY2023/24 – FY2025/26) assumes that the Bank’s funding liabilities have been successfully cashflow requirements restructured and that its state of default has been cured. The focus during this period is the consolidation of the rigorous • Products to close the equity contributions and collateral changes to the Bank’s operating model in support of the journey towards the desired state. gaps of clients • Phase 3 - Growth: Having demonstrated tangible results in its financial and operating performance, and its developmental • Facilitation of access to productive agricultural land, and outcomes, in the third phase of its journey, the Bank will focus on expanding its reach through enhanced partnerships, a production of high socio-economic impact commodities diverse funding mix and a broader ecosystem focus. which will significantly contribute to the achievement of socio¬economic outcomes. • Facilitation of Pre- and Post-Finance Support programmes to minimise the risk of entrepreneurial failures of new entrants in the market • Solutions and services that promote access to market access, particularly for developing farmers 106 LAND BANK | INTEGRATED ANNUAL REPORT 2022 107 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS • ORGANISATIONAL EFFECTIVENESS OUTCOMES ENABLEMENT OUTCOMES IMMEDIATE INTERVENTIONS SHORT-MEDIUM TERM MEDIUM TO LONG TERM REQUIRED (YEAR 1) INTERVENTIONS (YEAR 3) INTERVENTIONS (YEAR 5) • Development disbursements (debt and grants) Conclude the Liability Solution Implement an appropriate Asset Secure the Catalyst role in the DEVELOPMENT • COVID-19 Grant disbursements with lenders and develop a revised Solution in line with the approved sector by coordinating state funds EFFECTIVENESS • Approvals in line with AAMP priority commodities Funding Strategy Liability Solution and programmes, and through • Enhance Development Effectiveness Reporting other strategic partnerships Improve existing Loan Portfolio Implement the revised funding • Implement the Liability Solution milestones Performance - manage collections model in line with client segment FINANCIAL • Finalise the revised Funding Model Strategy and Business Case Facilitate accelerated Land reform and NPLs specific requirements SUSTAINABILITY • Reduce Non-Performing Loans • Improve Cost to Income Optimise Revenue Opportunities Reposition the Bank’s role at Launch the revised value proposition (products and • All credit facilities are reviewed in time (Interest income and non-interest sector level with the support of STAKEHOLDER • Improve turn-around times for new applications income) NT and DALRRD services) for all targeted client • Finalise the pre- and post-finance offering MANAGEMENT AND segments CLIENT CENTRICITY • Improve stakeholder engagement to restore the reputation Finalise and implement the D&T Solidify partnerships with service of the Bank Strategy for resumption of leading delivery partners (digital and Enhanced Client Coverage Model • Retention of critical skills and key staff activities technical support) for increased reach (through ORGANISATIONAL • Revised Organisational Operating Model Approved commodity organisations and CAPACITY AND PEOPLE • Design the structure in line with the revised Mitigate for attrition of critical and Develop Climate adaptation strategic partners) Operating Model key individuals offering and disaster relief support • Create an Effective control environment Commence the implementation of • Enterprise Risk Management controls GOVERNANCE the approved Operating Model Accelerate process optimisation, effectively implemented and new structures automation and digitisation to • Improved FY2023 External Audit outcome Audit Outcome (improved control enable improved service delivery environment) Implement the Reputation Management Strategy Improved Accountability and Consequence Management IMMEDIATE PRIORITIES • Remediate audit findings and strengthen internal controls to maintain a Clean Audit Outcome for FY2022/23. The Board has identified immediate priorities for its attention • Established an Accountability and Consequence as it begins a process to get the Bank out of its current default Management Board Task Team to facilitate the expeditious status, stabilise the institution and begin the turnaround resolution of outstanding instances of confirmed or process: potential misconduct that may have contributed to the • Conclusion of the Liability Solution by 30 September 2022. Bank’s current position. • Address quality deterioration and growth of the non- • Implement the Development and Transformation Strategy. performing loans through improved portfolio management • Work towards regaining a positive reputation for the Bank. and remediation efforts. • Improve income and finalise the revised Funding Model • Improve the operating performance of the Bank – Strategy. including execution capability and readiness of the Bank for resumption of lending activities, as well as appropriate cost containment. • Reduce the attrition of critical staff and start the implementation of the action plans in response to the culture survey feedback. 108 LAND BANK | INTEGRATED ANNUAL REPORT 2022 109 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS GOVERNANCE 11 110 LAND BANK | INTEGRATED ANNUAL REPORT 2022 111 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS GOVERNANCE FRAMEWORK The Bank is guided by King IV, which advocates implementing a governance structure that supports leadership, sustainability, and OUR GOVERNANCE FRAMEWORK BOARD RESPONSIBILITIES corporate citizenship. This includes the establishment of appropriate Board committees. The Land Bank Group is guided by the values of human The responsibility of the Board is to effectively represent and The structure of Land Bank’s governance oversight is depicted below. dignity, the achievement of equality, advancement of human promote the interests of the people of the Republic South rights and freedoms, and the rule of law – as entrenched Africa with a view to adding long-term value to the South in the South African Constitutional Bill of Rights. The Group African agricultural sector. The Board directs and supervises Shareholder remains committed to the practice of good governance and the management of the business and affairs of the Group Minister of Finance strives to live by its organisational values, as well as the values including: advocated by the King IV. {Accounting Authority} • Ensuring that the goals of the Bank are correctly Head of Internal Board of Directors Company Secretary The Board of directors of the Land Bank Group is collectively interpreted, clearly understood, and that strategies responsible for promoting the success of the Land Bank by are in place for achieving them (such strategies being Board of Committees directing and supervising its affairs. Its role is among others to: expected to originate, in the first instance, from i. provide entrepreneurial leadership to the Bank within management). a framework of prudent and effective controls which • Establishing policies for strengthening the performance enable risk to be assessed and managed; Risk and Governance Audit and Finance Human Resource Social and Ethics Credit and Investments of the Bank including ensuring that management is Committee Committee Committee Committee Committee ii. determine the Bank’s strategic objectives, ensure that proactively seeking to build the business through the necessary financial and human resources are in innovation, initiative, technology, new products, and the • Enterprise Risk • Internal and External • Monitor, review • Monitor, review and • Review and place for the Bank to meet its objectives, and review development of its business capital. Management Audit matters and oversee all oversee all Social, recommend credit management performance; and • Monitoring the performance of management. Framework, • Accounting policies Human Capital Ethics and policies, frameworks iii. determine the values and standards of the Bank and • Recommending to the Minister the appointment, as Governance and methodologies matters Environmental as well as prudential ensure that its obligations to the Shareholder and all well as the terms and conditions of service of the CEO Architecture, Risk • Financial matters matters limits and guidelines other stakeholders are understood and met. and, where necessary, the termination of the CEO’s Appetite and Tolerance • Review and approve employment with the Bank. Framework or recommend The business and affairs of the Land Bank Group are managed • Managing matters of discipline pertaining to the • Approve the Bank’s credit facilities in line and directed by, or under direction of the Board of Directors executive directors. Risk Management Plan with Delegations of of the bank who are appointed by the Minister. In terms of • Deciding on whatever steps are necessary to protect • Review and Monitor Power the Land Bank Act, members of the Board are individually the Group’s financial position and the ability to meet the management of all • Monitoring and collectively accountable to the Minister of Finance for its debts and other obligations when they fall due, and Risks in the the direction and control of the operations and business of ensuring that such steps are taken. organisation the Bank. They act as a Board and not as individuals. • Ensuring that the Bank’s financial statements are true and fair, and that they otherwise conform with law. The Company Secretary is appointed in terms of the • Ensuring that the Bank adheres to high standards of All Board Committees are accountable to the Board for performance of their delegated governance role and functions Companies Act, 2008, and plays a key role in ensuring that ethics and corporate behaviour. Board procedures are followed and regularly reviewed. The • Ensuring that the Bank has appropriate risk management/ Company Secretary is the primary source of advice on the regulatory compliance policies in place. {EXCO Accountable to Board} EXECUTIVE COMMITTEE conduct of the business. The Management team is responsible for the oversight of the BOARD ETHICS daily operations of the Bank. Mr A Kekana1 Ms K Mukhari2* Mr S Diza Mr F Stiglingh Ms M Dlamini Mr S Sebueng CEO CFO CRO EM: Portfolio EM: Human Capital EM: Legal Management The Board has adopted Code of Ethics and Business Conduct which seeks to assist members in fulfilling their duties to the Dr L Magingxa3** Mr S Soundy M.U Magwentshu Mr L Makupula Mr M Rakgalakane Land Bank Group. The Code charges Board members to act EM: Agricultural MD: Land Bank EM: Strategy EM: CB&SI Acting EM: CDBB in good faith and to exercise the powers vested in them in Economics & Advisory Insurance Company order to honestly fulfil the duties imposed by their office. Each director has a duty to act in what he/she considers to 1. Mr A Kkekana resigned, effective 30 April 2022 be the best interests of the Bank, and all such action must 2. Ms K Mukhari was appointed as Acting CEO be for a proper corporate purpose. The Board ensures that 3. Dr L Magingxa resigned, effective 31 March this approach to doing business permeates throughout the *Mr B Padachie was appointed as Acting CFO Bank and holds management accountable to ensure this **Mr G Maritz was appointed as Acting EM: Agricultural commitment manifests itself throughout the organisation. Economics and Advisory 112 LAND BANK | INTEGRATED ANNUAL REPORT 2022 113 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS BOARD COMPOSITION BOARD COMMITTEES Performance The Board consists of no fewer than seven and no more than 12 persons. Members of the Board are appointed for a period of The Board is supported by five Board Committees The Committee assisted the Board in its evaluation of the no more than five years. The Board membership comprises of Non- Executive Directors. The chief executive officer is a member established in terms of section 15 of Land Bank Act. The adequacy and efficiency of the internal control systems, of the Board by virtue of their office and the Minister can appoint any other employee of the Bank. The Minister appointed the standing Board Committees that have been delegated the accounting practices, information systems, and auditing Chief Financial Officer as an Executive Director. The Minister designates one of the Non-Executive Members of the Board as responsibility of assisting in specific matters and reporting processes applied within the Bank in its day-to-day operations. Chairman and another as Deputy Chairman who acts as Chairman when the Chairman is unable to do so. The composition of to the Board on a quarterly basis are, the Audit and Finance the Board is such that the common purpose, involvement, participation, harmony, and sense of responsibility of the members are Committee, the Human Resource Committee, the Risk The key focus areas for the committee during the period not jeopardised. and Governance Committee, the Credit and Investment included the Liquidity challenges faced by the Bank and the Committee, and the Social and Ethics Committee. Other need to stabilize the Bank. Implementation of the Audit Board Changes committees are formed for specific purposes, such as the remediation plan was a specific priority for the year under Restructuring Committee, which was established to address review. The Committee will continue to focus on returning A new Board was appointed with effect from 8 December 2021. The CEO resigned and the CFO was appointed as Acting CEO the liability issue of the Bank and is disbanded as required. the bank to profitability. from May 2022. The delegated responsibility and the powers, limits, as well as authorities attached to Board Committees, are approved by The Board is also reflective of the demographic composition of the country with regard to race, colour, age, and gender. Land Bank Board. AUDIT AND FINANCE COMMITTEE Land Bank Board members M F B I C W NON-EXECUTIVE DIRECTORS Mandate Ms N R Nkosi (Board Chair)       The Audit and Finance Committee is an independent Mr A Makenete (Deputy Chair)   committee that deals with matters such as recommending approval of Land Bank Group financial results, review of the Prof J Kirsten   Integrated Report, approval of the risk-based internal audit Ms D Maithufi   plan, the combined assurance model, and review of the groups’ Internal Financial Controls (IFC). The Committee discharges Ms M Makgatho   its responsibilities with the support of the audit, finance and Ms T Mashanda   fraud management functions within the Bank, which reports to the Committee on a quarterly basis. The Committee’s Ms N Motshegoa   approach is strongly influenced by its commitment to the Ms E Pillay   principles of good governance contained in the KING IV code. It consists of at least three independent, Non-Executive Dr M Tom   Directors who are duly elected to membership of the Adv D Van Der Westhuizen   Committee by the Shareholder at the AGM. TERM ENDED 30 NOVEMBER 2021 The Committee is responsible for the following: Mr M A Moloto (Board Chair)   • Ensure that the Bank maintains adequate and accurate Ms D R Hlatshwayo accounting records and management information, (Board Deputy Chair)   including the recommendation for approval to the Board, amongst others, in terms of the annual budget Dr S Cornelius   and financial statements; Ms S A Lund   • The Bank develops and maintains sound systems of internal control and information security, including Ms M E Makgatho   disclosures of irregular or wasteful expenditures and the appointment of auditor service providers; • The integrity and reliability of the published financial BOARD PERFORMANCE and statutory reporting of Land Bank and oversees integrated reporting; The Board is committed to the continued improvement of own its performance and effectiveness. It believes that a highly effective • Funding and liquidity position of the Bank; Board is essential if Land Bank is to produce sustainable returns for the shareholders, its broad range of stakeholders, as well as the • Transparency, accountability, and good corporate wider society. Corporate governance outcomes and the quality of Land Bank Board is an important evaluation factor for funders governance as required by Land Bank Act, KING IV, and institutional investors. PFMA, and Companies Act; • Ensures that requisite risk management culture, practices, policies, resources, and systems are in place and functioning effectively; and • Oversees the internal and external audit functions, monitoring their effectiveness and independence. 114 LAND BANK | INTEGRATED ANNUAL REPORT 2022 115 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS RISK AND GOVERNANCE COMMITTEE HUMAN RESOURCE COMMITTEE SOCIAL AND ETHICS COMMITTEE Performance Mandate Mandate Mandate The Committee provided governance oversight on matters relating to Land Bank as a good corporate citizen, including The Risk and Governance Committee assists the Board The Human Resources Committee’s duty is to oversee The Social and Ethics Committee is appointed in terms alignment to the Principles for Responsible Banking. The in discharging its responsibility for the entire process of the establishment of appropriate human resources policies of section 72 of the Companies Act and is responsible on Committee continued to ensure that sufficient oversight is risk management and compliance within the Bank. The and strategies that provide Land Bank with the capability to behalf of the Bank for this function. The Committee provides implemented to ensure that the business is ethically conducted. Committee deals with various matters relating to risk and achieve its short- and long-term business objectives. oversight of the Bank’s compliance with relevant social, risk management systems, including ensuring that appropriate ethical, and legal requirements as well as best practice codes. The key focus areas for the committee during the period risk management culture, practices, policies, and systems are The Committee is mandated and authorised by the Board to The Committee is also responsible for providing oversight included the Liquidity challenges faced by the bank and the in place and functioning effectively. The Committee also fulfil the following roles: of the Bank’s activities in the field of ethics, corporate social need to stabilize the Bank. Strategic alignment of the of the assists the Board in ensuring transparency, accountability, • Transformation focusing on Black Economic responsibility (stakeholder engagement, and environmental Bank’s role as Development Finance Institution towards and good corporate governance as required by Land Bank Empowerment and Employment Equity. sustainability, including the Management of non-financial development effectiveness outcomes, has been a specific Act and other relevant laws and regulations, standards, and • Compliance with relevant labour-related legal issues, and reputational risk, as listed and defined in the Bank’s priority for the year under review. The Committee will protocols that apply to the Bank’s activities or that the Bank requirements of the Bank as well as best practice codes. enterprise risk management framework). continue to focus on returning the bank to profitability. has voluntarily adopted. • Oversee (amongst other things), recruiting, developing, and retaining critical skills. Performance • Oversee remuneration processes as well as consider and approve remuneration-related issues and proposals. The Committee continued to monitor and, where necessary, • Assist the Board in identifying suitable members that improve the risk mitigation effectiveness and risk control. will address the Board’s requirements in terms of The Strategic Risk Register was revised and shared with the knowledge and skills. Board for approval. • Assist the Board with appointments, dismissal, succession planning, reviewing committee structures, and reviewing The key focus areas for the committee during the period the performance of the Board and its committees. included the Liquidity challenges faced by the Bank and the need to stabilize the Bank. Ensuring an effective control Performance environment was a specific priority the year under review. The Committee will continue to focus on returning the bank The Committee continued to ensure that its mandate, as to profitability. derived from the Board, was diligently executed – ensuring the implementation of the human resources strategy and maintaining appropriate human resources policies. The key focus areas for the committee during the period included the Liquidity challenges faced by the bank and the need to stabilize the Bank. Implementation of the Organisational culture survey remedial plan was a specific priority for the year under review. The Committee will continue to focus on returning the bank to profitability. 116 LAND BANK | INTEGRATED ANNUAL REPORT 2022 117 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS CREDIT INVESTMENT COMMITTEE Mandate Credit risk management is guided by Land Bank Act, PFMA, National Credit Act (NCA) of 2005, Financial Intelligence Centre Act (FICA) of 2001 and Basel Accords. The Committee periodically reviews the Bank’s credit policies, investment policy, and strategies together with risk management and significant credit risk management policies. This also includes tolerance and appetite for credit risk and the level of profitability the Board expects to achieve from assuming various credit risks. The Committee ensures appropriate credit and investment approval mandates structure, composition and quorum of the credit risk committees. All credit decisions are Committee-based, with charters prescribing the roles and responsibilities, delegated amounts, quorum requirements, and recording of any dissenting views by members for a specific transaction. Performance The responsibilities of the Committee include the review and approval of credit facilities and investment proposals from the respective management committees, including write-offs and restructuring in line with the approval framework. The key focus areas for the committee during the period included the Liquidity challenges faced by the Bank and the need to stabilize the Bank. Implementation of the Non-Performing Loans Strategy was a specific priority for the year under review. The Committee will continue to focus on returning the bank to profitability. Audit and Risk and Human Social and Credit And Land Bank Finance Governance Resource Ethics Investment Nominations Board Members Board Committee Committee Committee Committee Committee Committee (AFC) (RGC) (HRC) (SEC) (CIC) NON-EXECUTIVE DIRECTORS Ms N R Nkosi           (Board Chair) Mr A Makenete (Deputy Chair)    Prof J Kirsten     Ms D Maithufi      Ms M Makgatho      Ms T Mashanda      Ms N Motshegoa      Ms E Pillay     Dr M Tom    Adv D Van Der            Westhuizen 118 LAND BANK | INTEGRATED ANNUAL REPORT 2022 119 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS BOARD PROFILES Ms Thabi Nkosi Mr Andrew Makenete Ms Dineo Maithufi Dr Monde Tom Ms Ntuthu Mbiko- Ms Mathane Makgatho Adv Dimitri van der Ms Thulisile Mashanda Ms Egashnee Pillay Prof Johann Kirsten Non-Executive - Non-Executive – Deputy Non-Executive Director Non-Executive Director Motshegoa Non-Executive Director Westhuizen Non-Executive Director Non-Executive Director Non-Executive Director Chairman Chairman Non-Executive Director Non-Executive Director Profile: Profile: Profile: Profile: Profile: Profile: Profile: Profile: Profile: Profile: Ms Nkosi is an experienced Mr Makenete is an Ms Maithufi is a Dr Tom has extensive A full time beef Farmer/ Ms Makgatho has Advocate van der Ms Mashanda is an Ms Pillay is an Prof Kirsten is a NED and agricultural Agricultural specialist seasoned Chartered experience in socio- self accomplished extensive experience Westhuizen has experienced Chartered experienced Chartered Professor in Agricultural economist with over 15 with more than 25 Accountant and Credit economic development, Agripreneur. She holds in the Financial space, extensive experience Accountant in the Accountant with a focus Economics and Director years of experience in years’ experience in Risk Management financial economics, various development especially Treasury and in Labour relations audit and financial on audits and assurance. of the Bureau of agribusiness finance and the Agricultural sector, expert. She has worked social economics, and economic Structured Finance. and is owner of a disciplines in various She has been actively Economic Research at operations, and agricultural serves on a number in various managerial econometric modelling transformation roles in She has held various Consulting Company industries. She provides involved in audits with Stellenbosch University. policy-making and strategy. of boards and is an roles at key Banking (building, maintenance, the Agri and Biodiversity director and executive that specializes in professional advice on national departments, He has published more She is a founding partner active agri-entrepreneur, and Financial Services forecasting and impact Economy sector. She management positions Business Development, strategic disciplines public entities than 130 articles and of African Green Alpha, which includes the institutions since 2007. studies); input-output was awarded the BRICS for more than 24 years. Commercial such as financial and constitutional had 78 Masters students a South African food and Banking and Insurance She serves on various modelling; economic Special Recognition She has lead SAA cash Negotiation and reporting, taxation, SCM institutions. She is and 31 PhD students agribusiness investment industries. He heads an Boards as a NED and service development; Women Innovation and liquidity activities Contracting, Corporate processes, auditing, sitting on several Board in the last 30 years vehicle. Thabi is the Agricultural Investment holds a BCom (Hon.) leading economic Award in 2021 amongst under challenging Structuring focusing on forensic accounting to committees, chairs a under his supervision. Chairman of the Mintirho Group and was key Accounting Degree. development- other awards. conditions and averted BEE Structures, Skills name a few. She has number of Audit and He is an experienced Foundation. Thabi was also in the Development oriented teams with default on loan. She Development and consulted in various Finance Committees academic leader and serves as Chairperson of the Agriculture microeconomic focus; Period of service: has headed various Employment Equity. key auditing and fraud and holds a B.Com (H) has participated in of the Investment and Agro processing and turning-around debt transactions in He has headed various preventing activities and Accounting. national policy at the Committee of the National Master plan. He holds Period of service: struggling institutions. 8 December 2021 the domestic and restructuring and established internal audit highest level. He has Empowerment Fund. and MSc in Agricultural He holds a PhD on - 7 December 2024 international capital business re-engineering departments at various Period of service: held leading roles in Management. 8 December 2021 Technology and markets. She is a initiatives in the Banking entities. She serves on various Domestic Thabi holds an MBA, a - 7 December 2024 Innovation Management. Founder and Executive space and holds an LLB various Boards and 8 December 2021 and International Postgraduate Diploma Period of service: of Matla Capital and (PMB). holds a BA (Hon.) - 7 December 2024 Associations. from GIBS and a BSc in Board committees: holds a Master’s Degree Accounting. Agricultural Economics 8 December 2021 in Development Finance Period of service: Board committees: Period of service: from UP - 7 December 2024 Board committees: Period of service: Joint Land Bank and and an Honours Degree Period of service: Land Bank Life Insurance in Economics. 8 December 2021 Chair: Audit and Finance 8 December 2021 Period of service: Board committees: Chair Risk and 8 December 2021 Social and Ethics - 7 December 2024 8 December 2021 Committee - 7 December 2024 Governance, Credit and - 7 December 2024 Committee Member, Period of service: - 7 December 2024 8 December 2021 Human Resource Investment Committee Credit and Investment Land Bank Board sub Board committees: - 7 December 2024 Committee Member, Member Committee Member Reappointed: committees: Board committees: Joint Land Bank, Land 8 December 2021 Chair: Joint Land Board committees: Bank Insurance and Board committees: - 7 December 2023 Human Resource Audit and Finance Bank and Land Bank Land Bank Life Insurance Committee Member, Committee Member, Insurance and Land Risk and Governance Social and Ethics Chair Human Resource Board committees: Risk and Governance Human Resource Bank Life Insurance Committee Member, Joint Land Bank, Land Bank Committee Member Committee, Risk and Committee Member Committee Member Social and Ethics Insurance and Land Bank Governance Committee Chair: Credit and Committee, Credit and Life Insurance Social and Member Audit and Investment Committee; Investment Committee Ethics Committee Member. Finance Committee Audit and Finance Member Member Committee Member 120 LAND BANK | INTEGRATED ANNUAL REPORT 2022 121 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS BOARD MEETING ATTENDANCE Directors’ remuneration is paid in accordance with NT guidelines on remuneration for SOE board members, as determined by the Minister of Finance. LAND BANK BOARD ATTENDANCE FY21/22 In accordance with the Act, the Minister of Finance determines the remuneration, allowances, and associated benefits of the Board Land Bank CEO, and approves the bonuses of the CEO, CFO, and executive management. This process represents a misalignment with King Workshops Audit Credit and Human Social and Risk and IV, which states that it is the Board’s responsibility to approve CEO and executive remuneration. The Bank continues to engage   Board AGM and and Investment Resources Ethics Governance with the Minister to find an appropriate resolution that will ensure that the interests of all relevant parties are considered when Strategy Finance Committee Remuneration Committee approving remuneration to give effect to the intention and spirit of the King IV Code, principles, and recommended remuneration Sessions Committee policy practices.   22 1 5 5 14 11 4 4 Non-executive directors For details of the Board remuneration, please refer to the Annual Financial Statements included in this report. Mr A Moloto1 13 1 1 4 - 9 3 2 Me D Hlatshwayo1 13 1 1 - 11 7 3 3 KING IV CODE™ DISCLOSURES FOR THE YEAR ENDED 31 MARCH 2022 Ms SA Lund1 13 1 1 4 11 1 3 - Land Bank Board is committed to alignment with the corporate governance philosophies and principles contained in the King IV Me M E Makgatho 1/2 21 1 5 4 14 11 - - Report on Corporate Governance for South Africa (2016) (King IV Report) and achievement of the 17 Principles set out in the Dr S Cornelius1 13 1 1 - 11 9 3 - King IV Code of Corporate Governance (King IV Code) contained in the King IV Report, and achieving their associated good governance outcomes. Mr M Makgoba 1 13 1 1 4 - 8 - 2 Ms N R Nkosi 2 9 - 4 1 - 2 - 1 The Bank has reviewed its current corporate governance practices to assess its degree of alignment with each of the 17 Principles, Mr A Makenete2 7 - 4 - - - 1 1 and with the Recommended Practices associated with each Principle. The Board’s assessment of Land Bank’s application of each Ms D Maithufi2 9 - 4 1 - 2 - - of the King IV Principles towards the achievement of the King IV governance outcomes is summarised in the disclosure reference table below. Prof J Kirsten 2 8 - 4 - 1 2 - 1 Dr M Tom2 8 - 4 - 3 - 1 - These Disclosures include cross-references to where additional or other corporate governance disclosures are available within 9 - 4 1 1 2 - 1 Land Bank’s suite of external reports published for the 2021 reporting period, specifically: Ms N Motshegoa2 Adv D vd Westhuizen2 7 - 4 1 - 2 1 - • The 2022 Land Bank Annual Integrated Report. Ms E Pillay2 6 - 3 - 2 1 - - • Land Bank’s audited Annual Financial Statements for the year ended 31 March 2022. Ms T Mashanda2 8 - 4 - 3 - 1 - The Board takes ultimate responsibility for the good governance of Land Bank GroupThe Board has delegated some of its responsibilities Mr A Kanana3 21 1 5 5 14 9 4 4 to various structures and functionaries. These include the Audit and Finance Committee, the Social and Ethics Committee, the Risk Executive directors             and Governance Committee, the Credit and Investment Committee and the Human Resource Committee, individual directors and Ms K Mukhari 21 1 5 4 14 6 0 2 members of Management. All Delegations of Power are in writing and are reviewed and approved by the Board on an annual basis. All delegations of authority are in terms of Land Bank Act, the PFMA, Treasury Regulations and best practices. All Board Committees 1. Term ended 30 November 2021 function in terms of a comprehensive written terms of reference (Charter), which is reviewed and annually approved by the Board.The 2. New Director from 8 December 2021 Committees of the Board operate in terms of Work Plans which are approved by each Committee on an annual basis and revised in-year 3. Resigned February, effective 30 April 2022 if and when circumstances dictate.The focus areas of each Board Committee are agreed upon by each Committee on an annual basis. REMUNERATION REPORT Board Committees approve such matters as may have been delegated to them by the Board. Land Bank employs a Total Remuneration approach, which considers monetary and non-monetary rewards within Land Bank At least once every quarter or as often as is considered necessary, Board Committees receive reports from Management regarding Employee Value Proposition that is aligned to Corporate Strategy. the matters set out in the Committee Charters and Committee Work plans. Committees can make such recommendations and give such directions to Management on matters that fall within the ambit of their authority as they may consider appropriate. At The Bank reviewed the Remuneration and Compensation policy to attract, engage, and retain the right employees, promote least once every quarter or as often as is considered necessary Committees report to the Board on their activities and on how internal equity, and encourage behaviour that aligns with its values. However, the Bank’s remuneration policy is a regulated draft they have discharged their responsibilities. State Owned Companies (SOC) Remuneration and Incentive Guidelines (referred to as SOC Guidelines). These guidelines were developed by the Department of Public Enterprises together with NT. Whilst these guidelines are still to be approved, Land Bank Committees also make recommendations to the Board on matters that are reserved for the Board and on such others as it may has aligned the Remuneration and Compensation policy as per the request by NT. consider appropriate. The Board exercises oversight over the functions and activities of all Board Committees and Management in terms of its own Work Plan, which it develops and approves on an annual basis. The Board Work plan can be reviewed and The remuneration policy is aligned with the King IV Code of Corporate Governance, including its principles relevant to the amended in-year if, and when, circumstances dictate. governance of remuneration and reward. The Integrated Annual Report provides transparency in the disclosure of the Bank’s remuneration policies and practices, and their implementation. Remuneration guidelines are regulated by the SOCRIG requirements, PFMA and Land Bank Act, relating to the remuneration of the Board and executives. 122 LAND BANK | INTEGRATED ANNUAL REPORT 2022 123 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS KING IV CODE™ PRINCIPLES LEADERSHIP, ETHICS AND CORPORATE CITIZENSHIP STRATEGY, PERFORMANCE AND REPORTING Principle 1: The Board should lead ethically and effectively. Principle 4: The Board should appreciate that Land Bank’s core purpose, its risks and opportunities, strategy, business The conduct of the Board is governed by, among others, a Board Charter, a Board Code of Ethics and Business Conduct, a Board model, performance and sustainable development are all inseparable elements of the value creation process. Conflict of Interest Policy and a Board Manual.This is over and above the fact that the Board subscribes to the principles advocated The NT Framework governs the strategic planning processes of the Bank for Strategic and Annual Performance Plans (2010), which in among others, the King Report on Corporate Governance for South Africa, 2016. seek to ensure that strategic and annual performance planning is aligned to the outcomes-oriented monitoring and evaluation approach led by the Presidency, in particular, the National Development Plan. Board members have an individual and collective responsibility to set the tone for ethical organisational culture, both at board level and across the Group. Board members hold each other to account for their actions, in particular those actions which may be It is the responsibility of the Management to develop a Corporate Strategy for the Bank, which each standing Committee of viewed in conflict with their fiduciary responsibilities as directors. the Board then reviews to ensure that it is in line with the mandate and goals of the Bank with regard to the empowerment of previously disadvantaged communities, the promotion of emergent farmers, the sustainability of commercial agriculture and food The Board engages at least once a year with employees regarding the goals and strategic objectives of the Bank, which are driven security. The Strategy is then considered and approved by the Board, which seeks to ensure that it resonates with the identified by the Board’s unapologetic approach and adherence to high ethical standards.The Board will not hesitate to act against employees risks and opportunities, performance parameters, the future outlook and governance arrangements of the Bank, and establishes a regardless of their designation or level where it is considered that these standards have been in breach. strategic platform for the Bank to create value over the short, medium and long-term aligned to identified needs and expectations of the Bank’s key stakeholder base. Land Bank prides itself on the governance processes in place and that in the face of any corporate governance lapses, the Board does not hesitate to take disciplinary action and dismiss individuals where necessary. The Board is, however, cognisant of the fact that it is entitled to discharge such responsibility by way of express delegation of its authority to control, manage and direct its own affairs. The Board has. therefore, approved a primary and secondary Delegations Refer also to the disclosures contained in the Integrated Report (page 112) in relation to the Board’s ethical and effective of Power. leadership of the Bank in respect of the Board’s performance of the governance functions for the Bank. Refer to the disclosures contained in the Integrated Report (pages 106 to 109) in relation to the Board and Executive Management Principle 2: The Board should govern Land Bank’s ethics in a way that supports the establishment of an ethical culture. team’s role in relation to directing and executing the Bank’s approved business strategy aligned to its approved Corporate Plan. The Board has approved a Code of Ethics and Business Conduct to which all members of staff are required to adhere. These are clearly articulated ethical standards and the Board, through its Social and Ethics Committee, ensures that they are adhered to in Principle 5: The Board should ensure that the reports issued by Land Bank enable its stakeholders to make informed all aspects of the business, thus achieving a sustainable, ethical corporate culture. assessments of Land Bank’s performance and its short-, medium-, and long-term prospects. Reporting is governed by Land Bank Act, the PFMA, NT Regulations, NT Guidelines for Annual and Quarterly Reporting and Through the Social and Ethics Committee, the Board also ensures that Management develops and implements programmes, the Rules of the Johannesburg Securities Exchange (JSE). All external reports are first reviewed by the Committees of the Board guidelines, and practices congruent with Land Bank’s social and ethics policies and reviews the material risks and liabilities relating for accuracy, usefulness, timeliness and completeness before they are tabled before the Board for approval and for release to to the provisions of the Code of Ethics and Business Conduct and ensures that such risks are managed as part of Land Bank’s third parties. Where applicable, such reports are first validated by internal audit before they are tabled before the Board and its risk management programme which is overseen by the Risk and Governance Committee. Towards that end, the Social and Committees for consideration and approval. Ethics Committee receives and reviews a quarterly AML (Anti-money Laundering) Report, which deals with, among others, PIPs (Politically Influential Persons) and PEPs (Politically Exposed Persons). The Committee also receives reviews and advises on an The Board and its Committees, therefore, review and have oversight over the integrity of the Bank’s external reporting which Ethics Report, which covers the status of ethical conduct within the Bank. includes reliance on the effective application of the Bank’s combined assurance arrangements. Internal and external assurance is applied to the various components of the external reporting suite under the oversight and direction of the relevant Board Refer also to the disclosures contained in the Integrated Report (page 117) in relation to the Social and Ethics Board Sub- Committees and with reference to any legal requirements for independent, external audit and/or assurance contained in any Committee’s performance of governance oversight functions in relation to the Bank’s Management and monitoring of organisational relevant law and/or regulations (as applicable for instance to certain types of external reports, such as the Bank’s statutory Annual ethics. Financial Statements). Principle 3: The Board should ensure that Land Bank is and is seen to be a responsible corporate citizen. The Board continues to work at achieving better audit outcomes and remedying the findings, which resulted in a Disclaimer The Board has approved the Bank’s adoption of the United Nations Environmental Programme Finance Initiative’s Principles for Opinion by the Auditor General in the previous Financial Year. Progress in this respect is evidenced by the Qualified Audit Opinion Responsible Banking (PRB) programme. issued by the Auditor General for the Financial Year under review. The opinion would have been unqualified but for the lack of cooperation by an SLA Partner is not providing bank statements required by the Auditor General for the auditing of its affairs.This The Board has approved an ESS Policy and Programme which recognises that it has an opportunity to play an important role in resulted in a limitation of the scope of the audit. promoting land stewardship, protecting the environment and communities impacted by its activities and help secure the long-term sustainability of natural resources, communities, and society at large. Refer to the Integrated Report (page 14) in relation to the Board’s performance of its governance oversight role in relation to the Integrated Annual Report, and to the audited statutory annual financial statements, as well as the Auditor-General Report included The Board also recognises its dependence on the environment and the resources it provides for the achievement of its objectives. therein, in relation to the Board’s approval of those financial statements. As such, the Board aims to be a responsible steward in the protection of the environment and human rights to strengthen its social license to operate. Principle 6: The Board should serve as the focal point and custodian of corporate governance in Land Bank. The Board is the custodian of corporate governance and is ultimately responsible for corporate governance. Board actions Refer to the disclosures contained in the Integrated Report (pages 114 to 118). Sub-committee initiatives (pages 114 to 122) are governed by the law and regulation, a Board Charter and Manual, Treasury Guidelines and Practice Notes, and corporate Board profiles and (pages 120 to 121) EXCO profiles in relation to the Board and Executive Management team’s leadership of governance best practices, including the King Report on Corporate Governance for South Africa. the Bank’s various initiatives demonstrating its commitment to responsible corporate citizenship. [https://landbank.co.za/About-Us/Pages/Our-Board.aspx]. Refer to the disclosures contained in the Integrated Report (pages 114 to 120) in relation to the Board’s performance of its role as custodian of corporate governance for the Bank, including information about the meetings of the Board that occurred during the relevant reporting period. 