ANNUAL FINANCIAL STATEMENTS 2021 Contents General information 1-2 Directors’ responsibilities and approval 3-4 Certificate by Company Secretary 5 Audit and Finance Committee Report 6-7 Auditor-General’s Audit Report 8 - 14 Statements of financial position 15 Statement of Profit or Loss and Other Comprehensive Income 16 Statements of changes in equity 17 Statements of cash flows 18 - 19 Segment reporting business 20 - 32 Accounting policies 33 - 52 Notes to the consolidated Annual Financial Statements 53 - 182 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 General Information Shareholder National Treasury, Government Department Public entity Governed by the Land and Agricultural Development Bank Act, 2002 (Act No. 15 of 2002) and is a schedule 2 Public Entity in terms of the Public Finance Management Act (PFMA). Country of incorporation and domicile The Republic of South Africa Nature of business and principal activities The Land Bank provides retail and wholesale finance to emerging, commercial farmers and agri-businesses. In addition to its banking operations, the Land Bank extends its services to the insurance sector through its subsidiaries. Head office physical address Eco Glades 2, Block D 420 Witch Hazel Avenue Eco Park Centurion 0046 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) Land bank subsidiaries Land Bank Life Insurance Company (SOC) Limited (LBLIC) 1954/003095/06 Land Bank Insurance Company (SOC) Limited (LBIC) 2012/115426/30 All of the above entities are incorporated in the Republic of South Africa Holding company Land and Agricultural Development Bank of South Africa (the Land Bank or the Bank) Nature of business and principal activities Land Bank Life Insurance Company (LBLIC) and Land Bank Insurance Company (LBIC) operate in the insurance sector. LBLIC offers credit life insurance products and LBIC offers primarily crop insurance products to the wider agricultural sector. LBLIC and LBIC are incorporated in terms of the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and are schedule 2 Public Entities in terms of the PFMA. 1 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 General Information Head office physical address Block D Eco Glades 2 Witch Hazel Avenue Ecopark Centurion 0046 Postal address P. O. Box 375 Tshwane 0001 Bankers LBLIC: ABSA Bank Limited LBIC: RMB Private Bank, division of First Rand Limited Auditors The Auditor-General of South Africa Company Secretary Mashumi Mzaidume Land Bank Group 2 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Directors’ Responsibilities and Approval The Directors are required by the South African Companies Act In order for the Board to discharge its responsibilities, management Shareholder and its funders. Successful implementation of the to maintain adequate accounting records and are responsible has developed and continues to maintain a system of internal liability solution will ensure the Land Bank remains a going-concern. for the content and integrity of the consolidated and separate control. The Board has ultimate responsibility for the system of Annual Financial Statements and related financial information internal control and reviews its operation, primarily through the In addition to the R3 billion recapitalisation of the Bank by included in this report. It is their responsibility to ensure that the Audit Committee and various other risk-monitoring Committees. the Shareholder during September 2020, the Minister of consolidated and separate Annual Financial Statements satisfy the Management enables the Directors to meet these responsibilities. Finance has appropriated R7 billion in his budget speech of financial reporting standards as to form and content and present the 24 February 2021, for further recapitalisation of the Bank fairly the consolidated and separate Statements of Financial Post the 2020 financial audit where Land Bank received a over the medium-term, bringing to R10 billion the total amount Position, results of operations and business of the Group, and Disclaimer of Opinion audit outcome from the AGSA, the Board appropriated for the recapitalisation of Land Bank in the past explain the transactions and financial position of the business of approved a remediation plan intended to ensure restoration year. This is evidence of the Shareholder’s support to take Land the Group at the end of the financial year. The consolidated and and improvement of control environment. Management has Bank out of its event of default and to ensure it continues to separate Annual Financial Statements are based upon appropriate spent the past 6 months implementing the remediation plan. exist into the future in order to serve the agricultural sector. accounting policies consistently applied throughout the Group and The Board has through the Audit and Finance Committee been supported by reasonable and prudent judgements and estimates. monitoring and guiding this process. It is on this basis as well The debt restructuring process (liability solution) intended to as information and explanations received from management cure the default by terming out the Bank’s lenders is still in The Directors acknowledge that they are ultimately responsible that the Directors are of the opinion that the system of progress. Successful closure of this process will result in the Bank for the system of internal financial control established by the internal control provides reasonable assurance that the financial transitioning to implementation of the solution as well as the Group and place considerable importance on maintaining a records are reliable for the preparation of the Annual Financial Bank’s five-year strategy. It is against this background that the strong control environment. To enable the Directors to meet Statements. However, any system of internal financial control going-concern basis has been adopted in the preparation of the these responsibilities, the Board sets standards for internal can provide only reasonable, and not absolute, assurance against financial statements. control aimed at reducing the risk of error or loss in a cost- material misstatement or loss. effective manner. The standards include the proper delegation The audit of Land Bank’s FY2021 annual financial statements of responsibilities within a clearly defined framework, effective Towards the end of April 2020, the Land Bank experienced a was concluded on the 22nd December 2021 when the audit accounting procedures and adequate segregation of duties to liquidity shortfall, which resulted in the Bank defaulting on some report was issued. At that stage it was anticipated that the liability ensure an acceptable level of risk. These controls are monitored of its obligations. This triggered a cross default and resulted solution would have been concluded and the event of default throughout the Group and all employees are required to in a de-facto standstill on capital and interest payments to its cured by 31 March 2022. This was however not to be. During maintain the highest ethical standards in ensuring the Group’s funders. The Bank appointed legal and corporate financial January 2022, it became clear that an agreement on the liability business is conducted in a manner that in all reasonable advisors to support the process of turning the organisation solution was not going to be reached between Land Bank and its circumstances is above reproach. around. A solution comprising the emergency liquidity funding lenders and that the parties needed to negotiate further, which solution, liability solution, equity solution as well as the review negotiations are still in progress and expected to be concluded The focus of risk management in the Group is on identifying, of the Land Bank’s repurposing strategy and operating model during the current financial year. The Bank continues to operate, assessing, managing and monitoring all known forms of risk across were crafted. The Board is pleased to announce that all the albeit with limited support to its customers owing to the state the Group. While operating risk cannot be fully eliminated, the solutions with the exception of the liability solution have been of default the Bank is still in. Group endeavours to minimise it by ensuring that appropriate successfully concluded since then, and the new operating model infrastructure, controls, systems and ethical behaviour are applied implemented. The liability solution is still in progress between and managed within predetermined procedures and constraints. Land Bank working with its advisors, and supported by the 3 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Directors’ Responsibilities and Approval As part of the Land Bank repurposing strategy that forms The Land Bank book is largely concentrated in grain and has part of the restructuring process and supported by the therefore been minimally impacted by the COVID-19 pandemic. Shareholder, the Bank will be split into two distinct divisions and managed in that manner going forward, the Development Different types and levels of support may however still be Ms. Thabi Nkosi and Transformation (D&T) division and the Corporate and required to assist distressed farmers as a result of COVID-19 Chairman of the Board Commercial (C&C) division. The operating model in intended in order to improve chances of sustainability. To this effect, in to ensure the Bank is able to advance its Development addition to measures implemented by Land Bank to assist mandate, while at the same time it positions itself to be able to its clients, the Bank received R100m COVID-19 relief fund repay its commercial funding liabilities. from the Department of Agriculture, Land Reform and Rural Development (DALLRD) in order to support its clients who The Minister of Finance has in terms of Section 92 of the Public have been negatively impacted by COVID-19 pandemic. The Finance Management Act No. 1 of 1999, exempted Land Bank from Bank continues to monitor the impact of COVID-19 in the Mr. Ayanda Kanana submitting the FY2022 Corporate Plan as required by Section 52 agricultural sector. Chief Executive Officer of the same Act until Land Bank is cured of its default position and more certainty is gained regarding the future structure of Bank. The consolidated financial statements have been prepared in However, the Land Bank will continue to update Parliament on accordance with International Financial Reporting Standards progress made, as deemed necessary by Parliament. (IFRS) (with consent from the National Treasury for all Schedule 2 public entities) and the interpretations issued by The agri-food industry is among the few sectors that were the International Financial Reporting Interpretations Committee classified as essential services under COVID-19 lockdown (IFRIC), applying the accrual basis of accounting, the going- restrictions and was largely able to operate, even though with concern principle, and using the historical-cost basis, except some restrictions. Despite such protection, COVID-19 had where specifically indicated otherwise in the accounting policies. a direct impact on certain commodities as well as an indirect The term of the previous Board of Directors ended on the impact on most sectors within the agricultural industry. 30 November 2021.The Minister of Finance has since appointed a new Board effective 8 December 2021. The magnitude of the impact of lockdown restrictions varied between the different lockdown levels and between various The financial statements set out on pages’ 16 to 182, which have commodity Groups. The agricultural industries that have been been prepared on the going-concern basis, were approved by impacted the most are potatoes, wine grapes, wine cellars, wool, the new Board of Directors on 22 December 2021 and were mohair, broilers, flowers, nurseries and tobacco. signed on their behalf by: Land Bank Group 4 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Group Secretary’s Certification Audit and Finance Committee Report In terms of the section 88(2)(e) of the Companies Act 71 of I herewith present the report of the Land Bank Audit and The Committee has a charter, which is reviewed annually and 2008, hereafter referred to as Companies Act, I declare that to Finance Committee (the Committee) for the financial year approved by the Board. The functions of the Committee are the best of my knowledge, for the year ended 31 March 2021, ended 31 March 2021. The Committee acts in consultation outlined in its charter, which is available on the Land Bank the Land and Agricultural Development Bank of South Africa with other Committees of the entity in particular the Risk and website. has lodged with the Registrar of Companies all such returns as Governance Committee. are required of a State-Owned Company in terms of the Act The Committee, acting in consultation with the Risk and and that such returns are true, correct and up to date. The Committee is responsible for overseeing: Governance Committee of the Bank, provided significant oversight and monitoring of the following key areas: • Quality and integrity of the entity’s integrated planning and reporting, including its financial statements and sustainability • The volatile macro-economic environment and reporting; management’s responses thereto; • Appointment, remuneration independence and performance • Internal controls, risk management and compliance of the external auditor and the integrity of the audit process, processes, delegations of authority, combined assurance Mashumi Mzaidume including the approval of non-audit services; and business continuity; and Company Secretary • Effectiveness of internal financial controls and systems of • Controls to prevent irregular, fruitless and wasteful internal control and risk management; and expenditure. • Effectiveness of the governance and assurance processes within the entity, in particular, that the Internal Audit function As a result of the Disclaimer of Opinion audit outcome is adequately resourced and capacitated. received by Land Bank from the Auditor-General of South Africa (AGSA) for the 2020 financial year audit, the Audit Statutory duties and Finance Committee had to adjust its audit plan to include oversight and monitoring of the Board approved remediation The Committee is constituted as a statutory Committee of the plan intended to ensure restoration and improvement of the Land Bank in line with the Principles of King IV, the Companies control environment in the Bank, in order to ensure integrity of Act 71 of 2008 and the Public Finance Management Act.1 the Annual Financial Statements. This has been one of the key of 1999, and is accountable in this regard, to both the Board focus areas for the Committee with regular meetings held with and the Land Bank representative Shareholder, the Ministry of management to track and assess progress on implementation of Finance. It is a Committee of the Board in respect of all the the remediation plan to ensure adequate resolution of the risks duties that the Board assigns to it and has been delegated arising from the matters that led to the disclaimed audit opinion extensive powers to perform its functions in accordance with and to ensure a favourable outcome for the 2021 financial year, the Companies Act, and the National Treasury Regulations and to ensure embedding of processes of internal controls to issued in terms of the Public Finance Management Act. The avoid a recurrence in future. Committee also provides oversight of the entity’s information and technology (IT) functions. In this regard, the Committee reviews management’s IT reports and IT Governance. 5 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Audit & Finance Committee Report Composition Financial Statements with International Financial Reporting Internal Audit Standards (IFRS). The Head of Internal Audit reports to the chairman of the The Land Bank Audit and Finance Committee comprises Committee and the Committee is responsible for the review independent Non-executive Directors who are elected annually The Committee confirms that it has assessed and confirms the and approval of the Internal Audit charter, the Internal Audit plan at the company’s Annual General Meeting (AGM). appropriateness of the going-concern basis for the preparation as well as the resources of the Internal Audit department. The of the Annual Financial Statements.This is based on the on-going Committee evaluated the independence of the Internal Audit The members are Ms. Mathane Makgatho (Chairman), Ms. discussions that the Bank is having with its lenders to ensure function and is satisfied with its independence. SA Lund, Dr. ST Cornelius and Ms. Dudu Hlatshwayo, who successful conclusion of the Liability solution to take Land Bank are independent Non-executive Directors of Land Bank. The out of its event of default and the R10 billion recapitalisation of Expertise and experience of the finance function and the qualifications of the members of the Committee are listed in the Bank by the Shareholder, of which R3 billion was received Group Chief Financial Officer the Land Bank Governance Report. These members collectively during September 2020 and the remaining R7 billion to be The Committee has considered the expertise and experience possess the experience and expertise needed to execute their received over the medium-term. The R10 billion capital injection of the CFO, Ms. Khensani Mukhari, and has concluded that the duties in relation to the Committee’s mandate. together with the successful conclusion of the liability solution appropriate requirements have been met. will ensure that the Land Bank continues to operate as a going- Executive Directors comprising of the Chief Executive Officer concern. All critical roles in the finance function have been filled thus (CEO) and the Chief Financial Officer (CFO) are invitees to the bolstering the control environment in the organisation and Committee meetings, but are excluded from the Committee’s The Committee considered the maturity of combined ensuring adequate skills and focus to supporting and enabling private sessions with the Auditor-General and the Head of assurance in the Group and the specific attestations from the organisation. Internal Audit. Internal Audit, External Audit and Risk in regard to the adequacy and effectiveness of the internal controls within the Group. We External audit report The Committee has met all legal and regulatory requirements in are comfortable that these controls are adequately in place, respect of independence and corporate governance experience. but there is significant room for improvement to strengthen External Audit Opinion the control environment and to realise the full benefits of Land Bank received a “Qualified Opinion” audit outcome from combined assurance. the Auditor-General of South Africa on the FY2021 audit, sighting Annual confirmation of key functions for the year that the consolidated and separate financial statements of Land External audit Bank are fairly presented in all material respect, except for her Financial control, financial reporting and the Integrated The Auditor-General of South Africa (AG (SA) is the external inability to obtain sufficient evidence that the disbursements Report auditor for Land Bank. The Committee nominates the external and repayments for loans and advances were accounted for auditor to the Board for appointment by the Shareholder, and the appropriately, which was as a result of a refusal by a Land Bank The Committee reviews the Interim Results, Annual Financial Committee approves the terms of engagement and remuneration service level partner Unigro to provide required evidence / Statements, and Integrated Report, and recommends these for the external audit services. The Committee has assessed the supporting documents for selected transactions. Land Bank has to the Board for approval. This role includes an assessment independence of the external auditor and has obtained the instituted legal action to obtain access to said documents. The of the accounting policies and key assumptions applied in assurance that the auditor’s independence is not impaired. Committee will continue to monitor progress regarding this the preparation of the financial statements, as well as dealing matter. Going forward this is not expected to be a problem with technical reporting matters. In doing so, the Committee as Land Bank has insourced the book previously managed by also confirmed compliance of the Interim Results and Annual Unigro with effect from 01 October 2021. Land Bank Group 6 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Audit and Finance Committee Report Other key audit matters as reported by the external The Committee is satisfied it has fulfilled its responsibilities in auditors terms of its charter during the year under review and believes that it complied with its legal, regulatory and governance Material uncertainty on going-concern responsibilities as set out in the Companies Act and Public The AG highlighted that a material uncertainty exists with Finance Management Act. regards to the ability of the Land Bank to continue as a going- concern, sighting the liquidity challenges, cross default as some of The term of the previous Board of Directors ended on the reasons casting doubt on the entity’s ability to continue as a the 30 November 2021.The new Land Bank Board of Directors going-concern. Land Bank is undergoing a restructuring process were appointed on the 8 December 2021 after the expiry of to take it out of its event of default. A liability solution is being the term of the previous Board. When the FY2021 AFS were negotiated with the lenders in this regard. The Committee will finalised during December 2021, the new Board Committees continue to monitor progress of the liability solution. were still being constituted hence the Chairman of the Board signed off the Audit and Finance Committee report in the AFS. Late submission of the AFS And lastly, the AG further highlighted the non-submission of the AFS within the prescribed period after the year end, as required by 55(1)(c)(i) of the PFMA for audit. This was as a result of the delays in the implementation and execution of the remedial plan, which has since been finalised. Ms. Thabi Nkosi Chairman of the Board In conclusion Barring the new item where Land Bank was unable to obtain supporting audit evidence on disbursements and repayments, which led to the qualified audit outcome, all material items that were covered by the remedial plan which the Bank instituted post the prior year audit outcome were adequately addressed. It is important to note that the item that led to the qualified audit opinion was not part of the remedial plan.The Committee is satisfied with the audit outcome on the work covered in the remedial plan, although unhappy with the overall audit outcome and the cause thereof. The Committee will continue to ensure there is continuous improvement regarding the controls around overall management of the loan book. 7 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Report on the audit of the consolidated and Basis for qualified opinion separate financial statements Loans and advances Qualified of opinion 3. I was unable to obtain sufficient appropriate audit 1. I have audited the consolidated and separate financial evidence that management had properly accounted for statements of the Land and Agricultural Development disbursements and repayments for loans and advances that Bank of South Africa and its subsidiaries (the group) are managed by a Service Level Partner (SLA) which is set out on pages 16 to 182, which comprise the the Bank’s external service provider. This was due to the consolidated and separate statement of financial status of the accounting records and non-submission of position as at 31 March 2021, the consolidated information to support these transactions. I was unable and separate statement of profit or loss and other to confirm these transactions by alternative means. comprehensive income, statement of changes in equity, Consequently, I was unable to determine whether any and statement of cash flows for the year then ended, as adjustments were necessary to loans and advances stated well as notes to the consolidated and separate financial at R31 billion in note 11 to the consolidated and separate statements, including a summary of significant accounting financial statements. policies. Context for the opinion 2. In my opinion, except for the effects of the matter described in the basis for qualified opinion section of my 4. I conducted my audit in accordance with the International report, the consolidated and separate financial statements Standards on Auditing (ISAs). My responsibilities under present fairly, in all material respects, the financial position those standards are further described in the auditor- of the Land and Agricultural Development Bank of South general’s responsibilities for the audit of the consolidated Africa (the Bank) and its subsidiaries as at 31 March 2021, and separate financial statements section of my report. and its financial performance and cash flows for the year then ended in accordance with International Financial 5. I am independent of the group in accordance with the Reporting Standards (IFRS) and the requirements of the International Ethics Standards Board for Accountants’ Public Finance Management Amendment Act, No. 29 of international code of ethics for professional accountants 1999 (PFMA) and the Companies Act of South Africa, (including International Independence Standards) (IESBA 2008 (Act No. 71 of 2008) (the Companies Act). code) as well as other ethical requirements that are relevant to my audit in South Africa. I have fulfilled my other ethical responsibilities in accordance with these requirements and the IESBA code. 6. I believe that the audit evidence ·I have obtained is sufficient and appropriate to provide a basis for my qualified opinion. Land Bank Group 8 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Key audit matters 7. Key audit matters are those matters which, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole and in forming our opinion, and we do not provide a separate opinion on these matters. Key audit matter How the matter was addressed in the audit Expected Credit Loss of loans and advances Loans and advances (note 11), which are a significant portion of total assets and the As I have issued a disclaimer of opinion in the prior year due to significant audit findings including internal control associated impairment provisions, are significant in the context of the consolidated and deficiencies identified in the expected credit loss (ECL) provisions and related inputs; my audit procedures separate financial statements. included assessing the adequacy of the audit action plan developed by the Bank which covered the significant findings from the preceding two years. Estimating expected credit losses (ECL) is inherently uncertain and subject to significant judgment. Furthermore, the models used to determine credit impairments are complex, After evaluation of the audit action plan, I identified areas of improvement which were communicated to the and certain inputs are not fully observable. Bank for consideration. The assessment process requires detailed knowledge of the borrower. It further requires Due to the prior year significant audit finding and weak internal controls in the management of loans and the use of judgement in determining whether there is an expected credit loss and the advances that led to a disclaimer of opinion and the Bank’s process of implementing the audit action plan, I had to amount of the resulting loss. follow a fully substantive audit approach in the current audit cycle which also included the preceding two financial years due to restatement of comparatives figures. Critical inputs to the ECL·model to be given special consideration included the following: My substantive audit approach included detailed testing of the data that is used for ECL inputs such as loan staging, • Loan book staging; risk ratings, collaterals, loan modification and etc. • Collateral valuations, classification and haircuts; • Risk ratings & watch list maintenance; and I have critically considered the Bank’s policies and their application on collateral, staging and modification when • IFRS 9 modifications. testing the ECL inputs. Due to the disclaimer of opinion in the prior year, the detailed testing also covered corrections made by the Bank to prior-year financial statements. The ECL was also one of the areas that formed a basis for a disclaimer of opinion in the prior year audit cycle. I identified material misstatements on the staging and collaterals on the financial statements that were submitted for audit. The Bank subsequently corrected these material misstatements and I was satisfied that the ECL inputs Given the combination of the inherent subjectivity in the valuation and the material nature were accounted for appropriately. of the balance, I considered the audit of the expected credit loss to be a key audit matter in my audit of the financial statements. I engaged property valuation experts as auditors’ experts who assessed the reasonability of assumptions used by the Bank in the valuation of collateral. 9 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Key audit matters (continued) Key audit matter How the matter was addressed in the audit Before I placed reliance on the work of an auditors’ expert, I assessed the independence, objectivity and competency in line with the requirements of ISA 620 and I was satisfied with this. I assessed the expert’s work by evaluating significant assumptions and methods as well as the relevance and reasonableness of those assumptions and methods in the circumstances. Based on the work performed by the auditors’ experts I found the valuation of collaterals to be reasonable and within the range of my expectations. I have considered the significant increase in credit risk triggers and assumptions applied by the Bank in determining expected credit losses for both performing and non-performing loans, and including the Bank’s assessment of the recoverability and supporting collateral. I identified material misstatements relating to the credit risk monitoring. The Bank subsequently corrected these material misstatements. After the corrections, I found the Bank’s credit risk monitoring assumptions used to determine the expected credit losses to be reasonable and consistent with my expectations. I engaged an auditor’s expert to assess the appropriateness and reasonableness of the ECL model and assumptions used by the Bank in determining the ECL. Before I placed reliance on the work of an auditors’ expert, I assessed the independence, objectivity and competency in line with the requirements of ISA 620 and I was satisfied with this. Land Bank Group 10 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Key audit matters (continued) Key audit matter How the matter was addressed in the audit I assessed the expert’s work by evaluating significant assumptions and methods as well as the relevance and reasonableness of those assumptions and methods in the circumstances. The expert’s conducted the following procedures: • Reviewed the Bank’s approved ECL calculation methodology documentation for the probability of default (PD), the loss given default (LGD) and exposure at default (EAD) and reviewed this against the requirements of IFRS 9. • Inspected the Bank’s ECL model in light of the requirements of IFRS 9 including key elements such as portfolio segmentation, modelling approach adopted, behavioural life including time on book post default, effective interest rate (EIR) and related discounting of cash flows, the use of forward-looking information, default and significant increase in credit risk (SICR), and other key judgements and assumptions relevant for the models. • Independently calculated the ECL estimate based on the approved methodology and data provided by the Bank. • Independently calculated the model overlays based on the approved methodology and data provided by the Bank. Based on the above mentioned procedures, I identified material misstatements relating to the ECL models. The Bank was able to subsequently correct these material misstatements. After the corrections, I found the Bank’s credit risk models and assumptions used to determine the expected credit losses to be reasonable and consistent with my expectations. I have also assessed the IFRS 7 disclosures included in the consolidated and separate financial statements and I am satisfied that these disclosures are consistent with the requirements of IFRS 7. 11 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Material uncertainty relating to going concern Responsibilities of the board of directors for the expected to influence the economic decisions of users consolidated and separate financial statements taken on the basis of these consolidated and separate 8. I draw attention to the matter below. My financial statements. opinion is not modified in respect of this matter. 11. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair 14. A further description of my responsibilities for the audit I draw attention to note 3.3 to the consolidated and presentation of the consolidated and separate financial of the consolidated and separate financial statements separate financial statements, which indicates that towards statements in accordance with the IFRS and the is included in the annexure to this auditor’s report. the end of April 2020, the Bank experienced a liquidity requirements of the PFMA, and for such internal control as shortfall, which resulted in the Bank defaulting on some of the accounting authority determines is necessary to enable Report on the audit of the annual performance report its obligations. This triggered a cross default and resulted in the preparation of consolidated and separate financial de-facto stand still on capital and interest payments to its statements that are free from material misstatement, Introduction and scope funders. At the date of this report, the liability solution to whether due to fraud or error. cure the default was still in progress and is dependent on 15. In accordance with the Public Audit Act 25 of 2004 the signing of the commitment agreements with lenders. 12. In preparing the consolidated and separate financial (PAA) and the general notice issued in terms thereof, The planned date for the signing of the commitment statements, the accounting authority is responsible for I have a responsibility to report on the usefulness and agreements is at the end of January 2022. These events or assessing the group’s ability to continue as a going concern, reliability of the reported performance information conditions as set forth in note 3.3 indicate that a material disclosing, as applicable, matters relating to going concern against predetermined objectives for selected uncertainty exists that may cast significant doubt on the and using the going concern basis of accounting unless objectives presented in the annual performance report. entity’s ability to continue as a going concern. the appropriate governance structure either intends to I performed procedures to identify material findings liquidate the group or to cease operations, or has no but not to gather evidence to express assurance. Emphasis of matter realistic alternative but to do so. 16. My procedures address the usefulness and reliability of 9. I draw attention to the matter below. My opinion is not Auditor-General’s responsibilities for the audit of the the reported performance information, which must be modified in respect of this matter. consolidated and separate financial statements based on the entity’s approved performance planning documents. I have not evaluated the completeness and Restatement of corresponding figures 13. My objectives are to obtain reasonable assurance appropriateness of the performance indicators included in about whether the consolidated and· separate financial the planning documents. My procedures do not examine 10. As disclosed in note 43 to the consolidated and separate statements as a whole are free from material misstatement, whether the actions taken by the entity enabled service financial statements, the corresponding figures for 31 whether due to fraud or error, and to issue an auditor’s delivery. My procedures do not extend to any disclosures March 2020 have been restated as a result of errors in the report that includes my opinion. Reasonable assurance is a or assertions relating to the extent of achievements in consolidated and separate financial statements of the entity high level of assurance but is not a guarantee that an audit the current year or planned performance strategies and at, and for the year ended, 31 March 2021 and preceding conducted in accordance with the ISAs will always detect information in respect of future periods that may be two financial years. a material misstatement when it exists. Misstatements can included as part of the reported performance information. arise from fraud or error and are considered material if, Accordingly, my findings do not extend to these matters. individually or in aggregate, they could reasonably be Land Bank Group 12 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa 17. I evaluated the usefulness and reliability of the reported 21. Refer to the annual performance report on pages 31 to 33 Other information performance information in accordance with the criteria for information on the achievement of planned targets for developed from the performance management and the year. 26. The accounting authority is responsible for the other reporting framework, as defined in the general notice, for the information. The other information comprises the following selected objectives presented in the entity’s annual Report on the audit of compliance with legislation information included in the annual report. The other performance report for the year ended 31 March 2021: information does not include the consolidated and separate Introduction and scope financial statements, the auditor’s report and the selected Objectives Pages in the annual objective presented in the annual performance report that performance report have been specifically reported on in this auditor’s report. 22. In accordance with the PAA and the general notice issued Profit optimisation 31-33 in terms thereof, I have a responsibility to report material findings on the entity’s compliance with specific matters 27. My opinion on the consolidated and separate financial 18. I performed procedures to determine whether the reported statements and findings on the reported performance in key legislation. I performed procedures to identify performance information was properly presented and information and compliance with legislation do not cover findings but not to gather evidence to express assurance. whether performance was consistent with the approved the other information and I do not express an audit opinion performance planning documents. I performed further or any form of assurance conclusion on it. 23. The material findings on compliance with specific matters procedures to determine whether the indicators and in key legislation are as follows: related targets were measurable and relevant, and assessed 28. In connection with my audit, my responsibility is to read the reliability of the reported performance information to the other information and, in doing so, consider whether Annual financial statements determine whether it was valid, accurate and complete. the other information is materially inconsistent with the 24. Financial statements were not submitted for auditing consolidated and separate financial statements and the 19. I did not identify any material findings on selected objectives presented in the annual performance within the prescribed period after the end of financial the usefulness and reliability of the reported report, or my knowledge obtained in the audit, or otherwise year, as required by section 55(1)(c)(i) of the PFMA. performance information for this objective: appears to be materially misstated. 25. The financial statements submitted for auditing were • Profit optimisation 29. l did not receive the other information prior to the date not prepared in accordance with the prescribed financial reporting framework and supported by full and proper of this auditor’s report. When I do receive and read this Other matter records, as required by section 55(1) (a) and (b) of the information, and if I conclude that, there is a material PFMA. Material misstatements of loans and advances and misstatement therein, I am required to communicate the 20. I draw attention to the matter below. disclosure items identified by the auditors in the submitted matter to those charged with governance and request that financial statements were corrected. However, the the other information be corrected. If the other information Achievement of planned targets supporting records that could not be provided in respect is not corrected, I may have to retract this auditor’s report of these corrections resulted in the financial statements and re-issue an amended report as appropriate. However, receiving a qualified opinion. if it is corrected this will not be necessary. 13 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Internal control deficiencies 32. Management did not implement proper record keeping in a timely manner to ensure that complete, relevant 30. I considered internal controls relevant to my audit of the and accurate information is accessible and available to consolidated and separate financial statements, reported support financial reporting. This is due to non-submission performance information and compliance with applicable of information on disbursements and repayments of the Pretoria legislation; however, my objective was not to express loans and advances managed by Service Level Partner 22 December 2021 any form of assurance on it. The matters reported (SLA) which is the Bank’s external service provider. below are limited to the significant internal control deficiencies that resulted in the basis for the qualified Other reports opinion and the findings on compliance with legislation. 