INDEX The reports and statements set out below comprises the consolidated annual financial statement presented to the Shareholder: GENERAL INFORMATION 4 DIRECTORS’ RESPONSIBILITIES AND APPROVAL 6 CERTIFICATE BY COMPANY SECRETARY 8 AUDITOR GENERAL’S REPORT 9 AUDIT AND FINANCE COMMITTEE REPORT 14 STATEMENTS OF FINANCIAL POSITION 17 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 18 STATEMENTS OF CHANGES IN EQUITY - GROUP AND BANK 19 STATEMENTS OF CASH FLOWS 20 SEGMENT REPORTING - GEOGRAPHIC SEGMENTS 22 SEGMENT REPORTING - BUSINESS SEGMENTS 26 ACCOUNTING POLICIES 35 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 61 These audited Group annual financial statements were prepared by Land Bank Financial Reporting under the direction and supervision of CFO, Ms. Khensani Mukhari CA(SA). GENERAL INFORMATION GENERAL INFORMATION FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 LAND BANK HOLDING COMPANY Land and Agricultural Development Bank of South Africa (the Land Bank) SHAREHOLDER National Treasury, Government Department COUNTRY OF INCORPORATION The Republic of South Africa PUBLIC ENTITY Governed by the Land and Agricultural Development Bank Act, 2002 (Act No. 15 of 2002) and is a schedule 2 Public NATURE OF BUSINESS AND PRINCIPAL ACTIVITIES Entity in terms of the Public Finance Management Act (PFMA). 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 COUNTRY OF INCORPORATION sector. LBLIC and LBIC are incorporated in terms of the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and The Republic of South Africa are schedule 2 Public Entities in terms of the PFMA. NATURE OF BUSINESS AND PRINCIPAL ACTIVITIES HEAD OFFICE PHYSICAL ADDRESS The Land Bank provides retail and wholesale finance to emerging, commercial farmers and Agri-Businesses. In addition to Block D Eco Glades 2 its banking operations, the Land Bank extends its services to the insurance sector through its subsidiaries. Witch Hazel Avenue Ecopark HEAD OFFICE PHYSICAL ADDRESS Centurion Block D Eco Glades 2 0046 Witch Hazel Avenue Ecopark POSTAL ADDRESS Centurion P. O. Box 375 0046 Tshwane 0001 POSTAL ADDRESS P. O. Box 375 BANKERS Tshwane LBLIC: ABSA Bank Limited 0001 LBIC: RMB Private Bank, division of FirstRand Limited BANKERS AUDITOR First National Bank, division of FirstRand Limited The Auditor-General of South Africa ABSA Bank Limited Nedbank Limited COMPANY SECRETARY The Standard Bank of South Africa Limited Mashumi Mzaidume (appointed 9 October 2017). FUNDING SPONSORS PUBLIC OFFICER DESIGNATE The Standard Bank of South Africa Limited Thamarisi Tisane (Acting: Appointed 18 December 2019) - Deregistered 30 August 2019 AUDITOR The Auditor-General of South Africa COMPANY SECRETARY Mashumi Mzaidume (appointed 9 October 2017). LAND BANK GROUP SUBSIDIARIES Company registration number Land Bank Life Insurance Company (SOC) Limited (LBLIC) 1954/003095/06 Land Bank Insurance Company (SOC) Limited (LBIC) 2012/115426/30 Land Bank Insurance Services (SOC) Limited (LBIS) 2012/060770/30 All of the above entities are incorporated in the Republic of South Africa 4 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 5 DIRECTORS’ RESPONSIBILITIES AND APPROVAL DIRECTORS’ RESPONSIBILITIES AND APPROVAL FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 The Directors are required by the South African Companies Act to maintain adequate accounting records and are solution as well as the review of the Land Bank’s repurposing strategy and the operating model. Successful implementation responsible for the content and integrity of the consolidated and separate annual financial statements and related financial of these solutions will ensure Land Bank remains a going concern. information included in this report. It is their responsibility to ensure that the consolidated and separate annual financial statements satisfy the financial reporting standards as to form and content and present fairly the consolidated and separate In addition, the Shareholder has further recapitalised the Land Bank with R3 billion in the appropriations budget tabled on statement of financial position, results of operations and business of the Group, and explain the transactions and financial 24 June 2020. Over and above the June recapitalisation, the Minister of Finance signalled the need for a further R7 billion position of the business of the Group at the end of the financial year. The consolidated and separate annual financial for Land Bank in his Medium Term Budget Policy statement. The restructuring process is still underway that is intended to statements are based upon appropriate accounting policies consistently applied throughout the Group and supported by cure the default by terming out the Banks’ lenders. Successful closure of this process will enable Land Bank to commence reasonable and prudent judgements and estimates. with the delivery of its 5-year strategic plan. It is against this background that the going concern basis was adopted in preparing the financial statements. The Directors acknowledge that they are ultimately responsible for the system of internal financial control established by the Group and place considerable importance on maintaining a strong control environment. To enable the directors to The consolidated financial statements have been prepared in accordance with IFRS (with consent from the National meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a Treasury for all Schedule 2 public entities) and the interpretations issued by the International Financial Reporting cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, Interpretations Committee (IFRIC), applying the accrual basis of accounting, the going-concern principle, and using the effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls historical-cost basis, except where specifically indicated otherwise in the accounting policies. are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that in all reasonable circumstances is above reproach. The consolidated and separate annual financial statements as set out on pages 17 to 188 were approved by the Board on 18 December 2020 and were signed on their behalf by: The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints. In order for the Board to discharge its responsibilities, management has developed and continues to maintain a system of internal control. The Board has ultimate responsibility for the system of internal control and reviews its operation, MA Moloto Mr. Ayanda Kanana primarily through the Audit Committee and various other risk-monitoring committees. Management enables the Chairperson of the Board Chief Executive Officer Directors to meet these responsibilities. 18 December 2020 18 December 2020 Through the past three years of the Auditor General’s audit reports, the Directors were informed of identified control weaknesses in the management of expected credit loss (ECL) of the loans and advances book as well as maintenance of reliable ECL input data, with most challenges linked to the component of the book managed by Service Level Agreement intermediaries (SLAs). During this period, it had also become evident to the Board that contracting and management of the book through SLAs was problematic. Measures were initiated to address these challenges, including amongst others, an independent audit of all intermediaries managing Land Bank’s loan book, credit approval rights of some SLAs were revoked and performed by the Bank, insourcing of the SLA book was initiated, the SLA improvement plan was developed and implementation thereof started. Key vacancies that arose as a result of resignations during calendar year 2019 and first quarter of 2020 calendar year further compromised the control environment, causing a stalling of the interventions in progress. Further to this, Land Bank was plagued by a major liquidity challenge during April 2020, leading to the Bank defaulting on some of its liabilities. This has led to a disclaimer opinion issued by the AGSA on the 2020 financial audit, sighting her inability to provide an opinion on the going concern basis of preparation of the FY2020 Annual Financial Statements as well as the valuation of the loan book, owing to ECL models not having been recalibrated since 2016 when they were developed and implemented, and the inability to validate inputs thereto, due to the weakened control environment. The Board has approved a remediation plan that will ensure restoration of good governance and improved control environment. The Board is also looking into steps that it may need to take as regards consequence management. 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 suspension of capital and interest payments to its funders. Interest payments were subsequently resumed on 11 August 2020. The Bank appointed legal and corporate finance advisors to support the process of turning the organisation around. The Bank together with its advisors and supported by the Shareholder are working on a solution which comprises of the asset solution, liability solution, equity 6 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 7 CERTIFICATE BY COMPANY SECRETARY AUDITOR GENERAL’S REPORT FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 In terms of the section 88(2)(e) of the Companies Act 71 of 2008, as amended, I declare that to the best of my knowledge, Disclaimer of opinion for the year ended 31 March 2020, the Land and Agricultural Development Bank of South Africa has lodged with the Registrar of Companies all such returns as are required of a State Owned Company in terms of the Act and that such 1. I have audited the consolidated and separate financial statements of the Land and Agricultural Bank of South Africa returns are true, correct and up to date. and its subsidiaries (the group) set out on pages 17 to 188, which comprise the consolidated and separate statement of financial position as at 31 March 2020, consolidated and separate statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes to the consolidated and separate financial statements, including a summary of significant accounting policies. 2. I do not express an opinion on the financial statements of the public entity. Because of the significance of the matters described in the basis for disclaimer of opinion section of this auditor’s report, I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated and separate financial statements. Mashumi Mzaidume Company Secretary Basis for disclaimer of opinion 18 December 2020 Presentation of the annual financial statements 3. I was unable to confirm whether the entity’s financial statements achieve fair presentation in accordance with International Accounting Standard (IAS 1), Presentation of financial statements, as management was unable to provide the assessment of the entity’s ability to continue as a going concern. Additionally, the entity incurred a loss of R2.4 billion in the current financial year, the entity’s cash and cash equivalents had significantly decreased by R2,6 billion as at year end, and the entity was unable to meet the repayment obligations due to liquidity shortfall. These conditions and events indicate a material uncertainty that may cast significant doubt on the entity’s ability to continue as a going concern. As a result, I was unable to conclude on whether the going concern basis of accounting in the preparation of the consolidated and separate financial statements is appropriate. Loans and advances, net impairment charges, claims and recoveries and modification gains or losses 4. I was unable to obtain sufficient appropriate audit evidence that management had properly accounted for expected credit losses (ECL), which is included in loans and advances under Note 11, in accordance with the requirements of International Financial Reporting Standard (IFRS) 9, Financial Instruments (IFRS 9). This was due to inadequate internal controls over the management of the ECL model as the entity did not regularly re-calibrate the model, and did not maintain reliable ECL input data including collateral, staging of loans and loan modifications. I was unable to confirm the measurement of ECL by alternative means. Consequently, I was unable to determine whether any adjustments were necessary to the net loans and advances of R41,6 billion (2018/19: R43,2 billion) and net impairment charges, claims and recoveries of R1,8 billion (2018/19: R1,1 billion) to the consolidated and separate financial statements. Collateral held as security 5. I was unable to obtain sufficient appropriate audit evidence that collateral held as security was properly accounted in accordance with the requirements of IFRS 7, Financial Instruments: Disclosures (IFRS 7). This was due to lack of supporting information for collateral valuations and inadequate collateral registers. I was unable to confirm this disclosure note by alternative means. In some cases, the collateral register included collateral of R7.01 billion that the entity is not entitled to in the event of default. Consequently, I was unable to determine whether any adjustments were necessary to the collateral held as security stated at R45,9 billion (2018/19: R43 billion) in note 11.7 to the consolidated and separate financial statements. 8 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 9 AUDITOR GENERAL’S REPORT AUDITOR GENERAL’S REPORT FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Risk management – credit risk 15. I am independent of the group in accordance with sections 290 and 291 of the Code of ethics for professional accountants and parts 1 and 3 of the International Code of Ethics for Professional Accountants of the International 6. I was unable to obtain sufficient appropriate audit evidence that the credit risk disclosure in note 40.1 to 42.5 to the Ethics Standards Board for Accountants’ (including International Independence Standards) (IESBA codes) as well as the financial statements was properly accounted for in accordance with the requirements of IFRS 7. This was due to the ethical requirements that are relevant to my audit of the consolidated and separate financial statements. I have fulfilled entity not maintaining reliable ECL input data including collateral, staging of loans and loan modifications. I was unable to my other ethical responsibilities in accordance with these requirements and the IESBA codes. confirm this disclosure note by alternative means. Consequently, I was unable to determine whether any adjustments were necessary to the credit risk note to the consolidated and separate financial statements. Report on the audit of the annual performance report Context for the opinion Introduction and scope 7. I conducted my audit in accordance with the International Standards on Auditing (ISAs). My responsibilities under those 16. In accordance with the Public Audit Act of South Africa 2004 (Act No. 25 of 2004) (PAA) and the general notice standards are further described in the auditor-general’s responsibilities for the audit of the consolidated and separate issued in terms thereof, I have a responsibility to report on the usefulness and reliability of the reported performance financial statements section of this auditor’s report. information against predetermined objectives for selected objectives presented in the annual performance report. I performed procedures to identify material findings but not to gather evidence to express assurance. 8. I am independent of the group in accordance with sections 290 and 291 of the Code of ethics for professional accountants and parts 1 and 3 of the International Code of Ethics for Professional Accountants (including International 17. My procedures address the usefulness and reliability of the reported performance information, which must be Independence Standards) of the International Ethics Standards Board for Accountants (IESBA codes) as well as the based on the approved performance planning documents of the entity. I have not evaluated the completeness and ethical requirements that are relevant to my audit in South Africa. I have fulfilled my other ethical responsibilities in appropriateness of the performance indicators / measures included in the planning documents. My procedures do not accordance with these requirements and the IESBA codes. examine whether the actions taken by the entity enabled service delivery. My procedures also do not extend to any disclosures or assertions relating to planned performance strategies and information in respect of future periods that 9. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my disclaimer of may be included as part of the reported performance information. Accordingly, my findings do not extend to these opinion. matters. Other matter 18. I evaluated the usefulness and reliability of the reported performance information in accordance with the criteria developed from the performance management and reporting framework, as defined in the general notice, for the 10. I draw attention to the matter below. My opinion is not modified in respect of this matter. following selected objectives presented in the annual performance report of the entity for the year ended 31 March 2020: Restatement of corresponding figures Objectives Pages in the Annual Performance Report 11. The corresponding figures for 31 March 2019 were restated as a result of errors in the consolidated and separate Contribute to transformation in the agricultural sector 102 – 107 financial statements of the entity at, and for the year ended, 31 March 2020. This restatement has resulted in the entity’s reported profit of the prior year being restated to a loss, as disclosed in note 49 to the consolidated and 19. I performed procedures to determine whether the reported performance information was consistent with the separate financial statements. We have however, disclaimed our opinion in terms of the financial statements. approved performance planning documents. I performed further procedures to determine whether the indicators and related targets were measurable and relevant, and assessed the reliability of the reported performance Responsibilities of the accounting authority for the financial statements information to determine whether it was valid, accurate and complete. 12. The accounting authority is responsible for the preparation and fair presentation of the consolidated and separate 20. I did not identify any material findings on the usefulness and reliability of the reported performance information for this financial statements in accordance with the International Financial Reporting Standards and the requirements of objective: the Public Finance Management Act (PFMA), and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material • Contribute to transformation in the agricultural sector misstatement, whether due to fraud or error. Other matter 13. In preparing the consolidated and separate financial statements, the accounting authority is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the 21. I draw attention to the matter below. going concern basis of accounting unless the appropriate governance structure either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Achievement of planned targets Auditor-general’s responsibilities for the audit of the consolidated and separate financial statements 22. Refer to the annual performance report on pages 80 to 117 for information on the achievement of planned targets for the year. 14. My responsibility is to conduct an audit of the consolidated and separate financial statements in accordance with the International Standards on Auditing and to issue an auditor’s report. However, because of the matters described in the basis for disclaimer of opinion section of this auditor’s report, I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements. 10 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 11 AUDITOR GENERAL’S REPORT AUDITOR GENERAL’S REPORT FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Report on the audit of compliance with legislation 31. Leadership did not implement effective human resource management to ensure that there is stability and adequate succession plan for key positions. As a result, the control environment of the entity was negatively impacted by the Introduction and scope number of resignations in these key positions. 23. In accordance with the PAA and the general notice issued in terms thereof, I have a responsibility to report material 32. Leadership did not exercise oversight responsibility regarding the development, implementation and monitoring of findings on the public entity’s compliance with specific matters in key legislation. I performed procedures to identify action plans to address internal control deficiencies relating to collateral held as security and loans by credit quality as findings but not to gather evidence to express assurance. required by IFRS. 24. The material findings on compliance with specific matters in key legislation are as follows: 33. Leadership did not adequately oversee financial reporting, compliance and related internal controls as it did not ensure that there were sound internal controls in the daily operations of the entity. Material misstatements were identified on Annual financial statements the submitted financial statements. Effective internal controls had not been implemented over monthly processing and reconciling of transactions from the external service providers used to manage the indirect loan book. 25. The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and supported by full and proper records, as required by section 55(1)(a) and (b) of the PFMA. 34. Management did not prepare financial statements that are supported and evidenced by reliable information as data Material misstatements of net loans and advances, funding liabilities, expenditure and disclosure items identified inputs to the ECL had errors and there was no regular re-calibration of the credit model. This is due to slow response by the auditors in the submitted financial statements were corrected and the supporting records were provided in addressing the previous years’ audit findings. This slow response resulted in material misstatements identified in subsequently, but the uncorrected material misstatements and supporting records that could not be provided resulted this year impacting opening balances as well. Furthermore, the reviews of the financial statements were not properly in the financial statements receiving a disclaimer of opinion. planned and performed to detect and correct errors timeously. Procurement and contract management 35. Management did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support financial reporting. 26. Some goods, works or services were not procured through a procurement process that is fair, equitable, transparent and competitive, as required by section 51(1)(a)(iii) of the PFMA. In some cases, new procurement processes were not Management did not in all instances review and monitor compliance with applicable laws and regulations. Management followed to appoint new service providers when contracts expired, and/or there were no approvals justifying that it did not comply with the requirements of Treasury Instruction note 3 of 2016/17, in the renewal/extension of contracts was impracticable to procure new contracts. with Service Level Partners (SLAs) that manage the indirect loan book on behalf of the bank, as from 1 May 2016. These SLA contracts were renewed/extended and/or entered into after 1 May 2016. When a contract expires, a new procurement process must be followed to appoint a new service provider. Renewal of existing contracts is effectively Other information a deviation. Hence it must be justifiable that it is impractical to procure a new contract. This has resulted in non- compliance with laws and regulations as indicated in paragraph 26 above. 27. The accounting authority is responsible for the other information. The other information comprises the information included in the annual report. The other information does not include the consolidated and separate financial 36. Management did not implement appropriate risk management activities to ensure that regular risk assessments, statements, the auditor’s report and the selected objective presented in the annual performance report that have including consideration of liquidity risks and credit risks, are conducted and that an effective risk strategy to address been specifically reported on in this auditor’s report. the risks is developed and monitored. 28. As a result of the disclaimer of opinion expressed on the financial statements, I do not conclude on material misstatements of the other information relating to the financial statements. If, based on the work I have performed relating to the audit of performance information and compliance with legislation, I conclude that there is a material misstatement of this other information, I am required to report that fact. 29. I did not receive the other information prior to the date of this auditor’s report. When I do receive and read this Pretoria information, and if I conclude that there is a material misstatement therein, I am required to communicate the matter 18 December 2020 to those charged with governance and request that the other information be corrected. If the other information is not corrected, I may have to retract this auditor’s report and re-issue an amended report as appropriate. However, if it is corrected this will not be necessary. Internal control deficiencies 30. I considered internal control relevant to my audit of the consolidated and separate financial statements, reported performance information and compliance with applicable legislation; however, my objective was not to express any form of assurance on it. The matters reported below are limited to the significant internal control deficiencies that resulted in the basis for the disclaimer of opinion. 12 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 13 AUDIT AND FINANCE COMMITTEE REPORT AUDIT AND FINANCE COMMITTEE REPORT FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 I herewith present the report of the Land Bank Audit and Finance Committee (the Committee) for the financial year ANNUAL CONFIRMATIONS OF KEY FUNCTIONS FOR THE YEAR ended 31 March 2020. The Committee acts in consultation with other Committees of the entity in particular the Risk and Governance Committee. The Committee is responsible for overseeing: Financial control, financial reporting and the Integrated Report • Quality and integrity of the entity’s integrated planning and reporting, including its financial statements and sustainability The Committee reviews the Interim Results, Annual Financial Statements, and Integrated Report, and recommends these reporting; to the Board for approval. This role includes an assessment of the accounting policies and key assumptions applied in the • Appointment, remuneration independence and performance of the external auditor and the integrity of the audit preparation of the financial statements, as well as dealing with technical reporting matters. In doing so, the Committee process, including the approval of non-audit services; also confirmed compliance of the Interim Results and Annual Financial Statements with International Financial Reporting • Effectiveness of internal financial controls and systems of internal control and risk management; and Standards (IFRS). • Effectiveness of the governance and assurance processes within the entity, in particular, that the internal audit function is adequately resourced and capacitated. The Committee confirms that it has assessed and confirms the appropriateness of the going concern basis for the preparation of the Annual Financial Statements. This is based on the on-going discussions that the Bank is having with its STATUTORY DUTIES lenders to ensure successful conclusion of the Liability solution and anticipation of the R7 billion equity investment that the Shareholder signalled during the Medium Term Budget Policy Statement. The additional R7 billion equity injection, The Committee is constituted as a statutory committee of the Land Bank in line with the Principles of King IV, the together with the successful conclusion of the Liability Solution, will ensure that the Land Bank continues to operate as a Companies Act and the Public Finance Management Act, and is accountable in this regard, to both the Board and the Land going concern. Bank representative shareholder, the Ministry of Finance. It is a committee of the Board in respect of all the duties that the Board assigns to it and has been delegated extensive powers to perform its functions in accordance with the Companies The Committee considered the maturity of combined assurance in the Group and the specific attestations from Internal Act, and the National Treasury Regulations issued in terms of the Public Finance Management Act. The Committee Audit, External Audit and Risk in regard to the adequacy and effectiveness of the internal controls within the Group. We also provides oversight of the entity’s information and technology (IT) functions. In this regard, the Committee reviews are not comfortable that these controls are adequately in place. There is significant room for improvement to strengthen management’s IT reports and IT Governance. the control environment and to realise the full benefits of combined assurance. The Committee has a charter which is reviewed annually and approved by the Board. The functions of the Committee are External audit outlined in its charter, which is available on the Land Bank website. The Auditor General of South Africa (AG (SA) is the external auditor for Land Bank. The Committee nominates the external auditor to the Board for appointment by the shareholder, and the Committee approves the terms of engagement The Committee, acting in consultation with the Risk and Governance Committee of the Bank, provided significant and remuneration for the external audit services. The Committee has assessed the independence of the external auditor oversight and monitoring of the following key areas: and has obtained the assurance that the auditor’s independence is not impaired. • The volatile macro-economic environment and management’s responses thereto; Internal audit • Internal controls, risk management and compliance processes, delegations of authority, combined assurance and The Head of internal audit reports to the chairman of the Committee and the Committee is responsible for the review business continuity; and and approval of the internal audit charter, the internal audit plan as well as the resources of the internal audit department. • Controls to prevent irregular, fruitless and wasteful expenditure. The Committee evaluated the independence of the internal audit function and is satisfied with its independence. COMPOSITION Expertise and experience of the finance function and the Group Chief Financial Officer The Group Chief Financial Officer, Ms Khensani Mukhari, was appointed as of 03 February 2020, starting shortly before The Committee comprises of independent non-executive directors who are elected annually at the company’s Annual year-end and the commencement of the external audit. The Committee has considered the expertise and experience of General Meeting (AGM). the CFO and has concluded that the appropriate requirements have been met. The members are: Ms Mathane Makgatho (Acting Chairperson), Ms SA Lund, and Dr ST Cornelius, who are independent Key vacancies arose in the finance function as a result of resignations during calendar year 2019 and first quarter of the non-executive directors of Land Bank. The members were elected by the shareholder at the AGM held on 04 November 2020 calendar year which compromised the control environment, causing a stalling of the control interventions in progress. 