124 LAND BANK | INTEGRATED ANNUAL REPORT 2022 125 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Principle 7: The Board should comprise the appropriate balance of knowledge, skills, experience, diversity, and Refer to the disclosures contained in the Integrated Report (pages 114 to 120) in relation to the Board’s governance structures and the independence for it to discharge its governance role and responsibilities objectively and effectively. various Board sub-committee reports setting out each Committee’s performance and focus areas during the relevant reporting period. Section 8(6) of Land Bank Act provides that Land Bank Board must when viewed collectively, represent a broad cross-section of the South African population; be suited to serve on the Board by virtue of qualifications, expertise and experience; and Principle 9: The Board should ensure that the evaluation of its own performance and that of its committees, its chair be committed to the objectives of Land Bank. Towards that end, a Board Skills is in progress for the new Board appointed in and its individual members, support continued improvement in its performance and effectiveness. December 2021. The Matrix takes cognisance of: The Board believes that appraising its performance helps clarify Directors’ individual and collective roles and responsibilities and better knowledge of Directors’ expectations helps the Board become more effective. It assists in identifying skills and capacity gaps • Determining the Board and Board Committee optimal structures which, when filled, enables the Board to be better positioned to deliver on its mandate, goals and strategic objectives. • Identifying the current skills, knowledge, experience and competencies of the Board and Board Committees • Identifying the skills gaps at the Board and Board Committee level The Board assessment report was tabled to the Board and a development plan was created to for development and training purposes. • Designing programmes to close skills gaps • Informing programmes for the continuing development of Directors Refer to the disclosures contained in the Integrated Report (pages 114 to 120) in relation to the Board’s process for periodic • Integrating board evaluation with succession planning independent evaluation of its performance and effectiveness in respect of discharging its statutory functions and the other governance functions as set out in the Board Charter. Providing guidance for: • The recruitment of Directors for Subsidiary Entities; Principle 10: The Board should ensure that the appointment of, and delegation to, Management contribute to role • The assignment of Directors of the parent entity to the Boards of Subsidiaries; clarity and the effective exercise of authority and responsibilities. • Recommending directors to the Minister for appointment, reappointment, and termination; The Board has an approved Delegation of Powers framework to enable appropriate delegation of authority and responsibility to • The assignment of directors to, among others, to Board Committees, Board Task Teams, and Board Working Groups; the executive functions that comprise Land Bank’s appointed executive team and role clarity to promote effective arrangements • Nominating directors for appointment to third-party entities where the Bank has equity interests; for the Management of the Bank. The Board delegates authority to the executive directors to manage the day-to-day business and • Selecting advisers to the Board, Board Committees and Management; and affairs of the business, but maintains overall responsibility for governance-level leadership of the Bank. • Identifying and developing potential director talent in and outside the Bank. The delegations of power are supported by a system of checks and balances to ensure good governance and pre-empt A skills audit of the new Board will be conducted and used to inform the above and will be used in particular to determine skills undue concentration of powers. The approved Delegation of Powers promotes role clarity and effective arrangements for the gaps and development areas on the Board, and to inform recommendations to the Minister regarding the filling of Board vacancies. Management of the Bank. It should be noted that regardless of the above, in terms of Land Bank Act, the exclusive authority to appoint Board members Refer to the disclosures contained in the Integrated Report (pages 12 and 114 to 118) in relation to the Board’s performance of ultimately resides in the Minister. its governance oversight functions in relation to the Bank’s Executive and Management functions under the approved Delegation of Powers. Refer to the disclosures contained in the Integrated Report (pages 114 to122 ) in relation to the Board’s performance of its role as custodian of corporate governance for the Bank, including information about the meetings of the Board that occurred during Principle 11: The Board should govern risk in a way that supports Land Bank in setting and achieving its strategic objectives. the relevant reporting period. Risk oversight is a primary Board responsibility, and the Board develops and continuously improves practices to establish a well- defined and effective oversight function. The Board plays a critical role in influencing Management’s processes for monitoring Principle 8: The Board should ensure that its arrangements for delegation within its own structures promote risks and clearly defines which risks the full Board should regularly discuss, versus risks that can generally be delegated to a Board independent judgement and assist with balance of power and the effective discharge of duties. Committees. Management maintains a list of all enterprise-wide risks, which are mapped for the specific oversight of Board The business and affairs of Land Bank are managed by or under the direction of the Board, which has the authority to exercise all committees, particularly the Risk and Governance Committee. of the powers and perform any of the functions of Land Bank, except to the extent that Land Bank Act otherwise provides. The Board acknowledges its authority and responsibility to control, manage and direct its own affairs. The Board is, however, cognisant Refer to the disclosures contained in the Integrated Report (page 98 and 113) in relation to the Board’s governance oversight of of the fact that it is entitled to discharge such responsibility by way of express delegation of its authority to control, manage and the Executive’s performance of the risk management functions for the Bank. direct its own affairs. Principle 12: The Board should govern technology and information in a way that supports Land Bank setting and Towards that end, the Board has delegated some of its powers, duties and functions to the CEO of Land Bank, certain Directors, achieving its strategic objectives. Board Committees, employees of Land Bank, and holders of certain specific positions or bodies. Information and technology governance is the responsibility of the Board and Management. It is an integral part of the overall governance structures of Land Bank, and directors take an active role in information and technology strategy and governance The Board has approved primary and secondary delegations of power, which comprehensively set out the powers it has reserved through the Risk and Governance Committee. for itself, and the powers delegated to Board Committees and other structures and functionaries. The Board ensures the proper value delivery of information and technology, that the expected return on investment from In delegating its powers, function or duties, the Board has not divested itself of its responsibility concerning the exercise of the information and technology projects is delivered and that the information and intellectual property contained in the information delegated powers or the performance of the delegated functions or duties. The holders of delegated power are accountable to systems are protected. the Board for the exercise of delegated power and must report to the Board on how the delegated power has been exercised. All material facts or information regarding the exercise of delegated power has to be disclosed. The Board governs technology and information in a way that supports the setting and achieving of the strategic objectives of Land Bank. It also ensures that the information and technology of Land Bank sustains and extends the strategy and objectives of the Bank. The Board can confirm, vary, or set aside any decision made under any delegation subject to any rights that may have become To this end, the Board had appointed an IT specialist to assist and review the technology strategy and framework. vested as a consequence of the decision. All delegations by the Board are subject to any statutory limitations and conditions that the Board may impose. All delegations are supported by a system of checks and balances to ensure good governance and the The Board specifies the decision rights and accountability framework designed to encourage the desirable culture in the use of mitigation of the undue concentration of powers. The Board must amend or withdraw any delegation at any time. The Board must information and technology. The Board specifies the decision rights and accountability framework designed to encourage the agree to the levels of sub-delegation immediately below the CEO. The Board will not delegate its authority to delegate. desirable culture in the use of information and technology. Refer to the disclosures contained in the Integrated Report (page 64) in relation to the Board’s governance oversight of the Executive’s performance of the information and technology management functions for the Bank. 126 LAND BANK | INTEGRATED ANNUAL REPORT 2022 127 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Principle 13: The Board should govern compliance with applicable laws and adopt, non-binding rules, codes and Principle 15: The Board should ensure that assurance services and functions enable an effective control environment, standards in a way that supports Land Bank being ethical and a good corporate citizen. and that these support the integrity of information for internal decision-making and of Land Bank’s external reports. The Board insists on compliance with the law. The Board insists that exceptions permitted in law and shortcomings in the law are The Board has adopted a Combined Assurance Model, which consists of three internal lines of defence, viz. handled in a responsible manner. i. people, systems and controls; ii. risk management and compliance function; The Board defines the approach and approves the policy for the Management of compliance. iii. internal audit function; and iv. independent external assurance (AG). The Board considers if adhering to applicable non-binding rules and standards achieves good governance and adheres to them if that would result in best practice. The Board discloses the applicable non-binding rules and standards to which it adheres on The combined assurance model ensures a coordinated approach to all assurance activities. The Combined Assurance model is a voluntary basis. This includes a subscription to the recommendations of the King Report on Corporate Governance for South based on: Africa, 2016. The Board timeously identifies the laws, regulations and non-binding rules and standards applicable to it. i. identified risks; ii. how assurance is achieved for the particular risk; Directors sufficiently familiarise themselves with the content of applicable laws and regulations and those non-binding rules and iii. an identified assurance provider for the risk; and standards that Land Bank voluntarily abides by, to ensure that they have a sufficient understanding of the applicable content and iv. where this assurance is reported. effect of such laws, regulations, rules and standards on Land Bank and the business of Land Bank. The Board seeks to ensure that the assurance which is provided by the three lines of defence is credible. This is achieved by Refer to the disclosures contained in the Integrated Report (page 117) in relation to the Board’s governance oversight of the ensuring that the skill and experience levels of the assurance providers are appropriate for the work to be performed and that Executive’s performance of the compliance management functions for the Bank. the extent of the work performed will address the potential and actual exposures. Principle 14: The Board should ensure that Land Bank remunerates fairly, responsibly, and transparently to promote The Board also ensures a comprehensive plan for combined assurance, including the risk-based assurance coverage, which is the achievement of strategic objectives and positive outcomes in the short, medium, and long term. analysed per the assurance provider and the Management/Governance Committee responsible. The Board regularly reviews and approves a remuneration policy for all Land Bank staff members. The Audit and Finance Committee approves and oversees the combined assurance initiative. From an operational point of view, an internal audit acting in consultation with risk management reviews the continued relevance of the combined assurance plan and The Board regularly reviews and approves the remuneration arrangements of Executives including fixed and variable remuneration makes recommendations to the Audit and Finance Committee about improvements. components, performance measures and targets for incentives, having regard to the outcome of the annual performance review of the Executives. Internal Audit champions Combined Assurance. Refer to the disclosures contained in the Integrated Report (page 141 to 143) in relation to the Board’s governance oversight of The Board regularly reviews and approves the terms and conditions of the employment contract of the Chief Executive Officer, the quality and effectiveness of the Bank’s internal audit function and its combined assurance arrangements. including remuneration arrangements of the Chief Executive for approval by the Minister. STAKEHOLDER RELATIONSHIPS The Board considers and, if deemed appropriate, approves the terms and conditions of the contracts of employment of other members of the Executive and Senior Management. The Board considers and, if deemed appropriate, approves the remuneration Principle 16: In the execution of its governance role and responsibilities, the Board should adopt a stakeholder- arrangements for other members of the Executive and Senior Management, as recommended by the Chief Executive Officer. inclusive approach. The Board satisfies itself that all governance, accounting, legal, approval and disclosure requirements in relation to remuneration The Board has adopted an inclusive approach to stakeholder management. The Board has approved a Communication Policy are complied with. which governs all its interactions with stakeholders, internal and external. The Board satisfies itself that any new or varied contracts with the Chief Executive Officer are disclosed in accordance with any The Board exercises oversight over the Group Communication function through the offices of the Social and Ethics Committee, governance, accounting, and legal requirements. which receives and reviews the following quarterly reports: i. Labour and Employment Practices Report The Board oversees Management’s preparation of the Remuneration Report for inclusion in Land Bank’s Integrated Report, ii. Marketing and Communications Report reviews the Remuneration Report to ensure it is consistent with the information known to the Board, and appropriately reflects iii. Stakeholder Management Report the decisions of the Board and the outcomes of those decisions.The Board manages Land Bank’s engagement and communications iv. Development and Transformation Report with key stakeholders in relation to the content of the Remuneration Report. v. Environmental and Social Sustainability Report vi. Corporate Social Investment (CSI) Report Refer to the disclosures contained in the Integrated Report (page 116) in relation to the Board’s governance oversight of the vii. Research Report Executive’s performance of the compliance management functions for the Bank. viii. Organisational Integration and Project Support Report - A Group Governance Framework, which sets out ix. The principles of good group governance x. The Group Governance Philosophy xi. Ethical Leadership xii. Group Governance Processes and Structures xiii. The Roles and Responsibilities of role players xiv. Key Group Governance Policies xv. Reporting xvi. Contracting xvii. Dispute Resolution xviii. Implementation and monitoring 128 LAND BANK | INTEGRATED ANNUAL REPORT 2022 129 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS The Group Governance Framework has been prepared strictly in accordance with the guidelines provided by the IoD in January The Bank is implementing various action in order to adopt this approach as progress is made towards reporting on Natural Capital 2019 and recognises the independence of the subsidiaries and the corresponding fiduciary duties of the directors of the Board elements. Progress to date in this regard is as follows: of directors. Draft Development This policy provides an integrated approach to funding and Refer to the disclosures contained in the Integrated Report (pages 117 to 123) in relation to the Board’s governance oversight of Effectiveness Strategy reporting, drawing on the Natural Capital elements. the quality and effectiveness of the Bank’s stakeholder engagement, and related policies and practices, and its group governance This policy provides a holistic approach to the strategy and framework applied to co-ordinate the corporate governance arrangements of the entities within Land Bank Group. Strategic progress operational process to infuse climate adaptation, climate Draft Climate Change Policy mitigation and climate resilience across the Bank and Principle 17: The Board should ensure that responsible investment is practiced by Land Bank to promote good operations. governance and the creation of value by the companies in which it invests. This indicator framework provides relevant and inclusive indicators for data capturing and reporting purposes. The Land Bank Board performs oversight of the Banks investment management activities through its nominated asset managers and Land Bank Development Natural Capital indicators are included in this document and investment managers, including by ensuring that they support the principles of responsible investment and are either signatories of Indicator Framework provides a basis for collection of climate related data for the the United Nations Principles for Responsible Investments (UNPRI), or subscribe to the Code for Responsible Investing in South Bank. Africa (CRISA). The Bank became a signatory in September 2019. At a high Principles of Responsible The Bank’s Management is responsible for proactively monitoring investment performance, its asset managers in their responsible level the PRB requires all Banks to align their strategy, process Banking stewardship practices, and requesting the incorporation of environmental, social and governance factors in the investment selection Tactical and procedures to the Paris Agreement and the SDGs. process. progress The study aims to identify through modelling the expected Case Study on Climate Services changes in temperature and the results and effect on Maize The Board has requested that Management develop a formal Responsible Investment Policy that, once approved by the Board, will for Land Bank yields for the North West Province. This will allow the Bank require adjustments to the Bank’s investment mandates for the Bank’s outsourced investment management activities. The policy to start integrating the associated risks into the Banks credit will apply to all business units in the Bank in respect of investment and investment management activities of Land Bank and its modelling and decision making. subsidiary companies. This is a survey understanding by the Bank with clients to Understanding climate adaption assess the effect of climate change on their operations, their responses and needs. Refer to the disclosures contained in the Integrated Report (pages 114 to 118) in relation to the Board’s governance oversight of response, and their future needs to adapt to climate change. the Bank’s responsible investment policies and practices. The Environmental and Social Risk Assessment Tool is Environmental and Social Risk imbedded as part of due diligence process and tools. This TASK FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES Operational progress Assessment (ESRA) aims to identify the risks that the Bank is exposed through the funding and to enable mitigation of risks through cooperation. In the context of integrated reporting, the King IV Report provides detail of the organisation’s uses and/or effects on all Capitals. Within Land Bank, and Agricultural sector at large, the Natural Capital is of significant importance. The King IV Code™ is designed References: to promote good corporate governance in South African companies. Such governance encompasses the roles and responsibilities King Committee. 2021. Guidance paper on the responsibilities of governing bodies in responding to climate change. of the Board of Directors, strategy, performance, reporting, and stakeholder relationships. Land Bank strives to comply to the Code and ensure that an integrated governance process is instituted. Acknowledging the governance for Natural Capitals with regards to The Task Force on Climate Related Financial Disclosures (TCFD) is critical. The TCFD is an industry-led initiative created to develop a set of recommendations for voluntary climate-related financial disclosures. These are aimed at all financial actors, from companies and investors to asset owners and managers, as the goal is to provide consistent and transparent information to global markets. The TCFD is aligned to King IV, as a deliberate response to addressing climate adaptation, climate resilience, and sustainable financing as per NT’s Handbook on Sustainable Finance. TCFD governance element relates to Disclosing the organisations governance around climate-related risks and opportunities. Governing Bodies have a critical role to play in responding to climate change which is an imperative and no longer optional” – King Committee on Corporate Governance, 2021. 130 LAND BANK | INTEGRATED ANNUAL REPORT 2022 131 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS 12 FINANCIAL STATEMENTS 132 LAND BANK | INTEGRATED ANNUAL REPORT 2022 133 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Index General Information General Information 135 Shareholder National Treasury, Government Department Director’s’ Responsibility For Financial Reporting 137 Directors’ Report 138 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 Group Secretary’s Certification 140 Management Act (PFMA). Audi And Finance Committee Report 141 Report Of The Auditor-General 144 Country of incorporation and domicile The Republic of South Africa Statements Of Financial Position 148 Nature of business and principal activities The Land Bank provides retail and wholesale finance to emerging, commercial Statements Of Profit Or Loss And Other Comprehensive Income 149 farmers and Agri-Businesses. In addition to its banking operations, the Land Bank extends its services to the insurance sector through its subsidiaries. Statements Of Changes In Equity 150 Statements Of Cash Flows 151 Head office physical address 272 Lenchen Avenue Segment Reporting Business 153 Lakefield Office Park, Building A, First Floor Die Hoewes Accounting Policies 162 Centurion Notes To The Financial Statements 181 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 Funding sponsors The Standard Bank of South Africa Limited Auditors The Auditor-General of South Africa Company secretary Mashumi Mzaidume (appointed 9 October 2017) 134 LAND BANK | INTEGRATED ANNUAL REPORT 2022 135 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS General Information Directors’ Responsibility for Financial Reporting Land bank subsidiaries Land Bank Life Insurance Company (SOC) Limited (LBLIC) 1954/003095/06 The Directors are required by the South African Companies Act In order for the Board to discharge its responsibilities, to maintain adequate accounting records and are responsible management has developed and continues to maintain a system Land Bank Insurance Company (SOC) Limited (LBIC) 2012/115426/30 for the content and integrity of the consolidated and separate of internal control. The Board has ultimate responsibility for the annual financial statements and related financial information system of internal control and reviews its operation, primarily All of the above entities are incorporated in the Republic of South Africa included in this report. It is their responsibility to ensure that the through the Audit and Finance Committee and various other consolidated and separate annual financial statements satisfy the risk-monitoring committees. Management enables the Directors financial reporting standards as to form and content and present to meet these responsibilities. Holding company Land and Agricultural Development Bank of South Africa (the Land Bank or fairly the consolidated and separate statement of financial the Bank) The consolidated financial statements have been prepared position, results of operations and business of the Group, and explain the transactions and financial position of the business of in accordance with the requirements of the International the Group at the end of the financial year. The consolidated and Financial Reporting Standards (IFRS) (with consent from the Nature of business and principal activities Land Bank Life Insurance Company (LBLIC) and Land Bank Insurance Company separate annual financial statements are based upon appropriate Accounting Standards Board per Directive 12 of 2015) and the (LBIC) operate in the insurance sector. accounting policies consistently applied throughout the Group interpretations issued by the International Financial Reporting and supported by reasonable and prudent judgements and Interpretations Committee (IFRIC), applying the accrual basis of LBLIC offers credit life insurance products and LBIC offers primarily crop estimates. accounting, the going-concern principle, and using the historical- insurance products to the wider agricultural sector. LBLIC and LBIC are cost basis, except where specifically indicated otherwise in the incorporated in terms of the Companies Act of South Africa, 2008 (Act No. 71 The Directors acknowledge that they are ultimately responsible accounting policies. of 2008) and are schedule 2 Public Entities in terms of the PFMA. for the system of internal financial control established by the Group and place considerable importance on maintaining a The consolidated annual financial statements were prepared robust control environment. To enable the directors to meet under the supervision of the Bank’s Acting Chief Financial Officer. Head office physical address 272 Lenchen Avenue these responsibilities, the board sets standards for internal Lakefield Office Park, Building A, First Floor The previous board’s term ended on the 30 November 2021. control aimed at reducing the risk of error or loss in a cost- Die Hoewes The Minister of Finance has since appointed a new board effective manner. The standards include the proper delegation Centurion effective 8 December 2021. of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to Postal address P. O. Box 375 ensure an acceptable level of risk. These controls are monitored The financial statements set out on pages 148 to 272, which Tshwane throughout the Group and all employees are required to have been prepared on the going concern basis, were approved 0001 maintain the highest ethical standards in ensuring the Group’s by the board of directors on 29 July 2022 and were signed on business is conducted in a manner that is above reproach in all their behalf by: reasonable circumstances. Bankers LBLIC: ABSA Bank Limited LBIC: RMB Private Bank, division of First Rand Limited The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across Auditors The Auditor-General of South Africa the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate Ms. Thabi Nkosi Ms. Khensani Mukhari infrastructure, controls, systems and ethical behaviour are applied Chairman of the Board Acting Chief Executive Officer Company secretary Mashumi Mzaidume 31 July 2022 31 July 2022 and managed within predetermined procedures and constraints. 136 LAND BANK | INTEGRATED ANNUAL REPORT 2022 137 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Directors’ Report Directors’ Report continued The directors have the pleasure of presenting this report on the The Board has through the Audit and Finance Committee been The Land Bank book is largely concentrated in grain and has • Net interest income increased by more than 100% to Annual Financial statements of the Land and Agricultural Bank of continually monitoring and guiding this process. It is on this basis as therefore been minimally impacted by the COVID-19 pandemic. R596 million (31 March 2021: R163 million); South Africa for the year ended 31 March 2022. well as information and explanations received from management The Land Bank customers that were affected by COVID-19 • Expected credit losses on financial assets at amortised cost that the Directors are of the opinion that the system of internal restrictions were limited to livestock and this impact was not reduced to R5,0 billion (31 March 2021: R6,0 billion); Cash Going concern control provides reasonable assurance that the financial records material. flows generated from operations increased to R11.5 billion are reliable for the preparation of the annual financial statements. (31 March 2021: R8,1 billion); The Bank is still navigating through some challenges that the However, any system of internal financial control can provide Different types and levels of support will however still be • Total assets decreased by 13% to R34,7 billion (31 March Board is working hard to resolve. These challenges threaten only reasonable, and not absolute, assurance against material required to assist distressed farmers as a result of COVID-19 2021: R40.1 billion); the going concern status of the Bank. The Board however misstatement or loss. in order to improve chances of sustainability. To this effect, in • NPL ratio worsened to 47,7% (31 March 2021:32,5%); believes that through interventions that have and continue to addition to measures implemented by Land Bank to assist • ECL Coverage Ratio increased to 19,4% (31 March be implemented, the Bank will continue to operate as a going During the previous financial year, the Minister of Finance has in its clients, the Bank received R100m COVID-19 relief fund 2021:16,4%); concern in the near future. terms of Section 92 of the Public Finance Management Act No. from the Department of Agriculture, Land Reform and Rural • Basel II CAR increased to 12,2% (31 March 2021:10%); 1 of 1999, exempted Land Bank from submitting the FY2022 and Development (DALLRD) in order to support its clients who • LCR improved to 66% (31 March 2021:35,8%) The Bank is still operating under a state of default which FY2023 Corporate plans as required by Section 52 of the same have been negatively impacted by COVID-19 pandemic. The • NSFR dropped slightly to 95,8% (31 March 2021:96,8%) occurred during April 2020. It is unfortunate that the liability Act until Land Bank is cured of its default position and more Bank continues to monitor the impact of COVID-19 in the • Banking Gearing Ratio has improved to 1001% (31 March solution intended to cure the default has taken longer than certainty is gained regarding the future structure of the Bank. agricultural sector. 2021: 2250%) initially anticipated to conclude. However, supported by the Owing to the state of default the Bank is still operating under, • Solvency Ratio has improved to 110% (31 March 2021: 104%) Shareholder, the Bank together with its advisors continues the exemption remains in place. The Bank however continues to Heavy rainfall/ floods working together with lenders to find a solution that is suitable contract with the Shareholder on annual performance targets The past summer season was characterized by excessive rains Recommencement of lending for all stakeholders. Successful closure of the liability solution will and to account to Parliament. in many parts of the country. There are four provinces that have ensure the Land Bank remains a going concern by allowing the been severely affected by the floods. These are, KwaZulu-Natal, Land Bank, in consultation with lenders, has set aside from its Bank to transition to implementation of the solution as well as Leadership & Capacity Eastern Cape, North West and Free State. Both excessive rains cash resources an amount of R500m in FY2022/2023 to be the Bank’s rebuilding strategy. The Shareholder has been very and floods have resulted in the saturation of farm land to the deployed as loans in its resumption of new lending activities supportive through this process as evidenced by the continued Land Bank has seen the resignation of its previous CEO who left extent that planting in most areas was affected. Those who had for the development portfolio on a blended finance basis. An engagements with all stakeholders through the restructuring the Bank at the end of April 2022. The Executive Manager for already planted early, had their crops damaged by hailstorms equivalent amount of R500m is being sourced from strategic process as well as by the R10bn allocated to recapitalise Land Agricultural Economics and Advisory also left the Bank during and floods. The Bank performed an assessment of the financial funding partners to be offered as grants on these new facilities, Bank. R3bn was transferred to Land Bank during September the end of the current financial year. Interim measures have been impact on the Land Bank through client site visits. The financial resulting in a planned support of R1bn to the development 2020. The remaining R7bn was rolled over to the FY2023 and implemented to ensure continuity. The recruitment process for impact was assessed as not significant. sector made up of R500m loans by the Bank and R500m of FY2024 financial years as it is dependent on the Land Bank the CEO role is currently in progress. grants from strategic partners. meeting conditions precedent which requires the Bank to utilise Foot and mouth disease the funds to cure the event of default as well as re-establish the Other risks South Africa is currently facing three outbreak events of FMD. The Land bank board with its management are still committed development and transformation mandate as encapsulated in The first event started in May 2021 and is affecting KwaZulu- to see the Land Bank cross over onto the new dawn as it the Land Bank Act. Reaching an agreement with lenders on the The Bank plays a pivotal role in the agricultural sector in the Natal province. The second outbreak event started in March strengthens its control environment and recommence lending debt restructuring process will unlock this funding.The Bank also country and has continued to work with industry bodies to 2022 in the previous “free zone” in Limpopo Province. The towards a sustainable development bank. continues to receive the support of its lenders as to date only find solutions not only for its clients but broadly in response third outbreak event also started in March 2022 in the North one lender has accelerated their debt. All other lenders remain to disasters that have affected the sector in the past year. The West Province. The disease has gone outside boundaries of the committed to work with the Bank in order to find an amicable impact of COVID-19 and natural disasters such as heavy rainfall/ disease management area and therefore poses a big threat to solution to the default challenge. floods, foot and mouth disease (FMD) has been assessed as the trade of animals and by-products. Due to the Land Bank follows: being largely concentrated in grain, this impact is not significant. Despite its challenges the Bank has been able to accumulate sufficient cash that enabled the repayment of ~43% of debt COVID-19 Financial Performance outstanding at default and the Bank has been able to continue The agri-food industry is among the few sectors that were Ms. Thabi Nkosi Ms. Khensani Mukhari to operate. classified as essential services under COVID-19 lockdown The financial results of the group are fully disclosed on pages Chairman of the Board Acting Chief Executive Officer restrictions and was largely able to operate, even though with 148 to 161. The key financial indicators for the year are: 31 July 2022 31 July 2022 During the past financial year Land Bank was able to improve the some restrictions. Despite such protection, COVID-19 had Net profit of R1,4 billion (31 March 2021: R711 million loss) •  audit outcome from a disclaimer of opinion to a qualified audit a direct impact on certain commodities as well as an indirect Cost to income ratio improved to 96% (31 March 2021: opinion.This was as a result of a focussed and extensive remedial impact on most sectors within the agricultural industry. -964%); plan that was implemented by the Bank to address identified • Operating income increased to R1,9 billion (31 March 2021: control deficiencies. The remedial process was extended to The magnitude of the impact of lockdown restrictions varied R0,410 million operating loss); the current financial year to ensure residual gaps in the control between the different lockdown levels and between various environment are closed, this resulted to the unqualified audit commodity groups.The agricultural industries that were impacted opinion we received. the most are wine grapes, wine producers, wool, mohair, broilers, flowers, nurseries as well as tobacco. 138 LAND BANK | INTEGRATED ANNUAL REPORT 2022 139 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Group Secretary’s Certification Audit & Finance Committee Report In terms of section 88(2)(e) of the Companies Act 71 of 2008, hereafter referred to as the Companies Act, I declare that to the best I herewith present the report of the Land Bank Audit and • The volatile macro-economic environment and management’s of my knowledge, for the year ended 31 March 2022, the Land and Agricultural Development Bank of South Africa has lodged with the Finance Committee (the Committee) for the financial year responses thereto; Registrar of Companies all such returns as are required of a State Owned Company in terms of the Act and that such returns are true, ended 31 March 2022. The Committee acts in consultation • Internal controls, risk management and compliance processes, correct and up to date. with other committees of the entity in particular the Risk and delegations of authority, combined assurance and business Governance Committee. continuity; and • Controls to prevent irregular, fruitless and wasteful expenditure. The Committee is responsible for overseeing: As a result of the Qualified Audit Opinions received by Land • Quality and integrity of the entity’s integrated planning and Bank from the Auditor General of South Africa (AGSA) during Mashumi Mzaidume reporting, including its financial statements and sustainability the 2021 financial year audit, the Audit and Finance Committee Company Secretary reporting; continued to include in its audit plan oversight and monitoring 31 July 2022 • Appointment, remuneration, independence and performance of the Board approved remediation plan intended to ensure of the external auditor and the integrity of the audit process, restoration and improvement of the control environment in including the approval of non-audit services; the Bank, in order to ensure integrity of the Annual Financial • Effectiveness of the entity’s governance, in particularly, that Statements. Accordingly, this has been one of the key focus the internal audit function is adequately resourced and areas for the committee with regular meetings held with capacitated. management to track and assess progress on implementation of the remediation plan to ensure adequate resolution of the Statutory duties risks arising from the matters that led to the unfavourable audit opinion and to drive a favourable outcome for the 2022 financial The Committee is constituted as a statutory committee of the year, and to ensure embedding of processes of internal controls Land Bank in line with the Principles of King IV, the Companies to avoid a recurrence in future. Act 71 of 2008 and the Public Finance Management Act no.1 of 1999, and is accountable in this regard, to both the Board Composition and the Land Bank representative shareholder, the Ministry of Finance. It is a committee of the board regarding all the duties The Land Bank Audit and Finance Committee comprises of that the Board assigns to it and has been delegated extensive independent non-executive directors who are elected annually powers to perform its functions per the Companies Act, and at the company’s Annual General Meeting (AGM). the National Treasury Regulations issued in terms of the Public Finance Management Act. The members are Ms Michelle Pillay (Chairperson), Ms. Mathane Makgatho, and Ms. Thulisile Mashanda, all are independent The Committee also provides oversight of the entity’s non-executive directors of Land Bank. The qualifications of information and technology (IT) functions. In this regard, the the members of the Committee are listed in the Land Bank Committee reviews management’s IT reports, IT Governance, Governance Report. These members collectively possess the and IT systems controls. experience and expertise needed to execute their duties in relation to the Committee’s mandate. The Committee has adopted appropriate formal terms of reference in our charter, in line with the requirements of section Executive directors comprising of the Chief Executive Officer 51(1)(a) of the PFMA and Treasury Regulation 27.1. We further (CEO) and the Chief Financial Officer (CFO) are invitees to the report that we have conducted our affairs in compliance with Committee meetings, but are excluded from the Committee’s this charter. which is reviewed annually and approved by the private sessions with the Auditor-General and the head of Board. The functions of the Committee are outlined in its Internal Audit. charter, which is available on the Land Bank website. The Committee has met all legal and regulatory requirements in The Committee, acting in consultation with the Risk and respect of independence and corporate governance experience. Governance Committee of the Bank, provided significant oversight and monitoring of the following key areas: 140 LAND BANK | INTEGRATED ANNUAL REPORT 2022 141 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Audit & Finance Committee Report continued Audit & Finance Committee Report continued Annual confirmation of key functions for the year The Committee considered the maturity of combined assurance Other key audit matters as reported by the in the Group and the specific attestations from Internal external auditors Financial control, financial reporting and the Integrated Audit, External Audit and Risk in regard to the adequacy and Report effectiveness of the internal controls within the Group. We are Material uncertainty on going concern The Committee reviews the Annual Financial Statements, and comfortable that these controls are adequately in place, but there The AG highlighted that a material uncertainty exists with Integrated Report, and recommends these to the Board for is room for improvement to strengthen the control environment regards to the ability of the Land Bank to continue as a going approval. This role includes an assessment of the accounting and to realise the full benefits of combined assurance. concern as disclosed, sighting the liquidity challenges, cross policies and key assumptions applied in the preparation of the default as some of the reasons casting doubt on the entity’s financial statements, as well as dealing with technical reporting External audit ability to continue as a going concern. Land Bank is undergoing matters. In doing so, the Committee also confirmed compliance The Auditor General of South Africa (AG (SA) is the external a restructuring process to take it out of its event of default. of the Annual Financial Statements with International Financial auditor for Land Bank. The Committee nominates the external A liability solution is being negotiated with the lenders in this Reporting Standards (IFRS). auditor to the Board for appointment by the shareholder, regard. The Committee will continue to monitor progress of the and the Committee approves the terms of engagement and liability solution. The Committee confirms that it has assessed and confirms the remuneration for the external audit services.The Committee has appropriateness of the going concern basis for the preparation assessed the external auditor’s independence and has obtained In conclusion of the Annual Financial Statements.This is based on the on-going the assurance that the auditor’s independence is not impaired. discussions that the Bank is having with its lenders to ensure The Committee is quite pleased with the audit outcome and successful conclusion of the liability solution to take Land Bank Internal audit the evident successful results of the work covered by the out of its event of default and the R10bn recapitalisation of the The Head of internal audit reports to the chairman of the remedial plan. The Committee will continue to ensure there is Bank by the Shareholder, of which R3bn was received during Committee and the Committee is responsible for the review continuous improvement regarding the controls around overall September 2020 and the remaining R7bn to be received over management of the loan book to ensure that these results are the medium term. The R10bn capital injection together with and approval of the internal audit charter, the internal audit plan sustained and improved even further towards helping the Land the successful conclusion of the liability solution will ensure as well as the resources of the internal audit department. The Bank achieve its mandate. that the Land Bank continues to operate as a going concern. Committee evaluated the internal audit function’s independence Despite operating in a state of default the Bank has been able to and is satisfied with its independence. The Committee is satisfied it has fulfilled its responsibilities in accumulate sufficient cash reserves amounting to R9,8 billion at terms of its charter during the year under review and believes year end. Over and above that, the bank was able to repay over Expertise and experience of the finance function and the Group that it complied with its legal, regulatory and governance R16,3 billion in capital to its lenders to date along with servicing Chief Financial Officer responsibilities as set out in the Companies Act and Public all interest due. Finance Management Act. The Committee has considered the expertise and experience The committee presided over the board instituted remediation of the Acting Chief Financial Officer, and has concluded that the The previous board’s term ended on the 30 November 2021. plan over the past two financial years. The remedial plan was appropriate requirements have been met. The Minister of Finance has since appointed a new board instituted to address deficiencies identified on the loan book effective 8 December 2021. during the FY2020 and FY2021 financial years. The committee All critical roles in the Finance function have been filled, with through its oversight over the work conducted by managements’ the exception of one who’s recruitment is currently underway. national task team has seen a significant improvement in the Filling of these roles bolsters the control environment in the internal control environment pertaining to the management organisation and ensures adequate skills and focus is given to of the loan book and this is evidenced by the improved support and enable the organisation. audit outcome for the current year articulated below, in this report. In addition, a significant portion of the land Bank book External audit report previously managed by intermediaries has been insourced as Ms Michelle Pillay part of the remedial work, which has brought management External Audit Opinion Chairman Audit and Finance Committee closer to the root cause of the previously identified deficiencies. Land Bank received an “Unqualified opinion with no findings” 31 July 2022 This insourcing has also contributed to the improved control audit outcome from the Auditor General of South Africa on the environment and the committee is pleased with the success and FY2022.This is a significant improvement from the qualified audit is currently monitoring its continued sustainability. opinion received in the prior year’s audit. The board instituted remediation plan shall continue being implemented to address any specific residual deficiencies that remain. The committee will continue to monitor progress regarding those matters. 142 LAND BANK | INTEGRATED ANNUAL REPORT 2022 143 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Report of the Auditor-General to Parliament on the Land and Agricultural Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Development Bank of South Africa Report on the audit of the consolidated and Basis for the opinion Key audit matter How the matter was addressed in the audit separate financial statements Expected Credit Loss of loans and advances 3. I conducted my audit in accordance with the International I engaged an auditor’s expert to assess the appropriateness and Opinion Standards on Auditing (ISAs). My responsibilities under reasonableness of the EGL model and assumptions used by the Bank those standards are further described in the auditor- in determining the ECL. 1. I have audited the consolidated and separate financial general’s responsibilities for the audit of the consolidated statements of the Land and Agricultural Development Bank and separate financial statements section of my report. Before I placed reliance on the work of an auditor’s expert, I assessed of South Africa and its subsidiaries (the group) set out on the independence, objectivity and competency in line with the pages 148 to 272, which comprise the consolidated and I am independent of the entity in accordance with the 4.  requirements of ISA 620 and I was satisfied with this. separate statement of financial position as at 31 March 2022, International Ethics Standards Board for Accountants’ the consolidated and separate statement of profit or loss International code of ethics for professional accountants I assessed the expert’s work by evaluating significant assumptions and other comprehensive income, statement of changes in (including International Independence Standards) (IESBA and methods as well as the relevance and reasonableness of those code) as well as other ethical requirements that are relevant assumptions and methods in the circumstances. equity and statement of cash flows for the year then ended, as well as notes to the consolidated and separate financial to my audit in South Africa. I have fulfilled my other ethical responsibilities in accordance with these requirements and The expert conducted the following procedures: statements, including a summary of significant accounting the IESBA code. • Reviewed the Bank’s approved ECL calculation methodology policies. documentation for the probability of default (PD), the loss given default (LGD) and exposure at default (EAD), and reviewed this 2. In my opinion, the consolidated and separate financial 5. I believe that the audit evidence I have obtained is sufficient against the requirements of IFRS 9. statements present fairly, in all material respects, the financial and appropriate to provide a basis for my opinion. Inspected the Bank’s ECL model in light of the requirements of • position of the of the Land and Agricultural Development IFRS 9, including key elements such as portfolio segmentation, Bank of South Africa (the Bank) and its subsidiaries as at 31 Key audit matters modelling approach adopted, behavioural life such as time on book March 2022, and its financial performance and cash flows post default, effective interest rate (EIR) and related discounting for the year then ended in accordance with International 6. Key audit matters are those matters which, in my professional of cash flows, the use of forward-looking information, default and Financial Reporting Standards (IFRS) and the requirements judgement, were of the most significance in my audit of the significant increase in credit risk (SICR), and other key judgements of the Public Finance Management Amendment Act 29 of financial statements of the current period. These matters and assumptions relevant for the models. were addressed in the context of my audit of the financial • Independently calculated the ECL estimate based on the approved 1999 (PFMA) and the Companies Act 71 of 2008 (the statements as a whole and in forming the opinion, and I methodology and data provided by the Bank. Companies Act). do not provide a separate opinion or conclusion on these • Independently calculated the model overlays based on the approved matters. The following key audit matters will be included in methodology and data provided by the Bank. my auditor’s report: Based on the abovementioned procedures, I identified misstatements relating to the ECL models.The Bank was able to subsequently correct Key audit matter How the matter was addressed in the audit these misstatements. Expected Credit Loss of loans and advances Loans and advances (note 9), which are a significant portion My audit procedures included assessing the adequacy of the audit I found the Bank’s credit risk models and assumptions used to of total assets and the associated impairment provisions, are action plan developed by the Bank which covered the findings from determine the expected credit losses to be reasonable and consistent significant in the context of the consolidated and separate the prior year. with my expectations. financial statements. Due to the prior year audit findings and weak internal controls in the I have also assessed the IFRS 7 disclosures included in the consolidated Estimating expected credit losses (EGL) is inherently management of loans and advances, I had to follow a fully substantive and separate financial statements and I am satisfied that these uncertain and subject to significant judgement. Furthermore, audit approach in the current audit cycle disclosures are consistent with the requirements of IFRS 7. the models used to determine credit impairments are complex, and certain inputs are not fully observable. My substantive audit approach included detailed testing of the data Material uncertainty relating to going concern cross default and resulted in de-facto standstill on capital that is used for EGL inputs, such as loan staging, risk ratings, collaterals, and interest payments to its funders. At the date of this The assessment process requires detailed knowledge of loan modification, etc. 7. I draw your attention to the matter below. My opinion is report, the liability solution to cure the default was still in the borrower. It further requires the use of judgement in progress and finalisation was dependent on the signing not modified in this regard. determining whether there is an expected credit loss and the I have critically considered the Bank’s policies and their application on of the commitment agreements with lenders. The liability amount of the resulting loss. . collateral, staging and modification when testing the EGL inputs 8. As disclosed in note 3.3 to the consolidated and separate solution is planned to be concluded by 30 September 2022. Given the combination of the inherent subjectivity in the financial statements, a material uncertainty relating to going These events or conditions as set forth in note 3.3 indicate valuation and the material nature of the balance, I considered concern of the entity exists due to the default position that that a material uncertainty exists that may cast significant the audit of the expected credit loss to be a key audit matter has not been cured. Towards the end of April 2020, the doubt on the entity’s ability to continue as a going concern. in my audit of the financial statements. Bank experienced a liquidity shortfall, which resulted in the Bank defaulting on some of its obligations. This triggered a 144 LAND BANK | INTEGRATED ANNUAL REPORT 2022 145 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Report of the Auditor-General to Parliament on the Land and Agricultural Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Development Bank of South Africa Responsibilities of the board of directors for the Introduction and scope Annexure – Auditor-general’s responsibility for • evaluate the overall presentation, structure and consolidated and separate financial statements In accordance with the PAA and the general notice issued 14.  