33. I draw attention to the following engagement conducted 31. The Bank has improved its audit outcome from a disclaimer by the auditor general , which had, or could have, an impact opinion in the prior year to a qualified opinion in the on the matters reported in the entity’s financial statements, current year. In achieving this improvement, management reported performance information, compliance with made a concerted effort to address significant findings applicable legislation and other related matters. This report relating to the Joan book management identified in the did not form part of my opinion on the financial statements prior year. However, due to the magnitude of the prior or my findings on the reported performance information year audit findings and time pressure to submit the financial or compliance with legislation. statements, the implementation of the audit action plans was not adequate to prevent the re-occurrence of some Audit related services and special audits of the prior year audit findings. This impacted the quality control processes leading to material misstatements 34. As requested by the Land and Agricultural Development not being identified timeously and addressed before Bank of South Africa (SOC) Ltd , a limited assurance the financial statements were submitted for audit. engagement in respect of compliance with the National These material findings were identified in the submitted Credit Act No. 34 of 2005 (the Act) was conducted for financial statements and were subsequently corrected by the twelve months ended 31 March 2020. The report was management. However, remedial work to address prior submitted to the accounting authority on 13 August 2021. year findings was not finalised before 31 May 2021 to allow the submission of financial statements for audit on 31 May 2021 as required by section 55(1) (c) of the PFMA. It is recommended that Land Bank should put preventative controls in place to enhance the control environment in the management of loans and advances. Furthermore, the entity should implement controls to ensure that its financial statements are free of material misstatements. Land Bank Group 14 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Report of the Auditor-General to Parliament on the Land and Agricultural Development Bank of South Africa Annexure - Auditor-General’s responsibility for • evaluate the appropriateness of accounting policies used the audit and the reasonableness of accounting estimates and related disclosures made by the board of directors, which accounting authority 1. As part of an audit in accordance with the ISAs, • Conclude on the appropriateness of the accounting I exercise professional judgement and maintain authority’s use of the going concern basis of accounting in professional scepticism throughout my audit of the the preparation of the financial statements. I also conclude, consolidated and separate financial statements and based on the audit evidence obtained, whether a material the procedures performed on reported performance uncertainty exists relating to events or conditions that may information for selected objectives and on the entity’s cast significant doubt on the ability of the Bank and its compliance with respect to the selected subject matters. subsidiaries to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw Financial statements attention in my auditor’s report to the related disclosures in the financial statements about the material uncertainty 2. In addition to my responsibility for the audit of the or, if such disclosures are inadequate, to modify my opinion consolidated and separate financial statements as described on the financial statements. My conclusions are based on in this auditor’s report, I also: the information available to me at the date of this auditor’s report. However, future events or conditions may cause an • identify and assess the risks of material misstatement of the entity to cease operating as a going concern consolidated and separate financial statements, whether • evaluate the overall presentation, structure and content due to fraud or error; design and perform audit procedures of the financial statements, including the disclosures, and responsive to those risks; and obtain audit evidence that is determine whether the financial statements represent sufficient and appropriate to provide a basis for my opinion. the underlying transactions and events in a manner that The risk of not detecting a material misstatement resulting achieves fair presentation from fraud is higher than for one resulting from error, as • obtain sufficient appropriate audit evidence regarding the fraud may involve collusion, forgery, intentional omissions, financial information of the entities or business activities misrepresentations or the override of internal control within the group to express an opinion on the consolidated • obtain an understanding of internal control relevant to financial statements. I am responsible for the direction, the audit in order to design audit procedures that are supervision and performance of the group audit. I remain appropriate in the circumstances, but not for the purpose solely responsible for my audit opinion. of expressing an opinion on the effectiveness of the entity’s internal control 15 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Statements of Financial Position Group Company 2021 *2020 *2019 2021 *2020 *2019 Notes R’000 R ‘000 R ‘000 R ‘000 R ‘000 R ‘000 Assets Cash and cash equivalents 4 5 589 889 722 711 3 213 121 5 558 401 585 008 3 202 569 Trade and other receivables 5 1 049 425 1 237 652 829 366 206 492 720 780 351 562 Short-term insurance assets 6 159 014 169 906 254 017 - - - Repurchase agreements 7 - 19 495 30 257 - 19 495 30 257 Investments 8 2 318 659 2 148 223 3 181 534 1 431 304 1 418 546 1 988 000 Strategic trading assets 9 - 5 153 - - 5 153 - Derivatives 10 11 340 79 064 80 587 11 340 79 064 80 587 Loans and advances 11 30 887 859 39 470 496 39 825 460 30 887 859 39 470 496 39 825 460 Non-current assets held-for-sale and assets of disposal groups 12 4 058 105 112 169 295 4 058 105 112 169 295 Long-term insurance assets 19 4 987 11 786 7 909 - - - Investment property 13 95 100 15 000 15 250 95 100 15 000 15 250 Property, plant and equipment 14 21 855 28 971 32 154 21 755 28 808 31 992 Right-of-use assets 15.1 20 746 47 993 68 093 20 651 47 735 67 672 Intangible assets 16 2 766 8 043 13 548 2 766 8 043 13 548 Total assets 40 165 698 44 069 605 47 720 591 38 239 726 42 503 240 45 776 192 Equity and liabilities Equity Accumulated loss 17 (4 262 853) (3 515 375) (2 610 265) (5 245 288) (4 289 211) (3 767 537) Capital Fund 17 7 397 655 4 397 655 4 397 655 7 397 655 4 397 655 4 397 655 Revaluation reserve 17 133 080 138 472 137 350 133 080 138 472 137 350 Fair Value Through Other Comprehensive Income (FVTOCI) 17 (682 072) (723 811) (43 883) (682 072) (723 811) (43 883) Total equity 2 585 810 296 941 1 880 857 1 603 375 (476 895) 723 585 Liabilities Trade and other payables 18 770 814 1 412 033 481 254 116 695 902 161 72 645 Short-term insurance liabilities 6 220 061 237 227 329 860 – – – Long-term policyholders’ insurance liabilities 19 66 589 44 341 47 124 – – – Funding liabilities 20 36 074 791 41 352 534 44 304 159 36 074 791 41 352 534 44 304 159 Lease liabilities 15.2 23 176 50 609 70 518 23 071 50 335 70 089 Provisions 21 140 456 390 558 305 504 137 794 389 742 304 399 Post-retirement obligation 22 284 000 285 362 301 316 284 000 285 362 301 316 Total Liabilities 37 579 887 43 772 664 45 839 735 36 636 351 42 980 134 45 052 608 Total equity and liabilities 40 165 698 44 069 605 47 720 591 38 239 726 42 503 240 45 776 192 * Restated. Refer to note 43 for details. Land Bank Group 16 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Statements of Profit or Loss and Other Comprehensive Income Group Company 2021 2020* 2021 2020* Notes R’000 R’000 R’000 R’000 Net interest (loss)/income1 167 562 387 414 162 570 383 098 Interest income 23 3 234 822 4 465 744 3 229 393 4 459 613 Interest expense 24 (3 067 260) (4 078 330) (3 066 823) (4 076 515) Net impairment charges, release, claims and recoveries 11 (323 565) (67 988) (323 565) (67 988) Total loss from lending activities (156 003) 319 426 (160 995) 315 110 Non-interest expense 25 (301 334) (361 877) (297 378) (357 209) Non-interest income 26 84 224 99 407 76 226 93 589 Operating (loss)/income from banking activities (373 113) 56 956 (382 147) 51 490 Net insurance premium income 27 150 785 143 126 – – Net insurance claims 27 (75 309) (131 261) – – Other costs from insurance activities 27 (58 293) (32 497) – – Investment income and fees 28 69 905 91 138 16 043 314 243 Interest on post-retirement obligation 22 (32 444) (26 672) (32 444) (26 672) Interest on lease liabilities 15 (3 384) (5 249) (3 367) (5 218) Losses on financial instruments 29 (18 270) (47 240) (18 270) (47 240) Fair value gains / (losses) 29 207 895 (142 468) 50 337 (21 714) Operating (loss)/income (132 228) (94 167) (369 848) 264 889 Operating expenses 30 (593 479) (704 219) (564 829) (679 992) Net operating loss (725 707) (798 386) (934 677) (415 103) Non-trading and capital items 31 30 456 (40 951) 30 456 (40 951) Loss before taxation (695 251) (839 337) (904 221) (456 054) Indirect taxation 32 (52 220) (65 764) (51 856) (65 622) Loss for the year (747 471) (905 101) (956 077) (521 676) Other comprehensive income Items that will not be reclassified into profit or loss Revaluation of land and buildings (5 392) 1 122 (5 392) 1 122 Actuarial Gain on the post-retirement obligation 22 16 582 22 800 16 582 22 800 Total items that will not be reclassified to profit or loss 11 190 23 922 11 190 23 922 Items that may be reclassified to profit or loss: Net gain / (loss) on financial assets designated at fair value through other comprehensive income 25 157 (702 728) 25 157 (702 728) Total Items that may be reclassified to profit or (loss): 25 157 (702 728) 25 157 (702 728) Other comprehensive (loss) / income 36 347 (678 806) 36 347 (678 806) Total comprehensive loss for the year (711 124) (1 583 907) (919 730) (1 200 482) * Restated. Refer to note 43 for details. 1 The net interest expense position is as a result of the correction of amortisation of funding liabilities retrospectively. Refer to note 43 for details 17 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Statements of Changes in Equity Fair Value through Other Capital Revaluation Comprehensive Accumulated Total fund reserve Income loss equity R’000 R’000 R’000 R’000 R’000 Group Opening balance at 01 April 2019 4 397 655 137 350 (43 883) 835 674 5 326 796 Correction of prior period error* – – – (3 445 939) (3 445 939) Restated loss for the year* – – – (905 101) (905 101) Other comprehensive income/(loss) for the year – 1 122 (679 928) – (678 806) Total comprehensive income/(loss) for the year – 1 122 (679 928) (905 101) (1 583 907) Opening balance at 01 April 2020 4 397 655 138 472 (723 811) (3 515 375) 296 941 Loss for the year – – – (747 471) (747 471) Other comprehensive income/(loss) for the year – (5 392) 41 739 – 36 347 Total comprehensive income/(loss) for the year – (5 392) 41 739 (747 471) (711 124) Shareholder Equity Injection 3 000 000 3 000 000 Total contributions by owners of company recognised directly in equity 3 000 000 – – – 3 000 000 Balance at 31 March 2021 7 397 655 133 080 (682 072) (4 262 853) 2 585 810 Company Opening balance at 01 April 2019 4 397 655 137 350 (43 883) (321 597) 4 169 525 Correction of prior period error* – – – (3 445 939) (3 445 939) Restated loss for the year* – – – (521 676) (521 676) Other comprehensive income/(loss) for the year – 1 122 (679 928) – (678 806) Total comprehensive income/(loss) for the year – 1 122 (521 676) (1 200 482) Opening balance at 01 April 2020 4 397 655 138 472 (723 811) (4 289 211) (476 895) Loss for the year – – – (956 077) (956 077) Other comprehensive income/(loss) for the year – (5 392) 41 739 - 36 347 Total comprehensive income/(loss) for the year – (5 392) 41 739 (956 077) (919 730) Shareholder Equity Injection 3 000 000 3 000 000 Balance at 31 March 2021 7 397 655 133 080 (682 072) (5 245 288) 1 603 375 * Restated. Refer to note 43 for details. Land Bank Group 18 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Statements of Cash Flows Group Company 2021 2020* 2021 2020* R’000 R’000 R’000 R’000 Loss for the year (747 471) (905 101) (956 077) (521 676) Adjustments to reconcile profit to net cash flows: 252 217 556 286 438 016 223 686 Interest expense 3 067 260 4 078 330 3 066 823 4 076 515 Interest income (3 234 822) (4 465 744) (3 229 393) (4 459 613) Net impairments raised/ released 285 473 319 685 285 473 319 685 Interest on lease liabilities 3 384 5 249 3 367 5 218 Fair value movement (financial instruments) (207 895) 142 468 (50 337) 21 714 Losses on financial instruments 18 270 47 240 18 270 47 240 Dividends received (28 391) (28 647) (13 056) (312 818) Interest received (41 514) (62 491) (2 987) (1 425) Depreciation and amortisation 33 186 37 535 32 966 37 313 Fair value adjustments on properties 8 073 12 149 8 073 12 149 Movement in provisions (250 102) 94 239 (251 950) 94 527 Movement in post-retirement medical aid liability 32 444 24 377 32 444 24 377 Profit on properties (1 628) (12 094) (1 628) (12 094) (Gains)/Losses on foreign exchange (36 897) 40 904 (36 897) 40 904 Impairment relating to loan commitments and guarantees 576 851 330 001 576 851 330 001 Impairment of other assets (4) (8) (4) (8) Movement in policyholders' liabilities 28 528 (6 907) - - Changes in working capital (430 219) 448 739 (271 178) 489 023 Trade and other receivables 188 227 (408 286) 514 288 (263 108) Trade and other payables (641 219) 865 547 (785 466) 752 131 Increase/Decrease in short-term and long-term insurance liability 5 082 (92 633) - - Decrease in short-term and long-term insurance assets 17 691 84 111 - - Cash generated from operations (925 473) 99 924 (789 240) 191 033 19 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Statements of Cash Flows Group Company 2021 2020* 2021 2020* R’000 R’000 R’000 R’000 Cash flows from operations 8 166 653 371 587 8 161 241 465 486 Interest expense paid (2 932 794) (3 962 149) (2 932 794) (3 962 149) Interest income received 2 800 449 4 296 792 2 795 020 4 290 661 Interest on lease liabilities paid (3 384) (5 248) (3 367) (5 217) Dividends received 5 218 6 912 5 218 106 912 Decrease in funding to clients 8 297 163 35 279 8 297 163 35 279 Cash inflow from operating activities 7 241 179 471 510 7 372 001 656 518 Cash flow from investing activities Purchase of property and equipment (653) (1 863) (653) (1 863) Proceeds of property and equipment - 1 041 - 1 041 Purchase of intangible assets - (547) - (547) Proceeds from sale of non-current assets held-for-sale 15 528 63 876 15 528 63 876 Proceeds from sale of financial instruments 539 628 417 394 363 136 98 972 Loan repaid by subsidiary - - - 106 110 Purchase of financial instruments (351 717) - (200 000) (100 000) Cash inflow from investing activities 202 786 479 901 178 011 167 589 Cash flow from financing activities Decrease in funding received from funders (5 474 689) (3 416 614) (5 474 689) (3 416 614) Lease liability repaid (27 733) (25 207) (27 564) (25 053) Equity injection1 2 925 633 – 2 925 633 – Cash flows from financing activities (2 576 789) (3 441 821) (2 576 620) (3 441 667) Net (decrease)/increase in cash and cash equivalents 4 867 176 (2 490 410) 4 973 392 (2 617 560) Cash and cash equivalents at beginning of year 722 711 3 213 121 585 008 3 202 568 Cash and cash equivalents at end of year 5 589 888 722 711 5 558 401 585 008 * Restated. Refer to note 43 for details 1 Cash received for the R3 billion 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. Land Bank Group 20 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business The Group reports in four distinct segments, grouped according to the nature of products and services provided by the respective business units and divisions. The four segments are: 1. Commercial Development Banking, which consists of 9 Regional Offices and 16 satellite branches spread across the country, and provides finance to developing and commercial farmers; 2. Corporate Banking, which consists of two branches, and provides finance to the corporate agri-related businesses; 3. Group Capital which consists of treasury, finance and other central functions; 4. Insurance Operations consisting of LBLIC and LBIC which provides Life and Short-term- and Crop Insurance respectively. Reporting to the Board is based on segments which engage in business activities that generate revenues and incur expenditure. None of the operating segments meet the criteria for aggregation. Quantitative thresholds The Group reports separate information about an operating segment that meets any of the following quantitative thresholds: • Its reported revenue, from both external clients and other segments, is 10% or more of the combined revenue of all operating segments. • 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 (ii) the combined reported loss of all operating segments that reported a loss. • Its assets are 10% or more of the combined assets of all operating segments. Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the financial statements. 21 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business (continue) Commercial Corporate Group Development Banking Capital and and Business and structured Inter-segment Total Insurance Total Banking2 Investment2 eliminations1 Bank Operations3 Group Group – 2021 R'000 R'000 R'000 R'000 R'000 R'000 Statement of profit or loss and other comprehensive income Net interest income/(expense) 66 501 96 069 – 162 570 4 992 167 562 Interest income 2 427 654 801 738 – 3 229 393 5 429 3 234 822 Interest expense (2 361 153) (705 669) – (3 066 823) (437) (3 067 260) Impairment releases/(charges) on loans and advances (79 765) (243 800) – (323 565) – (323 565) Total income/(loss) from lending activities (13 264) (147 732) – (160 995) 4 992 (156 003) Non-interest expense (299 586) 2 208 – (297 378) (3 956) (301 334) Non-interest income 20 116 25 272 30 838 76 226 7 998 84 224 Operating income/(loss) from banking activities (292 734) (120 252) 30 838 (382 147) 9 034 (373 114) Operating profit from insurance activities – – – – 17 183 17 183 Investment income (6) – 16 049 16 044 53 862 69 906 Interest in Post-retirement Obligation – – (32 444) (32 444) – (32 444) Interest on Lease Liability (1 060) (385) (1 922) (3 367) (17) (3 384) Gains and losses on financial instruments (4 545) (13 725) – (18 270) – (18 270) Fair value loss – – 50 338 50 337 157 558 207 894 Operating income/(loss) (298 346) (134 359) 62 860 (369 848) 237 621 (132 228) 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) (154 852) (386 068) (934 678) 208 971 (725 708) Non-trading and capital items 442 - 30 010 30 456 – 30 456 Net profit/(loss) before indirect taxation (393 310) (154 852) (356 059) (904 221) 208 971 (695 252) Indirect taxation – – (51 856) (51 856) (364) (52 220) Net profit/(loss) (393 310) (154 852) (407 915) (956 077) 208 607 (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 other comprehensive income – – 25 157 25 157 – 25 157 Total comprehensive income/(loss) for the year (393 310) (154 852) (371 569) (919 730) 208 607 (711 124) Land Bank Group 22 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business Statements of Financial Position Commercial Corporate Group Development Banking Capital and and Business and structured Inter–segment Total Insurance Total Banking2 Investment2 eliminations1 Bank Operations3 Group Group – 2021 R'000 R'000 R'000 R'000 R'000 R'000 Assets Segment assets 24 658 740 66 802 190 (53 221 203) 38 239 725 1 925 972 40 165 697 Working capital (incl. net loans and advances) 24 623 745 66 425 563 (54 385 216) 36 664 092 874 421 37 538 513 Investments – 373 524 1 057 780 1 431 304 887 355 2 318 659 Investment properties 31 244 – 63 856 95 100 95 100 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 Intangible assets – – 2 767 2 767 – 2 767 Insurance assets – – – – 164 001 164 001 Liabilities Segment liabilities 27 539 880 7 801 407 1 295 064 36 636 351 943 536 37 579 887 Working capital (incl. funding liabilities) 27 522 379 7 794 637 874 470 36 191 486 654 118 36 845 604 Provisions 10 431 3 107 124 255 137 794 2 663 140 457 Post-retirement obligation – – 284 000 284 000 – 284 000 Lease liabilities 7 070 3 663 12 338 23 071 105 23 176 Insurance liabilities – – – – 286 650 286 650 Includes reconciliation to Group results in terms of IFRS 8. 1 3 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short-term asset and Crop Insurance). 23 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business (continued) Commercial Group Capital Development Corporate and Inter-segment Total Insurance Total Banking Banking eliminations1 Bank Operations3 Group Group – 2020 R'000 R'000 R'000 R'000 R'000 R'000 Statement of profit or loss and other comprehensive income Net interest income (expense) 249 268 133 830 – 383 098 4 316 387 414 Interest income 3 387 785 1 071 828 – 4 459 613 6 131 4 465 744 Interest expense (3 138 517) (937 998) – (4 076 515) (1 815) (4 078 330) Impairment releases/(charges) on loans and advances 113 398 (181 386) (67 988) – (67 988) Total income/(loss) from lending activities 362 666 (47 555) – 315 110 4 316 319 426 Non-interest (expense) (359 345) – 2 136 (357 209) (4 668) (361 877) Non-interest income 26 218 44 477 22 895 93 589 5 818 99 407 Operating income/(loss) from banking activities 29 538 (3 078) 25 031 51 490 5 466 56 956 Operating profit from insurance activities – – – – (20 632) (20 632) Investment income – 4 007 310 237 314 243 (223 105) 91 138 Interest in Post-retirement Obligation – – (26 672) (26 672) – (26 672) Interest on Lease Liability (1 639) (130) (3 449) (5 217) (31) (5 248) Gains and losses on financial instruments (24 025) (23 216) – (47 240) – (47 240) Fair value loss (2) – (21 712) (21 714) (120 754) (142 468) Operating income/(loss) 3 873 (22 417) 283 434 264 891 (359 056) (94 165) Operating expenses (31 971) (1 948) (220 033) (253 952) (9 170) (263 122) Staff costs (80 394) (24 120) (284 214) (388 729) (14 838) (403 567) Depreciation and amortisation (7 206) (1 526) (28 580) (37 312) (220) (37 532) Net operating (loss)/income (115 699) (50 011) (249 393) (415 102) (383 284) (798 387) Non-trading and capital items (1) (10) (40 940) (40 951) – (40 951) Net profit/(loss) before indirect taxation (115 700) (50 021) (290 333) (456 053) (383 284) (839 337) Indirect taxation – – (65 622) (65 622) (142) (65 764) Net profit/(loss) (115 700) (50 021) (355 956) (521 676) (383 426) (905 101) Other comprehensive income Actuarial losses on the post-retirement obligation – – 22 800 22 800 – 22 800 Revaluation of land and buildings – – 1 122 1 122 – 1 122 Cash flow hedges: gains on cash flow hedging instruments – – – – – – Profit on financial assets at fair value through other comprehensive income – – (702 728) (702 728) – (702 728) Total comprehensive income/(loss) for the year (115 700) (50 021) (1 034 761) (1 200 482) (383 426) (1 583 907) Land Bank Group 24 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business (continued) Commercial Corporate Group Development and Banking Capital and Business and structured Inter–segment Total Insurance Total Banking2 Investment2 eliminations1 Bank Operations3 Group Group – 2020 R'000 R'000 R'000 R'000 R'000 R'000 Statements of Financial Position Assets Segment assets 9 236 217 45 855 746 (12 588 726) 42 503 240 1 566 363 44 069 605 Working capital (incl. net loans and advances) 9 193 201 45 312 436 (13 625 649) 40 879 992 824 479 41 704 471 Investments - 538 524 880 022 1 418 546 729 677 2 148 223 Investment properties 31 244 - (16 244) 15 000 - 15 000 Property and equipment 11 772 4 786 59 989 76 546 421 76 967 Non-current assets held-for-sale - - 105 112 105 112 – 105 112 Intangible assets - - 8 044 8 044 – 8 044 Insurance assets - - - - 11 786 11 786 Liabilities Segment liabilities 31 691 805 9 717 075 1 571 257 42 980 134 792 532 43 772 664 Working capital (incl. funding liabilities) 31 670 702 9 710 285 873 709 42 254 692 509 874 42 764 566 Provisions 5 530 1 721 382 494 389 744 815 390 559 Post-retirement obligation - - 285 362 285 362 - 285 362 Lease liabilities 15 573 5 069 29 692 50 335 274.61 50 609 Insurance liabilities - - - - 281 568 281 568 Includes reconciliation to Group results in terms of IFRS 8. 1 3 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short-term asset and Crop Insurance). 25 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business (continued) Segmental information The Group’s reportable operating segments are strategic business units that offer products to various classes of clients. These are managed separately since each segment requires different marketing and technical strategies to service a client base with unique needs. The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies. 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 2021. The identified reportable segments are in a manner in which the Group’s businesses are managed and reported to the Chief Operating Decision Maker (CODM). Segmental reporting geographic 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 according to the client’s location. 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. Impairment Operating Interest Interest Net interest (charges)/ releases, Non-interest income from insurance income expense income claims and recoveries income/ (expense) activities R’000 R’000 R’000 R’000 R’000 R’000 Group – 2021 Statement of profit or loss and other comprehensive income Northern region 2 765 481 (2 497 233) 268 248 (9 287) (245 885) 17 183 Southern region 469 341 (570 026) (100 685) (314 278) 28 775 – Continuing operations 3 234 822 (3 067 260) (167 562) (323 565) (217 110) 17 183 Discontinued operation – LDFU – – – – – – 3 234 822 (3 067 260) (167 562) (323 565) (217 110) 17 183 Details on Other Comprehensive Income are disclosed under the Business Segment 1 Land Bank Group 26 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Fair value gains, Operating expenses and investment income and indirect taxes excluding Interest on Total non-trading and capital depreciation and Post Retirement Depreciation and Net profit/ Other comprehensive items amortisation Medical Aid and Lease amortisation Staff costs (loss) Comprehensive income R’000 R’000 Liability R’000 R’000 R’000 Income R’000 304 145 (199 514) (34 722) (27 734) (357 306) (284 872) 36 347 (248 526) (14 157) (4 993) (1 102) (5 493) (50 665) (462 599) – (462 599) 289 985 (204 508) (35 825) (33 226) (407 971) (747 471) 36 347 (711 124) – – – – – – – – 289 985 (204 508) (35 825) (33 226) (407 971) (747 471) 36 347 (711 124) 27 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business (continued) Non-current assets held-for-sale, investments, intangible assets, investment properties and Working Capital (incl. loans property and and Total equipment advances assets Statements 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 Continuing operations 2 627 186 37 538 515 40 165 698 Discontinued operation – LDFU – – – 2 627 186 37 538 515 40 165 698 Land Bank Group 28 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting business Working Capital (incl. funding) Other liabilities Total 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 Insurance operations - - - Continuing operations 36 845 604 734 283 37 579 887 Discontinued operation – LDFU - - - 36 845 604 734 283 37 579 887 29 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment reporting geographic Impairment (charges)/ Operating releases, Non-interest income from Interest Interest Net interest claims and income/ insurance income expense income recoveries (expense) activities R’000 R’000 R’000 R’000 R’000 R’000 Group – 2020 Statement of profit or loss and other comprehensive income Northern region 3 774 809 (3 496 096) 278 713 179 197 (287 595) (20 632) Southern region 690 936 (582 235) 108 701 (247 187) 25 125 – Total operations 4 465 744 (4 078 330) 387 414 (67 988) (262 470) (20 632) Land Bank Group 30 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment Reporting Geographic (continued) Fair value gains, Operating investment expenses and income and indirect taxes Interest on non-trading excluding post-retirement Total and capital depreciation and Medical Aid Depreciation and Net profit/ Other comprehensive items amortisation and Lease amortisation Staff costs (loss) Comprehensive income R’000 R’000 Liability R’000 R’000 R’000 Income R’000 (139 521) (319 105) (30 790) (31 902) (351 839) (723 471) (678 806) (1 402 277) 0.02 (9 782) (1 131) (5 631) (51 726) (181 630) – (181 630) (139 522) (328 887) (31 920) (37 532) (403 566) (905 102) (678 806) (1 583 907) 31 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Segment Reporting Geographic (continued) Non-current assets held-for-sale, investments, intangible assets, investment properties and Working Capital (incl. loans property and equipment and advances Total assets Group – 2020 R’000 R’000 R’000 Statements of Financial Position Assets Northern region 2 346 554 42 952 761 45 299 315 Southern region 18 579 (1 248 288) (1 229 710) Total operations 2 365 131 41 704 472 44 069 605 Working Capital (incl. funding) Other liabilities Total liabilities R’000 R’000 R’000 Liabilities Northern region 33 157 597 991 290 34 148 888 Southern region 9 606 969 16 808 9 623 777 Total operations 42 764 566 1 008 098 43 772 664 Land Bank Group 32 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Corporate information • Financial instruments held at fair value through profit or The Board anticipates that the new standards, amendments loss; and interpretations will be adopted in the Group’s consolidated • Financial instruments designated at fair value through profit financial statements when they become effective. The Group 1. Basis of preparation or loss; has assessed, where practicable, the potential impact of all these • Derivative financial instruments; new standards, amendments and interpretations that will be The consolidated and separate financial statements have been • Equity investments; effective in future periods. prepared in accordance with IFRS (with consent from the • Land and buildings; National Treasury for all Schedule 2 public entities) and the • Post-retirement medical aid benefit investment; and 3.1 New standards and interpretations not yet adopted interpretations issued by the International Financial Reporting • Funeral benefit and post-retirement medical aid liability. Interpretations Committee (IFRIC), applying the accrual basis of The Group has assessed, where practicable, the potential impact accounting, the going-concern principle, and using the historical- The methods used to measure fair values are detailed in notes of all these new standards, amendments and interpretations that cost basis, except where specifically indicated otherwise in the will be effective in future periods. accounting policies. A summary of significant accounting policies 2.1 Functional and presentation currency is set out in note 3. IAS 1 amendments on classification 01-Jan-22 The preparation of financial statements in accordance with The consolidated and separate financial statements are presented IFRS 17 Insurance Contracts 01-Jan-23 IFRS requires the use of certain critical accounting estimates in South African Rand, which is the Group’s functional currency. Interest Rate Benchmark Reform Phase 1 01-Jan-21 and assumptions. It also requires management to exercise its All financial information presented in Rand are rounded to the IFRS 16 amendment 01-Apr-21 judgement in the process of applying the Group’s accounting nearest thousand (R’000), unless otherwise stated. 2018-2020 annual improvements cycle 01-Jan-22 policies. The notes to the financial statements set out areas IAS 8 amendments on accounting estimates 01-Jan-23 involving a higher degree of judgement or complexity, or 2.2 Distinction between current and non-current IAS 1 Disclosure of accounting policies 01-Jan-23 areas where assumptions and estimates are significant to the IAS 12 Deferred tax related to assets and consolidated Group and bank financial statements.These policies The Group presents the assets and liabilities in decreasing liabilities arising from a single transaction 01-Jan-23 have been consistently applied to all the years presented, unless order of liquidity as it provides information that is more reliable and relevant than a current/non-current presentation because IAS 1 amendments on classification otherwise stated. the Group does not supply goods or services within a clearly The International Accounting Standards Board (IASB) has issued The financial statements are prepared on the basis of the identifiable operating cycle. In addition, other similar financial ‘Classification of Liabilities as Current or Non-current accounting policies applicable to a going-concern. This basis institutions also provide the information in this manner, and hence it is more comparable. (Amendments to IAS 1)’ providing a more general approach to presumes that the Land Bank will continue to receive the the classification of liabilities under IAS 1 based on the contractual support of its Shareholder and that the realisation of assets 3. Summary of significant accounting policies arrangements in place at the reporting date. The amendments in and settlement of liabilities will occur in the ordinary course of Classification of Liabilities as Current or Non-current business. Full disclosure relating to the Directors’ going-concern assessment can be found in Note 3.3. The Group has not applied the following new, revised or (Amendments to IAS 1) affect only the presentation of liabilities amended pronouncements that have been issued by the in the Statements of Financial Position — not the amount or The Annual Financial Statements have been prepared on the International Accounting Standard Board (IASB) as they are timing of recognition of any asset, liability income or expenses, historical cost basis, except for the following items, which were not yet effective for the financial year beginning 1 April 2020. or the information that entities disclose about those items. measured at fair value: 33 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies 3.1 New standards and interpretations not yet adopted − A specific adaption for contracts with direct participation FRS 16 amendment (continued) features (“the variable fee approach”); and On 27 August 2020, the IASB issued ‘Interest Rate Benchmark − A simplified approach (“the premium allocation approach”) Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, • Clarify that the classification of liabilities as current or non- mainly for short-duration contracts. IFRS 4 and IFRS 16)’ with amendments that address issues that current should be based on rights that are in existence at might affect financial reporting after the reform of an interest the end of the reporting period and align the wording in The implementation of IFRS 17 will have different financial rate benchmark, including its replacement with alternative all affected paragraphs to refer to the “”right”” to defer and operational implications for each entity that adopts the benchmark rates. The amendments are effective for annual settlement by at least twelve months and make explicit that standard. It is, however, expected that fundamental changes will periods beginning on or after 1 January 2021. The amendments only rights in place “”at the end of the reporting period”” be required in the following areas: are not expected to have a material impact on the Group. should affect the classification of a liability; − Liability measurement 2018-2020 annual improvements cycle • Clarify that classification is unaffected by expectations − Data requirements On 14 May 2020, the IASB issued ‘Annual Improvements to about whether an entity will exercise its right to defer − Operations and the underlying systems IFRS Standards 2018–2020’. The pronouncement contains settlement of a liability; and − Management reporting amendments to four International Financial Reporting Standards (IFRSs) as result of the IASB’s annual improvements project. • Make clear that settlement refers to the transfer to the The standard will be applied retrospectively. The impact on the The amendments are effective for annual reporting periods counterparty of cash, equity instruments, other assets Annual Financial Statements has not yet been fully determined. beginning on or after 1 January 2022. or services. The amendment is not expected to have a The Group will commence assessing the impact of IFRS 17 in material impact on the Group. 2022 financial year. IFRS 9, Financial Instruments Fees in the ‘10 per cent’ test for derecognition of financial IFRS 17 Insurance contracts Interest Rate Benchmark Reform Phase 2 amendments liabilities. The amendment clarifies which fees an entity includes IFRS 17 Insurance Contracts was issued in May 2017 and will be On 27 August 2020, the IASB issued ‘Interest Rate Benchmark when it applies the ‘10 per cent’ test in paragraph B3.3.6 of effective for annual periods beginning on or after 1 January 2023. Reform — Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 9 in assessing whether to derecognise a financial liability. The previous IFRS Standard on insurance contracts, IFRS 4, was IFRS 4 and IFRS 16)’ with amendments that address issues that An entity includes only fees paid or received between the entity an interim standard that allowed entities to use a wide variety of might affect financial reporting after the reform of an interest (the borrower) and the lender, including fees paid or received accounting practices for insurance contracts, reflecting national rate benchmark, including its replacement with alternative by either the entity or the lender on the other’s behalf. accounting requirements and variations of those requirements. benchmark rates. The amendments are effective for annual In contrast to the requirements of IFRS 4, IFRS 17 provides a periods beginning on or after 1 January 2021. The amendments IFRS 16, Leases comprehensive model for insurance contracts, covering all are not expected to have a material impact on the Group. Lease incentives. The amendment to Illustrative Example relevant accounting aspects. 13 accompanying IFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by IFRS 17 applies to all types of insurance contracts (i.e. life, non- the lessor in order to resolve any potential confusion regarding life, direct and reinsurance), regardless of the type of entity the treatment of lease incentives that might arise because of that issue these contracts. The General Model (also referred how lease incentives are illustrated in that example. to as building block approach) forms the core of IFRS 17. It is supplemented by: Land Bank Group 34 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies IAS 8 amendments on accounting estimates applying specific hedge accounting requirements to hedging de-facto standstill on capital and interest payments to its funders. On 12 February 2021, the IASB issued Definition of Accounting relationships directly affected by IBOR reform. The Bank appointed legal and corporate finance advisors Estimates (Amendments to IAS 8) to help entities to distinguish to support the process of turning the organisation around. between accounting policies and accounting estimates. The This amendment will benefit the Group by allowing hedging Solutions comprising the emergency liquidity funding solution, amendments are effective for annual periods beginning on relationships to continue upon the replacement of an existing liability solution, equity solution as well as the review of the or after 1 January 2023. The impact on the Annual Financial interest rate benchmark with a Risk Free Rate (RFR). These Land Bank’s repurposing strategy and the operating model were Statements has not yet been fully determined. The Group will amendments had no impact on the consolidated financial undertaken. With the exception of the liability solution which is commence assessing the impact in 2022 financial year. statements of the Group. still in progress, the other solutions have been concluded and implemented or being implemented in the case of Land Bank IAS 1 Disclosure of accounting policies IFRS 3 Business Combinations (amendment) repurposing strategy. On 12 February 2021, the IASB issued Disclosure of Accounting The amendments clarify the definition of a business, with Policies (Amendments to IAS 1 and IFRS Practice Statement the objective of assisting entities to determine whether a As with the previous years, Land Bank has remained under 2) with amendments that are intended to help prepares in transaction should be accounted for as a business combination capitalised. The Bank, as a specialist Development Finance deciding which accounting policies to disclose in their financial or as an asset acquisition. Institution whose business is concentrated in the agricultural statements. The amendments are effective for annual periods sector and acknowledges the challenging operating conditions beginning on or after 1 January 2023.The Group will commence The amended definition emphasises that the output of a business that were faced by the agricultural sector over a period of years. assessing the impact in 2022 financial year. is to provide goods and services to customers, whereas the Sustained droughts, uncharacteristic hail in usually hail-free areas, previous definition focused on returns in the form of dividends, and increased frequency of disease outbursts has disrupted the IAS 12 Deferred tax related to assets and liabilities arising from lower costs or other economic benefits to investors and others. ability of the Bank’s customers to repay their loans. In addition, a single transaction declining capital buffers that challenged its ability to meet On 7 May 2021, the IASB issued Deferred Tax related to Assets There were no business combinations that took place during some loan covenants while fulfilling its developmental mandate and Liabilities arising from a Single Transaction (Amendments the current financial year. These amendments had no impact and related loan growth targets. The sovereign downgrade to IAS 12) that clarify how companies account for deferred tax on the consolidated financial statements of the Group, but may downgrades of South Africa. All these challenges weakened the on transactions such as leases and decommissioning obligations. impact future periods should the Group enter into any business Land Bank’s standalone credit profile.This hampered Land Bank’s The amendments are effective for annual periods beginning on combinations as the amendment is applied prospectively. ability to raise funding in the market and this combines with the or after 1 January 2023.The Group will commence assessing the funding structure of the Bank which was around 40% short- impact in 2022 financial year. 3.3 Going-concern term at the time and therefore requiring constant refinancing resulted in the Bank defaulting on its obligations. 3.2 New standards and interpretations adopted In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider Interest Rate Benchmark Reform Phase 1 whether the Group can continue in operational existence for The impact that this standard has on the Group in the current the foreseeable future. year is minimal. This amendment is meant to provide relief in connection with IBOR(Interbank offered rates). Phase 1 Towards the end of April 2020, the Land Bank experienced a considers reliefs to hedge accounting in the period before liquidity shortfall, which resulted in the Bank defaulting on some the reform. These amendments provide temporary relief from of its obligations. This triggered a cross default and resulted in 35 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies 3.3 Going-concern (continued) • The Board-led Restructuring Committee that was − The split of the Land Bank in to the Corporate established when the restructuring process started and Commercial (“C&C”) and Developmental and Since the default Land Bank with its advisors and supported continues to provide guidance and support to the Transformation (“D&T”) divisions should be executed by the Shareholder has been working together with the executive management’s efforts to address the liquidity in a holistic manner such that all the assets and lenders towards the implementation of the liability solution challenges, and monitors implementation of crafted liabilities are transferred during the split. A security which requires lenders to commit to this solution which is a solutions to take Land Bank out of its event of default and SPV structure is being put in place to facilitate the prerequisite to the Shareholder for the injection of the amount to reposition the organisation. separation of assets and liabilities to support the C&C of equity appropriated in the Feb 2021 Budget speech. To the • Critical vacancies have been filled. book. extent that this takes place Land Bank is expected to come • The Bank collected over R20 billion from own customers. out of its event of default situation by 31 March 2022. On the • At 31 March, Land Bank Group had a cash balance of − Land Bank must provide National Treasury with the going-concern the most significant factor is that Lenders have R5.8 billion, compared to R0.5 billion at 31 March 2020. anticipated report from the independent review not taken any legal action and remain in a de facto standstill in • The Bank continues to operate. work which confirms that an appropriate split of terms of capital repayments due to them, with the exception • Interest on funding liabilities continues to be serviced. the C&C and D&T net assets and liabilities as at 31 of one, who was fully settled on the 1 April 2021. The liability • Capital repayments totalling R4.1 billion have been made March 2021, has been carried out. This will include solution is planned to be concluded by the end of March 2022. towards reduction of funding liabilities. the review of both the C&C and D&T models as per The commitment agreements are planned to be signed by the • Successful completion of the independent review of the the four work-streams stated in the approved and end of January 2022 with the lenders. The Bank continues to Land Bank credit models by EY commissioned by the published tender document.The Independent Review work with all lenders to negotiate the terms of the commitment lenders. No material misstatements were identified by the report has been provided to National Treasury. agreement, and reach an amicable solution to cure the default.. independent reviewer. • The repurposing of the Bank in line with its mandate is − Land Bank must furnish an independent confirmation Land Bank resumed servicing of interest on funding liabilities being implemented. from the Auditor-General as part of their audit report during August 2020.The de-facto standstill on capital repayments • In addition to the R3 billion equity injection during for 31 March 2021, that Land Bank is in compliance however still ensues. September 2020, the Shareholder has appropriated with Section 38(1)(j) of the PFMA. The FY2021 Audit R7 billion over the FY2022 medium-term period, to is being concluded by the AGSA. The audit report will Land Bank received a Disclaimer of Opinion audit outcome recapitalise the Bank. The next anticipated capital injection be provided to National Treasury. from the AGSA on the 2020 Financial Year Audit. The Group has certain equity conditions attached to it as follows: recorded a net loss of R0,7 billion (2020: R0,9 billion) for the − The Land Bank must enter into commitment agreements − The R5 billion equity transfer must be used to support year ended 31 March 2021. with its funders, supporting the implementation of the current and future D&T activities of Land Bank with Liability Solution, by end of November 2021. Such R500 million being set aside upfront for use in Land Despite the above challenges, the Bank’s business and operational agreements must be on terms acceptable to National Bank’s approach to funding new developmental fundamentals remain strong, and further measures have been Treasury and must give effect to Liability Solution 3 farming activities. The R5 billion is being utilised to adopted to manage the Bank’s financial sustainability and credit as set out in the presentations made to lenders and facilitate the separation of the Land Bank into the worthiness. In the last number of months since the default the must be signed by no later than 30 November 2021. C&C and D&T divisions on a basis that will allow Land Bank has achieved and the following: Land Bank has since requested an extension from The Bank to continue to operate the D&T division. Liability Minister of Finance for the commitment agreements to Solution Three contemplates funding being set aside be finalised by 31 January 2021. to facilitate new disbursements to D&T customers. Land Bank Group 36 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies − The R1 billion equity transfer expected in FY 2023 − In consideration of the above, kindly ensure that there The Group applies the acquisition method to account for and FY 2024, respectively, must be used to repay all is no section in the legal agreements to be entered business combinations. The consideration transferred for government guarantee debt, that is debt guaranteed into with Land Bank’s funders that seeks to contradict the acquisition of a subsidiary is the fair values of the assets by the Republic of South Africa. The creditors holding the above-mentioned equity conditions. transferred, the liabilities incurred to the former owners of the guaranteed debt will be part of the D&T Division, the acquiree and the equity interests issued by the Group. The and they will be repaid out of the equity transfers − All agreements will be reviewed for contradictions consideration transferred includes the fair value of any asset or expected in 2023 and 2024. and National Treasury will review the agreement suite. liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities − Given that approval was granted that South African • A remedial plan to address deficiencies identified by the assumed in a business combination are measured initially at their funders could have recourse, on a limited basis, back Auditor-General of South Africa, has been implemented value at the acquisition date. to the D&T assets of Land Bank should a shortfall and concluded. The remedial process was overseen by the occur on repaying debt from winding down and Audit and Finance Committee of the Board. The Group recognise any non-controlling interest in the acquirer selling-off the C&C loan book (what is termed as “tail on an acquisition-by-acquisition basis, either at fair value or at the risk”), provision must be made for an upfront agreed The Directors are of the view that the initiatives reflected above non-controlling interest proportionate share of the recognised amount to be made available for this purpose and the will ensure Land Bank meets the going-concern requirement in amounts of acquiree identifiable net assets. additional conditions included in the letter dated 14 the foreseeable future, being 12 months from the approval of June 2021 from the Minister of Finance need to be these Annual Financial Statements. Given already received and Consolidated financial statements comprise the financial complied with, namely: expected capital injections from National Treasury as well as statements of the Land Bank and its subsidiaries, LBLIC and LBIC current cash sources available, Land Bank is expected to have as at 31 March 2021. • Any such claim may only be brought once all the current a surplus of available cash resources to be able to meet its D&T lenders have been repaid in full; liquidity requirements. The financial statements of LBLIC and LBIC are prepared for the • The quantum of assets that can be claimed from the D&T same reporting year as Land Bank, using consistent accounting division following the materialisation of the tail risk must be 3.4 Business combinations policies. Furthermore, the Annual Financial Statements have limited so as not to threaten the future sustainability of the been prepared in accordance with the requirements of both D&T division; Subsidiaries are all entities (including structured entities) over the Short- and Long-term Insurance Acts respectively. • No interference from funders in the operations and which the Bank has control. The Group controls an entity when decision making of the D&T division; and the Group is exposed to, or has rights to, variable returns from • Any other risk that could materialise under this option its involvement with the entity and has the ability to affect that threatens the future sustainability of the D&T those returns. Subsidiaries are fully consolidated from the division must be limited. date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Liability Solution Three has been structured specifically to address each of these items. Any additional tail risk support will be provided only to the extent that the D&T book continues and only to the extent that Land Bank remains viable post the granting of such support. 