Land Bank’s default risks financial contagion and devastation for agriculture
21 April 2020
Land Bank has warned debt holders of R50 billion that it is in danger of defaulting. The repayments in question are for its revolving credit facility, Land Bank cited a current “liquidity shortfall” as the problem. This follows on the Moody’s credit downgrade of the bank on the 21st of January, this already highlighted the bank as “riskier”, making access to finance more challenging and expensive for the bank.
Land Bank is a significant player in the agricultural sector, with a strong market share of 29% of South Africa’s agricultural debt. The bank is an important line of credit for agribusinesses to finance the buy-in of harvests at silos and for production credit which the bank channels to farmers via agribusinesses.
Agriculture is cyclical as many farmers do not have a fixed or regular income, rather, they earn the bulk of their income in a short period (varies based on commodity) when their produce is harvested. Access to credit is essential to meet cashflow needs (for example: paying for inputs and labour) throughout the year, with farmers typically settling their debt when their produce is harvested.
The bank is one of a few state-owned companies that remain profitable, despite an increase in defaulting loans (drought challenges, etc.), recording a profit of R181 million in 2019.