the audit content of the financial statements, including the 9. The board of directors, which constitutes the accounting in terms thereof, I have a responsibility to report material disclosures, and determine whether the financial authority, is responsible for the preparation and fair findings on the entity’s compliance with specific matters in 1. As part of an audit in accordance with the ISAs, I exercise statements represent the underlying transactions and presentation of the consolidated and separate financial key legislation. I performed procedures to identify findings professional judgement and maintain professional scepticism events in a manner that achieves fair presentation. statements in accordance with the IFRS and the but not to gather evidence to express assurance. I did not raise any material findings on compliance with 15.  throughout my audit of the consolidated and separate • obtain sufficient appropriate audit evidence regarding requirements of the PFMA, and for such internal control as the specific matters in key legislation set out in the general financial statements and the procedures performed on the financial information of the entities or business the accounting authority determines is necessary to enable the preparation of consolidated and separate financial notice issued in terms of the PAA. reported performance information for selected objectives activities within the group to express an opinion on statements that are free from material misstatement, and on the entity’s compliance with respect to the selected the consolidated financial statements. I am responsible whether due to fraud or error. Other information subject matters. for the direction, supervision and performance of the group audit. I remain solely responsible for my audit 10.  In preparing the consolidated and separate financial The accounting authority is responsible for the other 16.  Financial statements opinion. statements, the accounting authority is responsible for information. The other information comprises the Communication with those charged with governance assessing the group’s ability to continue as a going concern, information included in the annual report. The other In addition to my responsibility for the audit of the 2.  disclosing, as applicable, matters relating to going concern information does not include the consolidated and separate consolidated and separate financial statements as described I communicate with the accounting authority regarding, 3.  and using the going concern basis of accounting unless financial statements, the auditor’s report and the selected in this auditor’s report, I also: among other matters, the planned scope and timing of the the appropriate governance structure either intends to objective presented in the annual performance report that audit and significant audit findings, including any significant liquidate the group or to cease operations, or has no have been specifically reported on in this auditor’s report. • identify and assess the risks of material misstatement realistic alternative but to do so. deficiencies in internal control that I identify during my of the consolidated and separate financial statements, audit. My opinion on the consolidated and separate financial 17.  whether due to fraud or error; design and perform Auditor-general’s responsibilities for the audit of the statements and findings on the reported performance audit procedures responsive to those risks; and obtain 4. I also provide the accounting authority with a statement consolidated and separate financial statements information and compliance with legislation do not cover the other information and I do not express an audit opinion audit evidence that is sufficient and appropriate to that I have complied with relevant ethical requirements My objectives are to obtain reasonable assurance 11.  or any form of assurance conclusion on it. provide a basis for my opinion. The risk of not regarding independence and communicate with them all about whether the consolidated and separate financial detecting a material misstatement resulting from fraud relationships and other matters that may reasonably be statements as a whole are free from material misstatement, 18.  In connection with my audit, my responsibility is to read is higher than for one resulting from error, as fraud thought to bear on my independence and, where applicable, whether due to fraud or error, and to issue an auditor’s the other information and, in doing so, consider whether may involve collusion, forgery, intentional omissions, actions taken to eliminate threats or safeguards applied. report that includes my opinion. Reasonable assurance is a the other information is materially inconsistent with the misrepresentations or the override of internal control. high level of assurance but is not a guarantee that an audit consolidated and separate financial statements and the • obtain an understanding of internal control relevant conducted in accordance with the ISAs will always detect selected objectives presented in the annual performance to the audit in order to design audit procedures that a material misstatement when it exists. Misstatements can report, or my knowledge obtained in the audit, or otherwise are appropriate in the circumstances, but not for the arise from fraud or error and are considered material appears to be materially misstated. purpose of expressing an opinion on the effectiveness if, individually or in aggregate, they could reasonably be 19.  I did not receive the other information prior to the date of the entity’s internal control. expected to influence the economic decisions of users of this auditor’s report. When I do receive and read this • evaluate the appropriateness of accounting policies taken on the basis of these consolidated and separate information and if I conclude that, there is a material used and the reasonableness of accounting estimates financial statements. misstatement therein, I am required to communicate the and related disclosures made by the board of matter to those charged with governance and request that directors, which constitutes the accounting authority. A further description of my responsibilities for the audit 12.  the other information be corrected. If the other information of the consolidated and separate financial statements is • conclude on the appropriateness of the accounting is not corrected, I may have to retract this auditor’s report included in the annexure to this auditor’s report. authority’s use of the going concern basis of accounting and re-issue an amended report as appropriate. However, if in the preparation of the financial statements. I also it is corrected this will not be necessary. Report on the audit of the annual performance report conclude, based on the audit evidence obtained, 13.  The Land Bank is not required to prepare a report on whether a material uncertainty exists relating to Internal control deficiencies its performance against predetermined objectives, as it events or conditions that may cast significant doubt on was exempt from submitting its corporate plan in terms the ability of the Bank and its subsidiaries to continue I considered internal controls relevant to my audit of 20.  of section 92 of the Public Finance Management Act 1 the financial statements and compliance with applicable as a going concern. If I conclude that a material of 1999. As a result of the exemption, I did not audit and legislation; however, my objective was not to express any uncertainty exists, I am required to draw attention in report on the usefulness and reliability of the performance form of assurance on it. I did not identify any significant my auditor’s report to the related disclosures in the information for the entity. The exemption was published in deficiencies in internal control. financial statements about the material uncertainty the Government Gazette 44799 dated 2 July 2021. or, if such disclosures are inadequate, to modify my opinion on the financial statements. My conclusions Report on the audit of compliance with legislation are based on the information available to me at the Pretoria date of this auditor’s report. However, future events 31 July 2022 or conditions may cause the Bank to cease operating as a going concern. 146 LAND BANK | INTEGRATED ANNUAL REPORT 2022 147 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Statements of Financial Position Statements of Profit or Loss and Other Comprehensive Income Group Company Group Company 2022 2021 2022 2021 2022 2021 2022 2021 Notes R’000 R’000 R’000 R’000 Notes R’000 R’000 R’000 R’000 Assets Net interest income 600 471 167 562 595 547 162 570 Cash and cash equivalents 4 9 983 760 5 589 889 9 845 216 5 558 401 Interest income 21 2 975 318 3 234 822 2 970 394 3 229 393 Trade and other receivables 5 1 353 026 1 049 425 421 407 206 492 Interest expense 22 (2 374 847) (3 067 260) (2 374 847) (3 066 823) Short-term insurance assets 6 266 040 159 014 – – Net impairment charges, release, claims Investments 7 2 133 387 2 318 659 1 295 063 1 431 304 and recoveries 9 1 298 552 (323 565) 1 298 552 (323 565) Derivatives 8 9 896 11 340 9 896 11 340 Total income/(loss) from lending activities 1 899 023 (156 003) 1 894 099 (160 995) Loans and advances 9 20 856 582 30 887 859 20 856 582 30 887 859 Non-interest expense 23 (75 934) (301 334) (71 358) (297 378) Non-current assets held-for-sale and assets of disposal Non-interest income 24 30 781 47 993 30 781 47 993 groups 10 9 609 4 058 9 609 4 058 Operating income/ (loss) from banking activities 1 853 870 (409 344) 1 853 522 (410 380) Long-term insurance assets 17 4 855 4 987 – – Other income 24 37 209 36 231 30 668 28 233 Investment property 11 97 400 95 100 97 400 95 100 Net insurance premium income 25 158 299 150 785 – – Property, plant and equipment 12 29 149 21 855 29 058 21 755 Net insurance claims 25 (151 139) (75 309) – – Right of use assets 13.1 3 909 20 746 3 909 20 651 Other costs from insurance activities 25 (51 063) (58 293) – – Intangible assets 14 1 615 2 766 1 615 2 766 Investment income and fees 26 98 596 69 905 15 357 16 043 Total assets 34 749 228 40 165 698 32 569 755 38 239 726 Interest on post-retirement obligation 20 (27 548) (32 444) (27 548) (32 444) Interest on lease liabilities 13 (1 138) (3 384) (1 135) (3 367) Equity and liabilities Gains/(losses) on financial instruments 27 20 821 (18 270) 20 821 (18 270) Equity Fair value gains 27 89 394 207 895 21 668 50 337 Accumulated loss 15 (2 823 937) (4 262 853) (3 887 525) (5 245 288) Operating income/(loss) 2 027 301 (132 228) 1 913 353 (369 848) Capital Fund 15 7 397 655 7 397 655 7 397 655 7 397 655 Operating expenses 28 (562 775) (593 479) (530 575) (564 829) Revaluation reserve 15 140 941 133 080 140 941 133 080 Net operating income/ (loss) 1 464 526 (725 707) 1 382 778 (934 677) Fair Value Through Other Comprehensive Income Non-trading and capital items 29 2 300 30 456 2 300 30 456 (FVTOCI) 15 (737 412) (682 072) (737 412) (682 072) Income/(loss) before taxation 1 466 826 (695 251) 1 385 078 (904 221) Total equity 3 977 247 2 585 810 2 913 659 1 603 375 Indirect taxation 30 (27 910) (52 220) (27 315) (51 856) Income/(loss) for the year 1 438 916 (747 471) 1 357 763 (956 077) Liabilities Other comprehensive income Trade and other payables 16 833 544 770 814 171 591 116 695 Items that will not be reclassified into profit or loss Short-term insurance liabilities 6 373 907 220 061 – – Revaluation gains/(losses) of land and buildings 7 861 (5 392) 7 861 (5 392) Long term policyholder's insurance liabilities 17 75 804 66 589 – – Actuarial Gain on the post-retirement obligation 20 7 582 16 582 7 582 16 582 Funding liabilities 18 29 162 958 36 074 791 29 162 958 36 074 791 Total items that will not be reclassified to profit or loss 15 443 11 190 15 443 11 190 Lease liabilities 13.2 4 932 23 176 4 932 23 071 Items that may be reclassified to profit or loss: Provisions 19 34 181 140 456 29 960 137 794 Net (loss)/gain on financial assets designated at fair value (62 922) 25 157 (62 922) 25 157 Post-retirement obligation 20 286 655 284 000 286 655 284 000 through other comprehensive income Total Liabilities 30 771 981 37 579 887 29 656 096 36 636 351 Total Items that may be reclassified to profit or (loss): (62 922) 25 157 (62 922) 25 157 Total equity and liabilities 34 749 228 40 165 698 32 569 755 38 239 726 Other comprehensive (loss)/income (47 479) 36 347 (47 479) 36 347 Total comprehensive income/(loss) for the year 1 391 437 (711 124) 1 310 284 (919 730) 148 LAND BANK | INTEGRATED ANNUAL REPORT 2022 149 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Statements of Changes in Equity Statements of Cash Flows Fair Value Group Company through other 2022 2021 2022 2021 Capital Revaluation Comprehensive Accumulated Total R’000 R’000 R’000 R’000 fund reserve income loss Equity R’000 R’000 R’000 R’000 R’000 Income/ (Loss) for the year 1 438 916 (747 471) 1 357 763 (956 077) Group Adjustments to reconcile profit to net cash flows: Opening balance at 01 April 2020 4 397 655 138 472 (723 811) (3 515 382) 296 934 (1 649 443) 252 217 (1 488 851) 438 016 Loss for the year – – – (747 471) (747 471) Interest expense 2 374 847 3 067 260 2 374 847 3 066 823 Other comprehensive (loss)/income for the year – (5 392) 41 739 36 347 Interest income (2 975 318) (3 234 822) (2 970 394) (3 229 393) Total comprehensive (loss)/income for the year – (5 392) 41 739 (747 471) (711 124) Net impairments raised/ released (943 021) 285 473 (943 021) 285 473 Shareholder Equity Injection 3 000 000 3 000 000 Interest on lease liabilities 1 138 3 384 1 135 3 367 Opening balance at 01 April 2021 7 397 655 133 080 (682 072) (4 262 853) 2 585 810 Fair value movement (financial instruments) (89 394) (207 895) (21 668) (50 337) Profit for the year – – – 1 438 916 1 438 916 (Losses)/gains on financial instruments (20 821) 18 270 (20 821) 18 270 Other comprehensive income/(loss) for the year – 7 861 (55 340) – (47 479) Dividends received (29 337) (28 391) (10 034) (13 056) Total comprehensive income/(loss) for the year – 7 861 (55 340) 1 438 916 1 391 437 Interest received (69 259) (41 514) (5 323) (2 987) Balance at 31 March 2022 7 397 655 140 941 (737 412) (2 823 937) 3 977 247 Depreciation and amortisation 21 246 33 186 21 132 32 966 Fair value adjustments on properties 8 073 8 073 8 073 8 073 Company Movement in provisions (106 275) (250 102) (107 834) (251 950) Opening balance at 01 April 2020 4 397 655 138 472 (723 811) (4 289 211) (476 895) Movement in post-retirement medical aid liability 27 548 32 444 27 548 32 444 Loss for the year – – – (956 077) (956 077) Profit on properties (130) (1 628) (130) (1 628) Other comprehensive (loss)/income for the year – (5 392) 41 739 – 36 347 Losses on Foreign exchange (7) (36 897) (7) (36 897) Total comprehensive (loss)/income for the year – (5 392) 41 739 (956 077) (919 730) Impairment relating to loan commitments and guarantees 157 658 576 851 157 658 576 851 Shareholder Equity Injection 3 000 000 3 000 000 Impairment of other assets (12) (4) (12) (4) Opening balance at 01 April 2021 7 397 655 133 080 (682 072) (5 245 288) 1 603 375 Movement in policyholders' liabilities (6 379) 28 528 – – Profit for the year – – – 1 357 763 1 357 763 Other comprehensive income/(loss) for the year – 7 861 (55 340) – (47 479) Changes in working capital (184 704) (430 218) (160 019) (271 178) Total comprehensive income/(loss) for the year – 7 861 (55 340) 1 357 763 1 310 284 Balance at 31 March 2022 7 397 655 140 941 (737 412) (3 887 525) 2 913 659 (Increase)/decrease in Trade and other receivables (303 601) 188 227 (214 915) 514 288 (Decrease)/Increase in Trade and other payables 62 730 (641 219) 54 896 (785 466) Increase in short-term and long-term insurance liability 163 061 5 083 – – (Increase)/Decrease in short-term and long-term insurance assets (106 894) 17 691 – – Cash generated from operations (395 231) (925 472) (291 106) (789 239) 150 LAND BANK | INTEGRATED ANNUAL REPORT 2022 151 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Statements of Cash Flows (continued) Segment reporting Business Group Company 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 2022 2021 2022 2021 R’000 R’000 R’000 R’000 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: Cash flows from operations 11 570 431 8 166 654 11 567 363 8 161 242 1) Commercial Development Banking, which consists of 9 Regional Offices and 16 satellite branches spread across the country, provides Interest expense paid (2 325 392) (2 932 793) (2 325 392) (2 932 793) finance to developing and commercial farmers. Interest income received 2 918 913 2 800 449 2 915 841 2 795 020 2) Corporate Banking, which consists of two branches, provides finance to the corporate agri-related businesses. Interest on lease liabilities paid (1 138) (3 384) (1 135) (3 367) 3) Group capital consists of the treasury, finance and other central functions. Dividends received 3 750 5 218 3 750 5 218 4) Insurance Operations consists of LBLIC and LBIC which provides Life and Non-Life Crop Insurance respectively. Decrease in funding to clients 10 974 298 8 297 163 10 974 298 8 297 163 Cash inflow from operating activities 11 175 200 7 241 181 11 276 256 7 372 002 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. Cash flow from investing activities Purchase of property and equipment (1 752) (653) (1 752) (653) Quantitative thresholds Proceeds from sale of non-current assets held-for-sale – 15 528 – 15 528 The Group reports separate information about an operating segment that meets any of the following quantitative thresholds: Proceeds from sale of financial instruments 300 000 539 628 – 363 136 Purchase of financial instruments (100 000) (351 717) – (200 000) • From both external clients and other segments, its reported revenue is 10% or more of the combined revenue of all operating segments. Cash inflow/(outflow) from investing activities 198 248 202 786 (1 752) 178 011 • The absolute amount of its reported profit or loss is 10 % or more of the greater of: (i) the combined reported profit of all operating segments that did not report a loss, and Cash flow from financing activities (ii) the combined reported loss of all operating segments that reported a loss. Decrease in funding received from funders (6 960 124) (5 474 689) (6 960 124) (5 474 689) • Its assets are 10% or more of the combined assets of all operating segments. Lease liability repaid (19 454) (27 733) (27 565) (27 564) Equity injection1 – 2 925 633 2 925 633 Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if Cash outflows from financing activities (6 979 578) (2 576 789) (6 987 689) (2 576 620) management believes that information about the segment would be useful to users of the financial statements. Net (decrease)/increase in cash and cash equivalents 4 393 870 4 867 178 4 286 815 4 973 393 Cash and cash equivalents at beginning of year 5 589 889 722 711 5 558 401 585 008 Cash and cash equivalents at end of year 9 983 759 5 589 889 9 845 216 5 558 401 1 Cash received for the R3bn equity injection by the Shareholder was R2.9 billion. The balance was used to repay lenders who instituted claims against government guarantees on their debt. 152 LAND BANK | INTEGRATED ANNUAL REPORT 2022 153 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Segment reporting Business (continued) Segment reporting Business (continued) Commercial Commercial Development Corporate Group Capital Development Corporate Group Capital and Banking and and Inter- and Banking and and Inter- Business structured segment Total Insurance Total Business structured segment Total Insurance Total Banking Investment eliminations1 Bank Operations2 Group Banking Investment eliminations1 Bank Operations2 Group R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Group – 2022 Group – 2022 Statement of profit or loss and other Statement of financial position comprehensive income Assets Net interest income/(expense) 581 466 14 624 – 596 090 4 381 600 471 Segment assets 14 717 425 66 802 592 (48 952 292) 32 567 725 2 181 503 34 749 228 Interest income 2 409 865 561 071 – 2 970 937 4 381 2 975 318 Working capital (incl. net loans and advances) 14 685 907 66 454 926 (50 009 763) 31 131 070 1 072 191 32 203 261 Interest expense (1 828 400) (546 447) – (2 374 847) – (2 374 847) Investments – 346 405 948 659 1 295 064 838 323 2 133 387 Investment properties 31 244 – 66 156 97 400 97 400 Impairment releases/(charges) on loans and Property and equipment 274 1 261 31 431 32 967 94 33 061 advances 1 376 142 (77 590) 1 298 552 – 1 298 552 Non-current assets held-for-sale – – 9 609 9 609 – 9 609 Total income/(loss) from lending activities 1 957 607 (62 966) – 1 894 642 4 381 1 899 023 Intangible assets – – 1 615 1 615 – 1 615 Insurance assets – – – – 270 895 270 895 Non-interest expense (71 358) – – (71 358) (4 576) (75 934) Non-interest income 12 075 5 145 7 064 24 284 6 497 30 781 Assets Operating income/(loss) from banking activities 1 898 324 (57 821) 7 064 1 847 568 6 302 1 853 870 Segment liabilities 22 163 972 6 213 234 1 275 719 29 652 925 1 119 056 30 771 981 Other income 30 712 30 712 6 497 37 209 Working capital (incl. funding liabilities) 22 150 453 6 208 650 972 275 29 331 379 665 124 29 996 503 Operating profit from insurance activities – – – – (43 903) (43 903) Provisions 10 156 2 791 17 013 29 960 4 221 34 181 Investment income – 4 269 11 088 15 357 83 239 98 596 Post-retirement obligation – – 286 655 286 655 – 286 655 Interest in Post Retirement Obligation – – (27 548) (27 548) – (27 548) Lease liabilities 3 363 1 793 (224) 4 932 – 4 932 Interest on Lease Liability (486) (241) (407) (1 135) (3) (1 138) Insurance liabilities – – – – 449 711 449 711 Gains and losses on financial instruments 19 090 1 731 – 20 821 – 20 821 1 Includes reconciliation to Group results in terms of IFRS 8. Fair value loss – – 21 669 21 668 67 726 89 394 2 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short term asset and Crop Insurance). Operating income/(loss) 1 916 927 (52 062) 42 578 1 907 444 119 858 2 027 301 Operating expenses (15 017) 472 (160 156) (174 700) (15 072) (189 772) Staff costs (67 235) (13 742) (253 764) (334 742) (16 868) (351 610) Depreciation and amortisation (4 664) (1 833) (14 635) (21 132) (260) (21 392) Net operating (loss)/income 1 830 011 (67 165) (385 977) 1 376 869 87 658 1 464 526 Non-trading and capital items (75) (11) 2 386 2 300 – 2 300 Net profit/(loss) before indirect taxation 1 829 937 (67 176) (383 592) 1 379 169 87 658 1 466 827 Indirect taxation – – (27 331) (27 331) (579) (27 910) Net profit/(loss) 1 829 937 (67 176) (410 924) 1 351 838 87 079 1 438 916 Other comprehensive income – (47 479) (47 479) – (47 479) 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) – (62 922) Total comprehensive income/(loss) for the year 1 829 937 (67 176) (458 403) 1 304 359 87 079 1 391 438 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). 154 LAND BANK | INTEGRATED ANNUAL REPORT 2022 155 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Segment reporting Business (continued) Segment reporting Business (continued) Commercial Corporate Group Commercial Corporate Group Development Banking and Capital and Development Banking and Capital and and Business structured Inter–segment Total Insurance Total and Business structured Inter–segment Total Insurance Total Banking Investment eliminations1 Bank Operations2 Group Banking Investment eliminations1 Bank Operations2 Group R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Group – 2021 Group – 2021 Statement of profit or loss and other Statement of financial position comprehensive income 66 501 96 069 – 162 570 4 992 167 562 Assets Interest income 2 427 654 801 738 – 3 229 393 5 429 3 234 822 Segment assets 24 658 740 66 802 190 (53 221 203) 38 239 726 1 925 972 40 165 698 Interest expense (2 361 153) (705 669) – (3 066 823) (437) (3 067 260) Working capital (incl. net loans and advances) 24 623 745 66 425 563 (54 385 216) 36 664 093 874 421 37 538 514 Impairment releases/(charges) on loans and Investments – 373 524 1 057 780 1 431 303 887 355 2 318 658 advances (79 765) (243 800) (323 565) – (323 565) Investment properties 31 244 – 63 856 95 100 – 95 100 Total income/(loss) from lending activities (13 264) (147 732) – (160 995) 4 992 (156 003) Property and equipment 3 751 3 104 35 551 42 406 195 42 601 Non-current assets held-for-sale – – 4 058 4 058 – 4 058 Non-interest expense (299 586) 2 208 – (297 378) (3 956) (301 334) Intangible assets – – 2 767 2 767 – 2 767 Non-interest income 20 116 25 272 2 605 47 993 47 993 Insurance assets – – – – 164 001 164 001 Operating income/(loss) from banking activities (292 734) (120 252) 2 605 (410 381) 1 036 (409 345) Other income 28 233 28 233 7 998 36 231 Assets Operating profit from insurance activities – – – – 17 183 17 183 Segment liabilities 27 539 880 7 801 407 1 295 064 36 636 351 943 536 37 579 887 Investment income (6) – 16 049 16 044 53 862 69 906 Working capital (incl. funding liabilities) 27 522 379 7 794 637 874 470 36 191 486 654 118 36 845 604 Interest in Post Retirement Obligation – – (32 444) (32 444) – (32 444) Provisions 10 431 3 107 124 255 137 794 2 663 140 457 Interest on Lease Liability (1 060) (385) (1 922) (3 367) (17) (3 384) Post-retirement obligation – – 284 000 284 000 – 284 000 Gains and losses on financial instruments (4 545) (13 725) – (18 270) – (18 270) Lease liabilities 7 070 3 663 12 338 23 071 105 23 176 Fair value loss – – 50 338 50 337 157 558 207 895 Insurance liabilities – – – – 286 650 286 650 Operating income/(loss) (298 345) (134 361) 62 860 (369 848) 237 620 (132 228) 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). Operating expenses (9 954) (175) (131 308) (141 437) (10 844) (152 281) Staff costs (79 280) (18 487) (292 658) (390 425) (17 546) (407 971) Depreciation and amortisation (6 173) (1 830) (24 963) (32 966) (260) (33 226) Net operating (loss)/income (393 752) (154 854) (386 069) (934 677) 208 970 (725 707) Non-trading and capital items 442 – 30 010 30 456 – 30 456 Net profit/(loss) before indirect taxation (393 310) (154 854) (356 059) (904 221) 208 970 (695 251) Indirect taxation – – (51 856) (51 856) (364) (52 220) Net profit/(loss) (393 310) (154 854) (407 915) (956 077) 208 606 (747 471) Other comprehensive income – – 36 347 36 347 – 36 347 Actuarial losses on the post-retirement obligation – – 16 582 16 582 – 16 582 Revaluation of land and buildings – – (5 392) (5 392) – (5 392) Profit on financial assets at fair value through – – 25157 25157 – 25157 other comprehensive income Total comprehensive income/(loss) for the year (393 310) (154 854) (371 568) (919 730) 208 606 (711 124) 156 LAND BANK | INTEGRATED ANNUAL REPORT 2022 157 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Segment reporting Business (continued) Segment 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 2022. 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. Operating expenses and Interest on Fair value gains, indirect taxes Post Impairment Non-interest Operating investment excluding Retirement (charges)/ income/ income from income and depreciation Medical Aid Depreciation Other Other Interest Interest Net interest releases, claims (expense) and insurance non-trading and and and Lease and Net profit/ Comprehensive Comprehensive Statement of profit or loss and income expense income and recoveries Other income activities capital items amortisation Liability amortisation Staff costs (loss) Income Income other comprehensive income R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Group – 2022 Northern region 2 237 703 (1 822 490) 415 213 1 695 071 (15 705) (43 903) 208 356 (212 353) (28 059) (16 829) (308 858) 1 692 933 (47 479) 1 645 455 Southern region 737 614 (552 357) 185 257 (396 519) 7 761 - 2 755 (5 328) (628) (4 563) (42 753) (254 017) – (254 017) Total operations 2 975 318 (2 374 847) 600 470 1 298 552 (7 944) (43 903) 211 111 (217 681) (28 686 (21 392) (351 610) 1 438 917 (47 479) 1 391 438 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 2 537 216 8 294 963 10 832 180 Southern region 8 751 23 908 297 23 917 048 Total operations 2 545 968 32 203 261 34 749 228 Working Capital Other Total (incl. funding) liabilities liabilities R’000 R’000 R’000 Liabilities Northern region 23 274 450 765 315 24 039 765 Southern region 6 722 104 10 113 6 732 216 Total operations 29 996 554 775 428 30 771 981 158 LAND BANK | INTEGRATED ANNUAL REPORT 2022 159 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Segment reporting Business (continued) Segment information Operating expenses and Interest on Fair value gains, indirect taxes Post Impairment Non-interest Operating investment excluding Retirement (charges)/ income/ income from income and depreciation Medical Aid Depreciation Other Other Interest Interest Net interest releases, claims (expense) and insurance non-trading and and and Lease and Net profit/ Comprehensive Comprehensive Statement of profit or loss and income expense income and recoveries Other income activities capital items amortisation Liability amortisation Staff costs (loss) Income Income1 other comprehensive income R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Group – 2021 Northern region 2 765 481 (2 497 234) 268 247 (9 287) (245 885) 17 183 304 145 (199 513) (34 722) (27 734) (357 306) (284 872) 36 347 (248 525) Southern region 469 341 (570 026) (100 685) (314 278) 28 775 - (14 157) (4 993) (1 102) (5 493) (50 665) (462 599) – (462 599) Total operations 3 234 822 (3 067 260) 167 562 (323 565) (217 111) 17 183 289 988 (204 507) (35 824) (33 226) (407 971) (747 471) 36 347 (711 124) 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 2 613 816 30 969 344 33 583 160 Southern region 13 368 6 569 170 6 582 538 Total operations 2 627 183 37 538 513 40 165 698 Working Capital Other Total (incl. funding) liabilities liabilities R’000 R’000 R’000 Liabilities Northern region 28 530 010 718 999 29 249 008 Southern region 8 315 594 15 285 8 330 878 Total operations 36 845 604 734 283 37 579 887 160 LAND BANK | INTEGRATED ANNUAL REPORT 2022 161 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies Corporate information 2.1 Functional and presentation currency 3.1 New standards and interpretations not yet adopted (IFRSs) as result of the IASB’s annual improvements project. (continued) The amendments are effective for annual reporting periods 1. Basis of Preparation The consolidated and separate financial statements are beginning on or after 1 January 2022. presented in South African Rand, the Group’s functional currency. • Clarify that the classification of liabilities as current or non- All financial information presented in Rand are rounded to the current should be based on rights that are in existence at IFRS 9, Financial Instruments The consolidated and separate financial statements have been nearest thousand (R’000), unless otherwise stated. the end of the reporting period and align the wording Fees in the ‘10 per cent’ test for derecognition of financial prepared in accordance with IFRS (with consent from the in all affected paragraphs to refer to the “”right”” to defer liabilities. The amendment clarifies which fees an entity includes National Treasury for all Schedule 2 public entities) and the 2.2 Distinction between current and non-current settlement by at least twelve months and make explicit that when it applies the ‘10 per cent’ test in paragraph B3.3.6 of IFRS interpretations issued by the International Financial Reporting only rights in place “”at the end of the reporting period”” 9 in assessing whether to derecognise a financial liability. An Interpretations Committee (IFRIC), applying the accrual basis of The Group presents the assets and liabilities in decreasing should affect the classification of a liability; entity includes only fees paid or received between the entity accounting, the going-concern principle, and using the historical- order of liquidity as it provides information that is more reliable • Clarify that classification is unaffected by expectations about (the borrower) and the lender, including fees paid or received cost basis, except where specifically indicated otherwise in the and relevant than a current/non-current presentation because whether an entity will exercise its right to defer settlement of by either the entity or the lender on the other’s behalf. The accounting policies. A summary of significant accounting policies the Group does not supply goods or services within a clearly a liability; and assessment will have minimal impact on the group as the group is set out in note 3. identifiable operating cycle. In addition, other similar financial • Make clear that settlement refers to the transfer to the is currently including only fees paid/received between the group institutions also provide the information in this manner, and counterparty of cash, equity instruments, other assets or and its lenders/customers where applicable. The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates hence it is more comparable. services. The amendment is not expected to have a material impact on the group. IFRS 16, Leases and assumptions. It also requires management to exercise 3 Summary of Significant accounting policies Lease incentives. The amendment to Illustrative Example its judgement in applying the Group’s accounting policies. IFRS 17 Insurance contracts 13 accompanying IFRS 16 removes from the example the Accordingly the notes to the financial statements set out The Group has not applied the following new, revised or IFRS 17 Insurance Contracts was issued in May 2017 and will be illustration of the reimbursement of leasehold improvements by areas involving a higher degree of judgement or complexity, or amended pronouncements that have been issued by the effective for annual periods beginning on or after 1 January 2023. the lessor in order to resolve any potential confusion regarding areas where assumptions and estimates are significant to the International Accounting Standard Board (IASB) as they are The previous IFRS Standard on insurance contracts, IFRS 4, was the treatment of lease incentives that might arise because of consolidated group and bank financial statements. These policies not yet effective for the financial year beginning 1 April 2021. an interim standard that allowed entities to use a wide variety of how lease incentives are illustrated in that example. This will have been consistently applied to all the years presented, unless The Board anticipates that the new standards, amendments accounting practices for insurance contracts, reflecting national have no impact for the group. otherwise stated. and interpretations will be adopted in the Group’s consolidated accounting requirements and variations of those requirements. financial statements when they become effective. The Group In contrast to the requirements of IFRS 4, IFRS 17 provides a IAS 37 – Onerous Contracts: Cost of Fulfilling a Contract The financial statements are prepared based on accounting has assessed, where practicable, the potential impact of all these comprehensive model for insurance contracts, covering all IAS 37 – Provisions, Contingent Liabilities and Contingent Assets policies applicable to a going concern. This basis presumes new standards, amendments and interpretations that will be relevant accounting aspects. did not specify which costs to include in estimating the cost of that the Land Bank will continue to receive the support of its effective in future periods. fulfilling a contract for the purpose of assessing whether that Shareholder and that the IFRS 17 applies to all types of insurance contracts (i.e. life, non- contract is onerous. realisation of assets and settlement of liabilities will occur in 3.1 New standards and interpretations not yet adopted life, direct and reinsurance), regardless of the type of entity that issue these contracts. The General Model (also referred This amendment clarifies that the purpose of assessing whether the ordinary course of business. Full disclosure relating to the The Group has assessed, where practicable, the potential impact to as building block approach) forms the core of IFRS 17. It is a contract is onerous, the cost of fulfilling the contract includes directors’ going concern assessment can be found in Note 3.3. of all these new standards, amendments and interpretations that supplemented by: both the incremental costs of fulfilling that contract and an will be effective in future periods. allocation of other costs that relate directly to fulfilling contracts. The Annual Financial Statements have been prepared on the • A specific adaption for contracts with direct participation The amendments are effective for annual periods beginning on historical cost basis, except for the following items, which were IAS 1 amendments on classification features (“the variable fee approach”); and or after 1 January 2022.The impact will be minimal for the group, measured at fair value: The International Accounting Standards Board (IASB) has • A simplified approach (“the premium allocation approach”) full assessment of the impact will be made in the 2023 financial • Financial instruments held at fair value through profit or loss; issued ‘Classification of Liabilities as Current or Non-current mainly for short-duration contracts. year. • Financial instruments designated at fair value through profit (Amendments to IAS 1)’ providing a more general approach to the classification of liabilities under IAS 1 based on the The implementation of IFRS 17 will have different financial IAS 16 – Proceeds before Intended Use or loss; contractual arrangements in place at the reporting date. The and operational implications for each entity that adopts the The Interpretations Committee received a request to clarify • Derivative financial instruments; amendments in the Classification of Liabilities as Current or standard. It is, however, expected that fundamental changes will the accounting for the net proceeds from selling any items • Equity investments; Noncurrent. be required in the following areas: produced while bringing an item of PPE to the location and • Land and buildings; condition necessary for it to be capable of operating in the • Post-retirement medical aid benefit investment; and (Amendments to IAS 1) affect only the presentation of liabilities • Liability measurement manner intended by management. • Funeral benefit and post-retirement medical aid liability. in the statement of financial position — not the amount or • Data requirements timing of recognition of any asset, liability income or expenses, • Operations and the underlying systems The amendments prohibit a company from deducting from the The methods used to measure fair values are detailed in notes. or the information that entities disclose about those items. • Management reporting cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset 2018-2020 annual improvements cycle for its intended use. Instead, a company will recognize such sales On 14 May 2020, the IASB issued ‘Annual Improvements to proceeds and related cost in profit or loss. The amendments are IFRS Standards 2018–2020’. The pronouncement contains effective for annual periods beginning on or after 1 January 2022. amendments to four International Financial Reporting Standards This will have no impact on the group. 162 LAND BANK | INTEGRATED ANNUAL REPORT 2022 163 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.1 New standards and interpretations not yet adopted IFRS 3 Business Combinations (amendment) 3.3 Going Concern (continued) Despite the above challenges, the Bank’s business and operational (continued) The amendments clarify the definition of a business, to fundamentals remain strong, and further measures have been assisting entities in determining whether a transaction should As with the previous years, Land Bank has remained adopted to manage the Bank’s financial sustainability and credit IAS 8 amendments on accounting estimates be accounted for as a business combination or as an asset undercapitalised. The Bank, as a specialist Development Finance worthiness. On 12 February 2021, the IASB issued Definition of Accounting acquisition. Institution whose business is concentrated in the agricultural Estimates (Amendments to IAS 8) to help entities to distinguish sector and acknowledges the challenging operating conditions In the last number of months since the default the Bank has between accounting policies and accounting estimates. The The amended definition emphasises that the output of a business that were faced by the agricultural sector over a period of years. achieved and the following: amendments are effective for annual periods beginning on is to provide goods and services to customers, whereas the Sustained droughts, uncharacteristic hail in usually hail-free areas, or after 1 January 2023. The impact on the annual financial previous definition focused on returns in the form of dividends, and increased frequency of disease outbursts has disrupted the • The Board-led Restructuring Committee that was established statements has not yet been fully determined. The group will lower costs or other economic benefits to investors and others. ability of the Bank’s customers to repay their loans. In addition, when the restructuring process started continues to provide commence assessing the impact in the 2024 financial year. declining capital buffers that challenged its ability to meet guidance and support to the executive management’s There were no business combinations that took place during some loan covenants while fulfilling its developmental mandate efforts to address the liquidity challenges, and monitors IAS 1 Disclosure of accounting policies the current financial year. Therefore, these amendments had and related loan growth targets. The sovereign downgrade implementation of crafted solutions to take Land Bank out of On 12 February 2021, the IASB issued Disclosure of Accounting no impact on the consolidated financial statements of the downgrades of South Africa. All these challenges weakened the its event of default and to reposition the organisation. Policies (Amendments to IAS 1 and IFRS Practice Statement Group, but may impact future periods should the Group enter Land Bank’s standalone credit profile.This hampered Land Bank’s • Critical vacancies are being prioritised. 2) with amendments that are intended to help preparers in into any business combinations as the amendment is applied ability to raise funding in the market and this combines with the • The Bank collected over R20bn from own customers deciding which accounting policies to disclose in their financial prospectively. funding structure of the Bank which was around 40% short term • At 31 March 2022, Land Bank Group had a cash balance of statements. The amendments are effective for annual periods at the time and therefore requiring constant refinancing resulted R9.9 billion, compared to R5.6 billion at 31 March 2021. beginning on or after 1 January 2023. This will have minimal IFRS 16 amendment in the Bank defaulting on its obligations. • The Bank continues to operate. impact to the group. The full impact for the group will be On 27 August 2020, the IASB issued ‘Interest Rate Benchmark • Interest on funding liabilities continues to be serviced. assessed in the 2023 financial year. Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS Since the default Land Bank with its advisors and supported by • Capital repayments totalling R16,3 billion have been made 4 and IFRS 16)’ with amendments that address issues that might the Shareholder has been working together with the lenders towards reduction of funding liabilities. The total debt repaid IAS 12 Deferred tax related to assets and liabilities arising from affect financial reporting after the reform of an interest rate towards the implementation of a liability solution which requires to lenders since default is 40.43 % to date. Payments to all a single transaction benchmark, including its replacement with alternative benchmark lenders to commit to this solution which is a prerequisite international Development Financial Institutions has not yet On 7 May 2021, the IASB issued Deferred Tax related to Assets rates.The amendments are effective for annual periods beginning to the shareholder for the injection of the amount of equity been made, but the funds have been ring fenced, which will and Liabilities arising from a Single Transaction (Amendments to on or after 1 January 2021.These amendments had no impact appropriated in the Feb 2021 Budget speech and further rolled bring the total reduction to 42.84%. IAS 12) that clarify how companies account for deferred tax on on the consolidated financial statements of the Group. forward in the February 2022 budget speech. It was anticipated • The repurposing of the Bank in line with its mandate is being transactions such as leases and decommissioning obligations.The that the liability solution would have been concluded and the implemented, with R500m already approved for support of amendments are effective for annual periods beginning on or 3.3 Going Concern event of default cured by 31 March 2022. This was however not emerging farmers. after 1 January 2023. This will have minimal impact to the group to be. During January 2022, it became clear that an agreement on • In addition to the R3 billion equity injection during September as the group is exempt from paying tax. The full impact for the In determining the appropriate basis of preparation of the the liability solution was not going to be reached between Land 2020, the Shareholder has rolled forward the R7bn previously group will be assessed in the 2023 financial year. financial statements, the directors are required to consider Bank and its lenders and that the parties needed to negotiate appropriated during the FY2022 medium term budget over whether the Group can continue in operational existence for further, which negotiations are still in progress and expected the FY2023 medium 3.2 New standards and interpretations adopted the foreseeable future. to be concluded during the new financial year (2023). On the • term period, to recapitalise the Bank. going concern the most significant factor is that Lenders have • On the liability solution, no other lender has taken legal action Interest Rate Benchmark Reform Phase 2 The going concern basis presumes that funds will be available to not taken any legal action and remain in a de facto standstill in against the Bank to date with the exception of one that was On 27 August 2020, the IASB issued ‘Interest Rate Benchmark finance future operations and that the realisation of assets and terms of capital repayments due to them. The Bank continues to fully settled in April 2021. The lenders remain supportive of Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, settlement of liabilities, contingent obligations and commitments work with all lenders to negotiate the terms of the commitment the Bank and are working closely with the Bank in crafting the IFRS 4 and IFRS 16)’ with amendments that address issues that will occur in the ordinary course of business. agreement, and reach an amicable solution to cure the default. new liability solution 4. might affect financial reporting after the reform of an interest • A remedial plan to address deficiencies identified by the rate benchmark, including its replacement with alternative Towards the end of April 2020, the Land Bank experienced a Land Bank continues servicing of interest on the funding liabilities Auditor General of South Africa, continues being implemented. benchmark rates. The amendments are effective for annual liquidity shortfall, which resulted in the Bank defaulting on some together with agreed upon capital reduction payments with The remedial process is overseen by the Audit and Finance periods beginning on or after 1 January 2021. of its obligations.This triggered a cross default and resulted in de- lenders. The de-facto standstill on capital repayments however Committee of the Board. facto stand still on capital and interest payments to its funders. still ensues. This amendment will benefit the Group by allowing hedging The Bank appointed legal and corporate finance advisors The directors are of the view that the initiatives reflected above relationships to continue upon the replacement of an existing to support the process of turning the organisation around. The lenders have, by their conduct committed to a de facto will ensure Land Bank meets the going concern requirement in interest rate benchmark with a Risk Free Rate (RFR). The Solutions comprising of the emergency liquidity funding solution, standstill and this has been the position for two years and the the foreseeable future, being 12 months from the approval of assessment of the impact for the group is ongoing. liability solution, equity solution as well as the review of the lenders remain engaged. these annual financial statements although a material uncertainty Land Bank’s repurposing strategy and the operating model were exists. Given already received and expected capital injections undertaken. With the exception of the liability solution which is Land Bank received a Qualified audit outcome from the AGSA from National Treasury as well as current cash sources available, still in progress, the other solutions have been concluded and on the 2021 Financial Year Audit, this was an improvement from Land Bank is expected to have a surplus of available cash implemented or being implemented in the case of Land Bank a Disclaimed audit Opinion received on the 2020 Financial Year resources to be able to meet its liquidity requirements. repurposing strategy. Audit. The Group recorded a net profit of R1,4 billion (2020: R0,7 billion net loss) for the year ended 31 March 2022, mainly driven by material impairment releases as the loan book reduces. 