37 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies 3.5 Critical accounting judgements and key sources of require management to make estimates. Changes in assumptions Decrements estimation uncertainty about these factors could affect the reported fair value of Assumptions with regard to future mortality and lapse rates financial instruments. are consistent with the experience for the five years up to The preparation of financial statements in conformity with IFRS the current financial year-end. Mortality rates are adjusted to requires management to make certain estimates, assumptions and (i) Unlisted investments allow for expected deterioration in mortality rates as a result judgements that affect the reported amounts of assets, liabilities, The valuation of unlisted shares, as applied by the company’s of AIDS. revenue and expenses as well as the disclosure of contingent asset managers, comply with International Private Equity and liabilities. Actual results could differ from such estimates. Estimates Venture Capital Valuation guidelines.Various valuation techniques (iii) Policy liabilities in respect of short-term insurance and judgements are continually evaluated and are based on are used to arrive at the fair value of investments, including: contracts One of the purposes of insurance is to enable policyholders to historical experience and other factors, including expectations – Price of recent investment; protect themselves against uncertain future events. Insurance of future events that are believed to be reasonable under the – Earnings multiple; companies accept the transfer of uncertainty from policyholders circumstances. The most significant judgements and estimates are – Net assets; and seek to add value through the aggregation and management summarised below: – Discounted cash flows; of these risks. The uncertainty inherent in insurance is inevitably – Industry benchmarks; and reflected in the financial statements of the Group, principally in (1) Impairment losses on loans and advances – Available market prices. respect of the insurance liabilities of the Group. At each reporting date, the Group assesses whether there has been a significant increase in credit risk for financial assets (ii) Policy liabilities in respect of long-term insurance Insurance liabilities include the provisions for unearned premiums, since initial recognition by comparing the credit risk of default contracts unexpired risk, and outstanding claims and incurred but not reported occurring over the expected life between the reporting Date The following process is followed to determine the valuation (IBNR) claims. Unearned premiums represent the amount of income 31 March 2021 and the of initial recognition. In determining assumptions: set aside by the Group to cover the cost of claims that may arise whether credit risk has increased significantly since initial during the unexpired period of risk of insurance policies in force at the recognition, the Group uses its internal credit risk grading – Determine the best estimate for a particular assumption; Statements of Financial Position date. At each Statements of Financial system, external risk ratings and forecast information to assess – Prescribed margins are then applied; and Position date, an assessment is made of whether the provisions deterioration in the credit quality of a financial asset. Please –  Discretionary margins may be applied as required by the for unearned premiums are adequate. When it is anticipated that refer to note 38 for more details. valuation methodology or if the statutory actuary considers such unearned premiums will be insufficient to cover anticipated costs and margins necessary to cover the risks inherent in the contracts. fees, unexpired risk is also set aside. (2) Fair value of financial instruments The fair value of financial instruments that are not quoted in The best estimate of future experience is determined as follows: Outstanding claims represent the Group’s estimate of the cost active markets are determined by using valuation techniques. of settlement of claims that have occurred by the Statements of Where valuation techniques are used to determine fair values, Investment return Financial Position date, but that have not yet been finally settled. the valuation models are validated and periodically reviewed by Future investment return assumptions are derived from market- In addition to the inherent uncertainty of having to provide for qualified personnel independent of the area that created them. related interest rates on fixed-interest securities with adjustments future events, there is also considerable uncertainty concerning All models are calibrated to ensure that outputs reflect actual for the other asset classes. The appropriate asset composition of the eventual outcome of claims that have occurred but had not data and comparative market prices. To the extent practical, the various asset portfolios, investment management expenses yet been reported to the insurer by the Statements of Financial models use only observable data, however, areas such as credit and charges for investment guarantees are taken into account. Position date. risk (both own and counterparty), volatilities and correlations Land Bank Group 38 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Process to determine significant assumptions Claims incurred but not reported (IBNR) peril” and “horticulture” is calculated according to the claims Insurance risks are unpredictable and the Group recognises The policyholders’ liabilities include a provision for the expected occurring patterns based on an historic claims analysis of claims that it is not always possible to forecast, with absolute precision, cost of IBNR claims. This relates to claims expected to be made incurred. In the prior reporting period, crops written through future claims payable under existing insurance contracts. by policyholders in respect of events that occurred before the the reinsurance agreement were released according to the Using historical data, the insurance companies aim to establish financial year end but that have not yet been reported to the remaining days method over the period of the reinsurance provisions that have an above average likelihood of being Group by year end. The IBNR is not discounted due to the treaty. This is a prospective change with the change in the adequate to settle all contractual insurance obligations. short-term nature of IBNR claims on crop policies. For short- nature of the underlying transaction from a reinsurance term business, the incurred but not reported reserve (IBNR) agreement to an underwriting management agreement. Outstanding claims is based on the minimum requirements of the Insurance Act Claim provisions are determined based upon previous claims of 2017, as required by the Financial Sector Conduct Authority At each Statements of Financial Position date, an assessment experience, knowledge of events, the terms and conditions of (FSCA) Board, previously FSB Board Notice 169 issued on 28 is made of whether the provisions for unearned premium are the relevant policies and on interpretation of circumstances. October 2011 and effective for the year ends after January 1, adequate. If the premium level is deemed to be insufficient Each notified claim is assessed on a separate case-by-case basis 2012. In line with this computation, premiums in different classes based on information available at the Statements of Financial with due regard to the specific circumstances, information of business for the last six financial years are multiplied by an Position date, to cover the anticipated claims and operating available from the insured and/or loss adjuster and experience industry wide historical claims development factors introduced expenses, a separate provision is made for any estimated with similar cases. The Group’s estimates for outstanding claims separately and the outcomes are added up. The Group future underwriting losses relating to unexpired risks. This are continually reviewed and updated as future developments underwrites crop insurance under the property class as well assessment includes estimates of future claims frequency and take place and better information becomes available regarding as agri-asset reinsurance inwards, cover under the motor and other factors affecting the need for a provision for unexpired the current circumstances. The ultimate cost of the claim may property classes. A separate calculation is carried out to calculate risk and performed annually. therefore vary from this initial estimate. Adjustments resulting the reinsurance portion of the IBNR reserve. through this review are reflected in the Statement of Profit or The provision for unearned premiums are first determined Loss and Other Comprehensive Income as and when identified. The calculation of insurance liabilities is an inherently uncertain on a gross level and thereafter the reinsurance impact is process.The company seeks to provide adequate levels of insurance recognised based on the relevant reinsurance contract. The provision for outstanding claims is initially estimated at a provisions by taking into account all know facts and experience Deferred acquisition costs and reinsurance commission gross level. A separate calculation is carried out to estimate from a variety of sources as well as statutory requirements. revenue is recognised on the 365th basis over the term of reinsurance recoveries.The calculation of reinsurance recoveries the policy. considers the type of risk underwritten, the year in which the Premium provisions – short-term loss claim occurred and under which reinsurance programme The Group raises provisions for unearned premiums on a the recovery will be made as well as the size of the claim, and basis that reflects the underlying risk profile of its insurance 3) Depreciation rates, methods and residual values whether there will be a stop loss recovery based on the overall contracts. An unearned premium provision is created at the Depreciation rates, depreciation methods adopted and loss ratio of the portfolio. commencement of each insurance contract and is released residual values of assets requires judgements and estimates as the risk covered by the contract expires according to the to be made. Changes in estimates are disclosed in the remaining days method for the assets and winter crop policies. relevant notes where applicable. In the current reporting period, for the new crop policies written through the underwriting management agreement, the unearned premium for “summer hail”, “summer multi- 39 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies 3.5 Critical accounting judgements and key sources of IFRS 15 Revenue from contracts with customers dividend and interest income. These surpluses are recognised estimation uncertainty (continued) The Group is able to identify the contract when both the client in the Statement of Profit or Loss and Other Comprehensive and the Group have accepted the terms of the agreement. Income on the date of sale or upon valuation to fair value. (4) Post-employment medical benefits The contract will also identify all the services (performance The cost of defined benefit post-employment medical benefits obligations) the Group will render to the client. Based on this, (iv) Rental income as well as the present value of the post-retirement medical aid the transaction price is allocated to each identified performance Rental income arising from operating leases on investment obligation is determined using actuarial valuations. The actuarial obligation. The Group recognises the revenue once the properties is accounted for on a straight-line basis over the lease valuation involves making assumptions about discount rates, performance obligation is satisfied, which may occur over time term and is recorded in the Statement of Profit or Loss and expected rates of return of assets, future salary increases, or at a point in time. Other Comprehensive Income in ‘Non-interest income’. mortality rates and medical cost trends. All assumptions are reviewed at each reporting date. (i) Fee and commission income (v) Realised gains and losses Fees and other income which are integral to the effective interest The realised gain or loss on disposal of an investment is the (5) Management expense provisions and accruals rate on a financial asset are included in the measurement of the difference between the proceeds received, net of transaction At each Statements of Financial Position date, the Group effective interest rate. costs, and its original cost or amortised cost as appropriate might be exposed to various liabilities of uncertain timing or and is recorded in the Statement of Profit or Loss and Other amount. Such liabilities are provided for if a present obligation Other fee income, including account servicing fees, investment Comprehensive Income. has arisen, payment is probable and the amount can be reliably management fees, sales commission, placement fees and estimated. Management uses its discretion to estimate the syndication fees, is recognised as the related services are (vi) Unrealised gains and losses expenditure required to settle the present obligation as at performed. When a loan commitment is not expected to Unrealised gains or losses represent the difference between the year-end, i.e. the amount that the Group would rationally pay result in the drawdown of a loan, loan commitment fees are carrying value at the year end and the carrying value at the to settle the obligation. recognised on a straight-line basis over the commitment period. previous year end or purchase value during the year, less the reversal of previously recognised unrealised gains and losses in 3.6 Revenue recognition (ii) Dividend income respect of disposals during the year and is recognised in the Dividends are recognised in the period when the shareholders’ Statement of Profit or Loss and Other Comprehensive Income. Interest income right to receive payment is established. (vii) Insurance premium income In terms of IFRS 9 interest income is recognised in profit or Dividend income from financial assets classified at fair value Refer to note 3.20. loss using the effective-interest method taking into account through profit or loss is recognised on the last date to register. the expected timing and amount of cash flows. The effective- Preference share dividends are recognised using the effective 3.7 Expenses interest method is a method of calculating the amortised interest rate method where preference shares as classified as cost of a financial asset (or Group of financial assets) and of liabilities in accordance with IAS 32. (i) Administration costs allocating the interest income over the relevant period. Interest income include the amortisation of any discount or premium Administration costs on short-term insurance business consist (iii) Investment surpluses of directly attributable costs payable to the underwriter and or other differences between the initial carrying amount of an Investment surpluses consist of net realised gains and losses on are deferred over the period in which the related premiums interest-bearing financial instrument and its amount at maturity the sale of investments and net unrealised fair value gains and are earned. calculated on an effective-interest-rate basis. losses on the valuation of investments at fair value, excluding Land Bank Group 40 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Administration costs that are directly attributable to long-term 3.9 Property, plant and equipment on the revalued carrying amount of the asset charged to the recurring premium insurance policy contracts are recognised statement of comprehensive income, and depreciation based directly to the Statement of Profit or Loss and Other Items of property and equipment are initially recognised at cost on the asset’s original cost is transferred from other reserves to Comprehensive Income. if it is probable that any future economic benefits associated retained earnings. with the items will flow to the Group and they have a cost that (ii) Commission can be measured reliably. The assets’ residual values, useful lives and methods of depreciation Commission is payable to sales staff on long-term and short- are reviewed, and adjusted if appropriate, at each financial year-end. term insurance business. Commission is accounted for on all in- Land and buildings comprise owner occupied property. Land and force policies in the financial period during which it is incurred. buildings are shown at fair value, based on valuations by external Depreciation is provided on the straight-line basis, which, it is The portion of the commission that is directly attributable to independent valuators, less subsequent depreciation for buildings. estimated, will reduce the carrying amount of the property and the acquisition of long-term recurring premium insurance policy Valuations are performed with sufficient regularity to ensure that equipment to their residual values at the end of their useful contracts is recognised directly to the Statement of Profit or the fair value of a revalued asset does not differ materially from lives. Items of property and equipment are depreciated from Loss and Other Comprehensive Income. Acquisition costs for its carrying amount. Any accumulated depreciation at the date of the date that they are installed and available for use. Land is not short-term insurance business is deferred over the period in revaluation is eliminated against the gross carrying amount of the depreciated as it is deemed to have an indefinite life. Where an which the related premiums are earned. asset, and the net amount is restated to the revalued amount of item of property and equipment comprises major components the asset. All other property and equipment is stated at historical with different useful lives, the components are accounted for as 3.8 Fruitless and wasteful and irregular expenditure cost less depreciation. Historical cost includes expenditure that separate items of property and equipment. is directly attributable to the acquisition of the items. Items of expenditure which meet the requirements of the Public The major categories of property and equipment are Finance Management Act (PFMA) for fruitless and wasteful as Subsequent costs are included in the asset’s carrying amount depreciated at the following rates: well as irregular expenditure are separately disclosed in the notes or recognised as a separate asset, as appropriate, only when it to the financial statements. “Fruitless and wasteful expenditure” is probable that future economic benefits associated with the Building 2.5% per annum means expenditure which was made in vain and would have item will flow to the Group and the cost of the item can be Motor vehicles 20% per annum been avoided had reasonable care been exercised. “Irregular measured reliably. The carrying amount of the replaced part is Computer equipment 33.3% per annum expenditure” means expenditure, other than unauthorised derecognised. All other repairs and maintenance are charged Leasehold improvements Equal months in relation to lease expenditure, incurred in contravention of or that is not in to the statement of comprehensive income during the financial period accordance with a requirement of any applicable legislation or period in which they are incurred. Furniture and fittings 20% per annum internal policy. Increases in the carrying amount arising on revaluation of land Items of property and equipment are derecognised on disposal When discovered, irregular expenditure is recognised as an and buildings are credited to other comprehensive income and or when no future economic benefits are expected from their asset in the Statements of Financial Position until such time as shown as Revaluation Reserves in the Statements of Changes use or disposal. The gain or loss on derecognition is recognised in the expenditure is either condoned by the relevant authority, in Equity. Decreases that offset previous increases of the profit or loss and is determined as the difference between the net recovered from the responsible person or written off as same asset are charged in other comprehensive income and disposal proceeds, if any, and the carrying amount of the item. On irrecoverable in the Statement of Profit or Loss and Other debited against Revaluation Reserves directly in equity; all other derecognition any surplus in the revaluation reserve in respect of an Comprehensive Income. decreases are charged to the statement of comprehensive individual item of property and equipment is transferred directly to income. Each year the difference between depreciation based retained earnings in the Statements of Changes in Equity. 41 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies 3.10 Investment property 3.11 Intangible assets Tier 1 asset - Software relating to core business applications for which any change to a different application suite would require Investment properties (properties that are not owner-occupied), An intangible asset is recognised if it is probable that the a significant investment in resources and time. are properties which are held to earn rental income and/ or for expected future economic benefits that are attributable to the capital appreciation. Investment properties are measured initially asset will flow to the Group and the cost of the asset can be Tier 2 asset - Software that is directly integrated with the core at cost, including transaction costs. The carrying amount includes measured reliably. financial systems and additional developments and modules may the cost of replacing part of an existing investment property at have be added. the time that cost is incurred if the recognition criteria are met Intangible assets that are acquired and have finite useful lives are and excludes the costs of day-to-day servicing of an investment initially recognised at cost with subsequent measurement at cost Other - Commodity software. property. Subsequent to initial recognition, investment properties less any accumulated amortisation and any impairment losses. are stated at fair value, which reflects market conditions at the Amortisation methods, useful lives and residual values are reporting date. Gains or losses arising from changes in the fair Intangible assets are derecognised upon disposal or when no reviewed at each financial year end and adjusted if appropriate. values of investment properties are recognised in the statement future economic benefits are expected from its use or disposal. of profit or loss in the period in which they arise. Any gain or loss arising on derecognition of the asset (calculated Item Depreciation method Average useful life as the difference between the net disposal proceeds and the Tier 1 asset Straight line 10 years Investment properties are derecognised either when they carrying amount of the asset) is included in the profit or loss in Tier 2 asset Straight line 5 years have been disposed of or when the investment property is the year the asset is derecognised. Other Straight line 3 years permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between (i) Computer software Impairment of non-financial assets the net disposal proceeds and the carrying amount of the asset Costs associated with maintaining computer software program Intangible and tangible assets that are subject to amortisation is recognised in the Statement of Profit or Loss and Other are recognised as an expense as incurred. Computer software are reviewed for impairment whenever events or changes in Comprehensive Income in the period of derecognition. licence fees are paid for in advance, recognised as a prepayment circumstances indicate that the carrying amount may not be and expensed to the Statement of Profit or Loss and Other recoverable. An impairment loss is recognised for the amount Transfers are made to or from investment property only when Comprehensive Income over the period of the license by which the asset’s carrying amount exceeds its recoverable there is a change in use. For a transfer from investment property agreement. Should the licence agreement extend beyond amount. The recoverable amount is the higher of an asset’s fair to owner occupied property, the deemed cost for subsequent 12 months, the software licence would be capitalised as an value less costs of disposal and value in use. For the purposes accounting is the fair value at the date of change in use. If owner intangible asset and amortised on a straight-line basis over the of assessing impairment, assets are Grouped at the lowest levels occupied property becomes an investment property, the Group period of the licence agreement. for which there are largely independent cash inflows (cash- accounts for such property in accordance with the policy stated generating units). Prior impairments of non- financial assets under property and equipment up to the date of change in use. (ii) Amortisation (other than goodwill) are reviewed for possible reversal at each Owner occupied property is classified as investment property Intangible assets are amortised on a straight-line basis in profit or reporting date. when the owner occupies less than an insignificant portion of loss over their estimated useful lives, from the date that they are the property (less than 50%). This threshold was set due to the available for use. In assessing value in use, the expected future cash flows from Group’s intention to let out any excess office space, which exists the asset are discounted to their present value using a discount at the Group’s properties. The estimated useful lives for the current and comparative years rate that reflects current market assessments of the time value are as follows: Land Bank Group 42 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies of money and the risks specific to the asset. An impairment (i) Amortised cost and effective-interest rate Modification loss is recognised whenever the carrying amount of an asset The amortised cost of a financial instrument is the amount at The Group modifies the terms of the loans provided to its clients exceeds its recoverable amount. which the financial instrument is measured on initial recognition due to commercial renegotiations or in cases of distressed loans, minus principal repayments, plus or minus the cumulative with the aim of maximising recovery. Such restructuring activities A previously recognised impairment loss is reversed if the amortisation using the effective-interest method of any difference include changes in payment frequency, payment date, term, recoverable amount increases as a result of a change in the between the initial contractual amount and the maturity amount, interest rate or consolidation of borrower’s loan agreements estimates used to determine the recoverable amount, but not less any cumulative impairment losses. into a single agreement to mitigate credit risk. to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss The effective-interest rate is the rate that exactly discounts The modified asset is assessed to determine whether it been recognised in prior years. estimated future cash payments or receipts through the constitutes a substantial or non-substantial modification by expected life of the financial asset or financial liability to the considering both quantitative and qualitative features. For 3.12 Financial instruments gross carrying amount of a financial asset (i.e. its amortised cost example, if the present value of the new contractual cash flows before any impairment allowance) or to the amortised cost of discounted using the original effective interest rate, differs by Classification and measurement a financial liability. The calculation does not consider ECLs and 10% when compared to the original contractual cash flows, the Financial assets and financial liabilities are recognised when includes transaction costs, premiums or discounts, fees and Land Bank deems the modification to be substantial and results the entity becomes a party to the contractual terms of the points paid or received that are integral to the effective interest in the de-recognition of the original asset. If the present value is instrument. Regular way purchase and sales of financial assets rate, such as origination fees. below 10% and the qualitative assessment performed does not are recognised on trade date, the date on which the Group deem it so, the Land Bank deems the modification to be non- commits to purchase or sell the asset. When the Group revises the estimates of future cash flows, the substantial and does not result in de- recognition of the original carrying amount of the respective financial asset or financial asset. The modification gain/loss will then be determined. At initial recognition, the Group measures a financial asset or liability is adjusted to reflect the new estimate, discounted using financial liability at its fair value plus or minus, in the case of a the original effective interest rate. Any changes are recognised The gain/loss shall be derived by comparing the present value of the financial asset or financial liability not at fair value through profit in profit or loss. restructured loan (discounted using the original effective interest or loss (FVTPL), transaction costs that are incremental and rate) to the carrying value at time of modification. derecognition. directly attributable to the acquisition or issue of the financial (ii) Fair value asset or financial liability, such as fees and commissions. The fair value of a financial instrument is the amount that would be Financial assets received to sell the asset or paid to transfer a liability in an orderly Debt instruments are measured at amortised cost where they have: Transaction costs of financial assets or financial liabilities transaction between market participants at the measurement date. carried at FVTPL are expensed in profit or loss. Immediately The fair value of instruments that are quoted in an active market − contractual terms that give rise to cash flows on specified after initial recognition, an expected credit loss (ECL) is is determined using quoted prices where they represent those dates, that represent solely payments of principal and recognised for financial assets measured at amortised cost at which regularly and recently occurring transactions take place. interest on the principal amount outstanding; and and investments in debt instruments measured at fair value The Group uses valuation techniques to establish the fair value of −  are held within a business model whose objective is through other comprehensive income (FVOCI), which results instruments where quoted prices in active markets are not available. achieved by holding to collect contractual cash flows. in an accounting loss being recognised in profit or loss when an asset is newly originated. For a detailed discussion of the fair value of financial instruments, refer to note 38. 43 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Financial assets (continued) the fair value of the financial liability that is attributable to changes in The derivative assets and derivative liabilities are offset and the the credit risk of that liability, which is determined as the amount net position is presented in the Statements of Financial Position The Group has classified loans and advances, trade receivables and that is not attributable to changes in market conditions that give as the Group has a legal right to offset the amounts and intends cash at bank as amortised cost.These debt instruments are initially rise to market risk) and partially in profit or loss (the remaining to settle on a net basis. Each swap has the same counterparty recognised at fair value plus directly attributable transaction costs. amount of change in the fair value of the liability). and the “net asset/ liability” is as a result of FVTOCI. Amortised cost is calculated by taking into account any discount  inancial liabilities arising from the transfer of financial assets − F All strategic trading asset and repurchase agreements are or premium on acquisition and fee or costs that are an integral that did not qualify for derecognition, whereby a financial recognised in the Statements of Financial Position at fair value part of the effective interest rate (EIR). The EIR amortisation is liability is recognised for the consideration received for the and are classified as trading. The carrying value of an asset is included in “Net interest income” in the Statement of Profit or transfer. In subsequent periods, the Group recognises any measured at fair value and are disclosed as assets when the fair Loss and Other Comprehensive Income. The losses arising from expenses incurred on the financial liability. value is positive and as liabilities when the fair value is negative. impairment are recognised in the Statement of Profit or Loss and Other Comprehensive Income. − Financial guarantee contracts and loan commitments. (iv) Cash held under investments The “Cash” held under investments is held with the Asset Receivables arising from insurance contracts are also classified (iii) Derivative financial instruments, strategic trading asset Managers (external party) to invest on the Group’s behalf. At in this category and are reviewed for impairment as part of the and hedge accounting various stages as the markets move, the Asset Managers may impairment review of loans and receivables. The Group elected an accounting policy choice under IFRS buy and sell shares and bonds, and would invariably have cash on 9 “Financial Instruments” to apply the hedge accounting hand at certain points in time. This cash is held in the possession Investments in equity instruments requirements under IFRS 9 “Financial Instruments: Recognition of the Asset Managers and is intended to be used for the For equity investments that are held neither for trading nor for and Measurement”. As part of the requirements to apply hedge purpose of purchasing new financial instruments.The cash is not contingent consideration the Group may irrevocably elect to accounting, the Group documents, at the inception of the hedge necessarily available to be used as working capital by the Group present subsequent changes in the fair value of these equity relationship, the relationship between hedging instruments and therefore is not disclosed as “Cash and cash equivalents”. investments in OCI. The cumulative gain or loss previously and hedged items, the risk being hedged, the Group’s risk Please refer to note 7. recognised in OCI is not reclassified from equity to profit or management objective and strategy for undertaking hedge loss. However, it may be reclassified in equity. transactions, and how effectiveness will be measured throughout (v) Derecognition of financial asset the life of the hedge relationship. A financial asset or a portion of a financial asset will be Financial liabilities derecognised and a gain or loss recognised when the Group’s Financial liabilities are classified as subsequently measured at All derivatives are recognised in the Statements of Financial contractual rights expire, financial assets are transferred or amortised cost, except for: Position at fair value and are classified as trading except where financial liabilities are extinguished. On derecognition of a financial they are designated as part of an effective hedge relationship asset or liability, the difference between the consideration and  inancial liabilities at FVTPL: This classification is applied to − F and classified as hedging derivatives. The carrying value of a the carrying amount on the settlement date is included in derivative financial liabilities, financial liabilities held for trading and derivative is measured at fair value throughout the life of the finance charges and fair value movements for the year. other financial liabilities designated as such at initial recognition. contract. Derivatives are disclosed as assets when the fair value is positive and as liabilities when the fair value is negative. The Group’s contractual rights expire, when the financial − FVTPL are presented partially in OCI (the amount of change in assets are transferred or financial liabilities are extinguished. On derecognition of a financial asset or liability, the difference Land Bank Group 44 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Financial liabilities (continued) Continuing involvement that takes the form of a guarantee over Key principles of the Group’s accounting policy for impairment the transferred asset is measured at the lower of the original of financial assets are listed below. between the consideration and the carrying amount on the carrying amount of the asset and the maximum amount of settlement date is included in finance charges and fair value consideration that the Group could be required to repay. The Group assesses at initial recognition of financial assets whether movements for the year. to use a 12-month expected loss approach or a lifetime expected Financial liabilities loss approach in order to calculate its impairment provision. Upon derecognition of equity instruments designated at fair A financial liability is derecognised when the obligation under the value through other comprehensive income, the cumulative fair liability is discharged or cancelled or expires. Where an existing A 12-month expected loss approach is used for the following value gains/ (losses) recognised in other comprehensive income financial liability is replaced by another from the same lender on instruments: is not subsequently recycled to profit or loss. substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification • Purchased or newly originated financial assets that are not Financial assets is treated as a derecognition of the original liability and the credit impaired. A financial asset is derecognised when: recognition of a new liability.The difference between the carrying value of the original financial liability and the consideration paid • A lifetime expected loss approach is used for the following − The rights to receive cash flows from the asset have is recognised in profit or loss. instruments: expired. − The Group has transferred its rights to receive cash flows Impairment of financial instruments Impairment of financial • Purchased or newly originated credit impaired financial assets. from the asset or has assumed an obligation to pay the assets received cash flows in full without material delay to a third At each reporting date, the Group assesses whether there Although some financial assets within the Bank’s portfolio might party under a ‘pass– through’ arrangement; and either: has been a significant increase in credit risk for financial assets meet the definition of low credit risk, the Bank opted not to since initial recognition by comparing the credit risk of default apply this in application of its ECL methodology as given the (i) The Group has transferred substantially all the risks and occurring over the expected life between the reporting date nature of the Bank’s business it is deemed not to be prudent rewards of the asset, or and the initial recognition. In determining whether credit risk not to consider whether a significant increase in credit risk exits. has increased significantly since initial recognisation, the Group (ii) The Group has neither transferred nor retained substantially uses its internal credit risk grading system, external risk ratings For subsequent measurement, the Group applies a three-stage all the risks and rewards of the asset, but has transferred control and forecast information to assess deterioration in the credit approach to measuring expected credit loss (ECL) on debt of the asset. quality of a financial asset. instruments accounted for at amortised cost. Assets migrate through the following three stages based on the change in credit When the Group has transferred its rights to receive cash flows The amount of Expected Credit Loss (ECL) is measured as quality since initial recognition: from an asset or has entered into a pass-through arrangement, and the probability-weighted present value of all cash shortfalls has neither transferred nor retained substantially all the risks and over the expected life of the financial asset discounted at Stage 1: 12-months ECL rewards of the asset nor transferred control of the asset, the asset its original effective interest rate. The cash shortfall is the For exposures where there has not been a significant increase is recognised to the extent of the Group’s involvement in the asset. difference between all contractual cash flows that are due to in credit risk since initial recognition and that are not credit In that case, the Group also recognises an associated liability. The the Group and all the cash flows that the Group expects to impaired upon origination, the portion of the lifetime ECL transferred asset and the associated liability are measured on a basis receive. The amount of the loss is recognised using a provision associate with the probability of default events occurring within that reflects the rights and obligations that the Group has retained. for “Expected Credit Loss account”. the next 12 months is recognised. 