2019. The qualifications of the members of the Committee are listed in the Land Bank Governance Report. Following the Critical roles have since been filled. The Finance function has been reviewed to ensure its focus and skills are adequately resignation of the former Committee Chairperson in Ms NV Mtetwa, on 31 August 2019 and pending the appointment of directed to supporting and enabling the organisation. The Committee continues to monitor progress in this regard. new Board members by the Minister of Finance, the Board has since co-opted the Deputy Chairperson of the Board, Ms Dudu Hlatshwayo, to also serve as a member of the Committee. These members collectively possess the experience and EXTERNAL AUDIT REPORT expertise needed to execute their duties in relation to the Committee’s mandate. External Audit Opinion Executive directors comprising of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) are invitees to the Committee meetings, but are excluded from the Committee’s private sessions with the Auditor-General and the head Land Bank received a “Disclaimer of Opinion” audit outcome from the Auditor General of South Africa on the FY2020 of Internal Audit. audit, sighting mainly her inability to provide an opinion on the going concern basis of preparation of the FY2020 Annual Financial Statements as well as the valuation of the loan book, owing to Expected Credit Loss (ECL) models not having The Committee has met all legal and regulatory requirements in respect of independence and corporate governance been recalibrated since 2016 when they were developed and implemented, and the inability to validate inputs thereto, due experience, but the Board is awaiting confirmation from the shareholder on non-executive directorship appointments that to the weakened control environment. will bolster the Board’s financial accounting and auditing qualifications and experience. 14 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 15 AUDIT AND FINANCE COMMITTEE REPORT STATEMENTS OF FINANCIAL POSITION FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank The Board has since approved a comprehensive remediation plan, that is currently being implemented by management to Restated Restated Restated Restated address the specific deficiencies that led to the disclaimed audit opinion. The Committee is closely monitoring progress on 2020 2019* 2018* 2020 2019* 2018* implementation of the remediation plan. Notes R’000 R’000 R’000 R’000 R’000 R’000 Assets Other key audit matters as reported by the external auditors. Cash and cash equivalents 4 722 711 3 213 121 2 421 069 585 008 3 202 568 2 362 130 Trade and other receivables 5 1 237 652 829 366 320 171 720 780 351 562 131 302 Short-term insurance assets 6 169 906 254 017 282 382 - - - Procurement and contract management Repurchase agreements 7 19 495 30 257 15 706 19 495 30 257 15 706 The AG highlighted that some goods, works or services were not procured through a procurement process that is fair, Investments 8 2 148 223 3 181 534 2 619 887 1 418 546 1 988 001 1 406 650 equitable, transparent and competitive, as required by section 51(1)(a) ci) of the PFMA. In some cases, new government Strategic trading assets 9 5 153 - - 5 153 - - procurement processes were not followed to appoint new service providers when contracts expired, and/or there were Derivatives assets 10 79 064 80 587 8 106 79 064 80 587 8 106 no approvals justifying that it was impracticable to procure new contracts. This matter relates to contract extensions of Loans and advances 11 41 560 074 43 225 160 43 149 619 41 560 074 43 225 160 43 149 619 the Land Bank’s SLA partners. Land Bank has approached National Treasury for clarification on the application of the Assets of discontinued operation 12 practice note in question. The Committee is monitoring progress on this item. classified as held-for-sale - 6 259 147 328 6 259 147 328 Non-current assets held-for-sale 13 105 112 163 036 10 753 105 112 163 036 - IN CONCLUSION Long term insurance assets 20.5 11 786 7 909 10 085 - - 10 085 Investment property 14 15 000 15 250 174 590 15 000 15 250 174 590 The Committee is not satisfied with the audit outcome for the year, and has drawn up an audit remediation plan Property, plant and equipment 15 28 971 32 154 38 202 28 808 31 992 37 996 Right of use assets 16.1 47 993 68 093 - 47 735 67 672 - to address the identified control deficiencies. The plan has been signed off by the Board and the Committee is fully Intangible assets 17 8 044 13 548 20 279 8 044 13 548 20 279 committed to correcting the matters that gave rise to the control deficiencies. Where appropriate, consequence Total assets 46 159 184 51 120 291 49 218 177 44 592 819 49 175 892 47 463 791 management is being considered. Equity and liabilities The Committee believes that it has complied with its legal, regulatory and governance responsibilities as set out in the Equity Companies Act and the Public Finance Management Act, and that, despite the disclaimed opinion, the financial statements Distributable reserves 18 3 131 576 5 233 329 6 127 847 2 357 739 4 076 057 5 010 648 are a fair representation of the Land Bank’s financial position. Other reserves 18 (608 139) 93 467 100 978 (608 139) 93 467 100 978 2 523 437 5 326 796 6 228 825 1 749 600 4 169 524 5 111 626 Liabilities Trade and other payables 19 1 334 646 481 254 340 001 824 776 72 645 160 715 Short-term insurance liabilities 6 237 227 329 860 398 859 - - - Long-term policyholders' liabilities 20 44 341 47 124 55 939 - - - Funding liabilities 21 41 283 820 44 257 919 41 576 302 41 283 820 44 257 919 41 576 302 Ms Mathane Makgatho Lease liabilities 16.2 50 609 70 518 - 50 335 70 089 - Acting Chairperson of the Audit and Finance Committee Provisions 22 399 743 305 504 249 071 398 926 304 399 245 967 Post-retirement obligation 23 285 362 301 316 369 181 285 362 301 316 369 181 Total equity and liabilities 46 159 184 51 120 291 49 218 177 44 592 819 49 175 892 47 463 791 * Refer to note 49 for details 16 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 17 STATEMENTS OF PROFIT OR LOSS STATEMENTS OF CHANGES IN EQUITY (GROUP AND BANK) AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank Restated Restated Capital fund Insurance FVTOCI Revaluation General Cash flow Total 2020 2019* 2020 2019* reserve reserve reserve hedge Notes R’000 R’000 R’000 R’000 reserve Continuing operations Group Notes R’000 R’000 R’000 R’000 R’000 R’000 R’000 Net interest income 651 138 1 102 877 646 822 1 097 938 Restated balance at 1 April Interest income 25 4 698 792 4 927 160 4 692 661 4 920 302 2018* 4 397 655 1 467 227 (43 604) 136 476 262 964 8 106 6 228 824 Interest expense 26 (4 047 654) (3 824 283) (4 045 839) (3 822 364) Restated profit for the year* - 40 074 - - (926 579) - (886 505) Net impairment charges, claims and recoveries 11.6 (1 807 700) (1 188 033) (1 807 700) (1 188 033) Total other comprehensive Total (loss / income from lending activities (1 156 562) (85 156) (1 160 878) (90 095) 18 income for the year - - (279) 874 (8 012) (8 106) (15 523) Non-interest expense 27 (125 231) (262 667) (120 556) (251 361) Restated balance at 31 Non-interest income 28 99 407 113 977 93 589 105 452 March 2019* 4 397 655 1 507 301 (43 883) 137 350 (671 627) - 5 326 796 Operating ( loss) / income from banking activities (1 182 386) (233 846) (1 187 845) (236 004) Net insurance premium income 29.1 143 126 156 826 - - Loss for the year - (83 432) - - (2 041 119) - (2 124 551) Net insurance claims 29.3 (131 261) (165 886) - - - Other costs from insurance activities 29.4 (32 497) (20 085) - - Total other comprehensive Investment income and fees 30 91 138 104 645 314 243 21 299 18 income for the year - - (702 728) 1 122 22 800 - (678 806) Interest on post-retirement obligation 23 (26 672) (22 533) (26 672) (22 533) Balance at 31 March 2020 4 397 655 1 423 869 (746 611) 138 472 2 689 947 - 2 523 437 Interest on lease liability 16.2 (5 249) (6 703) (5 218) (6 686) Gains and losses on financial instruments 31.2 (19 153) (4 912) (19 153) (4 912) Capital fund Insurance FVTOCI Revaluation General Cash flow Total Fair value (losses) gains 31.1 (142 468) 90 208 (21 714) 83 275 reserve reserve reserve hedge Operating (loss) / income (1 305 423) (102 286) (946 359) (165 561) reserve Operating expenses 32 (712 777) (697 008) (688 550) (673 934) Bank Notes R’000 R’000 R’000 R’000 R’000 R’000 R’000 Net operating (loss) / income (2 018 200) (799 294) (1 634 909) (839 495) Restated balance at 1 April Non-trading and capital items 33 (40 951) (26 968) (40 951) (26 969) 2018* 4 397 655 - (43 604) 136 476 612 993 8 106 5 111 626 Net (loss) / profit before indirect taxation (2 059 151) (826 262) (1 675 860) (866 464) Restated profit for the Indirect taxation 34 (65 764) (73 170) (65 622) (73 045) year* - - - - (926 579) - (926 579) Net (loss) /profit from continuing operations (2 124 915) (899 432) (1 741 482) (939 509) Total other comprehensive 18 Net profit / (loss) from discontinued operations 24 363 12 930 363 12 930 (loss) / income for the year - - (279) 874 (8 012) (8 106) (15 523) (Loss) Profit for the year (2 124 551) (886 502) (1 741 119) (926 579) Restated balance at 31 March 2019* 4 397 655 - (43 883) 137 350 (321 598) - 4 169 524 Other comprehensive income Items that will be reclassified into profit or loss Loss for the year - - - - (1 741 119) - (1 741 119) Net losses on financial assets designated at fair value through other 18 & 8 Total other comprehensive comprehensive income (702 728) (279) (702 728) (279) 18 (loss) / income for the year Cash flow hedges: gains / (release) on cash flow hedging - - (702 728) 1 122 22 800 - (678 806) 18 instruments - (8 106) (8 106) Balance at 31 March 2020 4 397 655 - (746 611) 138 472 2 039 917 - 1 749 600 - - Items that will not be reclassified subsequently to profit or loss * Refer to note 49 for details Actuarial (Loss) / Gain on the post-retirement obligation 23 22 800 (8 012) 22 800 (8 012) Revaluation of land and buildings 18 1 122 874 1 122 874 Total other comprehensive (loss) / income (678 806) (15 523) (678 806) (15 523) Total comprehensive (loss) / income for the year (2 803 357) (902 025) (2 419 925) (942 102) * Refer to note 49 for details 18 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 19 STATEMENTS OF CASH FLOWS STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank Group Bank Restated Restated Restated Restated 2020 2019* 2020 2019* 2020 2019* 2020 2019* Notes R’000 R’000 R’000 R’000 Notes R’000 R’000 R’000 R’000 Net (Loss) /Profit from continuing operations (2 124 915) (899 432) (1 741 482) (939 509) Net cash flow from financing activities (2 999 305) 2 660 811 (2 999 151) 2 660 870 Net (Loss)/ Profit from discontinued operations 363 12 930 363 12 930 (Decrease) / Increase in funding received from funders 21 (2 974 098) 2 681 618 (2 974 098) 2 681 618 (2 124 551) (886 502) (1 741 119) (926 579) Lease liability repaid 16.2 (25 207) (20 807) (25 053) (20 748) Adjustments to reconcile profit to net cash flows: 4 315 960 3 917 925 3 976 982 4 012 379 Net (decrease) / increase in cash and cash equivalents (2 490 410) 792 052 (2 617 560) 840 438 Interest expense 26 4 047 654 3 824 283 4 045 839 3 822 364 Cash and cash equivalents at beginning of year 4 3 213 121 2 421 069 3 202 568 2 362 130 Interest on lease liabilities 16.2 5 249 6 703 5 218 6 686 Cash and cash equivalents at end of year 4 722 711 3 213 121 585 008 3 202 568 Fair value movement (financial instruments) 31.1 2 384 (79 929) 2 384 (79 929) Fair value movement (investments) 31.1 140 084 (10 279) 19 330 (3 346) * Refer to note 49 for details Gains and losses on financial instruments 31.2 19 153 4 912 19 153 4 912 Dividend income - other investments 30 (28 647) (33 999) (12 818) (17 143) Dividend income - Subsidiary 30 - - (300 000) - Interest income 30 (72 336) (77 093) (5 963) (5 234) Fund management fees 30 9 845 6 447 4 538 1 078 Depreciation and impairment of property and equipment 32 6 084 7 846 6 025 7 781 Depreciation on right of use assets 25 399 23 232 25 236 23 164 Amortisation and impairment of intangibles 32 6 052 6 731 6 052 6 731 Fair value adjustments (investment properties) 33 250 (650) 250 (650) Fair value movement in policyholders' liabilities 29.4 (6 661) (4 245) - - Fair value adjustment on non-current assets held-for-sale 33 11 899 1 339 11 899 1 339 Movement in provisions 22 94 239 222 872 94 527 224 871 Movement in post-retirement medical aid liability 23 24 377 24 959 24 377 24 959 Loss on disposal of property and equipment 33 10 22 10 22 Profit on disposal of non-current assets held-for-sale 33 (12 104) (2 010) (12 104) (2 010) Foreign exchange loss 33 40 904 28 275 40 904 28 275 Impairment relating to loan commitments and guarantees 11 2 133 2 371 2 133 2 371 Impairment of other assets 33 (8) (8) (8) (8) Working capital adjustments: 448 739 (410 305) 489 023 (283 330) (Increase) in trade and other receivables 5 (408 286) (509 195) (263 108) (195 260) Increase in trade and other payables 19 865 547 141 250 752 131 (88 070) Decrease in short-term and long-term insurance liability 6 (92 633) (68 999) - - Decrease in short-term and long-term insurance assets 6 84 111 26 639 - - Cash flow from operating activities 2 640 147 2 650 230 2 724 887 2 831 582 Cash flows from operations (2 612 730) (4 553 485) (2 510 884) (4 551 549) Interest paid (4 052 903) (3 830 986) (4 051 057) (3 829 050) Dividend received 6 912 - 106 912 - Decrease / (Increase) in funding to clients 1 433 261 (722 499) 1 433 261 (722 499) Net cash flow from operating activities 27 417 (1 903 255) 214 003 (1 719 967) Net cash flow from investing activities 481 479 34 496 167 589 (100 465) Proceeds from disposal of property and equipment 1 041 257 1 041 165 Purchase of property and equipment 15 (1 863) (1 201) (1 863) (1 090) Purchase of intangible assets 17 (547) - (547) - Proceeds from sale of non-current assets held-for-sale 13 58 129 9 074 58 129 9 074 Proceeds from sale of assets of discontinued operations 12 5 747 141 069 5 747 141 069 Proceeds from sale of financial instruments 7&8 418 972 123 066 98 972 13 086 Net Loan (advanced to) / repaid by subsidiary 5 - - 106 110 (25 000) Purchase of financial instruments 7&8 - (237 769) (100 000) (237 769) 20 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 21 SEGMENT REPORTING (GEOGRAPHIC SEGMENTS) FOR THE YEAR ENDED 31 MARCH 2020 Interest Interest Net interest Impairment (charges)/ Non-interest Operating Fair value gains, Operating expenses Interest on Post Depreciation Staff Net profit/ 1 Other Total income expense income releases, claims and income/ (expense) income from investment income and indirect Retirement and costs (loss) Comprehensive comprehensive recoveries insurance and non-trading taxes excluding Medical Aid and amortisation Income income activities and capital items depreciation and Lease Liability amortisation Group - 2020 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Statement of profit or loss and other comprehensive income Northern region 4 010 584 (3 463 303) 547 281 (1 740 215) (52 098) - 232 425 (318 339) (31 889) (31 682) (337 001) (1 731 519) (678 806) (2 410 325) Southern region 681 775 (582 235) 99 540 (67 485) 25 125 - - (9 782) - (5 631) (51 726) (9 959) - (9 959) Insurance operations 6 129 (1 815) 4 314 - 1 143 (20 633) (343 859) (3 972) (31) (222) (20 175) (383 435) - (383 435) Continuing operations 4 698 488 (4 047 353) 651 135 (1 807 700) (25 830) (20 633) (111 434) (332 093) (31 920) (37 535) (408 902) (2 124 912) (678 806) (2 803 718) Discontinued operation - LDFU - - - 362 - - - - - - 362 - 362 4 698 488 (4 047 353) 651 135 (1 807 338) (25 830) (20 633) (111 434) (332 093) (31 920) (37 535) (408 902) (2 124 551) (678 806) (2 803 357) Statement of financial position Non-current assets held-for- Working Capital (incl. loans Total assets sale, investments, intangible and advances) assets, investment properties and property and equipment Assets Northern region 1 609 823 36 210 339 37 820 162 Southern region 18 575 6 754 082 6 772 657 Insurance operations - 1 566 366 1 566 366 Continuing operations 1 628 398 44 530 787 46 159 185 Discontinued operation - LDFU - - - 1 628 398 44 530 787 46 159 185 Working Capital (incl. funding) Other liabilities Total liabilities R'000 R'000 R'000 Liabilities Northern region 32 612 494 717 817 33 330 311 Southern region 9 496 102 16 808 9 512 910 Insurance operations 509 870 282 657 792 527 Continuing operations 42 618 466 1 017 282 43 635 748 Discontinued operation - LDFU - - - 42 618 466 1 017 282 43 635 748 22 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 23 SEGMENT REPORTING (GEOGRAPHIC SEGMENTS) FOR THE YEAR ENDED 31 MARCH 2020 Interest Interest Net interest Impairment (charges)/ Non-interest Operating Fair value gains, Operating expenses Interest on Post Depreciation Staff Net profit/ Other 1 Total income expense income releases, claims and income/ (expense) income from investment and indirect Retirement and costs (loss) Comprehensive comprehensive recoveries insurance income and non- taxes excluding Medical Aid amortisation Income income activities trading and capital depreciation and items amortisation Group - 2019 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000 Statement of profit or loss and other comprehensive income Northern region 4 192 163 (3 210 574) 981 589 (1 088 790) (173 977) - 72 693 (295 189) (29 219) (32 861) (352 192) (917 946) (15 523) (933 469) Southern region 717 685 (601 336) 116 349 (100 932) 28 068 - - (10 280) - (4 816) (49 944) (21 556) - (21 556) Insurance operations 6 856 (1 919) 4 937 - (2 781) (29 145) 90 279 (11 017) (17) (133) (12 052) 40 071 - 40 071 Continuing operations 4 916 704 (3 813 829) 1 102 875 (1 189 722) (148 690) (29 145) 162 972 (316 487) (29 236) (37 810) (414 188) (899 431) (15 523) (914 954) Discontinued operation - LDFU - - - 12 929 - - - - - - 12 929 - 12 929 4 916 704 (3 813 829) 1 102 875 (1 176 793) (148 690) (29 145) 162 972 (316 487) (29 236) (37 810) (414 188) (886 502) (15 523) (902 025) Statement of financial position Non-current assets held-for-sale, Working Capital (incl. Total assets investments, intangible assets, loans and advances) investment properties and property and equipment Assets Northern region 2 259 299 39 854 802 42 114 101 Southern region 20 198 7 041 592 7 061 790 Insurance operations - 1 944 399 1 944 399 Continuing operations 2 279 497 48 840 793 51 120 290 Discontinued operation - LDFU - - - 2 279 497 48 840 793 51 120 290 Working Capital (incl. funding) Other liabilities Total liabilities Liabilities R'000 R'000 R'000 Northern region 34 635 151 659 767 35 294 918 Southern region 10 610 261 16 038 10 626 299 Insurance operations 408 609 378 519 787 128 Continuing operations 45 654 021 1 054 324 46 708 345 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 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. 24 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 25 SEGMENT REPORTING (BUSINESS SEGMENTS) FOR THE YEAR ENDED 31 MARCH 2020 Statement of profit or loss and other comprehensive Commercial Corporate Banking and Group Capital and Inter- Total Bank (Excluding Insurance Operations3 Total Group (Excluding Discontinued Total Group income Development and structured Investment 2 segment eliminations 1 LDFU) LDFU) Operations LDFU Business Banking2 Group - 2020 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Net interest income/ (expense) 632 600 156 738 - 789 338 4 316 793 656 - 793 656 Interest income 3 820 299 1 074 120 - 4 894 419 6 131 4 900 550 - 4 900 550 Interest expense (3 187 699) (917 382) - (4 105 081) (1 815) (4 106 894) - (4 106 894) Impairment releases/(charges) on loans and advances (1 705 362) (104 109) (1 809 471) - (1 809 471) 362 (1 809 109) Total income/(loss) from lending activities (1 072 762) 52 629 - (1 020 133) 4 316,00 (1 015 815) 362 (1 015 453) Non-interest expense (154 342) - 33 778 (120 563) (4 668) (125 231) - (125 231) Non-interest income 26 218 44 477 22 895 93 590 13 088 106 677 - 106 677 Operating income/(loss) from banking activities (1 200 886) 97 106 56 673 (1 047 105) 12 736,00 (1 034 369) 362 (1 034 006) Operating profit from insurance activities - - - - (21 265) (21 265) - (21 265) Investment income - 4 007 310 237 314 243 76 895 91 138 - 91 138 Interest in Post Retirement Obligation - - (26 672) (26 672) - (26 672) - (26 672) Interest on Lease Liability (1 638) (130) (3 449) (5 217) (31) (5 249) - (5 249) Fair value loss - - (21 712) (21 712) (120 754) (142 468) - (142 468) Operating income/(loss) (1 202 524) 100 983 315 077 (786 463) (52 419) (1 138 885) 362 (1 138 523) Operating expenses (31 681) (1 878) (414 935) (448 495) 3 830 (444 665) (290) (444 955) Staff costs (80 394) (20 882) (287 451) (388 728) (17 052) (405 780) - (405 780) Depreciation and amortisation (7 206) (1 511) (28 595) (37 312) (222) (37 534) - (37 534) Net operating (loss)/income (1 321 807) 76 711 (415 904) (1 660 999) (65 863) (2 026 865) 72 (2 026 792) Non-trading and capital items (9) (10) (40 932) (40 951) - (40 951) - (40 951) Net profit/(loss) before indirect taxation (1 321 816) 76 701 (456 836) (1 701 950) (65 863) (2 067 816) 72 (2 067 743) Indirect taxation - - (65 622) (65 622) (142) (65 764) - (65 764) Net profit/(loss) (1 321 816) 76 701 (522 459) (1 767 572) (66 005) (2 133 580) 72 (2 133 506) Other comprehensive income - - (669 851) (669 851) - (669 851) - (669 851) Actuarial losses on the post-retirement obligation - - 22 800 22 800 - 22 800 - 22 800 Revaluation of land and buildings - - 1 122 1 122 - 1 122 - 1 122 Cash flow hedges: gains on cash flow hedging instruments - - - - - - - - Profit on financial assets at fair value through other - - (693 773) (693 773) - (693 773) - (693 773) comprehensive income Total comprehensive income/(loss) for the year (1 321 814) 76 702 (1 192 309) (2 437 423) (66 005) (2 803 430) 72 (2 803 358) 26 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 27 SEGMENT REPORTING (BUSINESS SEGMENTS) FOR THE YEAR ENDED 31 MARCH 2020 Statement of financial position Commercial Corporate Banking and Group Capital and Inter- Total Bank (Excluding Insurance Operations3 Total Group (Excluding Discontinued Total Group Development and structured Investment segment eliminations 1 LDFU) LDFU) Operations LDFU Business Banking2 Group - 2020 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Assets Segment assets 13 460 081 46 552 375 (13 307 220) 46 705 236 1 565 968 48 271 203 4 000 48 275 203 Working capital (incl. net loans and advances) 13 417 066 45 983 701 (14 327 736) 45 073 031 824 086 45 897 117 4 000 45 901 117 Investments - 563 812 863 689 1 427 501 729 677 2 157 178 - 2 157 178 Investment properties 31 244 - (16 244) 15 000 - 15 000 - 15 000 Property and equipment 11 771 4 862 59 915 76 548 419 76 967 - 76 967 Non-current assets held-for-sale - - 105 112 105 112 - 105 112 - 105 112 Intangible assets - - 8 044 8 044 - 8 044 - 8 044 Insurance assets - - - - 11 786 11 786 - 11 786 Liabilities Segment liabilities 31 630 119 9 708 165 1 504 936 42 843 221 792 527 43 635 748 - 43 635 748 Working capital (incl. funding liabilities) 31 609 015 9 702 302 797 278 42 108 596 509 870 42 618 466 - 42 618 466 Provisions 5 530 794 392 604 398 928 815 399 743 - 399 743 Post-retirement obligation - - 285 362 285 362 0 285 362 - 285 362 Lease liabilities 15 574 5 069 29 692 50 335 274 50 609 - 50 609 Insurance liabilities - - - - 281 568 281 568 - 281 568 1 Includes reconciliation to Group results in terms of IFRS 8. 3 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short term asset and Crop Insurance). 28 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 29 SEGMENT REPORTING (BUSINESS SEGMENTS) FOR THE YEAR ENDED 31 MARCH 2020 Statement of profit or loss and other comprehensive Commercial Corporate Banking Group Capital and Inter- Total Bank (Excluding Insurance Operations3 Total Group (Excluding Discontinued Total Group income Development segment eliminations 1 LDFU) LDFU) Operations LDFU Banking Group - 2019 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Net interest income/ (expense) 811 372 374 299 (16 872) 1 168 799 4 937 1 173 736 - 1 173 736 Interest income 3 716 113 1 264 458 - 4 980 571 6 856 4 987 427 - 4 987 427 Interest expense (2 904 741) (890 159) (16 872) (3 811 772) (1 919) (3 813 691) - (3 813 691) Impairment releases/(charges) on loans and advances (173 832) (142 449) 35 (316 246) - (316 246) 12 930 (303 316) Total income/(loss) from lending activities 637 540 231 851 (16 838) 852 553 4 937 857 489 12 930 870 420 Non-interest (expense) (251 361) - - (251 361) (11 306) (262 667) - (262 667) Non-interest income 30 684 45 557 29 211 105 452 8 525 113 977 - 113 977 Operating income/(loss) from banking activities 416 863 277 408 12 373 706 644 2 156 708 800 12 930 721 730 Operating profit from insurance activities - - - - (29 145) (29 145) - (29 145) Investment income - 2 000 19 299 21 299 83 346 104 645 - 104 645 Interest in Post Retirement Obligation - - (22 533) (22 533) - (22 533) - (22 533) Interest on Lease Liability (1 689) (172) (4 824) (6 685) (17) (6 702) - (6 702) Fair value loss - - 83 275 83 275 6 933 90 208 - 90 208 Operating income/(loss) 415 174 279 235 87 591 781 999 63 273 845 272 12 930 858 203 Operating expenses (19 543) (2 177) (212 403) (234 124) (13 311) (247 435) - (247 435) Staff costs (76 603) (20 734) (304 799) (402 136) (12 052) (414 188) - (414 188) Depreciation and amortisation (6 064) (1 460) (30 152) (37 677) (133) (37 810) - (37 810) Net operating (loss)/income 312 964 254 865 (459 765) 108 063 37 777 145 840 12 930 158 771 Non-trading and capital items (91) - (26 877) (26 968) - (26 968) - (26 968) Net profit/(loss) before indirect taxation 312 873 254 865 (486 642) 81 095 37 777 118 871 12 930 131 802 Indirect taxation - - (73 045) (73 045) (125) (73 170) - (73 170) Net profit/(loss) 312 873 254 865 (559 687) 8 050 37 652 45 703 12 930 58 633 Other comprehensive income Actuarial losses on the post-retirement obligation - - (8 012) (8 012) - (8 012) - (8 012) Revaluation of land and buildings - - 874 874 - 874 - 874 Cash flow hedges: gains on cash flow hedging instruments - - (8 106) (8 106) - (8 106) - (8 106) Profit on financial assets at fair value through other - - (279) (279) - (279) - (279) comprehensive income Total comprehensive income/(loss) for the year 312 873 254 864 (575 208) (7 473) 37 652 30 180 12 930 43 109 30 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 31 SEGMENT REPORTING (BUSINESS SEGMENTS) FOR THE YEAR ENDED 31 MARCH 2020 Statement of financial position Commercial Corporate Banking and Group Capital and Inter- Total Bank (Excluding Insurance Operations3 Total Group (Excluding Discontinued Total Group Development and structured Investment segment eliminations 1 LDFU) LDFU) Operations LDFU Business Banking Group - 2019 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Assets Segment assets 12 142 455 (4 900 600) 42 875 337 50 117 193 1 944 399 52 061 592 6 259 52 067 851 Working capital (incl. net loans and advances) 11 970 199 (5 083 253) 40 950 747 47 837 693 488 357 48 326 050 6 259 48 332 309 Investments 122 000 181 569 1 684 432 1 988 001 1 193 533 3 181 534 - 3 181 534 Investment properties 31 244 - (15 994) 15 250 - 15 250 - 15 250 Property and equipment 19 012 1 084 79 568 99 664 583 100 247 - 100 247 Non-current assets held-for-sale - - 163 036 163 036 - 163 036 - 163 036 Intangible assets - - 13 548 13 548 - 13 548 - 13 548 Insurance assets - - - - 261 926 261 926 - 261 926 Liabilities Segment liabilities 33 907 844 10 571 507 527 018 45 006 369 804 952 45 811 321 - 45 811 321 Working capital (incl. funding liabilities) 33 881 316 10 569 549 (120 301) 44 330 564 426 434 44 756 998 - 44 756 998 Provisions 5 424 710 298 266 304 400 1 105 305 505 - 305 505 Post-retirement obligation - - 301 316 301 316 - 301 316 - 301 316 Lease liabilities 21 104 1 248 47 737 70 089 429,00 70 518 - 70 518 Insurance liabilities - - - - 376 984 376 984 - 376 984 1 Includes reconciliation to Group results in terms of IFRS 8. 