164 LAND BANK | INTEGRATED ANNUAL REPORT 2022 165 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.4 Business combinations 1) Impairment losses on loans and advances 3.5 Critical accounting judgements and key sources of Outstanding claims At each reporting date, the Group assesses whether there estimation uncertainty (continued) Claim provisions are determined based upon previous claims Subsidiaries are all entities (including structured entities) over has been a significant increase in credit risk for financial assets experience, knowledge of events, the terms and conditions of which the Bank has control. The Group controls an entity when since initial recognition by comparing the credit risk of default Investment return the relevant policies and on interpretation of circumstances. the Group is exposed to, or has rights to, variable returns from occurring over the expected life between the reporting Future investment return assumptions are derived from market- Each notified claim is assessed on a separate case-by-case basis its involvement with the entity and has the ability to affect and initial recognition. In determining whether credit risk has related interest rates on fixed-interest securities with adjustments with due regard to the specific circumstances, information those returns. Subsidiaries are fully consolidated from the increased significantly since initial recognition, the Group uses for the other asset classes.The appropriate asset composition of available from the insured and/or loss adjuster and experience date on which control is transferred to the Group. They are its internal credit risk grading system, external risk ratings and the various asset portfolios, investment management expenses with similar cases. The Group’s estimates for outstanding claims deconsolidated from the date that control ceases. forecast information to assess deterioration in the credit quality and charges for investment guarantees are taken into account. are continually reviewed and updated as future developments of a financial asset. Please refer to note 36 for more details. take place and better information becomes available regarding The Group applies the acquisition method to account for Decrements the current circumstances. The ultimate cost of the claim may business combinations. The consideration transferred for 2) Fair value of financial instruments Assumptions with regard to future mortality and lapse rates therefore vary from this initial estimate. Adjustments resulting the acquisition of a subsidiary is the fair values of the assets The fair value of financial instruments that are not quoted in are consistent with the experience for the five years up to the through this review are reflected in the statement of profit or transferred, the liabilities incurred to the former owners of active markets are determined by using valuation techniques. current financial year-end. Mortality rates are adjusted to allow loss and other comprehensive income as and when identified. the acquiree and the equity interests issued by the Group. The Where valuation techniques are used to determine fair values, for expected deterioration in mortality rates as a result of AIDS. consideration transferred includes the fair value of any asset or the valuation models are validated and periodically reviewed by The provision for outstanding claims is initially estimated at a qualified personnel independent of the area that created them. (iii) Policy liabilities in respect of short-term insurance contracts gross level. A separate calculation is carried out to estimate liability resulting from a contingent consideration arrangement. All models are calibrated to ensure that outputs reflect actual One of the purposes of insurance is to enable policyholders reinsurance recoveries.The calculation of reinsurance recoveries Identifiable assets acquired and liabilities and contingent liabilities data and comparative market prices. To the extent practical, to protect themselves against uncertain future events. Insurance considers the type of risk underwritten, the year in which the assumed in a business combination are measured initially at their models use only observable data, however, areas such as credit companies accept the transfer of uncertainty from policyholders loss claim occurred and under which reinsurance programme value at the acquisition date. risk (both own and counterparty), volatilities and correlations and seek to add value through the aggregation and management the recovery will be made as well as the size of the claim, and The Group recognise any non-controlling interest in the acquirer require management to make estimates. Changes in assumptions of these risks. The uncertainty inherent in insurance is inevitably whether there will be a stop loss recovery based on the overall on an acquisition-by-acquisition basis, either at fair value or at the about these factors could affect the reported fair value of reflected in the financial statements of the Group, principally in loss ratio of the portfolio. non-controlling interest proportionate share of the recognised financial instruments. respect of the insurance liabilities of the Group. amounts of acquiree identifiable net assets. Claims incurred but not reported (IBNR) i) Unlisted investments Insurance liabilities include the provisions for unearned The policyholders’ liabilities include a provision for the expected Consolidated financial statements comprise the financial The valuation of unlisted shares, as applied by the company’s premiums, unexpired risk, and outstanding claims and incurred cost of IBNR claims. This relates to claims expected to be made statements of the Land Bank and its subsidiaries, LBLIC and LBIC asset managers, comply with International Private Equity and but not reported (IBNR) claims. Unearned premiums represent by policyholders in respect of events that occurred before the as at 31 March 2022. Intra-group transactions are eliminated Venture Capital Valuation guidelines.Various valuation techniques the amount of income set aside by the Group to cover the cost financial year end but that have not yet been reported to the upon consolidation. are used to arrive at the fair value of investments, including: of claims that may arise during the unexpired period of risk of Group by year end. The IBNR is not discounted due to the insurance policies in force at the statement of financial position short-term nature of IBNR claims on crop policies. For short- Investments in subsidiaries are measured at cost at acquisition • Price of recent investment; date. At each statement of financial position date, an assessment term business, the incurred but not reported reserve (IBNR) and subsequent measurement on each reporting date. • Earnings multiple; is made of whether the provisions for unearned premiums are is based on the minimum requirements of the Insurance Act • Net assets; adequate. When it is anticipated that unearned premiums will of 2017, as required by the Financial Sector Conduct Authority The financial statements of LBLIC and LBIC are prepared using • Discounted cash flows; be insufficient to cover anticipated costs and fees, unexpired risk (FSCA) Board, previously FSB Board Notice 169 issued on 28 consistent accounting policies to the Land Bank. Furthermore, • Industry benchmarks; and is also set aside. October 2011 and effective for the year ends after January the annual financial statements have been prepared in • Available market prices. 1, 2012. In line with this computation, premiums in different accordance with the requirements of both the Short- and Long- Outstanding claims represent the Group’s estimate of the cost classes of business for the last six financial years are multiplied term Insurance acts respectively. (ii) Policy liabilities in respect of long-term insurance contracts of settlement of claims that have occurred by the statement of by an industry wide historical claims development factors The following process is followed to determine the valuation financial position date, but that have not yet been finally settled. introduced separately and the outcomes are added up. The 3.5 Critical accounting judgements and key sources of assumptions: In addition to the inherent uncertainty of having to provide for Group underwrites crop insurance under the property class as estimation uncertainty future events, there is also considerable uncertainty concerning well as agri-asset reinsurance inwards, cover under the motor • Determine the best estimate for a particular assumption; the eventual outcome of claims that have occurred but had not and property classes. A separate calculation is carried out to The preparation of financial statements in conformity with IFRS • Prescribed margins are then applied; and yet been reported to the insurer by the statement of financial calculate the reinsurance portion of the IBNR reserve. requires management to make certain estimates, assumptions • Discretionary margins may be applied as required by the position date. and judgements that affect the reported amounts of assets, valuation methodology or if the statutory actuary considers The calculation of insurance liabilities is an inherently uncertain such margins necessary to cover the risks inherent in Process to determine significant assumptions process. The company seeks to provide adequate levels of liabilities, revenue and expenses as well as the disclosure of contingent liabilities. Actual results could differ from such the contracts. The best estimate of future experience is Insurance risks are unpredictable and the Group recognises that insurance provisions by taking into account all know facts estimates. Estimates and judgements are continually evaluated determined as follows: it is not always possible to forecast, with absolute precision, future and experience from a variety of sources as well as statutory and are based on historical experience and other factors, claims payable under existing insurance contracts. Using historical requirements. including expectations of future events that are believed to data, the insurance companies aim to establish provisions that be reasonable under the circumstances. The most significant have an above average likelihood of being adequate to settle all judgements and estimates are summarised below: contractual insurance obligations. 166 LAND BANK | INTEGRATED ANNUAL REPORT 2022 167 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.5 Critical accounting judgements and key sources of 5) Management expense provisions and accruals 3.6 Revenue recognition (continued) and other comprehensive income. Acquisition costs for short- estimation uncertainty (continued) At each statement of financial position date, the Group might term insurance business is deferred over the period in which the be exposed to various liabilities of uncertain timing or amount. (iii) Investment surpluses. related premiums are earned. Premium provisions – short-term Such liabilities are provided for if a present obligation has arisen, Investment surpluses consist of net realised gains and losses on The Group raises provisions for unearned premiums on a payment is probable and the amount can be reliably estimated. the sale of investments and net unrealised fair value gains and 3.8 Fruitless and wasteful and irregular expenditure basis that reflects the underlying risk profile of its insurance Management uses its discretion to estimate the expenditure losses on the valuation of investments at fair value, excluding Items of expenditure which meet the requirements of the Public contracts. An unearned premium provision is created at the required to settle the present obligation as at year-end, i.e. dividend and interest income. These surpluses are recognised in Finance Management Act (PFMA) for fruitless and wasteful as commencement of each insurance contract and is released the amount that the Group would rationally pay to settle the the statement of profit or loss and other comprehensive income well as irregular expenditure are separately disclosed in the notes as the risk covered by the contract expires according to the obligation. on the date of sale or upon valuation to fair value. to the financial statements. “Fruitless and wasteful expenditure” remaining days method for the assets and winter crop policies. means expenditure which was made in vain and would have In the current reporting period, for the new crop policies 3.6 Revenue recognition (iv) Rental income. been avoided had reasonable care been exercised. “Irregular written through the underwriting management agreement, Rental income arising from operating leases on investment expenditure” means expenditure, other than unauthorised the unearned premium for “summer hail”, “summer multi- Interest income properties is accounted for on a straight-line basis over the lease expenditure, incurred in contravention of or that is not in peril” and “horticulture” is calculated according to the claims In terms of IFRS 9 interest income is recognised in profit or term and is recorded in the statement of profit or loss and other accordance with a requirement of any applicable legislation or occurring patterns based on an historic claims analysis of claims loss using the effective-interest method taking into account comprehensive income in ‘Non-interest income’. internal policy. incurred. In the prior reporting period, crops written through the expected timing and amount of cash flows. The effective- the reinsurance agreement were released according to the interest method is a method of calculating the amortised (v) Realised gains and losses. When discovered, irregular expenditure is recognised as an remaining days method over the period of the reinsurance cost of a financial asset (or group of financial assets) and of The realised gain or loss on disposal of an investment is the asset in the statement of financial position until such time as treaty. This is a prospective change with the change in the nature allocating the interest income over the relevant period. Interest difference between the proceeds received, net of transaction the expenditure is either condoned by the relevant authority, of the underlying transaction from a reinsurance agreement to income include the amortisation of any discount or premium costs, and its original cost or amortised cost as appropriate recovered from the responsible person or written off as an underwriting management agreement. or other differences between the initial carrying amount of an and is recorded in the statement of profit or loss and other irrecoverable in the statement of profit or loss and other interest-bearing financial instrument and its amount at maturity comprehensive income. comprehensive income. At each statement of financial position date, an assessment is calculated on an effective-interest-rate basis. (vi) Unrealised gains and losses. 3.9 Property, plant and equipment made of whether the provisions for unearned premium are adequate. If the premium level is deemed to be insufficient IFRS 15 Revenue from Contracts with Customers. Unrealised gains or losses represent the difference between the Items of property and equipment are initially recognised at cost based on information available at the statement of financial The group is able to identify the contract when both the client carrying value at the year end and the carrying value at the if it is probable that any future economic benefits associated position date, to cover the anticipated claims and operating and the group have accepted the terms of the agreement. previous year end or purchase value during the year, less the with the items will flow to the group and they have a cost that expenses, a separate provision is made for any estimated future The contract will also identify all the services (performance reversal of previously recognised unrealised gains and losses in can be measured reliably. underwriting losses relating to unexpired risks. This assessment obligations) the group will render to the client. Based on this, respect of disposals during the year and is recognised in the includes estimates of future claims frequency and other factors the transaction price is allocated to each identified performance statement of profit or loss and other comprehensive income. Land and buildings comprise owner occupied property. Land affecting the need for a provision for unexpired risk and obligation. The group recognises the revenue once the and buildings are shown at fair value, based on valuations by (vii) Insurance premium income Refer to note 3.20 performed annually. performance obligation is satisfied, which may occur over time external independent valuators, less subsequent depreciation or at a point in time. for buildings. Valuations are performed with sufficient regularity 3.7 Expenses The provision for unearned premiums are first determined on a to ensure that the fair value of a revalued asset does not gross level and thereafter the reinsurance impact is recognised (i) Fee and commission income. differ materially from its carrying amount. Any accumulated (i) Administration costs. based on the relevant reinsurance contract. Deferred acquisition Fees and other income which are integral to the effective interest depreciation at the date of revaluation is eliminated against Administration costs on short-term insurance business consist costs and reinsurance commission revenue is recognised on the rate on a financial asset are included in the measurement of the the gross carrying amount of the asset, and the net amount is of directly attributable costs payable to the underwriter and are 365th basis over the term of the policy. effective interest rate. restated to the revalued amount of the asset. All other property deferred over the period in which the related premiums are and equipment is stated at historical cost less depreciation. earned. 3) Depreciation rates, methods and residual values Other fee income, including account servicing fees, investment Historical cost includes expenditure that is directly attributable Depreciation rates, depreciation methods adopted and residual management fees, sales commission, placement fees and to the acquisition of the items. Administration costs that are directly attributable to long- values of assets requires judgements and estimates to be made. syndication fees, is recognised as the related services are term recurring premium insurance policy contracts are Changes in estimates are disclosed in the relevant notes where performed. When a loan commitment is not expected to result Subsequent costs are included in the asset’s carrying amount recognised directly to the statement of profit or loss and other applicable. in the drawdown of a loan, loan commitment fees are recognised or recognised as a separate asset, as appropriate, only when it comprehensive income. on a straight-line basis over the commitment period. is probable that future economic benefits associated with the 4) Post-employment medical benefits (ii) Commission. item will flow to the Group and the cost of the item can be The cost of defined benefit post-employment medical benefits (ii) Dividend Income. Commission is payable to sales staff on long-term and short- measured reliably. The carrying amount of the replaced part is as well as the present value of the post-retirement medical aid Dividends are recognised in the period when the shareholders’ derecognised. All other repairs and maintenance are charged term insurance business. Commission is accounted for on all obligation is determined using actuarial valuations. The actuarial right to receive payment is established. to the statement of comprehensive income during the financial in-force policies in the financial period during which it is incurred. valuation involves making assumptions about discount rates, The portion of the commission that is directly attributable to period in which they are incurred. expected rates of return of assets, future salary increases, Dividend income from financial assets classified at fair value the acquisition of long-term recurring premium insurance policy mortality rates and medical cost trends. All assumptions are through profit or loss is recognised on the last date to register. contracts is recognised directly to the statement of profit or loss reviewed at each reporting date. 168 LAND BANK | INTEGRATED ANNUAL REPORT 2022 169 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.9 Property, plant and equipment 3.10 Investment property 3.11 Intangible assets (continued) In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a discount Increases in the carrying amount arising on revaluation of land Investment properties (properties that are not owner-occupied), (i) Computer software rate that reflects current market assessments of the time value and buildings are credited to other comprehensive income and are properties which are held to earn rental income and/ or for Costs associated with maintaining computer software of money and the risks specific to the asset. An impairment loss shown as Revaluation Reserves in the Statement of Changes capital appreciation. Investment properties are measured initially programmes are recognised as an expense as incurred. is recognised whenever the carrying amount of an asset exceeds in Equity. Decreases that offset previous increases of the same at cost, including transaction costs. The carrying amount includes Computer software license fees are paid for in advance, its recoverable amount. asset are charged in other comprehensive income and debited the cost of replacing part of an existing investment property at recognised as a prepayment and expensed to the statement of against Revaluation Reserves directly in equity; to the extent that the time that cost is incurred if the recognition criteria are met profit or loss and other comprehensive income over the period A previously recognised impairment loss is reversed if the decreases exceed the Revaluation reserve the decreases are and excludes the costs of day-to-day servicing of an investment of the license agreement. Should the license agreement extend recoverable amount increases as a result of a change in the charged to the statement of comprehensive income. Each year the property. Subsequent to initial recognition, investment properties beyond 12 months, the software license would be capitalised as estimates used to determine the recoverable amount, but not difference between depreciation based on the revalued carrying are stated at fair value, which reflects market conditions at the an intangible asset and amortised on a straight-line basis over to an amount higher than the carrying amount that would have amount of the asset charged to the statement of comprehensive reporting date. Gains or losses arising from changes in the fair the period of the license agreement. been determined (net of depreciation) had no impairment loss income, and depreciation based on the asset’s original cost is values of investment properties are recognised in the statement been recognised in prior years. transferred from other reserves to retained earnings. of profit or loss in the period in which they arise. (ii) Amortisation Intangible assets are amortised on a straight-line basis in profit 3.12 Financial instruments Reversals of impairment loss on an a revalued asset is recognised Investment properties are derecognised either when they or loss over their estimated useful lives, from the date that they in other comprehensive income and increases the revaluation have been disposed of or when the investment property is are available for use. The estimated useful lives for the current Classification and measurement surplus of the asset. However to the extent that an impairment permanently withdrawn from use and no future economic and comparative years are as follows: Financial assets and financial liabilities are recognised when loss on that asset was recognised directly in profit and loss, that benefit is expected from its disposal. The difference between the entity becomes a party to the contractual terms of the reversal shall be to profit and loss. the net disposal proceeds and the carrying amount of the Tier 1 asset – Software relating to core business applications for instrument. Regular way purchase and sales of financial assets asset is recognised in the statement of profit or loss and other which any change to a different application suite would require are recognised on trade date, the date on which the group The assets’ residual values, useful lives and methods of comprehensive income in the period of derecognition. a significant investment in resources and time. commits to purchase or sell the asset. depreciation are reviewed, and adjusted if appropriate, at each financial year-end. Transfers are made to or from investment property only when Tier 2 asset – Software that is directly integrated with the core At initial recognition, the group measures a financial asset or there is a change in use. For a transfer from investment property financial systems and additional developments and modules may financial liability at its fair value plus or minus, in the case of a Depreciation is provided on the straight-line basis, which, it is to owner occupied property, the deemed cost for subsequent have be added. Other – Commodity software. financial asset or financial liability not at fair value through profit estimated, will reduce the carrying amount of the property and accounting is the fair value at the date of change in use. If owner or loss (FVTPL), transaction costs that are incremental and equipment to their residual values at the end of their useful occupied property becomes an investment property, the Group Amortisation methods, useful lives and residual values are directly attributable to the acquisition or issue of the financial lives. Items of property and equipment are depreciated from accounts for such property in accordance with the policy stated reviewed at each financial year end and adjusted if appropriate. asset or financial liability, such as fees and commissions. the date that they are installed and available for use. Land is not under property and equipment up to the date of change in use. depreciated as it is deemed to have an indefinite life. Where an Owner occupied property is classified as investment property Item Depreciation method Average useful life Transaction costs of financial assets or financial liabilities carried item of property and equipment comprises major components when the owner occupies less than an insignificant portion of Tier 1 asset Straight line 10 years at FVTPL are expensed in profit or loss. Immediately after initial with different useful lives, the components are accounted for as the property (less than 50%). This threshold was set due to the Tier 2 asset Straight line 5 years recognition, an expected credit loss (ECL) is recognised for separate items of property and equipment. Group’s intention to let out any excess office space, which exists Other Straight line 3 years financial assets measured at amortised cost and investments at the Group’s properties. in debt instruments measured at fair value through other The major categories of property and equipment are Impairment of non-financial assets comprehensive income (FVOCI), which results in an accounting depreciated at the following rates: 3.11 Intangible assets Intangible and tangible assets that are subject to amortisation loss being recognised in profit or loss when an asset is newly are reviewed for impairment whenever events or changes in originated. Building 2.5% per annum An intangible asset is recognised if it is probable that the circumstances indicate that the carrying amount may not be Motor vehicles  20% per annum expected future economic benefits that are attributable to the recoverable. An impairment loss is recognised for the amount (i) Amortised cost and effective-interest rate Computer equipment 33.3% per annum asset will flow to the Group and the cost of the asset can be by which the asset’s carrying amount exceeds its recoverable The amortised cost of a financial instrument is the amount Leasehold improvements   Equal months in relation to lease measured reliably. amount. The recoverable amount is the higher of an asset’s fair at which the financial instrument is measured on initial period value less costs of disposal and value in use. For the purposes recognition minus principal repayments, plus or minus the Furniture and fittings 20% per annum Intangible assets that are acquired and have finite useful lives are of assessing impairment, assets are grouped at the lowest levels cumulative amortisation using the effective-interest method of initially recognised at cost with subsequent measurement at cost for which there are largely independent cash inflows (cash- any difference between the initial contractual amount and the Items of property and equipment are derecognised on disposal less any accumulated amortisation and any impairment losses. generating units). Prior impairments of non-financial assets maturity amount, less any cumulative impairment losses. or when no future economic benefits are expected from their (other than goodwill) are reviewed for possible reversal at each use or disposal. The gain or loss on derecognition is recognised Intangible assets are derecognised upon disposal or when no reporting date. in profit or loss and is determined as the difference between future economic benefits are expected from its use or disposal. the net disposal proceeds, if any, and the carrying amount of the Any gain or loss arising on derecognition of the asset (calculated item. On derecognition any surplus in the revaluation reserve as the difference between the net disposal proceeds and the in respect of an individual item of property and equipment is carrying amount of the asset) is included in the profit or loss in transferred directly to retained earnings in the statement of the year the asset is derecognised. changes in equity. 170 LAND BANK | INTEGRATED ANNUAL REPORT 2022 171 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.12 Financial instruments (continued) The gain/loss shall be derived by comparing the present value 3.12 Financial instruments (continued) (ii) The Group has neither transferred nor retained substantially of the restructured loan (discounted using the original effective all the risks and rewards of the asset, but has transferred control The effective-interest rate is the rate that exactly discounts interest rate) to the carrying value at time of modification. All derivatives are recognised in the statement of financial of the asset. estimated future cash payments or receipts through the derecognition. position at fair value and are classified as trading except where expected life of the financial asset or financial liability to the they are designated as part of an effective hedge relationship When the Group has transferred its rights to receive cash flows gross carrying amount of a financial asset (i.e. its amortised cost Financial assets and classified as hedging derivatives. The carrying value of a from an asset or has entered into a pass-through arrangement, before any impairment allowance) or to the amortised cost of Debt instruments are measured at amortised cost where they have: derivative is measured at fair value throughout the life of the and has neither transferred nor retained substantially all the risks a financial liability. The calculation does not consider ECLs and contract. Derivatives are disclosed as assets when the fair value and rewards of the asset nor transferred control of the asset, the includes transaction costs, premiums or discounts, fees and • contractual terms that give rise to cash flows on specified is positive and as liabilities when the fair value is negative. asset is recognised to the extent of the Group’s involvement in points paid or received that are integral to the effective interest dates, that represent solely payments of principal and interest the asset. In that case, the Group also recognises an associated rate, such as origination fees. on the principal amount outstanding; and The derivative assets and derivative liabilities are offset and the liability. The transferred asset and the associated liability are • are held within a business model whose objective is achieved net position is presented in the statement of financial position as measured on a basis that reflects the rights and obligations that When the group revises the estimates of future cash flows, the by holding to collect contractual cash flows. the Group has a legal right to offset the amounts and intends to the Group has retained. carrying amount of the respective financial asset or financial settle on a net basis. Each swap has the same counterparty and liability is adjusted to reflect the new estimate, discounted using Amortised cost is calculated by taking into account any discount the “net asset/ liability” is as a result of movements in FVTOCI. Continuing involvement that takes the form of a guarantee over the original effective interest rate. Any changes are recognised or premium on acquisition and fee or costs that are an integral the transferred asset is measured at the lower of the original in profit or loss. part of the effective interest rate (EIR). The EIR amortisation is All strategic trading asset and repurchase agreements are carrying amount of the asset and the maximum amount of included in “Net interest income” in the statement of profit or recognised in the statement of financial position at fair value consideration that the Group could be required to repay. (ii) Fair value loss and other comprehensive income. The losses arising from and are classified as trading. The carrying value of an asset is The fair value of a financial instrument is the amount that impairment are recognised in the statement of profit or loss and measured at fair value and are disclosed as assets when the fair Financial liabilities would be received to sell the asset or paid to transfer a liability other comprehensive income. value is positive and as liabilities when the fair value is negative. A financial liability is derecognised when the obligation under the in an orderly transaction between market participants at the liability is discharged or cancelled or expires. Where an existing measurement date.The fair value of instruments that are quoted Receivables arising from insurance contracts are also classified (iv) Cash held under investments financial liability is replaced by another from the same lender on in an active market is determined using quoted prices where in this category and are reviewed for impairment as part of the The “Cash” held under investments is held with the Asset substantially different terms, or the terms of an existing liability they represent those at which regularly and recently occurring impairment review of loans and receivables. Managers (external party) to invest on the Group’s behalf. At are substantially modified, such an exchange or modification transactions take place. The group uses valuation techniques to various stages as the markets move, the Asset Managers may is treated as a derecognition of the original liability and the establish the fair value of instruments where quoted prices in Investments in equity instruments: buy and sell shares and bonds, and would invariably have cash on recognition of a new liability.The difference between the carrying active markets are not available. For equity investments that are held neither for trading nor for hand at certain points in time. This cash is held in the possession value of the original financial liability and the consideration paid contingent consideration the group may irrevocably elect to of the Asset Managers and is intended to be used for the is recognised in profit or loss. For a detailed discussion of the fair value of financial instruments, present subsequent changes in the fair value of these equity purpose of purchasing new financial instruments. The cash is not refer to note 36. investments in OCI. The cumulative gain or loss previously necessarily available to be used as working capital by the Group Impairment of financial instruments Impairment of financial recognised in OCI is not reclassified from equity to profit or and therefore is not disclosed as “Cash and cash equivalents”. assets Modification loss. However, it may be reclassified in equity. Please refer to note 4. At each reporting date, the Group assesses whether there The group modifies the terms of the loans provided to its clients has been a significant increase in credit risk for financial assets due to commercial renegotiations or in cases of distressed loans, Financial liabilities (v) Derecognition of financial asset since initial recognition by comparing the credit risk of default with the aim of maximising recovery. Such restructuring activities Financial liabilities are classified as subsequently measured at Upon derecognition of equity instruments designated at fair occurring over the expected life between the reporting date include changes in payment frequency, payment date, term, amortised cost, except for: value through other comprehensive income, the cumulative fair and the initial recognition. In determining whether credit risk has interest rate or consolidation of borrower’s loan agreements value gains/ (losses) recognised in other comprehensive income increased significantly since initial recognition, the Group uses into a single agreement to mitigate credit risk. • Financial liabilities at FVTPL: This classification is applied to is not subsequently recycled to profit or loss. its internal credit risk grading system, external risk ratings and derivative financial liabilities, financial liabilities held for trading and forecast information to assess deterioration in the credit quality The modified asset is assessed to determine whether it other financial liabilities designated as such at initial recognition. Financial assets of a financial asset. constitutes a substantial or non-substantial modification by • Financial guarantee contracts and loan commitments. A financial asset is derecognised when: considering both quantitative and qualitative features. For The amount of Expected Credit Loss (ECL) is measured as example, if the present value of the new contractual cash flows (iii) Derivative financial instruments, strategic trading asset and • The rights to receive cash flows from the asset have expired. the probability-weighted present value of all cash shortfalls discounted using the original effective interest rate, differs by hedge accounting • The Group has transferred its rights to receive cash flows over the expected life of the financial asset discounted at its 10% when compared to the original contractual cash flows, the The Group elected an accounting policy choice under IFRS 9 from the asset or has assumed an obligation to pay the original effective interest rate. The cash shortfall is the difference Land Bank deems the modification to be substantial and results “Financial Instruments” to apply the hedge accounting requirements received cash flows in full without material delay to a third between all contractual cash flows that are due to the group and in the de-recognition of the original asset. If the present value is under IFRS 9 “Financial Instruments: Recognition and Measurement”. party under a ‘pass-through’ arrangement; and either: all the cash flows that the group expects to receive. The amount below 10% and the qualitative assessment performed does not As part of the requirements to apply hedge accounting, the of the loss is recognised using a provision for “Expected Credit deem it so, the Land Bank deems the modification to be non- Group documents, at the inception of the hedge relationship, the Loss account”. substantial and does not result in de-recognition of the original relationship between hedging instruments and hedged items, the (i) The Group has transferred substantially all the risks and asset. The modification gain/loss will then be determined. risk being hedged, the Group’s risk management objective and rewards of the asset, or strategy for undertaking hedge transactions, and how effectiveness will be measured throughout the life of the hedge relationship. 172 LAND BANK | INTEGRATED ANNUAL REPORT 2022 173 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.12 Financial instruments (continued) financial assets are grouped on the basis of shared credit risk 3.12 Financial instruments (continued) 3.13 Tax characteristics, taking into account instrument type, credit risk Key principles of the group’s accounting policy for impairment of ratings, date of initial recognition, remaining term to maturity, All collateral items ceded to the Land Bank shall be valued Income tax financial assets are listed below. industry, geographical location of the borrower and other or revalued within the frequency timelines, failing which will The Land Bank is exempt from income tax in terms of sections relevant factors. be regarded as stale and in non-compliance to the Collateral 10(1) (cA) (ii) of the Income Tax Act, 58 of 1962. The Group assesses at initial recognition of financial assets Management policy. whether to use a 12-month expected loss approach or a lifetime The amount of ECL is measured as the probability-weighted The direct subsidiaries of the Land Bank are also exempt from expected loss approach in order to calculate its impairment present value of all cash shortfalls over the expected life of the Market values for properties (and ultimately fair value) must income tax in terms of sections 10(1) (cA) (ii) of the Income provision. financial asset discounted at its original effective interest rate. be conducted in line with industry standards as determined by Tax Act, 58 of 1962. The cash shortfall is the difference between all contractual cash the South African Council for the Property Valuers Profession A 12-month expected loss approach is used for the following flows that are due to the Group and all the cash flows that the (SACPVP), as amended from time to time. This involves the use As part of the restructuring of the operations, the tax status of instruments: group expects to receive. The amount of the loss is recognised of comparable sales of similar properties (for Land Bank it’s 3 the Land Bank Insurance Company (SOC) Limited and Land using a provision for “Expected Credit Loss account”. recent comparable sales). Bank Life Insurance Company (SOC) Limited are currently Purchased or newly originated financial assets that are not under review with South African Revenue Service (SARS). credit impaired. A lifetime expected loss approach is used for The group considers its historical loss experience and adjusts Fair value is determined by limiting collateral reporting to the Please refer to the notes of the annual financial statements for the following instruments: Purchased or newly originated credit this for current observable data. In additional, the group uses lower of registered bond/ cession amount or forced sale value additional disclosure regarding the probabilities/possibilities of impaired financial assets. reasonable and supportable forecasts of future economic (FSV). contingent liability raised in this regard. conditions including experienced judgement to estimate the Although some financial assets within the Bank’s portfolio might amount of an expected impairment loss. IFRS 9 introduces The collateral valuation must take into account the forced 3.14 Leases meet the definition of low credit risk, the Bank opted not to the use of macro-economic factors that which include but are sale margins (or liquidation cost provision) based on historical apply this in application of its ECL methodology as given the not limited to the World Food Index as well as the Volume of recovery and liquidation costs incurred by Land Bank to Lessee accounting policies nature of the Bank’s Imports of Goods and Services, and requires an evaluation of determine security value and /or forced sale value. These The standard provides a single lessee accounting model, both the current and forecast direction of the economic cycle. liquidations cost margins must be re-assessed annually. requiring lessees to recognize assets and liabilities for all major business it is deemed not to be prudent not to consider whether Incorporating forward-looking information increases the level of leases. At inception of a contract, the Group assesses whether a significant increase in credit risk exits. judgement as to how changes in these macro-economic factors Cash and cash equivalents a contract is, or contains a lease based on whether the contract will affect ECL. The methodology, assumptions and macro- Cash comprises cash on hand and at bank and demand deposits. conveys the right to control the use of an identified asset for a For subsequent measurement, the group applies a three-stage indices, including any forecasts of future economic conditions Cash equivalents are short-term, highly liquid investments that period of time in exchange for consideration. The Group has approach to measuring expected credit loss (ECL) on debt are reviewed regularly. are readily convertible to known amounts of cash and which elected to apply the practical expedient method to account instruments accounted for at amortised cost. Assets migrate are subject to an insignificant risk of changes in value. Cash and for each lease component and any non-lease components as a through the following three stages based on the change in credit If, in a subsequent period, credit quality improves and reverses cash equivalents are stated at carrying amount which is deemed single lease component. quality since initial recognition: the previously assessed significant increase in credit risk since fair value. origination, then the ECL reverts from lifetime ECL to 12-months The Group recognizes a right-of-use asset and a lease liability Stage 1: 12months ECL ECL. Funds administered on behalf of related parties at the lease commencement date. The right-of-use asset For exposures where there has not been a significant increase The Group manages funds on behalf of related parties. The is initially measured based on the initial amount of the lease in credit risk since initial recognition and that are not credit Day 1 profit net position in terms of legal right to offset of these funds liability adjusted for any lease payments made at or before the impaired upon origination, the portion of the lifetime ECL Where the transaction price in a non-active market is different administered on behalf of related parties are separately disclosed commencement date, plus any initial direct costs incurred and associate with the probability of default events occurring within from other observable current market transactions in the same in the notes to the annual financial statements. These funds are an estimate of costs to dismantle and remove the underlying the next 12 months is recognised. instrument or based on a valuation technique whose variables not carried on the statement of financial position of the Group. asset or to restore the underlying asset or the site on which it is include data from observable markets, the group immediately located, less any lease incentives received. Stage 2: Lifetime ECL – not credit impaired recognises the difference between the transaction price and fair Trade and other payables For credit exposures where there has been a significant increase value (a ‘Day 1’ profit) in the statement of profit or loss and Trade and other payables, including accruals, are recognised The assets are depreciated to the earlier of the end of the useful in credit risk since initial recognition but that are not credit other comprehensive income under fair value gains and losses. when the Group has a present obligation arising from past life of the right-of-use asset or the lease term using the straight- impaired, a lifetime ECL is recognised. In cases where use is made of data, which is not observable, events, the settlement of which is expected to result in an line method as this most closely reflects the expected pattern of the difference between the transaction price and model value outflow of economic benefits from the Group. consumption of the future economic benefits. Stage 3: Lifetime ECL – credit impaired is only recognised in the statement of profit or loss and other If the loan’s credit risk increases to the point where it is considered Funding Liabilities comprehensive income when the inputs become observable, or The lease term includes periods covered by an option to extend credit-impaired, interest revenue is calculated based on the loan’s The carrying values of all funding liabilities are measured at when the instrument is derecognised. if the Group is reasonably certain to exercise that option. Lease amortised cost (that is, the gross carrying amount less the loss amortised cost in alignment with IFRS 9 requirements. terms range from 2 to 5 years for offices and vehicles. In addition, allowance). Lifetime ECLs are recognised, as in Stage 2. Collateral the right-of-use asset is periodically reduced by impairment Collateral refers to an asset bonded or pledged under a security The arranging fees that are paid upon acquisition of the liability losses, if any, and adjusted for certain remeasurements of the The group assesses whether the credit risk on a financial asset are deferred to the Statement of Other Comprehensive Income document to the Bank by a borrower or surety in support of lease liability. has increased significantly on an individual or collective basis. over the term of the loan facility and included in the interest a loan granted. In the event of a default by a client or surety, For the purposes of a collective evaluation of impairment, expense line as these arranging fees form part of the “Effective collateral is a secondary source of repayment. The group applies the cost model subsequent to the initial Interest Rate” of funding instruments. The prepaid arranging fee measurement of the right of use assets. is carried as part of the funding liabilities. 