45 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Impairment of financial instruments Impairment of financial use of macro-economic factors that which include but are not Collateral assets (continued) limited to the World Food Index as well as the Volume of Imports Collateral refers to an asset bonded or pledged under a security of Goods and Services, and requires an evaluation of both the document to the Bank by a borrower or surety in support of a loan Stage 2: Lifetime ECL – not credit impaired current and forecast direction of the economic cycle. Incorporating granted. In the event of a default by a client or surety, collateral is a For credit exposures where there has been a significant increase forward-looking information increases the level of judgement as secondary source of repayment. in credit risk since initial recognition but that are not credit to how changes in these macro-economic factors will affect ECL. impaired, a lifetime ECL is recognised. The methodology, assumptions and macro-indices, including any All collateral items ceded to the Land Bank shall be valued or forecasts of future economic conditions are reviewed regularly. revalued within the frequency timelines, failing which will be Stage 3: Lifetime ECL – credit impaired regarded as stale and in non-compliance to the Collateral If the loan’s credit risk increases to the point where it is If, in a subsequent period, credit quality improves and reverses Management Policy. considered credit-impaired, interest revenue is calculated based the previously assessed significant increase in credit risk on the loan’s amor tised cost (that is, the gross carrying amount since origination, then the ECL reverts from lifetime ECL to Market values for properties (and ultimately fair value) must less the loss allowance). Lifetime ECLs are recognised, as in 12-months ECL. be conducted in line with industry standards as determined by Stage 2. the South African Council for the Property Valuers Profession Amortised cost of financial instruments (SACPVP), as amended from time to time. This involves the use The Group assesses whether the credit risk on a financial asset has Amor tised cost is computed using the effective interest rate of comparable sales of similar properties (for Land Bank ,it’s three increased significantly on an individual or collective basis. For the method less any allowance for impairment and principal recent comparable sales). purposes of a collective evaluation of impairment, financial assets repayment or reduction. The calculation takes into account are Grouped on the basis of shared credit risk characteristics, any premium or discount on acquisition and includes Fair value is determined by limiting collateral reporting to the lower taking into account instrument type, credit risk ratings, date of initial transaction costs and fees that are an integral par t of the of registered bond/ cession amount or forced sale value (FSV). recognition, remaining term to maturity, industry, geographical effective interest rate. location of the borrower and other relevant factors. The collateral valuation must take into account the forced sale Day 1 profit margins (or liquidation cost provision) based on historical recovery The amount of ECL is measured as the probability-weighted Where the transaction price in a non-active market is different and liquidation costs incurred by Land Bank to determine security present value of all cash shortfalls over the expected life of the from other observable current market transactions in the same value and /or forced sale value. These liquidations cost margins financial asset discounted at its original effective interest rate. The instrument or based on a valuation technique whose variables must be re-assessed annually. cash shortfall is the difference between all contractual cash flows include data from observable markets, the Group immediately that are due to the Group and all the cash flows that the Group recognises the difference between the transaction price and fair Cash and cash equivalents expects to receive. The amount of the loss is recognised using a value (a ‘Day 1’ profit) in the Statement of Profit or Loss and Cash comprises cash on hand and at bank and demand deposits. provision for “Expected Credit Loss account”. Other Comprehensive Income under fair value gains and losses. Cash equivalents are short-term, highly liquid investments that are In cases where use is made of data, which is not observable, readily convertible to known amounts of cash and which are subject The Group considers its historical loss experience and adjusts the difference between the transaction price and model value to an insignificant risk of changes in value. Cash and cash equivalents this for current observable data. In additional, the Group uses is only recognised in the Statement of Profit or Loss and Other are stated at carrying amount which is deemed fair value. reasonable and supportable forecasts of future economic Comprehensive Income when the inputs become observable, conditions including experienced judgement to estimate the or when the instrument is derecognised. amount of an expected impairment loss. IFRS 9 introduces the Land Bank Group 46 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Trade and other receivables Derivative financial instruments and hedge accounting practical expedient method to account for each lease component Trade and other receivables, which include accrued income, All derivatives are recognised in the Statements of Financial and any non-lease components as a single lease component. prepaid expenses, intercompany loans and loans to employees, Position at fair value and are classified as trading except where are initially measured at fair value and, after initial recognition, at they are designated as part of an effective hedge relationship The Group recognises a right-of-use asset and a lease liability amortised cost less impairment losses. The Group applies the and classified as hedging derivatives. The carrying value of a at the lease commencement date. The right-of-use asset is IFRS 9 simplified approach to measure expected credit losses derivative is measured at fair value throughout the life of the initially measured based on the initial amount of the lease which uses a lifetime expected loss allowance for all trade and contract. Derivatives are disclosed as assets when the fair value liability adjusted for any lease payments made at or before the receivables. To measure the expected credit losses, trade and is positive and as liabilities when the fair value is negative. commencement date, plus any initial direct costs incurred and other receivables have been Grouped based on shared credit an estimate of costs to dismantle and remove the underlying risk characteristics and the days past due. 3.13 Tax asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. Funds administered on behalf of related parties Income tax The Group manages funds on behalf of related parties. The The Land Bank is exempt from income tax in terms of sections The assets are depreciated to the earlier of the end of the net position in terms of legal right to offset of these funds 10(1) (cA) (ii) of the Income Tax Act, 58 of 1962. useful life of the right-of-use asset or the lease term using the administered on behalf of related parties are separately disclosed straight-line method as this most closely reflects the expected in the notes to the Annual Financial Statements. These funds are The direct subsidiaries of the Land Bank are also exempt from pattern of consumption of the future economic benefits. not carried on the Statements of Financial Position of the Group. income tax in terms of sections 10(1) (cA) (ii) of the Income Tax Act, 58 of 1962. The lease term includes periods covered by an option to extend Trade and other payables if the Group is reasonably certain to exercise that option. Lease Trade and other payables, including accruals, are recognised As part of the restructuring of the operations, the tax status of terms range from 2 to 5 years for offices and vehicles. when the Group has a present obligation arising from past the Land Bank Insurance Company (SOC) Limited and Land events, the settlement of which is expected to result in an Bank Life Insurance Company (SOC) Limited are currently under In addition, the right-of-use asset is periodically reduced outflow of economic benefits from the Group. review with South African Revenue Service (SARS). Please refer by impairment losses, if any, and adjusted for certain to the notes of the Annual Financial Statements for additional remeasurements of the lease liability. Funding liabilities disclosure regarding the probabilities/possibilities of contingent The carrying values of all funding liabilities are measured at liability raised in this regard. The Group applies the cost model subsequent to the initial amortised cost in alignment with IFRS 9 requirements. measurement of the Right-of-use assets. 3.14 Leases The arranging fees that are paid upon acquisition of the liability The lease liability is initially measured at the present value of are deferred to the Statement of Other Comprehensive Income Lessee accounting policies the lease payments that are not paid at the commencement over the term of the loan facility and included in the interest The standard provides a single lessee accounting model, requiring date, discounted using the interest rate implicit in the lease expense line as these arranging fees form part of the “Effective lessees to recognise assets and liabilities for all major leases. At or, if that rate cannot be readily determined, the Group’s Interest Rate” of funding instruments. The prepaid arranging fee inception of a contract, the Group assesses whether a contracts, incremental borrowing rate. Generally, the Group uses its is carried as part of the funding liabilities. or contains a lease based on whether the contract conveys the incremental borrowing rate as the discount rate. The interest right to control the use of an identified asset for a period of time component of the lease liability payment is presented as part in exchange for consideration.The Group has elected to apply the of operating activities on the Cash Flow Statement. 47 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Lessee accounting policies (continued) African government. As a result of the constitutional independence Non-monetary items that are measured in terms of of all three spheres of government (national, provincial and historical-cost in a foreign currency are translated using the The lease liability is measured at amortised cost using the local) in South Africa, only parties within the national sphere of exchange rates as at the dates of the initial transactions. Non- effective interest method. It is remeasured when there is a government will be considered to be related parties. monetary items measured at fair value in a foreign currency change in future lease payments arising from a change in an are translated using the exchange rates at the date when the index or rate, if there is a change in the Group’s estimate of Key management is defined as being individuals with the fair value was determined. the amount expected to be payable under a residual value authority and responsibility for planning, directing and guarantee, or if the Group changes its assessment of whether controlling activities of the Group. All individuals from 3.17 Non-current assets (disposal Groups) held for it will exercise a purchase, extension or termination option. Executive Management up to the Board of Directors are key sale (NCAHFS) or distribution to owners management individuals in their dealings with the Group. When the lease liability is remeasured in this way, a corresponding In the Statement of Profit or Loss and Other Comprehensive adjustment is made to the carrying amount of the right of- use Close family members of key management personnel are Income of the reporting period, and of the comparable period asset, or is recorded in profit or loss if the carrying amount of considered to be those family members who may be expected of the previous year, income and expenses from discontinued the right-of-use asset has been reduced to zero. to influence or be influenced by key management individuals in operations are reported separate from normal income and their dealings with the Group. expenses down to the level of profit/ (loss) after taxes. Property The Group has elected to apply the practical expedient not and equipment and intangible assets once classified as held-for- to recognise right-of-use assets and lease liabilities for shor t- Other related party transactions are also disclosed in terms sale are not depreciated/ amortised. term leases that have a lease term of 12 months or less. The of the requirements of IAS 24. The objective of IAS 24 and lease payments associated with these leases is recognised as the financial statements is to provide relevant and reliable Properties in possession an expense on a straight-line basis over the lease term. information and therefore materiality is considered in the Unsold properties in possession are recognised once ownership disclosure of these transactions. has been legally transferred to the Group and the underlying Lessor accounting policies debtor is then derecognised. These properties are included Leases where the Group is the lessor and retains substantially all 3.16 Foreign currency transactions under non– current assets held-for-sale at the outstanding loan the risk and benefits of ownership of the asset are classified as balance, which are then valued at the lower of the carrying operating leases. The Bank leases out its investment properties as Foreign currency transactions are translated into the functional amount and the fair value less costs to sell. The fair value is operating leases, thus generating rental income. The rental income currency using the exchange rates prevailing at the dates of the determined using a market-based valuation performed by a is recognised as income on a straight-line basis over the lease term. transactions or valuation where items are re-measured. sworn appraiser at the Statements of Financial Position date. Initial direct costs incurred in negotiating operating leases are added Realisable value is determined using market-based valuations to the carrying amount of the leased asset and recognised over the Monetary assets and liabilities denominated in foreign currencies performed by a sworn appraiser at the Statements of Financial lease term of the same basis as rental income. Contingent rents are are retranslated at the functional currency spot rate of exchange Position date. Maintenance costs are expensed in the period recognised as revenue in the period in which they are earned. ruling at the Statements of Financial Position date. Foreign incurred. The intention of the Group is to sell these properties exchange differences arising on the settlement of monetary to recover the outstanding payments on the defaulted loans. 3.15 Related parties items or translating monetary items at rates different from those at which they were translated on initial recognition during the The Group operates in an economic environment currently period or in the previous financial statements are recorded in dominated by entities directly or indirectly owned by the South profit and loss in the period in which they arise. Land Bank Group 48 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies Disposal of properties in possession (i) Defined contribution plans Management estimates the DBO annually with the assistance It is the Group’s policy to dispose of repossessed properties in The Group pays fixed contributions into independent entities of independent actuaries. This is based on standard rates an orderly fashion on a willing buyer and willing seller basis. The in relation to several state plans and insurance for individual of inflation, salary growth and mortality. Discount rates are property to be sold is advertised in the market. Upon receipt employees.The Group has no legal or constructive obligations to determined by reference to market yields at the end of the of offers to purchase, the offers are evaluated and an offer that pay contributions in addition to its fixed contributions, which are reporting periods on government bonds that have terms to makes the most economic sense is accepted. recognised as an expense in the period that relevant employee maturity approximating to the terms of the related pension services are received. liability. Remeasurement gains and losses arising from experience The Group has satisfied the following IFRS 5 conditions to adjustments and changes in actuarial assumptions are recognised classify the properties as NCAHFS: Retirement fund directly in other comprehensive income. They are included as a The Land Bank Retirement Fund which functions as a defined separate component of equity in the Statements of Financial • The appropriate level of management must be committed contribution plan and which is subject to the provisions of Position and in the Statements of Changes in Equity. Service to a plan to sell the asset; and the Pension Fund Act, 1956 (Act No.24 of 1956) came into cost on the net defined benefit liability is included in employee operation on 1 November 1994. Defined obligations such as benefits expense. Net interest expense on the net defined • An active programme to locate a buyer and complete the disability and death in service were completely phased out benefit liability is included in finance costs. sale must have been initiated. during the 2007 financial year. The Fund is now accounted for as a defined contribution plan as it no longer has any obligation Medical aid fund • The asset must be actively marketed for sale at a price that towards members for defined benefits. Contributions are The Bank provides a post-retirement medical aid benefit to all is reasonable in relation to its current fair value. recognised as an expense and as a liability to the extent that employees who were either employees or pensioners of the they are unpaid. Bank at 1 December 2005.The fund functions as a defined benefit The sale should be expected to qualify for recognition as a scheme. The entitlement to these benefits is usually conditional completed sale within one year from the date of classification, The Land Bank Retirement Fund (“LBRF”) in an umbrella fund on the employee remaining in service up to retirement age. It except where events and circumstances may extend the period within the Alexander Forbes Retirement Fund (AFRF). is the Group’s policy to pay the medical fund subscription fees to complete the sale beyond one year. on behalf of all pensioners in full and to fund the total obligation (ii) Defined benefit plans as and when it arises actuarial valuations of the Bank’s liability Actions required to complete the plan should indicate that it is Under the Group’s defined benefit plans, the amount of are conducted on an annual basis by an independent qualified unlikely that significant changes to the plan will be made or that pension benefit that an employee will receive on retirement actuary on the projected unit credit method. the plan will be withdrawn. is defined by reference to the employee’s length of service and final salary. The legal obligation for any benefits remains The liability recognised in the Statements of Financial Position 3.18 Employee benefits with the Group, even if plan assets for funding the defined in respect of defined benefit medical plan is the present value benefit plan have been set aside. Plan assets may include assets of the defined benefit obligation at the Statements of Financial Post-employment benefit plans specifically designated to a long-term benefit fund as well as Position date. The benefit obligation at the Statements of The Group provides post-employment benefits through various qualifying insurance policies. The liability recognised in the Financial Position date is not reflected net of assets since these defined contribution and defined benefit plans. Statements of Financial Position for defined benefit plans is the assets are not held in a legally separate entity that is not available present value of the defined benefit obligation (DBO) at the to the Bank’s own creditors. reporting date less the fair value of plan assets. 49 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies The past service costs and interest costs are accounted for redundancy, the termination benefits are measured based on 3.20 Insurance contracts in the statement of profit or loss. Actuarial gains and losses the number of employees expected to accept the offer. Benefits arising from experience adjustments and changes in actuarial falling due more than 12 months after the end of the reporting Contracts under which the Group accepts significant risk from assumptions are charged or credited to other comprehensive period are discounted to their present value. another party (the policyholder) by agreeing to compensate the income in the Statement of Profit or Loss and Other policyholder or other beneficiary if a specified uncertain future Comprehensive Income in full. 3.19 Provisions event (the insured event) adversely affects the policyholder or other beneficiary are classified as insurance contracts. Short-term employee benefits Provisions are recognised when the Group has a present The cost of all short-term employee benefits is recognised obligation (legal or constructive) as a result of a past event, it Insurance contracts are classified into two main categories, during the period in which the employee renders the related is probable that an outflow of resources embodying economic depending on the type of insurance risks, namely short-term service on an undiscounted basis. benefits will be required to settle the obligation and a reliable or long-term. estimate can be made of the amount of the obligation. Accruals for employee entitlement to annual leave represents Short-term insurance the present obligation, which the Group has to pay as a result Where the Group expects some or all of a provision to be Short-term insurance provides benefits under crop and agri- of employees’ services, provided to the reporting date. The reimbursed, for example under an insurance contract, the assets policies. Recognition and measurement. accruals have been calculated at undiscounted amounts based reimbursement is recognised as a separate asset but only when on current salary rates. the reimbursement is virtually certain. The expense relating to Gross written premiums any provision is presented in the Statement of Profit or Loss and Gross written premiums exclude value added tax. Earned A liability is recognised for the amount expected to be paid Other Comprehensive Income net of any reimbursement. premiums are accounted for as income when the risk related to under short-term bonuses in the Group as the Group has a the insurance policy incepts and are spread over the risk period present legal constructive obligation to pay the amount as a If the effect of the time value of money is material, provisions of the contract by using an unearned premium provision. All result of past service provided by the employee, and the are discounted using a current pre-tax rate that reflects, where premiums are shown before deduction of commission payable obligation can be estimated reliably. A present legal constructive appropriate, the risks specific to the liability. Where discounting is to intermediaries. obligation to pay the amount as a result of past service provided used, the increase in the provision due to the passage of time is by the employee, and the obligation can be estimated reliably. recognised as a finance cost. Commission Commission is payable to brokers and underwriting managers Termination benefits Provision is made for onerous contracts when the expected on non-life insurance business. Commission is accounted for Termination benefits are payable when employment is benefits to be derived from a contract are less than the on all in-force policies in the financial period during which it terminated by the Group before the normal retirement date, unavoidable costs of meeting the obligations under the contract. is incurred. Acquisition costs for non-life insurance business is or whenever an employee accepts voluntary redundancy in deferred over the period in which the related premiums are exchange for these benefits. The Group recognises termination Provisions are reviewed at the end of each financial year and are earned on a remaining days basis. benefits at the earlier of the following dates: (a) when the Group adjusted to reflect current best estimates. can no longer withdraw the offer of those benefits; and (b) Fee income when the entity recognises costs for a restructuring that is within The reinsurance broker pays the brokerage fee they earn the scope of IAS 37 and involves the payment of termination on reinsurance premiums to the company in exchange for benefits. In the case of an offer made to encourage voluntary a flat brokerage fee earned over the period of the treaties. Land Bank Group 50 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies This fee income is earned quar terly on settlement of the gross outstanding claims, IBNR and UPR provisions. Amounts Long-term insurance accounts to reinsurers. recoverable from or due to reinsurers are measured consistently These contracts provide long-term life insurance benefits with the amounts associated with the reinsured insurance with fixed terms to cover natural persons who are indebted Provision for unexpired risk contracts in accordance with the terms of each reinsurance to the Group under mor tgage loans, production loans and Unexpired risks refer to policies that have already been written, contract. Reinsurance liabilities are primarily premiums payable shor t-term loans. but the period for which premium was received or is receivable for reinsurance contracts and are recognised as an expense has not expired as at the measurement date and extends into when incurred. Recognition and measurement. the following period. The Unexpired Risk Provision (URP) comprises the Unearned Premium Provision (UPP) and the The reinsurer’s share of unearned premiums represents the Premiums Additional Unexpired Risk Provision (AURP). portion of the current year’s reinsurance premiums that relate Premiums are recognised as revenue when they become to risk periods covered by the related reinsurance contracts payable by the contract holder, viz at policy inception. Premiums Notified Outstanding Claims Provision extending into the following year. The reinsurer’s share of are shown before deduction of commission. The Notified Outstanding Claims Provision (NOCP) is held in unearned premium is calculated using the same method applied respect of those claims that have been notified but have not to calculate the unearned premium reserve. Fees and commission earned been paid or fully settled by the measurement date. These are Insurance contract policyholders are charged for policy estimated based on management expert estimation and are Income from reinsurance contracts ceded, that varies with administration services, surrenders and other contract fees. reviewed to be in line with recent historical claims experience. and is related to obtaining new reinsurance contracts and These fees are recognised as revenue over the period in which renewing existing reinsurance contracts, is deferred over the related services are performed. If the fees are for services Deferred acquisition costs (DAC) period of the related reinsurance contract and is recognised provided for future periods, then they are deferred and Deferred Acquisition Costs (DAC) consist of commissions as a current liability. recognised over those future periods. and other variable costs directly connected with acquisition or renewal of insurance contracts. Deferred acquisition costs Receivables and payables related to insurance contracts Underwriting benefits are amortised at incidence of risk basis and are deferred over Receivables and payables are recognised when due. These Life insurance policy claims received up to the last day of each the period in which the related premiums are earned, and include amounts due to and from agents, brokers and insurance financial period and IBNR claims are provided for and included recognised as a current asset. All other costs are recognised as contract holders and are included at amortised cost. in underwriting policy benefits. Past claims experience is used as expenses when incurred. the basis for determining the extent of the IBNR claims. Income If there is objective evidence that the insurance receivable is from reinsurance policies is recognised concurrently with the The DAC asset is tested for impairment annually and written impaired, the Group reduces the carrying amount of the recognition of the related policy benefit. down when it is not expected to be fully recovered from insurance receivable accordingly and recognises that impairment future income. loss in the Statement of Profit or Loss and Other Comprehensive Liability adequacy test Income.The Group gathers objective evidence that an insurance At each Statements of Financial Position date, the Group The benefits to which the Group is entitled under its reinsurance receivable is impaired using the same process adopted for loans performs a liquidity adequacy test to assess whether its contracts held are recognised as assets. These assets consist and receivables. The impairment loss is also calculated according recognised insurance liabilities are adequate in terms of the of short-term balances due from reinsurers (classified within to the same method used for these financial assets. Financial Soundness Valuation (FSV) basis as described in loans and receivables) on settled claims, as well as estimates SAP 104. The FSV basis meets the minimum requirements of (classified as reinsurance assets) that are dependent on the the liquidity adequacy test. If this assessment shows that the 51 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Accounting Policies carrying amount of its insurance liabilities are inadequate in the • Actuarial guidance also provides for the use of discretionary light of the estimated future cash flows, the entire deficiency is margins were deemed appropriate. The best estimate of recognised in the statement of comprehensive income. future experience is determined as follows: •  Future investment return assumptions are derived from Reinsurance contracts held market yields of fixed-interest securities on the valuation Contracts entered into with reinsurers under which the date, with adjustments for the other asset classes, taking a Group is compensated for losses on one or more long-term long-term view. The appropriate asset composition of the policy contracts issued by the Group are classified as long- various asset portfolios, investment management expenses, term reinsurance contracts. The expected claims and benefits taxation at current tax rates and charges for investment to which the Group is entitled to under these contracts are guarantees are taken into account. It is assumed that the recognised as assets. Group will retain its tax-exempt status for the foreseeable future; The Group assesses its long-term reinsurance assets for • “Per policy” expenses are based on the latest actual expenses impairment annually. If there is objective evidence that the and escalated at the estimated annual expense inflation rate. reinsurance asset is impaired, the carrying amount is reduced to a In addition, expense overruns in the medium-term were recoverable amount, and the impairment loss is recognised in the reserved for separately; Statement of Profit or Loss and Other Comprehensive Income. •  Assumptions with regard to future mortality rates are Reinsurance liabilities are premium payable for reinsurance consistent with the Group’s recent experience or expected contracts and are recognised as expenses when incurred. future experience if this would result in a higher liability. In particular, mortality rates are adjusted to allow for expected Long-term insurance liability deterioration in mortality rates as a result of AIDS; and In terms of IFRS 4 – Insurance contracts, defined insurance • Persistency assumptions with regard to lapse rates are  liabilities are allowed to be measured under existing local consistent with the Group’s recent experience or expected practice. The company used the FSV method, as described in future experience if this would result in a higher liability. the Standard of: Acquisition costs Actuarial Practice (SAP) 104 issued by the Actuarial Society Referral fees are payable to Land Bank branches on long-term of South Africa (Actuarial Society), to determine the actuarial insurance business and commission was paid to brokers on the value of the policyholders’ liabilities. The underlying philosophy short-term insurance business. Referral fees and commission is to recognise profits prudently over the term of each contract is accounted for on all in-force policies in the financial period consistent with the work done and risk borne. In the valuation during which it is incurred. The portion of the referral fees that of liabilities, provision is made for: is directly attributable to the acquisition of long-term recurring premium insurance policy contracts is recognised directly to the • The best estimate of future experience; Statement of Profit or Loss and Other Comprehensive Income. • The compulsory margins prescribed in the Insurance Act Acquisition costs for short-term insurance business are deferred of 2017; and over the period in which the related premiums are earned. Land Bank Group 52 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 4. Cash and cash equivalents Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Bank balances 965 068 685 073 933 630 547 418 Short-term deposits 4 624 821 37 638 4 624 771 37 590 5 589 889 722 711 5 558 401 585 008 Cash at banks are primarily held to mitigate the Bank’s refinancing/liquidity risk. Refer to note 38. for the credit risk ratings of the counterparties where bank accounts are held. At 31 March 2021, there was no undrawn borrowing facilities (FY2020 : R 0 billion). Short-term investments are made for one day periods, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term investment rates. The average rate earned on invested cash in FY2021 is 4.96% (FY2020 : 7.82%) Due to the short-term nature of cash and cash equivalents, their carrying amount is considered to be the same as their fair value. 5. Trade and other receivables Trade receivables 859 385 788 831 63 380 120 575 Accrued income 1 22 275 3 699 22 275 3 699 Accrued interest – hedging2 41 105 116 876 41 105 116 876 Premium receivable 495 320 442 595 – - Reinsurance receivable 300 685 225 661 – - Other receivables 3 190 040 448 821 143 112 600 205 1 049 425 1 237 652 206 492 720 780 1 Accrued income comprises accrued interest on short-term investments, accrued interest on loans and advances and accrued fees from funds under admin. 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. 3  Other receivables consists of staff loans, recovery second loss and sundry debtors. Due to the short-term nature of these assets and historical experience, these assets are regarded as having a low probability of default; therefore, ECL is insignificant on these balances. 53 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 5. Trade and other receivables (continued) Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Classification of trade and other receivables Prepaid expenses 5 922 7 091 5 173 7 091 Accrued income 22 276 3 699 22 276 3 699 Accrued interest – hedging 41 105 116 876 41 105 116 876 Trade and other receivables net of non-financial instruments 980 122 1 109 986 137 938 593 114 6. Short-term insurance assets and liabilities Group 2021 2020 R’000 R’000 Short-term insurance liabilities 220 061 237 227 Technical provision 211 255 231 911 Outstanding claims 160 078 190 245 Provision for unearned premiums 49 704 29 818 Provision for unexpired risk reserve – 5 517 Incurred but not reported claims 1 473 6 331 Unearned commission income 8 806 5 316 Less: Short-term insurance assets (159 014) (169 906) Reinsurers' share of technical provisions (146 588) (162 452) Outstanding claims (110 414) (133 171) Incurred but not reported claims (952) (4 431) Provision for unearned premiums (35 222) (21 262) Provision for unexpired risk reserve – ceded portion – (3 588) Deferred acquisition costs (12 426) (7 454) Net short-term insurance technical provisions 61 047 67 321 The crop unearned premium provision (UPP) is calculated on the claims occurring basis for the published accounts, based on historical claims occurrence tables, which are reviewed annually. The winter crop premium is fully earned by 31 March. Below are the provisions calculated according to the statutory basis. Land Bank Group 54 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 6. Short-term insurance assets and liabilities (continued) Gross Reinsurance Net Unearned Premium Reserve movement R'000 R'000 R'000 Balance at 31 March 2019 26 146 (18 675) 7 471 Provision earned (26 146) 18 675 (7 471) New provision raised 29 818 (21 262) 8 556 Balance at 31 March 2020 29 818 (21 262) 8 556 Provision earned (29 818) 21 262 (8 556) Provision increased 49 704 (35 222) 14 482 Balance at 31 March 2021 49 704 (35 222) 14 482 Deferred acquisition costs Gross Reinsurance Net R'000 R'000 R'000 Balance at 31 March 2019 46 879 (40 002) 6 877 Provision earned (46 879) 40 002 (6 877) Provision increased 7 454 (5 316) 2 138 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 55 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 6. Short-term insurance assets and liabilities (continued) Claims development table The following tables show claims paid in the year that it occurred as well as one year thereafter. Historically, no claims have been paid more than one year after the end of each incident year. Group 2021 2020 Gross claims paid R’000 R’000 Incident year 2020 2021 At end of the incident year (138 660) (47 158) One year later (347 464) (207 728) Current estimate of gross cumulative claims paid (486 124) (254 886) Net claims paid Incident year 2020 2021 At end of the incident year (41 598) (14 157) One year later (104 239) (62 318) Current estimate of net cumulative claims paid (145 837) (76 475) Gross Reinsurance Net Outstanding claims movement R’000 R’000 R’000 Balance at 31 March 2019 211 309 (148 531) 62 778 Movement in outstanding claims provisions (21 064) 15 360 (5 704) Balance at 31 March 2020 190 245 (133 171) 57 074 Movement in outstanding claims provisions (30 167) 22 758 (7 409) Balance at 31 March 2021 160 078 (110 413) 49 665 Gross Reinsurance Net Incurred but not reported movement R’000 R’000 R’000 Balance at 31 March 2019 50 541 (35 414) – Movement in IBNR (44 211) 30 983 – Balance at 31 March 2020 6 330 (4 431) – Provision released (4 858) 3 479 (1 379) Balance at 31 March 2021 1 472 (952) (1 379) Land Bank Group 56 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 7. Repurchase agreements Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Republic of South Africa bonds – R186 – 10 305 – 10 305 – R2030 – 9 190 – 9 190 – 19 495 – 19 495 The Group enters into sale and repurchase agreements to cover any short positions that the Group may experience from time to time. Interest relating to these instruments is disclosed in note 24. 8. Investments Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Investment in LBLIC – – 30 30 Investment in LBIC – – 650 000 450 000 Unlisted investments 387 354 640 198 387 354 640 198 Investment held with Coronation 303 104 210 335 303 104 210 335 Investment in listed shares 90 816 117 983 90 816 117 983 Investments held by LBLIC 1 106 703 1 118 338 – – Investments held by LBIC 430 682 61 369 – – 2 318 659 2 148 223 1 431 304 1 418 546 57 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Group Company 2021 2020 2021 2020 Investment held with Coronation R’000 R’000 R’000 R’000 These are investments held with Coronation Asset Managers. Listed investments 278 129 189 567 278 129 189 567 Local equity 164 557 111 362 164 557 111 362 Local bonds 60 834 40 719 60 834 40 719 Foreign equity 52 738 37 486 52 738 37 486 Other 13 419 6 030 13 419 6 030 Commodities 7 625 3 291 7 625 3 291 Local Hedge Funds 2 868 2 739 2 868 2 739 Foreign unit trusts 2 926 – 2 926 – Cash 11 556 14 738 11 556 14 738 Local 11 311 8 906 11 311 8 906 Foreign 245 5 832.46 245 5 832.46 303 104 210 335 303 104 210 335 The funds are entrusted to portfolio managers for investment purposes. The funds are earmarked to fund the future medical aid contributions of retired employees. The investments are classified at fair value through profit or loss and are measured and disclosed at fair value, except for cash which is measured at amortised cost. These investments are exposed to interest rate risk, equity price risk and foreign exchange risk. Refer to note 37 for more information on the related risks and mitigation strategies. Land Bank Group 58 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Group Company 2021 2020 2021 2020 Investments held with Coronation are invested as follows: R’000 R’000 R’000 R’000 Local equities Financial (excl. real estate) 24% 16% 24% 16% Basic materials 30% 15% 30% 15% Industrials 2% 1% 2% 1% Consumer goods 7% 15% 7% 15% Health care 3% 5% 3% 5% Consumer services 30% 31% 30% 31% Telecommunications – 1% – 1% Other securities 4% 16% 4% 16% Refer to the note 22. for the post-retirement obligation disclosure. Group Company 2021 2020 2021 2020 Unlisted investments R’000 R’000 R’000 R’000 Fair value Ordinary shares in Acorn Agri (Pty) Ltd 89 000 72 200 89 000 72 200 Preference shares in Afri Fresh (Pty) Ltd – 80 000 – 80 000 Ordinary shares in Mouton Holdings (Pty) Ltd – 85 000 – 85 000 Ordinary shares in Southern Cross Investment Holdings (Pty) Ltd – 75 000 – 75 000 Ordinary shares in Cavalier Group of Companies (Pty) Ltd – 44 100 – 44 100 Ordinary shares in Ideafruit (Pty) Ltd 44 256 83 898 44 256 83 898 Ordinary shares in Riverside Holdings (Pty) Ltd 100 650 105 000 100 650 105 000 Ordinary shares in Afgri Grain Silo Company Pty Ltd 153 448 95 000 153 448 95 000 387 354 640 198 387 354 640 198 The above equity investments constitute neither control, nor significant influence. Land Bank elected to apply its irrevocable right to designate these equity instruments at fair value through other comprehensive income. 59 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Acorn Agri & Food Ltd Land Bank holds 3.7% interest in Acorn Agri & Food Ltd. Acorn Agri & Food Ltd investment was valued as at 31 March 2021. The valuation was based on the Net Asset Value (NAV) of the company, resulting in an investment value of R89 million (FY2020: R72.2 million) for the Bank. Mouton Holdings (Pty) Ltd The Land Bank sold all 17.40% interest in Mouton Holdings (Pty) Ltd shares for R85 million during the current year. Southern Cross Investment Holdings (Pty) Ltd The Land Bank sold all 19.90% interest in Southern Cross shares for R75 million during the current year. Cavalier Group of Companies (Pty) Ltd The Land Bank sold all 19.9% interest in Cavalier Group of Companies (Pty) Ltd shares for R73.9 million during current year. Ideafruit (Pty) Ltd Land Bank holds 19.9% interest in Ideafruit (Pty) Ltd and the investment was valued as at 31 March 2021. The valuation was based on the DCF and current asset valuations, resulting in an investment value of R44.2 million (FY2020: R83.9 million) for the Bank. Riverside (Pty) Ltd Land Bank holds 19.9% interest in Riverside (Pty) Ltd and the investment was valued as at 31 March 2021. The valuation was based on the DCF and current asset valuations, resulting in an investment value of R100.6 million (FY2020: R105 million) for the Bank. 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 2021. The valuation was based on the DCF and current asset valuations, resulting in an investment value of R153.4 million (FY2020: R95.0 million) for the Bank. Group Company 2021 2020 2021 2020 Investments in Listed Shares R’000 R’000 R’000 R’000 Rhodes Food Group Holdings Limited 90 816 117 983 90 816 117 983 Rhodes Food Group Holdings Limited was valued in March 2021 based on the listed share price. The listed share price of Rhodes Food Group Holdings Limited as at 31 March 2021, was R11.7 per share (FY2020:R15.2), resulting in an investment value of R90.82 million (FY2020: R117.98 million ) for the Bank. The shares are traded daily hence the share price is regarded as a fair share price. Land Bank Group 60 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Group Company 2021 2020 2021 2020 Investment in LBLIC (100%) R’000 R’000 R’000 R’000 Investment in LBLIC – – 30 30 Actuarial valuation (LBLIC) – – 1 058 564 901 528 The company provides life insurance cover to clients of the Land Bank under mortgage loans. The company’s actuarial value of the surplus as at 31 March 2021 amounted to R1.06 billion (FY2020: R901.5 million). In terms of the shareholder's agreement, the Land Bank guarantees the solvency of LBLIC. The Land Bank, as a holding company, does not expect to be called upon to perform under this guarantee. The shares are accounted for at cost in terms of IFRS. Group Company 2021 2020 2021 2020 Investment in LBIC (100%) R’000 R’000 R’000 R’000 Investment in LBIC – – 650 000 450 000 Land Bank initial contributed R150 million capital as part of the shareholder's support towards the operations of LBIC. Over the years, Land Bank has further recapitalised LBIC with R500 million (including the R200 million contributed during FY2021). Investments held by LBLIC These are investments held by subsidiaries with the following Asset Managers: – Coronation Fund Managers Limited – Momentum Asset Management – Argon Asset Management – Investec Asset Management – Old Mutual Investment Group (South Africa) (Pty) Ltd 61 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Group 2021 2020 R’000 R’000 Equities 433 293 299 311 Commodities 23 722 (2 321) Bonds 313 885 429 953 Collective investment schemes 127 891 130 780 Cash deposits and similar securities 207 904 256 514 Investment policy 9 4 101 1 106 704 1 118 338 Designated at fair value through profit or loss Equities Equities comprise: Ordinary shares listed on the Johannesburg Stock Exchange (JSE)1 433 292 299 311 433 292 299 311 Equities are classified as designated as at fair value through profit or loss Commodities Exchange traded funds (ETF's) – local1 23 722 (2 321) 23 722 (2 321) Commodity ETF's are classified as designated as at fair value through profit or loss. Collective investment schemes ("CIS") Equity – foreign unit trusts 132 092 116 214 Balanced fund – foreign 2 635 21 871 Foreign cash (6 837) (7 304) 127 891 130 781 CIS are classified at fair value through profit or loss. ¹ Investments at market prices per the JSE. Land Bank Group 62 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Group 2021 2020 Investments in interest bearing assets R’000 R’000 Bonds listed on the JSE Debt Market – at market value 313 884 429 952 Government 87 723 80 922 Corporate 226 162 349 030 Cash, deposits and similar securities¹ 207 904 256 514 Deposits with banks – local 107 499 241 539 Money market instruments 100 405 14 975 521 788 686 466 Classification of investments in interest bearing assets – Amortised cost instruments 107 499 256 514 – Fair value through profit or loss 414 289 429 952 521 788 686 466 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. 1 Group 2021 2020 Investment policy R’000 R’000 Other non-cash 9 4 101 The Investment policy is classified at fair value through profit or loss. Investments in foreign equities were made utilising pooled funds. The risk is managed by the LBLIC Investment and Actuarial Committee. A register containing details of all investments is available for inspection at the registered office of LBLIC. 63 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 8. Investments (continued) Group 2021 2020 Investments held by LBIC R’000 R’000 This investment is held by Future Growth Asset Managers. Investments in interest bearing assets Total investment in interest bearing assets 430 682 61 369 Bonds – valued at fair value through profit and loss 183 571 4 980 Cash – valued at fair value through profit and loss 247 111 56 389 9. Strategic trading The main objectives of strategic trading, in the absence of making a market in Land Bank bonds/ notes, are as follows: • To remain visible in the secondary market; • To monitor debt capital market developments and rate movements; • To maintain relationships with brokers and banks; and • To maintain Treasury systems, Neutron connectivity and training of junior traders. As at 31 March 2021 the Bank had no open positions (2020: no open positions). Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Strategic trading assets – 5 153 – 5 153 Integrated Annual Report | 2021 Land Bank Group 64 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 10. Derivative assets The Bank’s main driver of earnings is net interest income, which is the difference between interest income received on assets and interest expense incurred on funding liabilities. The Bank is exposed to “basis risk” as a result of different underlying reference rates of interest earning assets and interest incurring liabilities with Prime and Jibar respectively. To manage the Bank’s exposure to “basis risk” and in an effort to protect the Bank’s net interest margin, the Land Bank Board approved an Interest Rate Risk Management Strategy during FY2018; hedging the mismatch moderately between the lending and funding rate. The Bank’s Interest Rate Management Strategy was drafted and is reviewed annually in the context of the Corporate Plan, Risk Appetite Framework, Borrowing and Funding Plan and Treasury Policy Framework. In the current year under review, management’s review revealed that the current hedge documentation and the Interest Rate 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 comprehensive income (OCI). The table below sets out derivative assets and liabilities by the type of hedge relationship in which they are designated. Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Hedging derivatives Interest rate swap 11 340 79 064 11 340 79 064 The nominal amount of derivatives designated in cash flow hedge relationships is as follows. Interest rate swaps – Asset 10 370 000 17 170 000 10 370 000 17 170 000 – Liability (10 370 000) (17 170 000) (10 370 000) (17 170 000) – – – – 65 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 10. Derivative Assets (continued) The following tables show the notional amount of derivatives in time bands based on the maturity of the derivatives. 