3 The Insurance Operations consists of LBLIC (Life Insurance) and LBIC (Short term asset and Crop Insurance). The Group reports in five distinct segments, grouped according to the nature of products and services provided by the respective business units and divisions. The five segments are: 32 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 33 SEGMENT REPORTING (BUSINESS SEGMENTS) ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 1. General information - Commercial Development Banking, which consists of 9 Regional Offices and 16 satellite branches spread across the country, provides finance to developing and commercial farmers. The consolidated and separate annual financial statements have been prepared in accordance with all applicable - Corporate Banking, which consists of two branches, provides finance to the corporate agri-related businesses. International Financial Reporting Standards (IFRS), which includes all applicable IFRSs, International Accounting Standards - LDFU, which was established to provide finance for the development of land. The activities of the division were (IASs) and Interpretations issued by the IFRS Interpretations Committee. A summary of significant accounting policies is set discontinued in 2008. out in note 3. - Group capital which consists of treasury, finance and other central functions. - Insurance Operations consisting of LBLIC and LBIC which provides Life and Short Term- and Crop Insurance 2. Basis of preparation respectively. The consolidated financial statements have been prepared in accordance with IFRS (with consent from the National Reporting to the Board is based on segments which engage in business activities that generate revenues and incur Treasury to all Schedule 2 public entities) and the interpretations issued by the International Financial Reporting expenditure. None of the operating segments meet the criteria for aggregation. Interpretations Committee (IFRIC), applying the accrual basis of accounting, the going-concern principle, and using the historical-cost basis, except where specifically indicated otherwise in the accounting policies. Quantitative thresholds The impact of Covid-19 on the Land Bank has been assessed, and the Land Bank has concluded that Covid-19 will have a minimal impact on the business of the Land Bank because the loan book of the bank is highly concentrated in grain. The Group reports separate information about an operating segment that meets any of the following quantitative Economic studies of various agricultural sectors have estimated that the impact of Covid-19 will be minimal on the grain thresholds: sector. - Its reported revenue, from both external clients and other segments, is 10% or more of the combined revenue of all The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates operating segments. and assumptions. It also requires management to exercise its judgement in the process of applying the Group’s accounting - The absolute amount of its reported profit or loss is 10 % or more of the greater of: policies. The notes to the financial statements set out areas involving a higher degree of judgement or complexity, or areas (i) the combined reported profit of all operating segments that did not report a loss, and where assumptions and estimates are significant to the consolidated group and bank financial statements. These policies (ii) the combined reported loss of all operating segments that reported a loss. have been consistently applied to all the years presented, unless otherwise stated. - Its assets are 10% or more of the combined assets of all operating segments. 2.1 Functional and presentation currency 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 The consolidated and separate financial statements are presented in South African Rand, which is the Group’s functional statements. currency. All financial information presented in Rand are rounded to the nearest thousand (R’000), unless otherwise stated. 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 2.2 Distinction between current and non-current base with unique needs. The Group presents the assets and liabilities in decreasing order of liquidity as it provides information that is more reliable The accounting policies of the reportable operating segments are the same as those described in the summary of and relevant than a current/non-current presentation because the Group does not supply goods or services within a significant accounting policies. Cost of funding is allocated based on the monthly average cost of funding for Land Bank and clearly identifiable operating cycle. In addition, other similar financial institutions also provide the information in this manner, the segment's loan book net of non-performing loan balances as at 31 March 2020. and hence it is more consistent. Management monitors the operating results of its business units separately for the purposes of making decisions about 3. Summary of significant accounting policies resource allocation and performance assessment. Except for cost of funding, other operating costs incurred for central functions managed at Group Capital are not allocated to the operating segments. The principal accounting policies applied in the preparation of these consolidated and separate annual financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The Group evaluates performance on the basis of profit or loss from reportable operating segments, excluding non- recurring gains and losses. 3.1 New standards and interpretations not yet adopted The company has not applied the following new, revised or amended pronouncements that have been issued by the International Accounting Standard Board (IASB) as they are not yet effective for the financial year beginning 1 April 2019 (the list does not include information about new requirements that affect interim financial reporting or first-time adopters of IFRS since they are not relevant to the company). The Board anticipates that the new standards, amendments and interpretations will be adopted in the Group’s consolidated financial statements when they become effective. The company has assessed, where practicable, the potential impact of all these new standards, amendments and interpretations that will be effective in future periods. 34 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 35 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Statement Effective date The amendments in Classification of Liabilities as Current or Non-current (Amendments to IAS 1) affect only the presentation of liabilities in the statement of financial position — not the amount or timing of recognition of any asset, IFRS 3 Business Combinations (amendment) 1 January 2020 liability income or expenses, or the information that entities disclose about those items. They: Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) 1 January 2020 IAS 1 amendments on classification 1 January 2022 - Clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the IFRS 17 Insurance Contracts 1 January 2023 end of the reporting period and align the wording in all affected paragraphs to refer to the “”right”” to defer settlement by at least twelve months and make explicit that only rights in place “”at the end of the reporting period”” should affect IFRS 3 Business Combinations (amendment) the classification of a liability; - Clarify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement The amendments clarify the definition of a business, with the objective of assisting entities to determine whether a of a liability; and transaction should be accounted for as a business combination or as an asset acquisition. - Make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The amendments in Definition of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative examples of IFRS 3 only. They: The amendment is not expected to have a material impact on the group. - Clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and IFRS 17 Insurance Contracts a substantive process that together significantly contribute to the ability to create outputs; - Narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by IFRS 17 Insurance Contracts was issued in May 2017 and will be effective for annual periods beginning on or after 1 January removing the reference to an ability to reduce costs; 2023. The previous IFRS Standard on insurance contracts, IFRS 4, was an interim standard that allowed entities to use a - Add guidance and illustrative examples to help entities assess whether a substantive process has been acquired; wide variety of accounting practices for insurance contracts, reflecting national accounting requirements and variations - Remove the assessment of whether market participants are capable of replacing any missing inputs or processes and of those requirements. In contrast to the requirements of IFRS 4, IFRS 17 provides a comprehensive model for insurance continuing to produce outputs; and contracts, covering all relevant accounting aspects. - Add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. IFRS 17 applies to all types of insurance contracts (i.e. life, non-life, direct and reinsurance), regardless of the type of entity that issue these contracts. The General Model (also referred to as building block approach) forms the core of IFRS 17. It is The amendment is not expected to have a material impact on the group. supplemented by: Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) - A specific adaption for contracts with direct participation features (“the variable fee approach”); and - A simplified approach (“the premium allocation approach”) mainly for short-duration contracts. The International Accounting Standards Board (IASB) has published ‘Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)’ as a first reaction to the potential effects the Interbank offered rate (IBOR) reform could have The implementation of IFRS 17 will have different financial and operational implications for each entity that adopts the on financial reporting. standard. It is, however, expected that fundamental changes will be required in the following areas: The changes in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7): - Liability measurement - Modify specific hedge accounting requirements so that entities would apply those hedge accounting requirements - Data requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument - Operations and the underlying systems are based will not be altered as a result of interest rate benchmark reform; - Management reporting - Are mandatory for all hedging relationships that are directly affected by the interest rate benchmark reform; - Are not intended to provide relief from any other consequences arising from interest rate benchmark reform (if a The standard will be applied retrospectively. The impact on the annual financial statements has not yet been fully hedging relationship no longer meets the requirements for hedge accounting for reasons other than those specified by determined. The group will commence assessing the impact of IFRS 17 in 2022 financial year. the amendments, discontinuation of hedge accounting is required); and - Require specific disclosures about the extent to which the entities’ hedging relationships are affected by the amendments. 3.2 Business combinations The amendment is not expected to have a material impact on the group. Subsidiaries are all entities (including structured entities) over which the Bank has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to IAS 1 amendments on classification affect those returns. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The International Accounting Standards Board (IASB) has issued ‘Classification of Liabilities as Current or Non-current (Amendments to IAS 1)’ providing a more general approach to the classification of liabilities under IAS 1 based on the The Group applies the acquisition method to account for business combinations. The consideration transferred for the contractual arrangements in place at the reporting date acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquire and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. 36 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 37 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 The Group recognises any non-controlling interest in the acquire on an acquisition-by-acquisition basis, either at fair value (iii) Investment surpluses or at the non-controlling interest’s proportionate share of the recognised amounts of acquirer’s identifiable net assets. Investment surpluses consist of net realised gains and losses on the sale of investments and net unrealised fair value gains and losses on the valuation of investments at fair value, excluding dividend and interest income. These surpluses are The consolidated financial statements comprise the financial statements of the Land Bank and its subsidiaries, LBLIC, LBIC recognised in the statement of profit or loss and other comprehensive income on the date of sale or upon valuation to fair and LBIS (which was deregistered on 30 August 2019) as at 31 March 2020. value. The financial statements of LBLIC and LBIC are prepared for the same reporting year as Land Bank, using consistent (iv) Rental income accounting policies. Furthermore, the annual financial statements have been prepared in accordance with the requirements Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over of both the Short- and Long-term Insurance acts respectively. the lease term and is recorded in the statement of profit or loss and other comprehensive income in ‘Non-interest income’. 3.3 Revenue recognition (v) Realised gains and losses Interest income The realised gain or loss on disposal of an investment is the difference between the proceeds received, net of transaction In terms of IFRS 9 interest income is recognised in profit or loss using the effective-interest method taking into account costs, and its original cost or amortised cost as appropriate and is recorded in the statement of profit or loss and other the expected timing and amount of cash flows. The effective-interest method is a method of calculating the amortised comprehensive income. cost of a financial asset (or group of financial assets) and of allocating the interest income over the relevant period. Interest income include the amortisation of any discount or premium or other differences between the initial carrying amount of (vi) Unrealised gains and losses an interest-bearing financial instrument and its amount at maturity calculated on an effective-interest-rate basis. Unrealised gains or losses represent the difference between the carrying value at the year end and the carrying value at the previous year end or purchase value during the year, less the reversal of previously recognised unrealised gains and IFRS 15 Revenue from Contracts with Customers losses in respect of disposals during the year and is recognised in the statement of profit or loss and other comprehensive income. The group assesses the contract and determines whether the fees identified in the contract are in the scope of IFRS 15 If so, the revenue will be recognised only when the group can: (vii) Insurance premium income Refer to note 3.24.1 and note 3.24.2. - Identify the contract(s) with a customer - Identify the performance obligations in the contract 3.4 Expenses - Determine the transaction price - Allocate the transaction price to the performance obligations in the contract (i) Administration costs - Recognise revenue when (or as) the entity satisfies a performance obligation. Administration costs on short-term insurance business consist of directly attributable costs payable to the underwriter and are deferred over the period in which the related premiums are earned. The group is able to identify the contract when both the client and the group have accepted the terms of the agreement. The contract will also identify all the services (performance obligations) the group will render to the client. Based on this, Administration costs that are directly attributable to long-term recurring premium insurance policy contracts are the transaction price is allocated to each identified performance obligation. The group recognises the revenue once the recognised directly to the statement of profit or loss and other comprehensive income. performance obligation is satisfied, which may occur over time or at a point in time. (ii) Commission (i) Fee and commission income Commission is payable to sales staff on long-term and short-term insurance business. Commission is accounted for Fees and other income which are integral to the effective interest rate on a financial asset are included in the measurement on all in-force policies in the financial period during which it is incurred. The portion of the commission that is directly of the effective interest rate. attributable to the acquisition of long-term recurring premium insurance policy contracts is recognised directly to the statement of profit or loss and other comprehensive income. Acquisition costs for short-term insurance business is Other fee income, including account servicing fees, investment management fees, sales commission, placement fees and deferred over the period in which the related premiums are earned. syndication fees, is recognised as the related services are performed. When a loan commitment is not expected to result in the drawdown of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. 3.5 Fruitless and wasteful and irregular expenditure (ii) Dividend Income Items of expenditure which meet the requirements of the Public Finance Management Act (PFMA) for fruitless and Dividends are recognised in the period when the shareholders’ right to receive payment is established. wasteful as well as irregular expenditure are separately disclosed in the notes to the financial statements. “Fruitless and wasteful expenditure” means expenditure which was made in vain and would have been avoided had reasonable Dividend income from financial assets classified at fair value through profit or loss is recognised on the last date to register. care been exercised. “Irregular expenditure” means expenditure, other than unauthorised expenditure, incurred in Preference share dividends are recognised using the effective interest rate method where preference shares as classified as contravention of or that is not in accordance with a requirement of any applicable legislation or internal policy. liabilities in accordance with IAS 32. When discovered, irregular expenditure is recognised as an asset in the statement of financial position until such time as the expenditure is either condoned by the relevant authority, recovered from the responsible person or written off as irrecoverable in the statement of profit or loss and other comprehensive income. 38 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 39 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 3.6 Leases income. The rental income is recognised as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term of Lessee accounting policies the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. The Group accounts for Leases in terms of IFRS 16. The Group adopted IFRS 16 effective from 1 April 2018. IFRS 16 specifies how to recognize, measure, present and disclose 3.7 Post-employment benefits and short-term employee benefits leases. Post-employment benefit plans The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all major The Group provides post-employment benefits through various defined contribution and defined benefit plans. leases. (i) Defined contribution plans At inception of a contract, the Group assesses whether a contract is, or contains a lease based on whether the contract The Group pays fixed contributions into independent entities in relation to several state plans and insurance for individual conveys the right to control the use of an identified asset for a period of time in exchange for consideration. employees. The Group has no legal or constructive obligations to pay contributions in addition to its fixed contributions, which are recognised as an expense in the period that relevant employee services are received. The Group has elected to apply the practical expedient method to account for each lease component and any non-lease components as a single lease component. Retirement fund The Land Bank Retirement Fund which functions as a defined contribution plan and which is subject to the provisions of The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is the Pension Fund Act, 1956 (Act No.24 of 1956) came into operation on 1 November 1994. Defined obligations such as initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the disability and death in service were completely phased out during the 2007 financial year. The Fund is now accounted for commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying as a defined contribution plan as it no longer has any obligation towards members for defined benefits. Contributions are asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. recognised as an expense and as a liability to the extent that they are unpaid. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the The Land Bank Retirement Fund (“LBRF”) in an umbrella fund within the Alexander Forbes Retirement Fund (AFRF). straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. (i) Defined benefit plans The lease term includes periods covered by an option to extend if the Group is reasonably certain to exercise that option. Under the Group’s defined benefit plans, the amount of pension benefit that an employee will receive on retirement Lease terms range from 2 to 5 years for offices and vehicles. is defined by reference to the employee’s length of service and final salary. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plan have been set aside. Plan assets may include assets In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain specifically designated to a long-term benefit fund as well as qualifying insurance policies. The liability recognised in the remeasurements of the lease liability. statement of financial position for defined benefit plans is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value of plan assets. The group applies the cost model subsequent to the initial measurement of the right of use assets. Management estimates the DBO annually with the assistance of independent actuaries. This is based on standard rates The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement of inflation, salary growth and mortality. Discount rates are determined by reference to market yields at the end of the date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s reporting periods on government bonds that have terms to maturity approximating to the terms of the related pension incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The interest liability. Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions are component of the lease liability payment is presented as part of operating activities on the cash flow statement. recognised directly in other comprehensive income. They are included as a separate component of equity in the statement of financial position and in the statement of changes in equity. Service cost on the net defined benefit liability is included in The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a employee benefits expense. Net interest expense on the net defined benefit liability is included in finance costs. change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it Medical aid fund will exercise a purchase, extension or termination option. The Bank provides a post-retirement medical aid benefit to all employees who were either employees or pensioners of the Bank at 1 December 2005. The fund functions as a defined benefit scheme. The entitlement to these benefits is usually When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right- conditional on the employee remaining in service up to retirement age. It is the Group’s policy to pay the medical fund of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. subscription fees on behalf of all pensioners in full and to fund the total obligation as and when it arises The Group has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short- Actuarial valuations of the Bank’s liability are conducted on an annual basis by an independent qualified actuary on the term leases that have a lease term of 12 months or less. The lease payments associated with these leases is recognized as Projected Unit Credit method. The liability recognised in the statement of financial position in respect of defined benefit an expense on a straight-line basis over the lease term. medical plans is the present value of the defined benefit obligation at the statement of financial position date. The benefit obligation at the statement of financial position date is not reflected net of assets since these assets are not held in a legally Lessor accounting policies separate entity that is not available to the Bank’s own creditors. The past service costs and interest costs are accounted Leases where the Group is the lessor and retains substantially all the risk and benefits of ownership of the asset are for in the statement of profit or loss. Actuarial gains and losses arising from experience adjustments and changes in classified as operating leases. The Bank leases out its investment properties as operating leases, thus generating rental 40 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 41 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 actuarial assumptions are charged or credited to other comprehensive income in the statement of profit or loss and other Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income comprehensive income in full. and shown as Revaluation Reserves in the Statement of Changes in Equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against Revaluation Reserves directly in equity; all Short-term employee benefits other decreases are charged to the statement of comprehensive income. Each year the difference between depreciation The cost of all short-term employee benefits is recognised during the period in which the employee renders the related based on the revalued carrying amount of the asset charged to the statement of comprehensive income, and depreciation service on an undiscounted basis. based on the asset’s original cost is transferred from other reserves to retained earnings. Accruals for employee entitlement to annual leave represents the present obligation, which the Group has to pay as a The assets’ residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each result of employees’ services, provided to the reporting date. The accruals have been calculated at undiscounted amounts financial year end. based on current salary rates. Depreciation is provided on the straight-line basis which, it is estimated, will reduce the carrying amount of the property A liability is recognised for the amount expected to be paid under short term bonuses in the Group as the Group has and equipment to their residual values at the end of their useful lives. Items of property and equipment are depreciated a present legal constructive obligation to pay the amount as a result of past service provided by the employee, and the from the date that they are installed and available for use. Land is not depreciated as it is deemed to have an indefinite life. obligation can be estimated reliably. Where an item of property and equipment comprises major components with different useful lives, the components are accounted for as separate items of property and equipment. Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or The major categories of property and equipment are depreciated at the following rates: whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; Building 2.5% per annum and (b) when the entity recognises costs for a restructuring that is within the scope of IAS 37 and involves the payment Motor vehicles 20% per annum of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are Computer equipment 33.3% per annum measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after Leasehold improvements Equal months in relation to lease period the end of the reporting period are discounted to their present value. Furniture and fittings 20% per annum 3.8 Income taxation The carrying amounts of the company’s tangible and intangible assets are reviewed at each year end to determine whether there is any indication of impairment. If there is any indication that an asset may be impaired, its recoverable amount is The Land Bank is exempt from income tax in terms of sections 10(1)(cA)(ii) of the Income Tax Act, 58 of 1962. estimated. The recoverable amount is the greater of its fair value less cost to sell and its value in use. The direct subsidiaries of the Land Bank are also exempt from income tax in terms of sections 10(1)(cA)(ii) of the Income Items of property and equipment are derecognised on disposal or when no future economic benefits are expected from Tax Act, 58 of 1962. their use or disposal. The gain or loss on derecognition is recognised in profit or loss and is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. On derecognition any surplus in the As part of the restructuring of the operations, the tax status of the Land Bank Insurance Company (SOC) Limited and revaluation reserve in respect of an individual item of property and equipment is transferred directly to retained earnings Land Bank Life Insurance Company (SOC) Limited are currently under review with SARS. Please refer to the notes of the in the statement of changes in equity. annual financial statements for additional disclosure regarding the probabilities/possibilities of contingent liability raised in this regard. 3.10 Investment property 3.9 Property and equipment Investment properties (properties that are not owner-occupied), are properties which are held to earn rental income and/ or for capital appreciation. Investment properties are measured initially at cost, including transaction costs. The Items of property and equipment are initially recognised at cost if it is probable that any future economic benefits carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if associated with the items will flow to the group and they have a cost that can be measured reliably. the recognition criteria are met and excludes the costs of day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Land and buildings comprise owner occupied property. Land and buildings are shown at fair value, based on valuations Gains or losses arising from changes in the fair values of investment properties are included in the statement of profit or by external independent valuers, less subsequent depreciation for buildings. Valuations are performed with sufficient loss and other comprehensive income in the period in which they arise. regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the Investment properties are derecognised either when they have been disposed of or when the investment property is net amount is restated to the revalued amount of the asset. All other property and equipment is stated at historical cost permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. the net disposal proceeds and the carrying amount of the asset is recognised in the statement of profit or loss and other comprehensive income in the period of derecognition. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can Transfers are made to or from investment property only when there is a change in use. For a transfer from investment be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change charged to the statement of comprehensive income during the financial period in which they are incurred. in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. Owner occupied property is 42 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 43 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 classified as investment property where the tenant occupies a significant portion (more than 50%) of the lettable space A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the of the property. This threshold was set due to the Group’s intention to let out any excess office space which exists at the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would Group’s properties. have been determined (net of depreciation) had no impairment loss been recognised in prior years. 3.11 Intangible assets 3.13 Financial instruments An intangible asset is recognised if it is probable that the expected future economic benefits that are attributable to the 3.13.1 Classification and measurement asset will flow to the Group and the cost of the asset can be measured reliably. Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual terms of the Intangible assets that are acquired and have finite useful lives are initially recognised at cost with subsequent measurement instrument. Regular way purchase and sales of financial assets are recognised on trade date, the date on which the group at cost less any accumulated amortisation and any impairment losses. commits to purchase or sell the asset. Intangible assets are derecognised upon disposal or when no future economic benefits are expected from its use or At initial recognition, the group measures a financial asset or financial liability at its fair value plus or minus, in the case of disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal a financial asset or financial liability not at fair value through profit or loss (FVTPL), transaction costs that are incremental proceeds and the carrying amount of the asset) is included in the profit or loss in the year the asset is derecognised. and directly attributable to the acquisition or issue of the financial asset or financial liability, such as fees and commissions. Transaction costs of financial assets or financial liabilities carried at FVTPL are expensed in profit or loss. Immediately 3.11.1 (i) Computer software after initial recognition, an expected credit loss (ECL) , is recognised for financial assets measured at amortised cost and investments in debt instruments measured at fair value through other comprehensive income (FVOCI), which results in an Costs associated with maintaining computer software programmes are recognised as an expense as incurred. accounting loss being recognised in profit or loss when an asset is newly originated. Computer software license fees are paid for in advance, recognised as a prepayment and expensed to the statement of (i) Amortised cost and effective-interest rate profit or loss and other comprehensive income over the period of the license agreement. Should the license agreement extend beyond 12 months, the software license would be capitalised as an intangible asset and amortised on a straight-line The amortised cost of a financial instrument is the amount at which the financial instrument is measured on initial basis over the period of the license agreement. recognition minus principal repayments, plus or minus the cumulative amortisation using the effective-interest method of any difference between the initial contractual amount and the maturity amount, less any cumulative impairment losses. 3.11.2 (ii) Amortisation The effective-interest rate is the rate that exactly discounts estimated future cash payments or receipts through the Intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives, from the date that expected life of the financial asset or financial liability to the gross carrying amount of a financial asset (i.e. its amortised they are available for use. cost before any impairment allowance) or to the amortised cost of a financial liability. The calculation does not consider ECLs and includes transaction costs, premiums or discounts, fees and points paid or received that are integral to the The estimated useful lives for the current and comparative years are as follows: effective interest rate, such as origination fees. Software relating to core business applications for which any change to a different application When the group revises the estimates of future cash flows, the carrying amount of the respective financial asset or Tier 1 asset 10 years financial liability is adjusted to reflect the new estimate, discounted using the original effective interest rate. Any changes suite would require a significant investment in resources and time. Software that is directly integrated with the core financial systems and additional are recognised in profit or loss. Tier 2 asset 5 years developments and modules may have be added. Other Commodity software 3 years (ii) Fair value Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if The fair value of a financial instrument is the amount that would be received to sell the asset or paid to transfer a liability appropriate. in an orderly transaction between market participants at the measurement date. The fair value of instruments that are quoted in an active market is determined using quoted prices where they represent those at which regularly and recently 3.12 Impairment of non-financial assets occurring transactions take place. The group uses valuation techniques to establish the fair value of instruments where quoted prices in active markets are not available. Intangible assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount For a detailed discussion of the fair value of financial instruments refer to note 11. by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest Financial assets levels for which there are largely independent cash inflows (cash-generating units). Prior impairments of non- financial assets (other than goodwill) are reviewed for possible reversal at each reporting date. Debt instruments are measured at amortised cost where they have: In assessing value in use, the expected future cash flows from the asset are discounted to their present value using a - contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An on the principal amount outstanding; and impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. - are held within a business model whose objective is achieved by holding to collect contractual cash flows. 44 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 45 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 The Group has classified loans and advances, trade receivables and cash at bank as amortised cost. These debt instruments The derivative assets and derivative liabilities are offset and the net position is presented in the statement of financial are initially recognised at fair value plus directly attributable transaction costs. position as the Group has a legal right to offset the amounts and intends to settle on a net basis. Each swap has the same counterparty and the “net asset/ liability” is as a result of mark-to-market movements. After initial measurement, such financial assets are subsequently measured at amortised cost using the Effective Interest Rate (EIR) method, less impairment. A provision for impairment of loans and advances is established using the expected All strategic trading asset and repurchase agreements are recognised in the statement of financial position at fair value credit loss approach on date of initial recognition. A provision is raised using either a 12-month expected credit loss or and are classified as trading. The carrying value of a asset is measured at fair value and are disclosed as assets when the fair lifetime expected credit loss approach. value is positive and as liabilities when the fair value is negative. Amortised cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an (iv) Cash held under investments integral part of the EIR. The EIR amortisation is included in “Net interest income” in the statement of profit or loss and other comprehensive income. The losses arising from impairment are recognised in the statement of profit or loss and The “Cash” held under investments is held with the Asset Managers (external party) to invest on the Group’s behalf. At other comprehensive income. various stages as the markets move, the Asset Managers may buy and sell shares and bonds, and would invariably have cash on hand at certain points in time. This cash is held in the possession of the Asset Managers and is intended to be used Receivables arising from insurance contracts are also classified in this category and are reviewed for impairment as part of for the purpose of purchasing new financial instruments. The cash is not necessarily available to be used as working capital the impairment review of loans and receivables. by the Group and therefore is not disclosed as “Cash and cash equivalents”. Investments in equity instruments: (vi) Renegotiated loans For equity investments that are held neither for trading nor for contingent consideration the group may irrevocably elect to present subsequent changes in the fair value of these equity investments in OCI. the cumulative gain or loss previously Where possible, the Bank seeks to restructure loans and advances rather than to take possession of collateral. This may recognised in OCI is not reclassified from equity to profit or loss. However, it may be reclassified in equity. involve extending the payment arrangements and the agreement of new loan conditions. Management continuously reviews renegotiated loans and advances to ensure that all criteria are met and that future payments are likely to occur. Financial liabilities Loans and advances with renegotiated terms are loans and advances that have been restructured due to deterioration in Financial liabilities are classified as subsequently measured at amortised cost, except for: the borrower financial position and where the Group has made concessions that it would otherwise not consider. These loans and advances are not considered to be past due after renegotiations but are treated as current loans after the - Financial liabilities at FVTPL: This classification is applied to derivative financial liabilities, financial liabilities held for trading loan has performed for a specified period. These loans and advances continue to be subject to an individual or collective and other financial liabilities designated as such at initial recognition. Gains or losses on financial liabilities designated as impairment assessment, calculated using the loan’s original Effective Interest Rate (EIR). FVTPL are presented partially in OCI (the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability, which is determined as the amount that is not attributable to changes in market The length of specified period, depends on whether the loans and advances has a monthly or annual repayment profile. conditions that give rise to market risk) and partially in profit or loss (the remaining amount of change in the fair value of the liability). The group assesses whether the new terms are substantially different to the original terms. Should the terms be substantially different, the group derecognises the original financial asset and recognises a ‘new’ financial asset at fair value - Financial liabilities arising from the transfer of financial assets that did not qualify for derecognition, whereby a financial and recalculates a new effective-interest rate for the asset. Differences in the carrying amount are also recognised in profit liability is recognised for the consideration received for the transfer. In subsequent periods, the group recognises any or loss as a gain or loss on derecognition. expenses incurred on the financial liability. Refer to modifications in note 42.5. - Financial guarantee contracts and loan commitments. 3.13.3 Derecognition of financial instruments (iii) Derivative financial instruments, strategic trading asset and hedge accounting A financial instrument or a portion of a financial instrument will be derecognised and a gain or loss recognised when the The Group elected an accounting policy choice under IFRS 9 “Financial Instruments” to apply the hedge accounting Group’s contractual rights expire, financial assets are transferred or financial liabilities are extinguished. On derecognition requirements under IFRS 9 “Financial Instruments: Recognition and Measurement”. As part of the requirements to apply of a financial asset or liability, the difference between the consideration and the carrying amount on the settlement date is hedge accounting, the Group documents, at the inception of the hedge relationship, the relationship between hedging included in finance charges and fair value movements for the year. instruments and hedged items, the risk being hedged, the Group’s risk management objective and strategy for undertaking hedge transactions, and how effectiveness will be measured throughout the life of the hedge relationship. Derivative financial instruments are contracts whose value is derived from one or more underlying price, index or other Upon derecognition of equity instruments designated at fair value through other comprehensive income, the cumulative variable, and typically comprise of instruments such as swaps, forward rate agreements, futures and options. fair value gains/(losses) recognised in other comprehensive income is not subsequently recycled to profit or loss. All derivatives are recognised in the statement of financial position at fair value and are classified as trading except where Financial assets they are designated as part of an effective hedge relationship and classified as hedging derivatives. The carrying value of a derivative is measured at fair value throughout the life of the contract. Derivatives are disclosed as assets when the fair A financial asset is derecognised when: value is positive and as liabilities when the fair value is negative. - The rights to receive cash flows from the asset have expired. 46 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 47 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 - The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the A lifetime expected loss approach is used for the following instruments: received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either: - Purchased or newly originated credit impaired financial assets. (i) The Group has transferred substantially all the risks and rewards of the asset, or Although some financial assets within the Bank’s portfolio might meet the definition of low credit risk, the Bank opted (ii) The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred not to apply this in application of its ECL methodology as given the nature of the Bank’s business it is deemed not to be control of the asset. prudent not to consider whether a significant increase in credit risk exits. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through For subsequent measurement, the group applies a three-stage approach to measuring expected credit loss (ECL) on debt arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred instruments accounted for at amortised cost. Assets migrate through the following three stages based on the change in control of the asset, the asset is recognised to the extent of the Group’s involvement in the asset. In that case, the Group credit quality since initial recognition: also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. 1. Stage 1: 12-months ECL Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the For exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit original carrying amount of the asset and the maximum amount of consideration that the Group could be required to impaired upon origination, the portion of the lifetime ECL associate with the probability of default events occurring within repay. the next 12 months is recognised. Financial liabilities 2. Stage 2: Lifetime ECL - not credit impaired A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an For credit exposures where there has been a significant increase in credit risk since initial recognition but that are not existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an credit impaired, a lifetime ECL is recognised. existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and 3. Stage 3: Lifetime ECL - credit impaired the consideration paid is recognised in profit or loss. If the loan’s credit risk increases to the point where it is considered credit-impaired, interest revenue is calculated based 3.13.4 Impairment of financial instruments on the loan’s amortised cost (that is, the gross carrying amount less the loss allowance). Lifetime ECLs are recognised, as in Stage 2. (i) Impairment of financial assets At each reporting date, the group assesses whether there has been a significant increase in credit risk for financial assets At each reporting date, the Group assesses whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the credit risk of default occurring over the expected life between the reporting date since initial recognition by comparing the credit risk of default occurring over the expected life between the reporting date and the date of initial recognition. and the initial recognition. In determining whether credit risk has increased significantly since initial recognition, the Group uses its internal credit risk grading system, external risk ratings and forecast information to assess deterioration in the In determining whether credit risk has increased significantly since initial recognition, the group uses its internal credit risk credit quality of a financial asset. grading system, external risk ratings and forecast information to assess deterioration in the credit quality of a financial asset. The Land Bank’s portfolio main risk drivers are weather conditions, which are not predictable on a long-term time The amount of Expected Credit Loss (ECL) is measured as the probability-weighted present value of all cash shortfalls horizon, changes in the 12-month PD are considered the best indicator for significant increase in credit risk over the over the expected life of the financial asset discounted at its original effective interest rate. The cash shortfall is the expected life of a financial asset. difference between all contractual cash flows that are due to the group and all the cash flows that the group expects to receive. The amount of the loss is recognised using a provision for “Expected Credit Loss account”. The group assesses whether the credit risk on a financial asset has increased significantly on an individual or collective basis. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of shared credit (ii) Assets carried at amortised cost risk characteristics, taking into account instrument type, credit risk ratings, date of initial recognition, remaining term to maturity, industry, geographical location of the borrower and other relevant factors. The Group’s accounting policy for impairment of financial assets changed significantly having early adopted IFRS 9, with effect 1 April 2015 (FY2016), and the expected credit loss model is now applied. The IFRS 9 impairment requirements are The amount of ECL is measured as the probability-weighted present value of all cash shortfalls over the expected life based on an expected credit loss model. of the financial asset discounted at its original effective interest rate. The cash shortfall is the difference between all contractual cash flows that are due to the Group and all the cash flows that the group expects to receive. The amount of Key principles of the group’s accounting policy for impairment of financial assets are listed below. the loss is recognised using a provision for “Expected Credit Loss account”. The Group assesses at initial recognition of financial assets whether to use a 12-month expected loss approach or a lifetime The group considers its historical loss experience and adjusts this for current observable data. In additional, the group uses expected loss approach in order to calculate its impairment provision. reasonable and supportable forecasts of future economic conditions including experienced judgement to estimate the amount of an expected impairment loss. IFRS 9 introduces the use of macro-economic factors that which include but are A 12-month expected loss approach is used for the following instruments: not limited to the World Food Index as well as the Volume of Imports of Goods and Services, and requires an evaluation - Purchased or newly originated financial assets that are not credit impaired. of both the current and forecast direction of the economic cycle. Incorporating forward looking information increases the 48 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 49 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 level of judgement as to how changes in these macro-economic factors will affect ECL. The methodology, assumptions and The group applies the IFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss macro-indices, including any forecasts of future economic conditions are reviewed regularly. allowance for all trade and receivables. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the days past due. If, in a subsequent period, credit quality improves and reverses the previously assessed significant increase in credit risk since origination, then the ECL reverts from lifetime ECL to 12-months ECL. 3.17 Funds administered on behalf of related parties 3.13.5 Day 1 profit The Group manages funds on behalf of related parties. The net position in terms of legal right to offset of these funds administered on behalf of related parties are separately disclosed in the notes to the annual financial statements. These Where the transaction price in a non-active market is different from other observable current market transactions in the funds are not carried on the statement of financial position of the Group. same instrument or based on a valuation technique whose variables include data from observable markets, the group immediately recognises the difference between the transaction price and fair value (a ‘Day 1’ profit) in the statement 3.18 Trade and other payables of profit or loss and other comprehensive income under fair value gains and losses. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognised in the statement Trade and other payables, including accruals, are recognised when the Group has a present obligation arising from past of profit or loss and other comprehensive income when the inputs become observable, or when the instrument is events, the settlement of which is expected to result in an outflow of economic benefits from the Group. Trade and other derecognised. payables are carried at amortised cost. 3.13.6 Amortised cost of financial instruments 3.19 Funding liabilities Amortised cost is computed using the effective interest rate method less any allowance for impairment and principal Funding liabilities were previously carried at amortised cost with certain liabilities being carried at fair value, with the fair repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes value movements being accounted for in profit or loss throughout the year. Upon adoption of IFRS 9, with effect 1 April transaction costs and fees that are an integral part of the effective interest rate. 2015 (FY2016), the Bank elected to carry all of it’s funding liabilities at amortised cost. The arranging fees that are paid upon acquisition of the liability, are deferred to the Statement of Other Comprehensive Income over the term of the loan 3.14 Sale and repurchase agreements facility and included in the interest expense line as these arranging fees form part of the “Effective Interest Rate” of funding instruments. The prepaid arranging fee is carried as part of the funding liabilities. Securities sold under agreements to repurchase at a specified future date are not derecognised from the statement of financial position as the Group retains substantially all of the risk and rewards of ownership. The corresponding cash 3.20 Provisions received is recognised in the consolidated statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability within cash collateral on securities lent and repurchase agreements, Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is reflecting the transaction’s economic substance as a loan to the Bank. probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the effective interest rate (EIR). When the counter party has the right to sell or repledge the securities, Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the the Group reclassifies those securities in its statement of financial position to financial assets held for trading pledged as reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense collateral, as appropriate. Conversely, securities purchased under agreements to resell at a specified future date are not relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any recognised in the statement of financial position. reimbursement. The consideration paid, including accrued interest, is recorded in the statement of financial position, within cash collateral If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, on securities borrowed and reverse repurchase agreements, reflecting the transaction’s economic substance as a loan by where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the the Bank. The difference between the purchase and resale prices is recorded in net interest income and is accrued over passage of time is recognised as a finance cost. the life of the agreement using the EIR. If securities purchased under agreement to resell are subsequently sold to third Provision is made for onerous contracts when the expected benefits to be derived from a contract are less than the parties, the obligation to return the securities is recorded as a short sale within financial liabilities held-for-trading and unavoidable costs of meeting the obligations under the contract. measured at fair value with any gains or losses included in net trading income. Provisions are reviewed at the end of each financial year and are adjusted to reflect current best estimates. 