174 LAND BANK | INTEGRATED ANNUAL REPORT 2022 175 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.14 Leases Key management is defined as being individuals with the authority 3.17 Non-current assets (disposal groups) held for sale i) Defined contribution plans. and responsibility for planning, directing and controlling activities (NCAHFS) or distribution to owners (continued) The Group pays fixed contributions into independent entities The lease liability is initially measured at the present value of of the Group. All individuals from Executive Management up to in relation to several state plans and insurance for individual the lease payments that are not paid at the commencement the Board of Directors are key management individuals in their Properties in possession employees.The Group has no legal or constructive obligations to date, discounted using the interest rate implicit in the lease or, if dealings with the Group. Unsold properties in possession are recognised once ownership pay contributions in addition to its fixed contributions, which are that rate cannot be readily determined, the Group’s incremental has been legally transferred to the Group and the underlying recognised as an expense in the period that relevant employee borrowing rate. Generally, the Group uses its incremental Close family members of key management personnel are debtor is then derecognised. These properties are included services are received. borrowing rate as the discount rate. The interest component considered to be those family members who may be expected under non-current assets held-for-sale at the outstanding loan of the lease liability payment is presented as part of operating to influence or be influenced by key management individuals in balance, which are then valued at the lower of the carrying Retirement fund activities on the cash flow statement. their dealings with the Group. amount and the fair value less costs to sell. The fair value is The Land Bank Retirement Fund which functions as a defined determined using a market-based valuation performed by contribution plan and which is subject to the provisions of The lease liability is measured at amortized cost using the Other related party transactions are also disclosed in terms a sworn appraiser at the statement of financial position date. the Pension Fund Act, 1956 (Act No.24 of 1956) came into effective interest method. It is remeasured when there is a of the requirements of IAS 24. The objective of IAS 24 and Realisable value is determined using market-based valuations operation on 1 November 1994. Defined obligations such as change in future lease payments arising from a change in an the financial statements is to provide relevant and reliable performed by a sworn appraiser at the statement of financial disability and death in service were completely phased out index or rate, if there is a change in the Group’s estimate of information and therefore materiality is considered in the position date. Maintenance costs are expensed in the period during the 2007 financial year. The Fund is now accounted for the amount expected to be payable under a residual value disclosure of these transactions. incurred. The intention of the Group is to sell these properties as a defined contribution plan as it no longer has any obligation guarantee, or if the Group changes its assessment of whether it to recover the outstanding payments on the defaulted loans. towards members for defined benefits. Contributions are will exercise a purchase, extension or termination option. 3.16 Foreign currency transactions recognised as an expense and as a liability to the extent that Disposal of properties in possession they are unpaid. When the lease liability is remeasured in this way, a corresponding Foreign currency transactions are translated into the functional It is the Group’s policy to dispose of repossessed properties in adjustment is made to the carrying amount of the right of-use currency using the exchange rates prevailing at the dates of the an orderly fashion on a willing buyer and willing seller basis. The The Land Bank Retirement Fund (“LBRF”) in an umbrella fund asset, or is recorded in profit or loss if the carrying amount of transactions or valuation where items are re-measured. property to be sold is advertised in the market. Upon receipt within the Alexander Forbes Retirement Fund (AFRF). the right-of-use asset has been reduced to zero. of offers to purchase, the offers are evaluated and an offer that Monetary assets and liabilities denominated in foreign currencies makes the most economic sense is accepted. ii) Defined benefit plans. The Group has elected to apply the practical expedient not are retranslated at the functional currency spot rate of exchange Under the Group’s defined benefit plans, the amount of pension to recognize right-of-use assets and lease liabilities for short- ruling at the statement of financial position date. Foreign The Group has satisfied the following IFRS 5 conditions to benefit that an employee will receive on retirement is defined term leases that have a lease term of 12 months or less. The exchange differences arising on the settlement of monetary classify the properties as NCAHFS: by reference to the employee’s length of service and final salary. lease payments associated with these leases is recognized as an items or translating monetary items at rates different from those The legal obligation for any benefits remains with the Group, expense on a straight-line basis over the lease term. at which they were translated on initial recognition during the The appropriate level of management must be committed to a even if plan assets for funding the defined benefit plan have been period or in the previous financial statements are recorded in plan to sell the asset; and An active programme to locate a buyer set aside. Plan assets may include assets specifically designated to Lessor accounting policies profit and loss in the period in which they arise. and complete the sale must have been initiated. a long-term benefit fund as well as qualifying insurance policies. Leases where the Group is the lessor and retains substantially all The liability recognised in the statement of financial position for the risk and benefits of ownership of the asset are classified as Non-monetary items that are measured in terms of historical- The asset must be actively marketed for sale at a price that is defined benefit plans is the present value of the defined benefit operating leases. The Bank leases out its investment properties cost in a foreign currency are translated using the exchange reasonable in relation to its current fair value. obligation (DBO) at the reporting date less the fair value of as operating leases, thus generating rental income. The rental rates as at the dates of the initial transactions. Non-monetary plan assets. income is recognised as income on a straight-line basis over the items measured at fair value in a foreign currency are translated The sale should be expected to qualify for recognition as a lease term. Initial direct costs incurred in negotiating operating using the exchange rates at the date when the fair value was completed sale within one year from the date of classification, Management estimates the DBO annually with the assistance leases are added to the carrying amount of the leased asset determined. except where events and circumstances may extend the period of independent actuaries. This is based on standard rates and recognised over the lease term of the same basis as rental to complete the sale beyond one year of inflation, salary growth and mortality. Discount rates are income. Contingent rents are recognised as revenue in the 3.17 Non-current assets (disposal groups) held for sale determined by reference to market yields at the end of the period in which they are earned. (NCAHFS) or distribution to owners Actions required to complete the plan should indicate that it is reporting periods on government bonds that have terms to unlikely that significant changes to the plan will be made or that maturity approximating to the terms of the related pension 3.15 Related parties In the statement of profit or loss and other comprehensive the plan will be withdrawn. liability. Remeasurement gains and losses arising from experience income of the reporting period, and of the comparable period adjustments and changes in actuarial assumptions are recognised The Group operates in an economic environment currently of the previous year, income and expenses from discontinued 3.18 Employee benefits directly in other comprehensive income. They are included as dominated by entities directly or indirectly owned by the operations are reported separate from normal income and a separate component of equity in the statement of financial South African government. As a result of the constitutional expenses down to the level of profit/ (loss) after taxes. Property Post-employment benefit plans position and in the statement of changes in equity. Service independence of all three spheres of government (national, and equipment and intangible assets once classified as held-for- The Group provides post-employment benefits through various cost on the net defined benefit liability is included in employee provincial and local) in South Africa, only parties within the sale are not depreciated/ amortised. defined contribution and defined benefit plans. benefits expense. Net interest expense on the net defined national sphere of government will be considered to be related benefit liability is included in finance costs. parties. 176 LAND BANK | INTEGRATED ANNUAL REPORT 2022 177 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Accounting Policies 3.18 Employee benefits (continued) benefits at the earlier of the following dates: (a) when the Group 3.20 Insurance contracts (continued) The benefits to which the Group is entitled under its reinsurance can no longer withdraw the offer of those benefits; and (b) contracts held are recognised as assets. These assets consist Medical aid fund when the entity recognises costs for a restructuring that is within Short-term insurance of short-term balances due from reinsurers (classified within The Bank provides a post-retirement medical aid benefit to all the scope of IAS 37 and involves the payment of termination Gross written premiums loans and receivables) on settled claims, as well as estimates employees who were either employees or pensioners of the benefits. In the case of an offer made to encourage voluntary Gross written premiums exclude value added tax. Earned (classified as reinsurance assets) that are dependent on the Bank at 1 December 2005. The fund functions as a defined redundancy, the termination benefits are measured based on premiums are accounted for as income when the risk related to gross outstanding claims, IBNR and UPR provisions. Amounts benefit scheme. The entitlement to these benefits is usually the number of employees expected to accept the offer. Benefits the insurance policy incepts and are spread over the risk period recoverable from or due to reinsurers are measured consistently conditional on the employee remaining in service up to falling due more than 12 months after the end of the reporting of the contract by using an unearned premium provision. All with the amounts associated with the reinsured insurance retirement age. It is the Group’s policy to pay the medical fund period are discounted to their present value. premiums are shown before deduction of commission payable contracts in accordance with the terms of each reinsurance subscription fees on behalf of all pensioners in full and to fund to intermediaries. contract. Reinsurance liabilities are primarily premiums payable the total obligation as and when it arises actuarial valuations 3.19 Provisions for reinsurance contracts and are recognised as an expense of the Bank’s liability are conducted on an annual basis by an Commission when incurred. independent qualified actuary on the projected unit credit Provisions are recognised when the Group has a present Commission is payable to brokers and underwriting managers method. The liability recognised in the statement of financial obligation (legal or constructive) as a result of a past event, it on non-life insurance business. Commission is accounted for The reinsurer’s share of unearned premiums represents the position in respect of defined benefit medical plan is the present is probable that an outflow of resources embodying economic on all in-force policies in the financial period during which it portion of the current year’s reinsurance premiums that relate value of the defined benefit obligation at the statement of benefits will be required to settle the obligation and a reliable is incurred. Acquisition costs for non-life insurance business is to risk periods covered by the related reinsurance contracts financial position date.The benefit obligation at the statement of estimate can be made of the amount of the obligation. deferred over the period in which the related premiums are extending into the financial position date is not reflected net of assets since these earned on a remaining days basis. assets are not held in a legally separate entity that is not available Where the Group expects some or all of a provision to be following year. The reinsurer’s share of unearned premium reimbursed, for example under an insurance contract, the Fee income is calculated using the same method applied to calculate the to the Bank’s own creditors. The past service costs and interest costs are accounted for in the statement of profit or loss. reimbursement is recognised as a separate asset but only when The reinsurance broker pays the brokerage fee they earn on unearned premium reserve. Actuarial gains and losses arising from experience adjustments the reimbursement is virtually certain. The expense relating to reinsurance premiums to the company in exchange for a flat and changes in actuarial assumptions are charged or credited to any provision is presented in the statement of profit or loss and brokerage fee earned over the period of the treaties. This fee Income from reinsurance contracts ceded, that varies with and other comprehensive income in the statement of profit or loss other comprehensive income net of any reimbursement. income is earned quarterly on settlement of the accounts to is related to obtaining new reinsurance contracts and renewing and other comprehensive income in full. reinsurers. existing reinsurance contracts, is deferred over the period of If the effect of the time value of money is material, provisions the related reinsurance contract and is recognised as a current are discounted using a current pre-tax rate that reflects, where Provision for unexpired risk liability. Short-term employee benefits appropriate, the risks specific to the liability. Where discounting Unexpired risks refer to policies that have already been written, The cost of all short-term employee benefits is recognised is used, the increase in the provision due to the passage of time but the period for which premium was received or is receivable Receivables and payables related to insurance contracts during the period in which the employee renders the related is recognised as a finance cost. has not expired as at the measurement date and extends into Receivables and payables are recognised when due. These service on an undiscounted basis. the following period. The Unexpired Risk Provision (URP) include amounts due to and from agents, brokers and insurance Provision is made for onerous contracts when the expected comprises of the Unearned Premium Provision (UPP) and the contract holders and are included at amortised cost. Accruals for employee entitlement to annual leave represents benefits to be derived from a contract are less than the Additional Unexpired Risk Provision (AURP). the present obligation, which the Group has to pay as a result of employees’ services, provided to the reporting date. The unavoidable costs of meeting the obligations under the contract. If there is objective evidence that the insurance receivable is Notified Outstanding Claims Provision impaired, the Group reduces the carrying amount of the accruals have been calculated at undiscounted amounts based Provisions are reviewed at the end of each financial year and are adjusted to reflect current best estimates. The Notified Outstanding Claims Provision (NOCP) is held in insurance receivable accordingly and recognises that impairment on current salary rates. respect of those claims that have been notified but have not loss in the statement of profit or loss and other comprehensive 3.20 Insurance contracts been paid or fully settled by the measurement date. These are income.The Group gathers objective evidence that an insurance A liability is recognised for the amount expected to be paid estimated based on management expert estimation and are receivable is impaired using the same process adopted for loans under short-term bonuses in the Group as the Group has a Contracts under which the Group accepts significant risk from reviewed to be in line with recent historical claims experience. and receivables. The impairment loss is also calculated according present legal constructive obligation to pay the amount as a result of past service provided by the employee, and the another party (the policyholder) by agreeing to compensate the to the same method used for these financial assets. Deferred acquisition costs (DAC). obligation can be estimated reliably. A present legal constructive policyholder or other beneficiary if a specified uncertain future Deferred Acquisition Costs (DAC) consist of commissions Long-term insurance obligation to pay the amount as a result of past service provided event (the insured event) adversely affects the policyholder or and other variable costs directly connected with acquisition These contracts provide long-term life insurance benefits with by the employee, and the obligation can be estimated reliably. other beneficiary are classified as insurance contracts. or renewal of insurance contracts. Deferred acquisition costs fixed terms to cover natural persons who are indebted to the are amortised at incidence of risk basis and are deferred over Group under mortgage loans, production loans and short-term Termination benefits Insurance contracts are classified into two main categories, the period in which the related premiums are earned, and loans. Termination benefits are payable when employment is depending on the type of insurance risks, namely short-term recognised as a current asset. All other costs are recognised as terminated by the Group before the normal retirement date, or long-term. expenses when incurred. or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination The DAC asset is tested for impairment annually and written down when it is not expected to be fully recovered from future income. 178 LAND BANK | INTEGRATED ANNUAL REPORT 2022 179 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Accounting Policies Notes to the Financial Statements 3.20 Insurance contracts (continued) Long-term insurance liability 4. Cash and cash equivalents In terms of IFRS 4 – Insurance contracts, defined insurance Group Company Recognition and measurement. liabilities are allowed to be measured under existing local 2022 2021 2022 2021 practice.The company used the FSV method, as described in the R’000 R’000 R’000 R’000 Premiums Standard of Actuarial Practice (SAP) 104 issued by the Actuarial Bank balances 1 007 726 965 068 869 233 933 630 Premiums are recognised as revenue when they become Society of South Africa (Actuarial Society), to determine the Short term deposits 8 976 034 4 624 821 8 975 983 4 624 771 payable by the contract holder, viz at policy inception. Premiums actuarial value of the policyholders’ liabilities. The underlying 9 983 760 5 589 889 9 845 216 5 558 401 are shown before deduction of commission. philosophy is to recognise profits prudently over the term of each contract consistent with the work done and risk borne. In 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 Fees and commission earned the valuation of liabilities, provision is made for: counterparties where bank accounts are held. Insurance contract policyholders are charged for policy administration services, surrenders and other contract fees. • The best estimate of future experience; Short-term investments are made for one day periods, depending on the immediate cash requirements of the Group, and earn These fees are recognised as revenue over the period in which • The compulsory margins prescribed in the Insurance Act of interest at the respective short-term investment rates. The average rate earned on invested cash in FY2022 is 4.21% (FY2021: related services are performed. If the fees are for services 2017; and 4.23%) provided for future periods, then they are deferred and • Actuarial guidance also provides for the use of discretionary recognised over those future periods. margins were deemed appropriate. The best estimate of Due to the short-term nature of cash and cash equivalents, their carrying amount is considered to be the same as their fair value. future experience is determined as follows: Underwriting benefits • Future investment return assumptions are derived from Life insurance policy claims received up to the last day of each market yields of fixed-interest securities on the valuation date, 5. Trade and other receivables financial period and IBNR claims are provided for and included with adjustments for the other asset classes, taking a long- Trade receivables 1 047 348 859 385 163 788 380 in underwriting policy benefits. Past claims experience is used as term view. The appropriate asset composition of the various Accrued income1 36 807 22 275 36 807 22 275 the basis for determining the extent of the IBNR claims. Income asset portfolios, investment management expenses, taxation Accrued interest – hedging2 18 944 41 105 18 944 41 105 from reinsurance policies is recognised concurrently with the at current tax rates and charges for investment guarantees are Receivable – Disposal of equity investment 108 038 – 108 038 – recognition of the related policy benefit. taken into account. It is assumed that the Group will retain its Premium receivable3 506 143 495 320 – – tax-exempt status for the foreseeable future; Liability adequacy test. Reinsurance receivable3 377 417 300 685 – – • “Per policy” expenses are based on the latest actual expenses At each statement of financial position date, the Group performs and escalated at the estimated annual expense inflation rate. Other receivables 4 305 677 190 040 257 618 143 112 a liquidity adequacy test to assess whether its recognised In addition, expense overruns in the medium term were 1 353 026 1 049 425 421 407 206 492 insurance liabilities are adequate in terms of the Financial reserved for separately; Soundness Valuation (FSV) basis as described in SAP 104. The • Assumptions with regard to future mortality rates are 1 Accrued income comprises of accrued interest on short-term investments and accrued fees from funds under admin. FSV basis meets the minimum requirements of the liquidity consistent with the Group’s recent experience or expected 2 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. adequacy test. If this assessment shows that the carrying amount future experience if this would result in a higher liability. In 3 The reinsurance and premium receivables have a low probability of default as the recovery is close to 100% year-on-year. of its insurance liabilities are inadequate in the light of the particular, mortality rates are adjusted to allow for expected 4 Other receivables consists of prepaid expenses, staff loans, recovery second loss and sundry debtors. Due to the short-term nature of these assets estimated future cash flows, the entire deficiency is recognised deterioration in mortality rates as a result of AIDS; and and historical experience, these assets are regarded as having a low probability of default; therefore, ECL is insignificant on these balances, because in the statement of comprehensive income. • Persistency assumptions with regard to lapse rates are 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. consistent with the Group’s recent experience or expected Reinsurance contracts held future experience if this would result in a higher liability. Contracts entered into with reinsurers under which the Classification of trade and other receivables Group is compensated for losses on one or more long-term Acquisition costs Prepaid expenses3 13 301 5 922 3 684 5 173 policy contracts issued by the Group are classified as long- Referral fees are payable to Land Bank branches on long-term Accrued income 36 807 22 275 36 807 22 275 term reinsurance contracts. The expected claims and benefits insurance business and commission was paid to brokers on the Accrued interest – hedging 18 944 41 105 18 944 41 105 to which the Group is entitled to under these contracts are short-term insurance business. Referral fees and commission recognised as assets. is accounted for on all in-force policies in the financial period during which it is incurred. The portion of the referral fees that The Group assesses its long-term reinsurance assets for is directly attributable to the acquisition of long-term recurring impairment annually. If there is objective evidence that the premium insurance policy contracts is recognised directly to the reinsurance asset is impaired, the carrying amount is reduced to statement of profit or loss and other comprehensive income. a recoverable amount, and the impairment loss is recognised in Acquisition costs for short-term insurance business are deferred the statement of profit or loss and other comprehensive income. over the period in which the related premiums are earned. Reinsurance liabilities are premium payable for reinsurance contracts and are recognised as expenses when incurred. 180 LAND BANK | INTEGRATED ANNUAL REPORT 2022 181 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements Trade and other receivables net of non-financial instruments 1 283 974 980 123 361 972 137 939 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 6. Short-term insurance assets and liabilities paid more than one year after the end of each incident year. Group 2022 2021 Group R’000 R’000 2020 2021 Short-term insurance liabilities 373 907 220 061 Gross claims paid R’000 R’000 Technical provision 365 139 211 255 Incident year Outstanding claims 314 878 160 078 At end of the incident year (47 158) 159 399 Provision for unearned premiums 49 492 49 704 One year later (207 728) 166 603 Provision for unexpired risk reserve – – Current estimate of gross cumulative claims paid (254 886) 326 002 Incurred but not reported claims 769 1 473 Unearned commission income 8 768 8 806 Net claims paid Less: Short-term insurance assets (266 040) (159 014) Incident year Reinsurers' share of technical provisions (253 667) (146 588) At end of the incident year (14 157) 47 820 Outstanding claims (218 489) (110 414) One year later (62 318) 49 981 Incurred but not reported claims (533) (952) Current estimate of net cumulative claims paid (76 475) 97 801 Provision for unearned premiums (34 645) (35 222) Provision for unexpired risk reserve – ceded portion – – Gross Reinsurance Net Deferred acquisition costs (12 373) (12 426) Outstanding claims movement R'000 R'000 R'000 Net short-term insurance technical provisions 107 867 61 047 Balance at 31 March 2020 190 245 (133 171) 57 074 The crop unearned premium provision (UPP) is calculated on the claims occurring basis for the published accounts, based on Movement in outstanding claims provisions (30 167) 22 757 (7 410) historical claims occurrence tables, which are reviewed annually. The winter crop premium is fully earned by 31 March. Below are Balance at 31 March 2021 160 078 (110 414) 49 664 the provisions calculated according to the statutory basis. Movement in outstanding claims provisions 154 800 (108 076) 46 724 Balance at 31 March 2022 314 878 (218 490) 96 388 Gross Reinsurance Net R'000 R'000 R'000 Gross Reinsurance Net Unearned Premium Reserve movement Incurred but not reported movement R'000 R'000 R'000 Balance at 31 March 2020 29 818 (21 262) 8 556 Balance at 31 March 2020 6 330 (4 431) 1 899,00 Provision earned (29 818) 21 262 (8 556) Movement in IBNR (4 858) 3 479 (1 379) New provision raised 49 704 (35 222) 14 482 Balance at 31 March 2021 1 472 (952) 520 Balance at 31 March 2021 49 704 (35 222) 14 482 Movement in IBNR (702) 419 (283) Provision earned (49 704) 35 222 (14 482) Balance at 31 March 2022 770 (533) 237 Provision increased 49 492 (34 645) 14 847 Balance at 31 March 2022 49 492 (34 645) 14 847 Gross Reinsurance Net R'000 R'000 R'000 Deferred acquisition costs Balance at 31 March 2020 7 454 (5 316) 2 138 Provision earned (7 454) 5 316 (2 138) Provision increased 12 426 (8 806) 3 620 Balance at 31 March 2021 12 426 (8 806) 3 620 Provision earned (12 426) 8 806 (3 620) Provision increased 12 373 (8 762) 3 611 Balance at 31 March 2022 12 373 (8 762) 3 611 182 LAND BANK | INTEGRATED ANNUAL REPORT 2022 183 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 7. Investments 7. Investments (continued) Group Company Group Company 2022 2021 2022 2021 2022 2021 2022 2021 R’000 R’000 R’000 R’000 Investments held with Coronation are invested as follows: R’000 R’000 R’000 R’000 Investment in LBLIC – – 30 30 Local equities Investment in LBIC – – 650 000 650 000 Financial (excl. real estate) 26% 24% 26% 24% Unlisted investments 221 828 387 354 221 828 387 354 Basic materials 26% 30% 26% 30% Investment held with Coronation 337 823 303 104 337 823 303 104 Industrials 3% 2% 3% 2% Investment in listed shares 85 382 90 816 85 382 90 816 Consumer goods 8% 7% 8% 7% Investments held by LBLIC 1 234 694 1 106 703 – – Health care 2% 3% 2% 3% Investments held by LBIC 253 660 430 682 – – Consumer services 16% 30% 16% 30% 2 133 387 2 318 659 1 295 063 1 431 304 Telecommunications 4% – 4% – Technology 11% – 11% – Investment held with Coronation Other securities 6% 4% 6% 4% These are investments held with Coronation Asset Managers. Refer to note 20. for the post-retirement obligation disclosure. Listed investments 313 004 278 129 313 004 278 129 Local equity 173 459 164 557 173 459 164 557 Unlisted investments Local bonds 66 713 60 834 66 713 60 834 Fair value Foreign equity 72 832 52 738 72 832 52 738 Ordinary shares in Acorn Agri (Pty) Ltd 78 190 89 000 78 190 89 000 Other 15 786 13 419 15 786 13 419 Ordinary shares in Ideafruit (Pty) Ltd 47 397 44 256 47 397 44 256 Commodities 11 586 7 625 11 586 7 625 Ordinary shares in Riverside Holdings (Pty) Ltd – 100 650 – 100 650 Local Hedge Funds 3 304 2 868 3 304 2 868 Ordinary shares in Afgri Grain Silo Company Pty Ltd 96 241 153 448 96 241 153 448 Foreign unit trusts 896 2 926 896 2 926 221 828 387 354 221 828 387 354 Cash 9 032 11 556 9 032 11 556 Local 7 866 11 311 7 866 11 311 The above equity investments constitute neither control, nor significant influence. Land Bank elected to apply its irrevocable right Foreign 1 166 245 1 166 245 to designate these equity instruments at fair value through other comprehensive income. 337 823 303 104 337 823 303 104 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 2022. The funds are entrusted to portfolio managers for investment purposes. The funds are earmarked to fund the future medical The valuation was based on the Net Asset Value (NAV) of the company, resulting in an investment value of R78 million (FY2021: aid contributions of retired employees. The investments are classified at fair value through profit or loss and are measured and R89 million) for the Bank. 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. Ideafruit (Pty) Ltd Land Bank holds 19.9% interest in Ideafruit (Pty) Ltd and the investment was valued as at 31 March 2022.The valuation was based on the DCF and current asset valuations, resulting in an investment value of R47 million (FY2021: R44 million) for the Bank. Riverside (Pty) Ltd The Land Bank sold all 19.90% interest in Riverside (Pty) Ltd for R108.3 million during the current year. 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 2022. The valuation was based on the DCF and current asset valuations, resulting in an investment value of R96 million (FY2021: R153.4 million) for the Bank. Group Company 2022 2021 2022 2021 Investments in Listed Shares R’000 R’000 R’000 R’000 Rhodes Food Group Holdings Limited 85 382 90 816 85 382 90 816 Rhodes Food Group Holdings Limited was valued in March 2022 based on the listed share price. The listed share price of Rhodes Food Group Holdings Limited as at 31 March 2022, was R11.0 per share (FY2021:R11.7), resulting in an investment value of R85.38 million (FY2021: R90.82 million ) for the Bank. The shares are traded daily hence the share price is regarded as a fair share price. 184 LAND BANK | INTEGRATED ANNUAL REPORT 2022 185 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 7. Investments (continued) 7. Investments (continued) Investments held by LBLIC Group These are investments held by subsidiaries with the following 2022 2021 R’000 R’000 Asset Managers: Investments in interest bearing assets – Coronation Fund Managers Limited Bonds listed on the JSE Debt Market – at market value 345 614 313 885 – Momentum Asset Management Government 92 114 87 723 – Argon Asset Management Corporate 253 500 226 162 – Investec Asset Management Cash, deposits and similar securities¹ 204 221 207 904 – Old Mutual Investment Group (South Africa) (Pty) Ltd Deposits with banks – local 119 643 107 499 Group Money market instruments 84 578 100 405 2022 2021 549 836 521 789 R’000 R’000 Classification of investments in interest bearing assets Equities 530 710 433 293 – Amortised cost instruments 119 643 107 499 Commodities 22 130 23 722 – Fair value through profit or loss 430 193 414 290 Bonds 345 614 313 885 549 836 521 789 Collective investment schemes 131 999 127 891 1 Due to the short-term nature of Cash, deposits and similar securities, their carrying amount is considered to be the same as their fair value Cash deposits and similar securities 204 221 207 904 Investment policy 17 9 Group 1 234 693 1 106 704 2022 2021 R’000 R’000 Investment policy Designated at fair value through profit or loss Other non-cash 17 9 Equities The Investment policy is classified at fair value through profit or loss. Equities comprise: Ordinary shares listed on the Johannesburg Stock Exchange (JSE) ¹ 530 710 433 292 Investments in foreign equities were made utilising pooled funds. The risk is managed by the 530 710 433 292 LBLIC Investment and Actuarial Committee. Equities are classified as designated as at fair value through profit or loss A register containing details of all investments is available for inspection at the registered office of LBLIC. Commodities Exchange traded funds (ETF's) – local ¹ 22 130 23 722 Investments held by LBIC 22 130 23 722 This investment is held by Future growth Asset Managers. Commodity ETF's are classified as designated as at fair value through profit or loss. Investments in interest bearing assets Total investment in interest bearing assets 253 660 430 682 Collective investment schemes ("CIS") Bonds – valued at fair value through profit and loss 199 738 183 571 Equity – foreign unit trusts 105 609 132 092 Cash – valued at fair value through profit and loss 53 921 247 111 Balanced fund – foreign 26 389 2 635 Foreign cash (6 837) 131 999 127 890 CIS are classified at fair value through profit or loss. ¹ Investments at market prices per the JSE. 186 LAND BANK | INTEGRATED ANNUAL REPORT 2022 187 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 8. Derivative Assets 9. Loans and advances Group and Company The Bank’s main driver of earnings is net interest income, which is the difference between interest income received on assets and Expected interest expense incurred on funding liabilities. Credit Loss Gross loans (ECL) Net loans Gross loans per business segment R’000 R’000 R’000 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. 2022 Corporate Banking and Structured Investments (CB&SI) 8 928 203 (1 294 553) 7 633 650 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 Commercial Development and Business Banking (CDBB) 17 004 357 (3 566 517) 13 437 840 approved an Interest Rate Risk Management Strategy during FY2018; hedging the mismatch moderately between the lending and Loan commitments and guarantees (157 658) (157 658) funding rate. Loan Modifications4 CB&SI (35 210) – (35 210) Loan Modifications4 CDBB (22 040) – (22 040) The Bank’s Interest Rate Management Strategy was drafted and is reviewed annually in the context of the Corporate Plan, Risk 25 875 310 (5 018 729) 20 856 582 Appetite Framework, Borrowing and Funding Plan and Treasury Policy Framework. 2021 In the current year under review, management’s review revealed that the current hedge documentation and the Interest Rate Corporate Banking and Structured Investments 8 466 246 (812 695) 7 653 551 Risk Management Strategy would strictly not meet the requirements in IFRS 9 to hedge account the interest rate basis swaps. If hedge accounting is not applied to a derivative, IFRS 9 requires gains and losses to be recognised in profit or loss and not in other Commercial Development and Business Banking 28 542 988 (4 653 758) 23 889 230 comprehensive income (OCI). Loan commitments and guarantees (576 851) (576 851) Loan Modifications4 CB&SI (37 020) – (37 020) The table below sets out derivative assets and liabilities by the type of hedge relationship in which they are designated. Loan Modifications4 CDBB (41 050) – (41 050) 36 931 164 (6 043 304) 30 887 859 Group Company 2022 2021 2022 2021 Nature of Average Average R’000 R’000 R’000 R’000 interest Average term interest rate interest rate Hedging derivatives Loan type rate of repayment 2022 2021 Interest rate swap* 9 896 11 340 9 896 11 340 Short term loans Variable 1 year 8,99% 8,35% The nominal amount of derivatives designated in cash flow Medium term loans Variable 1 to 5 years 9,20% 8,28% hedge relationships is as follows. Long term loans Variable/ Fixed > 5 years 8,39% 7,71% Interest rate swaps** – Asset 4 400 000 10 370 000 4 400 000 10 370 000 Loans by maturity profile – Liability (4 400 000) (10 370 000) (4 400 000) (10 370 000) Refer to note 35 for details about maturity analysis . – – – – 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 2022 R’000 R'000 R'000 R'000 R'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 Group and Bank Interest rate swaps – Pay 5 970 000 3 600 000 – 800 000 10 370 000 – Receive 5 970 000 3 600 000 – 800 000 10 370 000 188 LAND BANK | INTEGRATED ANNUAL REPORT 2022 189 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 9. Loans and advances (continued) 9. Loans and advances (continued) Under Non- Expected Credit Loss provision: reconciliation of movement per business unit Performing performing performing loans¹ loans² loans³ Total R’000 R’000 R’000 R’000 Corporate Commercial Banking Development Loan 2022 and Structured and Business commitments Corporate Banking and Structured Investments 3 421 602 3 027 085 2 479 516 8 928 203 Investments Banking and guarantees Total Group and Company R’000 R’000 R’000 R’000 Commercial Development and Business Banking 5 137 983 1 990 022 9 876 352 17 004 357 2022 Loan Modifications4 CB&SI (21 485) (13 725) (35 210) Balance at the beginning of the year¹ 785 378 3 765 240 576 851 5 127 470 Loan Modifications4 CDBB (12 056) (6 347) (3 637) (22 040) Gross loans and advances 8 526 044 4 997 035 12 352 231 25 875 310 Movement for the year Expected Credit Loss (ECL) (171 566) (622 526) (4 066 978) (4 861 070) Credit losses written off: (1 641) (7 441) – (9 081) Net loans and advances 8 354 478 4 374 509 8 285 253 21 014 240 – Statement of financial position write off (utilisation) (2 159) – (2 159) – Statement of comprehensive income write off (1 641) (5 281) – (6 922) Guarantees 4 290 Net impairment raised to the statement of Loan commitments5 1 491 686 comprehensive income 372 959 (896 786) (419 194) (943 021) Gross loan commitments and guarantees 1 495 976 Balance at the end of the year¹ 1 156 697 2 861 013 157 658 4 175 367 Expected Credit Loss (ECL) (157 658) Net loan commitments and guarantees 1 338 318 2021 Balance at the beginning of the year¹ 744 324 4 061 187 330 001 5 081 617 Under Non- Performing performing performing Movement for the year loans¹ loans² loans³ Total Credit losses written off: (234 040) (59 475) – (293 516) Loans by credit quality R’000 R’000 R’000 R’000 – Statement of financial position write off (utilisation) (232 894) (38 974) – (271 868) 2021 – Statement of comprehensive income write off (1 146) (20 501) – (21 647) Corporate Banking and Structured Investments 1 705 204 6 233 020 528 022 8 466 246 Net impairment raised/ (released) to the statement of Commercial Development and Business Banking 11 925 245 5 129 042 11 488 701 28 542 988 comprehensive income 275 094 (236 472) 246 850 285 473 Loan Modifications4 CB&SI (21 564) (15 456) – (37 020) Balance at the end of the year ¹ 785 378 3 765 240 576 851 5 073 575 Loan Modifications4 CDBB (19 493) (15 434) (6 123) (41 050) Gross loans and advances 13 589 392 11 331 172 12 010 600 36 931 164 ¹ The balances excludes suspended interest of R843.3 million (FY2021: R915.8 million). Expected Credit Loss (ECL) (210 605) (1 455 116) (3 800 732) (5 466 453) Net loans and advances 13 378 787 9 876 055 8 209 868 31 464 711 Impairment releases/ (charges), claims and recoveries Corporate Commercial Loan Banking Development commitments Guarantees 15 580 and Structured and Business and Loan commitments5 4 366 729 Investments Banking guarantees Total R’000 R’000 R’000 R’000 Gross loan commitments and guarantees 4 382 309 Group and Company Expected Credit Loss (ECL) (576 851) 2022 Net loan commitments and guarantees 3 805 458 Net impairments raised to the statement of comprehensive ¹ Performing loans: A significant increase in credit risk could not be recorded. These loans are of an acceptable credit quality. Repayment is expected income 372 959 (896 786) (419 194) (943 021) in compliance with the credit agreement. Recoveries in respect of amounts previously written off1 (213 968) (62 122) – (276 090) ² Under performing loans: Loans are exposed to a significant increase in credit risk as identified based on probability of defaults (PDs) and warning Second loss sharing – (79 441) – (79 441) signals that materialises between origination and reporting. As a minimum, loans that are in arrears for 30 days and more are classified as under 158 991 (1 038 350) (419 194) (1 298 552) performing loans. ³ Non-performing loans: Loans that have failed to meet the terms and conditions of the credit agreement and there are further indicators of the 2021 – – – unlikeliness to repay the loan. Loans that are as a minimum 90 days in arrears, are classified as non-performing. Net impairments raised/ (released) to the statement of 4 Refer to note 35 for modification disclosure. comprehensive income 275 094 (236 472) 246 850 285 473 5 The loan commitments are undrawn balances. Recoveries in respect of amounts previously written off1 (8 553) (7 250) – (15 803) Second loss sharing2 – 53 895 – 53 895 266 541 (189 827) 246 850 323 565 1 Off balance sheet debt collection amounting to R61.7million (2021 R333.9 million) that was previously written off is still subject to legal action. 2 Second loss sharing is a recovery of losses incurred on loans acquired through the SLA partners. 190 LAND BANK | INTEGRATED ANNUAL REPORT 2022 191 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 9. Loans and advances (continued) 9. Loans and advances (continued) Collateral held as security Concentration of credit risk The Group holds collateral which it is entitled to sell in the case of default by the owner of the collateral. The amount and Land Bank’s business is exposed to credit concentration risk in the agricultural sector, as well as to certain counterparties/group type of collateral held for the exposure depends on an assessment of the credit risk of the counterparty. Guidelines have been of connected parties mainly within the Corporate Banking & Structured Investments portfolio. During the year under review, implemented regarding the acceptability of the types of collateral. The value of the collateral is determined with reference to the the Land Bank performed a concentration risk analysis to determine acceptable risk absorption capacity taking into account the realisable value (recoverable amount) of security under forced-sale conditions. current balance sheet size and income statement. The Land and buildings is disclosed at the lower of bond value or security value after taking into account haircuts. The collateral The Board of Directors maintained credit concentration limits during the FY2022, with a single obligor limit of 7,5% (FY2021: 7,5%) 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 of the Land Bank’s equity to any counterparty or group of connected parties in the Commercial Development & Business Banking renewed or restructured. segment and R150 million (FY2021: R150 million). At the approval of the limits in FY2021, the Board of Directors condoned all exposures in excess of the approved limit with a strategy to reduce them to the required level using the asset solution or sell down The Group has the following assets held as security against its loan portfolio: underway. Company As at the close of FY2022,there were ten obligors (R5.9 billion) with individual exposures in excess of 7,5% of the Land Bank’s 2022 2021 own equity in the Corporate Banking & Structured Investments segment, two single obligors (R343 million) in the Commercial R’000 R’000 Development & Business Banking segment and six obligors (R622.5 million) in the SLA books. Nature of assets* Bank Guarantees 54 854 601 456 10. Non-current assets held-for-sale Biological Assets 1 734 617 1 456 985 Cash Deposits 214 550 299 291 Group Company Trade Debtors 391 883 1 457 123 2022 2021 2022 2021 Inventory 800 872 1 009 746 R’000 R’000 R’000 R’000 Land and Buildings 26 115 843 37 067 571 Properties in possession 9 609 4 058 9 609 4 058 Plant and Equipment 465 354 681 844 9 609 4 058 9 609 4 058 Shares and investments 527 591 879 899 4 058 105 112 4 058 105 112 Vehicles and implements 132 725 116 208 Reconciliation of movement Opening balance 30 438 289 43 570 124 Plus: Additions 5 700 1 030 5 700 1 030 The quality of the collateral has not deteriorated from previous years. The reduction in collateral values is primarily due to the Less: Disposals – (13 910) – (13 910) attrition of the loan book through client settlements as the Land Bank has not been able to fully support the sector as a result Re-measurement recognised (149) – (149) – of its current state of default. Customers have sought assistance in other commercial banks. The Bank is also conducting frequent Reclassification from Investment Properties* – (88 174) – (88 174) collateral valuations in line with the updated policies, thereby ensuring that the most recent Market Values, which takes into Closing balance 9 609 4 058 9 609 4 058 account prevailing market conditions, are relied upon. Properties in possession Refer to note 35 for details about the maximum exposure to credit risk for each class of financial instrument exposed to credit These represent the properties brought in by the Group due to clients defaulting on their loan payments. The intention of the risk as at 31 March 2022. 