0 to 12 months 1 to 2 years 2 to 3 years 3 to 5 years Total R’000 R’000 R’000 R’000 R’000 2021 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 2020 Group and Bank Interest rate swaps – Pay 3 800 000 8 370 000 4 300 000 700 000 17 170 000 – Receive 3 800 000 8 370 000 4 300 000 700 000 17 170 000 Land Bank Group 66 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 11. Loans and advances Group and Bank Expected Credit Loss Gross loans (ECL) Net loans Gross loans per business segment R’000 R’000 R’000 2021 Corporate Banking and Structured Investments (CB&SI) 8 466 246 (812 695) 7 653 551 Commercial Development and Business Banking (CDBB) 28 542 988 (4 653 758) 23 889 230 Loan commitments and guarantees – (576 851) (576 851) Loan Modifications4 CB&SI (37 020) – (37 020) Loan Modifications CDBB 4 (41 050) (41 050) 36 931 164 (6 043 304) 30 887 859 2020* Corporate Banking and Structured Investments 10 296 750 (762 657) 9 534 094 Commercial Development and Business Banking 34 937 640 (4 611 437) 30 326 204 Loan commitments and guarantees – (330 001) (330 001) Loan Modifications CB&SI 4 (23 216) – (23 216) Loan Modifications CDBB 4 (36 585) (36 585) 45 174 590 (5 704 095) 39 470 496 Average Average Nature of Average term of interest rate interest rate Loan type interest rate repayment 2021 2020 Short-term loans Variable 1 year 8.35% 9.81% Medium-term loans Variable 1 to 5 years 8.28% 9.75% Long-term loans Variable/ Fixed > 5 years 7.71% 9.58% 67 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW PERFORMANCE LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 11. Loans and advances (continued) Loans by maturity profile < 3 months 3 – 6 months 6 – 9 months 9 – 12 months 1 – 5 years > 5 years Total 2021 Corporate Banking and Structured Investments 1 001 868 246 883 621 343 – 2 233 775 4 325 357 8 429 226 Commercial Development and Business Banking 5 072 201 2 030 957 521 850 149 674 2 993 142 17 734 114 28 501 938 36 931 164 2020 Corporate Banking and Structured Investments 1 554 634 989 627 603 866 350 592 2 142 714 4 632 102 10 273 535 Commercial Development and Business Banking 5 225 807 4 481 103 1 489 209 456 240 3 793 773 19 454 923 34 901 055 45 174 590 Performing Under performing Non performing loans¹ loans² loans³ Total Loans by credit quality R’000 R’000 R’000 R’000 2021 Corporate Banking and Structured Investments 1 705 204 6 233 020 528 022 8 466 246 Commercial Development and Business Banking 11 925 245 5 129 042 11 488 701 28 542 988 Loan Modifications4 CB&SI (21 564) (15 456) (37 020) 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 Expected Credit Loss (ECL) (210 605) (1 455 116) (3 800 732) (5 466 453) Net loans and advances 13 378 786 9 876 055 8 209 868 31 464 711 Guarantees** 15 580 Loan commitments5 4 366 729 Gross loan commitments and guarantees 4 382 309 Expected Credit Loss (ECL) (576 851) Net loan commitments and guarantees 3 805 458 Land Bank Group 68 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 11. Loans and advances (continued) Performing Under performing Non performing loans¹ loans² loans³ Total R’000 R’000 R’000 R’000 2020* Corporate Banking and Structured Investments 7 398 619 2 522 424 375 707 10 296 750 Commercial Development and Business Banking 19 823 758 5 090 599 10 023 283 34 937 640 Loan Modifications CB&SI 4 (21 564) (1 731) - (23 295) Loan Modifications4 CDBB (15 583) (14 799) (6 123) (36 505) Gross loans and advances 27 185 230 7 596 493 10 392 867 45 174 590 Expected Credit Loss (ECL) (764 613) (1 113 181) (3 496 300) (5 374 094) Net loans and advances 26 420 617 6 483 312 6 896 567 39 800 496 Guarantees** 14 854 Loan commitments 5 5 381 858 Gross loan commitments and guarantees 5 396 712 Expected Credit Loss (ECL) (330 001) Net loan commitments and guarantees 5 066 711 ¹ Performing loans: A significant increase in credit risk could not be recorded.These loans are of an acceptable credit quality. Repayment is expected in compliance with the credit agreement. ²  Under performing loans: Loans are exposed to a significant increase in credit risk as identified based on probability of defaults (PDs) and warning signals that materialises between origination and reporting. As a minimum, loans that are in arrears for 30 days and more are classified as under performing loans. 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 unlikeliness to repay the loan. Loans that are as a minimum 90 days in arrears, are classified as non-performing. * Net loans and advances have been restated, refer to note 43. In FY2019 financial statements Land Bank omitted to disclose a guarantee in favour of BMCE Bank for $13.9 million. The guarantees’ triggering conditions actually occurred in March 2018 would have resulted in a provision. This omission resulted in a provision of **  (R166 million 2018 and R48 million 2019) not being disclosed. Interest accrued on the debt increasing the outstanding amount to $15.01million at 31 March 2020. Profit paid $750 thousand, reducing the amount owing by the Land Bank to $14.25 million. This guarantee was accounted for as a provision in the prior year figures.The liability was settled in the current financial year (FY 2021).The guarantees are all cash backed guarantees that the Bank issued to clients. 4 Refer to note 37 for modification disclosure. 5 The loan commitments are undrawn balances. 69 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 11. Loans and advances (continued) Expected Credit Loss provision: reconciliation of movement per business unit Corporate Commercial Loan Banking and Development and commitments Structured Investments Business Banking and guarantees Total Group and Bank R’000 R’000 R’000 R’000 2021 Balance at the beginning of the year¹ 744 324 4 007 292 330 001 5 081 617 Movement for the year Credit losses written off: (234 040) (59 475) – (293 516) – Statements of Financial Position Write-off (utilisation) (232 894) (38 974) – (271 868) – Statement of comprehensive income Write-off (1 146) (20 501) – (21 647) Second loss sharing – 53 895 – 53 895 Net impairment raised to the statement of comprehensive income 275 094 (236 472) 246 850 285 473 Balance at the end of the year¹ 785 378 3 765 240 576 851 5 127 470 2020 Balance at the beginning of the year¹ 571 973 4 281 934 295 956 5 149 863 Movement for the year Credit losses written off: (28 854) (122 431) – (151 285) – Statements of Financial Position Write-off (utilisation) (18 201) (56 437) – (74 638) – Statement of comprehensive income Write-off (10 653) (65 994) – (76 647) Utilisation due to client restructuring – (236 646) – (236 646) Net impairment raised/ (released) to the statement of comprehensive income 201 206 84 435 34 045 319 685 Balance at the end of the year¹ 744 324 4 007 292 330 001 5 081 618 ¹ The balances exclude suspended interest of R732.3 million (FY2020: R438.4 million). Land Bank Group 70 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 11. Loans and advances (continued) Impairment releases/(charges), claims and recoveries" Corporate Banking and Commercial Loan Structured Development and commitments Investments Business Banking and guarantees Total Group and Bank R’000 R’000 R’000 R’000 2021 Net impairments raised to the statement of comprehensive income 275 094 (236 472) 246 850 285 473 Recoveries in respect of amounts previously written off1 (8 553) (7 250) – (15 803) Second loss sharing – 53 895 53 895 266 541 (189 827) 246 850 323 565 2020 Net impairments raised/ (released) to the statement of comprehensive income 201 206 84 435 34 045 319 685 Recoveries in respect of amounts previously written off1 (13 088) (1 964) – (15 051) Second loss sharing" – (236 646) (236 646) 188 118 (154 176) 34 045 67 988 " Net impairment were restated to reflect the second loss sharing. 1 Off balance sheet debt collection amounting to R63.9 million (2020 R62.5 million) that was previously written off is still subject to legal action. Collateral held as security The Group holds collateral which it is entitled to sell in the case of default by the owner of the collateral. The amount and type of collateral held for the exposure depends on an assessment of the credit risk of the counterparty. Guidelines have been implemented regarding the acceptability of the types of collateral. The value of the collateral is determined with reference to the realisable value of security under forced-sale conditions. The Land and buildings is disclosed at the lower of bond value or security valuer after taking into account haircuts. The collateral policy of Land Bank, is that collateral is valued at inception and in three year intervals. The collateral is also valued when a facility is renewed or restructured. 71 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 11. Loans and advances (continued) The Group has the following assets held as security against its loan portfolio: Company 2021 2020 R’000 R’000 Nature of assets Bank Guarantees 601 456 978 888 Biological Assets 1 456 985 2 135 539 Cash Deposits 299 291 156 622 Trade Debtors 1 457 123 1 613 596 Inventory 1 009 746 1 459 366 Land and Buildings 37 067 571 38 513 591 Plant and Equipment 681 844 752 657 Shares and investments 879 899 829 937 Vehicles and implements 116 208 166 380 43 570 124 46 606 577  The quality of the collateral has not deteriorated from previous years. The reduction in collateral values is primarily due to the Bank having amended its Collateral Management Policy, which has been applied retrospectively for the last 3 financial years (FY2019 onwards). The amended policy states that all collateral values should be reported at the lower of “Registered Bond Value” or “Security Value after haircuts”. This was a significant amendment as previously all collateral was reported at Market Value. While the Market Value for collateral is significantly higher for most collateral, the application of these prudent principles has resulted in reduction in the collateral values. Refer to note 37 for details about the maximum exposure to credit risk for each class of financial instrument exposed to credit risk as at 31 March 2021. At the end of the Financial year ended 31 March 2021, loans where collateral held covered the carrying amount in full amounted to R117.2 million (2020 : R86.9 million). Collateral held as security and other credit enhancements relating to credit impaired financial assets. Gross exposure Impairment allowance Carrying amount Realisable value of collateral held R’000 R’000 R’000 R’000 2021 Loans and advances 12 010 600 (3 800 732) 8 209 868 10 636 864 2020 Loans and advances 10 392 867 (3 496 300) 6 896 567 8 125 341 Land Bank Group 72 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements Concentration of credit risk By the very nature of the Land Bank’s business it is exposed to credit concentration risk in the agricultural sector, as well as to certain counterparties / Group of connected parties mainly within the Corporate Banking & Structure Investment portfolio. During the year under review, the Land Bank performed a concentration risk analysis to determine acceptable risk absorption capacity taking into account the current balance sheet and income statement. It became clear that the Land Bank needs to reduce the single obligor limit to acceptable levels over time, starting during FY2021. The Board of Directors have approved revised credit concentration limits during the FY2021, with single obligor limit of 7,5% (FY2020: 20%) of the Land Bank’s own equity to any counterparty or Group of connected parties in the Corporate Banking & Structured Investment segment and R150 million (FY2020: R150 million) for the Commercial Development & Business Banking segment including SLA books (FY2020: R100 million or 7,5% of the total debtors book). At approval of the new limits, the Board of Directors condoned all exposures in excess with a strategy to reduce them to the required level using the asset solution or sell down underway. As at year end there were ten obligors (R6,5 billion) with individual exposures in excess of 7,5% of the Land Bank’s own equity in the Corporate Banking & Structured Investment segment, one obligor (R178 million) in the Commercial Development & Business Banking segment and eight obligors (R2,0 billion) in the SLA books. 12. Non-current assets held-for-sale Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Properties in possession 4 058 105 112 4 058 105 112 4 058 105 112 4 058 105 112 Reconciliation of movement Opening balance 105 112 163 036 105 112 163 036 Plus: Additions 1 030 – 1 030 – Less: Disposals (13 910) (46 025) (13 910) (46 025) Re-measurement recognised – (11 899) – (11 899) Reclassification from Investment Properties* (88 174) – (88 174) – Closing balance 4 058 105 112 4 058 105 112 73 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 12. Non-current assets held-for-sale (continued) Properties in possession These represent the properties bought in by the Group due to clients defaulting on their loan payments. The intention of the Group is to sell these properties to recover the outstanding payments on the defaulted loans. The Group exclusively hold these properties with a view to dispose of them. These properties in possession are farm holdings and the Group has no intention to occupy them. The Group was committed to sell these properties as they were all advertised for sale on In view of the current volatile market conditions, the properties in possession will only be disposed of as and when conditions render it economically viable. • BP 1938 located in Pietermaritzburg • BP 2102 located in East London • BP 2116 located in Theunissen • BP 2118 located in Theunissen • BP 2119 located in Potchefstroom *Owned building In FY2019 the Board approved the disposal of the property previously classified as investment properties. The Group was committed to sell these properties as they were all advertised for sale on In view of the current volatile market conditions, it was not be possible to dispose all properties therefore they have been reclassified to investment properties. Please refer to note 13. Based on the requirements of IFRS 5, the assets have been disclosed as disposal Groups, and are separately disclosed on the Statements of Financial Position. The disposal Groups are measured at the lower of carrying amount and fair value less costs to sell. The following disposals took place and profits/(losses) recognised are: Carrying Profit/(Loss) 2021 amount Selling Price VAT after tax BP 2114 located in Nelspruit 1 121 1 739 – 618 Heidelberg Building ERF 130 6 189 7 050 – 861 George Building ERF 2108 6 600 6 739 – 139 13 910 15 528 – 1 618 Land Bank Group 74 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements Carrying Profit/(Loss) 2020 amount Selling Price VAT after tax BP 2116 located in Welkom Free State 236 3 829 – 3 593 Cape Town Building ERF 3865 36 700 43 100 – 6 400 Modimolle Building ERF 203 9 089 11 200 – 2 111 46 025 58 129 – 12 104 Refer to note 38 for the methods used to determine the fair values for these assets. 13. Investment property Group Cost or Accumulated Fair value 2021 Revaluation depreciation Transfers * adjustments Carrying value Investment property 15 000 88 173 (8 073) 95 100 Cost or Accumulated Fair value 2020 Revaluation depreciation Transfers adjustments Carrying value Investment property 15 250 (250) 15 000 Company Cost or Accumulated Fair value 2021 Revaluation depreciation Transfers * adjustments Carrying value Investment property 15 000 88 173 (8 073) 95 100 Cost or Accumulated Fair value 2020 Revaluation depreciation Transfers adjustments Carrying value Investment property 15 250 (250) 15 000 * These properties were reclassified from NCAHFS to investment properties as they no longer meet the requirements of IRFS 5. Please refer to note 12. There are no restrictions on the title of the property and no property has been pledged as security. The fair value of investment property was determined by using the opportunity cash flow method (OCF).This is a combination of capitalisation and discounting.The inputs used are gross market rentals, operating costs, the perpetual vacancy, market capitalisation rate and net present value of the OCF. Refer to note 38. 75 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 14. Property and equipment Group 2021 2020 Cost or Accumulated Carrying Cost or Accumulated Carrying Revaluation depreciation value Revaluation depreciation value Land 2 200 – 2 200 4 243 – 4 243 Buildings 16 808 (1 108) 15 700 21 229 (1 072) 20 157 Furniture, fittings and office equipment 19 081 (16 777) 2 304 19 277 (16 595) 2 682 Motor vehicles 524 (419) 105 524 (419) 105 IT equipment 36 441 (35 144) 1 297 35 924 (34 394) 1 530 Leasehold improvements 15 332 (15 083) 249 15 332 (15 078) 254 Total 90 385 (68 530) 21 855 96 529 (67 558) 28 971 Company 2021 2020 Cost or Accumulated Carrying Cost or Accumulated Carrying Revaluation depreciation value Revaluation depreciation value Land 2 200 – 2 200 4 243 – 4 243 Buildings 16 808 (1 108) 15 700 21 229 (1 072) 20 157 Furniture, fittings and office equipment 18 829 (16 577) 2 253 19 015 (16 390) 2 625 Motor vehicles 524 (419) 105 524 (419) 105 IT equipment 36 149 (34 901) 1 249 35 552 (34 128) 1 424 Leasehold improvements 15 332 (15 083) 249 15 332 (15 078) 254 Total 89 842 (68 087) 21 755 95 895 (67 087) 28 808 Land Bank Group 76 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 14. Property and equipment (continued) Reconciliation of property, plant and equipment – Group – 2021 Revaluations/ Opening balance Additions Disposals devaluations Depreciation Total Land 4 243 – – (2 043) – 2 200 Buildings 20 157 – – (3 349) (1 108) 15 700 Furniture, fittings and office equipment 2 682 – (26) – (350) 2 306 Motor vehicles 105 – – – – 105 IT equipment 1 530 653 (18) – (870) 1 295 Leasehold improvements 254 – – – (5) 249 Total 28 971 653 (44) (5 392) (2 333) 21 855 Reconciliation of property, plant and equipment – Group – 2020 Revaluations/ Opening balance Additions Disposals devaluations Depreciation Total Land 3 828 – – 415 – 4 243 Buildings 20 522 – – 707 (1 072) 20 157 Furniture, fittings and office equipment 2 714 602 (32) – (602) 2 682 Motor vehicles 108 – – – (3) 105 IT equipment 4 025 1 261 (56) – (3 700) 1 530 Leasehold improvements 960 – – – (706) 254 Total 32 157 1 863 (88) 1 122 (6 083) 28 971 77 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 14. Property and equipment (continued) Reconciliation of property, plant and equipment – Company – 2021 Revaluations/ Opening balance Additions Disposals devaluations Depreciation Total Land 4 243 – – (2 043) – 2 200 Buildings 20 157 – – (3 349) (1 108) 15 700 Furniture, fittings and office equipment 2 625 – (26) – (343) 2 256 Motor vehicles 105 – – – – 105 IT equipment 1 424 653 (18) – (814) 1 245 Leasehold improvements 254 – – – (5) 249 Total 28 808 653 (44) (5 392) (2 270) 21 755 Reconciliation of property, plant and equipment – Company – 2020 Revaluations/ Opening balance Additions Disposals Transfers* devaluations Depreciation Total Land 3 828 – – – 415 – 4 243 Buildings 20 522 – – – 707 (1 072) 20 157 Furniture, fittings and office equipment 2 659 602 (32) – – (604) 2 625 Motor vehicles 108 – – – – (3) 105 IT equipment 3 913 1 261 (44) (65) – (3 641) 1 424 Leasehold improvements 960 – – – – (706) 254 Total 31 990 1 863 (76) (65) 1 122 (6 026) 28 808 *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. The land and buildings were valued by independent property valuators as at year end. The methods used for the valuations are based on market rentals, as obtained from independent companies who operate in the area, and the capitalisation rate for the areas, as obtained from the valuator’s report. There are no restrictions on the title of the property and no property has been pledged as security. The Group does not have any contractual commitments for the acquisition of property. IFRS requires that the carrying values of land and buildings if they had to be carried using the historical cost method should be disclosed. As a result of the buildings being purchased many years ago, the latest being 1998, it is not possible for the Bank to determine and disclose the carrying values of each property and in addition to this the values at which the properties were purchased are negligible in comparison to the current carrying values disclosed using the revaluation method. Land Bank Group 78 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 15. Leases 15.1 Right-of-use of assets Group Buildings Motor vehicles Total 2021 R’000 R’000 R’000 At 1 April 2020 42 311 5 682 47 993 Additions 300 – 300 Disposals (1 976) – (1 976) Depreciation (21 983) (3 588) (25 571) At 31 March 2021 18 652 2 094 20 746 Buildings Motor vehicles Total 2020 R’000 R’000 R’000 At 1 April 2019 58 823 9 270 68 093 Additions 5 299 – 5 299 Depreciation (21 811) (3 588) (25 399) At 31 March 2020 42 311 5 682 47 993 Bank Buildings Motor vehicles Total 2021 R’000 R’000 R’000 At 1 April 2020 42 311 5 424 47 735 Additions 300 – 300 Disposals (1 976) – (1 976) Depreciation (21 983) (3 425) (25 408) At 31 March 2021 18 652 1 999 20 651 Buildings Motor vehicles Total 2020 R’000 R’000 R’000 At 1 April 2019 58 823 8 849 67 672 Additions 5 299 – 5 299 Depreciation (21 811) (3 425) (25 236) At 31 March 2020 42 311 5 424 47 735 79 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 15.2 Lease Liabilities Group Buildings Motor vehicles Total 2021 R’000 R’000 R’000 At 1 April 2020 44 574 6 035 50 609 Additions 300 – 300 Interest expense 3 002 382 3 384 Lease payments (27 020) (4 097) (31 117) At 31 March 2021 20 856 2 320 23 176 Lease Liabilities Group Buildings Motor vehicles Total 2020 R’000 R’000 R’000 At 1 April 2019 61 084 9 434 70 518 Additions 5 299 – 5 299 Interest expense 4 554 695 5 249 Lease payments (26 363) (4 094) (30 457) At 31 March 2020 44 574 6 035 50 609 Maturity analysis for lease liabilities < 3 months 3 – 6 months 6 – 9 months 9 – 12 months 1 – 5 years > 5 years Total FY2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Financial Liabilities Lease liabilities 7 022 6 896 4 723 1 415 7 064 – 27 120 Land Bank Group 80 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 15. Leases (continued) Bank Buildings Motor vehicles Total 2021 R’000 R’000 R’000 At 1 April 2020 44 574 5 761 50 335 Additions 300 – 300 Interest expense 3 002 365 3 367 Lease payments (27 020) (3 911) (30 931) At 31 March 2021 20 856 2 215 23 071 Maturity analysis for lease liabilities < 3 months 3 – 6 months 6 – 9 months 9 – 12 months 1 – 5 years > 5 years Total FY2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Lease liabilities 6 976 6 850 4 707 1 415 7 064 – 27 012 Buildings Motor vehicles Total R’000 R’000 R’000 At 1 April 2019 61 084 9 005 70 089 Additions 5 299 – 5 299 4 554 664 5 218 Lease payments (26 363) (3 908) (30 271) At 31 March 2020 44 574 5 761 50 335 Maturity analysis for lease liabilities < 3 months 3 – 6 months 6 – 9 months 9 – 12 months 1 – 5 years > 5 years Total FY2020 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Lease liabilities 7 147 7 177 7 189 7 228 26 916 55 656 81 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 16. Intangible assets Group 2021 2020 Cost or Accumulated Carrying Cost or Accumulated Carrying Revaluation depreciation value Revaluation depreciation value Computer software 82 335 (79 569) 2 766 82 335 (74 292) 8 043 Company 2021 2020 Cost or Accumulated Carrying Cost or Accumulated Carrying Revaluation depreciation value Revaluation depreciation value Computer software 82 335 (79 569) 2 766 82 335 (74 292) 8 043 Reconciliation of Intangible assets Group – 2021 Opening Group balance Depreciation Total Computer software 8 043 (5 277) 2 766 Reconciliation of Intangible assets Group – 2020 Group Opening balance Additions Depreciation Total Computer software 13 548 547 (6 052) 8 043 Reconciliation of Intangible assets Company – 2021 Company Opening balance Depreciation Total Computer software 8 043 (5 277) 2 766 Reconciliation of Intangible assets Company – 2020 Company Opening balance Additions Depreciation Total Computer software 13 548 547 (6 052) 8 043 The Group reassessed the useful lives of all the intangible assets at the beginning of the FY2021 financial year together in order to reflect the most correct estimated useful lives of all intangible assets.  Land Bank Group 82 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 17. Distributable and other reserves Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Distributable reserves from continuing operations Capital fund 7 397 655 4 397 655 7 397 655 4 397 655 Accumulated loss (4 262 853) (3 515 375) (5 245 288) (4 289 211) Total distributable reserves 3 134 802 882 280 2 152 367 108 444 FVTOCI (682 072) (723 811) (682 072) (723 811) Revaluation reserve 133 080 138 472 133 080 138 472 2 585 810 296 941 1 603 375 (476 895) Description of equity components Accumulated loss Comprises accumulated retained loss. Capital fund The Capital fund consists of an initial loan by government, which was converted to equity in 2006 as part of the government commitment to support the Bank as well as further capital injections from the National Treasury in FY2015 and FY2021. FVTOCI The reserve relates to the fair value adjustment on the unlisted and listed investments held by the Bank. Please refer to notes note 7. 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. 83 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 18. Trade and other payables Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Accrued expenses 28 696 51 995 27 336 51 867 Premiums received in advance 6 6 – – Amounts due to reinsurers 639 425 501 214 – – Trade payables 43 807 70 922 43 807 70 097 Deferred Income 1 115 989 1 115 989 Loan costs and fees received in advance 37 240 45 013 37 240 45 013 Funds Under Admin utilised by the Land Bank – 727 769 – 727 769 Other¹ 12 575 4 691 4 347 1 541 Amounts due to SASRIA 5 100 4 549 – – Client deposits for approved loans 2 850 4 885 2 850 4 885 770 814 1 412 033 116 695 902 161 ¹ Included in the other payables is conditional deposits from sale repossessed properties. As noted in the maturity analysis, Group payables amounting to R37.5 million (FY2020: R45.1 million) are expected to be settled after more than 12 months. Land Bank Group 84 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 19. Long-term policyholders' liabilities Group 2021 2020 R’000 R’000 Policyholders’ liability excluding Incurred But Not Reported (IBNR) and notified claims Present value of policy liabilities 53 317 17 039 Plus: present value of future expenses 44 570 14 243 Expenses Less: present value of future premiums (39 844) (12 733) Liability excluding COVID reserve 58 043 18 549 Plus: Covid reserve 5 701 826 Less : reinsurance reserve (3 812) (6 437) Plus: expense overrun reserve – 18 459 Total policyholders' liability excluding IBNR and notified claims 59 932 31 397 Movement in the long-term policyholders' liability Balance at the beginning of the year 31 397 38 295 Movement in the long-term policyholders' liability 28 535 (6 898) Balance at the end of the year 59 932 31 397 Movement in the IBNR Gross Ceded Net R’000 R’000 R’000 2021 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 2020 Balance at the beginning of the year 2 272 (1 399) 873 Movement in the IBNR (1 971) 1 183 (788) Balance at the end of the year 301 (216) 85 85 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 19. Long-term policyholders' liabilities (continued) Movement in notified (outstanding) claims Gross Ceded Net R'000 R'000 R'000 2021 Balance at the beginning of the year 6 197 (5 133) 1 064 Movement in the IBNR (6 034) 5 051 (983) Balance at the end of the year 163 (82) 81 2020 Balance at the beginning of the year 92 (46) 46 Movement in the IBNR 6 105 (5 087) 1 018 Balance at the end of the year 6 197 (5 133) 1 064 Total long-term insurance liabilities Gross Ceded Net R'000 R'000 R'000 2021 Long-term policyholders' liability 63 744 (3 812) 59 932 Notified claims 163 (82) 81 IBNR 2 682 (1 093) 1 589 Total long-term insurance liabilities 66 589 (4 987) 61 602 2020 Long-term policyholders' liability 37 843 (6 437) 31 406 Notified claims 6 197 (5 133) 1 064 IBNR 301 (216) 85 Total long-term insurance liabilities 44 341 (11 786) 32 555 Land Bank Group 86 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 At amortised cost 36 074 791 41 352 534 (36 074 791) 41 352 534 *Towards the end of April 2020, the Land Bank experienced a liquidity shortfall, which resulted in the Bank defaulting on some of its obligations.This triggered a cross default and resulted in de-facto standstill on capital and interest payments to its funders. Land Bank resumed servicing of interest on funding liabilities during August 2020. Analysis of funding 2021 Amortised Effective Prepaid Opening Cost re– a New Issues/ Repayment/ Accrued Discount/ Interest Rate Arranging Closing Fair Commercial Funding Balance lignment Utilisation Settlements Interest Premium Adjustment Fees Balance Value Commercial Paper 14 743 952 397 861 2 188 189 (4 396 201) 71 191 (98 181) (43) – 12 907 374 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 – (43) – 1 504 806 1 495 912 Floating rate notes – 592 639 (9 139) – (363 941) 2 674 – – – 222 189 244 430 to 5 years 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 – – – 87 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) Amortised Effective Prepaid Opening Cost re– a New Issues/ Repayment/ Accrued Discount/ Interest Rate Arranging Closing Fair Commercial Funding Balance lignment Utilisation Settlements Interest Premium Adjustment Fees Balance Value DMTN Issuances 16 275 286 (220 034) – (1 925 590) 164 315 – 33 104 (1 036) 14 326 045 13 670 050 Floating rate notes 12 824 953 (68 701) – (1 523 939) 44 543 – 9 433 (923) 11 285 366 10 810 923 – LBK15 1 404 997 (29 997) – (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 Land Bank Group 88 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) Amortised Effective Prepaid Opening Cost re– New Issues/ Repayment/ Accrued Discount/ Interest Rate Arranging Closing Fair Balance alignment Utilisation Settlements Interest Premium 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 (3 778) 3 778 (2 368) (2 368) – (Government guaranteed) 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 1 924 478 (6 307) – (196 703) 9 900 – (494) (6 077) 1 724 797 1 928 682 Development Funding 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 89 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) 2020 Commercial Funding Effective Amortised Interest Prepaid Opening Cost re– New Issues/ Repayment/ Accrued Discount/ Rate Arranging Closing Fair Balance alignment Utilisation Settlements Interest Premium Adjustment Fees Balance Value Commercial Paper 19 263 234 595 579 24 140 736 (28 812 030) 477 (443 786) (258) – 14 743 952 14 767 705 Bills 1 312 397 264 974 840 000 (990 000) – (183 809) – – 1 243 562 1 278 221 Call bonds 149 888 (888) – (112 920) 167 – – – 36 247 36 240 Floating rate notes – 1 year 2 017 794 (20 794) 1 582 400 (1 964 092) – (4 693) (228) – 1 610 387 1 611 260 Floating rate notes - 2 690 830 (22 830) 283 500 (2 353 202) – (5 629) (30) – 592 639 624 684 2 to 5 years Promissory notes 13 092 325 375 117 21 434 836 (23 391 816) 310 (249 655) – – 11 261 117 11 217 300 "Deposits" 695 684 – 81 906 (1 452) – – – – 776 138 776 138 Agri-related business deposits 232 097 – 81 127 – – – – – 313 224 313 224 Forced stock sale deposits 463 543 – – (1 452) – – – – 462 091 462 091 Small institutional deposits 44 – 4 – – – – – 48 48 Rent deposits – – 775 – – – – – 775 775 Facilities 4 310 (4 309) 1 651 966 – 10 932 – – (3 587) 1 659 311 1 650 000 Committed 2 879 (2 879) 1 651 966 10 932 – – (3 587) 1 659 311 1 650 000 Uncommitted 1 430 (1 430) – – – – – – – – Land Bank Group 90 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) 2020 Commercial Funding Amortised Effective Prepaid Opening Cost re– New Issues/ Repayment/ Accrued Discount/ Interest Rate Arranging Closing Fair Balance alignment Utilisation Settlements Interest Premium Adjustment Fees Balance Value DMTN Issuances 13 457 367 (202 567) 4 528 252 (1 727 800) 194 086 – 27 788 (1 840) 16 275 286 16 191 513 Floating rate notes 9 330 925 (65 125) 4 528 252 (1 037 800) 68 425 – 2 021 (1 745) 12 824 953 12 876 629 – LBK08 329 916 (4 916) – (325 000) – – – – – – LBK15 1 403 894 (28 894) – – 29 165 – 1 163 (331) 1 404 997 1 411 185 – LBK16 191 291 (1 491) – (189 800) – – – – – – – LBK17 524 127 (1 127) – (523 000) – – – – – – – LBK18 734 632 (1 632) – – 1 523 – (632) (250) 733 641 752 407 – LBK22 571 791 (3 791) – – 3 511 – 3 – 571 514 571 274 – LBK23 615 242 (4 242) – – 3 951 – (1) (4) 614 946 622 135 – LBK26 245 406 (406) – – 427 – 0 (59) 245 368 245 623 – LBK27 2 023 564 (3 564) – – 3 848 – (1 045) (25) 2 022 778 2 056 341 – LBK30 306 830 (830) – – 695 – 2 (14) 306 683 305 932 – LBK31 922 670 (2 670) – – 2 271 – (6) (64) 922 201 924 833 – LBK32 506 429 (6 429) – – 5 937 – 546 (36) 506 447 500 497 – LBK33 504 513 (4 513) 250 000 – 4 100 – 2 642 (87) 756 655 755 535 – LBK35 450 621 (621) 550 000 – 1 234 – (32) (137) 1 001 065 1 002 003 – LBK36 – – 200 000 – 261 – (38) (11) 200 212 199 995 – LBK37 – – 800 000 – 1 150 – (5) (156) 800 989 799 980 – LBK38 – – 513 252 – 4 924 – (113) (137) 517 926 513 888 – LBK39U – – 980 000 – 1 830 – (203) (195) 981 432 980 000 – LBK40U – – 420 000 – 753 – (84) (83) 420 586 420 000 – LBK41U – – 815 000 – 2 845 – (178) (156) 817 511 815 000 Fixed rate notes – (137 442) – (690 000) 125 661 – 25 767 (95) 3 450 333 3 314 885 – LBK11 – (16 014) – (490 000) – – – – – – – LBK12U 201 862 (1 862) – (200 000) – – – – – – – LBK20 819 850 (24 850) – – 25 327 – 35 869 (22) 856 174 826 493 – LBK24 844 189 (39 189) – – 39 488 – (2 106) – 842 382 856 740 – LBK28 956 900 (31 900) – – 36 949 – (3 503) (24) 958 422 828 432 – LBK29 797 627 (23 627) – – 23 897 – (4 493) (49) 793 355 803 219 91 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) Amortised Effective Prepaid Opening Cost re– New Issues/ Repayment/ Accrued Discount/ Interest Rate Arranging Closing Fair Balance alignment Utilisation Settlements Interest Premium Adjustment Fees Balance Value Term Loans – Amortising 3 742 550 442 572 – (166 667) 11 717 – 41 620 (398 339) 3 673 453 4 438 956 5 year syndicated loan 166 792 (125) (166 667) – 7 year syndicated loan (Government guaranteed) (5 191) 5 191 (3 778) (3 778) 10 year syndicated loan (MIGA supported) 3 580 950 437 505 11 717 41 620 (394 561) 3 677 231 4 438 956 Term Loans – Bullet Term 995 613 4 387 – – 4 361 – (5 861) 998 500 1 030 894 3 year term facility 1 000 816 (816) 4 361 0 (2 607) 1 001 754 1 030 894 6 year syndicated loan (Government guaranteed) (5 203) 5 203 (3 254) (3 254) Step Rate Notes 4 014 047 (53 047) – (2 961 000) 13 972 – 17 – 1 013 989 1 056 975 Step Rate Notes 4 014 047 (53 047) (2 961 000) 13 972 17 1 013 989 1 056 975 Total Commercial Funding 42 172 805 782 615 30 402 860 (33 668 949) 235 545 (443 786) 69 168 (409 627) 39 140 630 39 912 181 Multilateral and Development Funding Term Loans – Amortising 1 766 618 (4 641) 300 000 (143 806) 13 706 – (454) (6 945) 1 924 478 2 117 322 10 year term loan – KFW 891 922 7 328 (52 897) 458 (257) (6 945) 839 609 949 670 12 year term loan – EIB 1 – – – 15 year term loan – AFDB 782 682 (9 955) (90 909) 8 048 (188) 689 678 708 071 25 year term loan – World Bank 2 92 015 (2 015) 300 000 5 200 (10) 395 190 459 581 Total Multilateral and Development Funding 1 766 618 (4 641) 300 000 (143 806) 13 706 – (454) (6 945) 1 924 478 2 117 322 Disaster Relief Funding Drought Relief 318 496 135 19 048 (50 000) 3 021 – – (3 274) 287 426 274 225 10 year term loan – IDC 318 496 135 19 048 (50 000) 3 021 (3 274) 287 426 274 225 Total Disaster Relief 318 496 135 19 048 (50 000) 3 021 – – (3 274) 287 426 274 225 Total Funding Liabilities 44 257 919 778 109 30 721 908 (33 862 755) 252 272 (443 786) 68 713 (419 846) 41 352 534 42 303 728 Land Bank Group 92 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) Reconciliation of notes in issue¹ 2021 2020 R’000 R’000 Opening balance 16 055 252 13 254 800 Notes issued: Issue date Maturity date LBK33 2nd tap 25 April 2019 07 December 2025 – 250 000 LBK35 1st tap 25 April 2019 26 March 2024 – 550 000 LBK36 25 June 2019 25 June 2020 – 200 000 LBK37 25 June 2019 25 June 2024 – 800 000 LBK38 17 February 2020 16 February 2023 – 513 252 LBK41U 16 March 2020 16 March 2021 – 815 000 LBK39U 23 March 2020 23 March 2025 – 980 000 LBK40U 23 March 2020 23 March 2023 – 420 000 Notes redeemed: LBK08 30 October 2014 30 October 2019 – (325 000) LBK11 28 November 2014 28 November 2019 – (490 000) LBK16 30 November 2016 30 November 2019 – (189 800) LBK12U 25 February 2015 25 February 2020 – (200 000) LBK17 22 March 2017 22 March 2020 – (523 000) 93 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) Reconciliation of notes in issue¹ 2021 2020 R’000 R’000 Notes redeemed: LBK29 Capital Reduction (9 000) – LBK22 Capital Reduction (68 160) – LBK36 Capital Reduction (24 000) – LBK15 Capital Reduction (161 198) – LBK18 Capital Reduction (86 790) – LBK33 Capital Reduction (88 800) – LBK23 Capital Reduction (73 279) – LBK26 Capital Reduction (29 400) – LBK27 Capital Reduction (242 397) – LBK30 Capital Reduction (36 360) – LB41U Capital Reduction (97 800) – LBK28 Capital Reduction (111 000) – LBK31 Capital Reduction (110 256) – LBK29 Capital Reduction (91 800) – LBK32 Capital Reduction (60 000) – LBK20 Capital Reduction (93 720) – LBK39U Capital Reduction (117 600) – LBK40U Capital Reduction (50 400) – LBK24 Capital Reduction (96 131) – LBK35 Capital Reduction (120 000) – LBK37 Capital Reduction (96 000) – LBK38 Capital Reduction (61 504) – Closing balance 14 129 657 16 055 252 Step rate notes Step rate notes secures long dated funding for the Bank but provides investors a put option every 3 months (notes are automatically reinvested if put option is not exercised). Interest rates under these notes increase quarterly if the put potion is not exercised. Land Bank Group 94 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20. Funding liabilities (continued) 2021 2020 R’000 R’000 Reconciliation of notes in issue¹ Opening balance 1 000 000 3 961 000 Notes redeemed: Issue date Maturity date SRN 1, tranche 1 20 October 2016 21 October 2019 – (465 000) SRN 1, tranche 2 28 October 2016 28 October 2019 – (465 000) SRN 2, tranche 1 01 November 2016 01 November 2019 – (200 000) SRN 3, tranche 1 08 November 2016 08 November 2019 – (565 000) SRN 1, tranche 3 25 November 2016 25 November 2019 – (116 000) SRN 5, tranche 1 24 May 2017 27 January 2020 – (575 000) SRN 5, tranche 2 25 May 2017 27 January 2020 – (575 000) SRN 4, capital reduction 11 May 2017 11 May 2022 (61 611) – SRN 4, capital reduction 10 May 2017 11 May 2022 (61 540) – Notes issued: SRN 4, capitalised interest 11 May 2017 11 May 2022 12 832 – SRN 4, capitalised interest 10 May 2017 11 May 2022 13 424 – 903 105 1 000 000 ¹ Excludes accrued interest, discount premium and prepaid arranging fees. 95 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 20.1 Development and multilateral funding Land Bank has the following development and multilateral funding lines available: –  R1.0 billion loan with the African Development Bank. the purpose of the loan is to on-lend to the Land Bank’s commercial and Development clients whom meet qualifying usage criteria. to Date R743 million has been utilised with a further R257 million available for qualifying projects. –  $93 million funding line with the World Bank. This facility is earmarked to give financial aid to participating financial intermediaries and direct beneficiaries. As at 31 March 2021 R90 million has been utilised. –  R899 million funding line with KfW Development Bank. This facility is earmarked to finance small-sized and medium-sized agricultural enterprises. To date the facility has been fully drawn and disbursed to qualifying projects. Disaster relief  The Land Bank has secured a R400 million facility with the Industrial Development Corporation for the sole purpose of providing concessionary loans to drought affected customers and is applicable to declared disaster areas as per the Government Gazette. The loan may be used for : • Production rehabilitation • Working capital and operational expenses required minimising further losses to current farming operations • Re-stocking of live stock • Preparing for future seasons necessary to continue the farmers’ normal sustainable farming operations • Enabling “carry-over” debt and consolidation of debt.  Loans under this arrangement would only be extended where there is a viable business case with repayment ability, as well as sufficient collateral to cover the potential losses to the Bank.To date the facility has been fully utilised. 20.2 Weighted average interest cost of commercial funding (NACM) 2021 2020 * Spread to 3 * Spread to 3 Short-term: ≤ 1 year 3% 2% Medium-term: > 1 year ≤ 5 years 4% 3% Long-term: > 5 years 4% 4% Total Cost of Funding 3% 3% Weighted average interest cost of development and multilateral funding (NACM) Long-term: > 5 years ** 3% 3% Weighted average interest cost of natural disaster relief funding (NACM) Long-term: > 5 years 1% 1% * Weighted average Jibar Only includes those funding lines for which there has been utilisation. ** Land Bank Group 96 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 21. Provisions Reconciliation of provisions – Group – 2021 Utilised during Reversed during Opening balance Additions the year the year Total Staff Incentives 527 1 200 (526) – 1 201 Leave pay 7 485 30 702 (3 930) – 34 257 Labour disputes 8 712 – – (8 712) – Litigation and claims 373 835 – (231 950) (36 886) 104 999 390 559 31 902 (236 406) (45 598) 140 457 Reconciliation of provisions – Group – 2020 Staff Incentives 24 091 25 000 (30 564) (18 000) 527 Leave pay 6 530 4 742 (3 787) – 7 485 Labour disputes 5 068 3 697 (53) – 8 712 Litigation and claims* 265 131 108 704 – – 373 835 300 820 142 143 (34 404) (18 000) 390 559 Reconciliation of provisions – Company – 2021 Utilised during Reversed during Opening 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 Reconciliation of provisions – Company – 2020 Staff Incentives 23 215 25 000 (30 215) (18 000) – Leave pay 6 301 4 681 (3 787) – 7 195 Labour disputes 5 068 3 697 (53) – 8 712 Litigation and claims* 265 131 108 704 – – 373 835 299 715 142 082 (34 055) (18 000) 389 742 97 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 21. Provisions (continued) Staff incentives The provision for discretionary performance bonuses is payable to employees and is determined by taking into account both the performance of the Bank as well as the performance of individual employees. Leave pay Accumulated leave is payable to employees upon termination of services. Provision for leave pay is calculated on the leave days outstanding at the end of the year multiplied by the cost to company of the employees in terms of employment contracts. Labour disputes Reversed during current year and disclosed as contingent liability. Refer to note 34. Litigation and claims Provision raised in respect of debtors loan guarantee and breakage fee. The debtors loan guarantee (BMCE bank) was settled during current year. Land Bank Group 98 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 22. Post-retirement obligation Medical benefit plan  The defined benefit obligation plan is unfunded. The estimated medical aid contributions for the next year effective 1 April 2021 amounts to R20.1 million (FY2020: R20.3 million). The time value of money has not been taken into account as it is believed that the difference will be insignificant. Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Movement in the present value of the Defined benefit obligation 1 April 285 362 301 316 285 362 301 316 Service cost – PRMA (1 541) (2 295) (1 541) (2 295) Interest cost – PRMA 32 444 26 672 32 444 26 672 Actuarial (losses) and gains on post-retirement obligation (16 582) (22 800) (16 582) (22 800) Benefits paid (15 683) (17 531) (15 683) (17 531) Defined benefit obligation 31 March 2021 284 000 285 362 284 000 285 362 Total expenses resulting from the Group’s defined benefit plans charged to income statement can be analysed as follows: Components of net periodic medical benefit cost: Service cost – PRMA (1 541) (2 295) (1 541) (2 295) Interest cost – PRMA (32 444) (26 672) (32 444) (26 672) Total included in interest and staff costs (33 985) (28 967) (33 985) (28 967) Total expenses recognised in profit or loss (33 985) (28 967) (33 985) (28 967) Actuarial (losses) recognised in other comprehensiveincome 16 582 22 800 16 582 22 800 99 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 22.1 Maturity profile of members Employee status Membership Profile 2021 Average age Average past Average number Number (years) service (years) of dependents Active 94 52 26 2 Pensioners 258 70 – – 352 Employee status Membership Profile 2020 Average age Average past Average number Number (years) service (years) of dependents Active 114 52 26 2 Pensioners 266 70 – 1 380 The actuarial valuation report complies with the requirements of Advisory Practice Note (APN) 301 of the Actuarial Society of South Africa in all respects that are deemed to be in the context of the exercise undertaken. The valuation is based on the Projected Unit Credit valuation method, as prescribed by IAS19. The actuarial assumptions are unbiased and mutually compatible, as required. The results of the valuation depend on the assumptions used. 22.2 Actuarial key assumptions used Medical inflation Contribution rates on the benchmark medical option, Bankmed, have increased by, on average, 4% over the period. This is less than the medical inflation assumptions of 8.5% and 8.6% made at the time of the last valuation. This resulted in a decrease in liability of approximately R12.3 million. Economic basis The net discount rate over the period has decreased by 0.9% and 0.6% for active members and continuation members respectively. This has caused an increase in liability of approximately R11.2 million. Mortality The liability has reduced by approximately R8 million due to a decrease in the number of pensioners. Land Bank Group 100 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 22.3 Sensitivity analysis The results are dependent on the assumptions used. The table below shows how the past service cost as at 31 March 2021 would be impacted by changes to these assumptions: Accrued Service Accrued Service Liabilities as at Liabilities as at 31.03.2021 31.03.2020 In-Service and Continuation Members (R'000) % Increase (R'000) % Increase Assumptions as above 284 000 285 362 Discount rate – increases by 1% p.a. 257 741 -9% 259 662 -9% Discount rate – reduces by 1% p.a. 315 285 11% 315 783 11% Medical inflation – increases by 1% p.a. 314 006 11% 313 940 10% Medical inflation – reduces by 1% p.a. 257 624 -9% 259 719 -9% Retirement age – 64 287 897 1% 285 114 2% Retirement age – 66 280 389 -1% 280 829 -2% 23. Interest income Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Measured at amortised cost Interest from loans and advances 3 025 295 4 114 551 3 025 148 4 114 551 Interest on short-term deposits 158 722 299 541 158 722 299 541 Interest from banks 49 875 50 801 45 523 45 521 Interest on premiums written 1 070 851 – – Interest on trade receivables – – – – 3 234 822 4 465 744 3 229 393 4 459 613 101 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 24. Interest expense Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Commercial funding 2 737 076 3 807 272 2 737 076 3 807 272 Development and multilateral funding 135 229 158 208 135 229 158 208 Interest on swaps & debentures* 93 329 (357) 93 329 (357) Arranging fees 66 371 65 741 66 371 65 741 Other 35 255 47 466 34 818 45 651 Total interest expense 3 067 260 4 078 330 3 066 823 4 076 515 * Reallocated from interest income during the current year. 25. Non-interest expense Account administration & Net Interest Margin fee expense¹ 301 334 361 877 297 378 357 209 Account administration & Net Interest Margin fee expense relate to management fees paid to intermediaries in terms of service level agreements relating to the Bank’s acquisition loan books. Net interest income (interest income less interest expense) earned from, ¹  and impairments incurred on these books are included under note, 23 note 24 and note 11 respectively. 