3.15 Cash and cash equivalents 3.21 Foreign currency translation Cash comprises cash on hand and at bank and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. 3.16 Trade and other receivables Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate Trade and other receivables are initially measured at fair value and, after initial recognition, at amortised cost less of exchange ruling at the statement of financial position date. Foreign exchange differences arising on the settlement impairment losses. of monetary items or translating monetary items at rates different from those at which they were translated on initial 50 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 51 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 recognition during the period or in the previous financial statements are recorded in profit and loss in the period in which (i) Recognition and measurement they arise. Gross written premiums Non-monetary items that are measured in terms of historical-cost in a foreign currency are translated using the exchange Gross written premiums exclude value added tax. Earned premiums are accounted for as income when the risk related to rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are the insurance policy incepts and are spread over the risk period of the contract by using an unearned premium provision. translated using the exchange rates at the date when the fair value was determined. All premiums are shown before deduction of commission payable to intermediaries. 3.22 Related parties Unearned Premium Provision The provision for unearned premiums represents the portion of the current year’s premiums written that relate to The Group operates in an economic environment currently dominated by entities directly or indirectly owned by the risk periods extending into the following year. The Unearned Premium Provision (UPP) is established to recognise the South African government. As a result of the constitutional independence of all three spheres of government (national, premiums already written that will be earned in future. The UPP is set with reference to the development of claims as per provincial and local) in South Africa, only parties within the national sphere of government will be considered to be related the recent historical claims experience. parties. Commission Key management is defined as being individuals with the authority and responsibility for planning, directing and controlling Commission is payable to sales staff on short-term insurance business. Commission is accounted for on all in-force policies activities of the Group. All individuals from Executive Management up to the Board of Directors are key management in the financial period during which it is incurred. Acquisition costs for short-term insurance business is deferred over the individuals in their dealings with the Group. period in which the related premiums are earned. Close family members of key management personnel are considered to be those family members who may be expected Fee income to influence or be influenced by key management individuals in their dealings with the Group. The reinsurance broker pays the brokerage they earn on reinsurance premiums to the company in exchange for a flat brokerage fee earned over the period of the treaties. This fee income is earned quarterly with the settlement of the Other related party transactions are also disclosed in terms of the requirements of IAS 24. The objective of IAS 24 and accounts to reinsurers. the financial statements is to provide relevant and reliable information and therefore materiality is considered in the disclosure of these transactions. Provision for unexpired risk Unexpired risks refer to policies that have already been written, but the period for which premium was received or 3.23 Contingencies is receivable has not expired as at the measurement date and extends into the following period. The Unexpired Risk Provision (URP) comprises of the Unearned Premium Provision (UPP) and the Additional Unexpired Risk Provision Possible obligations of the Group, the existence of which will only be confirmed by the occurrence or non-occurrence (AURP). of uncertain future events not wholly within the control of the Group and present obligations of the Group where it is not probable that an outflow of economic benefits will be required to settle the obligation or where the amount of the Notified Outstanding Claims Provision obligation cannot be measured reliably, are not recognised in the Group’s statement of financial position but are disclosed The Notified Outstanding Claims Provision (NOCP) is held in respect of those claims that have been notified but have not in the notes to the financial statements. been paid or fully settled by the measurement date. These are estimated based on management expert estimation and are reviewed to be in line with recent historical claims experience. Possible assets of the Group, the existence of which will only be confirmed by the occurrence or non-occurrence of uncertain future events not wholly within the control of the Group, are not recognised in the Group’s statement of Provision for claims incurred but not reported (IBNR) financial position and are only disclosed in the notes to the financial statements where an inflow of economic benefits is The Incurred But Not Reported (IBNR) Claims Provision is held in respect of those claims that have occurred but are yet probable. to be reported by the measurement date. The number of IBNR claims are determined with reference to claim reporting delays patterns as per recent claims experience, to which the severity of the claims is applied to arrive at the IBNR Claims 3.24 Insurance contracts Provision. Contracts under which the Group accepts significant risk from another party (the policyholder) by agreeing to Deferred acquisition costs (DAC) compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects Deferred Acquisition Costs (DAC) consist of commissions and other variable costs directly connected with acquisition or the policyholder or other beneficiary are classified as insurance contracts. renewal of insurance contracts. Deferred acquisition costs are amortised at incidence of risk basis and are deferred over the period in which the related premiums are earned, and recognised as a current asset. All other costs are recognised as Insurance contracts are classified into two main categories, depending on the type of insurance risks, namely short-term or expenses when incurred. long-term. The DAC asset is tested for impairment annually and written down when it is not expected to be fully recovered from 3.24.1 Short-term insurance future income. Short-term insurance provides benefits under crop and agri-assets policies. The benefits to which the Group is entitled under its reinsurance contracts held are recognised as assets. These assets consist of short-term balances due from reinsurers (classified within loans and receivables) on settled claims, as well as estimates (classified as reinsurance assets) that are dependent on the gross outstanding claims, IBNR and UPR provisions. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the 52 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 53 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 reinsured insurance contracts in accordance with the terms of each reinsurance contract. Reinsurance liabilities are Liability adequacy test primarily premiums payable for reinsurance contracts and are recognised as an expense when incurred. At each statement of financial position date, the Group performs a liquidity adequacy test to assess whether its recognised insurance liabilities are adequate in terms of the Financial Soundness Valuation (FSV) basis as described in SAP 104. The The reinsurer’s share of unearned premiums represents the portion of the current year’s reinsurance premiums that FSV basis meets the minimum requirements of the liquidity adequacy test. If this assessment shows that the carrying relate to risk periods covered by the related reinsurance contracts extending into the following year. The reinsurer’s share amount of its insurance liabilities are inadequate in the light of the estimated future cash flows, the entire deficiency is of unearned premium is calculated using the same method applied to calculate the unearned premium reserve. recognised in the statement of comprehensive income. Income from reinsurance contracts ceded, that varies with and is related to obtaining new reinsurance contracts and Reinsurance contracts held renewing existing reinsurance contracts, is deferred over the period of the related reinsurance contract and is recognised Contracts entered into with reinsurers under which the Group is compensated for losses on one or more long-term as a current liability. policy contracts issued by the Group are classified as long-term reinsurance contracts. The expected claims and benefits to which the Group is entitled to under these contracts are recognised as assets. Administration costs The Group assesses its long-term reinsurance assets for impairment annually. If there is objective evidence that the Administration costs on short-term insurance business consist of directly attributable costs payable to the underwriting reinsurance asset is impaired, the carrying amount is reduced to a recoverable amount, and the impairment loss is manager and are deferred over the period in which the related premiums are earned. Administration costs that are recognised in the statement of profit or loss and other comprehensive income. Reinsurance liabilities are premium payable directly attributable to long-term recurring premium insurance policy contracts will be recognised directly to the for reinsurance contracts and are recognised as expenses when incurred. statement of comprehensive income. Long-term insurance liability Receivables and payables related to insurance contracts In terms of IFRS 4 - Insurance contracts, defined insurance liabilities are allowed to be measured under existing local practice. The company used the FSV method, as described in the Standard of Actuarial Practice (SAP) 104 issued by the Receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance Actuarial Society of South Africa (Actuarial Society), to determine the actuarial value of the policyholders’ liabilities. The contract holders and are included at amortised cost. underlying philosophy is to recognise profits prudently over the term of each contract consistent with the work done and risk borne. In the valuation of liabilities, provision is made for: If there is objective evidence that the insurance receivable is impaired, the Group reduces the carrying amount of the insurance receivable accordingly and recognises that impairment loss in the statement of profit or loss and other - The best estimate of future experience; comprehensive income. The Group gathers objective evidence that an insurance receivable is impaired using the same - The compulsory margins prescribed in the Insurance Act of 2017; and process adopted for loans and receivables. The impairment loss is also calculated according to the same method used for - Actuarial guidance also provides for the use of discretionary margins where deemed appropriate. these financial assets. The best estimate of future experience is determined as follows: 3.24.2 Long-term insurance - Future investment return assumptions are derived from market yields of fixed-interest securities on the valuation date, These contracts provide long-term life insurance benefits with fixed terms to cover natural persons who are indebted to with adjustments for the other asset classes, taking a long-term view. The appropriate asset composition of the various the Group under mortgage loans, production loans and short-term loans. asset portfolios, investment management expenses, taxation at current tax rates and charges for investment guarantees are taken into account. It is assumed that the Group will retain its tax-exempt status for the foreseeable future; (i) Recognition and measurement - “Per policy” expenses are based on the latest actual expenses and escalated at the estimated annual expense inflation rate. In addition, expense overruns in the medium term were reserved for separately; Premiums - Assumptions with regard to future mortality rates are consistent with the Group’s recent experience or expected Premiums are recognised as revenue when they become payable by the contract holder, viz at policy inception. Premiums future experience if this would result in a higher liability. In particular, mortality rates are adjusted to allow for expected are shown before deduction of commission. deterioration in mortality rates as a result of AIDS; and - Persistency assumptions with regard to lapse rates are consistent with the Group’s recent experience or expected Fees and commission earned future experience if this would result in a higher liability. Insurance contract policy holders are charged for policy administration services, surrenders and other contract fees. These fees are recognised as revenue over the period in which related services are performed. If the fees are for services Acquisition costs provided for future periods, then they are deferred and recognised over those future periods. Referral fees are payable to Land Bank branches on long-term insurance business and commission was paid to brokers on the short-term insurance business. Referral fees and commission is accounted for on all in-force policies in the financial Underwriting benefits period during which it is incurred. The portion of the referral fees that is directly attributable to the acquisition of long- Life insurance policy claims received up to the last day of each financial period and IBNR claims are provided for and term recurring premium insurance policy contracts is recognised directly to the statement of profit or loss and other included in underwriting policy benefits. Past claims experience is used as the basis for determining the extent of the IBNR comprehensive income. Acquisition costs for short-term insurance business are deferred over the period in which the claims. Income from reinsurance policies is recognised concurrently with the recognition of the related policy benefit. related premiums are earned. 54 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 55 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 3.25 Critical accounting judgements and key sources of estimation uncertainty 3.25.3 Insurance The preparation of financial statements in conformity with IFRS requires management to make certain estimates, (i) Unlisted investments assumptions and judgements that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent liabilities. Actual results could differ from such estimates. Estimates and judgements are continually The valuation of unlisted shares, as applied by the company’s asset managers, comply with International Private Equity evaluated and are based on historical experience and other factors, including expectations of future events that are and Venture Capital Valuation guidelines. Various valuation techniques are used to arrive at the fair value of investments, believed to be reasonable under the circumstances. The most significant judgements and estimates are summarised including: below: - Price of recent investment; 3.25.1 Impairment losses on loans and advances - Earnings multiple; - Net assets; At each reporting date, the Group assesses whether there has been a significant increase in credit risk for financial assets - Discounted cash flows; since initial recognition by comparing the credit risk of default occurring over the expected life between the reporting - Industry benchmarks; and date and the of initial recognition. In determining whether credit risk has increased significantly since initial recognition, the - Available market prices. Group uses its internal credit risk grading system, external risk ratings and forecast information to assess deterioration in the credit quality of a financial asset. The amount of Expected Credit Loss (ECL) is measured as the probability-weighted The appropriateness of valuations is reviewed annually by the Insurance company’s Investment and Actuarial Committee. present value of all cash shortfalls over the expected life of the financial asset discounted at its original effective interest rate. The cash shortfall is the difference between all contractual cash flows that are due to the group and all the cash flows (ii) Policy liabilities in respect of long-term insurance contracts that the group expects to receive. The following process is followed to determine the valuation assumptions: The Group considers its historical loss experience and adjusts this for current observable data. In addition, the Group uses reasonable and supportable forecasts of future economic conditions including experienced judgement to estimate the - Determine the best estimate for a particular assumption; amount of an expected impairment loss. IFRS 9 introduced the use of macro-economic factors, and requires an evaluation - Prescribed margins are then applied; and of both the current and forecast direction of the economic cycle. Incorporating forward looking information increases the - Discretionary margins may be applied as required by the valuation methodology or if the statutory actuary considers level of judgement as to how changes in these macro-economic factors will affect ECL. The methodology, assumptions such margins necessary to cover the risks inherent in the contracts. and macro-economic factors, including any forecasts of future economic conditions are reviewed regularly to reduce any differences between loss estimates ad actual loss experience. The best estimate of future experience is determined as follows: (i) Land development finance unit (LDFU) loan and advances impairments Investment return Future investment return assumptions are derived from market-related interest rates on fixed-interest securities with It was concluded in the 2008 reporting period that these loans do not form part of the mandate of the Group and, as adjustments for the other asset classes. The appropriate asset composition of the various asset portfolios, investment such, a moratorium was placed on further approvals and the operations discontinued. management expenses and charges for investment guarantees are taken into account. The Group suspended the accrual of interest on all LDFU loans. No further disbursements were made since the last Decrements disbursement in October 2007. All the loans have since been regarded as non-performing. Refer to the notes to the Assumptions with regard to future mortality and lapse rates are consistent with the experience for the five years up to the annual financial statements for information regarding this discontinued operation. current financial year end. Mortality rates are adjusted to allow for expected deterioration in mortality rates as a result of AIDS. During 2018 the Group contracted independent professional valuators to obtain up to date valuations in order to ensure that the carrying values of these loans and advances do not exceed the fair value. Where the valuations obtained exceed We have considered and assessed the Impact of COVID 19 and the Lockdown restrictions on our business operations, the carrying values, the directors opted to maintain the current values due to uncertainties surrounding the potential and we have concluded that there aren’t any events that existed at year end that will require us to adjust the Annual conditions of disposal and legalities. The independent valuation is used, unless there is an unconditional offer of sale on the Financial Statements. security held. The fair value is then adjusted to the value of the offer received. The LBLIC has a reinsurance cover that limits the company’s exposure to a maximum: 3.25.2 Fair value of financial instruments • R1m per policy for individual life and; The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. • R2m per policy for group life Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualified • The LBLIC credit life portfolio consist of farmers that are geographically spread across the country personnel independent of the area that created them. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in Policy expenses assumptions about these factors could affect reported fair value of financial instruments. “Per policy” expenses are based on the latest actual expenses and escalated at the estimated annual expense inflation rate. In addition, expense overruns in the medium term were reserved for separately. 56 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 57 ACCOUNTING POLICIES ACCOUNTING POLICIES FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 (iii) Policy liabilities in respect of short-term insurance contracts The calculation of insurance liabilities is an inherently uncertain process. The company seeks to provide adequate levels of insurance provisions by taking into account all know facts and experience from a variety of sources as well as statutory One of the purposes of insurance is to enable policyholders to protect themselves against uncertain future events. requirements. Insurance companies accept the transfer of uncertainty from policyholders and seek to add value through the aggregation and management of these risks. The uncertainty inherent in insurance is inevitably reflected in the financial statements of Premium provisions - short-term the Group, principally in respect of the insurance liabilities of the Group. The Group raises provisions for unearned premiums on a basis that reflects the underlying risk profile of its insurance contracts. An unearned premium provision is created at the commencement of each insurance contract and is released Insurance liabilities include the provisions for unearned premiums, unexpired risk, outstanding claims and incurred but as the risk covered by the contract expires according to the remaining days method for the assets and winter crop not reported (IBNR) claims. Unearned premiums represent the amount of income set aside by the Group to cover the policies. In the current reporting period, for the new crop policies written through the underwriting management cost of claims that may arise during the unexpired period of risk of insurance policies in force at the statement of financial agreement, the unearned premium for “summer hail”, “summer multi-peril” and “horticulture” is calculated according to position date. At each statement of financial position date an assessment is made of whether the provisions for unearned the claims occurring patterns based on an historic claims analysis of claims incurred. In the prior reporting period, crops premiums are adequate. When it is anticipated that unearned premiums will be insufficient to cover anticipated costs and written through the reinsurance agreement were released according to the remaining days method over the period of fees, unexpired risk is also set aside. the reinsurance treaty. This is a prospective change with the change in the nature of the underlying transaction from a reinsurance agreement to an underwriting management agreement. Outstanding claims represent the Group’s estimate of the cost of settlement of claims that have occurred by the statement of financial position date, but that have not yet been finally settled. In addition to the inherent uncertainty of At each statement of financial position date an assessment is made of whether the provisions for unearned premium are having to provide for future events, there is also considerable uncertainty concerning the eventual outcome of claims that adequate. If the premium level is deemed to be insufficient based on information available at the statement of financial have occurred but had not yet been reported to the insurer by the statement of financial position date. position date, to cover the anticipated claims and operating expenses, a separate provision is made for any estimated future underwriting losses relating to unexpired risks. This assessment includes estimates of future claims frequency and Process to determine significant assumptions other factors affecting the need for a provision for unexpired risk and performed annually. Insurance risks are unpredictable and the Group recognises that it is not always possible to forecast, with absolute precision, future claims payable under existing insurance contracts. Using historical data, the insurance companies aim to The provision for unearned premiums are first determined on a gross level and thereafter the reinsurance impact is establish provisions that have an above average likelihood of being adequate to settle all contractual insurance obligations. recognised based on the relevant reinsurance contract. Deferred acquisition costs and reinsurance commission revenue is recognised on the 365th basis over the term of the policy. Outstanding claims Claim provisions are determined based upon previous claims experience, knowledge of events, the terms and conditions 3.25.4 Classification and measurement of the floating and fixed rate notes, as well as the syndicated loans of the relevant policies and on interpretation of circumstances. Each notified claim is assessed on a separate case by case basis with due regard to the specific circumstances, information available from the insured and/or loss adjuster and past The Group classifies floating and fixed rate notes, as well as the syndicated loans as held at amortised cost with all experience with similar cases. The Group’s estimates for outstanding claims are continually reviewed and updated as future movements in the carrying value being accounted for in the statement of profit or loss and other comprehensive income. developments take place and better information becomes available regarding the current circumstances. The ultimate cost of the claim may therefore vary from this initial estimate. Adjustments resulting through this review are reflected in the 3.25.5 Basis of allocation of segment revenue, assets and liabilities statement of profit or loss and other comprehensive income as and when identified. Funding liabilities are allocated to segments as a percentage of the loans portfolio in that segment. The provision for outstanding claims is initially estimated at a gross level. A separate calculation is carried out to estimate reinsurance recoveries. The calculation of reinsurance recoveries considers the type of risk underwritten, the year in 3.25.6 Depreciation rates, methods and residual values which the loss claim occurred and under which reinsurance programme the recovery will be made as well as the size of the claim, and whether there will be a stop loss recovery based on the overall loss ratio of the portfolio. Depreciation rates, depreciation methods adopted and residual values of assets requires judgements and estimates to be made. Changes in estimates are disclosed in the relevant notes where applicable. Claims incurred but not reported (IBNR) The policyholders’ liabilities include a provision for the expected cost of IBNR claims. This relates to claims expected to 3.25.7 Post employment medical benefits be made by policyholders in respect of events that occurred before the financial year end but that have not yet been reported to the Group by year end. The IBNR is not discounted due to the short-term nature of IBNR claims on crop The cost of defined benefit post employment medical benefits as well as the present value of the post retirement medical policies. aid obligation is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return of assets, future salary increases, mortality rates and medical cost trends. All assumptions For short-term business, the incurred but not reported reserve (IBNR) is based on the minimum requirements of the are reviewed at each reporting date. Insurance Act of 2017, as required by the Financial Sector Conduct Authority (FSCA) Board, previously FSB Board Notice 169 issued on 28 October 2011 and effective for the year ends after January 1, 2012. In line with this computation, 3.25.8 Management expense provisions and accruals premiums in different classes of business for the last six financial years are multiplied by an industry wide historical claims development factors introduced separately and the outcomes are added up. The Group underwrites crop insurance At each statement of financial position date, the Group might be exposed to various liabilities of uncertain timing or under the property class as well as agri-asset reinsurance inwards cover under the motor and property classes. A separate amount. Such liabilities are provided for if a present obligation has arisen, payment is probable and the amount can be calculation is carried out to calculate the reinsurance portion of the IBNR reserve. reliably estimated. Management uses its discretion to estimate the expenditure required to settle the present obligation as at year end, i.e. the amount that the Group would rationally pay to settle the obligation. 