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 At the end of the Financial year ended 31 March 2022, loans where collateral held covered the carrying amount in full amounted occupy them.The Group was committed to sell these properties as they were all advertised for sale. In view of the current volatile to R113.4 million (2021:R117.2 million). market conditions, the properties in possession will only be disposed of, as and when conditions render it economically viable. Collateral held as security and other credit enhancements relating to credit impaired financial assets. BP 1938 located in Pietermaritzburg BP 2102 located in East London Realisable value BP 2116 located in Theunissen Gross Impairment Carrying of collateral BP 2118 located in Theunissen Exposure Allowance Amount held R’000 R’000 R’000 R’000 BP 2119 located in Potchefstroom 2022 BP2120 located in Polokwane BP2121 located in Ventersburg Loans and advances 12 352 231 (4 066 978) 8 285 253 9 582 097 BP2122 located in Polokwane 2021 Loans and advances 12 010 600 (3 800 732) 8 209 868 10 636 864 192 LAND BANK | INTEGRATED ANNUAL REPORT 2022 193 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 10. Non-current assets held-for-sale (continued) 12. Property, plant and equipment *Owned building Group 2022 2021 In FY2019 the board approved the disposal of the property previously classified as investment properties. The Group was Cost/ Accumulated Carrying Cost/ Accumulated Carrying committed to sell these properties as they were all advertised for sale. In view of the current volatile market conditions, it was not Revaluation depreciation value Revaluation depreciation value be possible to dispose all properties therefore they have been reclassified to investment properties. Please refer to note 11. Land 4 383 4 383 2 200 – 2 200 Buildings 21 378 (911) 20 467 16 808 (1 108) 15 700 Based on the requirements of IFRS 5, the assets have been disclosed as disposal groups, and are separately disclosed on the Furniture, fittings and office 17 923 (15 849) 2 074 19 081 (16 777) 2 304 statement of financial position. The disposal groups are measured at the lower of carrying amount and fair value less costs to sell. equipment Motor vehicles 524 (419) 105 524 (419) 105 IT equipment 38 080 (36 020) 2 060 36 441 (35 144) 1 297 The following disposals took place and profits/(losses) recognised are: Leasehold improvements 795 (735) 60 15 332 (15 083) 249 Total 83 083 (53 934) 29 149 90 385 (68 530) 21 855 2022 There were no disposals for the period ending 31 March 2022 Company 2022 2021 Cost/ Accumulated Carrying Cost/ Accumulated Carrying Carrying Selling Profit/(Loss) Revaluation depreciation value Revaluation depreciation value 2021 amount Price VAT after tax BP 2114 located in Nelspruit 1 121 1 739 – 618 Land 4 383 4 383 2 200 – 2 200 Heidelberg Building ERF 130 6 189 7 050 – 861 Buildings 21 378 (911) 20 467 16 808 (1 108) 15 700 George Building ERF 2108 6 600 6 739 – 139 Furniture, fittings and office 17 664 (15 636) 2 028 18 829 (16 577) 2 253 13 910 15 528 1 618 equipment Motor vehicles 524 (419) 105 524 (419) 105 Refer to note 36 for the methods used to determine the fair values for these assets. Refer to note 11 for the reasons of the transfer IT equipment 37 743 (35 728) 2 015 36 149 (34 901) 1 249 of the assets. Leasehold improvements 795 (735) 60 15 332 (15 083) 249 Total 82 487 (53 429) 29 058 89 842 (68 087) 21 755 11. Investment property Group Reconciliation of property, plant and equipment – Group – 2022 Cost or Accumulated Fair value Carrying Opening Revaluations/ 2022 Revaluation depreciation Transfers * adjustments value balance Additions Disposals devaluations Depreciation Total Investment property 95 100 – – 2 300 97 400 Land 2 200 – – 2 183 – 4 383 Buildings 15 700 – – 5 678 (911) 20 467 Cost or Accumulated Fair value Carrying Furniture, fittings and office 2 306 53 – – (285) 2 074 2021 Revaluation depreciation Transfers * adjustments value equipment Investment property* 15 000 – 88 174 (8 074) 95 100 Motor vehicles 105 – – – – 105 IT equipment 1 295 1 699 (11) – (923) 2 060 Company Leasehold improvements 249 – (184) – (5) 60 Total 21 855 1 752 (195) 7 861 (2 124) 29 149 Cost or Accumulated Fair value Carrying 2022 Revaluation depreciation Transfers * adjustments value Reconciliation of property, plant and equipment – Group – 2021 Investment property 95 100 – – 2 300 97 400 Opening Revaluations/ balance Additions Disposals devaluations Depreciation Total Cost or Accumulated Fair value Carrying 2021 Revaluation depreciation Transfers * adjustments value Land 4 243 – – (2 043) – 2 200 Buildings 20 157 – – (3 349) (1 108) 15 700 Investment property 15 000 - 88 174 (8 074) 95 100 Furniture, fittings and office 2 682 – (26) – (350) 2 306 *  These properties were reclassified from NCAHFS to investment properties as they no longer meet the requirements of IFRS 5. Please refer to note equipment 10. There are no restrictions on the title of the property and no property has been pledged as security. Motor vehicles 105 – – – – 105 IT equipment 1 530 653 (18) – (870) 1 295 The fair value of investment property was determined by using the opportunity cash flow method (OCF).This is a combination of Leasehold improvements 254 – – – (5) 249 capitalisation and discounting.The inputs used are gross market rentals, operating costs, the perpetual vacancy, market capitalisation Total 28 971 653 (44) (5 392) (2 333) 21 855 rate and net present value of the OCF. Refer to note 36. 194 LAND BANK | INTEGRATED ANNUAL REPORT 2022 195 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 12. Property, plant and equipment (continued) 13. Leases Reconciliation of property, plant and equipment – Company – 2022 13.1 Right of use of assets (ROU) Group Opening Revaluations/ Buildings* Motor vehicles Total balance Additions Disposals Transfers* devaluations Depreciation Total 2022 R’000 R’000 R’000 Land 2 200 – – – 2 183 – 4 383 At 1 April 2021 18 652 2 094 20 746 Buildings 15 700 – – – 5 678 (911) 20 467 Additions 2 128 – 2 128 Furniture, fittings and office 2 256 53 – – – (282) 2 028 ROU derecognised (692) – (692) equipment Depreciation (16 179) (2 094) (18 273) Motor vehicles 105 – – – – – 105 At 31 March 2022 3 909 – 3 909 IT equipment 1 245 1 699 (11) (28) – (890) 2 015 Leasehold improvements 249 – (184) – – (5) 60 Buildings* Motor vehicles Total Total 21 755 1 752 (195) (28) 7 861 (2 088) 29 058 2021 R’000 R’000 R’000 At 1 April 2020 42 311 5 682 47 993 Reconciliation of property, plant and equipment – Company – 2021 Additions 300 – 300 ROU derecognised (1 976) – (1 976) Opening Revaluations/ Depreciation (21 983) (3 588) (25 571) balance Additions Disposals Transfers* devaluations Depreciation Total At 31 March 2021 18 652 2 094 20 746 Land 4 243 – – – (2 043) – 2 200 Buildings 20 157 – – – (3 349) (1 108) 15 700 Company Furniture, fittings and office 2 625 – (26) – – (343) 2 256 Buildings* Motor vehicles Total equipment 2022 R’000 R’000 R’000 Motor vehicles 105 – – – – – 105 At 1 April 2021 18 652 1 999 20 651 IT equipment 1 424 653 (18) – – (814) 1 245 Additions 2 128 – 2 128 Leasehold improvements 254 – – – – (5) 249 ROU derecognised (692) – (692) Total 28 808 653 (44) – (5 392) (2 270) 21 755 Depreciation (16 179) (1 999) (18 178) At 31 March 2022 3 909 – 3 909 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. Buildings* Motor vehicles Total The land and buildings are valued by independent property valuators at year end. The methods used for the valuations are based 2021 R’000 R’000 R’000 on market rentals, as obtained from independent companies who operate in the area, and the capitalisation rate for the areas, as R'000 R'000 R'000 obtained from the valuator’s report. At 1 April 2020 42 311 5 424 47 735 Additions 300 – 300 There are no restrictions on the title of the property and no property has been pledged as security.The Group does not have any ROU derecognised (1 976) – (1 976) contractual commitments for the acquisition of property. Depreciation (21 983) (3 425) (25 408) At 31 March 2021 18 652 1 999 20 651 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. 196 LAND BANK | INTEGRATED ANNUAL REPORT 2022 197 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 13. Leases (continued) 14. Intangible assets Group 13.2 Lease Liabilities 2022 2021 Group Cost or Accumulated Carrying Cost or Accumulated Carrying Buildings* Motor vehicles Total Revaluation depreciation value Revaluation depreciation value 2022 R’000 R’000 R’000 Computer software 82 335 (80 720) 1 615 82 335 (79 569) 2 766 At 1 April 2021 20 856 2 320 23 176 Additions 2 128 – 2 128 Company Interest expense 1 072 66 1 138 Lease liability derecognised (918) – 918 2022 2021 Lease payments (18 206) (2 386) (20 592) Cost or Accumulated Carrying Cost or Accumulated Carrying Revaluation depreciation value Revaluation depreciation value At 31 March 2022 4 932 – 4 932 Computer software 82 335 (80 720) 1 615 82 335 (79 569) 2 766 Buildings* Motor vehicles Total Reconciliation of Intangible assets Group – 2022 2021 R’000 R’000 R’000 At 1 April 2020 44 574 6 035 50 609 Group Additions 300 – 300 Opening Interest expense 3 002 382 3 384 balance Depreciation Total Lease payments (27 020) (4 097) (31 117) Computer software 2 766 (1 151) 1 615 At 31 March 2021 20 856 2 320 23 176 Reconciliation of Intangible assets Group – 2021 Maturity analysis for lease liabilities Refer to note 35 for details about maturity analysis Group Opening balance Depreciation Total Company Computer software 8 043 (5 277) 2 766 Buildings* Motor vehicles Total 2022 R’000 R’000 R’000 At 1 April 2021 20 856 2 215 23 071 Reconciliation of Intangible assets Company – 2022 Company Additions 2 128 – 2 128 Opening Interest expense 1 072 63 1 135 balance Depreciation Total Lease liability derecognised (918) – (918) Computer software 2 766 (1 151) 1 615 Lease payments (18 206) (2 278) (20 484) At 31 March 2022 4 932 – 4 932 Reconciliation of Intangible assets Company – 2021 Buildings* Motor vehicles Total Company 2021 R’000 R’000 R’000 Opening At 1 April 2020 44 574 5 761 50 335 balance Depreciation Total Additions 300 – 300 Computer software 8 043 (5 277) 2 766 Interest expense 3 002 365 3 367 Lease payments (27 020) (3 912) (30 932) The Group reassessed the useful lives of all the intangible assets at the beginning of the FY2022 financial year together in order to At 31 March 2021 20 856 2 214 23 070 reflect the most correct estimated useful lives of all intangible assets. Maturity analysis for lease liabilities Refer to note 35 for details for the maturity analysis. n the current year under review the Mthatha office lease as well as the Head office lease expired, both these buildings were therefore disposed. * I The Head office lease was extended for a period of 4 months ending 31 March 2022, this extension was not capitalised as it falls outside the IFRS 16 scope. The significant movement between prior year and current year for both the right of use assets and liabilities, is as a result of the winding down of the assets and liabilities as the most of the contracts are close to maturity. 198 LAND BANK | INTEGRATED ANNUAL REPORT 2022 199 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 15. Distributable and other reserves 16. Trade and other payables Group Company Group Company 2022 2021 2022 2021 2022 2021 2022 2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Distributable reserves from continuing operations Accrued expenses 50 871 28 696 44 143 27 336 Capital fund 7 397 655 7 397 655 7 397 655 7 397 655 Premiums received in advance 6 6 – – Accumulated loss (2 823 937) (4 262 853) (3 887 525) (5 245 288) Amounts due to reinsurers 635 532 639 425 – – Total distributable reserves 4 573 718 3 134 802 3 510 130 2 152 367 Trade payables 19 818 43 807 19 818 43 807 FVTOCI (737 412) (682 072) (737 412) (682 072) Deferred Income 1 176 1 115 1 176 1 115 Revaluation reserve 140 941 133 080 140 941 133 080 Loan costs and fees received in advance 45 402 37 240 45 402 37 240 3 977 247 2 585 810 2 913 659 1 603 375 Other¹ 35 615 12 575 22 562 4 347 Breakage penalty fee payable 35 640 – 35 640 – Description of equity components Amounts due to SASRIA 6 634 5 100 – – Accumulated loss Client deposits for approved loans 2 850 2 850 2 850 2 850 Comprises of accumulated retained loss. 833 544 770 814 171 591 116 695 Capital fund ¹ Included in the other payables is conditional deposits from the sale of repossessed properties. 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 FY2015 and FY2021. As noted in the maturity analysis, Group payables amounting to R33.5 million (FY2021: R37.5 million) are expected to be settled after more than 12 months. 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 General reserve only once that property is disposed of. 200 LAND BANK | INTEGRATED ANNUAL REPORT 2022 201 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 17. Long-term policyholders’ liabilities Balance at the end of the year 163 (82) 81 Group 2022 2021 17. Long-term policyholders’ liabilities (continued) R’000 R’000 Policyholders’ liability excluding Incurred But Not Reported (IBNR) and notified claims Total long-term insurance liabilities Gross Ceded Net Present value of policy liabilities 61 488 53 317 R’000 R’000 R’000 Plus: present value of future expenses 51 400 44 570 2022 Less: present value of future premiums (45 950) (39 844) Long-term policyholders' liability 72 972 (3 223) 69 749 Liability excluding COVID reserve 66 938 58 043 Notified claims 287 (144) 143 Plus: COVID reserve 6 035 5 701 IBNR 2 545 (1 488) 1 057 Less : reinsurance reserve (3 223) (3 812) Total long-term insurance liabilities 75 804 (4 855) 70 949 Plus: expense overrun reserve – Total policyholders' liability excluding IBNR and notified claims 69 750 59 932 2021 Long-term policyholders' liability 63 744 (3 812) 59 932 Movement in the long-term policyholders' liability Notified claims 163 (82) 81 Balance at the beginning of the year 59 932 31 397 IBNR 2 682 (1 093) 1 589 Movement in the long-term policyholders' liability 9 818 28 535 Total long-term insurance liabilities 66 589 (4 987) 61 602 Balance at the end of the year 69 750 59 932 18. Funding liabilities Movement in the IBNR Gross Ceded Net Group Company R’000 R’000 R’000 2022 2021 2022 2021 2022 R’000 R’000 R’000 R’000 Balance at the beginning of the year 2 682 (1 093) 1 589 At amortised cost* 29 162 958 36 074 791 29 162 958 36 074 791 Movement in the IBNR (137) (395) (532) Balance at the end of the year 2 545 (1 488) 1 057 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 a de-facto stand still on capital and interest payments to its funders. Land Bank resumed servicing of interest on funding liabilities during August 2020 to date. The significant movement on funding liabilities between current and the prior year is due 2021 to the capital reductions. Balance at the beginning of the year 301 (216) 85 Movement in the IBNR 2 381 (877) 1 504 Balance at the end of the year 2 682 (1 093) 1 589 Movement in notified (outstanding) claims Gross Ceded Net R’000 R’000 R’000 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 2021 Balance at the beginning of the year 6 207 (5 133) 1 074 Movement in the IBNR (6 044) 5 051 (993) 202 LAND BANK | INTEGRATED ANNUAL REPORT 2022 203 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding 2022 Opening Amortised Cost New Issues/ Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Commercial Funding Balance re– alignment Utilisation Settlements Interest Premium Rate Adjustment Fees Balance Commercial Paper 12 906 768 27 033 – (2 457 422) 60 682 (25 743) 152 – 10 511 470 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 1 259 858 Floating rate notes – 2 to 5 years 222 189 (2 631) (84 484) 1 818 152 137 045 Promissory notes 9 983 071 (52 578) (1 886 794) 51 237 (600) 8 094 337 "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 – – – 896 727 Committed 1 459 351 (7 351) (559 819) 4 545 896 727 Uncommitted – – – DMTN Issuances 14 326 045 (196 383) – (2 684 636) 118 276 – (253) (531) 11 562 520 Floating rate notes 11 285 366 (53 053) – (2 134 139) 29 357 – 1 084 (459) 9 128 157 – 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) 1 794 406 665 – LBK23 540 731 (3 006) (102 168) 1 929 (77) (1) 437 409 – LBK26 216 483 (883) (40 964) 774 175 410 – LBK27 1 780 947 (3 343) (337 745) 2 287 (487) (5) 1 441 653 – LBK30 270 102 (462) (51 232) 968 219 376 – LBK31 811 612 (1 868) (153 851) 1 122 (151) (27) 656 836 – 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) 539 704 – 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) 570 730 – 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 3 040 679 (143 330) – (550 496) 88 919 – (1 337) (72) 2 434 363 – 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) 600 639 – 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) 560 129 204 LAND BANK | INTEGRATED ANNUAL REPORT 2022 205 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements 18. Funding liabilities (continued) Opening Amortised Cost New Issues/ Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Balance re– alignment Utilisation Settlements Interest Premium Rate Adjustment Fees Balance Term Loans – Amortising 3 179 625 264 995 – (573 835) 6 388 – 86 625 (282 300) 2 681 497 7 year syndicated loan (Government guaranteed) (2 368) 2 368 (958) (958) 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 34 097 902 74 546 – (6 694 451) 204 962 (25 743) 86 730 (282 831) 27 461 115 Multilateral and Development Funding Term Loans – Amortising 1 724 797 (3 329) – (228 188) 9 824 – (715) (5 209) 1 497 180 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) 503 518 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) – (228 188) 9 824 – (715) (5 209) 1 497 180 Disaster Relief Funding Drought Relief 252 093 1 065 – (48 100) 1 944 – – (2 338) 204 663 10 year term loan – IDC 252 093 1 065 (48 100) 1 944 (2 338) 204 663 Total Disaster Relief 252 093 1 065 – (48 100) 1 944 – – (2 338) 204 663 Total Funding Liabilities 36 074 791 72 281 – (6 970 738) 216 730 (25 743) 86 015 (290 377) 29 162 958 206 LAND BANK | INTEGRATED ANNUAL REPORT 2022 207 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements 18. Funding liabilities (continued) Analysis of funding 2021 Opening Amortised Cost New Issues/ Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Fair Commercial Funding Balance re-alignment Utilisation Settlements Interest Premium Rate Adjustment Fees Balance Value Commercial Paper 14 743 952 397 861 2 188 189 (4 396 201) 71 191 (98 181) (43) – 12 906 768 12 906 996 Bills 1 243 562 183 809 (171 284) 2 459 (93 691) 1 164 854 1 206 746 Call bonds 36 247 (167) (4 330) 97 31 848 31 750 Floating rate notes – 1 year 1 610 387 (25 987) (88 488) 8 894 1 504 806 1 495 912 Floating rate notes – 2 to 5 years 592 639 (9 139) (363 941) 2 674 (43) 222 189 244 430 Promissory notes 11 261 117 249 345 2 188 189 (3 768 158) 57 068 (4 490) 9 983 071 9 928 157 "Deposits" 776 138 – – (346 878) – – – 429 260 429 260 Agri-related business deposits 313 224 (55 969) 257 255 257 255 Forced stock sale deposits 462 091 (290 484) 171 607 171 608 Small institutional deposits 48 2 50 50 Rent deposits 775 (428) 347 347 – Facilities 1 659 311 (9 311) – (196 645) 6 711 – (716) 1 459 351 1 453 588 Committed 1 659 311 (9 311) (196 645) 6 711 (716) 1 459 351 1 453 588 Uncommitted – – – DMTN Issuances 16 275 286 (190 037) – (1 925 590) 164 315 – 33 104 (1 036) 14 326 045 13 670 050 Floating rate notes 12 824 953 (38 704) – (1 523 939) 44 543 – 9 433 (923) 11 285 366 10 810 923 – LBK15 1 404 997 20 – 3 (161 198) 18 381 1 382 (84) 1 233 481 1 178 214 – LBK18 733 641 (641) (86 790) 1 042 357 (123) 647 486 611 111 – LBK22 571 514 (3 514) (68 160) 2 048 501 888 499 840 – LBK23 614 946 (3 946) (73 274) 2 344 665 (3) 540 731 508 893 – LBK26 245 368 (368) (29 400) 883 216 483 215 600 – LBK27 2 022 778 (2 778) (242 397) 2 561 798 (15) 1 780 947 1 685 613 – LBK30 306 683 (683) (36 360) 335 132 (5) 270 102 260 701 – LBK31 922 201 (2 201) (110 256) 1 126 787 (45) 811 612 748 075 – LBK32 506 447 (6 447) (60 000) 3 628 (56) (26) 443 545 440 033 – LBK33 756 655 (6 655) (88 800) 2 540 1 761 (72) 665 428 658 102 – LBK35 1 001 065 (1 065) (120 000) 799 1 453 (102) 882 150 831 656 – LBK36 200 212 (212) (24 000) 721 176 721 176 000 – LBK37 800 989 (989) (96 000) 748 713 (119) 705 342 662 207 – LBK38 517 926 (4 674) (61 504) 2 746 224 (95) 454 622 385 678 – LBK39U 981 432 (1 432) (117 600) 1 210 889 (168) 864 331 862 400 – LBK40U 420 586 (586) (50 400) 491 329 (65) 370 355 369 600 – LBK41U 817 511 (2 511) (97 800) 2 938 720 138 717 200 Fixed rate notes 3 450 333 (151 333) – (401 651) 119 773 – 23 671 (114) 3 040 679 2 859 127 – LBK20 856 174 (61 174) (93 720) 24 358 32 536 (12) 758 161 723 941 – LBK24 842 382 (37 382) (96 131) 37 832 (1 878) (46) 744 777 729 910 – LBK28 958 422 (33 422) (111 000) 35 096 (3 657) (21) 845 417 740 061 – LBK29 793 355 (19 355) (100 800) 22 487 (3 329) (34) 692 325 665 215 208 LAND BANK | INTEGRATED ANNUAL REPORT 2022 209 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements 18. Funding liabilities (continued) Opening Amortised Cost New Issues/ Repayment/ Accrued Discount/ Effective Interest Prepaid Arranging Closing Fair Balance re-alignment Utilisation Settlements Interest Premium Rate Adjustment Fees Balance Value Term Loans – Amortising 3 673 453 345 002 – (573 835) 6 624 – 68 700 (340 319) 3 179 625 3 792 678 7 year syndicated loan (Government guaranteed) (3 778) 3 778 (2 368) (2 368) – 10 year syndicated loan (MIGA supported) 3 677 231 341 224 (573 835) 6 624 68 700 (337 952) 3 181 992 3 792 678 Term Loans – Bullet Term 998 500 1 500 – (120 000) 2 728 – (292) (2 577) 879 859 899 029 3 year term facility 1 001 754 (1 754) (120 000) 2 728 (292) (1 267) 881 169 899 029 6 year syndicated loan (Government guaranteed) (3 254) 3 254 (1 310) (1 310) – Step Rate Notes 1 013 989 (13 989) – (96 895) 13 933 – (44) – 916 994 961 766 Step Rate Notes 1 013 989 (13 989) (96 895) 13 933 (44) 916 994 961 766 Total Commercial Funding 39 140 630 501 028 2 188 189 (7 656 045) 265 503 (98 181) 101 425 (344 648) 34 097 902 34 113 367 Multilateral and Development Funding Term Loans – Amortising 1 924 478 (6 307) – (196 703) 9 900 – (494) (6 077) 1 724 797 1 928 682 10 year term loan – KFW 839 609 6 744 (105 794) 401 (220) (6 077) 734 663 856 575 15 year term loan – AFDB 689 678 (7 860) (90 909) 4 214 (298) 594 826 611 651 25 year term loan – World Bank 395 190 (5 190) 5 285 24 395 308 460 456 Total Multilateral and Development Funding 1 924 478 (6 307) – (196 703) 9 900 – (494) (6 077) 1 724 797 1 928 682 Disaster Relief Funding Drought Relief 287 426 253 – (34 521) 1 741 – – (2 806) 252 093 247 551 10 year term loan – IDC 287 426 253 (34 521) 1 741 (2 806) 252 093 247 551 Total Disaster Relief 287 426 253 – (34 521) 1 741 – – (2 806) 252 093 247 551 Total Funding Liabilities 41 352 534 494 974 2 188 189 (7 887 270) 277 144 (98 181) 100 931 (353 531) 36 074 791 36 289 600 210 LAND BANK | INTEGRATED ANNUAL REPORT 2022 211 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 18. Funding liabilities (continued) 18. Funding liabilities (continued) Step rate notes Reconciliation of notes in issue¹ Step rate notes secured long dated funding for the Bank but provided investors a put option every 3 months (notes are Company automatically reinvested if put option is not exercised). Interest rates under these notes increase quarterly if the put option 2022 2021 R’000 R’000 is not exercised. Opening balance 14 129 662 16 055 252 Company LBK29 Capital Reduction (94 970) (68 160) 2022 2021 LBK22 Capital Reduction (33 440) (24 000) R’000 R’000 LBK36 Capital Reduction (230 622) (161 198) Reconciliation of notes in issue¹ LBK15 Capital Reduction (122 780) (86 790) Opening balance 903 105 1 000 000 LBK18 Capital Reduction (125 628) (88 800) Notes redeemed: LBK33 Capital Reduction (102 168) (73 274) SRN 4, capital reduction 11 May 2017 11 May 2022 – (61 611) LBK23 Capital Reduction (40 964) (29 400) SRN 4, capital reduction 10 May 2017 11 May 2022 – (61 540) LBK26 Capital Reduction (337 745) (242 397) LBK27 Capital Reduction (51 232) (36 360) Notes issued: LBK30 Capital Reduction (136 268) (97 800) SRN 4, capitalised interest 11 May 2017 11 May 2022 (85 845) 12 832 LB41U Capital Reduction (154 660) (111 000) SRN 4, capitalised interest 10 May 2017 11 May 2022 (85 745) 13 424 LBK28 Capital Reduction (153 851) (110 256) Closing balance 731 515 903 105 LBK31 Capital Reduction (127 908) (100 800) ¹ Excludes accrued interest, discount premium and prepaid arranging fees. LBK29 Capital Reduction (83 600) (60 000) LBK32 Capital Reduction (133 243) (93 720) 18.1 Development and multilateral funding LBK20 Capital Reduction (163 856) (117 600) LBK39U Capital Reduction (70 224) (50 400) Land Bank’s Multilateral funds are made up of the following:: LBK40U Capital Reduction (134 685) (96 131) LBK24 Capital Reduction (167 200) (120 000) R1.0 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. LBK35 Capital Reduction (133 760) (96 000) $93 million funding line with the World Bank. This facility was earmarked to give financial aid to participating financial –  LBK37 Capital Reduction (85 832) (61 504) intermediaries and direct beneficiaries. As at 31 March 2022 R390 million has been utilised. The balance of the undrawn facility LBK38 Capital Reduction was cancelled in FY2022. Closing balance 11 445 026 14 129 662 R899 million funding line with KfW Development Bank. This facility is was earmarked to finance small-sized and medium sized –  agricultural enterprises. To date the facility has been fully drawn and disbursed to qualifying projects. Step rate notes Step rate notes secured long dated funding for the Bank but provides investors a put option every 3 months (notes are Disaster relief automatically reinvested if put option is not exercised). Interest rates under these notes increase quarterly if the put potion The Land Bank had secured a R400 million facility with the Industrial Development Corporation for the sole purpose of providing is not exercised. concessionary loans to drought affected customers and is applicable to declared disaster areas as per the Government Gazette. The loan was used for : Notes in default2 • Production rehabilitation LBK36 25 June 2019 25 June 2020 (176 000) • Working capital and operational expenses required minimising further losses to current farming operations LBK22 04 September 2017 04 September 2020 (499 840) • Re-stocking of live stock • Preparing for future seasons necessary to continue the farmers’ normal sustainable farming operations LB41U 16 March 2020 16 March 2021 (717 200) • Enabling “carry-over” debt and consolidation of debt. LBK26 23 March 2018 23 March 2021 (215 600) LBK30 20 September 2018 20 September 2021 (218 408) (215 600) Loans under this arrangement would only be extended where there is a viable business case with repayment ability, as well as LBK15 12 October 2016 12 October 2021 (983 179) (215 600) sufficient collateral to cover the potential losses to the Bank.The facility was fully utilised, relief assistance closed on 31 March 2019 (1 201 587) (2 039 840) and the facility now is amortising. 1 Excludes accrued interest, discount, premium and prepaid arranging fees. 2 Notes that have matured but are in default. 212 LAND BANK | INTEGRATED ANNUAL REPORT 2022 213 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 18. Funding liabilities (continued) 19. Provisions (continued) 18.1 Weighted average interest cost of commercial funding (NACM) Staff incentives 2022 2021 The provision for discretionary performance bonuses is payable to employees and is determined by taking into account both the * Spread to 3 * Spread to 3 performance of the Bank as well as the performance of individual employees. Short-term: ≤ 1 year 2% 3% Medium-term: > 1 year ≤ 5 years 3% 4% Leave pay Long-term: > 5 years 6% 4% Accumulated leave is payable to employees upon termination of services. Provision for leave pay is calculated on the leave days Total Cost of Funding 3% 3% outstanding at the end of the year multiplied by the cost to company of the employees in terms of employment contracts. Weighted average interest cost of development and multilateral funding (NACM) Long-term: > 5 years** 3% 3% An accrual raised in respect of government guarantee fees payable to National Treasury. The fees are charged at 0.3% of the total issued government guarantee. Weighted average interest cost of natural disaster relief funding (NACM) Long-term: > 5 years 1% 1% Litigation and claims * Weighted average Jibar Provision raised in respect of debtors loan guarantee and breakage fee. Breakage fee of R50m became payable during the current ** Only includes those funding lines for which there has been utilisation. year and was reallocated to payables. Debtors loan guarantee was also settled during the current year. 19. Provisions 20. Post-retirement obligation Medical benefit plan Reconciliation of provisions – Group – 2022 The defined benefit obligation plan is unfunded. The estimated medical aid contributions for the next year effective 1 April 2022 Opening Utilised during Reversed during balance Additions the year the year Total amounts to R19.8 million (FY2020: R20.1 million). The time value of money has not been taken into account as it is believed that Staff Incentives 1 201 1 199 – 2 400 the difference will be insignificant. Leave pay 34 256 2 553 (5 028) – 31 781 Group Company Labour disputes – – – – 2022 2021 2022 2021 R’000 R’000 R’000 R’000 Litigation and claims 104 999 – (55 000) (49 999) – Movement in the present value of the: 140 456 3 752 (60 028) (49 999) 34 181 Defined benefit obligation 1 April 284 000 285 362 284 000 285 362 Service cost – PRMA (1 408) (1 541) (1 408) (1 541) Reconciliation of provisions – Group – 2021 Opening Utilised during Reversed during Interest cost – PRMA 27 548 32 444 27 548 32 444 balance Additions the year the year Total Actuarial (losses) and gains on post retirement obligation (7 582) (16 582) (7 582) (16 582) Staff Incentives 527 1 200 (526) – 1 201 Benefits paid (15 903) (15 683) (15 903) (15 683) Leave pay 7 484 30 702 (3 930) – 34 256 Defined benefit obligation 31 March 2022 286 655 284 000 286 655 284 000 Labour disputes 8 712 – – (8 712) – Litigation and claims* 373 835 – (231 950) (36 886) 104 999 Total expenses resulting from the Group’s defined benefit plans charged to income statement can be analysed as follows: 390 558 31 902 (236 406) (45 598) 140 456 Components of net periodic medical benefit cost: Reconciliation of provisions – Company – 2022 Service cost – PRMA (1 408) (1 541) (1 408) (1 541) Opening Utilised during Reversed during Interest cost – PRMA (27 548) (32 444) (27 548) (32 444) balance Additions the year the year Total Total included in interest and staff costs (28 956) (33 985) (28 956) (33 985) Leave pay 32 795 2 950 (5 785) – 29 960 Total expenses recognised in profit or loss (28 956) (33 985) (28 956) (33 985) Litigation and claims 104 999 – (55 000) (49 999) – Actuarial (losses) recognised in other comprehensive income 7 582 16 582 7 582 16 582 137 794 2 950 (60 785) 29 960 Reconciliation of provisions – Company – 2021 Opening Utilised during Reversed during balance Additions the year the year Total Leave pay 7 195 29 241 (3 641) – 32 795 Labour disputes 8 712 – – (8 712) – Litigation and claims* 373 835 – (231 950) (36 886) 104 999 389 742 29 241 (235 591) (45 598) 137 794 214 LAND BANK | INTEGRATED ANNUAL REPORT 2022 215 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 20. Post-retirement obligation (continued) 20. Post-retirement obligation (continued) 20.1 Maturity profile of members 20.3 Sensitivity analysis 2022 Membership Profile The results are dependent on the assumptions used.The table below shows how the past service cost as at 31 March 2022 would Average age Average past Average number be impacted by changes to these assumptions: Employee status Number (years) service (years) of dependents Active 92 52 27 2 Accrued Service Accrued Service Liabilities as at Liabilities as at Pensioners 244 70 – 1 31.03.2022. 31.03.2021. 336 In-Service and Continuation Members (R'000) % Increase (R'000) % Increase Assumptions as above 286 655 284 000 2021 Membership Profile Discount rate – increases by 1% p.a. 259 680 -9% 257 741 -9% Average age Average past Average number Discount rate – reduces by 1% p.a. 318 860 11% 315 285 11% Employee status Number (years) service (years) of dependents Medical inflation – increases by 1% p.a. 317 264 11% 314 006 11% Active 94 52 26 2 Medical inflation – reduces by 1% p.a. 259 646 -9% 257 624 -9% Pensioners 258 70 – Retirement age – 64 291 230 2% 287 897 1% 352 Retirement age – 66 282 369 -1% 280 389 -1%  The actuarial valuation report complies with the requirements of Advisory Practice Note (APN) 301 of the Actuarial Society 21. Interest income of South Africa in all respects that are deemed to be in the context of the exercise undertaken. The valuation is based on the Group Company Projected Unit Credit valuation method, as prescribed by IAS19. The actuarial assumptions are unbiased and mutually compatible, 2022 2021 2022 2021 as required. The results of the valuation depend on the assumptions used. R’000 R’000 R’000 R’000 Measured at amortised cost 20.2 Actuarial key assumptions used: Interest from loans and advances* 2 613 023 3 025 155 2 613 016 3 025 148 Interest on short-term deposits 334 864 158 722 334 864 158 722 Medical inflation Interest from banks 26 901 49 875 22 514 45 523 Contribution rates on the benchmark medical option, Bankmed, have increased by, on average, 3% – 4% over the period. This is Interest on premiums written 530 1 070 – – less than the medical inflation assumptions of 7.7% and 7.4% made at the time of the last valuation. This resulted in a decrease in 2 975 318 3 234 822 2 970 394 3 229 393 liability of approximately R10.7 million. * Included in the interest income is a release of interest in suspense of R225.7m (FY2021: charge of R301.2m) Economic basis The net discount rate over the period has decreased by 1.0% for active members. Since the net discount rate was unchanged for continuation members, the average net discount rate has decreased by 0.2%.This has caused an increase in liability of approximately 22. Interest expense R7.9 million. Group Company 2022 2021 2022 2021 R’000 R’000 R’000 R’000 Mortality The liability decreased by approximately R2.6 million due to pensioner mortality being higher than expected over the period. Commercial funding 2 085 923 2 737 076 2 085 923 2 737 076 Development and multilateral funding 115 063 135 229 115 063 135 229 Withdrawals Interest on swaps & debentures 86 508 93 329 86 508 93 329 There were more withdrawals than expected during the valuation year. This has resulted in an actuarial gain of some R1.4 million. Arranging fees – effective interest rate method * 63 209 66 371 63 209 66 371 Other** 24 144 35 255 24 144 34 818 Total interest expense 2 374 847 3 067 260 2 374 847 3 066 823 * 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. 23. Non-interest expense Group Company 2022 2021 2022 2021 R’000 R’000 R’000 R’000 Account administration & Net Interest Margin fee expense¹ 75 934 301 334 71 358 297 378 Account administration & Net Interest Margin fee expense relate to management fees paid to intermediaries in terms of service level agreements 1  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. 216 LAND BANK | INTEGRATED ANNUAL REPORT 2022 217 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 24. Non-interest income and Other income 26. Investment income and fees Group Company Group Company 2022 2021 2022 2021 2022 2021 2022 2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Fee and commission income 30 781 47 993 30 781 47 993 An analysis of revenue is as follows: Account administration fee income 16 721 41 697 16 721 41 697 Investment income from financial assets classified as at fair value Fund administration fees 14 060 6 296 14 060 6 296 through profit or loss: 106 749 76 844 17 507 17 875 Other Income 37 209 36 231 30 668 28 233 Dividend income – other investments 29 337 28 391 10 034 13 056 Administration fee from LBLIC – – 1 254 1 249 Interest income1 77 412 48 453 7 473 4 819 Investment property rentals 11 753 11 700 11 753 11 700 Investment management and performance fees (8 153) (6 939) (2 150) (1 832) Sundry income* 25 456 24 531 17 661 15 284 98 596 69 905 15 357 16 043 * Net margin fee due to the Bank which was previously overcharged by a SLA partner. 1 These are assets invested with asset management companies. 25. Operating profit from insurance activities 27. Gains and losses on financial instruments Group Group Company 2022 2021 2022 2021 2022 2021 R’000 R’000 R’000 R’000 R’000 R’000 Net premium income Losses on financial assets measured at amortised cost1 20 821 (18 270) 20 821 (18 270) Gross written premium 611 555 590 803 Long-term insurance contracts 3 895 4 947 Fair value (losses) gains Short-term insurance contracts 607 660 585 856 Gross written premium 607 448 600 226 Designated at fair value through profit or (loss) (1 444) (31 600) (1 444) (31 600) Change in the unearned premium reserve 212 (19 887) Strategic trading assets – 733 – 733 Change in the unexpired risk reserve (URR) – 5 517 Instruments in (Repos) – (966) – (966) Less: reinsurance premium 453 256 440 018 Interest rate swap2 (1 444) (31 367) (1 444) (31 367) Long-term insurance contracts 2 005 2 425 Investment income 90 838 239 495 23 112 81 937 Short-term insurance contracts 451 251 437 593 Realised gains 51 237 25 566 29 101 16 066 Reinsurance premium written 450 673 447 964 Unrealised fair value gains (losses) 39 601 213 929 (5 989) 65 871 Change in the unearned premium reserve 578 (13 959) 89 394 207 895 21 668 50 337 Change in the unexpired risk reserve (URR) 3 588 1 These are modifications gains/(losses) on loans and advances. 158 299 150 785 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 2  interest rate swap arrangement; hedging the mismatch moderately between the lending and funding rate. IFRS 9 require gains and losses on this Net insurance claims derivatives to be recognised in profit or loss when hedge accounting is not applied.\ Long-term insurance contract claims (1 228) 3 549 Claims paid (2 455) 4 542 Movement in notified claims (OCR) 1 227 (993) Short-term insurance contracts claims 152 367 71 760 Claims & assessment fees paid 105 927 80 548 Movement in IBNR (283) (1 379) Movement in outstanding claim provisions 46 724 (7 409) 151 139 75 309 Other costs from insurance activities Movement in policyholders' liability (9 348) (29 048) Net commission and administration fees (41 715) (29 245) (51 063) (58 293) 218 LAND BANK | INTEGRATED ANNUAL REPORT 2022 219 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 28. Operating expenses 30. Indirect taxation Group Company Group Company 2022 2021 2022 2021 2022 2021 2022 2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Depreciation – Owned assets 2 121 2 338 2 088 2 281 Major components of the tax expense Depreciation – Leased assets 17 973 25 571 17 892 25 408 Value Added Tax¹ 27 910 52 220 27 315 51 856 Amortisation – computer software 1 152 5 277 1 152 5 277 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 Auditors remuneration – External auditors 16 875 16 264 14 391 14 391 expenses. – Current 16 875 12 796 14 391 10 923 – Prior year 3 468 3 468 Audit fees – Internal – 142 – 142 31. Funds under administration Directors' emoluments 18 400 17 454 14 748 13 580 – Executive 10 583 10 788 7 251 7 234 Cash balance held for the funds administered on behalf of the Department of Agriculture, Land Reform and Rural Development  – Non-executive 7 817 6 666 7 497 6 346 (DALRRD). The Land Bank has no rights to these funds, they are ring-fenced into separate bank accounts solely for the funds. Management fees 117 537 117 537 The Land bank only administers the funds on behalf of the department. Professional fees 27 031 22 603 24 144 17 978 Staff costs 346 143 398 894 328 899 383 191 Group Company – Salaries and contributions 338 396 391 287 321 729 375 965 2022 2021 2022 2021 R’000 R’000 R’000 R’000 – Staff related provisions and other 7 747 7 607 7 170 7 226 Asset 1 384 821 1 254 951 1 384 821 1 254 951 Other operating expenses 132 963 104 398 127 144 102 044 – Computer and data costs 31 196 26 546 29 825 26 118 Liabilities – Repairs and maintenance 1 301 1 728 1 301 1 728 DALRRD 1 384 821 1 254 951 1 384 821 1 254 951 – Rates and taxes 7 128 7 827 7 128 7 827 1 384 821 1 254 951 1 384 821 1 254 951 – Travel and accommodation 2 222 621 2 131 584 – Corporate social investment 5 073 1 105 5 073 1 105 Funds administered on behalf of DALRRD – Litigation and claims 11 014 10 187 11 014 9 778 Agri-BEE 321 001 275 563 321 001 275 563 – Other1 75 029 56 384 70 672 54 904 MAFISA Fund 15 192 13 899 15 192 13 899 562 775 593 479 530 575 564 829 Covid 19 94 092 95 522 94 092 95 522 Job Fund 29 570 33 667 29 570 33 667 1 Other operating expenses includes sundry operating expenses such as security, short-term lease, cleaning and marketing amongst others. Emerging Farmers' Support Facility & CGA Primary Project 161 973 190 811 161 973 190 811 29. Non-trading and capital items* Blended Finance 750 168 645 489 750 168 645 489 Group Company Kat River Farmers 12 824 – 12 824 – 2022 2021 2022 2021 1 384 821 1 254 951 1 384 821 1 254 951 R’000 R’000 R’000 R’000 Fair value gain/(loss) on investment properties 2 300 (8 073) 2 300 (8 073) Reconciliation of movement in funds under administration Foreign exchange gain/(loss) 7 36 897 7 36 897 Impairment of other assets 12 4 12 4 Agri-BEE Non-current assets held-for-sale fair value adjustment (149) – (149) – Balance at the beginning of the year 275 563 258 980 275 563 258 980 Profit on disposal of property and equipment 130 442 130 442 Receipts 41 251 14 000 41 251 14 000 Profit on disposal of non-current assets held-for-sale – 1 186 – 1 186 Accrued interest 9 791 9 852 9 791 9 852 2 300 30 456 2 300 30 456 Disbursements (5 603) (7 269) (5 603) (7 269) Balance at the end of the year 321 002 275 563 321 002 275 563 * Transactions that are either once a year or not periodic/frequent in nature. MAFISA fund Balance at the beginning of the year 13 899 13 387 13 899 13 387 Accrued interest 503 512 503 512 Transfer from/(to) the fund 790 – 790 – Balance at the end of the year 15 192 13 899 15 192 13 899 220 LAND BANK | INTEGRATED ANNUAL REPORT 2022 221 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 31. Funds under administration (continued) 31. Funds under administration (continued) Group Company 2022 2021 2022 2021 MAFISA fund R’000 R’000 R’000 R’000 The MAFISA Fund has been set up on request of the DALRRD to invest money in approved projects of the Department through COVID-19 on-lending to individuals. Monies received from the DALRRD for the MAFISA Fund is invested in a separate bank account on Balance at the beginning of the year 95 522 – 95 522 – behalf of the DALRRD. No on-lending has taken place during the period under review.There were no injections during the current Transfer from/(to) Land Bank 388 100 329 388 100 329 period under review (FY2021:Rnil). Accrued interest 3 260 1 247 3 260 1 247 Disbursements (5 078) (6 054) (5 078) (6 054) Blended Finance Balance at the end of the year 94 092 95 522 94 092 95 522 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 Job fund these sectors. The support will include blended funding, skills and technical support required by these producers. The Land Bank is Balance at the beginning of the year 33 668 38 107 33 668 38 107 responsible for the utilisation of it’s own existing infrastructure and discretion to consider loan applications from Black Commercial Accrued interest 934 – 934 – Producers, and all funds are received in an interest bearing account.The DALRRD injected R525.2 million (FY2021:R627.8 million) Disbursements (18 252) 1 339 (18 252) 1 339 which is used to support Black Commercial Producers either in the form of equity contributions or interest rate subsidy, technical Transfer from/(to) the fund 13 221 (5 779) 13 221 (5 779) support contributions. Balance at the end of the year 29 570 33 667 29 570 33 667 COVID-19 Blended Finance Sole purpose of the Fund is to provide relief to distressed farmers affected by the COVID-19 pandemic who are involved in the Balance at the beginning of the year 645 489 3 999 645 489 3 999 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 Accrued interest 14 301 16 027 14 301 16 027 Bank. COVID Relief Fund” is a fund created by DALRRD to be administered by Land Bank with the sole purpose being to address Disbursements (434 919) (2 305) (434 919) (2 305) the challenges created for farmers and/or producers by the COVID-19 Pandemic in South Africa. Disbursements amounted to R Transfer from/(to) the fund 525 297 627 767 525 297 627 767 5.1m (FY2021:R6.1m). Balance at the end of the year 750 168 645 489 750 168 645 489 Jobs Fund Kat River Farmers The specific goal of the Fund is to provide a mechanism that can identify and fund creative solutions to overcome identified Balance at the beginning of the year – – – – short-term barriers to job creation and a better functioning labour market. Furthermore, the Fund’s aim is to catalyse innovation Accrued interest 446 – 446 – in job creation through structured and strategic Private and Public Sector Partnership. Disbursements amounted to R18.3 million Receipts 35 000 – 35 000 – (FY2021:Rnil million). Disbursements (22 622) – (22 622) – Transfer from/(to) the fund – – – – 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 Balance at the end of the year 12 824 – 12 824 – facility available for administration by Land Bank which shall be disbursed by the Land Bank to the Farmers Service Providers or Description of the funds under administration the farmers as the case may be, as a grant. There was an injection of R35m (FY2021:Rnil) in the current period under review and disbursements amounted to R22.6m (FY2021: Rnil). 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 R5.6m (FY2021:R7.3m). An injection of R41.2 million (FY2021:R14.0 million) from DALRRD. 222 LAND BANK | INTEGRATED ANNUAL REPORT 2022 223 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 31. Funds under administration (continued) 32. Contingencies Group Company LBLIC Tax: 2022 2021 2022 2021 R’000 R’000 R’000 R’000 The former LBLIS, which was a wholly owned subsidiary of Land Bank, was exempt from Income Tax in terms of section 10(1) CGA Primary Project Facility (cA)(ii) of the Income Tax Act, 58 of 1962. With effect 01 April 2012, LBIS was restructured in line with Ministerial approval of its revised business model, which was based on a preferred “Hold Co” structure by the Financial Sector Conduct Authority (FSCA), Asset previously known as the Financial Services Board (“FSB”). The restructured insurance business now consists LBIC (Short-term Cash balance held for the support facilities 161 973 190 811 161 973 190 811 insurance co) and LBLIC (Long term insurance co). Liabilities As part of the implementation of LBIS’s restructure during FY2014, LBIS group management approached the South African Revenue Emerging farmers support facility 161 973 190 809 161 973 190 809 Services (“SARS”) for a tax ruling to confirm that the tax privileges of the former LBIS, would still apply to the restructured Group, CGA Primary Project Facility – 2 – 2 as in effect nothing has changed, i.e. all companies effectively remain 100% owned by the Land Bank, albeit “indirectly”. 161 973 190 811 161 973 190 811 The tax ruling received back from SARS was negative, stating that because of the inclusion of the LBIS holding company within the Emerging farmers support facility insurance group structure, the LBIC and LBLIC operating companies would not be entitled to exemption from Income Tax, unlike 190 811 183 733 190 811 183 733 the former LBIC – these companies were not “direct” wholly owned subsidiaries of the Land Bank. LBIS group management then Balance at the beginning of the year approached the Minister of Finance, requesting approval to remove the LBIS holding company from the group structure. Accrued interest 6 162 7 078 6 162 7 078 The Minister of Finance approved the request to remove the LBIS holding company on 14 May 2014, with effect on 1 April 2014. Transfer from/(to) the fund (35 000) – (35 000) – This approval allows that in terms of the new group structure, both LBIC (Short Term Insurance Company) and LBLIC (Long Term Balance at the end of the year 161 973 190 811 161 973 190 811 Insurance Company) can apply for tax exemption in terms of section 10(1)(cA)(ii) of the Income Tax Act, 58 of 1962. CGA Primary Project Facility Following the Ministerial approval, management is re-engaging SARS with the application for a tax exemption from 1 April 2012 Balance at the beginning of the year 2 1 795 2 1 795 – 31 March 2021 for both LBLIC and LBIC, and pre 1 April 2012 for LBLIC, to apply for tax exemption in terms of section 10(1) Accrued interest – (1 793) – (1 793) (cA)(ii) of the Income Tax Act, 58 of 1962, as well as to waive the tax liability for LBLIC for the period 1 April 2012 to 31 March Transfer from/(to) the fund (2) – (2) – 2014.The FSCA has approved the new structure. In the unlikely event that SARS did not waive the tax liability for the period when Balance at the end of the year – 2 – 2 the holding company was in place, LBLIC will be liable for R68 million tax for the period 01 April 2012 to 31 March 2014, hence reflected as a contingent liability. Management is of the view that it is improbable that this approval will not be granted. The matter Description of the emerging farmers support & REM wholesale finance support facility had not been resolved as at 31 March 2022, and it is still in progress. The Land Bank received R208.0 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 Penalty fee: farmers all have mortgage loans with the Land Bank and the Bank can only access the guarantee after complying with conditions The contingent asset relates to an early withdrawal penalty fee charged on an investment that the Land Bank had made with as set by the Department of Rural Development and Land Reform. one of the banks during the 2020 financial year. This penalty fee was expensed in the 2020 financial year. A process is underway to recover the R16.5m penalty fee. The recovery is contingent upon successfully litigation of the matter. The matter had not been CGA Primary Project Facility** resolved as at 31 March 2022 and it is still in progress. 