Land Bank default forces Sarb into R3.45bn bailout of state investment arm

State coffers under increasing strain.
Image: Shutterstock

South Africa’s central bank has issued a R3.45 billion ($200 million) guarantee to bail out the Corporation for Public Deposits (CPD), a government investment arm hit by surging defaults at state agricultural lender Land Bank.

The issue adds a further strain on state finances as the government props up its main power utility and airline, which were already struggling before the coronavirus crisis, and now faces rising defaults at the agricultural lender.

CPD, which purchased various debt instruments from Land Bank, said overall it suffered a R2.8 billion loss in the 2019/20 financial year, necessitating the central bank bailout.

Deputy governor of the Reserve Bank (Sarb) and chairwoman of the CPD, Fundi Tshazibana, told Reuters in an interview this week the guarantee was to cover the investment arm’s losses in the 2019/20 period and replenish reserves, which had dwindled to zero.

“We had to provision for what we will not be able to recover from the Land Bank. That was one of the reasons why we (central bank) had to provide the guarantee,” said Tshazibana.

“Because of the Land Bank default, we were running at a loss and we weren’t going to be a going concern…That would have been of real concern to depositors,” she added.

In April the Land Bank, the country’s largest agricultural-focused lender, defaulted on R50 billion of loans repayments and in June it failed to make interest payments of nearly R120 million.

On Friday the Land Bank told Reuters it had not made interest payments of around R320 million on debt which was due end June.

The South African Treasury guarantees around R5.7 billion of the Land Bank’s debt and last week granted the firm R3 billion rand of emergency equity funding.

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as the taxpayers coughed again, when can taxpayers expect a list of the bad loans?

Who to, what for, amount, terms including security, public interest score, original debt to equity ratio of the business, politically exposed persons, etc etc etc etc etc

The sovereign’s dominos are beginning to fall. More to come.

Some bad s$%t is coming, you can already sense this is going to get really, really bad.

I have never heard of this Corporation of Public Deposits.
What are they supposed to be for what purpose and who are these depositors they refer to?

The CPD is like that eccentric aunt who you have never met, who you go to for money after you have exhausted all the other avenues.

I don’t like this new form of capitalism…

“State coffers under increasing strain”

Empty is one word for five. Leeg.

The Land Bank is the canary in the coal mine. The bank is in trouble because farmers couldn’t repay their loans. That means that agricultural companies and co-ops and commercial banks have also got exposure to the same issue. The value of the collateral in the form of agricultural land will at some stage reflect this scenario. When the value of farm land comes under pressure, the banking system will come under pressure. That pressure will force the Reserve Bank to trigger the pressure valve, the exchange rate as part of the effort to capitalise the banking system.

The Land Bank does not stand isolated. It is an integral part of the purchasing power of the currency.

Canary in the coal mine indeed.

CDS rates are rising and some whales that take rare but sizeable bets, are front running what is coming. In 2008/09 – RSA was largely insulated from the banking crisis – this time they have their very own, just under the surface for now. Imagine what is going on in Europe and the US, you have seen and are seeing what the FED is having to do daily to keep things functioning. This is not sustainable. Month end has just passed and banks are tallying their missed loan, mortgage, car payments etc.

Remember the close on the 10th June. On no news event to speak of, no 9/11, no Lehman brothers – on the 11th 1800 points were wiped off the DOW, by the 16th, the market had dropped 2400 points and rebounded 2200, points for a 4 working day swing of 4600 points. This is not normal, just a heads up to the pent up energy and emotions locked inside a broken market – where price discovery no longer exists, riddled with HFT programmes. Technicals and math is the only way to trade this market.

For what it is worth – some serious concerns brewing about ESKOM. A hint nothing was fixed in lock down, if anything it is now much worse. If they ever get this country back to even 75% of pre-lockdown activity. Eskom stage 8+ load shedding is returning.

Reserve Banks are crowding out retail investors and even larger investors. Intending to save the banking system form all-out collapse, the Reserve Bank prints the money to buy company bonds, municipal bonds, Exchange Traded Funds and even shares of too big to fail companies. What is happening in front of our eyes? Well, in effect, Central Planners of the financial system, Reserve Banks, in other words, are nationalising private property. They are nationalising private property with compensation because that compensation is supposed to save the banking system from systemic collapse.

We have the local morons who are reigniting the debate about expropriation without compensation, while our banking system is shaking in its foundations after the force 9 economic earthquake known as lockdown.

“Moron – used to describe a person with a mental age in adulthood of between 7 and 10 on the Binet scale”. Luthuli House is a creche.

Easy , lets go back to level 5 until end of 2020. Corona will die and the land bank problems will die. We restart in Jan 2021 and live happily ever after as one.

Close it down.the government cannot run a business of any sort.

Pls explain – what is the Corporation for Public Deposits? Is it part of Treasury? Or SARB?
Given the Land Banks function and mandate i.e. financier in rural and commercial farming, it is FAR more deserving of government help than loss-making airline and mismanaged SAA (which should be shut down ASAP.)

End of comments.

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