58 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 59 ACCOUNTING POLICIES NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank 3.26 Non-current assets held-for-sale and discontinued operations 2020 2019 2020 2019 4. Cash and cash equivalents R’000 R’000 R’000 R’000 In the statement of profit or loss and other comprehensive income of the reporting period, and of the comparable period Favourable cash balances of the previous year, income and expenses from discontinued operations are reported separate from normal income and Cash balances - commercial 685 073 1 108 251 547 418 1 097 743 expenses down to the level of profit/ (loss) after taxes. Property and equipment and intangible assets once classified as held-for-sale are not depreciated/ amortised. Cash balances - short term investments 37 638 2 104 870 37 590 2 104 825 722 711 3 213 121 585 008 3 202 568 3.26.1 Properties in possession Cash at banks are primarily held to mitigate the Bank’s refinancing/liquidity risk. Refer to note 42. for the credit risk ratings Unsold properties in possession are recognised once ownership has been legally transferred to the Group and the of the counterparties where bank accounts are held. underlying debtor is then derecognised. These properties are included under non-current assets held-for-sale at the outstanding loan balance, which are then valued at the lower of the carrying amount and the fair value less costs to sell. At 31 March 2020, there was no undrawn borrowing facilities (FY2019:R 2.65 billion). The fair value is determined using a market-based valuation performed by a sworn appraiser at the statement of financial Cash at commercial banks earns interest at floating rates based on daily bank deposit rates. Short-term investments are position date. Realisable value is determined using market-based valuations performed by a sworn appraiser at the made for varying periods of between one day and three months, depending on the immediate cash requirements of the statement of financial position date. Maintenance costs are expensed in the period incurred. bank, and earn interest at the respective short-term investment rates. 3.26.2 Disposal of properties in possession Due to the short-term nature of cash and cash equivalents, their carrying amount is considered to be the same as their fair value. It is the Group’s policy to dispose of repossessed properties in an orderly fashion on a willing buyer and willing seller basis. The property to be sold is advertised in the market. Upon receipt of offers to purchase, the offers are evaluated and an Group Bank offer that makes the most economic sense is accepted. 2020 2019 2020 2019 5. Trade and other receivables R’000 R’000 R’000 R’000 Trade receivables 788 831 676 082 120 575 128 724 Accrued income 1 3 699 55 009 3 699 55 009 Accrued interest - hedging 2 116 876 73 715 116 876 73 715 Premium receivable 442 595 311 094 - - Reinsurance receivable 225 661 236 264 - - Other receivables 448 821 153 284 600 205 222 838 Intercompany loans - LBLIC 3 - - 5 242 111 352 Prepaid expenses 7 091 7 579 7 091 7 579 Recovery - Loss sharing WFF 98 267 21 074 98 267 21 074 Recovery - Loss sharing SLA 26 341 68 235 26 341 68 235 Loans to current employees 4 449 560 449 560 Loans to former employees 4 60 67 60 67 - Gross 76 92 76 92 - Impairments (16) (25) (16) (25) Dividend receivable from LBLIC - - 200 000 - Fruitless and wasteful expenditure receivable - - - - Sundry receivables 5 316 613 55 769 262 755 13 971 1 237 652 829 366 720 780 351 562 1 Accrued income comprises of 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 Refer to note 39.2.2 for the detail on the intercompany loan. 4 Loans to employees consists of: 60 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 61 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Housing loans Less than 1 year More than 1 More than 2 Total year less than 2 years Staff home loans granted by Land Bank which are receivable between 18 years to 20 years with an average remaining 2019 years period of 17.5 years. The interest rate on the employee home loans is fixed at 3% per annum and the fair value of the Group R’000 R’000 R’000 R’000 loans is R0.2million (FY2019: R0.2 million). The practice to grant home loans to employees was discontinued during 1998. Loans to current employees Gross loan amount 9 9 542 560 Pension backed housing loans Portion of gross loan amount past due but not 9 9 542 560 impaired During FY2017, the Land Bank Retirement Fund (“LBRF”) approached the Land Bank as participating employer to purchase the pension fund backed housing loans in order for the LBRF to be compliant with legislation as they would move Loans to former employees the administration of the fund assets to a more effective administration platform. The Fund and participating employer had Gross loan amount 8 8 76 92 taken a decision to migrate the Fund into an umbrella fund within the Alexander Forbes Retirement Fund (AFRF). Before the LBRF could be transferred to the AFRF umbrella arrangement all existing housing loans in the fund had to be settled. Portion of gross loan amount past due but not 8 8 51 67 impaired The LBRF ceded all its rights under these loans to the Land Bank as participating employer. Group The LBRF previously issued to members of the Fund in terms of Section 19(5) of the Pension Fund Act (PFA) and the 2020 2019 Rules of the Fund allowed for loan repayment terms of 30 years or until retirement, which ever comes first. The Fund 6. Short-term insurance assets and liabilities R’000 R’000 ceased granting loans at the commencement of the National Credit Act (Act 34 of 2005). Short-term insurance liabilities 237 227 329 860 Technical provision 231 911 292 051 All pension backed housing loans are derecognised upon repayment, or retirement at which point outstanding balances Outstanding claims 190 245 211 309 are settled from Member’s Fund Credits. Incurred but not reported claims 6 331 50 543 5 The sundry receivables consist of sundry debtors which are non-interest bearing with no fixed terms of repayment. Provision for unearned premiums 29 818 26 146 Provision for unexpired risk reserve 5 517 4 053 Group Bank Unearned commission income 5 316 37 809 5.1 Classification of trade and other receivables 2020 2019 2020 2019 Less: Short-term insurance assets (169 906) (254 017) Items included in trade and other receivables are classified as financial instruments carried at R’000 R’000 R’000 R’000 Reinsurers’ share of technical provisions (162 452) (205 515) amortised cost. Outstanding claims (133 171) (148 531) Prepaid expenses 7 091 7 579 7 091 7 579 Incurred but not reported claims (4 431) (35 414) Trade and other receivables net of non- 1 230 561 821 787 713 689 343 983 Provision for unearned premiums (21 262) (18 675) financial instruments Provision for unexpired risk reserve - ceded portion (3 588) (2 895) 5.2 Trade and other receivables past due Less than 1 year More than 1 year More than 2 Total Deferred acquisition costs (7 454) (48 502) but not impaired less than 2 years years Net short-term insurance technical provisions 67 321 75 843 2020 R’000 R’000 R’000 R’000 Group The crop unearned premium provision (UPP) is calculated on the claims occurring basis for the published accounts, based Loans to current employees on historical claims occurrence tables, which are reviewed annually. The winter crop premium is fully earned by 31 March. Gross loan amount 9 9 430 448 Below are the provisions calculated according to the statutory basis. Portion of gross loan amount past due but not 9 9 430 448 impaired Gross Reinsurance Net Loans to former employees Unearned Premium Reserve movement R’000 R’000 R’000 Gross loan amount 6 6 63 75 Balance at 31 March 2018 87 990 (61 693) 26 297 Portion of gross loan amount past due but not 6 6 63 75 Provision earned (87 990) 61 693 (26 297) impaired New provision raised 26 146 (18 675) 7 471 Balance at 31 March 2019 26 146 (18 675) 7 471 Provision earned (26 146) 18 675 (7 471) Provision increased 29 818 (21 262) 8 556 Balance at 31 March 2020 29 818 (21 262) 8 556 62 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 63 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Gross Reinsurance Net Gross Reinsurance Net Deferred acquisition costs R’000 R’000 R’000 Incurred but not reported movement R’000 R’000 R’000 Balance at 31 March 2018 46 879 (40 002) 6 877 Balance at 31 March 2018 41 246 (28 775) 12 471 Provision earned (46 879) 40 002 (6 877) Claims paid against provision (12 471) 8 730 (3 741) Provision increased 48 502 (37 809) 10 693 Provision utilised (28 775) 20 045 (8 730) Balance at 31 March 2019 48 502 (37 809) 10 693 New provision raised 50 541 (35 414) 15 127 Provision earned (48 502) 37 809 (10 693) Balance at 31 March 2019 50 541 (35 414) 15 127 Provision increased 7 454 (5 316) 2 138 Provision released (50 541) 35 414 (15 127) Balance at 31 March 2020 7 454 (5 316) 2 138 Provision increased 6 330 (4 431) 1 899 Balance at 31 March 2020 6 330 (4 431) 1 899 Claims development table Group Bank The following tables show claims paid in the year that it occurred as well as one year thereafter. Historically, no claims have 2020 2019 2020 2019 been paid more than one year after the end of each accident year. 7. Repurchase agreements R’000 R’000 R’000 R’000 Gross claims paid Republic of South Africa bonds - R186 10 305 11 057 10 305 11 057 2019 2020 Accident year R’000 R’000 - R2030 - 9 219 - 9 219 - LBK 28 9 190 9 981 9 190 9 981 At end of accident year (228 195) (138 660) 19 495 30 257 19 495 30 257 One year later (280 274) (347 464) The Group enters into sale and repurchase agreements to cover any short positions that the Group may experience from Current estimate of gross cumulative claims paid (508 469) (486 124) time to time. Net claims paid Interest relating to these instruments is disclosed in note 25. 2019 2020 Group Bank Accident year R’000 R’000 2020 2019 2020 2019 8. Investments R’000 R’000 R’000 R’000 At end of accident year (80 726) (41 598) One year later (86 324) (104 239) Investment in subsidiary - LBLIC - - 30 30 Current estimate of net cumulative claims paid (167 050) (145 837) Investment in subsidiary - LBIC - - 450 000 350 000 Unlisted investments 640 198 1 250 203 640 198 1 250 203 Gross Reinsurance Net Assets earmarked for medical aid liabilities 210 335 260 083 210 335 260 083 Outstanding claims movement R’000 R’000 R’000 Investment in listed shares 117 983 127 685 117 983 127 685 Investments held by LBLIC 1 118 338 1 346 520 - - Balance at 31 March 2018 229 619 (145 035) 84 584 Investments held by LBIC 61 369 197 043 - - Provision utilised (229 619) 145 035 (84 584) 2 148 223 3 181 534 1 418 546 1 988 001 Provision increased 211 309 (148 531) 62 778 Balance at 31 March 2019 211 309 (148 531) 62 778 Provision utilised (211 309) 148 531 (62 778) Provision increased 190 245 (133 171) 57 074 Balance at 31 March 2020 190 245 (133 171) 57 074 64 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 65 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank Analysis of investments 2020 2019 2020 2019 8.2 Unlisted investments R’000 R’000 R’000 R’000 Group Bank Fair value 8.1 Assets earmarked for medical aid Ordinary shares in Capespan Capital (Pty) Ltd - 105 - 105 liabilities 2020 2019 2020 2019 Ordinary shares in Bosveld (Pty) Ltd - 525 252 - 525 252 These are investments held with Coronation Ordinary shares in ETG - 2 125 - 2 125 R’000 R’000 R’000 R’000 Asset Managers. Ordinary shares in Acorn Agri (Pty) Ltd 72 200 114 408 72 200 114 408 Preference shares in Afri Fresh (Pty) Ltd 80 000 - 80 000 - Listed investments 189 567 249 999 189 567 249 999 Ordinary shares in Mouton Holdings (Pty) Ltd 85 000 155 890 85 000 155 890 Local equity 111 362 167 509 111 362 167 509 Ordinary shares in Southern Cross Investment 75 000 89 960 75 000 89 960 Local bonds 40 719 44 217 40 719 44 217 Holdings (Pty) Ltd Foreign equity 37 486 38 273 37 486 38 273 Ordinary shares in Cavalier Group of 44 100 51 227 44 100 51 227 Other 6 030 5 076 6 030 5 076 Companies (Pty) Ltd Commodities 3 291 5 076 3 291 5 076 Ordinary shares in Ideafruit (Pty) Ltd 83 898 92 853 83 898 92 853 Local Hedge Funds 2 739 2 739 Ordinary shares in Riverside Holdings (Pty) Ltd 105 000 124 000 105 000 124 000 Cash 14 738 5 008 14 738 5 008 Ordinary shares in Afgri Grain Silo Company 95 000 94 383 95 000 94 383 Pty Ltd Local 8 906 5 008 8 906 5 008 640 198 1 250 203 640 198 1 250 203 Foreign 5 832 - 5 832 - Refer to notes 45.3 and 45.4 for the reconciliation of recurring fair value measurements disclosure and valuation basis. 210 335 260 083 210 335 260 083 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. 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 Capespan Capital (Pty) Ltd measured and disclosed at fair value, except for cash which is measured at amortised cost. These investments are exposed The Land Bank acquired a 19% ordinary share in one of its corporate clients, Capespan Capital (Pty) Ltd, for a nominal to interest rate risk, equity price risk and foreign exchange risk. Refer to note 40 for more information on the related risks amount of R19. The investment relates to a debt agreement entered into between the Bank and Capespan Capital (Pty) and mitigation strategies. Ltd. The effective date of the agreement was 18 July 2013. Group Bank During December 2018 a decision was taken to wind down the company, due to anticipated opportunities not Assets earmarked for medical aid liabilities are 2020 2019 2020 2019 materialising. Land Bank received a a residual dividend of R1.7m during the 2019 financial year. Land Bank sold its shares invested as follows: % % % % during June 2020 for R114. Local equities Financial (excl. real estate) 16% 16% 16% 16% Capespan Capital (Pty) Ltd was impaired to R0 million (2019: R 0.1million) as at 31 March 2020. Basic materials 15% 22% 15% 22% ETG Group (% holding in Bosveld) Industrials 1% 1% 1% 1% In the prior periods, after a process of business rescue, the Bank gained control of the business operations of one of its Consumer goods 15% 15% 15% 15% distressed assets. On the 13 April 2018, the Board approved the sale of the said operations and assets to the ETG Group. Health care 5% 4% 5% 4% Consumer services 31% 20% 31% 20% On the 20 June 2018, the Bank entered into an Asset-for-shares swop agreement with the ETG Group which entitled Telecommunications 1% 5% 1% 5% the Bank to an effective 0.24% shareholding in the ETG Group as well as 19.9% shareholding in Bosveld (Pty) Ltd. The Other securities 16% 16% 16% 16% Competition Commission approved the transaction subject to certain conditions being fulfilled. The conditions precedents were fulfilled on the 01 March 2019. Refer to the note 23. for the post-retirement obligation disclosure. Bosveld (Pty) Ltd was impaired to R0 million (2019: R525.3 million) as at 31 March 2020 due to Land Bank not able to fund the recommissioning of the plant owing to liquidity constraints. The corresponding investment in ETG was impaired to R0 million (2019: R2.1 million), due to the Profert (Land Bank client) assets not realising the required value. 66 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 67 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Acorn Agri & Food Ltd Ideafruit (Pty) Ltd During the 2017 financial year, the Land Bank acquired 47,159,495 ordinary shares to the value of R75 million in Acorn Agri The Land Bank acquired 17.5% of the shares in Ideafruit (Pty) Ltd for R83.90 million. The effective date of the agreement (Pty) Ltd, in a conversion transaction of preference share investment in Afrifresh Group (Pty) Ltd. The effective date of was 18 October 2017. the agreement was 23 March 2017. The valuation for Ideafruit (Pty) Ltd could not be completed as at 31 March 2020 due to unavailability of financial At the time of acquisition, the acquired shares represented approximately 5.4% of the equity in Acorn Agri (Pty) Ltd. projections and latest audited financial statements. Land Bank has therefore taken a decision to write down the value of the investment to the acqusition value. This resulted in the carrying value of R83.9 million (FY2019: R92.9million) for the During the 2018 financial year, the Land Bank acquired additional 27,009,507 ordinary shares to the value of R50 million in Bank. Acorn Agri (Pty) Ltd, in a debt to ordinary share conversion. The effective date of this transaction was 21 August 2017. Riverside (Pty) Ltd During the 2019 financial year, Acorn Agri (Pty) Ltd and Overberg Agri Ltd amalgamated to form Acorn Agri & Food Ltd, The Land Bank acquired 19.9% of the shares in Riverside (Pty) Ltd for R124.0 million in FY2019. in Swap Ratio of 150.95718 Acorn Agri (Pty) Ltd shares for every 1 Acorn Agri & Food Ltd share, hence 4 664 313 shares were issued to Land Bank. The effective date of this transaction was 2 May 2018. Riverside (Pty) Ltd was valued as at 31 March 2020. The valuation was based on the DCF and current asset valuations, resulting in an investment value of R105 million (FY2019: R124.0 million) for the Bank. Acorn Agri & Food Ltd was valued as at 31 March 2020. The valuation was based on the Net Asset Value (NAV) of the company. The NAV of the business amounts to R 2038 million (2019: R 3 394 million), which result in an investment value Afgri Grain Silo Company Pty Ltd of R72.2 million (FY2019: R114.408 million) for the Bank. The Land Bank acquired 19.9% of the shares in Afgri Grain Silo Company (Pty) Ltd for R94.38million. The effective date of the agreement was 29 March 2019. Afri Fresh (Pty) Ltd As part of the Workout and Rrestructure of the Afrifresh loan of R360m, the Land Bank received R200 million in cash Afgri Grain Silo Company Pty Ltd was valued as at 31 March 2020. The valuation was based on the DCF and current asset and converted the remaining R160 million debt into preference shares. The preference shares were redeemed in June valuations, resulting in an investment value of R95.0 million (FY2019: R94.3 million) for the Bank. 2020 for R80 million resulting in an impairment of R80 million. The investment is therefore carried at this value in the annual financial statements. Group Bank 2020 2019 2020 2019 Mouton Holdings (Pty) Ltd 8.3 Investments in Listed Shares R’000 R’000 R’000 R’000 The Land Bank acquired a 17.40% interest in Mouton Holdings (Pty) Ltd, for a nominal amount of R117.60 million in a debt to ordinary share conversion. The effective date of the agreement was 31 May 2017. The debt to ordinary share Rhodes Food Group Holdings Limited 117 983 127 685 117 983 127 685 conversion was part of the original terms and conditions of the loan and was not a distressed asset restructure. During the financial year the investment in Mouton Holdings (Pty) Ltd was reduced to 10% valued at R89.6 million though a sale of shares. Rhodes Food Group Holdings Limited was valued in March 2020 based on the listed share price. The listed share price of Rhodes Food Group Holdings Limited as at 31 March 2020, was R15.2 per share (FY2019:R16.45), resulting in an The Land Bank accepted an offer for the purchase of Mouton Holdings (Pty) Ltd shares for R85 million. The investment is investment value of R117.98 million (FY2019: R127.69 million ) for the Bank. therefore carried at this value in the annual financial statements. Group Bank Southern Cross Investment Holdings (Pty) Ltd 2020 2019 2020 2019 The Land Bank acquired a 19.90% interest in Southern Cross Investment Holdings (Pty) Ltd, for a nominal amount of 8.4 Investment in LBLIC (100%) R’000 R’000 R’000 R’000 R174.60 million. This is phase 1 of the BEE transaction, phase 2 will involve a BEE partner that will buy 9.9% of Land Bank’s shares (reducing our investment to 10%). The effective date of the agreement for phase 1 was 3 November 2017. LBLIC shares (15,000 ordinary shares at par - - 30 30 value of R2 each) The Land Bank received and accepted an offer for the purchase of Southern Cross Investment Holdings (Pty) Ltd shares for R75 million. The investment is therefore carried at this value in the annual financial statements. Actuarial valuation (LBLIC) - - 901 528 1 244 539 Cavalier Group of Companies (Pty) Ltd The Land Bank acquired a 19.9% interest in Cavalier Group of Companies (Pty) Ltd for a nominal amount of R56.42 Up until 31 March 2014, the Land Bank indirectly held these shares through its 100% holding of the Land Bank Insurance million. The effective date of the agreement was 7 July 2017. Services (SOC) Limited (LBIS) which was the sole beneficial shareholder of LBLIC. Cavalier Group of Companies (Pty) Ltd was valued as at 31 March 2020. The valuation was based on the DCF, resulting in With effect from 1 April 2014, the Land Bank acquired all the LBLIC shares from LBIS at R nil. LBLIC is therefore a direct an investment value of R44.1 million (FY2019: R51.2 million) for the Bank. subsidiary of the Land Bank. 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 2020 amounted to R901.5 million (FY2019: R1.24 billion). 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. 68 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 69 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank Group 2020 2019 2020 2019 2020 2019 8.5 Investment in LBIC (100%) R’000 R’000 R’000 R’000 R’000 R’000 LBIC shares (1,607 ordinary shares at no par - - 450 000 350 000 value) Equities 299 311 439 510 Commodities (2 321) 15 450 Up until 31 March 2014, Land Bank indirectly held these shares through its 100% holding of Land Bank Insurance Services Bonds 429 953 163 991 (SOC) Limited (LBIS) which was the sole beneficial shareholder of LBIC. Collective investment schemes 130 780 447 050 With effect from 1 April 2014, Land Bank acquired all the LBIC shares from LBIS at Rnil. LBIC is therefore a direct subsidiary of the Land Bank. Cash deposits and similar securities 256 514 268 381 Investment policy 4 101 12 138 LBIC now houses the Insurance Act of 2017 of the Group, such as short-term asset and crop insurance. 1 118 338 1 346 520 The shares are accounted for at cost in terms of IFRS. Designated at fair value through profit or loss Group During FY2017, the Land Bank contributed R150 million capital as part of the shareholder’s support towards the 2020 2019 operations of LBIC. The contribution was converted into 150 no par value shares in LBIC in March 2017, therefore increasing the issued shares of LBIC from 1,100 to 1,250. During FY2020, Land Bank further recapitalised LBIC with R100 8.7.1 Equities R’000 R’000 million, increasing issued shares to 1,607. Equities comprise: Ordinary shares listed on the JSE ¹ 299 311 439 510 Group Bank Preference shares listed on the JSE ¹ - - 2020 2019 2020 2019 299 311 439 510 8.6 Investment in LBIS (100%) - R’000 R’000 R’000 R’000 deregistered Equities are classified as designated as at fair value through profit or loss. LBIS shares (1,000 ordinary shares at no par - - - - Group value) 2020 2019 Land Bank Insurance Services (SOC) Limited (LBIS), which is deregistered ,was the holding company of LBIC and LBLIC 8.7.2 Commodities R’000 R’000 until 31 March 2014. ETF’s - local ¹ (2 321) 15 450 ETF’s - foreign (at market value) - - In May 2014, the Minister of Finance approved that LBIS be dissolved and that the two insurance companies be held (2 321) 15 450 directly by the Land Bank. LBIS was deregistered in 31 August 2019. Commodity ETF’s are classified as designated as at fair value through profit or loss. The shares are accounted for at cost in terms of IFRS. 8.7 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 70 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 71 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group 8.8 Investments held by LBIC Group 2020 2019 This investment is held by Future growth Asset Managers. 2020 2019 8.7.3 Collective investment schemes (“CIS”) R’000 R’000 Investments in interest bearing assets R’000 R’000 Equity - foreign unit trusts 116 214 129 107 Bonds listed on the JSE Debt Market - at market value 4 980 133 062 Balanced fund - foreign 21 871 36 197 Local/ Government 4 980 133 062 Currency derivatives - - Cash, deposits and similar securities 56 389 63 981 Property - listed shares (REITs & REHD’s) - - Deposits with banks - local 56 389 63 981 Unlisted shares - - 61 369 197 043 Foreign cash (7 304) (1 313) 130 781 163 991 - Amortised cost instruments 56 389 63 981 - Designated as at fair value through profit or loss 4 980 133 062 CIS are classified at fair value through profit or loss. 61 369 197 043 ¹ Investments at market prices per the JSE. 9. Strategic trading Group The main objectives of strategic trading, in the absence of making a market in Land Bank bonds/ notes, are as follows: 2020 2019 - To remain visible in the secondary market; 8.7.4 Investments in interest bearing assets R’000 R’000 - To monitor debt capital market developments and rate movements; Bonds listed on the JSE Debt Market - at market value 429 952 447 050 - To maintain relationships with brokers and banks; and Government 80 922 226 103 - To maintain Treasury systems, Neutron connectivity and training of junior traders. Parastatal and municipal - 34 782 Corporate 349 030 186 165 As at 31 March 2020 the bank had an open positions (2019: no open positions) Cash, deposits and similar securities ¹ 256 514 268 381 Group Bank Deposits with banks - local 241 539 179 251 2020 2019 2020 2019 Deposits with banks - foreign - - R’000 R’000 R’000 R’000 Money market instruments 14 975 89 130 Strategic Asset 5 153 - 5 153 - 686 466 715 431 10. Derivative Assets Classification of investments in interest bearing assets - Amortised cost instruments 256 514 268 381 The Bank’s main driver of earnings is net interest income, which is the difference between interest income received on - Fair value through profit or loss 429 952 447 050 assets and interest expense incurred on funding liabilities. The Bank is exposed to “basis risk” as a result of different 686 466 715 431 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 ¹ Due to the short-term nature of Cash, deposits and similar securities , their carrying amount is considered to be the same as Board approved an Interest Rate Risk Management Strategy during FY2018; hedging the mismatch moderately between their fair value the lending and funding rate. Group 2020 2019 The Bank’s Interest Rate Management Strategy was drafted and is reviewed annually in the context of the Corporate Plan, 8.7.5 Investment policy R’000 R’000 Risk Appetite Framework, Borrowing and Funding Plan and Treasury Policy Framework. Other non-cash 4 101 12 138 The table below sets out derivative assets and liabilities by the type of hedge relationship in which they are designated. 4 101 12 138 Group Bank 2020 2019 2020 2019 The Investment policy is classified at fair value through profit or loss. R’000 R’000 R’000 R’000 Interest rate swap derivatives ¹ Investments in foreign equities were made utilising pooled funds. The risk is managed by the LBLIC Investment and Actuarial - Asset 79 064 93 643 79 064 93 643 Committee. - Liability - (13 056) - (13 056) 79 064 80 587 79 064 80 587 A register containing details of all investments is available for inspection at the registered office of LBLIC. 72 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 73 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 ¹ The derivative assets and derivative liabilities are offset and the net position is presented in the statement of financial 2019* position as the Group has a legal right to offset the amounts and intends to settle on a net basis. Each swap has the same Corporate Banking and 10 572 483 (392 944) 10 179 539 counterparty and the “net asset/ liability” is as a result of mark-to-market movements. Structured Investments Commercial Development and Business Banking 34 605 245 (1 548 522) 33 056 723 The nominal amount of derivatives designated in cash flow hedge relationships is as follows. Loan commitments and guarantees - (6 190) (6 190) Group Bank Loan Modifications (4 912) (4 912) 2020 2019 2020 2019 45 172 816 (1 947 656) 43 225 160 R’000 R’000 R’000 R’000 *Amount restated refer to note 49 Interest rate swaps Loan type Nature of Average term of Average Average interest interest rate repayment interest rate rate - Asset 17 170 000 11 370 000 17 170 000 11 370 000 2020 2019 - Liability (17 170 000) (11 370 000) (17 170 000) (11 370 000) Short term loans Variable 1 year 9,81% 11,10% - - - - Medium term loans Variable 1 to 5 years 9,75% 11,80% The following tables show the notional amount of derivatives in time bands based on the maturity of the derivatives. Long term loans Variable/ Fixed > 5 years 9,58% 10,64% 0 to 3 3 to 12 months 1 to 5 years Over 5 years Total Group Bank 2020 months 2020 2019 2020 2019 Group and Bank R’000 R’000 R’000 R’000 R’000 11.2 Loans by maturity profile R’000 R’000 R’000 R’000 Interest rate swaps < 3 months 6 685 864 5 828 827 6 685 864 5 828 827 - Pay fixed - - 17 170 000 - 17 170 000 3 - 6 months 5 470 730 4 843 555 5 470 730 4 843 555 - Receive fixed - - 17 170 000 - 17 170 000 6 - 9 months 2 093 075 1 717 825 2 093 075 1 717 825 During May 2020 one of the commercial banks cancelled a swap trading account that the Land Bank had with them citing 9 - 12 months 806 832 2 349 087 806 832 2 349 087 the default status of the Land Bank. This reduced the hedged portfolio from R17bn to R13bn. Refer note 48. 