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 CCMA and Labour Court cases appointed intermediaries that identify and provide technical assistance to the Retail Emerging market farmers under this wholesale Land Bank dismissed three staff members. The case is still with CCMA and Labour Court. These staff members were paid all the finance facility. The Land Bank and the appointed intermediaries receive interest of 4% p.a each on the loans disbursed by Land benefits that were due to them when they were dismissed. As a result of this incident, the Bank estimated a contingent liability Bank to the intermediaries. The intermediaries charge the REM farmers 4% p.a. on the value of the loans disbursed for their role amounting R8.7m. The matter had not been resolved as at 31 March 2022 and it is still in progress. 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 (FY2021: Rnil).There were no Disbursements Default Interest in the current period under review (FY2021: Rnil). 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 ** CGA Primary Project Facility previously named REM wholesale finance support facility. default interest calculated based on the “total outstanding amount” instead of the “outstanding arrears 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 2022 and is still in progress. A reliable estimate cannot me measured as yet. 224 LAND BANK | INTEGRATED ANNUAL REPORT 2022 225 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 33. Commitments 34. Related party transactions (continued) Group Company 2022 2021 2022 2021 iii) National Treasury – Stakeholder R’000 R’000 R’000 R’000 With effect from 14 July 2008, the administrative powers over the Bank were transferred from the Ministry of the Department of 33.1 Loan commitments and guarantees Agriculture to the Ministry of Finance and, in accordance with The Land Bank Act, 2002, has the following role and responsibilities: Guarantees1 4 290 15 580 4 290 15 580 Loan commitments* 1 491 686 4 366 729 1 491 686 4 366 729 The Minister in terms of paragraph 7 - 1 495 976 4 382 309 1 495 976 4 382 309 (a) Is responsible for the development of policy with regard to agriculture, agrarian reform and matters incidental thereto; and May from time to time issue policy directives to the Board not inconsistent with this Act. (b)  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. The Minister in terms of paragraph 9(1) - May appoint a Board Member for such period as the Minister may determine in the case of each member but the period may Group Company not exceed five years. 2022 2021 2022 2021 R’000 R’000 R’000 R’000 Company 33.2 Operating lease commitments – as lessor (income) 2022 2021 Minimum lease payment due R’000 R’000 – First year 235 823 235 823 Transactions during the year – Fifth year 481 489 481 489 A capital injection of R3 billion was received from National Treasury during the 716 1 312 716 1 312 FY2021 financial year. – 3 000 000 Certain of the group properties is held to generate rental income and premises for its day-to-day operations. Lease agreements Government Support – Financial Guarantees are non-cancellable and have terms from 2 to 6 years. there are no contingent rents receivable. No new government guarantees were issued to Land Bank during the period under review. As at 31 March 2022, the Land Bank held a total of R9.6 billion guarantees which can be broken down as follows: 34. Related party transactions – R1.5 billion sustainability guarantee (Balance Sheet Guarantee) Relationships between parents, subsidiaries and associates – R8.0 billion original funding guarantees (Closing balance of R1.9 billion) The ultimate controlling party of the Land Bank is the Government of the Republic of South Africa, represented by National – R0.1 billion historic “consolidation of debt” guarantee. (Closing balance of R51 067) Treasury. An annual fee of 0.3% per annum is payable to National Treasury on the guarantees granted (refer to note 22). The following represents the significant subsidiaries of the Bank: Ownership Interest 2022 2021 iv) Other related parties Land Bank Life Insurance Company (SOC) Limited (LBLIC) 100% 100% The Bank obtains funding from institutions, of which the most significant nominal values are disclosed below: Land Bank Insurance Company (SOC) Limited (LBIC) 100% 100% Company Company 2022 2021 2022 2021 R’000 R’000 Transactions with related parties other than key management personnel R’000 R’000 Funding received2 Amounts received from related parties during the year Corporation for Public Deposits 942 678 1 163 800 Industrial Development Corporation 418 898 517 157 i) Land Bank Life Insurance Company (SOC) Limited – Subsidiary1 National Housing Finance 85 536 105 600 Policy administration fees received by Land Bank 251 240 Petro SA 682 414 842 486 Portion of non-executive directors emoluments paid by LBLIC 80 80 Post Bank 738 390 911 592 Property and equipment transferred (from)/ to LBLIC (at NAV) – – Public Investment Corporation 5 388 768 6 608 800 331 320 Trans-Caledon Tunnel Authority 72 615 89 648 8 329 298 10 239 083 ii) Land Bank Insurance Company (SOC) Limited – Subsidiary1 Policy administration fees received by Land Bank 1 003 961 Portion of non-executive directors emoluments paid by Land Bank 320 320 Other government related parties: Property and equipment transferred to LBIC (at NAV) (28) 14 African Development Bank 499 999 590 909 1 295 1 295 8 829 297 10 829 99 Capital contribution from Land Bank – Cash 200 000 226 LAND BANK | INTEGRATED ANNUAL REPORT 2022 227 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 34. Related party transactions (continued) Company 34. Related party transactions (continued) 2022 2021 Company R’000 R’000 2022 2021 Amounts owed by/(to) related parties R’000 R’000 Transactions between subsidiaries1 Subsidiaries3 An administration fee of R13,3 million (FY2021: R12.4 million) was charged to LBIC, the Land Bank Life Insurance Company (SOC) Limited (LBLIC) – – short-term company, for services rendered by LBLIC. Land Bank Insurance Company (SOC) Limited (LBIC) 1 522 1 473 Services paid/ (received) to related parties Funds under administration LBLIC – Salaries 14 750 13 629 DALRRD 1 210 025 1 064 140 LBIC – Salaries (14 750) (13 629) Micro-Agricultural Finance Institution 15 192 13 899 – – Agricultural Broad Based Black Economic Empowerment 321 001 275 563 Blended Finance 750 169 645 489 Remuneration recharge to LBIC (14 750) (13 629) Job Fund 29 570 33 667 Covid 19 94 092 95 522 Transactions with key management personnel4 Short-term employee benefits 480 514 CGA Primary Project Facility 161 973 190 811 Other long-term benefits 5 3 Kat River Farmers 12 824 Termination benefits – 1 384 822 1 254 951 485 517 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 i) Agricultural Broad Based Black Economic Empowerment (Agri-BEE) comparable transactions with other third parties.These transactions also did not involve more than the normal risk of collectability or present other Bank balances of the Agri-BEE 321 001 275 563 unfavourable features. There was no ECL at the statement of financial position date and no bad debt expense in the year (FY2021: Rnil) relating Agri-BEE fund balance 321 001 275 563 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. ii) Micro-Agricultural Finance Institution (MAFISA) 3 The intercompany account is held as a trading account between LBIC, LBLIC and it’s holding company, Land Bank. In terms of the shareholders’ Bank balances of the MAFISA fund 15 192 13 899 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 MAFISA fund balance 15 192 13 899 review. 4 Key management personnel comprises of the Group’s executive management (including executive directors) and non-executive directors. iii) CGA Primary Project Facility Bank balances of the CGA Primary Project Facility 161 973 190 811 CGA Primary Project Facility fund balance 161 973 190 811 vi) Blended Finance Facility Bank balances of the Blended Finance Facility 750 169 645 489 Cash balance held for the support facilities 750 169 645 489 vii) Blended Finance Facility Total amount owed to related parties 1 384 822 1 254 951 Total cash balance held for the support facilities 1 384 822 1 254 951 228 LAND BANK | INTEGRATED ANNUAL REPORT 2022 229 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group 35. Financial instruments and risk management of the Group (continued) Financial risk management Credit risk management process The credit risk management process has four stages. The stage can be summarised as follows: Credit risk Credit origination entails gathering of application information, pre-screening for viability and mandate fit, client assessment and • Credit risk refers to a loss suffered by a party whereby the counterparty fails to meet its financial obligations to the party under validation of business case through a due diligence. the contract. Credit risk may also arise if there is an increasing risk of default by the counterparty throughout the duration of the • Credit assessment entails validation of submitted documentation from origination, risk rating and pricing, viability and affordability contract. 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 The definition of credit risk includes: 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 Credit evaluation risk: Risk related to the decreased credit worthiness (based on recent financial performance) of a counterparty a)  expectations have been met, board representation, business development support by designated teams (agricultural, financial etc.). 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. Risk classification Credit concentration risk: Risk related to any single exposure or group of exposures large enough to cause credit losses which b)  The Bank monitors the repayment record of its customers on an ongoing basis to ensure that any deterioration in repayment threaten the Bank’s capital adequacy or ability to maintain its core operations. It is the risk that a common factor within a risk records is detected as early as possible. As part of the collection process, customers are classified according to risk, and the type or across risk types fails or an event occurs which causes credit losses. classification is updated on receipt of new information about the customer. Credit default risk: Risk related to the non-payment of interest and/ or capital on a loan by the borrower to the lender. c)  This translates into a loss to the institution as a result of failure by a counterparty to meet its financial and/or contractual The main objectives of risk classification are to rank the Bank’s customer base according to risk so as to estimate the probability of obligations. default (PD) of each customer. The risk classifications used in the day-to-day credit process are based on point-in-time estimates. Counterparty risk: Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its d)  This means that the Bank uses a customer’s present general and financial situation as a starting point. A change in the customer’s contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. In most situation or financial position therefore results in an upgrade or downgrade of that customer. The Bank adheres to the principle financial contracts, counterparty risk is also known as default risk. that all classifications should reflect the customer’s current situation to the greatest extent possible. As an important partner in the execution of the Bank’s development mandate, the bank however needs to comply with statutory Credit risk – insurance activities and regulatory requirements to ensure that the Bank’s activities do not lead over indebtedness in this market segment. 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 Policy and responsibility guidelines in terms of the average credit quality of financial instruments in the portfolio as well as limits on concentration risk. 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; The insurance companies are also exposed to credit risk in respect of their working capital assets from balances owed by • In its mandate, the Bank seeks to satisfy the needs of its customer base while maintaining a sound credit portfolio; counterparties. The following are some of the main credit risk management actions: • 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 The use of reinsurance exposes the Group to credit risk. The counterparty risks of reinsurers are managed through formal a default; contractual agreements which have been set up between the Group and reinsurers.These agreements include terms and conditions • For the vast majority of the products, credit is granted on the basis of insight into the customer’s circumstances and of specific which regulates the relationship between the Group and reinsurers. Credit risk in respect of reinsurance is further managed by assessments that provide a context for such credits; placing the Group’s reinsurance only with companies that have high credit ratings. LBLIC and LBIC has quota share reinsurance • The facilities should match the customer’s credit worthiness, capital position or assets, and the customer should be able to treaties with internationally AA rated reinsurance companies. In addition to the proportional reinsurance treaty, another layer of substantiate his or her repayment ability, and reinsurance in the form of a stop loss is in place to limit the total exposure per individual claim. For overseas reinsurers, LBLIC • The Group may assume risks only within the limits of applicable legislation and other rules, including the rules of good practice retains 40% of ceded written premiums under quota share treaties and settles payments with the reinsurers 1 year after the for financial enterprises. 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. 230 LAND BANK | INTEGRATED ANNUAL REPORT 2022 231 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) The maximum exposure to credit risk is presented in the table below Gross loan book exposure by agricultural sector 2022 2022 2021 Corporate Banking and Commercial Development and Structured Investments Business Banking Classification by loan performance Gross Amortised Gross Credit Amortised carrying Credit loss cost / carrying loss cost / Stage 2: Stage 3: amount allowance fair value amount allowance fair value Stage 1: Under Non Agricultural Direct Total Direct Indirect Total Total Performing performing performing R’000 R’000 R’000 R’000 R’000 R’000 Sector R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Asset class with asset credit risk Agri-Business 206 254 206 254 1 350 061 4 809 1 354 870 1 561 123 194 202 280 201 1 086 721 exposure* 39 557 222 (5 018 729) 34 538 493 45 995 176 (6 043 304) 39 951 871 Citrus 74 981 74 981 249 737 18 001 267 737 342 718 180 058 3 212 159 448 Loans and advances 25 875 310 (5 018 729) 20 856 581 36 931 164 (6 04 3 304) 30 887 859 Cotton 101 445 101 445 58 784 333 59 117 160 563 102 390 34 155 24 018 Cash at bank 9 983 760 – 9 983 760 5 589 889 – 5 589 889 Dairy – – 388 714 169 990 558 704 558 704 139 576 5 754 413 374 Trade and other receivables Deciduous fruit 271 891 271 891 185 751 61 761 247 512 519 402 89 959 – 429 444 (excluding prepaid expenses) 1 283 974 – 1 283 974 980 123 – 980 123 Equipment – – – 20 072 20 072 20 072 13 685 249 6 138 Short-term insurance assets 266 040 – 266 040 159 014 – 159 014 Feedlot 127 167 127 167 34 570 – 34 570 161 737 16 091 – 145 646 Long-term insurance assets 4 855 – 4 855 4 987 – 4 987 Financial Services 264 634 264 634 526 868 556 877 1 083 744 1 348 377 825 046 69 764 453 569 Repurchase agreements – – – – – – Flowers – – 4 237 – 4 237 4 237 2 603 – 1 634 Hedging derivatives 9 896 – 9 896 11 340 – 11 340 Fodder – – 224 822 15 443 240 265 240 265 66 881 7 627 165 757 Strategic trading assets – – – – – – Game – – 195 818 1 442 197 260 197 260 53 928 8 213 135 119 Investments ** 2 133 387 – 2 133 387 2 318 659 – 2 318 659 Grain 5 622 359 5 622 359 5 013 718 229 987 5 243 705 10 866 064 3 514 813 3 171 802 4 179 448 – Livestock 220 692 220 692 2 994 355 567 829 3 562 184 3 782 876 1 861 621 156 147 1 765 108 Asset class without asset credit risk exposure 210 734 – 210 734 213 827 213 827 Nuts 45 041 45 041 284 232 32 581 316 813 361 854 185 514 1 555 174 785 Intangibles 1 615 – 1 615 2 766 – 2 766 Ostriches – – 51 069 – 51 069 51 069 21 963 5 311 23 796 Other trade receivables 55 751 55 751 63 380 63 380 Other 444 866 444 866 1 236 029 20 865 1 256 894 1 701 760 58 906 307 068 1 335 787 Prepaid expenses 13 301 – 13 301 5 922 – 5 922 Pork 69 679 69 679 27 571 – 27 571 97 251 73 527 146 23 578 Investment property 97 400 – 97 400 95 100 – 95 100 Poultry 389 825 389 825 181 492 25 531 207 023 596 849 345 172 78 871 172 806 Right of Use of Leased Assets 3 909 – 3 909 20 746 – 20 746 Subtropical Fruit – – 31 321 2 236 33 557 33 557 19 471 – 14 086 Non-current assets held-for-sale 9 609 – 9 609 4 058 – 4 058 Sugarcane 337 745 337 745 291 289 (2) 291 287 629 032 117 260 388 542 123 230 Property and equipment 29 149 – 29 149 21 855 – 21 855 Table grapes – – 280 404 54 731 335 135 335 135 90 029 31 003 214 103 Tea – – 26 326 – 26 326 26 326 19 205 4 429 2 691 Total assets per statement of Timber 270 039 270 039 82 586 – 82 586 352 625 25 448 270 039 57 137 financial position 39 767 956 (5 018 729) 34 749 227 46 209 002 (6 043 304) 40 165 698 Tobacco – – 137 300 – 137 300 137 300 6 831 4 885 125 583 Vegetables 313 691 313 691 817 672 154 382 972 054 1 285 745 272 865 33 484 979 395 Add off balance sheet items Wine 132 683 132 683 323 167 47 560 370 727 503 411 229 001 134 579 139 830 exposed to credit risk Total 8 892 993 8 892 993 14 997 892 1 984 426 16 982 317 25 875 309 8 526 044 4 997 035 12 352 231 Guarantees issued 4 290 – 4 290 15 580 15 580 Loan commitments 1 491 686 – 1 491 686 4 366 729 4 366 729 Operating lease commitments – group as lessor 716 – 716 1 312 1 312 41 264 647 (5 018 729) 36 245 918 50 592 624 (6 043 304) 44 549 319 Maximum credit exposure - selected items 41 053 913 (5 018 729) 36 035 184 50 378 797 (6 043 304) 44 335 492 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. **  Included in the Group investments is an amount of R1.32 billion (FY2021: R1.16 billion) which relates to investments under asset management which do not have credit exposure (Bank: R 243.5 million; FY2022 and FY2021: R228.3 million). 232 LAND BANK | INTEGRATED ANNUAL REPORT 2022 233 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Gross loan book exposure by agricultural sector Credit exposure by geographic/regional distribution 2021 Corporate Banking and Commercial Development and Corporate Commercial Structured Investments Business Banking Classification by loan performance Banking and Development Stage 2: Stage 3: Stage 2: Stage 3: Structured and Business Stage 1: Under- Non- Stage 1: Under Non Investments Banking Total Total Preforming performing performing Agricultural Direct Total Direct Indirect Total Total Performing performing performing 2022 R’000 R’000 R’000 % R’000 R’000 R’000 Sector R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Province Agri-Business 135 539 135 539 4 552 937 1 041 747 5 594 684 5 730 223 748 865 1 804 033 3 177 325 Eastern Cape 403 610 1 399 456 1 803 067 7% 1 019 962 94 808 688 297 Agro-processing – – – 60 667 60 667 60 667 20 753 40 187 Free State 85 570 2 926 766 3 012 336 12% 947 165 211 225 1 853 945 Citrus 160 466 160 466 125 288 441 338 566 625 727 091 566 947 35 159 124 986 Gauteng 5 661 685 1 079 694 6 741 379 26% 2 450 296 1 768 272 2 522 810 Cotton – – 6 513 412 6 924 6 924 556 5 056 1 312 KwaZulu-Natal 337 745 705 272 1 043 016 4% 131 614 438 781 472 621 Dairy – – 339 368 296 456 635 824 635 824 301 146 25 426 309 252 Limpopo 101 445 1 941 115 2 042 560 8% 315 888 288 365 1 438 308 Deciduous fruit 245 603 245 603 149 289 191 898 341 187 586 790 375 131 28 277 183 382 Mpumalanga 22 664 2 133 086 2 155 749 8% 600 789 427 953 1 127 008 Equipment – – – 33 809 33 809 33 809 25 584 13 8 212 North West 1 085 715 3 251 998 4 337 713 17% 1 601 207 1 236 605 1 499 902 Feedlot 30 668 30 668 26 130 – 26 130 56 798 36 400 5 137 15 262 Northern Cape 284 094 2 228 679 2 512 773 10% 603 859 253 483 1 655 431 Financial Services 879 178 879 178 575 382 496 917 1 072 300 1 951 478 845 119 501 224 605 135 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 25 875 310 100% 8 526 044 4 997 035 12 352 231 Flowers – – 4 320 – 4 320 4 320 1 770 1 008 1 542 Fodder – – 84 948 27 672 112 620 112 620 46 171 21 762 44 687 Game – – 199 392 28 705 228 098 228 098 62 010 26 777 139 310 Loan Performance Grain 4 985 240 4 985 240 1 480 004 9 875 517 11 355 521 16 340 760 5 803 968 6 850 912 3 685 604 Corporate Commercial Banking and Development Stage 2: Stage 3: Inputs supplier 14 630 14 630 – 39 634 39 634 54 264 52 249 2 015 – Structured and Business Stage 1: Under- Non- 2021 Livestock 218 438 218 438 2 788 092 454 855 3 242 947 3 461 386 1 730 868 189 091 1 541 427 Investments Banking Total Total Preforming performing performing Province R’000 R’000 R’000 % R’000 R’000 R’000 Logistics – – – 513 875 513 875 513 875 398 875 114 999 – Eastern Cape 873 770 1 615 891 2 489 661 7% 1 208 556 437 565 843 540 Nuts 32 147 32 147 185 550 84 272 269 822 301 969 220 976 12 593 68 400 Free State 79 265 3 913 150 3 992 415 11% 1 927 904 266 114 1 798 398 Ostriches – – 53 012 – 53 012 53 012 20 801 9 683 22 528 Gauteng 4 853 662 2 914 181 7 767 844 21% 735 455 6 020 755 1 011 635 Other 392 591 392 591 1 378 059 79 272 1 457 331 1 849 922 424 672 329 966 1 095 285 KwaZulu-Natal – 979 097 979 097 3% 533 082 86 467 359 549 Pork 53 860 53 860 25 826 – 25 826 79 686 57 685 351 21 650 Mpumalanga 549 085 5 902 996 6 452 081 17% 3 496 397 1 562 842 1 392 841 Poultry 300 845 300 845 177 643 144 707 322 351 623 196 266 547 283 000 73 649 Northern Cape 1 044 976 4 249 338 5 294 314 14% 1 790 936 613 609 2 889 770 Subtropical Fruit – – 33 382 193 33 575 33 575 18 051 868 14 656 Limpopo – 3 258 577 3 258 577 9% 571 050 1 274 669 1 412 858 Sugarcane 297 722 297 722 257 796 146 957 404 753 702 475 228 073 395 906 78 496 North West 407 195 2 803 200 3 210 395 9% 1 069 738 552 944 1 587 713 Table grapes – – 240 753 134 377 375 129 375 129 277 156 18 510 79 463 Western Cape 621 271 2 865 508 3 486 780 9% 2 256 274 516 209 714 296 Tea – – 28 054 – 28 054 28 054 20 063 7 995 Total 8 429 225 28 501 938 36 931 163 100% 13 589 392 11 331 172 12 010 600 Timber 403 478 403 478 71 936 – 71 936 475 413 27 061 403 626 44 726 Tobacco – – 5 259 – 5 259 5 259 5 259 – – Vegetables – – 737 255 158 717 895 972 895 972 287 432 173 613 434 927 Wine 278 820 278 820 333 129 390 627 723 755 1 002 576 739 959 71 416 191 201 Total 8 429 225 8 429 225 13 859 316 14 642 622 28 501 938 36 931 163 13 589 392 11 331 172 12 010 600 234 LAND BANK | INTEGRATED ANNUAL REPORT 2022 235 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Credit risk concentration by credit rating (rated externally) Credit risk management practices in relation to the recognition and measurement of expected credit losses The table below provides an analysis of the ratings attached to the Group’s exposure to instruments subject to credit risk: 1. Stage 1: 12-months ECL Cash, deposits Collective For exposures where there has not been a significant increase in credit risk since initial recognition and that there are not credit and similar Investment Net working impaired upon origination, the portion of the lifetime ECL associate with the probability of default events occurring within the next Bonds securities Schemes capital assets Total 2022 R’000 R’000 R’000 R’000 R’000 12 months recognised. AAA 384 452 225 985 – – 610 437 2. Stage 2: Lifetime ECL – not credit impaired AA+ 136 435 – 141 700 – 278 135 For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not credit AA 92 076 31 886 – – 123 962 impaired, a lifetime ECL is recognised. AA- – 7 163 – 930 106 937 269 A – 6 407 – – 6 407 3. Stage 3: Lifetime ECL – credit impaired A- – – – 2 638 2 638 If the loan’s credit risk increases to the point where it is considered credit-impaired, interest revenue is calculated based on the BB- – 9 845 216 – – 9 845 216 loan’s amortised cost (that is, the gross carrying amount less the loss allowance). Lifetime ECLs are recognised, as in Stage 2. Other* – 20 856 582 – – 20 856 582 Not rated** – 1 380 606 – – 1 380 606 Methods, inputs, assumptions and estimation techniques used to measure expected credit losses Total 612 963 32 353 846 141 700 932 745 34 041 254 Methods used to 2021 determine Method Inputs Assumptions Estimation techniques AAA 332 073 436 636 – 768 709 12-month Expected loss methods PD, LGD and Current PDs are the output PDs: migration matrices for AA+ 104 703 24 476 127 891 – 257 070 and lifetime based on probability EAD over the of the calibrated rating model; multi-year migration effects, AA 116 611 – – – 116 611 expected at default (PD), loss lifetime of the PDs in subsequent years are term structure analysis for AA- 330 4 965 – – 5 295 credit losses given default (LGD) loan. determined based on migration, seasoning effect, macro- A+ 715 – – – 715 and exposure at default seasoning and cyclicality effects. economic overlay for A 807 14 288 – – 15 095 (EAD); expected credit cyclicality. A- – – – 3 601 3 601 losses are discounted to BBB+ – – – 838 423 838 423 the reporting date using LGD: LGD model calibrated the effective interest rate. with own data history. BB – 5 558 400 – – 5 558 400 Other* – 30 887 859 – – 30 887 859 EAD: credit conversion factor Not rated** 3 051 1 330 428 – – 1 333 479 (CCF) modelling with own Total 558 290 38 257 053 127 891 842 024 39 785 258 data, inclusion of repayment schedules. 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 The current LGD is The output that debt is covered by assets. Please refer to note 9 and note 4. of the LGD model; analyses ** These assets do not have a formal rating and mainly relate to premium debtors. showed that The subsequent LGDs are The same as the first Credit exposure by line of business – loan book year’s LGD. 2022 2021 Lifetime is the Contractual Gross loan book R'000 % Total R'000 % Total tenor of the loan; Corporate Banking and Structured Investments 8 928 203 35% 8 466 246 23% No prepayments assumed Commercial Development and Business Banking 17 004 357 66% 28 542 988 77% Whether 1.According to the Stage Information While each loan is Firstly Stage classification is fact Loan Modification (57 250) – (78 070) – a credit 2 definition; different On single considered on its own, the final based using current flags And Total gross loan book from continuing operations 25 875 311 36 931 163 Risk has Land Bank specific loan Level, classification Is performed on information Available in the Less: Expected Credit Loss (ECL) (5 018 729) (6 043 304) Increased identifiers including such as Loans a client-level,i.e. the worst stage Land Bank’s data base. Carrying amount of loans from continuing operations 20 856 582 30 887 858 significantly the minimum 30 days management of All loans is assumed to be Balance per annual financial statements – total carrying amount 20 856 582 100% 30 887 858 100% since initial past due criteria have risk indicators, The correct stage for all loans recognition been selected for the Arrears of the same client. Balance as per the following notes identification of SICR. information etc. 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. 236 LAND BANK | INTEGRATED ANNUAL REPORT 2022 237 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Methods • A shortfall emanating from the agreed settlement discount offered by Land Bank and/or a compromise has been reached used to between the client and Land Bank and a condition of such compromise is that Land Bank must write off a portion of the determine Method Inputs Assumptions Estimation techniques outstanding debt; or Early Warning 1. Maximum stage across all • The loan is secured by property where the asset has been “bought-in” following an auction or abandonment process; or Indicators(a combination loans per client rule applies. • No security exists at the date of insolvency/liquidation/ or business rescue and/or existing security has been sold and the of macroeconomic proceeds thereof received by Land Bank leaves a shortfall; or factors (SA Maize • A deceased estate where there are no assets and there is no security or spouse married in community of property from which Volatility Index – SAVI, the outstanding balance may be claimed; or Agricultural GDP, • A deceased estate where there are no assets however: International Food Index ,and business rules) The estate is insolvent and will be administered in accordance with Section 34 of the Administration of Estates Act 66 of 1965; or i)  have been implemented for the monitoring and If there are insufficient dividends for the estate and the assets within the estate are of minimal value and/or are not dispensable ii)  classification of SICR. to the debtor’s dependents; or Whether According to default Information on While each loan is firstly Stage classification is fact a financial definition; in general, single loan level, considered on its own, the final based using current flags • The debt has prescribed as defined by the Prescription Act (68 of 1969) as amended; or asset is unlikeliness to pay as such as Loans classification is performed on And information Available in • Any amount exceeding in-duplum inclusive of interest and costs; or a credit- well as >90 days past management a client-level, i.e. if one loan the Land Bank’s data base. • All avenues of recovery, including the realisation of security and sureties, have been exhausted and a shortfall exists; or impaired due are the criteria risk indicators, is considered to be credit- Maximum stage across all • Any circumstance which in the opinion of the Chief Executive Office, Chief Financial Officer and/or Executive Manager Legal financial considered; these criteria arrears impaired (stage 3) then all loans per client rule applies. Services prohibits the recovery of the debt (authorisation in line with the DOP); or asset are interpreted in terms information, etc. loans of the same clients are • Any circumstance which is in the public interest or may be required as a result of amendments or enactments of legislation. of Land Bank's identifier considered to be so as well. e.g. for specific cases of From time to time the Group has financial assets that are written off but may still be subject to enforcement activity. Such unlikeliness to pay. fina+C195ncial 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 R15.8 million (FY2020: Macro-economic factors R15.1 million) refer to note 9. 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 Modification and Services, and requires an evaluation of both the current and forecast direction of the economic cycle. Incorporating forward- The gross carrying amount of loans modified and the related gains/(losses) recognised where no derecognition took place: 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. Loss allowance: expected credit losses Change in For information on financial assets’ credit risk exposure, including significant credit risk concentrations please see note 36. expected credit Gross loans Gain/(loss) on loss due to modified modification modification Defaults and write offs: expected credit losses 2022 R'000 R'000 R'000 Land Bank defines a default as past due > 90 days. Stage 1 49 850 7 566 9 292 Stage 2 49 871 9 993 5 894 Write off policy Stage 3 35 192 3 262 3 455 The Group defines bad debt as an irrecoverable debt or uncollectible debt, where all the recovery processes and or steps are Total 134 914 20 821 18 642 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. Loss allowance: expected credit losses Change in As a development bank, the Land Bank will endeavour to ensure continuity of agricultural production, and the Group shall only expected credit write off bad debt when all reasonable steps have been taken to recover the debt. Gross loans Gain/(loss) on loss due to modified modification modification 2021 R'000 R'000 R'000 Land Bank considers the following indicators when determining whether there is no reasonable expectation of recovery: • Recovery of the debt is not economically justified; Stage 1 346 322 (3 134) 5 044 • Trace of the client is unsuccessful where efforts and channels to trace the client have been fully exhausted; or Stage 2 1 027 419 (14 360) 27 374 • It is to the advantage of Land Bank to effect settlement of its claims or to waive the claim; or Stage 3 41 492 (776) 14 240 • The sheriff has issued a nulla bona return to the effect that there are no further assets available to liquidate; or Total 1 415 232 (18 270) 46 657 • The loan security and/or security documents are defective and no other basis for a claim exists; or 238 LAND BANK | INTEGRATED ANNUAL REPORT 2022 239 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Stage migration (Gross loans and relating expected credit losses) Stage migration (Gross loans and relating expected credit losses) Stage 1¹ Stage 2² Stage 3² Total Stage 1¹ Stage 2² Stage 3² Total Note R'000 R'000 R'000 R'000 Note R'000 R'000 R'000 R'000 Gross loans as reported for 2022 9 8 526 044 4 997 035 12 352 231 25 875 310 Gross loans as reported for 2021 13 589 392 11 331 172 12 010 600 36 931 164 Stage migration – improvements 2 949 721 (1 912 729) (1 036 992) – Stage 2 to 1 2 719 609 (2 719 609) – Stage migration – improvements 1 562 084 (41 368) (1 520 716) – Stage 3 to 1 230 111 – (230 111) – Stage 2 to 1 1 135 667 (1 135 667) – – Stage 3 to 2 – 806 881 (806 881) – Stage 3 to 1 426 416 – (426 416) – Stage 3 to 2 – 1 094 299 (1 094 299) Stage migration – deterioration (835 651) (651 059) 1 486 710 – Stage 1 to 2 (169 011) 169 011 – Stage migration – deterioration (8 122 482) 4 075 535 4 046 948 – Stage 1 to 3 (666 640) – 666 640 – Stage 1 to 2 (5 116 373) 5 116 373 – – Stage 2 to 3 – (820 070) 820 070 – Stage 1 to 3 (3 006 109) – 3 006 109 – Stage 2 to 3 – (1 040 838) 1 040 838 Net stage migration 2 114 069 (2 563 788) 449 718 Net stage migration (6 560 399) 4 034 167 2 526 232 Expected credit losses as reported for 2022 9 (171 566) (622 526) (4 066 978) (4 861 070) Expected credit losses as reported for 2021 9 (210 605) (1 455 116) (3 800 732) (5 466 453) Stage migration – improvements 26 148 (15 831) (10 316) – Stage 2 to 1 22 709 (22 709) – Stage migration – improvements 55 754 82 995 (138 749) – Stage 3 to 1 3 438 – (3 438) – Stage 2 to 1 30 452 (30 452) – – Stage 3 to 2 – 6 878 (6 878) – Stage 3 to 1 25 302 – (25 302) – Stage 3 to 2 – 113 447 (113 447) Stage migration – deterioration (223 923) (236 900) 460 823 -– Stage 1 to 2 (31 873) 31 873 – Stage migration – deterioration (1 488 552) 372 146 1 116 407 -– Stage 1 to 3 (192 050) – 192 050 – Stage 1 to 2 (625 862) 625 862 – – Stage 2 to 3 – (268 772) 268 772 – Stage 1 to 3 (862 690) – 862 690 – Stage 2 to 3 – (253 717) 253 717 Net stage migration (197 775) (252 731) 450 506 Net stage migration (1 432 798) 455 141 977 657 ¹ 12 month expected credit losses ² Life time expected credit losses 240 LAND BANK | INTEGRATED ANNUAL REPORT 2022 241 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Definition LBIC invested its surplus cash in a portfolio of short-term interest bearing assets in the current reporting period. The board Liquidity risk relates to the Bank’s possible inability to meet its payment obligations when they fall due. This may be caused by the decided to adopt a conservative investment strategy for the company considering the volatility of crop business. Bank’s possible inability to liquidate assets and/or to obtain funding to meet its liquidity needs. (i) Asset Liability matching risk The Group is exposed to liquidity risk via its: Asset Liability Matching (ALM) risk is the risk that the company’s assets are not adequately matched to back the company’s • Ability to borrow from the market, at market related interest rates; insurance contract liabilities and financial liabilities. • Ability to attract wholesale funders at favourable interest rates; • Liquid assets ratios are not adequate for prudential requirements; The main factor effecting the ALM risk is the investment performance of financial assets backing the underlying insurance contract • Ability to raise long term funding to match long term assets; and financial liabilities. • Lack of standby lines of credit. The investment policy allocates assets backing policyholder’s liabilities to cash and bonds. The bonds have varying maturities, but To manage liquidity risk, the Bank has a treasury policy that takes into account limits to manage its liquidity. The liquidity risk/going are all immediately tradeable on the bond market. The policyholders’ liability was calculated using the discounted mean term of concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a the liability in the current year. In the prior year, the liability was calculated using the prevailing average medium and long-term Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. 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. Control and management The following control measures are in place: The remaining financial liabilities, most notably the intercompany loan, are backed by a mixture of cash, bonds and equity. Corporate finance and legal advisors were appointed to provide expert guidance on the implementation of the liability solution of the bank. Liquidity Coverage Ratio The LCR aims to ensure that banks maintain adequate levels of unencumbered high quality assets (numerator) against net cash The going concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board outflows (denominator) over a 30-day significant stress period. instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process.The committee meets on weekly or as required. 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 The Shareholder is a standing invitee on the committee weekly meetings. 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. Monitoring the liquidity position Due to operational requirements, investing surplus funds in government bonds will cause excessive trading in bonds which The going concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board increase the market risk and potential capital losses on cash. The Bank shall therefore deviate from the Banks Act in terms of instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process.The committee meets classifying cash deposits and available facilities as High Quality Liquid Assets. on weekly or as required. • 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) The Shareholder is a standing invitee on the committee weekly meetings. The Land Bank works closely with its lenders to come to the calculations of the LCR. up with an amenable solution to the event of default of the Land Bank. These deviations from the Banking Regulations have been included in the funding agreements as financial loan covenants. Insurance activities Liquidity risk is first of all managed by matching the liabilities with assets that have similar maturity profiles. Expected cash flows Net Stable Funding Ratio are taken into account when reviewing the investment strategy annually for the allocation of financial instruments. Most of the The NSFR aims to establish a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution’s insurance company’s assets are shareholder’s assets, which are held in highly liquid, open-ended instruments. The investment assets and activities over a one-year horizon. It aims therefore to limit over-reliance on short term wholesale funding during times strategy, furthermore allocates assets backing policyholders’ liabilities to short-term liquid instruments in the form of cash and of buoyant market liquidity and encourage better assessment of liquidity risk across all on and off balance sheet items. bonds in equal proportions. Cash at bank The insurance companies are exposed to daily calls on their available cash resources from claims. Liquidity risk is the risk that The pool of liquid assets (in cash) is invested with reputable financial institutions as informed by the treasury policy. 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 Trade and other receivables operating expense obligations based on cash flow projections. Reinsurance quota share accounts are settled quarterly, 45 days in Past trends indicate that payment has been received timeously and that the fair values post year-end fairly reflect the amounts 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 received. The housing loans have been discounted to the present value using the prime interest rate. and LBIC have sufficient cash resources to cover their obligations. Repurchase agreements, derivative assets, strategic trading assets and investments Liquidity risk is managed by matching the liabilities with assets that have similar maturity profiles. 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. 242 LAND BANK | INTEGRATED ANNUAL REPORT 2022 243 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Maturity analysis is presented on undiscounted cash flows as per IFRS 7.42E. Interest rate risk When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates Group – 2022 Notes Less than 1 year 1 – 5 years > 5 years Total applicable to assets and liabilities can be adjusted in such a manner that the bank benefits from the expected interest rate view. The R’000 R’000 R’000 R’000 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 Financial Assets of its funding mix.The funding split percentage as at 31 March 2022 was 91.862% floating (FY2021: 89.62% floating). With the Bank in Cash and cash equivalents 4 9 983 760 9 983 760 default, default bonds, FRN’s and loans receive fixed interest based on the last interest reset rate. If these default notes and loans are Trade and other receivables 5 1 352 700 326 1 353 026 added to open fixed rate bonds, the funding split percentage as at 31 March 2022 was 25.52% fixed and 74.48% floating. Short-term insurance assets 6 266 040 266 040 Interest rate risk monitoring Investments 7 1 933 648 199 738 2 133 387 The Asset and Liability Management Committee (ALCO) consists of the Bank’s executive management and it monitors among Derivatives assets 8 9 896 9 896 other things, the implementation of the Bank’s interest rate risk policy. ALCO considers and formulates interest rate views as the Loans and advances 9 3 416 277 9 872 478 14 865 228 28 153 983 official forecast of interest rates. Sensitivity analysis is performed by the Risk Management department where the interest rate risk Long term insurance assets 17 3 177 1 678 4 855 mismatch limit (fixed vs floating) is set. Total assets 16 965 498 10 073 894 14 865 554 41 904 946 Fixed/ floating rate funding Financial Liabilities When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates Trade and other payables 16 833 544 156 833 700 applicable to assets and liabilities can be adjusted in such a manner that the bank benefits from the expected interest rate view. The Short-term insurance liabilities 6 373 907 373 907 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 Long-term policyholders' liabilities 17 61 196 14 608 75 804 of its funding mix.The funding split percentage as at 31 March 2022 was 91.862% floating (FY2021: 89.62% floating). With the Bank in Funding liabilities 18 21 433 111 9 662 782 1 555 378 32 651 271 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 2022 was 25.52% fixed and 74.48% floating. Lease liabilities 13 4 716 455 5 171 Total Financial Liabilities 22 706 474 9 678 001 1 555 378 33 939 853 Interest rate risk policy The Bank reviews its interest rate risk policy in line with market practices on an annual basis. Group – 2021 Notes Less than 1 year 1 – 5 years > 5 years Total R’000 R’000 R’000 R’000 Sensitivity analysis Financial Assets Annually an interest rate risk sensitive analysis is performed as part of the Risk Management input to the Annual Financial Cash and cash equivalents 4 5 589 888 – – 5 589 888 Statements. The purpose of the analysis is to indicate the Land Bank’s income sensitivity to interest rate changes. Trade and other receivables 5 1 049 001 – 424 1 049 425 Short-term insurance assets 6 159 015 – – 159 015 Calculations were performed to determine the Bank’s projected net interest income. An interest rate sensitivity analysis was Investments 7 2 135 088 183 571 – 2 318 659 performed by applying a parallel shift of 100 basis points up and down on interest rates to anticipate the projected impact on the Derivatives assets 8 11 340 – – 11 340 Bank’s profitability. The expected view with four interest rate hikes concluding with 9% prime rate at 31 March 2023. Loans and advances 9 18 141 475 10 835 084 13 218 694 42 195 252 The calculation includes assumptions that will have a positive or negative impact on the net interest income for Land Bank during Long term insurance assets 17 3 309 1 678 4 987 the 2022/23 financial year. Total assets 27 089 116 11 020 333 13 219 118 51 328 566 Financial Liabilities Trade and other payables 16 770 656 158 – 770 814 Short-term insurance liabilities 6 220 059 2 – 220 061 Long-term policyholders' liabilities 17 51 981 14 608 – 66 589 Funding liabilities 18 20 738 143 17 416 417 2 800 833 40 955 393 Lease liabilities 13 20 056 7 064 – 27 120 Total Financial Liabilities 21 800 895 17 438 249 2 800 833 42 039 977 244 LAND BANK | INTEGRATED ANNUAL REPORT 2022 245 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Market risk – Insurance activities The Land Bank implemented an interest rate swaps program in the 2017/18 financial year with the implementation of For assets backing policyholders’ liabilities, the risk to the company is that the investment returns earned are below the actuary’s the program being conducted on an increasing scale over a time period of five years, as per the Bank’s Interest Rate Risk assumptions. For shareholder’s assets, the risk is that capital is not preserved and that investment returns earned are below Management Policy. The interest rate risk swaps program involves hedging the basis risk that emanates from the mismatch expectations. The company manages market risk through the following: 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. i) An Investment and Actuarial Committee. The mandate of this Board sub-committee includes the following: Details of the Bank’s hedging program can be found in note 8. –  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 Interest rate risk – Insurance activities are limited to interest bearing assets, and are therefore exposed to limited market risks, while shareholders’ assets can include The company is subject to interest rate risk resulting in the fluctuation of the fair value of future cash flows of interest bearing assets equity and are therefore exposed to greater market risks; because of the change in interest rates. Interest rate risk arises primarily from investments in long-term fixed income securities, –  Appointment of investment managers and establishing investment mandates with each investment manager. Investment mandates although the short-term money market instruments are also effected, albeit to a lesser extent. The company’s investments are set out investment guidelines which cover limitations on exposures to volatile assets, the use of derivatives; limits on asset mainly in short dated NCD’s and bonds, with a few longer dated corporate bonds. Most of the bonds have floating interest rates, concentration and limits on exposure to particular types of assets such as unlisted equities and property and hedge funds; with some carrying fixed interest rates. Exposure to interest rate risk is monitored through various methods including scenario – Monitoring of the performance of investment managers against “appropriate benchmarks” as well as compliance with mandates; and stress testing which calculates the market exposure based on interest rate movements. and – Ensuring proper governance in the investment process. Sensitivity analysis on interest bearing assets The market exposure that was calculated at 31 March was as follows: ii) Appointment of an independent investment advisor. The responsibilities of the investment advisor are set out below: Impact on the statement of profit – Monitor implementation of investment strategies; and or loss and other comprehensive income – Monthly monitoring of and reporting on investment performance. 31 March 2022 31 March 2021 LBLIC R’000 R’000 The investment advisor provides quarterly feedback on the performance of investment managers to the Investment and Actuarial Incremental change in yield Committee who in turns provides quarterly feedback to the LBLIC Board. 250 Basis Points increase (509 479) (661 712) Interest rate risk policy 150 Basis Points increase (305 687) (397 027) The Bank reviews its interest rate risk policy in line with market practices on an annual basis. 