26. Non-interest income Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Fee and commission income 48 041 71 462 49 242 72 628 Account administration fee income 41 697 64 546 41 697 64 546 Fund administration fees 6 296 6 916 6 296 6 916 Administration fee from LBLIC 48 – 1 249 1 166 Other 36 183 27 945 26 984 20 961 Investment property rentals 11 700 17 978 11 700 17 978 Sundry income 24 483 9 967 15 284 2 983 84 224 99 407 76 226 93 589 Land Bank Group 102 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 27. Operating profit from insurance activities Group 2021 2020 Net premium income R’000 R’000 Gross written premium 590 803 563 557 Long-term insurance contracts 4 947 5 404 Short-term insurance contracts 585 856 558 153 Gross written premium 600 226 563 289 Change in the unearned premium reserve (19 887) (3 672) Change in the unexpired risk reserve (URR) 5 517 (1 464) Less: reinsurance premium 440 018 420 431 Long-term insurance contracts 2 425 2 632 Short-term insurance contracts 437 593 417 799 Reinsurance premium written 447 964 421 081 Change in the unearned premium reserve (13 959) (2 588) Change in the unexpired risk reserve (URR) 3 588 (694) 150 785 143 126 Net insurance claims Long-term insurance contract claims 3 549 614 Claims paid 4 542 (404) Movement in notified claims (OCR) (993) 1 018 Short-term insurance contracts claims 71 760 130 647 Claims & assessment fees paid 80 548 149 580 Movement in IBNR (1 379) (13 228) Movement in outstanding claim provisions (7 409) (5 705) 75 309 131 261 Other costs from insurance activities Movement in policyholders' liability (29 048) 6 661 Net commission and administration fees (29 245) (39 158) (58 293) (32 497) 103 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 28. Investment income and fees Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 An analysis of revenue is as follows: Investment income from financial assets classified as at fair value through profit or loss: 76 844 100 983 17 875 318 781 Dividend income – Subsidiary – – – 300 000 Dividend income – other investments 28 391 28 647 13 056 12 818 Interest income 48 453 72 336 4 819 5 963 Investment management and performance fees (6 939) (9 845) (1 832) (4 538) 69 905 91 138 16 043 314 243 29. Gains and losses on financial instruments Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Losses on financial assets measured at amortised cost (18 270) (47 240) (18 270) (47 240) Fair value (losses) gains Designated at fair value through profit or (loss) (31 600) (2 384) (31 600) (2 384) Strategic trading assets 733 (723) 733 (723) Instruments in (Repos) (966) (139) (966) (139) Interest rate swap1 (31 367) (1 522) (31 367) (1 522) Investment income 239 495 (140 084) 81 937 (19 330) Realised gains 25 566 15 747 16 066 19 745 Unrealised fair value gains (losses) 213 929 (155 831) 65 871 (39 075) 207 895 (142 468) 50 337 (21 714) 1 To manage the Bank’s exposure to “basis risk” and in an effort to protect the Bank’s net interest margin, the Land Bank Board entered into an interest rate swap arrangement; hedging the mismatch moderately between the lending and funding rate. IFRS 9 require  gains and losses on this derivatives to be recognised in profit or loss when hedge accounting is not applied. Land Bank Group 104 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 30. Operating expenses Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Depreciation – Owned assets 2 338 6 084 2 281 6 025 Depreciation – Leased assets 25 571 25 399 25 408 25 236 Amortisation – computer software 5 277 6 052 5 277 6 052 Auditors remuneration – External auditors 16 264 15 139 14 391 13 919 – Current 12 796 11 671 10 923 10 451 – Prior year 3 468 3 468 3 468 3 468 Audit fees – Internal 142 1 210 142 1 210 Directors' emoluments 17 454 16 225 13 580 11 574 – Executive 10 788 7 856 7 234 4 536 – Non-executive 6 666 8 369 6 346 7 038 Management fees 537 1 355 537 1 355 Professional fees 22 603 33 527 17 978 29 888 Staff costs 398 894 397 924 383 191 384 192 – Salaries and contributions 391 287 387 735 375 965 374 399 – Staff related provisions and other 7 607 10 189 7 226 9 793 Other operating expenses 104 398 201 304 102 044 200 541 – Computer and data costs 26 546 28 752 26 118 28 679 – Repairs and maintenance 1 728 3 864 1 728 3 856 – Rates and taxes 7 827 9 229 7 827 9 229 – Travel and accommodation 621 8 008 584 7 582 – Corporate social investment 1 105 9 976 1 105 9 976 – Litigation and claims 10 187 67 970 9 778 67 970 – Other2 56 384 73 505 54 904 73 249 593 479 704 219 564 829 679 992 Other operating expenses includes sundry operating expenses such as security, short-term lease, cleaning and marketing, amongst others. 2 105 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 31. Non-trading and capital items* Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Fair value loss on investment properties (8 073) (250) (8 073) (250) Foreign exchange gain / (loss) 36 897 (40 904) 36 897 (40 904) Impairment of other assets 4 8 4 8 Non-current assets held-for-sale fair value adjustment – (11 899) – (11 899) Loss on disposal of property and equipment 442 (10) 442 (10) Profit on disposal of non-current assets held-for-sale 1 186 12 104 1 186 12 104 30 456 (40 951) 30 456 (40 951) *Once-off transactions that are not periodic in nature. 32. Indirect taxation Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Major components of the tax expense Value Added Tax¹ 52 220 65 764 51 856 65 622 ¹ Value-added taxation comprises the portion that is irrecoverable as a result of the interest earned in the South African financial services sector. Land Bank Group 106 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 33. Funds under administration Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Assets Cash balance held for the funds administered on behalf of the Department of Agriculture, Land Reform and Rural Development (DALRRD). 1 254 951 500 037 1 254 951 500 037 Liabilities DALRRD 1 254 951 500 037 1 254 951 500 037 1 254 951 500 037 1 254 951 500 037 Funds administered on behalf of DALRRD Agri-BEE fund 275 563 258 980 275 563 258 980 Administration fund – flood relief – 37 – 37 MAFISA fund 13 899 13 387 13 899 13 387 COVID-19 95 522 – 95 522 – Job fund 33 667 38 107 33 667 38 107 Emerging farmers' support facility & CGA Primary Project 190 811 185 527 190 811 185 527 Blended Finance 645 489 3 999 645 489 3 999 1 254 951 500 037 1 254 951 500 037 107 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 33. Funds under administration (continued) Group Company 2021 2020 2021 2020 Reconciliation of movement in funds under administration R’000 R’000 R’000 R’000 Agri-BEE Balance at the beginning of the year 258 980 201 992 258 980 201 992 Receipts 14 000 43 754 14 000 43 754 Accrued interest 9 852 14 455 9 852 14 455 Disbursements (7 269) (1 221) (7 269) (1 221) Balance at the end of the year 275 563 258 980 275 563 258 980 Poverty fund Balance at the beginning of the year 37 35 37 35 Accrued interest – 2 – 2 Transfer (37) – (37) – Balance at the end of the year – 37 – 37 MAFISA fund Balance at the beginning of the year 13 387 12 551 13 387 12 551 Accrued interest 512 836 512 836 Balance at the end of the year 13 899 13 387 13 899 13 387 Land Bank Group 108 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 33. Funds under administration (continued) Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 COVID-19 Balance at the beginning of the year – – – – Transfer from/(to) Land Bank 100 329 – 100 329 – Accrued interest 1 247 – 1 247 – Disbursements (6 054) – (6 054) – Balance at the end of the year 95 522 – 95 522 – Job fund Balance at the beginning of the year 38 107 – 38 107 – Receipts – 37 988 – 37 988 Accrued interest 1 339 314 1 339 314 Disbursements (3 402) – (3 402) – Transfer (2 377) (195) (2 377) (195) Balance at the end of the year 33 667 38 107 33 667 38 107 Blended Finance Balance at the beginning of the year 3 999 367 816 3 999 367 816 Receipts – 148 061 – 148 061 Accrued interest 16 027 22 069 16 027 22 069 Disbursements (2 305) (1 480) (2 305) (1 480) Transfer from/(to) Land Bank 627 769 (532 467) 627 769 (532 467) Balance at the end of the year 645 490 3 999 645 490 3 999 109 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 33. Funds under administration (continued) Description of the funds under administration Agri-BEE Fund Parliament approved a sector specific allocation for the Agri-BEE Fund that will allocate grants to promote the rural community based empowerment Groups.The Bank acts as an agent on behalf of the DALRRD in the administration of the Fund. Disbursements amounted to R8.002 million (FY2020:Rnil). An injection of R14m (FY2020:R43.8 million) from DALRRD and Rnil (FY2020: Rnil) from clients own contributions was received during the current financial year. Poverty Fund The fund has been set up by the DALRRD to respond to any food crisis by means of procurement of agricultural implements and starter packs. MAFISA Fund The MAFISA Fund has been set up on request of the DALRRD to invest money in approved projects of the Department through on-lending to individuals. Monies received from the DALRRD for the MAFISA Fund is invested in a separate bank account on behalf of the DALRRD. No on-lending has taken place during the period under review.There were no injections during the current period under review (FY2020:Rnil). Blended Finance The Blended Finance fund has been set up on request of the DALRRD to provide blended support to Black Commercial Producers in the agricultural, forestry and fisheries sectors in an attempt to accelerate agricultural development and to transform these sectors. The support will include blended funding, skills and technical support required by these producers. The Land Bank is responsible for the utilisation of it’s own existing infrastructure and discretion to consider loan applications from Black Commercial Producers, and all funds are received in an interest bearing account. The DALRRD injected Rnil million (FY2020:R148.1 million) which is used to support Black Commercial Producers either in the form of equity contributions or interest rate subsidy, technical support contributions. COVID-19 The sole purpose of the Fund is to provide relief to distressed farmers affected by the COVID-19 pandemic who are involved in the entire food value chain, from farm-related operations, agro- processing, food manufacturing, logistics and related services, wholesale and retail services to all support functions that ensure efficient delivery of the agro-food system, and are existing clients of Land Bank. COVID Relief Fund” is a fund created by DALRRD to be administered by Land Bank with the sole purpose being to address the challenges created for farmers and/or producers by the COVID– 19 Pandemic in South Africa. There was refund by Land Bank of R103m during the current period under review (FY2020:Rnil) and disbursements amounted to R 6m (FY2020:Rnil). Jobs Fund The specific goal of the Fund is to provide a mechanism that can identify and fund creative solutions to overcome identified short-term barriers to job creation and a better functioning labour market. Furthermore, the Fund’s aim is to catalyse innovation in job creation through structured and strategic Private and Public Sector Partnership. Disbursements amounted to R3.402m (FY2020:Rnil) and an injection of Rnil (FY2020:R37.988 million) to the Fund received during the current period under review. Land Bank Group 110 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 33. Funds under administration (continued) Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 CGA Primary Project Facility Asset Cash balance held for the support facilities 190 812 185 528 190 812 185 528 Liabilities Emerging farmers support facility 190 810 183 733 190 810 183 733 CGA Primary Project Facility 2 1 795 2 1 795 190 812 185 528 190 812 185 528 Emerging farmers support facility Balance at the beginning of the year 183 733 171 898 183 732 171 898 Accrued interest 7 078 11 834 7 078 11 834 Balance at the end of the year 190 810 183 733 190 810 183 732 Balance at the beginning of the year 1 795 1 684 1 795 1 684 Accrued interest (1 794) 111 (1 794) 111 Balance at the end of the year 1 1 795 1 1 795 Description of the emerging farmers support & REM wholesale finance support facility 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 farmers all have mortgage loans with the Land Bank and the Bank can only access the guarantee after complying with conditions as set by the Department of Rural Development and Land Reform. No transfers (FY2020:Rnil) to the Blended Finance support facility in the current financial period. 111 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 33. Funds under administration (continued) CGA Primary Project Facility** The Land Bank received a total of R150 million from the Department of Rural Development and Land Reform between October 2011 and July 2016 under this facility. The funds are meant to subsidise interest payable to the Land Bank and remunerate appointed intermediaries that identify and provide technical assistance to the Retail Emerging market farmers under this wholesale finance facility. The Land Bank and the appointed intermediaries receive interest of 4% p.a each on the loans disbursed by Land Bank to the intermediaries. The intermediaries charge the REM farmers 4% p.a. on the value of the loans disbursed for their role of supporting the emerging farmers with skills and other facilities that enhance their success. This interest is paid from the aforesaid funds. There were no injections into the fund during the current period under review (FY2021: Rnil). There were no Disbursements in the current period under review (FY2020: Rnil). ** CGA Primary Project Facility previously named REM wholesale finance support facility 34. Contingencies LBLIC Tax: The former LBIC, as a wholly owned subsidiary of Land Bank, was exempt from Income Tax in terms of section 10(1)(cA)(ii) of the Income Tax Act, 58 of 1962. With effect 01 April 2012, LBIC 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) previously known as the Financial Services Board (“FSB”). The restructured insurance Group now consists of LBIS Holding Co, LBIC (Short-term insurance co) and LBLIC (Long-term insurance co). As part of the implementation of LBIC’s restructure during FY2014 LBIS Group management approached the South African Revenue Services (“SARS”) for a tax ruling to confirm that the tax privileges of the former LBIC, would still apply to the restructured Group, as in effect nothing has changed, i.e. all companies effectively remain 100% owned by the Land Bank, albeit “indirectly”. The tax ruling received back from SARS was negative, stating that because of the inclusion of the LBIS holding company within the insurance Group structure, the LBIC and LBLIC operating companies would not be entitled to exemption from Income Tax, as unlike the former LBIC – these companies were not “direct” wholly owned subsidiaries of the Land Bank. LBIS Group management then approached the Minister of Finance requesting approval for the removal of the LBIS holding company, from the Group structure. The Minister of Finance granted approval for the request to remove the LBIS holding company on 14 May 2014, with effect 1 April 2014. This approval allows that in terms of the new Group structure both LBIC (Short-term Insurance Company) and LBLIC (Long-term Insurance Company) can apply for tax exemption in terms of section 10(1)(cA)(ii) of the Income Tax Act, 58 of 1962. Following the Ministerial approval, management is re-engaging SARS with the application for an tax exemption from 1 April 2012 – 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)(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 2014. The FSCA has approved the new structure. In the unlikely event that SARS does not waive the tax liability for the period when 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 had not been resolved as at 31 March 2021 and it is still in progress. Land Bank Group 112 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 34. Contingencies (continued) Commission and cost on sale of properties: Upon Land Bank realising that the appointment of a certain service provider was not in accordance with Land Bank processes, Land Bank approached the High Court seeking an order to declare such appointment as unlawful and invalid. Subsequent to the service provider being informed of the fact that their appointment may be irregular and unlawful, the service provider issued two invoices, first in an amount of R201 thousand for the advertising and auction costs and the second in the amount of R3.2 million relating to the 10% commission which the service provider alleges Land Bank is liable to pay in terms of the purported agreement between Land Bank and the service provider (which Land Bank believes is unlawful and invalid). It must be noted that the 10% commission amount of R3.2 million was purely based on an estimate by the service provider based on the reserve price of the total possible purchase price of the properties that they were supposed to auction. The auction never took place and it remains uncertain whether or not the properties in question would have yielded the expected purchase price as estimated by the service provider. Management is of the view that it is improbable that the envisaged claim by the service provider will be successful. The matter had not been resolved as at 31 March 2021 and it is still in progress hence its reflected as a contingent liability. Penalty fee: The contingent asset relates to an early withdrawal penalty fee charged on an investment that the Land Bank had made with one of the banks during the 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 resolved as at 31 March 2021 and it is still in progress. Riverside redeemable convertible preference shares: In September 2018 Land Bank approved the subscription of redeemable convertible preference shares in Riverside Holdings for a total subscription amount of R40m. Terms and conditions were stipulated which need to be met satisfactory to Land Bank, before the disbursement for the preference shares can be made. The Bank will have an obligation to acquire the preference shares and recognise an asset only if all the conditions are met. Therefore, a contingent asset and liability has to be considered for disclosure in the current year financial statements (FY2021) on the basis that the existence is based on certain conditions being met. The Bank will have an obligation to acquire the preference shares only if all the conditions (target profit and suspensive conditions) are met (obligating event). This will both result in an outflow of resources (disbursement of R40m) and inflow of resources (recognising asset for future economic benefits). Therefore, an asset and liability will only be recognised in the FY2022 financial year on the basis that the existence is based on all the conditions (profit and suspensive conditions) being met. The Bank will have an obligation to acquire the preference shares when all the conditions (profit and suspensive conditions) have been met (obligating event). This will both result in an outflow of resources (contingent liability – disbursement of R40m) and inflow of resources (contingent asset – recognising asset for future economic benefits). As at 31 March 2021, not all the conditions were met. 113 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 34. Contingencies (continued) CCMA and Labour Court cases Land Bank dismissed three staff members. The case is still with CCMA and Labour Court. These staff members were paid all the benefits that were due to them when they were dismissed. As a result of this incident, the Bank estimated a contingent liability amounting R8.7m. Default Interest There is a possible legal claim against Land Bank from National Credit Act (NCA) and non-NCA clients that were previously administered by on of the Service Level Partners (SLA) of the Land Bank. Their claim is that the SLA charged them 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. Therefore this matter will be presented before the National Credit Regulator to ascertain which interpretation of the law is correct. Therefore, until a ruling has been received from the NCR, this matter is disclosed as a contingent liability pending the ruling and possible legal action by those affected customers. Bosveld Investment (ETG Group guarantee): The contingent asset relates to Bosveld Investment, which was fully impaired in FY 2020. The bank was unable to get projected cash flows and the plant has been decommissioned since 2013. The due diligence requested by the Land Bank in 2019 has not made any reliable progress due to lack of information from the investee. The bank should be entitled to the guarantee of R270m less the non- recoverable debtors of R56m which equates to R214m. Recovering this amount will need to follow the legal process as guided by the agreements and will entail Land Bank successfully surrendering the warrant certificates to ETG Group. Land Bank Group 114 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 35. Commitments Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 35.1 Loan commitments and guarantees Guarantees¹ 15 580 14 854 15 580 14 854 Loan commitments* 4 366 729 5 381 858 4 366 729 5 381 858 4 382 309 5 396 712 4 382 309 5 396 712 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 Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 35.2 Debentures/stock purchased Repo's and market making – R186 (Nominal value: R10 million) – 10 305 – 10 305 – LBK28 (Nominal value: R10 million) – 9 190 – 9 190 – R186 (Nominal value: R5 million) – 5 153 – 5 153 – 24 648 – 24 648 Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 35.3 Operating lease commitments – as lessor (income) Minimum lease payment due – First year 823 2 612 823 2 612 – Fifth year 489 1 208 489 1 208 1 312 3 820 1 312 3 820 Certain of the Group properties is held to generate rental income and premises for its day-to-day operations. Lease agreements are non-cancellable and have terms from 2 to 6 years. there are no contingent rents receivable. 115 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 36. Related party transactions Relationships between parents, subsidiaries and associates The ultimate controlling party of the Land Bank is the Government of the Republic of South Africa, represented by National Treasury. The following represents the significant subsidiaries of the Bank: Ownership Interest 2021 2020 Land Bank Life Insurance Company (SOC) Limited (LBLIC) 100% 100% Land Bank Insurance Company (SOC) Limited (LBIC) 100% 100% 2021 2020 Transactions with related parties other than key management personnel R’000 R’000 36.1 Amounts received from related parties during the year (i) Land Bank Life Insurance Company (SOC) Limited – Subsidiary1 Policy administration fees received by Land Bank 240 233 Portion of Non-executive Directors emoluments paid by LBLIC 80 80 Property and equipment transferred (from)/ to LBLIC (at NAV) – 25 320 338 (ii) Land Bank Insurance Company (SOC) Limited – Subsidiary1 Policy administration fees received by Land Bank 961 933 Portion of Non-executive Directors emoluments paid by Land Bank 320 320 Property and equipment transferred to LBIC (at NAV) 14 108 1 295 1 361 Capital contribution from Land Bank – Cash 200 000 100 000 Land Bank Group 116 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 36. Related party transactions (iii) National Treasury – Stakeholder With effect from 14 July 2008, the administrative powers over the Bank were transferred from the Ministry of the Department of Agriculture to the Ministry of Finance and, in accordance with the Land Bank Act, 2002, has the following role and responsibilities: The Minister in terms of paragraph 7 - (a) Is responsible for the development of policy with regard to agriculture, agrarian reform and matters incidental thereto; and (b) May from time to time issue policy directives to the Board not inconsistent with this Act. 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 not exceed five years. Transactions during the year No financial support in the form of cash injections was received during the current and previous financial year. Government Support – Financial Guarantees As at 31 March 2021, the Land Bank held a total of R9.6 billion guarantees which can be broken down as follows: – R1.5 billion sustainability guarantee (fully utilised) – R8.0 billion funding guarantees ( Unutilised balance of R2.2 billion) – R0.1 billion historic “consolidation of debt” guarantee. (Not utilised yet) An annual fee of 0.3% per annum is payable to National Treasury on the guarantees granted (refer to note 24). (iv) Other related parties The Bank obtains funding from institutions, of which the most significant nominal values are disclosed below: 117 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 36. Related party transactions (continued) 2021 2020 R’000 R’000 Funding received2 Corporation for Public Deposits 1 163 800 992 500 Industrial Development Corporation 517 157 587 679 National Housing Finance 105 600 120 000 Petro SA 842 486 957 371 Post Bank 911 592 1 030 000 Public Investment Corporation 6 608 800 7 870 000 Magalies Water Trans-Caledon Tunnel Authority 89 648 100 000 South African Special Risks Insurance Association 10 239 083 11 657 550 Other government related parties: African Development Bank 590 909 681 818 10 829 992 12 339 368 Land Bank Group 118 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 36. Related party transactions (continued) 2021 2020 36.2 Amounts owed by/(to) related parties R’000 R’000 Subsidiaries3 Land Bank Life Insurance Company (SOC) Limited (LBLIC) – – Land Bank Insurance Company (SOC) Limited (LBIC) 1 473 6 683 Funds under administration DALRRD 1 030 473 314 510 Micro-Agricultural Finance Institution 13 899 13 387 Agricultural Broad Based Black Economic Empowerment 275 563 258 980 Development Subsidy – 37 Flood Relief 645 489 3 999 Job Fund – 38 107 COVID-19 95 522 – CGA Primary Project Facility 190 811 185 528 1 221 284 500 038 (i) Agricultural Broad Based Black Economic Empowerment (Agri-BEE) Agricultural Broad Based Black Economic Empowerment (Agri-BEE) 275 563 258 980 275 563 258 980 Cash balances held for funds administered 275 563 258 980 119 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 36. Related party transactions (continued) 2021 2020 R’000 R’000 (ii) Micro-Agricultural Finance Institution (MAFISA) Bank balances of the MAFISA fund 13 899 13 387 MAFISA fund balance 13 899 13 387 (iii) CGA Primary Project Facility CGA Primary Project Facility 190 811 185 528 190 811 185 528 Cash balance held for the support facilities 190 811 185 528 (vi) Blended Finance Facility Blended Finance Facility 645 489 3 999 Cash balance held for the support facilities 645 489 3 999 Total amount owed to related parties 1 221 284 500 038 Total cash balance held for the support facilities 1 221 284 500 038 Transactions between subsidiaries1 An administration fee of R0 million (FY2020: R13.3 million) was charged to LBIC, the short-term company, for services rendered by LBLIC. Amounts owed to LBLIC by LBIC – 13 556 Land Bank Group 120 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 36. Related party transactions (continued) 2021 2020 R’000 R’000 Services paid/(received) to related parties LBLIC – Salaries 13 629 13 325 LBIC – Salaries (13 629) (13 325) – – Total subsidiary contributions to medical aid fund – 513 Service fees charged to LBIC for medical aid – (410) LBLIC medical aid – 103 Total subsidiary contributions to retirement fund – 1 030 Service fees charged to LBIC for Group Life Insurance – (824) LBLIC retirement fund – 206 Remuneration recharge to LBIC (13 629) (14 559) Transactions with key management personnel4 Short-term employee benefits 514 778 Other long-term benefits 3 5 Termination benefits – 1 024 517 1 807 1 Transactions with subsidiaries are made in the ordinary course of business and on substantially the same terms, as those prevailing at the time for comparable transactions with other third parties. These transactions also did not involve more than the normal risk of collectability or present other unfavourable features.There was no ECL at the Statements of Financial Position date and no bad debt expense in the year (FY2020: Rnil) relating to this intercompany transaction. 2 The funding from related parties are all short-term financial instruments which are repayable within a year.The funding consists mainly of promissory notes and bonds.These transactions were made on terms equivalent to those that prevail in arm’s length transactions. 3 The intercompany account is held as a trading account between LBIC, LBLIC and it’s holding company, Land Bank. In terms of the shareholders’ agreement the loan is unsecured and has been sub-ordinated by Land Bank. Settlement will take place in cash. A decision was taken by the executive of the holding company that no interest would be charged on the outstanding loan balance during the current and prior financial periods under review. 4 Key management personnel comprises the Group’s executive management (including executive Directors) and non-executive Directors. 121 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group Financial risk management Credit risk Credit risk refers to a loss suffered by a party whereby the counterparty fails to meet its financial obligations to the party under the contract. Credit risk may also arise if there is an increasing risk of default by the counterparty throughout the duration of the contract. The definition of credit risk includes: a. Credit evaluation risk: Risk related to the decreased credit worthiness (based on recent financial performance) of a counterparty to a transaction. A creditor may subsequently charge the downgraded entity a higher lending rate to compensate for the increased risk. For a creditor, downgrade risk may eventually lead to default risk. Credit concentration risk: Risk related to any single exposure or Group of exposures large enough to cause credit losses which threaten the Bank’s capital adequacy or ability to maintain its core b.  operations. It is the risk that a common factor within a risk type or across risk types fails or an event occurs which causes credit losses. c. Credit default risk: Risk related to the non-payment of interest and/ or capital on a loan by the borrower to the lender. This translates into a loss to the institution as a result of failure by a counterparty to meet its financial and/or contractual obligations. Counterparty risk: Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations. Counterparty risk is a risk to both parties and should d.  be considered when evaluating a contract. In most financial contracts, counterparty risk is also known as default risk. As an important partner in the execution of the Bank’s development mandate, the bank however needs to comply with statutory and regulatory requirements to ensure that the Bank’s activities do not lead over indebtedness in this market segment. Policy and responsibility The key components of the current general credit policy are the following: • The primary role of the Bank is to provide finance to the agricultural sector; • In its mandate, the Bank seeks to satisfy the needs of its customer base while maintaining a sound credit portfolio; • The Bank insists on a thorough assessment of the client’s financial position and repayment ability during the loan decision process, resulting in better quality credit decisions which result in timeous loan repayments and reduced losses in the event of a default; • For the vast majority of the products, credit is granted on the basis of insight into the customer’s circumstances and of specific assessments that provide a context for such credits; • The facilities should match the customer’s credit worthiness, capital position or assets, and the customer should be able to substantiate his or her repayment ability, and • The Group may assume risks only within the limits of applicable legislation and other rules, including the rules of good practice for financial enterprises. Land Bank Group 122 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Credit risk management process The credit risk management process has four stages. The stage can be summarised as follows: – Credit origination entails gathering of application information, pre-screening for viability and mandate fit, client assessment and validation of business case through a due diligence. – Credit assessment entails validation of submitted documentation from origination, risk rating and pricing, viability and affordability assessment, risk mitigation and determining appropriate terms and conditions within the Bank’s risk appetite. – Negotiating and contracting entails drafting and signing of legal documentation, ensuring all conditions precedence have been met in order effect disbursement of the loan. – Portfolio Monitoring entails ongoing monitoring and evaluation, including base line studies, to ensure social impact and financial expectations have been met, Board representation, business development support by designated teams (agricultural, financial etc.). Risk classification The Bank monitors the repayment record of its customers on an ongoing basis to ensure that any deterioration in repayment records is detected as early as possible. As part of the collection process, customers are classified according to risk, and the classification is updated on receipt of new information about the customer. The main objectives of risk classification are to rank the Bank’s customer base according to risk so as to estimate the probability of default (PD) of each customer. The risk classifications used in the day- to-day credit process are based on point-in-time estimates. This means that the Bank uses a customer’s present general and financial situation as a starting point. A change in the customer’s situation or financial position therefore results in an upgrade or downgrade of that customer. The Bank adheres to the principle that all classifications should reflect the customer’s current situation to the greatest extent possible. Credit risk – insurance activities LBLIC is exposed to credit risk through its investment portfolios. To counteract this risk, investment portfolios are managed in terms of investment mandates that are aligned to Insurance companies’ investment strategy. Investment mandates provide guidelines in terms of the average credit quality of financial instruments in the portfolio as well as limits on concentration risk.  The insurance companies are also exposed to credit risk in respect of their working capital assets from balances owed by counterpar ties. The following are some of the main credit risk management actions: The use of reinsurance exposes the Group to credit risk. The counterparty risks of reinsurers are managed through formal contractual agreements which have been set up between the Group and reinsurers. These agreements include terms and conditions which regulates the relationship between the Group and reinsurers. Credit risk in respect of reinsurance is further managed by placing the Group’s reinsurance only with companies that have high credit ratings. LBLIC and LBIC has quota share reinsurance treaties with internationally AA rated reinsurance companies. In addition to the proportional reinsurance treaty, another layer of reinsurance in the form of a stop loss is in place to limit the total exposure per individual claim. For overseas reinsurers, LBLIC retains 40% of ceded written premiums under quota share treaties and settles payments with the reinsurers 1 year after the placement in order to reduce the credit risk. LBIC has a stop loss insurance treaty on the crop business with internationally AA– rated reinsurance companies. For foreign reinsurers on the crop portfolio, LBIC retains 40% of ceded written premium as deposit premium on the quota share treaty, which is released twelve months later. A portion of the outstanding claims is also retained on the quota share accounts each quarter, which is recalculated the following quarter. For the foreign approved reinsurer, the company is issued with an updated bank guarantee through domestic AA rated bank for outstanding balances each quarter. 123 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) The maximum exposure to credit risk is presented in the table below: Gross carrying Credit loss Amortised cost/ Gross carrying Credit loss Amortised cost mount allowance fair value amount allowance /fair value R’000 R’000 R’000 R’000 R’000 R’000 Asset class with asset credit risk exposure* 45 995 175 (6 043 304) 39 951 870 49 440 914 (5 704 095) 43 736 819 Loans and advances 36 931 164 (6 043 304) 30 887 859 45 174 590 (5 704 095) 39 470 495 Cash at bank 5 589 889 – 5 589 889 722 711 – 722 711 Trade and other receivables (excluding prepaid expenses) 980 122 – 980 122 1 109 986 – 1 109 986 Short-term insurance assets 159 014 – 159 014 169 906 – 169 906 Long-term insurance assets 4 987 – 4 987 11 786 – 11 786 Repurchase agreements – – – 19 495 – 19 495 Hedging derivatives 11 340 – 11 340 79 064 – 79 064 Strategic trading assets – – – 5 153 – 5 153 Investments** 2 318 659 – 2 318 659 2 148 223 – 2 148 223 Asset class without asset credit risk exposure 213 828 – 213 828 330 867 – 332 786 Intangibles 2 766 – 2 766 8 044 – 8 044 Other trade receivables 63 381 – – 120 575 – 120 575 Prepaid expenses 5 922 – 5 922 5 173 – 7 091 Investment property 95 100 – 95 100 15 000 – 15 000 Right-of-use of Leased Assets 20 746 – 20 746 47 993 – 47 993 Non-current assets held-for-sale 4 058 – 4 058 105 112 – 105 112 Property and equipment 21 855 – 21 855 28 971 – 28 971 Total assets per Statements of Financial Position 46 209 002 (6 043 304) 40 165 698 49 771 781 (5 704 095) 44 069 605 Add off balance sheet items exposed to credit risk Guarantees issued 15 580 – 15 580 10 550 – 10 550 Loan commitments 4 366 729 – 4 366 729 4 552 431 – 4 552 431 Operating lease commitments – Group as lessor 1 312 – 1 312 3 820 – 3 820 50 592 624 (6 043 304) 44 549 319 54 338 582 (5 704 095) 48 636 406 Maximum credit exposure – selected items 50 378 796 (6 043 304) 44 335 491 54 007 715 (5 704 095) 48 303 620 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 11 for collateral held against the loans and advances. ** Included in the Group investments is an amount of R1.16 billion (FY2020: R1.09 billion) which relates to investments under asset management which do not have credit exposure (Bank: R228.3 million; FY2020: R154.9 million). Land Bank Group 124 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Gross loan book exposure by agricultural sector 2021 Corporate Banking and Structured Investments Commercial Development and Business Banking Classification by loan performance Stage 2: Stage 1: Under– Stage 3: Non- Direct Total Direct Indirect Total Total Performing performing performing Agricultural Sector R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Agri-Business 135 539 135 539 4 552 937 1 041 747 5 594 684 5 730 223 748 865 1 804 033 3 177 325 Agro-processing – – – 60 667 60 667 60 667 – 20 753 40 187 Citrus 160 466 160 466 125 288 441 338 566 625 727 091 566 947 35 159 124 986 Cotton – – 6 513 412 6 924 6 924 556 5 056 1 312 Dairy – – 339 368 296 456 635 824 635 824 301 146 25 426 309 252 Deciduous fruit 245 603 245 603 149 289 191 898 341 187 586 790 375 131 28 277 183 382 Equipment – – – 33 809 33 809 33 809 25 584 13 8 212 Feedlot 30 668 30 668 26 130 – 26 130 56 798 36 400 5 137 15 262 Financial Services 879 178 879 178 575 382 496 917 1 072 300 1 951 478 845 119 501 224 605 135 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 Grain 4 985 240 4 985 240 1 480 004 9 875 517 11 355 521 16 340 760 5 803 967 6 850 912 3 685 604 Inputs supplier 14 630 14 630 – 39 634 39 634 54 264 52 249 2 015 – Livestock 218 438 218 438 2 788 092 454 855 3 242 947 3 461 386 1 730 868 189 091 1 541 427 Logistics – – – 513 875 513 875 513 875 398 875 114 999 – Nuts 32 147 32 147 185 550 84 272 269 822 301 969 220 976 12 593 68 400 Ostriches – – 53 012 – 53 012 53 012 20 801 9 683 22 528 Other 392 591 392 591 1 378 059 79 272 1 457 331 1 849 922 424 672 329 966 1 095 285 Pork 53 860 53 860 25 826 – 25 826 79 686 57 685 351 21 650 Poultry 300 845 300 845 177 643 144 707 322 351 623 196 266 547 283 000 73 649 Subtropical Fruit – – 33 382 193 33 575 33 575 18 051 868 14 656 Sugarcane 297 722 297 722 257 796 146 957 404 753 702 475 228 073 395 906 78 496 Table grapes – – 240 753 134 377 375 129 375 129 277 156 18 510 79 463 Tea – – 28 054 – 28 054 28 054 20 063 – 7 995 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 13 589 391 11 331 172 12 010 600 125 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Gross loan book exposure by agricultural sector 2020 Corporate Banking and Structured Investments Commercial Development and Business Banking Classification by loan performance Stage 2: Stage 1: Under– Stage 3: Non- Direct Total Direct Indirect Total Total Performing performing performing Agricultural Sector R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Agri-Business 449 030 449 030 69 938 700 814 770 752 1 219 782 708 487 340 466 170 829 Agro-processing – – – 504 202 504 202 504 202 415 440 10 763 77 998 Citrus 337 443 337 443 84 093 497 541 581 634 919 077 794 739 75 119 49 219 Cotton – – 1 505 291 181 292 686 292 686 213 518 39 234 39 934 Dairy – – 301 836 455 359 757 195 757 195 368 614 59 523 329 058 Deciduous fruit 369 591 369 591 174 958 187 011 361 969 731 560 637 207 32 639 61 712 Equipment – – – 64 336 64 336 64 336 54 689 2 914 6 733 Feedlot 43 184 43 184 24 628 – 24 628 67 812 55 439 – 12 372 Financial Services 1 049 197 1 049 197 599 108 1 327 744 1 926 852 2 976 049 2 614 387 77 949 283 714 Flowers – – 4 431 – 4 431 4 431 4 431 – – Fodder – – 86 634 157 891 244 525 244 525 172 876 11 697 59 951 Game – – 190 823 29 223 220 046 220 046 131 517 – 88 528 Grain 5 460 948 5 460 948 1 406 800 17 358 361 18 765 161 24 226 109 10 496 042 6 064 809 7 597 059 Inputs – – – 54 390 54 390 54 390 33 290 3 369 17 731 Inputs supplier 26 694 26 694 67 66 723 66 790 93 484 34 287 3 158 56 040 Irrigations scheme – – – 253 253 253 253 253 253 225 895 404 26 954 Livestock 219 515 219 515 2 772 529 2 067 637 4 840 166 5 059 681 3 608 105 302 186 1 149 390 Logistics – – – 272 065 272 065 272 065 272 065 – – Nuts 216 551 216 551 155 434 81 184 236 618 453 169 403 422 13 164 36 583 Ostriches 4 408 4 408 54 357 – 54 357 58 765 28 145 5 387 25 233 Other 325 121 325 121 29 364 600 220 629 584 954 705 1 081 352 227 004 285 450 Pork 39 614 39 614 22 872 – 22 872 62 486 42 147 8 700 11 639 Poultry 402 343 402 343 229 643 182 807 412 450 814 793 737 948 871 75 975 Subtropical Fruit – – 32 784 104 113 136 897 136 897 96 847 9 447 30 604 Sugarcane 633 486 633 486 269 337 267 346 536 683 1 170 169 961 764 128 532 79 874 Table grapes – – 239 586 187 212 426 798 426 798 345 633 8 592 72 573 Tea – – 28 204 – 28 204 28 204 24 017 – 4 187 Timber 504 196 504 196 70 487 415 463 485 950 990 146 950 275 8 632 31 239 Tobacco – – 4 725 147 191 151 916 151 916 77 190 34 312 40 413 Vegetables – – 369 962 567 111 937 073 937 073 641 891 113 210 181 971 Wine 192 214 192 214 327 333 509 239 836 572 1 028 786 953 571 14 412 60 804 Total 10 273 535 10 273 535 7 551 438 27 349 617 34 901 055 45 174 590 27 185 230 7 596 493 10 392 867 Land Bank Group 126 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Credit exposure by geographic/regional distribution Corporate Commercial Banking and Development and Stage 2: Stage 3: Structured Business Stage 1: Under- Non- Investments Banking Total Total Preforming performing performing 2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Province Eastern Cape 873 770 1 615 891 2 489 661 7% 1 208 556 437 565 843 540 Free State 79 265 3 913 150 3 992 415 11% 1 927 904 266 114 1 798 398 Gauteng 4 853 662 2 914 181 7 767 844 21% 735 454 6 020 755 1 011 635 KwaZulu-Natal – 979 097 979 097 3% 533 082 86 467 359 549 Mpumalanga 549 085 5 902 996 6 452 081 17% 3 496 397 1 562 842 1 392 841 Northern Cape 1 044 976 4 249 338 5 294 314 14% 1 790 936 613 609 2 889 770 Limpopo – 3 258 577 3 258 577 9% 571 050 1 274 669 1 412 858 North West 407 195 2 803 200 3 210 395 9% 1 069 738 552 944 1 587 713 Western Cape 621 271 2 865 508 3 486 780 9% 2 256 274 516 209 714 296 Total 8 429 225 28 501 938 36 931 163 100% 13 589 391 11 331 172 12 010 600 Loan Performance Corporate Commercial Banking and Development and Stage 2: Stage 3: Structured Business Stage 1: Under- Non- Investments Banking Total Total Preforming performing performing 2020 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Province Eastern Cape 1 083 222 1 401 725 2 484 947 6% 2 254 149 46 343 184 455 Free State 74 233 4 981 475 5 055 708 11% 3 624 458 560 839 870 410 Gauteng 5 413 427 6 888 245 12 301 672 27% 1 993 747 3 819 645 6 488 281 KwaZulu-Natal 136 574 1 018 336 1 154 910 3% 853 235 113 621 188 054 Mpumalanga – 1 903 956 1 903 956 4% 1 276 797 404 051 223 109 Northern Cape 1 094 972 6 857 870 7 952 842 18% 7 227 894 317 005 407 942 Limpopo 1 136 717 4 448 465 5 585 182 12% 3 445 759 1 423 909 715 514 North West 765 754 3 945 719 4 711 473 10% 2 803 743 770 271 1 137 459 Western Cape 568 636 3 455 264 4 023 900 9% 3 705 448 140 809 177 643 Total 10 273 535 34 901 055 45 174 590 100% 27 185 230 7 596 493 10 392 867 127 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Credit risk concentration by credit rating (rated externally) The table below provides an analysis of the ratings attached to the Group's exposure to instruments subject to credit risk: Cash, deposits and Collective Net working capital Bonds similar securities Investment Schemes assets Total 2021 R’000 R’000 R’000 R’000 R’000 AAA 332 073 436 636 – 768 709 AA+ 104 703 24 476 127 891 – 257 070 AA 116 611 – – – 116 611 AA- 330 4 965 – – 5 295 A+ 715 – – – 715 A 807 14 288 – – 15 095 A- – – – 3 601 3 601 BBB+ – – – 838 423 838 423 BB – 5 558 400 – – 5 558 400 Other * – 30 887 859 – – 30 887 859 Not rated ** 3 051 1 330 428 – – 1 333 479 Total 558 290 38 257 053 127 891 842 024 39 785 258 2020 AAA 220 699 516 008 – – 736 707 AA+ 125 125 92 417 130 781 – 348 323 AA 151 349 6 439 – – 157 788 AA- 309 7 249 – – 7 558 A+ 98 – – – 98 A- 404 – – – 404 BB – 248 859 – – 248 859 Other * – 39 470 496 – – 39 470 496 Not rated ** 1 617 2 074 387 – 719 546 2 795 550 Total 499 601 42 415 855 130 781 719 546 43 765 783 This includes clients that are not rated externally.The Bank has its own credit rating system for these clients.The Bank performs a credit assessment by verifying security provision, cash flow forecasts the level of financial leverage which determines the level of financial *  risk and indicates the extent that debt is covered by assets. Please refer to note 11 and note 4. These assets do not have a formal rating and mainly relate to premium debtors. ** Land Bank Group 128 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Credit exposure by line of business – loan book 2021 2020 Gross loan book R’000 % Total R’000 % Total Continuing operations Corporate Banking and Structured Investments 8 466 246 23% 10 296 750 23% Commercial Development and Business Banking 28 542 988 77% 34 937 640 77% Loan Modification (37 020) – (23 216) – Total gross loan book from continuing operations 36 972 214 45 211 174 Less: Expected Credit Loss (ECL) (6 043 304) (5 704 095) Carrying amount of loans from continuing operations 30 928 909 39 507 079 Discontinued operations LDFU – 0% 62 109 0% Total gross loan book from discontinued operations – 62 109 Less: Expected Credit Loss (ECL) – (62 109) Balance per Annual Financial Statements – total carrying amount 30 928 909 100% 39 507 079 100% Balance as per the following notes The Bank’s Commercial Development and Business Banking division, which provides loans to agricultural cooperatives and agribusiness companies, continues to account for the bulk of the Bank’s overall credit exposure. The LDFU loans constitute less than 1 percent (FY2020: Less than1 percent) of total loans and the LDFU operations have been classified as discontinued. Credit exposure by maturity – Gross loan book Based on the maturity of the loans as disclosed in note 11 , the credit exposure (excluding insolvent loan balances) by maturity is as follows: 2021 2020 R’000 % R’000 % Short-term 9 644 775 26% 15 056 501 33% Medium-term 5 226 917 14% 5 936 487 13% Long-term 22 059 471 60% 24 125 180 53% 36 931 164 100% 45 118 168 100% In terms of the exposure profile by maturity, the Land Bank’s exposure concentrates in the long-term – i.e. loans extended for periods of five years and longer. The exposure as at 31 March 2021 is R22.1 billion (FY2020: R24.1 billion). 