1 - 5 years 5 936 487 6 761 331 5 936 487 6 761 331 > 5 years 24 125 180 23 672 191 24 125 180 23 672 191 0 to 3 3 to 12 months 1 to 5 years Over 5 years Total months Total 45 118 168 45 172 816 45 118 168 45 172 816 2019 Group and Bank R’000 R’000 R’000 R’000 R’000 Interest rate swaps Performing Under Non performing Total loans ¹ performing loans ³ - Pay fixed - - 11 370 000 - 11 370 000 loans ² - Receive fixed - - 11 370 000 - 11 370 000 11.3 Loans by credit quality R’000 R’000 R’000 R’000 2020 11. Loans and advances Corporate Banking and Structured Investments 8 707 986 1 294 690 293 994 10 296 671 Group and Bank Commercial Development and Business Banking 23 726 932 3 255 856 7 886 729 34 869 517 Gross loans Expected Net loans Loan Modifications (20 465) (3 715) 115 (24 065) Credit Loss (ECL) Gross loans and advances 32 414 453 4 546 831 8 180 838 45 142 123 Expected Credit Loss (ECL) (311 591) (170 749) (3 091 387) (3 573 726) 11.1 Gross loans per business segment R’000 R’000 R’000 Net loans and advances 32 102 862 4 376 082 5 089 451 41 568 397 2020 Corporate Banking and 10 296 671 (337 391) 9 959 280 Structured Investments Guarantees 10 550 Commercial Development and Business Banking 34 869 517 (3 236 335) 31 633 182 Loan commitments 4 552 431 Loan commitments and guarantees - (8 323) (8 323) Gross loan commitments and guarantees 4 562 981 Loan Modifications (24 065) (24 065) Expected Credit Loss (ECL) (8 323) 45 142 123 (3 582 049) 41 560 074 Net loan commitments and guarantees 4 554 658 74 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 75 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Performing Under Non performing Total 11.5 Expected Credit Loss provision: Corporate Commercial Loan Total loans ¹ performing loans ³ reconciliation of movement per Banking and Development commitments loans ² Structured and Business and guarantees business unit Investments Banking R’000 R’000 R’000 R’000 2019 Group and Bank R’000 R’000 R’000 R’000 Corporate Banking and Structured Investments 9 199 042 1 053 706 319 735 10 572 483 2020 Commercial Development and Business Banking 27 914 528 2 658 449 4 032 267 34 605 245 Balance at the beginning of the year ¹ 386 829 1 432 836 4 637 1 824 301 Loan Modifications (1 442) (3 470) (4 912) Movement for the year Gross loans and advances 37 112 128 3 708 685 4 352 003 45 172 816 Credit losses written off: (61 342) (188 890) - (250 232) Expected Credit Loss (ECL) (341 016) (125 461) (1 474 989) (1 941 466) - Statement of financial position write off (17 495) (55 059) - (72 554) (utilisation) Net loans and advances4 36 771 112 3 583 224 2 877 013 43 231 350 - Statement of comprehensive income write off (43 847) (133 831) - (177 678) Guarantees* 9 790 Net impairment raised to the statement of 10 543 1 810 075 2 133 1 822 751 Loan commitments 5 062 053 comprehensive income Gross loan commitments and guarantees 5 071 843 Balance at the end of the year ¹ 336 030 3 054 021 6 770 3 396 820 Expected Credit Loss (ECL) (6 190) Net loan commitments and guarantees 5 065 653 2019 Balance at the beginning of the year ¹ 1 908 197 428 560 7 007 2 343 764 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 Movement for the year defaults (PDs) and warning signals that materialises between origination and reporting. As a minimum, loans that are in Credit losses written off: (210 521) (33 326) - (243 847) arrears for 30 days and more are classified as under performing loans. - Statement of financial position write off (166 244) (12 751) - (178 995) ³ Non-performing loans: Loans that have failed to meet the terms and conditions of the credit agreement and there are (utilisation) further indicators of the unlikeliness to repay the loan. Loans that are as a minimum 90 days in arrears, are classified as - Statement of comprehensive income write off (44 277) (20 575) - (64 852) non-performing. Utilisation due to client restructuring (1 472 766) - - (1 472 766) 4 Net loans and advances have been restated, refer to note 49 Net impairment raised/ (released) to the 161 919 1 037 602 (2 371) 1 197 150 * In the prior year financial statements Land Bank omitted to disclose a guarantee in favour of BMCE Bank for $13.9 statement of comprehensive income million. The guarantees’ triggering conditions actually occurred in March 2018 would have resulted in a provision. This Balance at the end of the year ¹ 386 829 1 432 836 4 636 1 824 301 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. Profert paid $750 thousand, reducing the ¹ The balances exclude suspended interest of R183.5 million (FY2019: R121.7 million). amount owing by the Land Bank to $14.25 million. This guarantee has been accounted for as a provision in the current year and the prior year figures have been restated. The conditions creating a liability were present in the previous financial year. 11.6 Impairment releases/ (charges), claims Corporate Commercial Loan Total Refer to note 49. Banking and Development commitments Group and Bank and recoveries Structured and Business and guarantees 2020 2019 Investments Banking 11.4 Loans and advances past due not impaired R’000 R’000 Group and Bank R’000 R’000 R’000 R’000 0 to 30 days past due 1 117 209 161 011 2020 31 to 90 days past due 448 264 236 888 Net impairments raised to the statement of 10 543 1 810 075 2 133 1 822 751 comprehensive income 90+ days past due 1 235 165 2 393 481 Recoveries in respect of amounts previously (13 088) (1 964) - (15 051) Total loans and advances past due but not impaired 2 800 638 2 791 380 written off1 (2 545) 1 808 111 2 133 1 807 700 Gross past due loans not impaired are covered in full by underlying collateral. Refer to note 11.7 for details on the collateral. 76 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 77 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 2019* Concentration of credit risk Net impairments raised/ (released) to the 161 919 1 037 602 (2 371) 1 197 150 statement of comprehensive income By the very nature of the Bank’s business it is exposed to credit concentration risk in the agricultural sector, as well as to Recoveries in respect of amounts previously (6 190) (2 927) - (9 117) certain counterparties / group of connected parties mainly within the Corporate Banking loan portfolio. Notwithstanding written off these risks, there is strategic benefit to the Bank by holding such exposures as the traditional large agri-businesses are 155 729 1 034 675 (2 371) 1 188 033 often better positioned than financiers to mitigate risk in the agricultural value chain. Furthermore large agri-businesses are characterised by a spread in geographical locations, product /commodity diversification, vertical or horizontal integration in *Amount restated refer to note 49 their respective value chains and diverse client risk profiles which mitigates the concentration risk for the Bank. 1 Off balance debt collection amount of R62.5 million (2019 R61.4 million ) that was previously written off is still subject to The current Group policy on credit concentration risk requires that the Board of Directors approves any exposure in legal action. excess of 20% (FY2019: 20%) (50% for certain strategic clients who meets specific credit criteria) of the Bank’s own equity 11.7 Collateral held as security ¹ to any counterparty or group of connected parties. Furthermore, all acquired loan books managed through Service Level Agreements have credit concentration risk limits imposed by the Bank to mitigate concentration risk. The Group holds collateral which it is entitled to sell in the case of default by the owner of the collateral. The amount and type of collateral held for the exposure depends on an assessment of the credit risk of the counterparty. Guidelines have As at year-end there were two counterparty (FY2019: one) with individual exposure of more than 25% of the Bank’s own been implemented regarding the acceptability of the types of collateral. The value of the collateral is determined with equity. Those counterparty are also strategic partners and falls below the 50% threshold. The total exposure of those reference to the realisable value of security under forced-sale conditions. counterparty at year-end amounted to R2.8 billion (FY2019: R2.61 billion). The exposure was approved by Credit and Investment Committee and the Land Bank Board. The counterparty is abiding to its loan repayment terms and conditions. It is the bank’s policy to dispose of repossessed properties in an orderly fashion. In general, the bank does not occupy repossessed properties for business. The repossessed properties are accounted for as non-current assets held-for-sale in ¹ Own equity is defined as equity plus unutilised government guarantees terms of IFRS 5. The bank did not repossess any assets against loans in the current year (FY2019: R0 million). 12. Assets of discontinued operation classified as held-for-sale The Group has the following assets held as security against its loan portfolio: 12.1 Analysis of loans per category Gross loans Expected Net loans Bank Credit Loss 2020 2019 (ECL) Nature of assets R’000 R’000 Bank R’000 R’000 R’000 Cession 153 448 17 325 2020 Guarantee 186 631 14 292 Land for development finance 62 109 (62 109) - unit (LDFU) ISF None Bond 31 941 39 671 Limited Surety - - 2019 Unlimited Surety - - Land for development finance unit (LDFU) 67 857 (61 598) 6 259 Land and Buildings* 35 589 647 33 211 938 Notarial Bond 614 285 362 466 Non performing Total Vehicle, Plant & Equipment 2 942 970 2 522 633 loans Pledge of Security 4 355 4 315 12.2 Loans by credit quality R’000 R’000 Trade Debtors 2 025 792 1 777 890 2020 Pledge over other 193 658 179 249 Land for development 62 109 62 109 Trademarks 14 579 16 699 Gross loans and advances 62 109 62 109 Biological Assets 2 097 877 2 048 804 Expected Credit Loss (ECL) (62 109) (62 109) Stock 2 122 770 2 094 844 Net loans and advances - - Cash Deposit 146 570 145 453 Commodities 292 018 433 382 2019 Shares & Investments 412 021 180 496 Land for development 67 857 67 857 Listed Shares 830 000 842 000 Gross loans and advances 67 857 67 857 Total 47 658 562 43 891 456 Expected Credit Loss (ECL) (61 598) (61 598) Net loans and advances 6 259 6 259 * The Land and buildings is disclosed net of the collateral agreement limits. The collateral policy of Landbank, is that collateral is valued at inception and in three year intervals. The collateral is also valued when a facility is renewed or restructured. 78 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 79 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 2020 2019 Properties in possession These represent the properties brought in by the Group due to clients defaulting on their loan payments. The intention of 12.3 Loans and advances past due not impaired R’000 R’000 the Group is to sell these properties to recover the outstanding payments on the defaulted loans. In view of the current 0 to 30 days past due - - volatile market conditions and low property valuations, the properties in possession will only be disposed of as and when 31 to 90 days past due - - conditions render it economically viable. The Group exclusively hold these properties with a view to dispose of them: 90+ days past due - 6 259 - BP 1938 located in Pietermaritzburg Total loans and advances past due but not impaired - 6 259 - BP 2102 located in East London - BP 2114 located in Nelspruit 2020 2019 - BP 2116 located in Welkom 12.4 Provision for impairment: reconciliation of movement per business R’000 R’000 Previously held as Investment Properties unit These represent the properties that were previously held as Investment properties. The intention of the Group is to sell Balance at the beginning of the year 61 598 356 765 these properties hence they have now been reclassified as Non-current assets held for sale. The Group exclusively hold Movement for the year: these properties with a view to dispose of them: Credit losses written off: - (283 954) - Potchefstroom Building ERF 132 - Statement of financial position write off (utilisation) - (295 167) - Port Elizabeth Building ERF 3127 - Statement of comprehensive income write off - 11 213 - Bethlehem Building Erf 180.3 * Net impairment raised/ (released) to the statement of comprehensive income 511 (11 213) - George Building ERF 2108 * Balance at the end of the year 62 109 61 598 - Rustenburg Building ERF 1480/1 - Beaufort West Building ERF 577 - Cradock Building ERF 3825 2020 2019 - Kroonstad Building ERF 7777 12.5 Impairment (charges)/ releases, claims and recoveries R’000 R’000 - Lichtenburg Building ERF 107/7 Net impairments raised/ (released) to the statement of comprehensive income 511 (11 213) The following disposals took place and profits/(losses) recognised are: 2020 2019 Carrying amount Selling Price VAT Profit/(Loss) 2020 after tax 12.6 Collateral held as security R’000 R’000 BP 2116 located in Welkom Free State2 236 3 829 - 3 593 Land and buildings - 6 259 Cape Town Building ERF 3865 36 700 43 100 - 6 400 The properties, where relevant, were valued by independent professional valuators to obtain up to date valuations in Modimolle Building ERF 203 9 089 11 200 - 2 111 order to ensure that the carrying values of these loans do not exceed the fair value. Where unconditional offers were 46 025 58 129 - 12 104 received, the market value was adjusted to reflect the value of the offer received. The total market value of the collateral held for this portfolio amounts to R0 million (FY2019: R6.3 million), forced sale value amounts to R0 million (FY2019: R6.3 Carrying amount Selling Price VAT Profit/(Loss) million). 2019 after tax BP 2110 located in Pietermaritzburg 1 565 3 442 - 1 877 As at 31 March 2020 Land Bank received the final dividend of all the assets in the liquidated estate and remaining balance BP 2112 located in Pretoria 500 632 - 132 was impaired. Group Bank BP 2117 located in Pretoria 3 635 5 000 614 751 5 700 9 074 614 2 760 2020 2019 2020 2019 13. Non-current assets held-for-sale R’000 R’000 R’000 R’000 Refer to note 45.2 for the methods used to determine the fair values for these assets. Properties in possession 4 149 4 385 4 149 4 385 * The properties in Bethlehem and George are in the process of being disposed. The bank received and accepted offers to Previously held as Investment Properties 100 963 158 651 100 963 158 651 purchase the two properties and transfer process is underway. 105 112 163 036 105 112 163 036 Opening balance 163 036 10 085 163 036 10 085 Plus: Additions - - - - Less: Disposals (46 025) (5 700) (46 025) (5 700) Re-measurement recognised (11 899) (1 339) (11 899) (1 339) Reversal of prior year impairment losses - - - - Reclassification from Investment Properties - 159 990 - 159 990 Closing balance 105 112 163 036 105 112 163 036 80 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 81 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank 15. Property and equipment 2020 2019 2020 2019 Land Buildings Computer Furniture, Motor Leasehold Total equipment fittings vehicles improvements 14. Investment property R’000 R’000 R’000 R’000 and office 2020 equipment Opening balances 15 250 174 590 15 250 174 590 15.1 Group R’000 R’000 R’000 R’000 R’000 R’000 R’000 Transfer to non-current-asset-held for sale - (159 990) - (159 990) Open market value/cost at 3 828 20 522 34 799 18 479 522 15 331 93 481 Fair value adjustments (250) 650 (250) 650 1 April 2019 Closing balance 15 000 15 250 15 000 15 250 Additions - - 1 261 602 - - 1 863 Disposals - - (138) (313) - - (451) Investment property comprises the following: Revaluation ¹ 415 (365) - - - - 50 Office buildings 15 000 15 250 15 000 15 250 Open market value/cost at 4 243 20 157 35 922 18 768 522 15 331 94 943 31 March 2020 Rental income derived from investment 17 978 17 575 17 978 17 575 Accumulated depreciation and - - (30 760) (15 779) (416) (14 372) (61 327) properties impairment losses at 1 April 2019 There are no restrictions on the title of the property and no property has been pledged as security. Depreciation - (1 072) (3 700) (602) (3) (706) (6 083) Depreciation write-back as a - 1 072 - - - - 1 072 The fair value of investment property was determined by using the opportunity cash flow method (OCF). This is a result of the revaluation combination of capitalisation and discounting. The inputs used are gross market rentals, operating costs, the perpetual Disposals - - 84 282 - - 366 vacancy, market capitalisation rate and net present value of the OCF. Refer to note 45.2. Accumulated depreciation and - - (34 376) (16 099) (419) (15 078) (65 972) impairment losses at 31 March 2020 Net carrying value at 4 243 20 157 1 546 2 669 103 253 28 971 31 March 2020 Land Buildings Computer Furniture, Motor Leasehold Total equipment fittings vehicles improvements and office 2019 equipment Group R’000 R’000 R’000 R’000 R’000 R’000 R’000 Open market value/cost at 3 818 20 682 34 508 18 188 522 15 331 93 049 1 April 2018 Additions - - 595 606 - - 1 201 Disposals - - (304) (315) - - (619) Revaluation ¹ 10 (160) - - - - (150) Open market value/cost at 3 828 20 522 34 799 18 479 522 15 331 93 481 31 March 2019 Accumulated depreciation and - - (25 631) (15 278) (412) (13 526) (54 847) impairment losses at 1 April 2018 Depreciation - (1 024) (5 183) (787) (4) (846) (7 844) Depreciation write-back as a - 1 024 - - - - 1 024 result of the revaluation Disposals - - 54 286 - - 340 Accumulated depreciation and - - (30 760) (15 779) (416) (14 372) (61 327) impairment losses at 31 March 2019 Net carrying value at 3 828 20 522 4 039 2 700 106 959 32 154 31 March 2019 82 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 83 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Land Buildings Computer Furniture, Motor Leasehold Total Land Buildings Computer Furniture, Motor Leasehold Total equipment fittings vehicles improvements equipment fittings vehicles improvements and office and office 2020 equipment 2019 equipment Bank R’000 R’000 R’000 R’000 R’000 R’000 R’000 Bank R’000 R’000 R’000 R’000 R’000 R’000 R’000 Open market value/cost at 1 3 828 20 522 34 504 18 194 522 15 331 92 901 Open market value/cost at 1 3 818 20 682 34 265 17 894 522 15 331 92 512 April 2019 April 2018 Additions - - 1 261 602 - - 1 863 Additions - - 474 616 - - 1 090 Disposals - - (113) (317) - - (430) Disposals - - (235) (289) - - (524) Revaluation ¹ 415 (365) - - - - 50 Revaluation ¹ 10 (160) - - - - (150) Transfer to subsidiary - - (99) - - - (99) Transfer to subsidiary - - - (27) - - (27) Open market value/cost at 31 4 243 20 157 35 553 18 479 522 15 331 94 285 Open market value/cost at 31 3 828 20 522 34 504 18 194 522 15 331 92 901 March 2020 March 2019 Accumulated depreciation and - - (30 591) (15 530) (416) (14 372) (60 909) Accumulated depreciation and - - (25 547) (15 031) (412) (13 526) (54 516) impairment losses at 1 April impairment losses at 1 April 2019 2018 Depreciation - (1 072) (3 641) (604) (3) (706) (6 026) Depreciation - (1 024) (5 120) (787) (4) (846) (7 781) Depreciation write-back as a - 1 072 - - - - 1 072 Depreciation write-back as a - 1 024 - - - - 1 024 result of the revaluation result of the revaluation Depreciation effect of the - - 34 1 - - 35 Depreciation effect of the - - - 27 - - 27 transfer to subsidiary transfer to subsidiary Disposals - - 69 282 - - 351 Disposals - - 76 261 - - 337 Accumulated depreciation and - - (34 129) (15 851) (419) (15 078) (65 477) Accumulated depreciation and - - (30 591) (15 530) (416) (14 372) (60 909) impairment losses at 31 March impairment losses at 31 March 2020 2019 Net carrying value at 31 4 243 20 157 1 424 2 628 103 253 28 808 Net carrying value at 31 3 828 20 522 3 913 2 664 106 959 31 992 March 2020 March 2019 ¹ Refer to note 45.4 for the methods used to determine the fair values for these assets. 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. The opening accumulated depreciation on 1 April 2019 was written back to the carrying amount of buildings when revalued in terms of the net replacement value method. 84 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 85 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 16. Leased Assets <3 3-6 6-9 9 - 12 1 - 5 years Total months months months months 16.1 Right of use of assets Buildings Motor vehicles Total R’000 R’000 R’000 R’000 R’000 R’000 Group Lease liabilities 7 151 7 180 7 193 7 231 27 120 55 875 2020 R’000 R’000 R’000 7 151 7 180 7 193 7 231 27 120 55 875 At 1 April 2019 58 823 9 270 68 093 Additions 5 299 5 299 Buildings Motor vehicles Total Depreciation (21 811) (3 588) (25 399) 2019 R’000 R’000 R’000 At 31 March 2020 42 311 5 682 47 993 At 1 April 2018 80 561 10 765 91 326 Interest expense 6 329 374 6 703 Buildings Motor vehicles Total Lease payments (25 806) (1 705) (27 511) 2019 R’000 R’000 R’000 At 31 March 2019 61 084 9 434 70 518 At 1 April 2018 80 560 10 765 91 325 Depreciation (21 737) (1 495) (23 232) Maturity analysis for lease liabilities At 31 March 2019 58 823 9 270 68 093 <3 3-6 6-9 9 - 12 1 - 5 years Total months months months months Bank Buildings Motor vehicles Total R’000 R’000 R’000 R’000 R’000 R’000 2020 R’000 R’000 R’000 Lease liabilities 7 844 7 871 7 616 7 137 55 780 86 248 At 1 April 2019 58 823 8 849 67 672 7 844 7 871 7 616 7 137 55 780 86 248 Additions 5 299 5 299 Depreciation (21 811) (3 425) (25 236) Bank Buildings Motor vehicles Total At 31 March 2020 42 311 5 424 47 735 2020 R’000 R’000 R’000 At 1 April 2019 61 084 9 005 70 089 Buildings Motor vehicles Total Additions 5 299 5 299 2019 R’000 R’000 R’000 Interest expense 4 554 664 5 218 At 1 April 2018 80 560 10 276 90 836 Lease payments (26 363) (3 908) (30 271) Depreciation (21 737) (1 427) (23 164) At 31 March 2020 44 574 5 761 50 335 At 31 March 2019 58 823 8 849 67 672 Maturity analysis for lease liabilities <3 3-6 6-9 9 - 12 1 - 5 years Total 16.2 Lease Liabilities Buildings Motor vehicles Total months months months months Group R’000 R’000 R’000 R’000 R’000 R’000 2020 R’000 R’000 R’000 Lease liabilities 7 104 7 134 7 146 7 185 27 012 55 581 At 1 April 2019 61 084 9 434 70 518 7 104 7 134 7 146 7 185 27 012 55 581 Additions 5 299 5 299 Interest expense 4 554 695 5 249 Buildings Motor vehicles Total Lease payments (26 363) (4 094) (30 457) 2019 R’000 R’000 R’000 At 31 March 2020 44 574 6 035 50 609 At 1 April 2018 80 561 10 276 90 837 Interest expense 6 329 357 6 686 Maturity analysis for lease liabilities Lease payments (25 806) (1 628) (27 434) At 31 March 2019 61 084 9 005 70 089 Maturity analysis for lease liabilities 86 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 87 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 <3 3-6 6-9 9 - 12 1 - 5 years Total 18.1 Description of equity components months months months months R’000 R’000 R’000 R’000 R’000 R’000 General reserve Lease liabilities 7 797 7 824 7 570 7 091 55 486 85 768 The General reserve comprises of accumulated retained earnings. 7 797 7 824 7 570 7 091 55 486 85 768 Capital fund The Capital fund consists of an initial loan by government which was converted to equity in 2006 as part of the Group Bank government commitment to support the Bank as well as further capital injections from the National Treasury in FY2015. 2020 2019 2020 2019 17. Intangible assets R’000 R’000 R’000 R’000 Insurance reserve Computer software The Insurance reserve is a component of Group retained earnings and represents the accumulated surplus of LBLIC and Net carrying Value 8 044 13 548 8 044 13 548 LBIC from insurance activities. Cost at the beginning of the year 81 789 81 789 81 789 81 789 Mark-to-market reserve Accumulated amortisation (74 292) (68 241) (74 292) (68 241) The Mark-to-market reserve relates to the fair value adjustment on the unlisted and listed investments held by the Bank. Additions- current year 547 547 Please refer to notes 8.2 and 8.3. Disposal/ write-off - - - Cash flow hedge reserve Reconciliation of movement during the year The cash flow hedge reserve records the effective portion of changes in the fair valuation of derivatives designated as cash Carrying value at the beginning of the year 13 548 20 279 13 548 20 279 flow hedging instruments. Additions- current year 547 - 547 - Amortisation (6 051) (6 731) (6 051) (6 731) Revaluation reserve Disposal/ write-off - - 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. Net carrying value at the end of the year 8 044 13 548 8 044 13 548 Group Bank Included in the cost of intangible assets are computer software that has been fully amortised however still in use with a 2020 2019 2020 2019 historical cost of R17.9 million (FY2019: R13.5 million). The Group will reassess the useful lives of all the intangible assets at the beginning of the FY2020 financial year together with the review of the accounting policy in order to reflect the most 19. Trade and other payables R’000 R’000 R’000 R’000 correct estimated useful lives of all intangible assets. Accrued expenses 43 636 12 213 42 685 8 606 Amounts due to intermediaries - 37 912 - - Group Bank Amounts due to reinsurers 501 214 363 257 - - 2020 2019 2020 2019 Trade payables 1 894 11 577 1 894 11 577 18. Distributable and other reserves R’000 R’000 R’000 R’000 Deferred Income 989 1 286 989 1 286 Distributable reserves from continuing operations Loan costs and fees received in advance 45 013 42 226 45 013 42 226 Capital fund 4 397 655 4 397 655 4 397 655 4 397 655 Funds Under Admin utilised by the Land Bank * 727 769 727 769 General reserve (2 689 945) (671 627) (2 039 916) (321 598) Other ¹ 4 691 6 922 1 541 6 100 Insurance reserve 1 423 866 1 507 301 - - Premiums received in advance 6 3 - - Total distributable reserves 3 131 576 5 233 329 2 357 739 4 076 057 Amounts due to SASRIA 4 549 3 008 - - Other reserves (608 139) 93 467 (608 139) 93 467 Client deposits for approved loans 4 885 2 850 4 885 2 850 Mark-to-market reserve (746 611) (43 883) (746 611) (43 883) 1 334 646 481 254 824 776 72 645 Revaluation of property 138 472 137 350 138 472 137 350 2 523 437 5 326 796 1 749 600 4 169 524 * During quarter 4 of the 2020 financial year Landbank experienced significant liquidity challenges. In a bid to prevent a *Amount restated refer to note 49 default the Land Bank utilised third party funds from the Department of Agriculture, Forestry and Fisheries of R630 million and R257m from the African Finance Development Bank (AFDB). These funds were fully restored during June 2020. 88 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 89 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 ¹ Included in the other payables is conditional deposits from sale repossessed properties. Gross Ceded Net The trade and other payables are classified as other financial liabilities and are carried at amortised cost. Trade and other 20.4 Movement in notified (outstanding) claims R’000 R’000 R’000 payables are generally paid as follows: 2020 - Accrued expenses: one month; Balance at the beginning of the year 92 (46) 46 - Loan costs and fees received in advance: one to three months; Movement in the IBNR 6 105 (5 087) 1 018 - Client deposits for approved loans: one to three months; and Balance at the end of the year 6 197 (5 133) 1 064 - Other: one month. 2019 As noted in the maturity analysis, Group payables amounting to R45.1 million (FY2019: R45.3 million) are expected to be Balance at the beginning of the year 2 076 (1 108) 968 settled after more than 12 months. Movement in the IBNR (1 984) 1 062 (922) Balance at the end of the year 92 (46) 46 20. Long-term policyholders’ liabilities Group 2020 2019 20.5 Total long-term insurance liabilities Gross Ceded Net 20.1 Policyholders’ liability excluding Incurred But Not Reported (IBNR) and R’000 R’000 R’000 R’000 R’000 notified claims 2020 Present value of policy liabilities 17 039 20 963 Long-term policyholders’ liability 37 843 (6 437) 31 406 Plus: present value of future expenses 14 243 17 523 Notified claims 6 197 (5 133) 1 064 Less: present value of future premiums (12 733) (15 665) IBNR 301 (216) 85 Liability excluding AIDS reserve 18 549 22 821 Total long-term insurance liabilities 44 341 (11 786) 32 555 Plus: AIDS reserve 826 500 Less : reinsurance reserve (6 437) (6 464) 2019 Plus: expense overrun reserve 18 459 21 439 Long-term policyholders’ liability 44 760 (6 464) 38 296 Total policyholders’ liability excluding IBNR and notified claims 31 397 38 296 Notified claims 92 (46) 46 IBNR 2 272 (1 399) 873 Group Total long-term insurance liabilities 47 124 (7 909) 39 215 2020 2019 20.2 Movement in the long-term policyholders’ liability R’000 R’000 Group Bank Balance at the beginning of the year 38 295 43 481 2020 2019 2020 2019 Movement in the long-term policyholders’ liability (6 898) (5 186) 21. Funding liabilities R’000 R’000 R’000 R’000 Balance at the end of the year 31 397 38 295 At amortised cost 41 283 820 44 257 919 41 283 820 44 257 919 Gross Ceded Net 20.3 Movement in the IBNR R’000 R’000 R’000 The carrying value of funding liabilities comprise of amounts measured at amortised cost. 