250 Basis Points decrease 509 479 661 712 150 Basis Points decrease 305 687 397 027 Sensitivity analysis Sensitivity analysis has been determined based on the exposure to interest rates for derivatives and other financial liabilities and LBIC assets at the statement of financial position date. A 100 basis point increase or decrease is used when reporting interest rate risk Incremental change in yield and represents management’s assessment of a reasonably possible change in interest rates on the Group’s net interest income. 250 Basis Points increase 574 439 150 Basis Points increase 345 263 The effect of a reasonable possible change in interest rates, as explained above, and all other variables held constant, the Bank’s 250 Basis Points decrease (574) (439) profit would be as follows using data as at 31 March 2022: 150 Basis Points decrease (345) (263) 31 March 2022 31 March 2021 Net interest Effect on Net interest Effect on A portion of the assets backing policyholders’ liabilities are held in bonds and the balance is held in cash and cash equivalents. The income equity income equity Bank R’000 R’000 R’000 R’000 sensitivity analysis of the change in investment returns on the value of the policyholders’ liabilities is reflected under the Insurance Incremental change in yield Risks sensitivity analysis for long-term business. Expected NII 568 214 – 509 005 – Currency risk Potential movement: 100 Basis point up 582 548 14 335 580 806 71 801 The group is exposed to the risk of fluctuations in foreign currencies, as a result of future transactions and investments in foreign Potential movement: 100 Basis point down 553 879 (14 335) 437 204 (71 801) companies. The group makes use of forward exchange contracts to manage this risk. An interest rate sensitivity analysis was performed by applying a parallel shift of 100 basis points up and down on interest rates to LBLIC is exposed to currency risk resulting in the fluctuation in the value of foreign financial instruments because of the change in anticipate the projected impact on the 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 Bank’s profitability. The expected view with four interest rate hikes concluding with 9% prime rate at 31 March 2023. 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: The table above is that the expected impact of a 100 basis points up and down shock in interest rates is around R14m (R72m for FY22). 246 LAND BANK | INTEGRATED ANNUAL REPORT 2022 247 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) United States South African Dollar Rand Loans and Group US$’000 R'000 ECL advances 31 March 2022 Analysis R’000 R’000 Equities – unit trusts (USD base currency) 6 844 105 609 31 March 2022 Balanced fund 1 710 26 390 As at 31 March 2022 : Base 5 018 729 20 856 582 Commodities – metals 307 4 733 Scaled ECL (-5%) 4 298 840 21 576 471 Cash on deposit at call Scaled ECL (+5%) 5 731 155 20 144 156 Foreign currency exposure 8 861 136 732 Analysis Exchange rates (ZAR:USD): 31 March 2021 Closing rate – 31 March 2022 14,90 0,07 As at 31 March 2021 : Base 6 043 304 30 887 859 Average rate 16,57 0,06 Scaled ECL (-5%) 4 809 537 32 121 627 Scaled ECL (+5%) 5 793 387 31 137 777 Insurance risk United States South African Dollar Rand Group US$’000 R'000 Insurance risk – long-term 31 March 2021 LBLIC provides mortgage and credit life insurance for persons who take out loans with the Land Bank. Until 2008, LBLIC only had Equities – unit trusts (USD base currency) 7 972 116 214 one product in issue which was a non-profit decreasing term assurance that paid the outstanding amount of a Land Bank mortgage Balanced funds 159 21 871 loan at death. Since then, LBLIC in conjunction with its actuaries, has developed and issued a number of new generation mortgage Commodities – metals 286 4 733 and credit life products. Cash, deposits and similar securities (413) (7 304) Mortality risk Foreign currency exposure 8 004 135 514 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. Closing rate – 31 March 2021 14.90 0,06 Average rate 16.57 0,07 This risk is mitigated by the following factors: Sensitivity analysis – currency risk • Adequate reinsurance arrangements to limit exposure per individual and manage concentration of risks; The foreign currency exposure that was calculated at 31 March was as follows: • Adequate pricing and reserving; Impact on the statement of profit • Specific testing for HIV/ AIDS is carried out in cases where applications for risk cover exceed a set limit; and or loss and other comprehensive income • Annual reviews of mortality and morbidity experience are conducted by the statutory actuary to ensure that corrective action 31 March 31 March is taken where necessary 2022 2021 LBLIC R'000 R'000 Persistency risk Incremental change in yield* Persistency risk (lapse risk) relates to policies being terminated before their final due dates as a result of an increased number of USD mortgage loans that are paid up before their final settlement dates and an increasing number of farmers transferring loans to trusts, 10% decrease (13 673) (13 262) close corporations and companies which result in the cancellation of policies. 5% decrease (6 837) (6 631) 10% increase 6 837 6 631 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. 5% increase 13 673 13 262 Sensitivity analysis Expense risk The sensitivity analysis on Expected credit loss has been determined based on the exposure to the percentage of the balance Before expenses are incurred, they are checked for budget availability. For the exceptional expenses, the company has a certain outstanding which the Land Bank expects not to recover when a loan defaults on its payment (loss given default – LGD) at the approval process. This is monitored in monthly reporting by comparing actual and budgeted expenses. 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. 248 LAND BANK | INTEGRATED ANNUAL REPORT 2022 249 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Reinsurance risk Value Change LBLIC has reinsurance cover to reduce risks proportionally, as well as to limit exposure per risk in order to limit the impact per life 2022 % R’000 R’000 % on the current year’s earnings. Policyholders’ liability – Individual Life Base value 63 611 • Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance share. The structure is such Investment return -1% 55 947 (7 664) 1,90% that a significant portion of the risk is ceded to reinsurers relative to what is retained; and Mortality +10% 73 708 10 097 1,80% • Furthermore, additional layers of cover that limits the Life insurance company’s retention are in place to manage catastrophe risk. Expenses +1% 69 972 6 361 1,80% +10% 57 250 (6 361) 10,20% 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-. Value Change Claims risk Policyholders' liability – Group Life % R’000 R’000 % The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent claims Base value 439 are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating controls that are Investment return +1% 8.3% 386 (53) (12%) designed to contain and monitor claims risks. -1% 6.3% 379 (60) (14%) Mortality +10% 1.1 x mortality 483 44 10,00% It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those -10% 0.9 x mortality 395 44 (10%) assumed when these obligations were estimated. Estimated claims are monitored periodically and updated based on the latest information if needed. The company utilizes independent assessors who appraise and confirm claims as well as quantification by Value Change the Underwriting Manager channel. Furthermore, an actuarial 2021 % R’000 R’000 % Policyholders’ liability – Individual Life Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2022, the LBLIC believes that its Base value 63 452 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. Investment return -1% 55 807 (7 645) 1,90% Mortality +10% 73 524 10 072 1,80% Sensitivity analysis Expenses +1% 69 797 6 345 1,80% The objective of the sensitivity analysis is to demonstrate the effect on the policyholders’ liability for changes in key assumptions +10% 57 107 (6 345) 10,20% underlying the valuation of liabilities. Value Change The sensitivity analysis illustrates the effect of a change in a particular assumption on the value of the policyholders’ liability as at Policyholders' liability – Group Life % R’000 R’000 % 31 March 2022, but this cannot generally be used to determine how future earnings or profitability will be affected.The percentage Base value 1 652 change in the assumptions chosen for the sensitivity analysis is to illustrate the change in value given the change in assumption and Investment return +1% from 7.3% to 8.3% 1 453 (199) (12.00)% does not represent the possible range of worst or best case experience expected. -1% from 7.3% to 6.3% 1 426 (226) (14.00)% Mortality +10% 1.1 x mortality 1 817 165 10,00% 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 -10% 0.9 x mortality 1 487 (165) -10,00% 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. 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). 250 LAND BANK | INTEGRATED ANNUAL REPORT 2022 251 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Insurance risk – short-term The net claims ratio for LBIC, which are important in monitoring insurance risk are summarised below: 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 Company Loss history 2022 2021 The LBIC provides indemnity for crops while still on the field, against hail, drought, fire and excessive rain fall. Cover ceases as soon LBIC: Net insurance benefits and claims on short-term business expressed as a % of net as harvesting has taken place, or when certain date limits have been reached. earned premiums 97% 48% Liability covered risks relating to the incurring of a liability other than relating to a risk covered more specifically under another Factors that aggravate insurance risk include a lack of risk diversification in terms of type and amount of risk, geographical location, insurance contract. 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. Insurance risk arises from: • Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations; Sensitivity analysis • Inaccurate pricing of risks when underwritten; The objective of the sensitivity analysis is to demonstrate the effect on the underwriting result the change is in key assumptions. • Inadequate reinsurance protection; • Inadequate reserving; and The sensitivity analysis illustrates the effect or change in a particular assumption on the underwriting result, but cannot be used • Fraudulent claim 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 The risks under any one insurance contract are the frequency with which the insured event occurs and the uncertainty of the experience expected. 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 For a given change in once assumption, all other assumptions are left unchanged. No allowance has been made for possible known or still to be reported, provide to be insufficient. management action in response to a particular change. Premium provision tables based on historical claims data are reviewed annually by external actuarial consultants. External assessors 2022 assist with quantifying the value of claims reported. Value Change Underwriting result Loss Ratio R’000 R’000 % By the very nature of an insurance contract, this risk is random and therefore unpredictable. Changing risk parameters and Reported results (60 536) unforeseen factors, such as patterns of economic and geographical circumstances as well as climate change, may result in Gross Premium 10% +10% (58 542) 1 994 -3,29% unexpected large claims. Insurance events are random and the actual number of claims and benefits will vary from year to year -10% -10% (62 530) (1 994) 3,29% from the estimate established. Gross Claims 5% +5% (67 979) (7 444) 12,30% (i) Pricing risk -5% -5% (53 092) 7 444 -12,30% Both LBLIC and LBIC bases their pricing policy on the theory of probability, with consideration to historical claims data. Acquisition Expenses 15% +15% (64 173) (3 638) 6,01% and administration costs, as well as reinsurance costs are included in the pricing considerations as well as a profit loading for the -15% -15% (56 898) 3 638 -6,01% cost of capital. 2021 Underwriting limits are set for the underwriting manager and brokers. Underwriting performance is monitored continuously and Value Change the pricing is adjusted accordingly. Risk factors considered as part of the review include factors such as the type of asset covered Underwriting result Loss Ratio R’000 R’000 % and the related commodity price, past loss experiences and risk measures taken by the insured. Reported results 24 435 Gross Premium 10% 26 406 1 970 -3,25% -10% 22 465 (1 970) 3,25% Gross Claims 5% 20 847 (3 587) 5,93% -5% 28 023 3 588 -5,93% Expenses 15% 20 983 (3 452) 5,70% -15% 27 888 3 453 -5,70% 252 LAND BANK | INTEGRATED ANNUAL REPORT 2022 253 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) (i) Claims risk LBIC 2022 The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent claims Asset classes Lower bound Upper bound 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. Equities – local 0% 5% Bonds – local 30% 50% It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those assumed Bonds – inflation linked 0% 10% when these obligations were estimated. Estimated claims are monitored periodically and updated based on the latest information Cash, deposits and similar securities – local 40% 80% if needed. The Group utilises independent assessors who appraise and confirm claims as well as quantification by the underwriting Foreign assets 0% 5% 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 2022, both LBLIC and LBIC believe that their liabilities for claims are adequate. LBIC 2022 Asset classes Lower bound Upper bound (ii) Reinsurance LBLIC and LBIC have third party reinsurance cover to reduce risks from single events or accumulations of risks that could have a Equities – Local 30% 50% significant impact on the current year’s earnings and capital. Bonds – Local 15% 35% Cash, deposits and similar securities – Local 10% 30% This cover is placed on the international reinsurance market. The core components of the reinsurance programme comprise of: Foreign assets 5% 25% Long-term insurance contracts Insurance concentration risk Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance share. The structure is such that Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact heavily a significant portion of the risk is ceded to reinsurers relative to what is retained; and upon the company’s resources. The company operates in the long-term insurance business. – Furthermore, additional layers of cover that limits the Life insurance company’s retention are in place to manage catastrophe risk. Long-term insurance concentration risk The long-term insurance portfolio is based on credit life insurance. Although the company does not consider any aggregate Short-term insurance contracts concentration for catastrophic risks, the company does, however, consider the age bands of the client base for reinsurance rating • Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance basis through a Quota Share. purposes. 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. Long-term insurance gross written premium by class of business 2022 2021 The LBLIC and LBIC Boards approve the reinsurance renewal process on an annual basis. The major portion of the reinsurance Portfolio R'000 R'000 programme is in place with foreign reinsurers which have a credit rating of no less than A+ for Life Insurance and AA- for short- Credit life insurance – Group 2 161 2 703 term insurance. Credit life insurance – Individual 1 734 2 243 3 895 4 946 LBIC Investment portfolio concentration risk The allocation of investment portfolio as at 31 March was as follows: Long-term insurance gross written premium by age bands 2022 2021 R'000 % R'000 % 2022 2021 Bonds – local 199 738 79 % 183 571 43% Value Average Value Average Number R'000 R'000 Number R'000 R'000 Fixed interest 87 148 44 % 141 645 77% Floating rate 112 591 56 % 26 660 15% Portfolio Inflation linked – 0% 15 266 8% 20 – 29 2 1 585 793 4 6 746 1 686 Cash, deposits and similar securities – local 53 921 21 % 247 112 57% 30 – 39 10 8 139 814 55 54 051 983 NCD's 24 777 46 % 203 724 82% 40 – 49 29 17 985 620 95 71 544 753 Other 29 145 54 % 43 388 18% 50 – 59 40 33 196 830 261 113 855 436 Total LBIC 253 660 100 % 430 683 100% 60 – 69 11 5 345 486 342 131 410 384 70+ – – – 147 36 465 248 Investment manager performance, portfolio and manager allocations are monitored and reported to the company management 92 66 250 3 543 904 414 071 4 490 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 2022 are stated below. All classes were within bounds as at 31 March 2022. 254 LAND BANK | INTEGRATED ANNUAL REPORT 2022 255 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Short-term insurance concentration risk – LBIC Price risk – LBLIC Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact heavily The company is subject to market price risk resulting from daily changes in the fair value of market prices of the instruments upon the short-term company’s resources. The company operates on both crop and agri-asset insurance business 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 Gross written premium by business and hedging purposes. The company does not invest policyholders’ funds in equity. 2022 2021 Portfolio R'000 R'000 Sensitivity analysis on equity instruments Short-term insurance (crop) 607 236 599 994 Impact on the statement of profit or loss and other comprehensive Short-term insurance (assets) 212 233 income 607 448 600 227 31 March 2022 31 March 2021 Portfolio R'000 R'000 Short-term crop insurance gross written premium by class of business Incremental change in price Excluding the impact of derivatives 2022 2021 10% decrease (53 071) (43 329) Gross Net Gross Net 5% decrease (26 536) (21 665) Written Written Written Written 5% increase 26 536 21 665 Premium Premium Premium Premium R’000 R’000 R’000 R’000 10% increase 53 071 43 329 Portfolio Including the impact of derivatives Winter hail 39 492 22 227 41 703 23 472 10% decrease (55 284) (45 701) Multi-peril winter – 5% decrease (27 642) (22 851) Fruits & Nuts 62 121 10 871 63 466 11 106 5% increase 27 642 22 851 Hail summer 505 262 119 368 488 286 115 358 10% increase 55 284 45 701 Multi-peril summer 362 85 6 539 1 545 Total 607 236 152 552 599 994 151 481 Investment strategy LBIC Short-term asset insurance gross written premium by class of business The Investment Policy was updated and approved in May 2022. 2022 2021 R'000 R'000 The table below this shows the Company’s strategic and tactical asset allocation limits for the short-term insurance business. Portfolio Long-term Lower Upper Motor 64 67 Target Bound Bound Benchmark Index Non-motor 148 166 Local equity 0% 0% 5% JSE Capped SWIX 212 233 Local Nominal Bonds 40 % 30 % 50 % All Bond Index (ALBI) Local Inflation Linked Bonds 0% 0% 10 % Inflation Linked Bond Index (ILBI) Short-term crop insurance gross written premium by geographical segment Local cash 60 % 40 % 80 % STeFI Composite East 272 225 275 509 Foreign Multi-Assert Class 0% 0% 5% 60% MSCI Worl Mpumalanga 143 169 153 277 Gauteng 6 969 11 740 Fund Benchmarks KwaZulu-Natal 94 945 87 078 The assets of the fund are short term in nature and the fund therefore only invests in cash and short-term bonds. The fund Eastern Cape 27 143 23 413 benchmark is a long term return objective of CPI + 1.0% net of fees. West 335 011 324 485 Free State 220 295 217 398 Fund Performance Limpopo 27 596 28 601 The investment was made during the 2018 FYE and generated an annual equivalent of 8.35% as return. In the March 2022 year North West 48 168 29 896 end, the investment reflected 4,4% return with a net disinvestment of R140m being made throughout the financial year. This Northern Cape 29 742 39 941 performance was below the target of CPI + 1.0% which was 5.7%. Western Cape 9 210 8 649 607 236 599 994 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. 256 LAND BANK | INTEGRATED ANNUAL REPORT 2022 257 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) LBLIC The Investment Policy was updated and approved by the Board in July 2020. In deriving the investment objective, the Company The table below shows the Company’s strategic and tactical asset allocation limits for the long-term insurance business. notionally allocated its assets into three buckets representing different levels of risk (Short-term, medium-term and long-term) as follows: Long-term Lower Upper Target Bound Bound Benchmark Index Bucket Matching assets Definition Local equity 40% 30% 50% JSE Capped SWIX Short Cash & Bonds Policyholder & Current Liabilities plus SCR minus Local bonds 25% 15% 35% All Bond Index (ALBI) cash needed for Operations as defined in the Cash Local cash 20% 10% 30% STeFI Composite Management Policy Statement. Foreign multi-asset class 15% 5% 25 % 60% MSCI World + 40% Citigroup Gov Bonds Medium Cash & Bonds Additional capital needed to augment the short-term bucket should the business meets its short-term Capital management objectives. 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 Long Exposure to growth assets such as equities Balance of assets to be invested long-term as the is an important component of effective capital management. targeting a long-term real return unless there business was not likely to draw on these assets. are liabilities requiring a specific matching Capital management objectives and approach assets. The group has established the following capital management objectives and approach to managing the risks that affect its capital position: The above allocations were consolidated to produce a target real return for the Company assets. To allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the • The Company will firstly aim to match its assets and liabilities and with the excess assets target an appropriate real return. With requirements of its capital providers and of its shareholder; this in mind, the Company has selected the following investment objective: • 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 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 stakeholder; calculating the real return in the primary objective, inflation will be taken as the published Consumer Price Inflation (CPI) rate. • To maintain healthy capital ratios in order to support its business objectives; and • To support the credit rating of the Bank. Investment strategy • To maintain healthy capital adequacy ratios in order to support its business objectives. The Company has taken a risk-based approach to setting investment strategy. The Company investable assets will be notionally • To comply with the requirements set by the regulator of the insurance markets where the company operates. 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. The Group’s capital management policy for its insurance and non-insurance business is to hold sufficient capital to cover statutory requirements. Expected Local Local Local long-term real The following main strategies were applied to achieve capital management objectives: equity bonds cash Foreign return Short term 0% 40 % 60 % 0% 1,6% Effective management of credit risk; • Medium term 0% 60 % 40 % 0% 1,9% • Effective management of underwriting risk, Long term 45 % 22 % 15 % 18 % 4,7% 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 To measure the overall investment objective for all investable assets, the buckets will be consolidated into a single strategic asset • Routine forecasts of capital requirements, assessment against both available capital as well as the expected internal rate of return allocation strategy. To manage the risk of deviation from the benchmark asset allocation, a tactical asset allocation range will be set – including risk and sensitivity analyses. 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 The purpose of the Group’s capital management is to ensure an efficient use of capital in relation to risk appetite and business will be communicated to the Investment Consultant and Investment Committee. development. The Group does not have to comply with any regulatory capital requirements. 258 LAND BANK | INTEGRATED ANNUAL REPORT 2022 259 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 35. Financial instruments and risk management of the Group (continued) 35. Financial instruments and risk management of the Group (continued) Capital Adequacy Requirements (CAR) – the Land Bank Company The Bank has adopted a Basel-like Total Capital Adequacy Ratio (TCAR) with Board approved deviations from the Regulations to 2022 2021 determine the amount of capital needed to ensure solvency and liquidity.The TCAR calculation is underpinned by the Standardised Capital adequacy Approach principles. The Bank targets a minimum total capital adequacy ratio of 15%. The Basel Accord requires that banks meet Total capital adequacy three minimum capital adequacy ratios, in order to ensure that banks have an acceptable mix between high quality, expensive Capital supply 12,2% 9,7% capital and lower quality, less expensive capital, these are: Ordinary shareholders' equity 7 397 655 7 397 655 • Common Equity Tier 1 (CET1) minimum = CET1/total Risk Weighted Assets (RWA); Retained earnings (3 887 525) (5 245 288) • Tier 1 minimum = (CET1 + Additional Tier 1 (AT1))/total RWA; and Accumulated other comprehensive income (596 471) (548 992) • Total minimum = (CET1 + AT1 + Tier 2)/total RWA. Property revaluation reserve 140 941 133 080 Other reserves (737 412) (682 072) The only deviation from the Banking Regulations with regards to total CAR is: Common Equity Tier 1 (CET1) Capital: Instruments and reserves 2 913 659 1 603 375 Land Bank only has Government as shareholder and is not allowed to issue shares in the market to raise capital. Therefore should Common Equity Tier 1 Capital: Regulatory adjustments (360 411) (492 705) the government guarantee be excluded from capital the only other resource of capital would be retained earnings.The Land Bank’s Threshold deductions (investments in subsidiaries) (358 796) (489 939) funding covenants all include the unutilised portion of government guarantees (those of capital/ sustainability nature) as a source Intangible assets (1 615) (2 766) of capital supply. Total available Common Equity Tier 1 capital 2 553 248 1 110 670 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. Total available Tier 2 capital 389 544 478 297 General allowance for credit impairment 389 544 478 297 The Land Bank (Bank) capital adequacy was estimated based on the following approaches: Total available capital 2 942 792 1 588 967 • Credit risk: The Standardised Approach; National Treasury guarantee* 1 300 000 2 410 000 • Operational risk: The Basic Indicator Approach; • Equity risk in the banking book: The Simple Risk-weight Approach; Capital demand • Market risk: Standardised approach; and Risk weighted assets • Credit and operational risk have been identified as the major risk types affecting the Land Bank. Credit risk 31 135 748 38 189 835 Counterparty risk 27 796 73 913 It is the intention of the Land Bank to move towards more sophisticated approaches, such as the Foundation Internal Ratings Based Operational risk 1 527 595 1 491 232 (F-IRB) approach for credit risk measurement. In this regard has the Bank already commenced with the development of Internal Ratings Based models. Equity risk 568 571 708 756 Market risk 73 728 56 789 The Land Bank is a state owned entity (SOE) and therefore does not have the ability to issue share capital. For this reason the Other assets risk 671 075 179 280 bank includes Government Guarantees which are not ring-fenced for funding purposes as Tier 1 Capital. Threshold items 728 011 400 152 Total 34 732 524 41 099 957 To further strengthen capital management, the Bank adopted the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). * Refer to note 34 for the details of the guarantees 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. 260 LAND BANK | INTEGRATED ANNUAL REPORT 2022 261 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) 36. Fair value hierarchy of financial instruments (continued) Group Company Reconciliation of assets measured at level 3 2022 2021 2022 2021 R’000 R’000 R’000 R’000 Fair value Levels of fair value measurements Level 1* adjustment for Re- recognised in Re- classification Financial assets the statement measurement on (to)/from Bonds 612 066 558 290 66 713 60 834 Opening of recognised in other category Closing balance profit or loss OCI Purchases Disposals of property balance Local Equities 704 169 597 850 173 459 164 557 Foreign equities 72 832 52 738 72 832 52 738 Group – 2022 Commodities 37 916 37 141 15 786 13 419 Assets Listed Shares 85 382 90 816 85 382 90 816 Investment property Total financial assets 1 512 366 1 336 835 414 173 382 364 Investment property 95 100 2 300 – – – 97 400 Level 2 * Property, plant and equipment Financial assets Property, plant and Cash and cash equivalents 9 983 760 5 589 889 9 845 216 5 558 401 equipment 17 900 – 6 950 – – – 24 850 Derivatives 9 896 11 340 9 896 11 340 Cash deposits and similar securities 267 175 466 571 9 032 11 556 Non-current assets Collective investment schemes 131 999 127 891 – – held-for sale Investment policy 17 9 – – Non-current assets held- Total financial assets 10 392 847 6 195 700 9 864 144 5 581 297 for sale 4 058 (149) – 5 700 9 609 Level 3 Equity investments at Recurring fair value measurements fair value through other Assets* comprehensive income Financial assets Unlisted shares 387 354 – (64 877) – (100 650) – 221 827 Loans and advances 20 856 582 30 887 859 20 856 582 30 887 859 Total 504 412 2 151 (57 927) 5 700 (100 650) – 353 686 Unlisted shares 221 828 387 354 221 828 387 354 Trade and other receivables 1 353 026 1 049 425 421 407 206 492 Insurance assets 270 895 164 001 – – Total financial assets 22 702 330 32 488 639 21 499 817 31 481 705 Liabilities Financial liabilities Trade and other payables 833 544 770 814 171 591 116 695 Insurance Liabilities 449 711 286 650 – – Funding Liabilities 29 162 958 36 074 791 29 162 958 36 074 791 Lease Liabilities 4 932 23 176 4 932 23 071 Total financial liabilities 30 451 145 37 155 431 29 339 481 36 214 557 * Please refer to note 35 for carrying values. 262 LAND BANK | INTEGRATED ANNUAL REPORT 2022 263 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) 36. Fair value hierarchy of financial instruments (continued) Fair value Description of significant unobservable inputs to level 3 valuations adjustment Re- for recognised Re- classification Group 2022 in the measurement on (to)/from Opening statement of recognised in other category Closing balance profit or loss OCI Purchases Disposals of property balance Significant Sensitivity of the input Unquoted equity Valuation technique unobservable inputs to the fair value Group – 2021 Acorn Agri The NAV (cost) approach has been relied upon as the primary method to value ACORN AGRI in order Assets (Pty) Ltd to derive a value of the 3.37% stake of the Land Bank in the company. The reasons we have chosen the Investment property 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 Investment property 15 000 (8 073) – – – 88173 95 100 directly and bilaterally between willing buyer and sellers of shares. Sensitivity analysis of discount rate not applicable. Property, plant and equipment Based on the calculations, an indicative fair value of 100% of ACORN AGRI as at 28 February 2022 is Property, plant and R2.32bn. As at 28 February 2022, the fair value of the 3.37% is estimated to be R 78.191m after taking equipment 24 400 – (6 500) – – – 17 900 the discounts into account. Ideafruit (Pty) Ltd DCF. Operating entity, value derived from DCF valuation: Discount Discount rate: Non-current assets operating activities of the business (IS approach). rates range between -1%: R57 118 000 held-for sale 12.7% and 14.7% +1%:R39 786 000 Non-current assets held- Afgri Grain Silo DCF. Operating entity, value derived from DCF valuation: Discount Discount rate: for sale 105 112 – – 1029 (13 910) (88 173) 4 058 Company Pty Ltd operating activities of the business (IS approach). rates range between -0.2%: R108 550 000 14.7% and 15.2% +0.2%: R84 511 000 Equity investments at fair value through other comprehensive income Sensitivity of the input Asset Valuation technique Significant unobservable inputs to the fair value Unlisted shares 640 198 – 61 064 – (313 908) – 387 354 Property and Net income Vacancy rate range: 7.5% – 10% Capitalisation rate: Total 784 710 (8 073) 54 564 1029 (327 818) – 504 412 equipment capitalisation Income/expense ratio range: 20.9% – 37.2% +1%: R22 306 360 method Capitalisation rates range: 11% – 11.8% '-1%: R26 556 624 Valuation techniques used to derive level 2 fair values Investment Net income Vacancy rate range: 3% – 7.5% Capitalisation rate: Level 2 investments are valued using a valuation technique based on assumptions that are supported by prices from observable current property capitalisation Income/expense ratio range: 22% – 55.2% +1%: R91 051 65 market transactions: method Capitalisation rates range: 10.5% – 12.8% ‘-1%: R107 957 849 Properties in Comparable sales Natural grazing land per ha.: R4 000 – R20 000 Market value per ha. of land: Cash deposits and similar securities: Value of cash deposited • possession method + R1000 p/ha.: R18 635 287 • Commodities: Foreign component at the market value of the investment determined by the asset manager. Irrigated pasture land per ha.: R6 500 – R35 000 - R1000 p/ha.: R13 965 361 • Collective investment schemes (other than unlisted equities) (CIS) and Investment policies: Consists of unit trust that consist of underlying Farm yard land per ha.: R0 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 Wasteland per ha.: R4000 – R100 000 market price. Crop Land R0 • Unlisted equity: Previously listed shares that have been delisted, based on the fair value determined by the respective Asset Managers. Drylands R20 000 • Money market instruments: The face value of the investment made. Industrial land per ha.: R33 Construction price for R6 500 – R8 800 dwellings per m2: R2 250 – R5 650 264 LAND BANK | INTEGRATED ANNUAL REPORT 2022 265 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 36. Fair value hierarchy of financial instruments (continued) 37. Fruitless and wasteful expenditure (F&WE) Group 2021 The F&WE relates to isolated incidences where penalties and interest were levied on late payments of utility accounts. Significant Sensitivity of the input Group Company Unquoted equity Valuation technique unobservable inputs to the fair value 2022 2021 2022 2021 Acorn Agri (Pty) The NAV (cost) approach has been relied upon as the primary method to value ACORN AGRI in order R’000 R’000 R’000 R’000 Ltd to derive a value of the 3.37% stake of the Land Bank in the company. The reasons we have chosen Reconciliation of amounts transferred to receivables for the NAV approach as primary valuation method is due to the fact that ACORN AGRI is an investment recovery holding company and its shares are traded Over-The-Counter (“OTC”) as share transactions are Opening balance 66 868 66 613 66 845 66 613 negotiated directly and bilaterally between willing buyer and sellers of shares. Sensitivity analysis of Expenditure deemed as F&WE relating to prior year discount rate not applicable. discovered in the current year1 2 185 185 Based on the calculations, an indicative fair net assets value of 100% of Acorn as at 28 February 2021 Expenditure deemed as F&WE relating to current year1 2 82 105 82 82 is approximately R3.2 billion.The fair value of Land Bank’s 3.37% ownership in Acorn as at 28 February Less: amounts recovered in current year (18) (35) (18) (35) 2021 is approximately R89 million after taking minority discount into consideration. Closing balance 66 932 66 868 66 909 66 845 Ideafruit (Pty) Ltd DCF. Operating entity, value derived from DCF valuation: Discount Discount rate: operating activities of the business (IS approach). rates range between -5%: R134 760 759 The financial year 2022 fruitless and wasteful expenditure mainly relates to the following events: 8.97% and 18.97% +5%:R18 802 680  Mainly relates to the dismissed employee who had an outstanding studies amounting R58 thousand that could not be recovered. 1)  Riverside Holdings DCF. Operating entity, value derived from DCF valuation: Discount Discount rate: Legal is currently in the process of drawing up a repayment agreement. (Pty) Ltd operating activities of the business (IS approach). rates range between -0.5%: R107 478 727 14.49% and 15.49% +0.5%: R94 476 651 Employees received an acting allowance amounting R18 thousand when the position acting in was filled. The total acting 2)  Afgri Grain Silo DCF. Operating entity, value derived from DCF valuation: Discount Discount rate: allowance overpayment was recovered. Company Pty Ltd operating activities of the business (IS approach). rates range between -5%: R1 514 893 202 7.1% and 17.1% +5%: R82 028 697 The financial year 2021 fruitless and wasteful expenditure mainly relates to the following events: Land Bank Learner who tendered her resignation in December 2019. The Human Capital Business Partner (HCBP) omitted 1)  Valuation Sensitivity of the input to inform the payroll department and the payments were made to the Learner for the period from January 2020 to August Asset technique Significant unobservable inputs to the fair value 2020 amounting to R87 thousand (R33 thousand relates to FY2020) in lieu of a monthly stipend. Consequence management Property and Net income Vacancy rate range: 12.3% – 12.3% Capitalisation rate: has been implemented for the HCBP and the Leaner has been making repayments in lieu of the debt. Matter currently handed equipment capitalisation Income/expense ratio range: 13.7% – 28.2% +1%: R15 855 184 over to Legal to ensure full recovery of debt. This was subsequent fully recovered after year end. method Capitalisation rates range: 12.0% – 12.0% ‘-1%: R18 773 399 Land Bank employee who resigned on the 31st August 2019, he owed the Bank amount of R134.8 thousand for his studies 2)  Investment Net income Vacancy rate range: 12% – 12.5% Capitalisation rate: in terms of the Land Bank learning and development policy. The Bank could not recover all the monies owed and matter was property capitalisation Income/expense ratio range: 12.3% – 37% +1%: R89 072 011 handed over to Legal. Legal is currently preparing the documents for court. method Capitalisation rates range: 11% – 13.5% ‘-1%: R104 884 393 Properties in Comparable Natural grazing land per ha.: R7 500 – R80 000 Market value per ha. of land: 38. Irregular expenditure possession sales method Irrigated pasture land per ha.: R0 – R30 000 + R1000 p/ha.: R113 167 Group Company Farm yard land per ha.: R0 – R10 000 - R1000 p/ha.: R69 396 957 2022 2021 2022 2021 Wasteland per ha.: R0 R’000 R’000 R’000 R’000 Crop Land R0 – R 0 Reconciliation of irregular Drylands R0 – R0 Opening balance 986 082 766 380 986 082 766 380 Industrial land per ha.: R33 Expenditure deemed as irregular relating to prior year 686 – 686 Construction price for R0 – R7 000 discovered in the current year dwellings per m2: Expenditure deemed as irregular relating to current year 7 673 219 702 – 219 702 Construction price for other R0 R2 500 Expenditure condoned by the board* (19 479) (19 479) structures per m2: 974 962 986 082 967 289 986 082 The irregular expenditure as disclosed is currently going through the governance structures for condonation. * The irregular expenditure recommended by the board for condonation was subsequently condoned by National Treasury after year end. 266 LAND BANK | INTEGRATED ANNUAL REPORT 2022 267 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements 38. Irregular expenditure (continued) 40. Group remuneration In accordance with the Land Bank Act, the Minister of Finance determines the remuneration, allowances and associated benefits Analysis of irregular expenditure of all non-executive Board Members and the Chief Executive Officer. The remuneration for Executives and Bank employees 2022 Incident R’000 is determined through market benchmarking and best practice under the guidance of the Group Human Resources and 1) Expenses incurred on the single source in contravention of SCM Instruction Note 3 of 2016/17. 686 Remuneration Committee.  2) Upon expiration of the contract, management applied for approval from the National Treasury (NT) to grant 7 650 Table 1: Remuneration of Land Bank non-executive directors and executive directors for 2022 (R 000) an extension for three years. National Treasury did not approve in full the 3 year contract, only 2 years have been approved to allow Land Bank Insurance to follow and finalise competitive bidding processes in the Other Benefits3, acquisition of this service. The NT letter further indicates that any expenditure incurred prior to the approval Risk & Credit & Per- Fees of the request will be deemed irregular. NT’s approval was received on 30 August 2021 and expenditure Non-Executive Audit & Gover- Invest- Ad hoc Cash formance & 2022 incurred in the form of binder fees prior to this approval amounts to R7,6m, which will be regarded as Directors Board AGM Finance nance ment HR SEC Meetings Salary Bonuses Expenses Total irregular. The matter was referred to Internal Audit and it is under investigation. MA Moloto1 483 9 – 49 171 49 49 28 – – – 839 The Land Bank insurance company procured accommodation services from Hotel Savoy & Conference centre 3)  23 N R Nkosi2 371 – – 16 16 16 16 47 – – – 484 for accommodation of Water Sisulu students during examination period. However, procurement processes DR Hlatshwayo1 138 9 82 – 115 73 73 38 – – – 528 were not followed as three quotations as prescribed by Treasury regulations were not obtained and there LA Makenete2 175 – – – – 16 16 47 – – – 255 was no approval for the deviation amounting to R23 thousand. The matter was referred to Internal Audit and SA Lund1 138 9 82 73 – 33 16 38 – – – 389 it is under investigation. D Maithufi2 175 – – 42 16 – – 57 – – – 289 TN Mashanda2 175 – 66 – – 16 – 47 – – – 304 Analysis of irregular expenditure Prof JF Kirsten2 175 – – – 49 – 25 47 – – 1 297 2021 Incident R’000 NP Motshegoa2 175 – – – 49 – 16 47 – – – 288 EM Pillay2 155 – 70 – 16 – 47 – – – 288 Service level agreements were extended without prior approval of National Treasury as required in terms 1)  200 908 of National Treasury SCM Instruction Note 3 of 2016/17. The transaction, conditions or events have not Dr M Tom2 175 – 66 16 – 25 – 47 – – – 329 resulted in the Bank suffering any loss, value for money was derived from the use of the goods procured or D van der 155 – – 16 16 16 – 47 – – – 251 services rendered. The disciplinary/consequence management process is being handled at Board Level and Westhuizen2 is still under investigation. ME Makgatho2 293 9 186 49 189 – – 95 – – – 822 Extension of contract was treated as a single source deviation in line with 16.A6.4 of the Treasury Regulations 2)  18 750 ST Cornelius1 138 9 82 – 115 49 – 38 – – – 432 and the SCM Guideline for Accounting Professionals, which allows for single source deviations on the basis of ME Makgobo1 79 59 49 115 – – 33 28 – – – 364 continuation of consulting services to be approved internally by the Accounting Authority. Subtotal 2 997 107 683 377 755 295 245 700 – – 1 6 159 Contravention of the SCM policy and the Preferential Procurement Framework Act Regulations of 2017.This 3)  44 is currently under investigation. Executive Directors A Kanana4 – – – – – – – 3 700 – 123 3 823 39. Events after the reporting period Chief Executive Officer In May 2022 the Bank made a fourth capital reduction repayment to its creditors amounting R4.8 bn. K Mukhari5 The previous CEO of Land Bank resigned on during the year and left at the end of April 2022. The Minister of Finance has since Chief Financial Officer – – – – – – – 3 400 – 28 3 428 appointed the CFO as Acting CEO effective 01 May 2022. The Treasurer was then appointed as the Acting CFO. Total Land Bank 2 997 107 683 377 755 295 245 700 7 100 – 152 13 410 The past summer season was characterized by excessive rains in many parts of the country. There are four provinces that have been severely affected by the floods. These are, KwaZulu-Natal, Eastern Cape, North West and Free State. Both excessive rains and floods have resulted in the saturation of farm land to the extent that planting in most areas was affected. Those who had already planted early, had their crops damaged by hailstorms and floods. The Bank is currently performing an assessment of the financial impact on the Land Bank through client site visits.The full financial impact is not yet known, but is expected to be materially significant for the Bank due to the large concentration of our book being in grain across the North West, KZN and Mpumalanga regions. 268 LAND BANK | INTEGRATED ANNUAL REPORT 2022 269 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S FINANCIAL ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements Notes to the Financial Statements Total Land Bank 2 033 557 443 1 217 294 228 266 7 100 134 12 272 40. Group remuneration (continued) 40. Group remuneration (continued) Table 2: Remuneration of Land Bank Insurance Services non-executive directors and executive directors for 2022 (R 000) Other Table 2: Remuneration of Land Bank Insurance Services non-executive directors and executive directors for 2021 (R 000)  Benefits3, Non-Executive Audit & Investment Ad hoc Guaranteed Performance Fees 2022 Directors Board AGM HR Risk & Actuarial Meetings Package Bonuses & Expenses Total Other Benefits3, DR Hlatshwayo1 343 – – – – – – – 343 Audit & Investment Ad hoc Guaranteed Performance Fees 2022 ME Makgatho1 29 – – 11 – – – – 40 Board AGM HR Risk & Actuarial Meetings Package Bonuses & Expenses Total D Subbiah6 147 – 42 42 9 – – – 242 Non-Executive S Masuku 147 – 108 42 9 – – – 307 Directors M Bosman 147 – 74 53 42 9 – – – 327 DN Motau 30 – 22 21 – 9 – – 82 K Sukdev 237 – 42 84 9 – – – 374 DR Hlatshwayo 508 9 – – – 19 – – 536 Subtotal 1 052 – 74 246 222 38 – – – 1 632 ME Makgatho 59 9 – 32 – 19 – – 119 K Sukdev 103 9 22 42 – 9 – – 185 Executive Directors ST Cornelius – 9 – – – – – – 9 A Rakgalakane – C Masuku 148 9 108 42 – 19 – – 326 Managing Director – – – – – 3 303 – 29 3 332 Melanie Bosman 148 9 32 42 16 19 – – 266 Land Bank Insurance P Truijens 81 – – 32 – 19 – – 132 services 1 052 – 74 246 222 38 3 303 – 29 4 964 TT Ngcobo 30 – – – – 9 – – 39 SJ Coetzee 15 – – – – – – – 15 Table 3: Remuneration – Land Bank non-executive directors and executive directors for FY2021 (R’000) Subtotal 1 122 54 184 211 16 122 – – 1 709 Executive Directors Other Benefits3, Adam Rakgalakane Audit & Investment Ad hoc Guaranteed Performance Fees 2022 Managing Director – – – – – 3 303 222 29 3 554 Board AGM HR Risk & Actuarial Meetings Package Bonuses & Expenses Total Land Bank MA Moloto 737 – 49 264 66 66 38 – – 1 220 Insurance services 1 122 54 184 211 16 122 3 303 222 29 5 263 DR Hlatshwayo 218 49 – 230 83 83 38 – – 701 SA Lund 218 131 117 33 16 – 38 – – 553 1 Board term ended 30 November 21 2 New Board appointment from 8 December 21 TT Ngcobo 88 – 33 – 47 47 19 – – 234 3 Directors do not receive any other benefits. DN Motau 88 – 97 – – – 19 – – 204 4 Chief Executive Officer from 1 March 2020 and resigned February 22 SJ Coetzee 30 – 16 – 16 16 – – – 78 5 Chief Financial Officer from 1 February 2020 ME Makgatho 218 213 49 230 – – 38 – – 748 ME Makgoba 218 16 82 230 – 16 38 – – 600 ST Cornelius 218 148 – 230 66 – 38 – – 700 Subtotal 2 033 557 443 1 217 294 228 266 – – 5 038 Executive Directors Ayanda Kanana4 – – – – – – – 3 700 104 3 804 Chief Executive Officer Khensani Mukhari5 Chief Financial Officer – – – – – – – 3 400 30 3 430 270 LAND BANK | INTEGRATED ANNUAL REPORT 2022 271 PERFORMANCE LAND BANK’S OPERATING STAKEHOLDER LAND BANK INSURANCE LAND BANK’S RISK LAND BANK’S ABOUT THIS REPORT ABOUT LAND BANK OUR CAPITALS GOVERNANCE OVERVIEW OPERATIONS ENVIRONMENT RELATIONS PERFORMANCE MANAGEMENT OUTLOOK STATEMENTS Notes to the Financial Statements 40. Group remuneration (continued) Table 5: Remuneration – Land Bank executive officers in FY2022 (R’000) Guaranteed Cell phone Other Total Title Package Allowance Benefits 2022 Ms ETM Dlamini Executive Manager: Human Capital 2 838 24 4 2 866 Mr SCE Soundy Executive Manager: Strategy and Communications 2 909 24 5 2 938 Mr F Stiglingh Executive Manager: Portfolio Management Services 2 888 24 3 2 915 Mr SN Sebueng 2 288 24 2 312 Executive Manager: Legal Dr LL Magingxa Executive Manager: Agricultural Economics & Advisory 2 600 24 5 2 629 Mr LC Makupula2 1 598 24 1 622 General Manager: Coastal Mrs U Magwentshu Executive Manager: Corporate Banking and Structured Investments 2 700 15 2 715 Total 17 821 159 17 17 997 Table 5: Remuneration – Land Bank executive officers in FY2021 (R'000) Guaranteed Cell phone Other Total Title Package Allowance Benefits 2022 Ms. ETM Dlamini Executive Manager: Human Capital 2 839 24 4 2 867 Mr. SCE Soundy Executive Manager: Strategy and 2 909 24 5 2 938 Mr. LC Makupula Acting Executive Manager: CDBB 1 598 14 1 612 Mr. F Stiglingh Executive Manager: Portfolio Management Services 2 888 24 3 2 915 Mr SN Sebueng Executive Manager: Legal 2 288 24 2 312 Dr LL Magingxa Executive Manager: Agricultural Economics & Advisory 2 600 24 5 2 629 Mrs. U Magwentshu Executive Manager: Corporate Banking and Structured Investments 2 700 24 2 724 Total 17 822 158 17 17 997 1 Other benefits include vitality benefits 2 Acting Executive Manager from 16.01.2020 till 31.03.2022 272 LAND BANK | INTEGRATED ANNUAL REPORT 2022 13020 | IWW.CO.ZA | MS RP307/2022 Land and Agricultural Development Bank of South Africa ISBN: 978-0-621-50679-2 ISBN 978-0-621-50679-2 A​ddress: 272 Lenchen Avenue, Lakefield Office Park, Building A, First Floor, Die Hoewes, Centurion.​ Postal Address: Land and Agricultural Development Bank of South Africa, P.O.BOX 375, Tshwane, 0001​​​​​​​​​​​ ​Switch Board: 012 686 0500 Toll Free: 0800 00 52 59 ​ 9 780621 506792 www.landbank.co.za Enquiries: communication@landbank.co.za