129 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Credit risk management practices in relation to the recognition and measurement of expected credit losses 1. Stage 1: 12-months ECL For exposures where there has not been a significant increase in credit risk since initial recognition and that there are not credit impaired upon origination, the portion of the lifetime ECL associate with the probability of default events occurring within the next 12 months recognised. 2. Stage 2: Lifetime ECL – not credit impaired For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not credit impaired, a lifetime ECL is recognised. 3. Stage 3: Lifetime ECL – credit impaired If the loan’s credit risk increases to the point where it is considered credit-impaired, interest revenue is calculated based on the loan’s amortised cost (that is, the gross carrying amount less the loss allowance). Lifetime ECLs are recognised, as in Stage 2. Methods, inputs, assumptions and estimation techniques used to measure expected credit losses Methods used to determine Method Inputs Assumptions Estimation techniques 12-month and lifetime expected Expected loss methods based on PD, LGD and EAD over the lifetime Current PDs are the output of PDs: migration matrices for multi- credit losses probability at default (PD), loss given of the loan. the calibrated rating model; PDs in year migration effects, term structure default (LGD) and exposure at subsequent years are determined analysis for seasoning effect, macro- default (EAD); expected credit losses based on migration, seasoning and economic overlay for cyclicality. are discounted to the reporting date cyclicality effects. using the effective interest rate. LGD: LGD model calibrated with own The current LGD is data history. The output of the LGD model; analyses showed that The subsequent EAD: credit conversion factor (CCF) LGDs are modelling with own data, inclusion of The same as the first year’s LGD. repayment schedules. Lifetime is the Contractual tenor of the loan; No prepayments assumed Land Bank Group 130 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements Methods used to determine Method Inputs Assumptions Estimation techniques Whether a credit risk has increased 1.According to the Stage 2 definition; Information On single loan While each loan is Firstly considered Stage classification is fact based using significantly since initial recognition different Land Bank specific identifiers Level ,such as Loans management risk on its own, the final classification Is current flags And information Available including the minimum 30 days past indicators, Arrears information etc. performed on a client-level ,i.e. the in the Land Bank’s data base. due criteri have been selected for worst stage of All loans is assumed to 1.Maximum stage across all loans per the identification of SICR. be the correct stage for all loans of client rule applies. Early Warning Indicators(a combination the same client. of macroeconomic factors (SA Maize Volatility Index – SAVI, Agricultural GDP, International Food Index, and business rules) have been implemented for the monitoring and classification of SICR. Whether a financial asset is a credit- According to default definition; Information on single loan level, such While each loan is firstly considered Stage classification is fact based using impaired financial asset in general, unlikeliness to pay as as Loans management risk indicators, on its own, the final classification current flags And information well as >90 days past due are the arrears information, etc. is performed on a client-level, i.e. if Available in the Land Bank’s data base. criteria considered; these criteria are one loan is considered to be credit- Maximum stage across all loans per interpreted in terms of Land Bank's impaired (stage 3) then all loans of client rule applies. identifier e.g. for specific cases of the same clients are considered to be unlikeliness to pay. so as well. Macro-economic factors IFRS 9 introduced the use of macro-economic factors when calculating ECL.To the extent that is relevant and practical the Group has used macro-economic factors in the ECL methodology. Such factors include but are not limited to the World Food Index as well as the Volume of Imports of Goods and Services, and requires an evaluation of both the current and forecast direction of the economic cycle. Incorporating forward-looking information increases the level of judgement as to how changes in these macro-economic factors will affect ECL. The methodology, assumptions and macro-indices, including any forecasts of future economic conditions are reviewed regularly. For information on financial assets’ credit risk exposure, including significant credit risk concentrations please see note 38. Defaults and Write-offs: expected credit losses Land Bank defines a default as past due > 90 days. 131 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Write-off policy The Group defines bad debt as an irrecoverable debt or uncollectible debt, where all the recovery processes and or steps are exhausted and the client or counter parties do not have any means whatsoever to repay the debt that is due and payable and there are no reasonable prospects of success. As a development bank, the Land Bank will endeavour to ensure continuity of agricultural production, and the Group shall only Write-off bad debt when all reasonable steps have been taken to recover the debt. Land Bank considers the following indicators when determining whether there is no reasonable expectation of recovery: – Recovery of the debt is not economically justified; – Trace of the client is unsuccessful where efforts and channels to trace the client have been fully exhausted; or – It is to the advantage of Land Bank to effect settlement of its claims or to waive the claim; or – The sheriff has issued a nulla bona return to the effect that there are no further assets available to liquidate; or – The loan security and/or security documents are defective and no other basis for a claim exists; or – A shortfall emanating from the agreed settlement discount offered by Land Bank and/or a compromise has been reached between the client and Land Bank and a condition of such compromise is that Land Bank must Write-off a portion of the outstanding debt; or – The loan is secured by property where the asset has been “bought-in” following an auction or abandonment process; or – No security exists at the date of insolvency/liquidation/ or business rescue and/or existing security has been sold and the proceeds thereof received by Land Bank leaves a shortfall; or – A deceased estate where there are no assets and there is no security or spouse married in community of property from which the outstanding balance may be claimed; or – A deceased estate where there are no assets however: (i) The estate is insolvent and will be administered in accordance with Section 34 of the Administration of Estates Act 66 of 1965; or (ii) If there are insufficient dividends for the estate and the assets within the estate are of minimal value and / or are not dispensable to the debtor’s dependants; or – The debt has prescribed as defined by the Prescription Act (68 of 1969) as amended; or – Any amount exceeding in-duplum inclusive of interest and costs; or – All avenues of recovery, including the realisation of security and sureties, have been exhausted and a shortfall exists; or – Any circumstance which in the opinion of the Chief Executive Office, Chief Financial Officer and/or Executive Manager Legal Services prohibits the recovery of the debt (authorisation in line with the DOP); or – Any circumstance which is in the public interest or may be required as a result of amendments or enactments of legislation. From time to time the Group has financial assets that are written off but may still be subject to enforcement activity. Such financial assets are written off when the aforementioned criteria have been met. Any recoveries due to enforcement activities are treated as bad debt recoveries in the year which such recoveries are made. This amounted to R15.8 million (FY2020 : R15.1 million) refer to note 10 and note 23. Land Bank Group 132 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Modification The gross carrying amount of loans modified and the related gains/(losses) recognised where no derecognition took place: Loss allowance: expected credit losses Change in expected credit Gross loans modified Gain/(loss) on modification loss due to modification 2021 2021 2021 Stage 1 346 322 024 (3 134 315) 5 043 557 Stage 2 1 027 418 510 (14 360 330) 27 373 991 Stage 3 41 491 648 (775 540) 14 240 404 Total 1 415 232 182 (18 270 185) 46 657 952 Loss allowance: expected credit losses Change in expected credit loss due to Gross loans modified Gain/(loss) on modification modification 2020 2020 2020 Stage 1 753 296 685 (33 783 097) 10 604 039 Stage 2 279 628 704 (7 831 599) 8 570 201 Stage 3 149 113 437 (5 625 163) 35 315 987 Total 1 182 038 826 (47 239 859) 54 490 226 133 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Stage migration (Gross loans and relating expected credit losses) Stage 1¹ Stage 2 Stage 3 ² Total 2021 Note R’000 R’000 R’000 R’000 Gross loans as reported for 2021 11 13 589 392 11 331 172 12 010 600 36 931 164 Stage migration – improvements 1 562 084 (41 368) (1 520 716) – Stage 2 to 1 1 135 667 (1 135 667) – – Stage 3 to 1 426 416 – (426 416) – Stage 3 to 2 – 1 094 299 (1 094 299) Stage migration – deterioration (8 122 482) 4 075 535 4 046 948 – Stage 1 to 2 (5 116 373) 5 116 373 – – Stage 1 to 3 (3 006 109) – 3 006 109 – Stage 2 to 3 – (1 040 838) 1 040 838 Net stage migration (6 560 399) 4 034 167 2 526 232 Expected credit losses as reported for 2021 11 (210 605) (1 455 116) (3 800 732) (5 466 453) Stage migration – improvements 55 754 82 995 (138 749) – Stage 2 to 1 30 452 (30 452) – – Stage 3 to 1 25 302 – (25 302) – Stage 3 to 2 – 113 447 (113 447) Stage migration – deterioration (1 488 552) 372 146 1 116 407 – Stage 1 to 2 (625 862) 625 862 – – Stage 1 to 3 (862 690) – 862 690 – Stage 2 to 3 – (253 717) 253 717 Net stage migration (1 432 798) 455 141 977 657 Land Bank Group 134 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Stage migration (Gross loans and relating expected credit losses) Stage 1¹ Stage 2 Stage 3 ² Total 2020 Note R’000 R’000 R’000 R’000 Gross loans as reported for 2020 27 185 230 7 596 493 10 392 867 45 174 590 Stage migration – improvements 1 153 099 132 369 (1 285 468) – Stage 2 to 1 371 076 (371 076) – – Stage 3 to 1 782 023 – (782 023) – Stage 3 to 2 – 503 445 (503 445) Stage migration – deterioration (4 014 935) 1 004 094 3 010 841 – Stage 1 to 2 (1 513 121) 1 513 121 – – Stage 1 to 3 (2 501 814) – 2 501 814 – Stage 2 to 3 – (509 027) 509 027 Net stage migration (2 861 836) 1 136 463 1 725 373 Expected credit losses as reported for 2020 11 (764 613) (1 113 181) (3 496 300) (5 374 094) Stage migration – improvements 64 907 29 731 (94 637) – Stage 2 to 1 30 710 (30 710) – – Stage 3 to 1 34 196 – (34 196) – Stage 3 to 2 – 60 441 (60 441) Stage migration – deterioration (1 445 766) 378 267 1 067 499 – Stage 1 to 2 (567 150) 567 150 – – Stage 1 to 3 (878 617) – 878 617 – Stage 2 to 3 – (188 883) 188 883 Net stage migration (1 380 860) 407 997 972 862 ¹ 12 month expected credit losses ² Life time expected credit losses 135 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Liquidity risk Definition Liquidity risk relates to the Bank’s possible inability to meet its payment obligations when they fall due. This may be caused by the Bank’s possible inability to liquidate assets and/or to obtain funding to meet its liquidity needs. The Group is exposed to liquidity risk via its: • Ability to borrow from the market, at market related interest rates; • Ability to attract wholesale funders at favourable interest rates; • Liquid assets ratios are not adequate for prudential requirements; • Ability to raise long-term funding to match long-term assets; • Lack of standby lines of credit. • To manage liquidity risk, the Bank has a treasury policy that takes into account limits to manage its liquidity. The liquidity risk/going-concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. Control and management The following control measures are in place: Corporate finance and legal advisors were appointed to provide expert guidance on the implementation of the liability solution of the Bank. The going-concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. The Committee meets on weekly or as required. The Shareholder is a standing invitee to the Committee’s weekly meetings. Monitoring the liquidity position The going-concern is being addressed through the restructuring process that is currently underway at Land Bank. The Board instituted a Board Restructuring Committee which monitors progress on Land Bank’s restructuring process. The Committee meets on weekly or as required. The Shareholder is a standing invitee to the Committee’s weekly meetings. Land Bank Group 136 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Insurance activities Liquidity risk is first of all managed by matching the liabilities with assets that have similar maturity profiles. Expected cash flows are taken into account when reviewing the investment strategy annually for the allocation of financial instruments. Most of the insurance company’s assets are Shareholder’s assets, which are held in highly liquid, open-ended instruments. The investment strategy, furthermore allocates assets backing policyholders’ liabilities to short-term liquid instruments in the form of cash and bonds in equal proportions. The insurance companies are exposed to daily calls on their available cash resources from claims. Liquidity risk is the risk that cash may not be available to pay obligations when due at a reasonable cost. The companies actively manage their cash resources split between short-term and long-term requirements to ensure that sufficient cash is at hand to settle insurance liabilities and operating expense obligations based on cash flow projections. Reinsurance quota share accounts are settled quarterly, 45 days in arrears. Cash calls can be made to reinsurers for claims in excess of R5 million per risk on the crop cover for LBIC. Both LBLIC and LBIC have sufficient cash resources to cover their obligations. Liquidity risk is managed by matching the liabilities with assets that have similar maturity profiles. LBIC invested its surplus cash in a portfolio of short-term interest bearing assets in the current reporting period. The Board decided to adopt a conservative investment strategy for the company considering the volatility of crop business. (i) Asset Liability matching risk Asset Liability Matching (ALM) risk is the risk that the company’s assets are not adequately matched to back the company’s insurance contract liabilities and financial liabilities. The main factor effecting the ALM risk is the investment performance of financial assets backing the underlying insurance contract and financial liabilities. The investment policy allocates assets backing policyholder’s liabilities to cash and bonds. The bonds have varying maturities, but are all immediately tradeable on the bond market. The policyholders’ liability was calculated using the discounted mean term of the liability in the current year. In the current year, the liability was calculated using the prevailing average medium and long-term government bond rates less fund manager fees. The risk is that the rate earned on the investments does not match the rate used to calculate the liabilities. There is a notional allocation of assets to liabilities, with sufficient surplus assets to cover my ALM mismatch. The remaining financial liabilities, most notably the intercompany loan, are backed by a mixture of cash, bonds and equity. Liquidity Coverage Ratio The LCR aims to ensure that banks maintain adequate levels of unencumbered high quality assets (numerator) against net cash outflows (denominator) over a 30-day significant stress period. 137 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Deviation from the Banking Regulations Given the unique business model of the Land Bank, including the inability to take deposits and the requirement to have cash available, the Bank deviates from the Banking Regulations in the following areas: – The Land Bank’s previous liquidity ratio required the Bank to invest surplus cash with counterparties with rating A and above. Due to operational requirements, investing surplus funds in government bonds will cause excessive trading in bonds which increase the market risk and potential capital losses on cash.The Bank shall therefore deviate from the Banks Act in terms of classifying cash deposits and available facilities as High Quality Liquid Assets. – Acknowledge a deviation from the regulation in terms of assumptions made regarding rollover rates with investors to assess the likelihood of rollover.The Bank will always apply the minimum rollover rate (between historic rollovers and investor discussions) to the calculations of the LCR. These deviations from the Banking Regulations have been included in the funding agreements as financial loan covenants. Net Stable Funding Ratio The NSFR aims to establish a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution’s assets and activities over a one year horizon. It aims therefore to limit over-reliance on short term wholesale funding during times of buoyant market liquidity and encourage better assessment of liquidity risk across all on and off balance sheet items. Cash at bank The pool of liquid assets (in cash) is invested with reputable financial institutions as informed by the treasury policy. Trade and other receivables Past trends indicate that payment has been received timeously and that the fair values post year-end fairly reflect the amounts received. The housing loans have been discounted to the present value using the prime interest rate. Repurchase agreements, derivative assets, strategic trading assets and investments The amounts are receivable from reputable institutions and funds invested are managed by reputable asset managers. Past trends indicate that payment has been received timeously and that the fair values post year-end fairly reflect the amounts received. Land Bank Group 138 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Maturity analysis is presented on undiscounted cash flows as per IFRS 7.42E. Group – 2021 Notes Less than 1 year 1 – 5 years > 5 years Total Financial Assets Cash and cash equivalents 4 5 589 888 – – 5 589 888 Trade and other receivables 5 1 049 001 – 424 1 049 425 Short-term insurance assets 6 159 015 – – 159 015 Repurchase agreements 7 – – – – Investments 8 2 135 088 183 571 – 2 318 659 Strategic trading assets 9 – – – – Derivatives assets 10 11 340 – – 11 340 Loans and advances 11 18 141 475 10 835 084 13 218 694 42 195 252 Long-term insurance assets 19 3 309 1 678 4 987 Total assets 27 089 116 11 020 333 13 219 118 51 328 566 Financial Liabilities Trade and other payables 18 770 814 158 – 770 972 Short-term insurance liabilities 6 220 059 2 – 220 061 Long-term policyholders' liabilities 19 51 981 14 608 – 66 589 Funding liabilities 20 20 738 143 17 416 417 2 800 833 40 955 393 Lease liabilities 15 20 056 7 064 – 27 120 Total Financial Liabilities 21 801 053 17 438 249 2 800 833 42 040 135 139 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Maturity analysis is presented on undiscounted cash flows as per IFRS 7.42E. Group – 2020 Notes Less than 1 year 1 – 5 years > 5 years Total Financial Assets Cash and cash equivalents 4 722 711 – – 722 711 Trade and other receivables 5 1 237 106 37 509 1 237 652 Short-term insurance assets 6 169 906 – – 169 906 Repurchase agreements 7 19 495 – – 19 495 Investments 8 2 143 243 4 877 103 2 148 223 Strategic trading assets 9 5 153 – – 5 153 Derivatives assets 10 79 064 – – 79 064 Loans and advances 11 19 890 499 10 548 321 12 899 791 43 338 611 Long-term insurance assets 19 10 108 1 678 – 11 786 Total assets 24 277 285 10 554 913 12 900 403 47 732 601 Financial Liabilities Trade and other payables 18 1 411 875 158 – 1 412 033 Short-term insurance liabilities 6 237 227 – – 237 227 Long-term policyholders' liabilities 19 29 733 14 608 – 44 341 Funding liabilities 20 22 880 476 24 760 037 4 801 951 52 442 464 Lease liabilities 15 28 755 27 120 – 55 875 Total Financial Liabilities 24 588 066 24 801 923 4 801 951 54 191 940 Land Bank Group 140 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Interest rate risk When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates applicable to assets and liabilities can be adjusted in such a manner that the Bank benefits from the expected interest rate view. The current interest rate risk mismatch limit is a maximum of 25%, i.e. that the Bank cannot hold more than 25% fixed rate funding as part of its funding mix. The funding split percentage as at 31 March 2021 was 89.62% floating (FY2020: 89.62 floating). Interest rate risk monitoring The Asset and Liability Management Committee (ALCO) consists of the Bank’s executive management and it monitors among other things, the implementation of the Bank’s interest rate risk policy. ALCO considers and formulates interest rate views as the official forecast of interest rates. Sensitivity analysis is performed by the Risk Management department where the interest rate risk mismatch limit (fixed vs floating) is set. Fixed/floating rate funding When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates applicable to assets and liabilities can be adjusted in such a manner that the bank benefits from the expected interest rate view. The current interest rate risk mismatch limit is a maximum of 25%, i.e. that the Bank cannot hold more than 25% fixed rate funding as part of its funding mix. The funding split percentage as at 31 March 2021 was 88.8% floating (FY2020: 91.7% floating). Interest rate risk policy The Bank reviews its interest rate risk policy in line with market practices on an annual basis. Sensitivity analysis Annually an interest rate risk sensitive analysis is performed as part of the Risk Management input to the Annual Financial Statements. The purpose of the analysis is to indicate the Land Bank’s income sensitivity to interest rate changes. Calculations were performed to determine the Bank’s projected net interest income. An interest rate sensitivity analysis was performed by applying a parallel shift of 100 basis points up and down on interest rates to anticipate the projected impact on the Bank’s profitability. The expected view maintains that rates remain unchanged during the forecast period. The calculation includes assumptions that will have a positive or negative impact on the net interest income for Land Bank during the 2021/22 financial year. 141 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Market risk – Insurance activities For assets backing policyholders’ liabilities, the risk to the company is that the investment returns earned are below the actuary’s assumptions. For Shareholder’s assets, the risk is that capital is not preserved and that investment returns earned are below expectations. The company manages market risk through the following: (i) An Investment and Actuarial Committee. The mandate of this Board sub-Committee includes the following: –  Implementation of an investment strategy which sets out the investment objectives of the company, the nature and term of liabilities and the risks to which the assets and liabilities of the company are exposed. Assets backing policyholders’ liabilities are limited to interest bearing assets, and are therefore exposed to limited market risks, while shareholders’ assets can include equity and are therefore exposed to greater market risks; –  Appointment of investment managers and establishing investment mandates with each investment manager. Investment mandates set out investment guidelines which cover limitations on exposures to volatile assets, the use of derivatives; limits on asset concentration and limits on exposure to particular types of assets such as unlisted equities and property and hedge funds; – Monitoring of the performance of investment managers against “appropriate benchmarks” as well as compliance with mandates; and – Ensuring proper governance in the investment process. (ii) Appointment of an independent investment advisor. The responsibilities of the investment advisor are set out below: – Monitor implementation of investment strategies; and – Monthly monitoring of and reporting on investment performance. The investment advisor provides quar terly feedback on the performance of investment managers to the Investment and Actuarial Committee who in turns provides quar terly feedback to the LBLIC Board. Interest rate risk When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates applicable to assets and liabilities can be adjusted in such a manner that the Bank benefits from the expected interest rate view. The current interest rate risk mismatch limit is a maximum of 25%, i.e. that the Bank cannot hold more than 25% fixed rate funding as part of its funding mix. The funding split percentage as at 31 March 2021 was 89.62%floating (FY2020: 89.62% floating). Interest rate risk monitoring The Asset and Liability Management Committee (ALCO) consists of the Bank’s executive management and it monitors among other things, the implementation of the Bank’s interest rate risk policy. ALCO considers and formulates interest rate views as the official forecast of interest rates. Sensitivity analysis is performed by the Risk Management department where the interest rate risk mismatch limit (fixed vs floating) is set. Fixed/floating rate funding When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest rates applicable to assets and liabilities can be adjusted in such a manner that the Bank benefits from the expected interest rate view. The current interest rate risk mismatch limit is a maximum of 25%, i.e. that the Bank cannot hold more than 25% fixed rate funding as part of its funding mix. The funding split percentage as at 31 March 2021 was 89.62% floating (FY2020: 89.62% floating). Land Bank Group 142 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Interest rate risk policy The Bank reviews its interest rate risk policy in line with market practices on an annual basis. Sensitivity analysis Sensitivity analysis has been determined based on the exposure to interest rates for derivatives and other financial liabilities and assets at the Statements of Financial Position date. A 100 basis point increase or decrease is used when reporting interest rate risk and represents management’s assessment of a reasonably possible change in interest rates on the Group’s net interest income. The effect of a reasonable possible change in interest rates, as explained above, and all other variables held constant, the Bank’s profit would be as follows using data as at 31 March 2021: 31 March 2021 31 March 2020 Net interest Effect on income equity Net interest income Effect on equity Bank R’000 R’000 R’000 R’000 Incremental change in yield Expected NII 509 005 723 600 – Potential movement: 100 Basis point up 580 806 71 801 782 810 59 206 Potential movement: 100 Basis point down 437 204 (71 801) 664 400 (59 206) An interest rate sensitivity analysis was performed by applying a parallel shift of 100 basis points up and down on interest rates to anticipate the projected impact on the Bank’s profitability.The expected view is based on the inclusion of the latest 200bps cut in the repo rate and the assumption that there will not be changes in the repo rate for the remainder of the financial year. It is noteworthy that the Land Bank’s sensitivity to interest rates has decreased over the past year from R170m to R59m, this can be ascribed to the fact that the Bank has already accounted for 200bps repo rate reduction announced during first quarter of 2021, in its forecast. The Land Bank implemented an interest rate swaps programme in the 2017/18 financial year with the implementation of the programme being conducted on an increasing scale over a time period of five years, as per the Bank’s Interest Rate Risk Management Policy. The interest rate risk swaps programme involves hedging the basis risk that emanates from the mismatch between the Bank’s JIBAR- linked funding liabilities and its prime-linked assets. The underlying nominal values of the Bank’s swaps remain too small to markedly influence the Bank’s interest rate risk sensitivity. As the underlying nominal amounts of the interest rate risk swaps are increased over the next five years as per the Bank’s Interest Rate Risk Management Policy, the effect of the hedging on the Bank’s interest rate risk sensitivity is expected to become more pronounced. Details of the Bank’s hedging programme can be found in note 10. 143 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Interest rate risk – Insurance activities The Company is subject to interest rate risk resulting in the fluctuation of the fair value of future cash flows of interest bearing assets because of the change in interest rates. Interest rate risk arises primarily from investments in long-term fixed income securities, although the short-term money market instruments are also effected, albeit to a lesser extent. The company’s investments are mainly in short dated NCD’s and bonds, with a few longer dated corporate bonds. Most of the bonds have floating interest rates, with some carrying fixed interest rates. Exposure to interest rate risk is monitored through various methods including scenario and stress testing which calculates the market exposure based on interest rate movements. Sensitivity analysis on interest bearing assets The market exposure that was calculated at 31 March was as follows: Impact on the Statement of Profit or Loss and Other Comprehensive Income 31 March 2021 31 March 2020 LBLIC R’000 R’000 Incremental change in yield 250 Basis Points increase (661 712) 3 845 150 Basis Points increase (397 027) 1 923 250 Basis Points decrease 661 712 (1 923) 150 Basis Points decrease 397 027 (3 845) LBIC Incremental change in yield 250 Basis Points increase 439 43 150 Basis Points increase 263 22 250 Basis Points decrease (439) (22) 150 Basis Points decrease (263) (43) A portion of the assets backing policyholders’ liabilities are held in bonds and the balance is held in cash and cash equivalents. The sensitivity analysis of the change in investment returns on the value of the policyholders’ liabilities is reflected under the Insurance Risks sensitivity analysis for long-term business. Land Bank Group 144 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Currency risk The Group is exposed to the risk of fluctuations in foreign currencies, as a result of future transactions and investments in foreign companies. The Group makes use of forward exchange contracts to manage this risk. LBLIC is exposed to currency risk resulting in the fluctuation in the value of foreign financial instruments because of the change in foreign exchange rates. The company’s exposure to currency risk is in respect of foreign investments made in alignment with the investment strategy, approved by the Board, for seeking desirable international diversification of investments. The fund managers make use of currency derivatives to limit the currency exposure of instruments in the pooled funds to United Stated Dollars. The following rand value of assets denominated in foreign currencies are included in the Statements of Financial Position: United States Dollar South African Rand Group US$'000 R'000 31 March 2021 Equities – unit trusts (USD base currency) 7 972 116 214 Balanced funds 159 21 871 Commodities – metals 286 4 733 Cash on deposit at call (413) (7 304) Foreign currency exposure 8 004 135 514 Exchange rates (ZAR:USD): Closing rate – 31 March 2021 14.90 0.06 Average rate 16.57 0.07 United States Dollar South African Rand Group US$'000 R'000 31 March 2020 Equities – USD base currency unit trusts 7 863 116 214 Balanced funds 1 480 21 871 Commodities – metals 320 4 733 Cash, deposits and similar securities (494) (7 304) Foreign currency exposure 9 169 135 514 Closing rate – 31 March 2020 17.56 0.06 Average rate 14.78 0.07 145 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Sensitivity analysis – currency risk The foreign currency exposure that was calculated at 31 March was as follows: Impact on the statement of profit or loss and other comprehensive income 31 March 2021 31 March 2020 LBLIC R’000 R’000 Incremental change in yield* USD 10% decrease (614 371) 9 614 5% decrease (368 622) 5 768 10% increase 614 371 (9 614) 5% increase 368 622 (5 768) Sensitivity analysis The sensitivity analysis on Expected credit loss has been determined based on the exposure to the percentage of the balance outstanding which the Land Bank expects not to recover when a loan defaults on its payment (loss given default – LGD) at the Statements 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. Loans and ECL advances Analysis R’000 R’000 31 March 2021 As at 31 March 2020 : Base 6 043 304 30 887 859 Scaled ECL (-5%) 4 809 537 32 121 627 Scaled ECL (+5%) 5 793 387 31 137 777 Analysis 31 March 2021 Scaled ECL (0%) 5 704 095 39 470 496 Scaled ECL (-5%) 5 043 409 40 131 182 Scaled ECL (+5%) 6 425 658 38 748 933 Land Bank Group 146 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Insurance risk Insurance risk – long-term LBLIC provides mortgage and credit life insurance for persons who take out loans with the Land Bank. Until 2008, LBLIC only had one product in issue which was a non-profit decreasing term assurance that paid the outstanding amount of a Land Bank mortgage loan at death. Since then, LBLIC in conjunction with its actuaries, has developed and issued a number of new generation mortgage and credit life products. Mortality risk Mortality risk is the risk to the Group that mortality experience in future is worse than provided for in premium. rates. Higher than expected mortality will give rise to losses and will necessitate an increase in valuation assumptions. This risk is mitigated by the following factors: • Adequate reinsurance arrangements to limit exposure per individual and manage concentration of risks; • Adequate pricing and reserving; • Specific testing for HIV/ AIDS is carried out in cases where applications for risk cover exceed a set limit; and • Annual reviews of mortality and morbidity experience are conducted by the statutory actuary to ensure that corrective action is taken where necessary. Persistency risk Persistency risk (lapse risk) relates to policies being terminated before their final due dates as a result of an increased number of mortgage loans that are paid up before their final settlement dates and an increasing number of farmers transferring loans to trusts, close corporations and companies which result in the cancellation of policies. The Group’s reserving policy is based on actual experience, adjusted for expected future changes in experience, to ensure that adequate provision is made for lapses. Expense risk Before expenses are incurred, they are checked for budget availability. For the exceptional expenses, the company has a certain approval process. This is monitored in monthly reporting by comparing actual and budgeted expenses. Reinsurance risk LBLIC has reinsurance cover to reduce risks proportionally, as well as to limit exposure per risk in order to limit the impact per life on the current year’s earnings. Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance share. The structure is such that a significant portion of the risk is ceded to reinsurers relative to •  what is retained; and Furthermore, additional layers of cover that limits the Life insurance company’s retention are in place to manage catastrophe risk. •  The Board approves the reinsurance renewal process on an annual basis. The reinsurance programme is in place with a local reinsurer which has a credit rating of AA-. 147 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Claims risk The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent claims are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating controls that are designed to contain and monitor claims risks. It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those assumed when these obligations were estimated. Estimated claims are monitored periodically and updated based on the latest information if needed. Furthermore, an actuarial valuation by an independent actuary annually. Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2021, LBLIC believes that its IBNR liability for claims is adequate. There were no outstanding claims. Sensitivity analysis The objective of the sensitivity analysis is to demonstrate the effect on the policyholders’ liability for changes in key assumptions underlying the valuation of liabilities. The sensitivity analysis illustrates the effect of a change in a particular assumption on the value of the policyholders’ liability as at 31 March 2021, but this cannot generally be used to determine how future earnings or profitability will be affected. The percentage change in the assumptions chosen for the sensitivity analysis is to illustrate the change in value given the change in assumption and does not represent the possible range of worst or best case experience expected. For a given change in one assumption, all other assumptions are left unchanged. No allowance has been made for any possible management action in response to a particular change. Lapse experience is not included in the analysis as lapses have not been modelled explicitly (the actuarial reserve for any policy that had a negative reserve was increased to zero, and there are no surrender values under any policies. Lapses and other terminations will therefore result in an actuarial surplus at each future valuation). The percentage change in the assumptions chosen for the sensitivity analysis is to illustrate the change in value given the change in assumption and does not represent the possible range of worst or best case experience expected. 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). Land Bank Group 148 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Value Change 2021 R’000 R’000 % Policyholders' liability – Individual Life Base value 63 452 Investment return -1% 55 807 (7 645) 1.90% Mortality +10% 73 524 10 072 1.80% Expenses +1% 69 797 6 345 1.80% +10% 57 107 (6 345) 10.20% 2021 Value 1 Change Policyholders' liability – Group Life R’000 R'000 % Base value 1 652 Investment return +1% from 7.3% to 8.3% 1 453 (199) (12.00%) -1% from 7.3% to 6.3% 1 426 (226) (14.00%) Mortality +10% 1.1 x mortality 1 817 165 10.00% -10% 0.9 x mortality 1 487 (165) (10.00%) Value Change 2020 R’000 R’000 % Policyholders' liability – Individual Life Base value 30 874 Investment return -1% 31 453 579 1.90% Mortality +10% 31 442 568 1.80% Expenses +1% 31 432 558 1.80% +10% 34 023 3 149 10.20% Value Change 2020 R’000 R’000 % Policyholders' liability – Group Life Base value 835 Investment return +1% from 7.3% to 8.3% 734 (101) (14.00%) -1% from 7.3% to 6.3% 721 (114) (12.00%) Mortality +10% 1.1 x mortality 919 84 10.00% -10% 0.9 x mortality 752 (84) (10.00%) 149 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Insurance risk – short-term LBIC provides indemnity for crops, motor vehicles and property, as well as liability cover. LBIC manages insurance risks through its underwriting strategy and reinsurance arrangements. LBIC provides indemnity for crops while still on the field, against hail, drought, fire and excessive rain fall. Cover ceases as soon as harvesting has taken place, or when certain date limits have been reached. Motor cover insures risks associated with the possession and use of vehicles. Property cover insures risks associated with the ownership of moveable and immovable assets, other than those covered specifically in another class. Engineering cover insures risks associated with the possession and use of machinery or equipment in the form of irrigation systems on farms. Liability cover insures risks relating to the incurring of a liability other than relating to a risk covered more specifically under another insurance contract. Insurance risk arises from: – Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations; – Inaccurate pricing of risks when underwritten; – Inadequate reinsurance protection; – Inadequate reserving; and – Fraudulent claim. The risks under any one insurance contract are the frequency with which the insured event occurs and the uncertainty of the amount of the resulting claims. The principal risks the insurance companies face are that the actual claims and benefit payments exceed the premiums charged for the risks assumed and that the reserves set aside for policyholders’ liabilities, whether they are known or still to be reported, provide to be insufficient. Premium provision tables based on historical claims data are reviewed annually by external actuarial consultants. External assessors assist with quantifying the value of claims reported. By the very nature of an insurance contract, this risk is random and therefore unpredictable. Changing risk parameters and unforeseen factors, such as patterns of economic and geographical circumstances as well as climate change, may result in unexpected large claims. Insurance events are random and the actual number of claims and benefits will vary from year to year from the estimate established. (i) Pricing risk Both LBLIC and LBIC bases their pricing policy on the theory of probability, with consideration to historical claims data. Acquisition and administration costs, as well as reinsurance costs are included in the pricing considerations as well as a profit loading for the cost of capital. Underwriting limits are set for the underwriting manager and brokers. Underwriting performance is monitored continuously and the pricing is adjusted accordingly. Risk factors considered as part of the review include factors such as the type of asset covered and the related commodity price, past loss experiences and risk measures taken by the insured. Land Bank Group 150 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) The net claims ratio for LBIC, which are important in monitoring insurance risk are summarised below: Loss history 2021 2020 LBIC: Net insurance benefits and claims on short-term business expressed as a% of net earned premiums 48% 93% Factors that aggravate insurance risk include a lack of risk diversification in terms of type and amount of risk, geographical location, catastrophic events and agricultural sectors covered. A stop loss reinsurance treaty mitigates the risk arising from this by capping the crop loss ratio to 105% for the season. Sensitivity analysis The objective of the sensitivity analysis is to demonstrate the effect on the underwriting result the change is in key assumptions. The sensitivity analysis illustrates the effect or change in a particular assumption on the underwriting result, but cannot be used to determine how future earnings or profits will be effected. The percentage change in an assumption for the sensitivity analysis is to illustrate the change in value given the change in assumption, but does not represent the possible range of best or worse case experience expected. For a given change in once assumption, all other assumptions are left unchanged. No allowance has been made for possible management action in response to a particular change. 2021 Underwriting result Value Loss Ratio R’000 % Reported results 26 343 Gross Premium 10% 26 406 8.00% (10%) 22 465 (8.00%) Gross Claims 5% 20 847 (15.00%) (5%) 28 023 15.00% Expenses 15% 20 983 (14.00%) (15%) 27 888 14.00% 151 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) 2020 Underwriting result Value Change Loss Ratio R’000 R'000 % Reported results (49 294) Gross Premium 10% (47 445) 1 849 (4.00%) (10%) (51 143) (1 849) 4.00% Gross Claims 5% (55 827) (6 532) 13.00% (5%) (42 762) 6 532 (13.00%) Expenses 15% (52 243) (2 948) 6.00% (15%) (46 346) 2 948 (6.00%) (i) Claims risk The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent claims are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating controls that are designed to contain and monitor claims risks. It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those assumed when these obligations were estimated. Estimated claims are monitored periodically and updated based on the latest information if needed. The Group utilises independent assessors who appraise and confirm claims as well as quantification by the underwriting manager channel. Furthermore, an actuarial valuation is done by an independent actuary annually. Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2021, both LBLIC and LBIC believe that their liabilities for claims are adequate. (ii) Reinsurance LBLIC and LBIC have third party reinsurance cover to reduce risks from single events or accumulations of risks that could have a significant impact on the current year’s earnings and capital. This cover is placed on the international reinsurance market. The core components of the reinsurance programme comprise: Long-term insurance contracts Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance share. The structure is such that a significant portion of the risk is ceded to reinsurers relative to what is retained; and - Furthermore, additional layers of cover that limits the Life insurance company’s retention are in place to manage catastrophe risk. Land Bank Group 152 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Short-term insurance contracts – Reinsurance is the preferred risk transfer mechanism that is placed on a proportional reinsurance basis through a Quota Share. The structure is such that a significant portion of the risk is ceded to reinsurers relative to what is retained; and; – Furthermore, additional layers of non-proportional structures, in the form of a stop-loss are in place to limit retention exposures as well as manage catastrophe risk. The LBLIC and LBIC Boards approve the reinsurance renewal process on an annual basis. The major portion of the reinsurance programme is in place with foreign reinsurers which have a credit rating of no less than A+ for Life Insurance and AA- for short-term insurance. LBLIC Concentration risk Investment portfolio concentration risk The allocation of investment portfolio as at 31 March was as follows: 2021 2020 Asset classes R’000 % R’000 % Equities – local 433 293 39% 299 310 27% Resources 109 145 25% 141 126 47% Financials 134 406 31% 97 616 33% Industrials 189 742 44% 60 568 20% Commodities – local 23 722 2% 2 321 0% Bonds – local 313 885 28% 429 953 38% Fixed interest 243 398 78% 279 806 65% Floating rate 30 988 10% 148 181 34% Inflation linked 39 499 13% 1 966 0% Cash, deposits and similar securities – local 207 904 19% 256 514 23% Investment policy – property (local) 9 0% 4 101 0% Foreign assets 127 891 12% 130 781 12% Total LBLIC 1 106 704 100% 1 118 338 100% 153 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) LBIC Investment portfolio concentration risk The allocation of investment portfolio as at 31 March was as follows: 2021 2020 R’000 % R’000 % Bonds – local 183 571 43% 4 980 8% Fixed interest 141 645 77% 2 538 51% Floating rate 26 660 15% 2 339 47% Inflation linked 15 266 8% 103 2% Cash, deposits and similar securities – local 247 112 57% 56 389 92% NCD's 203 724 82% 56 384 100% Other 43 388 18% 6 0% Total LBIC 430 683 100% 61 369 100% The investment manager performance, portfolio and manager allocations are monitored and reported to the company management and Investment and Actuarial Committee on a regular basis by the company's investment consultants. Upper and lower bounds are assigned to each asset class and are reviewed annually, with the investment policy. The upper and lower bounds in effect as at 31 March 2021 are stated below. All classes were within bounds as at 31 March 2021. Land Bank Group 154 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) LBIC 2021 Asset classes Lower bound Upper bound Equities – local 0% 35% Bonds – local 30% 20% Bonds – inflation linked 0% 20% Cash, deposits and similar securities – local 40% 95% Foreign assets 0% 10% LBLIC 2021 Asset classes Lower bound Upper bound Equities – local 30% 50% Bonds – local 15% 35% Cash, deposits and similar securities – local 10% 30% Foreign assets 5% 25% Insurance concentration risk Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact heavily upon the company’s resources. The company operates in the long-term insurance business. Long-term insurance concentration risk The long-term insurance portfolio is based on credit life insurance. Although the company does not consider any aggregate concentration for catastrophic risks, the company does, however, consider the age bands of the client base for reinsurance rating purposes. Long-term insurance gross written premium by class of business 2021 2020 Portfolio R’000 R’000 Credit life insurance – Group 2 703 3 007 Credit life insurance – Individual 2 243 2 396 4 946 5 403 155 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Long-term insurance gross written premium by age bands 2021 2020 Value Average Value Average Portfolio Number R'000 R'000 Number R'000 R'000 20 – 29 22 5 429 523 14 4 594 523 30 – 39 109 66 783 2 074 – – – 40 – 49 – 900 – – – – 50 – 59 – 1 020 – – – – 60 – 69 532 – – – – – 70+ 149 300 – – – – 812 74 432 92 14 4 594 328 Short-term insurance concentration risk – LBIC Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact heavily upon the short-term company’s resources. The company operates on both crop and agri-asset insurance business. Gross written premium by business 2021 2020 Portfolio R’000 R’000 Short-term insurance (crop) 599 994 563 209 Short-term insurance (assets) 233 80 600 227 563 289 Land Bank Group 156 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Short-term crop insurance gross written premium by class of business 2021 2020 Gross Written Premium Net Written Premium Gross Written Premium Net Written Premium Portfolio R’000 R’000 R’000 R’000 Winter hail 41 703 23 472 32 410 18 241 Multi-peril winter – – 1 787 342 Fruits & Nuts 63 466 11 106 52 380 9 167 Hail summer 488 286 115 358 466 933 110 313 Multi-peril summer 6 539 1 545 9 699 2 291 Total 599 994 151 481 563 209 140 354 Short-term asset insurance gross written premium by class of business 2021 2020 Portfolio R’000 R’000 Motor 67 24 Non-motor 166 56 233 80 Short-term crop insurance gross written premium by geographical segment Northern Cape 39 941 34 542 KwaZulu-Natal 87 078 89 120 Eastern Cape 23 413 34 864 Mpumalanga 153 277 124 478 Limpopo 28 601 28 727 Free State 217 398 210 436 North West 29 896 25 883 Western Cape 8 649 5 534 Gauteng 11 740 9 625 599 993 563 209 157 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Equity price risk 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. The effect on equity (as a result of a change in the fair value of equity instruments held-for-trading in the category financial assets through profit or loss at 31 March) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows: Group Bank Change in Effect on Change in Effect on equity price equity equity price equity % R’000 % R’000 2021 2020 Individual stocks and indices 10 90 977 10 28 720 The effect on equity has been calculated using the equity balances at year end. Price risk – LBLIC LBLIC is subject to market price risk resulting from daily changes in the fair value of market prices of the instruments within its investment portfolios. The company’s objective is to earn competitive returns for the shareholder by investing in a diverse portfolio of high quality, liquid securities. The company holds a variety of equity derivatives for transaction management and hedging purposes. The company does not invest policyholders’ funds in equity. Sensitivity analysis on equity instruments Impact on the Statement of Profit or Loss and Other Comprehensive Income Land Bank Group 158 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management Group (continued) Impact on the Statement of Profit or Loss and Other Comprehensive Income 31 March 2021 31 March 2020 Portfolio R’000 R’000 Incremental change in price Excluding the impact of derivatives 10% decrease (43 329) (29 931) 5% decrease (21 665) (14 966) 5% increase 21 665 14 966 10% increase 43 329 29 931 Including the impact of derivatives 10% decrease (45 701) (29 699) 5% decrease (22 851) (14 850) 5% increase 22 851 14 850 10% increase 45 701 29 699 Investment strategy LBIC The Investment Policy was updated and approved by the Board in July 2020. The Company has taken a risk-based approach to setting investment strategy. The Company investable assets will be notionally tiered into three buckets representing different levels of market risk. The notional allocation to these buckets will be reviewed at least annually. Each bucket will make use of a strategic asset allocation appropriate for the risk profile it represents. Bucket Matching assets Definition 1. Short Cash & Bonds Current liabilities minus cash needed For operations as defined in the Cash Management Policy Statement. 2. Medium Cash & Bonds Additional capital needed to augment The short-term bucket should the business meets short-term objectives. 3. Long Exposure to growth assets such as equities targeting a long-term real return unless there Balance of assets to be invested long-term as the business was are liabilities requiring a specific matching assets. not likely to draw on these assets. 159 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) The following notional asset allocations have been chosen to represent each bucket. The bulk of investments are held for 6 to 9 months, with a maximum of 12 months. Local Local Nominal Local Inflation Local Cash Foreign Expected long- Equity Bonds Linked Bonds term real return Short-term 20% 35% 0% 0% 0% 5% To measure the overall investment objective for all investable assets, the buckets will be consolidated into a single strategic asset allocation strategy. To manage the risk of deviation from the benchmark asset allocation, a tactical asset allocation range will be set for each asset class to allow some deviation from the strategic asset allocation. This will also allow managers to add value by making asset allocation decisions. Asset managers will be allowed to deviate outside the tactical limits. In such an event the reasons for this will be communicated to the Investment Consultant and Investment Committee. The table below this shows the Company’s strategic and tactical asset allocation limits for the short-term insurance business: Long-term Upper Target Lower Bound Bound Benchmark Index Local equity 0% 0% 35% 1% JSE Capped SWIX Local Nominal Bonds 40% 0% 20% 50% All Bond Index (ALBI) Local Inflation Linked Bonds 0% 0% 20% 10% inflation linked bond index (ILBI) 80% STeFI Composite 60% MSCI World Local cash 60% 25% 95% + 40% Foreign Multi-Assert Class 0% 0% 10% 5% CitiGroup Gov Bonds Investment performance The investment was made during the 2018 FYE in the Future growth portfolio and generated an annual equivalent of 8.35% as a return. In the March 2021-year end, the investment reflected 5,3% return with a net investment of R352 million being made throughout the financial year. This performance was above the target of 110% of STeFI call index which was 5.0%. LBLIC The Investment Policy was updated and approved by the Board in July 2020. In deriving the investment objective, the Company notionally allocated its assets into three buckets representing different levels of risk (Short-term, medium-term and long-term) as follows: Land Bank Group 160 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Bucket Matching assets Definition Short Cash & Bonds Policyholder & Current Liabilities plus SCR minus cash needed for Operations as defined in the Cash Management Policy Statement. Medium Cash & Bonds Additional capital needed to augment the short-term bucket should the business meets its short-term objectives. Long Exposure to growth assets such as equities targeting a long-term real return Balance of assets to be invested long-term as the business was not likely to unless there are liabilities requiring a specific matching assets. draw on these assets. The above allocations were consolidated to produce a target real return for the Company assets. The Company will firstly aim to match its assets and liabilities and with the excess assets target an appropriate real return. With this in mind, the Company has selected the following investment objective: A real return, after investment fees and gross of tax of 4.0% per annum measured over rolling 3 year periods. For the purpose of calculating the real return in the primary objective, inflation will be taken as the published Consumer Price Inflation (CPI) rate. Investment strategy The Company has taken a risk-based approach to setting investment strategy. The Company investable assets will be notionally tiered into three buckets representing different levels of market risk. The notional allocation to these buckets will be reviewed at least annually. Each bucket will make use of a strategic asset allocation appropriate for the risk profile it represents. Expected long- term-real Local equity Local bonds Local cash Foreign return Short-term 0% 1% 0% 0% 0% Medium-term 0% 0% 0% 0% 0% Long-term 45% 25% 20% 15% 0% To measure the overall investment objective for all investable assets, the buckets will be consolidated into a single strategic asset allocation strategy. To manage the risk of deviation from the benchmark asset allocation, a tactical asset allocation range will be set for each asset class to allow some deviation from the strategic asset allocation. This will also allow managers to add value by making asset allocation decisions. Asset managers will be allowed to deviate outside the tactical limits. In such an event, the reasons for this will be communicated to the Investment Consultant and Investment Committee. 161 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) The table below shows the Company’s strategic and tactical asset allocation limits for the long-term insurance business. Long-term Target Lower Bound Upper Bound Benchmark Index Local equity 40% 30% 50% JSE Capped SWIX Local bonds 25% 15% 35% All Bond Index (ALBI) Local cash 20% 10% 30% STeFI Composite Foreign multi-asset class 15% 5% 25% 60% MSCI World + 40% CitiGroup Gov Bonds Capital management The primary source of capital used by the Group is shareholder’s equity funds.The amount of capital required is directly linked to risks arising from insurance business underwritten, as well as the Group’s credit and operational risk. Accordingly risk management is an important component of effective capital management. Capital management objectives and approach The Group has established the following capital management objectives and approach to managing the risks that affect its capital position: • To allocate capital efficiently and support the development of business by ensuring that returns on capital employed meet the requirements of its capital providers and of its Shareholder; • To align the profile of assets and liabilities taking account of risks inherent in the business; • To maintain financial strength to support new business growth and to satisfy the requirements of the policyholders and stakeholder; • To maintain healthy capital ratios in order to support its business objectives; and • To support the credit rating of the Bank. • To maintain healthy capital adequacy ratios in order to support its business objectives. • To comply with the requirements set by the regulator of the insurance markets where the company operates. The Group’s capital management policy for its insurance and non-insurance business is to hold sufficient capital to cover statutory requirements. The following main strategies were applied to achieve capital management objectives: • Effective management of credit risk; • Effective management of underwriting risk, • Effective management of operational risk – a sound internal control framework reduces operational risk, which in turn has a positive effect in the calculation of required capital; and • Routine forecasts of capital requirements, assessment against both available capital as well as the expected internal rate of return – including risk and sensitivity analyses. The purpose of the Group’s capital management is to ensure an efficient use of capital in relation to risk appetite and business development. The Group does not have to comply with any regulatory capital requirements. Land Bank Group 162 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Capital Adequacy Requirements (CAR) – the Land Bank The Bank has adopted a Basel-like Total Capital Adequacy Ratio (TCAR) with Board approved deviations from the Regulations to determine the amount of capital needed to ensure solvency and liquidity.The TCAR calculation is underpinned by the Standardised Approach principles.The Bank targets a minimum total capital adequacy ratio of 15%.The Basel Accord requires that banks meet three minimum capital adequacy ratios, in order to ensure that banks have an acceptable mix between high quality, expensive capital and lower quality, less expensive capital, these are: • Common Equity Tier 1 (CET1) minimum = CET1 / total Risk Weighted Assets (RWA); • Tier 1 minimum = (CET1 + Additional Tier 1 (AT1)) / total RWA; and • Total minimum = (CET1 + AT1 + Tier 2) / total RWA. The only deviation from the Banking Regulations with regards to total CAR is: Land Bank only has Government as shareholder and is not allowed to issue shares in the market to raise capital. Therefore should the government guarantee be excluded from capital the only other •  resource of capital would be retained earnings. The Land Bank’s funding covenants all include the unutilised portion of government guarantees (those of capital/ sustainability nature) as a source of capital supply. Risk-weightings are risk sensitive, in other words, riskier assets receive higher weightings and the Basel Capital Accord allows for basic and advanced approaches to determine RWA dependent on the sophistication of a bank. The Land Bank (Bank) capital adequacy was estimated based on the following approaches: • Credit risk: The Standardised Approach; • Operational risk: The Basic Indicator Approach; • Equity risk in the banking book: The Simple Risk-weight Approach; • Market risk: Standardised approach; and • Credit and operational risk have been identified as the major risk types affecting the Land Bank. It is the intention of the Land Bank to move towards more sophisticated approaches, such as the Foundation Internal Ratings Based (F-IRB) approach for credit risk measurement. In this regard has the Bank already commenced with the development of Internal Ratings Based models. The Land Bank is a state owned entity (SOE) and therefore does not have the ability to issue share capital. For this reason the bank includes Government Guarantees which are not ring-fenced for funding purposes as Tier 1 Capital. To further strengthen capital management, the Bank adopted the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). 163 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 37. Financial instruments and risk management group (continued) Company 2021 2020 Capital adequacy R’000 R’000 Total capital adequacy Capital supply 9.7% 4.2% Ordinary shareholders' equity 7 397 655 4 397 655 Retained earnings (5 245 288) (4 289 211) Accumulated other comprehensive income (548 992) (585 339) Property revaluation reserve 133 080 138 472 Other reserves (682 072) (723 811) Common Equity Tier 1 (CET1) Capital: Instruments and reserves 1 603 375 (476 895) Common Equity Tier 1 Capital: Regulatory adjustments (492 705) (458 044) Threshold deductions (investments in subsidiaries) (489 939) (450 000) Intangible assets (2 766) (8 044) Total available Common Equity Tier 1 capital 1 110 670 (934 938) Total available Tier 2 capital 478 297 546 434 General allowance for credit impairment 478 297 546 434 Total available capital 1 588 967 (388 504) National Treasury guarantee* 2 410 000 2 410 000 Capital demand Risk weighted assets Credit risk 38 189 835 43 415 260 Counterparty risk 73 913 299 457 Operational risk 1 491 232 2 155 063 Equity risk 708 756 912 729 Market risk 56 789 48 642 Other assets risk 179 280 743 176 Threshold items 400 152 – Total 41 099 957 47 574 326 Land Bank Group 164 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. 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  evel 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 L Level 1, Level 2 or Level 3 Group Company 2021 2020 2021 2020 Levels of fair value measurements Level 1* R’000 R’000 R’000 R’000 Financial assets Bonds 558 290 475 652 60 834 40 719 Local Equities 597 850 410 673 164 557 111 362 Foreign equities 52 738 37 486 52 738 37 486 Commodities 37 141 3 709 13 419 6 030 Listed Shares 90 816 117 983 90 816 117 983 Total financial assets 1 336 835 1 045 503 382 364 313 580 Level 2* Financial assets Cash and cash equivalents 5 589 889 722 711 5 558 401 585 008 Repurchase Agreements – 19 495 – 19 495 Strategic trading assets – 5 153 – 5 153 Derivatives 11 340 79 064 11 340 79 064 Cash deposits and similar securities 466 571 327 641 11 556 14 738 Collective investment schemes 127 891 130 780 – – Investment policy 9 4 101 – – Total financial assets 6 195 700 1 288 945 5 581 297 703 458 165 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) 2021 2020 Carrying Fair Carrying Fair amount value amount value Level 3 * R’000 R’000 R’000 R’000 Recurring fair value measurements Assets Financial assets Loans and advances 30 887 859 39 470 496 30 887 859 39 470 496 Unlisted shares 387 354 640 198 387 354 640 198 Trade and other receivables 1 049 425 1 237 652 206 492 720 780 Insurance assets 164 001 181 692 – – Total financial assets 32 488 639 41 530 038 31 481 705 40 831 474 Liabilities Financial liabilities Trade and other payables 770 814 1 412 033 116 695 833 958 Insurance Liabilities 286 650 281 568 – – Funding Liabilities 36 074 791 41 352 534 36 074 791 41 352 534 Lease Liabilities 23 176 50 609 23 071 50 335 Total financial liabilities 37 155 431 41 684 711 36 214 557 42 236 827 * Please refer to note 37 for carrying values Land Bank Group 166 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) Reconciliation of assets measured at level 3 Fair value Reclassification adjustment for on (to)/from recognised in the Re- other Opening statement of measurement category of Closing balance profit or loss recognised in OCI Purchases Disposals property balance Group – 2021 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Assets Investment property Investment property 15 000 (8 073) – – – 88 173 95 100 Property, plant and equipment Property, plant and equipment 24 400 – (6 500) – – – 17 900 Non-current assets held-for sale Non-current assets held-for sale 105 112 – – 1 029 (13 910) (88 173) 4 058 Equity investments at fair value through other comprehensive income Unlisted shares 640 198 – 61 064 – (313 908) – 387 354 Total 769 710 (6 499) 1 030 (13 909) (88 173) 662 160 167 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) Fair value adjustment for Reclassification recognised in the Re- on (to)/from Opening statement of profit or measurement other category of Closing balance loss recognised in OCI Purchases Disposals property balance Group – 2020 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Assets Investment property Investment property 15 250 (250) – – – – 15 000 Property, plant and equipment Property, plant and equipment 24 350 – 50 – – – 24 400 Non-current assets held-for sale Non-current assets held-for sale 163 036 (11 899) – – (46 025) – 105 112 Equity investments at fair value through other comprehensive income Unlisted shares 1 250 203 – (703 706) 160 000 (66 298) – 640 199 Total 1 452 839 (12 149) (703 656) 160 000 (112 323) – 784 711 Valuation techniques used to derive level 2 fair values Level 2 investments are valued using a valuation technique based on assumptions that are supported by prices from observable current market transactions: • Repurchase transactions: Market value of the underlying bonds. • Cash deposits and similar securities: Value of cash deposited • Commodities: Foreign component at the market value of the investment determined by the asset manager. • Collective investment schemes (other than unlisted equities) (CIS) and Investment policies: Consists of unit trust that consist of underlying investments in Level 1 investments. The value of the CIS is  the aggregate of the underlying value of each Level 1 instrument at its quoted market price. Unlisted equity: Previously listed shares that have been delisted, based on the fair value determined by the respective Asset Managers. • • Money market instruments: The face value of the investment made. Land Bank Group 168 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) Description of significant unobservable inputs to level 3 valuations Group 2021 Unquoted equity Valuation technique Significant unobservable inputs Sensitivity of the input to the fair value Acorn Agri (Pty) Ltd Audited financial statements were used to derive the NAV valuation: Adjust range between: 5% Up -5%: R84 550 000 NAV. Investment holding company, value derived from and 5% Down +5%: R93 450 000 the investment activities (BS approach). Ideafruit (Pty) Ltd DCF. Operating entity, value derived from operating DCF valuation: Discount rates range between Discount rate: activities of the business (IS approach). 8.97% and 18.97% -5%: R134 760 759 +5%:R18 802 680 Riverside Holdings (Pty) Ltd DCF. Operating entity, value derived from operating DCF valuation: Discount rates range between Discount rate: activities of the business (IS approach). 14.49% and 15.49% -0.5%: R107 478 727 +0.5%: R94 476 651 Afgri Grain Silo Company Pty Ltd DCF. Operating entity, value derived from operating DCF valuation: Discount rates range between Discount rate: activities of the business (IS approach). 7.1% and 17.1% -5%: R1 514 893 202 +5%: R82 028 697 169 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) Asset Valuation technique Significant unobservable inputs Sensitivity of the input to the fair value Property and equipment Net income capitalisation method Vacancy rate range: 12.3% – 12.3% Capitalisation rate: Income/expense ratio range: 13.7% – 28.2% +1%: R15 855 184 Capitalisation rates range: 12.0% – 12.0% '-1%: R18 773 399 Investment property Net income capitalisation method Vacancy rate range: 12% – 12.5% Capitalisation rate: Income/expense ratio range: 12.3% – 37% +1%: R89 072 011 Capitalisation rates range: 11% – 13.5% '-1%: R104 884 393 Properties in possession Comparable sales method Natural grazing land per ha.: R7 500 – R80 000 Market value per ha. of land: + R1000 p/ha.: R113 167 Irrigated pasture land per ha.: R0 – R30 000 - R1000 p/ha.: R69 396 957 Farm yard land per ha.: R0 – R10 000 Wasteland per ha.: R0 Crop Land R0 – R 0 Drylands R0 – R0 Industrial land per ha.: R33 Construction price for dwellings per m : 2 R0 – R7 000 Construction price for other structures per m2: R0 R2 500 Land Bank Group 170 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) Description of level 2 valuation techniques Group 2020 Unquoted equity Valuation technique Significant unobservable inputs Sensitivity of the input to the fair value Capespan Capital (Pty) Ltd Land Bank sold its investment at Capespan Capital (Pty) Ltd for R14. The investment therefore carried at no value in the Annual Financial Statements. Acorn Agri (Pty) Ltd Audited financial statements were used to derive the NAV. Investment NAV valuation: Adjust range between: -5%: R68 760 136 holding company, value derived from the investment activities (BS 5% Up and 5% Down. +5%: R75 733 104 approach). Mouton Holdings (Pty) Ltd The Land Bank accepted an offer for the purchase of Mouton Holdings (Pty) Ltd shares for R85 million. The investment therefore carried at this value in the Annual Financial Statements. Southern Cross Investment Holdings The Land Bank received and an offer for the purchase of Southern Cross Investment Holdings (Pty) Ltd shares for R75 million. The investment therefore (Pty) Ltd carried at this value in the Annual Financial Statements. Cavalier Group of Companies (Pty) Ltd DCF. Operating entity, value derived from operating activities of the DCF valuation: Discount rates range Discount rate: business (IS approach). between 14.8% and 15.8%. -0.5%: R47 623 184 +0.5%: R40 981 757 Ideafruit (Pty) Ltd The valuation for Ideafruit (Pty) Ltd could not be completed as at 31 March 2020 due to unavailability of financial projections and latest audited financial statements. Land Bank has therefore taken a decision to use the acquisition price of the investment. This resulted in the carrying value of R83.9 million (FY2019: R92.9million) for the Bank. Riverside Holdings (Pty) Ltd DCF. Operating entity, value derived from operating activities of the DCF valuation: Discount rates range Discount rate: business (IS approach). between 18.5% and 19.5%. -0.5%: R110 495 385 +0.5%: R101 521 870 Afgri Grain Silo Company Pty Ltd DCF. Operating entity, value derived from operating activities of the Discount rate: business (IS approach). DCF valuation: Discount rates range -0.3%: R115 057 807 between 12.3% and 12.9%. +0.3%: R76 826 194 171 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 38. Fair value hierarchy of financial instruments (continued) Asset Valuation technique Significant unobservable inputs Sensitivity of the input to the fair value Property and equipment Net income capitalisation method Vacancy rate range: 5% – 10% Capitalisation rate: Income/expense ratio range: 26.3% – 29.4% +1%: R21 887 483 Capitalisation rates range: 11.5% – 12% '-1%: R25 995 156 Investment property Net income capitalisation method Vacancy rate range: 3.5% – 4% Capitalisation rate: Income/expense ratio range: 20.1% – 30.5% +1%: R14 532 500 Capitalisation rates range: 10.5% – 12.5% '-1%: R17 436 205 Properties in possession Comparable sales method Natural grazing land per ha.: R3 750 – R11 000 Market value per ha. of land: + R1 000 p/ha.: R11 668 640 Irrigated pasture land per ha.: R0 – R45 000 - R1 000 p/ha.: R8 514 094 Farm yard land per ha.: R0 – R8 000 Wasteland per ha.: R0 Crop Land R0 – R 20 000 Drylands R0 – R 20 000 Industrial land per ha.: R3 Construction price for dwellings per m 2: R7 000 – R12 000 Construction price for other structures per m2: R2 250 – R2 330 Land Bank Group 172 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 39. Fruitless and wasteful expenditure (F&WE) The F&WE relates to isolated incidences where penalties and interest were levied on late payments of utility accounts. Group Company 2021 2020 2021 2020 Reconciliation of amounts transferred to receivables for recovery R’000 R’000 R’000 R’000 Opening balance 66 613 – 66 613 – Expenditure deemed as F&WE relating to prior year 12 185 50 000 185 50 000 discovered in the current year Expenditure deemed as F&WE relating to current year1 2 105 16 613 82 16 613 Less: amounts recovered in current year (35) (35) Closing balance 66 868 66 613 66 845 66 613 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 to inform the payroll department and the payments were made to 1)  the Learner for the period from January 2020 to August 2020 amounting to R87 thousand (R33 thousand relates to FY2020) in lieu of a monthly stipend. Consequence management has been implemented for the HCBP and the Leaner has been making repayments in lieu of the debt. Matter currently handed over to Legal to ensure full recovery of debt.This was subsequent fully recovered after year end. Land Bank employee who resigned on the 31st August 2019, he owed the Bank amount of R134.8 thousand for his studies in terms of the Land Bank learning and development policy. The Bank 2)  could not recover all the monies owed and matter was handed over to Legal. Legal is currently preparing the documents for court. The financial year 2020 fruitless and wasteful expenditure mainly relates to the following events: 1) An early withdrawal penalty fee charged of R16.5 million on an investment that the Land Bank had made with one of the banks during the year. 2) Jackets for R103 thousand received late from a supplier for an event. 3) The breakage fee of R50 million on unutilised funds that the Land Bank had raised with a related party. 173 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 40. Irregular expenditure Group Company 2021 2020 2021 2020 R’000 R’000 R’000 R’000 Reconciliation of irregular Opening balance* 766 380 454 271 766 380 454 271 Expenditure deemed as irregular relating to prior year discovered in the current year Expenditure deemed as irregular relating to current year 219 702 312 109 219 702 312 109 986 082 766 380 986 082 766 380 * The number was restated by R2 million which was written off in the prior but updated in the current year. The irregular expenditure as disclosed is currently going through the governance structures for approval. Analysis of irregular expenditure Incident 2021 R’000 1) Service level agreements were extended without prior approval of National Treasury as required in terms of National Treasury SCM Instruction Note 3 of 2016/17. The 200 908 transaction, conditions or events have not resulted in the Bank suffering any loss, value for money was derived from the use of the goods procured or services rendered. 2) Extension of contract was treated as a single source deviation in line with 16.A6.4 of the Treasury Regulations and the SCM Guideline for Accounting Professionals, which allows for single source deviations on the basis of continuation of consulting services to be approved internally by the Accounting Authority. 18 750 3) Contravention of the SCM policy and the Preferential Procurement Framework Act Regulations of 2017. This is currently under investigation. 44 Analysis of irregular expenditure Incident 2021 R’000 In 2010 Land Bank embarked on an initiative to grow its loan book by acquiring the assets from existing market players. Service Level Agreements were extended without 310 513 prior approval of National Treasury as required in terms of National Treasury SCM Instruction Note 3 of 2016/17. The transaction, conditions or events have not resulted in the Bank suffering any loss, value for money was derived from the use of the goods procured or services rendered In May 2019, Land Bank procured the services of a temporary employee from an audit firm to fill the vacancy for the Head of Internal Audit. Investigations have revealed that 1 596 not all procurement processes were correctly followed in the filling of this vacancy. Land Bank Group 174 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 41. Events after the reporting period As part of the Land Bank repurposing strategy that forms part of the restructuring process and supported by the Shareholder, the Bank will be split into two distinct divisions, the Development and a)  Transformation (D&T) division AND the Corporate and Commercial (C&C) division. The operating model in intended to ensure the Bank is able to advance its Development mandate, while at the same time it positions itself to be able to repay its commercial funding liabilities. The new operating model will impact the segment reporting of the Bank from the 2022 financial year onwards. Negotiations on the liability solution intended to take Land Bank out of its event of default between Land Bank supported by the Shareholders as well as its advisors and the lenders are continuing. b)  On the 27 May 2021, the Minister of Finance acting in terms of Section 92 of the Public Finance Management Act, 1999 (Act 1 of 19999), as amended, has exempted Land Bank from the provision c)  of Section 52 of the PFMA, which requires that the Land Bank must submit its Corporate Plan for FY2021/22 to the National Treasury until such time that the Land Bank’s default position has been cured. The exemption was gazetted on the 02 July 2021. In terms of the Court Order granted against Land Bank by the High Court of South Africa, Gauteng Division, Pretoria on 2 December 2020, the full amount owing to Standard Chartered Bank d)  (SCB) in terms of the Revolving Credit Facility, plus interest, was paid on 1 April 2021 (Capital R352 000 000 plus interest R1 619 855.78). e) Fruitless and Wasteful expenditure as outlined in note 39 was fully settled post year end. Note – this refers to the learner payments. f) ETG Group guarantee raised as contingent assets in note 34 was fully settled post year end (R214m). g) The largest Service Level Agreement with Unigro was terminated effective 1 October 2021 as part of the Board decision to insource Land Bank outsourced loans and advances. Since the termination of the SLA, Unigro has refused to grant access to Land Bank auditors supporting documents for the transactions they undertook on Land Bank’s behalf. This refusal lead to the Land Bank receiving a qualified audit opinion. Land Bank, through its lawyers has issued a letter of demand for such information. The process is still in progress. h) The term of the Board of Directors of Land Bank ended on 30 November 2021. The Minister of Finance has since appointed new Board members effective 8 December 2021. 175 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 42. Group remuneration In accordance with the Land Bank Act, the Minister of Finance determines the remuneration, allowances and associated benefits of all non-executive Board Members and the Chief Executive Officer.The remuneration for Executives and Bank employees is determined through market benchmarking and best practice under the guidance of the Group Human Resources and Remuneration Committee. Table 1: Remuneration of Land Bank Non-executive Directors and executive Directors for 2021 (R 000) Other Benefits4, Audit & Credit Ad hoc Guaranteed Fees & 2021 Board Finance Risk Risk HR SEC Meetings Package Expenses Total Non-Executive Directors MA Moloto 737 – 49 264 66 66 38 – – 1 220 DR Hlatshwayo 218 49 – 230 83 83 38 – – 701 SA Lund 1 218 131 117 33 16 – 38 – – 553 TT Ngcobo 88 – 33 – 47 47 19 – – 234 DN Motau 88 – 97 – – – 19 – – 204 SJ Coetzee 30 – 16 – 16 16 – – – 78 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 Kanana7 – – – – – – – 3 700 104 3 804 Chief Executive Officer Khensani Mukhari8 Chief Financial Officer – – – – – – – 3 400 30 3 430 Total Land Bank 2 033 557 443 1 217 294 228 266 7 100 134 12 272 Land Bank Group 176 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 42. Group remuneration (continued) Table 2: Remuneration of Land Bank Insurance Services Non-executive Directors and executive Directors for 2021 (R 000) Other Benefits3, Audit & Investment & Ad hoc Guaranteed Performance Fees & 2021 Board AGM Risk Actuarial HR Meetings Package Bonuses Expenses Total Non-Executive Directors DN Motau 30 – 22 21 – 9 – – – 82 DR Hlatshwayo 508 9 – – – 19 – – – 536 ME Makgatho 59 9 – 32 – 19 – – – 119 K Sukdev 103 9 22 42 – 9 – – – 185 ST Cornelius – 9 – – – – – – – 9 C Masuku 148 9 108 42 – 19 – – – 326 Melanie Bosman 148 9 32 42 16 19 – – – 266 P Truijens 81 – – 32 – 19 – – – 132 TT Ngcobo 30 – – – – 9 – – – 39 SJ Coetzee 15 – – – – – – – – 15 Sub Total 1 122 54 184 211 16 122 – – – 1 709 – – – – – – – – – – Executive Directors – – – – – – – – – – Adam Rakgalakane Managing Director – – – – – – 3 303 222 29 3 554 Land Bank Insurance services 1 122 54 184 211 16 122 3 303 222 29 5 263 1 50% was paid to Transnet Foundation in terms of Ms Lund’s employer policy on non-executive Directorship 177 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 42. Group remuneration (continued) Table 3: Remuneration – Land Bank Non-executive Directors and executive Directors for FY2020 (R'000) Other Benefits4, Audit & Ad hoc Guaranteed Fees & 2020 Board AGM Finance Risk Credit Risk HR SEC Meetings Package Expenses Total Non-Executive Directors MA Moloto 924 10 – – 192 63 63 73 – – 1 325 DR Hlatshwayo 347 10 – – 160 63 32 82 – 5 699 SA Lund1 347 10 79 113 – – – 64 – 5 618 NV Mtetwa2 103 10 79 31 – – – 27 – 1 251 TT Ngcobo 366 10 – 63 – 113 97 91 – 4 744 DN Motau 366 10 – – 226 – – 73 – 4 679 SJ Coetzee3 308 10 – 31 – 47 48 19 – 1 464 ME Makgatho 366 10 136 – 160 – – 64 – 4 740 ME Makgoba 366 – 16 63 176 – – 73 – 50 744 ST Cornelius 347 10 95 – 160 78 – 73 – 15 778 Subtotal 3 840 90 405 301 1 074 364 240 639 – 89 7 042 Executive Directors Bennie van Rooy5 Chief Financial Officer & Acting Chief Executive Officer – – – – – – – – 842 7 849 Konehali Gugushe6 Chief Risk Officer & Acting Chief Executive Officer – – – – – – – – 2 754 49 2 803 Ayanda Kanana7 Chief Executive Officer – – – – – – – – 308 8 316 Khensani Mukhari8 Chief Financial Officer – – – – – – – – 564 4 568 Total Land Bank 3 840 90 405 301 1 074 364 240 639 4 468 157 11 578 1 50% was paid to Transnet Foundation in terms of Ms Lund's employer policy on non-executive Directorship 2 Resigned – 30 August 2019 3 Resigned – 30 April 2020 4 Other benefits include vitality benefits, Cell Phone Allowance And Petrol Card 5 Resigned – 30 June 2019 6 Resigned Acting Chief Executive Officer – 31 December 2019 7 Chief Executive Officer from 1 March 2020 8 Chief Financial Officer from 1 February 2020 Land Bank Group 178 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 42. Group remuneration (continued) Table 4: Remuneration of Land Bank Insurance Services Non-executive Directors and executive Directors for 2020 (R 000) Other Benefits, Investment Guaranteed Fees & 2020 Board AGM Audit & Risk & Actuarial Ad hoc Meetings Package Expenses3 Total Non-Executive Directors Ms. D Motau 71 9 51 30 9 – – 170 Ms. T Ngcobo 71 9 – – 9 – – 89 Ms. D Hlatshwayo 492 9 – – 9 – – 510 Adv. S Coetzee1 28 – – – – – – 28 Ms. M Makgatho 70 9 – 41 9 – – 129 Mr. M Scharneck2 70 – 20 30 – – 2 122 Mr. S Masuku 156 – 115 11 – – 1 283 Sub Total 958 36 186 112 36 – 3 1 331 Executive Director Adam Rakgalakane Managing Director – – – – – 3 291 29 3 320 Total LBIS 958 36 186 112 36 3 291 32 4 651 Resigned – 30 April 2020 1 Resigned – 30 September 2019 2 Other benefits include vitality benefits 3 179 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 42. Group remuneration (continued) Table 5: Remuneration – Land Bank executive officers in FY2021 (R'000) Total Title Guaranteed Package Cell phone Allowance Other Benefits 2021 Ms. ETM Dlamini Executive Manager: Human Capital 2 839 24 4 2 867 Mr. SCE Soundy Executive Manager: Strategy and Communications 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 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 Table 6: Remuneration – Land Bank executive officers in FY2020 (R'000) Total Title Guaranteed Package Cell phone Allowance Other Benefits 2020 Ms. ETM Dlamini Executive Manager: Human Capital 2 834 24 3 2 861 Ms. L Ndlovu Executive Manager: Commercial Development and Business Banking 1 124 10 2 1 136 Mr. SCE Soundy Executive Manager: Strategy and Communications 2 898 24 5 2 927 Mr. F Stiglingh Executive Manager: Portfolio Management Services 2 883 24 4 2 911 Mr. SN Sebueng Executive Manager: Legal 2 281 24 - 2 305 Dr. LL Magingxa Executive Manager: Agricultural Economics & Advisory 2 623 24 4 2 651 Mrs. U Magwentshu Executive Manager: Corporate Banking and Structured Investments 2 700 24 - 2 724 Total 17 343 154 18 17 515 Land Bank Group 180 VALUE CREATION PERFORMANCE GOVERNANCE FINANCIAL STATEMENTS LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 43. Prior period errors During the year, the Land Bank recorded the following prior period errors. (1) Loans and advances: The Board approved a comprehensive remediation plan, that was implemented by management to address the specific deficiencies that led to the disclaimed audit opinion in FY2020. The remediation plan has resulted in the restatement of the prior year ECL and loan modification due to model recalibration, updated staging and collateral. Expected Credit Loss Provision T  he expected credit loss (ECL) calculation was corrected and revised in the current year. The revision was related to the actual model calculation where previously collateral was deducted from the exposure at default (EAD). In the current calculation collateral is not deducted from EAD however it is used as input in loss given default (LGD) calculation. For staging classification the Bank reviewed the default date from 120 days in the indirect book to 90 days. This was done partly to align to the Bank’s direct loan book definition and also because this reflected a better presentation of the Bank’s non-performing loans based on current credit experience. Collateral was corrected to ensure that all collateral items were classified correctly and all collateral was valued at the lower of the registered bond amount or market value. . These corrections have been applied retrospectively with the exception of the staging classification which has been treated as a change in estimate and changed prospectively. (2)Funding Liabilities: Land Bank have been accruing the interest expense relating to arranging fees, discounts/ premiums and accrued interest on a straight-line method throughout the life of the funding instruments.This was not in line with the requirements of the IFRS 9 Financial Instruments for financial instruments measured at amortised cost.The Bank corrected this error in the current year and restated the prior year’s balances as reflected below. The correction of the error(s) results in adjustments as follows: Statement of financial position • ‘’Loan and advances ’’ • ‘’ Equity’’ • ‘’ Funding Liabilities’’ Statement of profit or loss and other comprehensive income • ‘’Interest Income’’ • ‘’Interest expense’’ • ‘’Net impairment charges, claims and recoveries’’ • “Gains and losses on modifications’’ 181 Annual Financial Statements | 2021 INTRODUCTION LEADERSHIP ORGANISATIONAL OVERVIEW OPERATIONAL OVERVIEW LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA Audited consolidated and separate Annual Financial Statements for the year ended 31 March 2021 Notes to the Financial Statements 43. Prior period errors (continued) The correction of the error(s) results in adjustments as follows: Group Company Previously Correction Previously Correction Reported of error Restated Reported of error Restated 2020 R’000 R’000 R’000 R’000 R’000 R’000 Statement of Financial Position Loans and Advances 41 560 074 (2 089 578) 39 470 496 41 560 074 (2 089 578) 39 470 496 Funding Liabilities 41 283 820 68 714 41 352 534 41 283 820 68 714 41 352 534 Accumulated loss (1 266 079) (2 249 296) (3 515 375) (2 039 916) (2 249 295) (4 289 211) Statement of Profit or Loss and Other Comprehensive Income Interest Income 4 698 792 (233 048) 4 465 744 4 692 661 (233 048) 4 459 613 Interest expense (4 047 654) (30 676) (4 078 330) (4 045 839) (30 676) (4 076 515) losses on modifications (19 153) (28 087) (47 240) (19 153) (28 087) (47 240) Net impairment charges, claims and recoveries (1 570 692) 1 502 704 (67 988) (1 570 692) 1 502 704 (67 988) 2019 Statement of Financial Position Loans and Advances 43 225 160 (3 399 700) 39 825 460 43 225 160 (3 399 700) 39 825 460 Funding Liabilities 44 257 919 (46 240) 44 304 159 44 257 919 (46 240) 44 304 159 Accumulated loss 835 674 (3 445 939) (2 610 265) (321 598) (3 445 939) (3 767 537) Land Bank Group 182 Notes Notes Land and Agricultural Development Bank of South Africa Econ Glades 2, Block D 420 Witch Hazel Avenue Eco Park Centurion Switch Board: (012) 686 0500 Toll free: 0 800 00 5259 www.landbank.co.za Enquiries: communication@landbank.co.za RP: 10/2022 ISBN: 978-0-621-49982-7