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 2019 Balance at the beginning of the year 1 983 (1 246) 737 Movement in the IBNR 289 (153) 136 Balance at the end of the year 2 272 (1 399) 873 90 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 91 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 21.1 Analysis of funding Non-cash Cash Non-cash Cash DMTN issuances 13 457 367 (202 567) 4 528 252 (1 727 800) 194 086 - (1 840) 16 247 498 16 191 513 2020 Opening Re-alignment New Repayment/ Accrued Discount/ Prepaid Closing Fair value Floating rate 9 330 925 (65 125) 4 528 252 (1 037 800) 68 425 - (1 745) 12 822 932 12 876 629 balance of amortised issues/ settlements interest premium arranging balance notes cost ¹ utilisation fees - LBK08 329 916 (4 916) - (325 000) - - - - - Group and Bank R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 - LBK15 1 403 894 (28 894) - - 29 165 - (331) 1 403 834 1 411 185 Commercial funding - LBK16 191 291 (1 491) - (189 800) - - - - - Commercial 19 263 234 595 579 24 140 736 (28 812 030) 477 (443 786) - 14 744 210 14 767 705 - LBK17 524 127 (1 127) - (523 000) - - - - - paper - LBK18 734 632 (1 632) - - 1 523 - (250) 734 273 752 407 Bills 1 312 397 264 974 840 000 (990 000) - (183 809) - 1 243 562 1 278 221 - LBK22 571 791 (3 791) - - 3 511 - - 571 511 571 274 Call bonds 149 888 (888) - (112 920) 167 - - 36 247 36 240 - LBK23 615 242 (4 242) - - 3 951 - (4) 614 947 622 135 Floating rate 2 017 794 (20 794) 1 582 400 (1 964 092) - (4 693) - 1 610 615 1 611 260 - LBK26 245 406 (406) - - 427 - (59) 245 368 245 623 notes - 1 year - LBK27 2 023 564 (3 564) - - 3 848 - (25) 2 023 823 2 056 341 Floating rate 2 690 830 (22 830) 283 500 (2 353 202) - (5 629) - 592 669 624 684 - LBK30 306 830 (830) - - 695 - (14) 306 681 305 932 notes - 2 to 5 - LBK31 922 670 (2 670) - - 2 271 - (64) 922 207 924 833 years - LBK32 506 429 (6 429) - - 5 937 - (36) 505 901 500 497 Promissory notes 13 092 325 375 117 21 434 836 (23 391 816) 310 (249 655) - 11 261 117 11 217 300 - LBK33 504 513 (4 513) 250 000 - 4 100 - (87) 754 013 755 535 - LBK35 450 621 (621) 550 000 - 1 234 - (137) 1 001 097 1 002 003 Deposits 695 684 - 81 906 (1 452) - - - 776 138 776 138 - LBK36 - - 200 000 - 261 - (11) 200 250 199 995 Agri-related 232 097 - 81 127 - - - - 313 224 313 224 - LBK37 - - 800 000 - 1 150 - (156) 800 994 799 980 business deposits - LBK38 - - 513 252 - 4 924 - (137) 518 039 513 888 Forced stock sale 463 543 - - (1 452) - - - 462 091 462 091 - LBK39U - - 980 000 - 1 830 - (195) 981 635 980 000 deposits - LBK40U - - 420 000 - 753 - (83) 420 670 420 000 Small institutional 44 - 4 - - - - 48 48 - LBK41U - - 815 000 - 2 845 - (156) 817 689 815 000 deposits Fixed rate notes 4 126 442 (137 442) - (690 000) 125 661 - (95) 3 424 566 3 314 885 Rent deposits - - 775 - - - - 775 775 - LBK11 506 014 (16 014) - (490 000) - - - - - - LBK12U 201 862 (1 862) - (200 000) - - - - - Facilities 4 310 (4 309) 1 651 966 - 10 932 - (3 587) 1 659 311 1 650 000 - LBK20 819 850 (24 850) - - 25 327 - (22) 820 305 826 493 Committed 2 879 (2 879) 1 651 966 - 10 932 - (3 587) 1 659 311 1 650 000 - LBK24 844 189 (39 189) - - 39 488 - - 844 488 856 740 Uncommitted 1 430 (1 430) - - - - - - - - LBK28 956 900 (31 900) - - 36 949 - (24) 961 925 828 432 - LBK29 797 627 (23 627) - - 23 897 - (49) 797 848 803 219 ¹ Realignment of amortised cost includes reversals of prior year, year end accruals in relation to accrued interest, premium/discounts and prepaid arranging fees. Term loans - 3 742 551 442 571 - (166 667) 11 717 - (398 339) 3 631 833 4 438 956 amortising 5 year syndicated 166 792 (125) - (166 667) - - - - - loan 7 year syndicated (5 191) 5 191 - - - - (3 778) (3 778) - loan (Government guaranteed) 10 year syndicated 3 580 950 437 505 - - 11 717 (394 561) 3 635 611 4 438 956 loan (MIGA supported) 92 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 93 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Term loans - 995 613 4 387 - - 4 361 - (5 861) 998 500 1 030 894 Non-cash Cash Non-cash Cash bullet term 2019 Opening Re- New issues/ Repayment/ Accrued Discount/ Prepaid Closing Fair value 3 year syndicated 1 000 816 (816) - - 4 361 - (2 607) 1 001 754 1 030 894 balance alignment utilisation settlements interest premium arranging balance loans of fees 6 year syndicated (5 203) 5 203 - - - - (3 254) (3 254) - amortised loan (Government cost ¹ guaranteed) ² Group and Bank R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Commercial funding Step rate notes Commercial 17 656 416 773 440 1 646 358 (114 282) 1 188 (699 886) - 19 263 234 19 461 039 Step rate notes 4 014 047 (53 047) (2 961 000) 13 972 1 013 972 1 056 975 paper Bills 997 981 329 390 250 000 - - (264 974) - 1 312 397 1 370 515 Total commercial 42 172 805 782 615 30 402 860 (33 668 949) 235 545 (443 786) (409 627) 39 071 462 39 912 181 Call bonds 175 968 (1 038) - (25 930) 888 - - 149 888 149 853 funding Floating rate notes 683 573 3 512 1 350 450 - - (19 741) - 2 017 794 2 033 632 - 1 year Development and multilateral funding Floating rate notes 2 648 345 36 331 45 908 - - (39 754) - 2 690 830 2 771 487 Term loans - 1 766 618 (4 641) 300 000 (143 806) 13 706 - (6 945) 1 924 932 2 117 322 - 2 to 5 years amortising Promissory notes 13 150 549 405 245 - (88 352) 300 (375 417) - 13 092 325 13 135 552 10 year term loan 891 922 7 328 - (52 897) 458 - (6 945) 839 866 949 670 - KFW “Deposits” 707 233 - 10 847 (22 396) - - - 695 684 695 667 12 year term loan - - - - - - Agri-related 254 493 - - (22 396) - - - 232 097 232 094 - EIB business deposits 15 year term loan 782 682 (9 955) - (90 909) 8 048 - - 689 866 708 071 Forced stock sale 452 699 - 10 844 - - - - 463 543 463 529 - AfDB deposits 25 year term loan 92 015 (2 015) 300 000 - 5 200 - - 395 200 459 581 Small institutional 41 - 3 - - - - 44 44 - World Bank deposits Total 1 766 618 (4 641) 300 000 (143 806) 13 706 - (6 945) 1 924 932 2 117 322 ¹ Realignment of amortised cost includes reversals of prior year, year end accruals in relation to accrued interest, premium/discounts and prepaid development arranging fees. and multilateral funding Facilities 992 (1 126) 2 - 4 441 - - 4 309 - Committed 992 (1 126) 2 - 3 011 - - 2 879 - Disaster relief funding Uncommitted - - - - 1 430 - - 1 430 - Drought relief 10 year amortising 318 496 135 19 048 (50 000) 3 021 - (3 274) 287 426 274 225 term loan - IDC Total disaster 318 496 135 19 048 (50 000) 3 021 - (3 274) 287 426 274 225 relief Total funding 44 257 919 778 109 30 721 908 (33 862 755) 252 272 (443 786) (419 846) 41 283 820 42 303 728 liabilities 94 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 95 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 DMTN issuances 10 946 917 (197 115) 5 125 000 (2 620 000) 194 983 9 198 (1 615) 13 457 368 13 434 792 Term loans - 1 598 231 5 769 1 000 000 (1 604 000) 4 767 - (9 155) 995 612 1 045 602 Floating rate notes 8 548 406 (88 604) 3 426 000 (2 620 000) 63 968 2 576 (1 419) 9 330 927 9 385 638 bullet term - LBK05 757 674 (5 673) - (752 000) - - - 1 - 3 year syndicated - - 1 000 000 - 4 767 - (3 952) 1 000 815 1 045 602 - LBK08 329 906 (4 905) - - 4 916 - - 329 917 325 115 loan - LBK14U 511 043 (11 043) - (500 000) - - - - - 6 year syndicated 1 598 231 5 769 - (1 604 000) - - (5 203) (5 203) - - LBK15 1 413 876 (38 876) - - 29 442 - (548) 1 403 894 1 427 877 loan (Government - LBK16 191 239 (1 439) - - 1 523 - (32) 191 291 189 813 guaranteed) - LBK17 523 949 (949) - - 1 297 - (170) 524 127 526 504 Step rate notes - LBK18 736 693 (3 693) - - 2 008 - (376) 734 632 760 409 Step rate notes 4 299 866 (47 866) - (291 000) 53 047 - - 4 014 047 4 140 158 - LBK21 874 321 (6 321) - (868 000) - - - - - - LBK22 573 111 (5 111) - - 3 791 - - 571 791 568 790 Total commercial 40 065 409 1 032 732 7 782 207 (5 821 940) 272 372 (690 688) (467 287) 42 172 805 43 485 662 - LBK23 617 156 (6 156) - - 4 249 - (8) 615 241 623 222 funding -LBK25 501 014 (1 014) - (500 000) - - - - - -LBK26 245 520 (520) - - 406 - - 245 406 246 282 Development and multilateral funding -LBK27 1 272 904 (2 904) 750 000 - 3 603 - (39) 2 023 564 2 038 358 Term loans - amortising -LBK30 - - 306 000 - 855 - (25) 306 830 306 005 10 year term loan 318 494 8 506 572 250 - 487 - (7 815) 891 922 1 027 566 - KFW -LBK31 - - 920 000 - 2 752 - (82) 922 670 920 011 12 year term loan - - - - - - - - - -LBK32 - - 500 000 - 6 475 - (46) 506 429 500 041 - EIB -LBK33 - - 500 000 - 1 985 2 576 (48) 504 513 503 216 15 year term loan 874 655 (11 019) - (90 909) 9 955 - - 782 682 803 497 -LBK35 - - 450 000 - 666 - (45) 450 621 449 995 - AfDB Fixed rate notes 2 398 511 (108 511) 1 699 000 - 131 015 6 622 (196) 4 126 441 4 049 154 25 year term loan - - - 90 000 - 2 015 - - 92 015 108 195 - LBK11 506 014 (16 014) - - 16 014 - - 506 014 491 617 World Bank 5 - LBK12U 201 809 (1 809) - - 1 862 - - 201 862 204 664 Total 1 193 149 (2 513) 662 250 (90 909) 12 457 - (7 815) 1 766 619 1 939 258 - LBK20 849 444 (54 444) - - 24 882 - (32) 819 850 817 788 development - LBK24 841 244 (36 244) - - 39 261 - (72) 844 189 830 655 and multilateral -LBK28 - - 925 000 - 25 305 6 622 (27) 956 900 923 220 funding -LBK29 - - 774 000 - 23 691 - (65) 797 626 781 210 Disaster relief funding Term loans - 4 855 754 499 630 - (1 170 262) 13 946 - (456 517) 3 742 551 4 708 404 Drought relief amortising 10 year amortising 317 744 (635) 1 522 - 3 607 - (3 743) 318 495 299 029 5 year syndicated 389 171 (282) - (222 222) 125 - - 166 792 168 310 term loan with loan IDC 7 year syndicated 942 286 5 754 - (948 040) - - (5 191) (5 191) - Total disaster 317 744 (635) 1 522 - 3 607 - (3 743) 318 495 299 029 loan (Government relief guaranteed) 10 year syndicated 3 524 297 494 158 - - 13 821 - (451 326) 3 580 950 4 540 094 Total funding 41 576 302 1 029 584 8 445 979 (5 912 849) 288 436 (690 688) (478 845) 44 257 919 45 723 949 loan (MIGA liabilities supported) 96 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 97 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 2020 2019 2020 2019 Reconciliation of notes in issue ¹ R’000 R’000 Reconciliation of notes in issue ¹ R’000 R’000 Opening balance 13 254 800 10 749 800 Opening balance 3 961 000 4 252 000 Notes issued: Issue date Maturity date Notes issued: Issue date Maturity date LBK28 15 May 2018 15 May 2028 - 625 000 SRN 5, tranche 1 24 February 2019 24 May 2022 - 575 000 LBK27 1st Tap 18 May 2018 23 March 2023 - 750 000 SRN 5, tranche 2 25 February 2019 25 May 2022 - 575 000 LBK29 07 June 2018 07 June 2023 - 500 000 LBK29 1st Tap 20 September 2018 07 June 2023 - 274 000 Notes redeemed: LBK30 20 September 2018 20 September 2021 - 306 000 SRN 6, tranche 1 26 July 2017 26 July 2018 - (41 000) LBK31 20 September 2018 20 September 2023 - 920 000 SRN 7, tranche 1 26 March 2018 20 December 2018 - (500 000) LBK32 08 November 2018 08 November 2023 - 500 000 SRN 5, tranche 1 24 May 2017 24 February 2019 - (482 000) LBK33 07 December 2018 07 December 2025 - 250 000 SRN 5, tranche 2 25 May 2017 25 February 2019 - (418 000) LBK28 1st Tap 26 March 2019 15 May 2028 - 300 000 SRN 1, tranche 1 20 October 2016 21 October 2019 (465 000) - LBK33 1st Tap 26 March 2019 07 December 2025 - 250 000 SRN 1, tranche 2 28 October 2016 28 October 2019 (465 000) - LBK35 26 March 2019 26 June 2024 - 450 000 SRN 2, tranche 1 01 November 2016 01 November 2019 (200 000) - LBK33 2nd tap 25 April 2019 07 December 2025 250 000 - SRN 3, tranche 1 08 November 2016 08 November 2019 (565 000) - LBK35 1st tap 25 April 2019 26 March 2024 550 000 - SRN 1, tranche 3 25 November 2016 25 November 2019 (116 000) - LBK36 25 June 2019 25 June 2020 200 000 - SRN 5, tranche 1 24 May 2017 27 January 2020 (575 000) - LBK37 25 June 2019 25 June 2024 800 000 - SRN 5, tranche 2 25 May 2017 27 January 2020 (575 000) - LBK38 17 February 2020 16 February 2023 513 252 - LBK41U 16 March 2020 16 March 2021 815 000 - Closing balance 1 000 000 3 961 000 LBK39U 23 March 2020 23 March 2025 980 000 - LBK40U 23 March 2020 23 March 2023 420 000 - ¹ Excludes accrued interest, discount premium and prepaid arranging fees. Notes redeemed: LBK07 16 September 2014 16 September 2017 - 21.2 Development and multilateral funding LBK19 23 March 2017 23 March 2018 - LBK05 28 February 2014 28 February 2019 - (752 000) Land Bank has the following development and multilateral funding lines available: LBK14U 31 March 2016 31 March 2018 - (500 000) - R1.0 billion loan with the African Development Bank. The purpose of the loan is to on-lend to the Land Bank’s LBK21 04 September 2017 04 September 2018 - (868 000) commercial and development clients whom meet qualifying usage criteria. To date R743 million has been utilised with a LBK25 23 March 2018 25 March 2019 - (500 000) further R257 million available for qualifying projects. LBK08 30 October 2014 30 October 2019 (325 000) - - US$93 million (limited to R1.3 billion) funding line with the World Bank. This facility is earmarked to give financial aid to LBK11 28 November 2014 28 November 2019 (490 000) - participating financial intermediaries and direct beneficiaries. As at 31 March 2020 R390 million (R90m prior year) has LBK16 30 November 2016 30 November 2019 (189 800) - been utilised. LBK12U 25 February 2015 25 February 2020 (200 000) - - R899 million funding line with KfW Development Bank. This facility is earmarked to finance small-sized and medium- LBK17 22 March 2017 22 March 2020 (523 000) - sized agricultural enterprises. To date the facility has been fully drawn and the Bank expects utilisation to commence in FY2020. Closing balance 16 055 252 13 254 800 ¹ Excludes accrued interest, discount premium and prepaid arranging fees. 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. 98 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 99 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 - EUR50 million funding line from the European Investment Bank. The facility is project based and will be drawn as and - The Land Bank’s previous liquidity ratio required the Bank to invest surplus cash with counterparties with rating A and when qualifying projects are financed. As of 31 March 2020, there had been no draw downs against the facility and the above. Due to operational requirements, investing surplus funds in government bonds will cause excessive trading in Bank expects utilisation to commence during FY2020. 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. This is a general purpose funding facility which aims to promote “Climate Adaption” within the agricultural sector. - Acknowledge a deviation from the regulation in terms of assumptions made regarding roll-over rates with investors to Disaster relief assess the likelihood of roll-over. The Bank will always apply the minimum roll-over rate (between historic roll-overs and The Land Bank has secured a R400 million facility with the Industrial Development Corporation for the sole purpose investor discussions) to the calculations of the LCR. of providing concessionary loans to drought affected customers and is applicable to declared disaster areas as per the Government Gazette. These deviations from the Banking Regulations were negotiated with investors and have been included in the funding agreements as financial loan covenants. The loan may be used for : Below a summary of the financial loan covenants included in the funding agreements: * Production rehabilitation * Working capital and operational expenses required minimising further losses to current farming operations 2020 2020 2019 2019 * Re-stocking of live stock Performance Measure Target Actual Target Actual * Preparing for future seasons necessary to continue the farmers’ normal sustainable farming operations Financial Loan Covenants % % % % * Enabling “carry-over” debt and consolidation of debt. Total Capital Adequacy Ratio3 ≥15% 9.3% ≥15% 14.3% Loans under this arrangement would only be extended where there is a viable business case with repayment ability, as well Liquidity Coverage Ratio2, 3 90% 36.7% 90%  698.4% as sufficient collateral to cover the potential losses to the Bank. To date R394 million has been utilised, the remainder of R6 Net Stable Funding Ratio3 ≥100% 95.5% ≥100% 101.4% million is no longer available as the facility has expired during the financial year under review. Cost to Income Ratio (Continuing Operations) 1 ≤70% 114% ≤65% 73% NPL (IFRS 9) ≤10% 18.1% ≤10% 9.6% 21.3 Financial Loan Covenants 1 CTI is negatively impacted by margin compression (poor interest income received & higher cost of funding) In terms of section 2(b)(ii) of the Banks Act, 1990 (Act No 94 of 1990), the Land Bank is exempt from the requirements of On 24 October 2018, the Bank approached all its funders to renegotiate the Cost-to-Income covenant level from current calculating the Capital Adequacy Ratio (CAR), Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). level of 65% to 70%. Many of the funders were supportive of the amendment, and the funding agreements are in the process of being amended to include the revised CTI ratio. Notwithstanding the aforementioned exemption from the Banks Act, and although the Land Bank is not Basel compliant, 2 Target of 90% in respect of the financial year ending 31 March 2020 and 100% for each financial year thereafter. the Bank, with effect from 1 April 2016, voluntarily adopted certain capital, funding and liquidity risk management principles 3 The CAR, LCR and NSFR for the 2019 financial year has been restated as a result of restatements to the 2019 annual from the Basel accord with certain Board approved deviations (to cater for the Land Bank’s unique business model) in an financial statements. effort to enhance the risk management principles relating to Capital, Funding and Liquidity management. If a fully Basel compliant view were to presented in respect of the CAR, LCR and NSFR the following is noted. As at 31 March 2020, the Bank has deviated from the standard Regulations to the Banks Act and Circulars, Directives and Guidance notes in issuance in respect of the CAR and LCR calculations as follows: 2020 2019 Actual Actual Deviations from CAR requirements: Financial Loan Covenants % % As the Bank only has the Government as shareholder and is not allowed to issue shares in the market to raise capital. Total Capital Adequacy Ratio5 4.1% 8.8% Therefore should these government guarantee be excluded from capital the only other resource of capital would be Liquidity Coverage Ratio6 0.0%  0.0%  retained earnings. The Land Bank’s funding covenants all include the unutilised portion of government guarantees, which Net Stable Funding Ratio 95.3% 101.4% are not ring-fenced for funding purposes as Tier 1 Capital, (those of capital/ sustainability nature) as a source of capital supply. 5 The minimum capital requirement of the SARB is currently 9%, excluding any Bank specific (Pillar 2B) capital charge, any Domestic Systemically Imported Bank capital charge, any capital conservation buffer and any countercyclical buffer capital Deviations from LCR requirements: charge per Directive 6/2016. Given the unique business model of the Land Bank, including the inability to take deposits and the requirement to have 6 Cash in Bank accounts does not qualify as Liquid Assets cash available, the Bank deviates from the Banking Regulations in the following areas: Refer to note 48 for the details on the actions the Land Bank is taking to remediate the financial loan covenants breach. 100 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 101 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 2020 2019 Opening balance Additional Provision Reversal of Closing * Spread to 3 * Spread to 3 provision utilised provision balance 21.4 Weighted average interest cost of commercial funding (NACM) *** month Jibar month Jibar raised Short-term: ≤ 1 year 1,86% 1,00% Bank R’000 R’000 R’000 R’000 R’000 Medium-term: > 1 year ≤ 5 years 3,39% 2,34% 2020 Long-term: > 5 years 3,97% 3,12% Staff Incentives 23 215 25 000 (30 215) (18 000) - Total Cost of Funding 2,77% 1,72% Leave pay 6 301 4 681 (3 787) - 7 195 Labour disputes 5 068 3 697 (53) - 8 712 Weighted average interest cost of development and multilateral funding (NACM) Government Guarantees 4 684 7 770 (3 270) - 9 184 Long-term: > 5 years ** 3,03% 1,62% Litigation and claims 265 131 108 704 - - 373 835 304 399 149 852 (37 325) (18 000) 398 926 Weighted average interest cost of natural disaster relief funding (NACM) 2019 Long-term: > 5 years 0,73% (0.36%) Staff Incentives 55 791 23 215 (53 489) (2 302) 23 215 Leave pay 10 970 (2 028) (2 641) - 6 301 * Weighted average Jibar Labour disputes 5 011 1 025 (968) - 5 068 ** Only includes those funding lines for which there has been utilisation. Legal fees 6 461 - (6 461) - - *** This is the weighted average per maturity bucket of each contract’s daily balance over the financial year, divided by the Government Guarantees - 8 678 (3 994) - 4 684 interest rate applicable for that day, then converted to a common compounding period (NACM), shown as a spread to 3 month Jibar as at 31 March 2020. Litigation and claims* 173 520 91 611 - - 265 131 251 753 122 501 (67 553) (2 302) 304 399 22. Provisions Opening balance Additional Provision Reversal of Closing provision utilised provision balance *Amount restated refer to note 49 raised 22.1 Staff incentives released The provision for discretionary performance bonuses is payable to employees and is determined by taking into account Group R’000 R’000 R’000 R’000 R’000 both the performance of the Bank as well as the performance of individual employees. 2020 Staff Incentives 24 091 25 000 (30 564) (18 000) 527 22.2 Leave pay Leave pay 6 530 4 742 (3 787) - 7 485 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 Labour disputes 5 068 3 697 (53) - 8 712 contracts. Government Guarantees 4 684 7 770 (3 270) - 9 184 Litigation and claims 265 131 108 704 - - 373 835 22.3 Labour disputes 305 504 149 913 (37 674) (18 000) 399 743 Provision raised in respect of certain labour related disputes regarding legacy matters which are likely to result in probable settlements by the Group. This provision only includes the compensation portion of the disputes, the legal related costs 2019 are included under the legal costs category. These legal costs are expected to be paid out within the next 12 months. Staff Incentives 58 412 24 091 (55 643) (2 769) 24 091 Leave pay 11 453 (2 044) (2 641) (238) 6 530 22.4 Government Guarantees An accrual raised in respect of government guarantee fees payable to National Treasury. The fees are charged at 0.3% of Labour disputes 5 010 1 026 (968) - 5 068 the total issued government guarantee. Legal fees 6 461 - (6 461) - Government Guarantees - 8 678 (3 994) - 4 684 22.5 Litigation and claims Litigation and claims* 173 520 91 611 - 265 131 Provision raised in respect of debtors loan guarantee and breakage fee. 254 856 123 362 (69 707) (3 007) 305 504 23. Post-retirement obligation 23.1 Medical benefit plan The defined benefit obligation plan is unfunded. However, the Group does have an investment earmarked specifically for this obligation (refer to note 8.1). The estimated medical aid contributions for the next year effective 1 April 2020 amounts to R20.3 million (FY2019: R18.84 million). The time value of money has not been taken into account as it is believed that the difference will be insignificant. 102 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 103 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank 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 number of 2020 2019 2020 2019 members reduced due to the impact of the organisational review. Movement in the present value of the benefit obligations: R’000 R’000 R’000 R’000 Defined benefit obligation 1 April 301 316 369 181 301 316 369 181 * The average number of dependents only reflects dependents who are receiving a medical scheme contribution subsidy. Current service cost (2 295) 2 426 (2 295) 2 426 Interest cost 26 672 22 533 26 672 22 533 Effect on current service and Effect on accumulated post- Settlement - (82 242) - (82 727) interest cost medical aid defined benefit Realised gain on settlement - (3 150) - (3 150) obligation Actuarial (losses) and gains (22 800) 11 162 (22 800) 11 162 2020 2019 2020 2019 Benefits paid (17 531) (18 594) (17 531) (18 109) 23.3 Sensitivity analysis R’000 R’000 R’000 R’000 Defined benefit obligation March 285 362 301 316 285 362 301 316 Increase in medical inflation by 1% 35 880 30 041 313 940 337 493 Decrease in medical inflation by 1% 29 361 26 762 259 719 270 051 Total expenses resulting from the Group’s defined benefit plans can be analysed as follows: Bank Bank 24. Discontinued operation classified as held-for-sale 2020 2019 2020 2019 During FY2007, the Land for Development Finance Unit (LDFU) entered into loans that were deemed to be outside the Components of net periodic medical benefit cost: R’000 R’000 R’000 R’000 mandate of the Group in terms of the Land Bank Act. An independent forensic investigation concluded in September 2007 indicated alleged irregularities in the origination, management and administration of these loans. During October Current service cost 2 295 (2 426) 2 295 (2 426) 2007, a moratorium was placed on the approval of any new loans and pay-outs on existing loans. Interest costs (26 672) (22 533) (26 672) (22 533) Total included in interest and staff costs (24 377) (24 959) (24 377) (24 959) During July 2008, as part of the formalisation of the turnaround strategy, a decision was made to discontinue the LDFU operation and to dispose of the loan portfolio. The discontinuance decision formed part of the stabilisation phase of the Total expenses recognised in profit or loss (24 377) (24 959) (24 377) (24 959) turnaround strategy and has been encapsulated in the then corporate plan approved by the Board of Directors. As at 31 March 2009, the LDFU operations is a separate reportable operating segment of the Group and it was classified Actuarial (losses) recognised in other comprehensive income 22 800 (8 012) 22 800 (8 012) as a disposal group held-for-sale and as a discontinued operation. The disposal of some of the properties have taken place since the discontinuance decision, however, in view of the current market conditions, properties in this portfolio will only Membership Profile 2020 be disposed of as and when conditions render it economically viable. 23.2 Maturity profile of members Number Average age Average Average Employee status (years) past service number of In FY2018 it became evident that the LDFU portfolio no longer meets the definition of a “disposal group” as these (years) dependents * properties will not be disposed of together in a single transaction. Upon settlement of these assets, no associated liabilities will be transferred either. Given this, the LDFU portfolio satisfies the definition of a discontinued operation. This was Active 114 51,50 26,30 1,83 accordingly reported as a subsequent event affecting FY2018 figures and the necessary amendments were effected to Pensioners 266 70,40 - 0,59 FY2018 balances to conform to the FY2018 disclosure framework. 380 64,30 26,30 0,99 The results of LDFU for the year are presented below: Membership Profile 2019 Group Bank Employee status Number Average age Average Average 2020 2019 2020 2019 (years) past service number of Notes R’000 R’000 R’000 R’000 (years) dependents * Impairment (charge) / release on loans and advances 12 (511) 11 213 (511) 11 213 Active 116 50,70 25,50 1,99 Pensioners 279 69,90 - 0,56 Bad debts recovered 874 1 717 874 1 717 395 64,26 25,50 0,99 Net income /(loss) from discontinued operations 363 12 930 363 12 930 The major classes of assets of LDFU classified as held-for-sale as at year end are as follows: Assets Loans and advances classified as assets held-for-sale 12 - 6 259 - 6 259 104 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 105 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank Group Bank 25. Interest income 2020 2019 2020 2019 2020 2019 2020 2019 Measured at amortised cost R’000 R’000 R’000 R’000 27. Non-interest expense R’000 R’000 R’000 R’000 Interest from loans and advances 4 347 242 4 650 413 4 347 242 4 650 411 Account administration fee expense ¹ 357 209 340 670 357 209 340 670 Interest on short-term deposits 299 541 178 057 299 541 178 057 Loss sharing recovery - SLA 2 (159 453) (68 235) (159 453) (68 235) Interest from banks 50 801 85 469 45 521 81 226 Loss sharing recovery - WFF 2 (77 193) (21 074) (77 200) (21 074) Interest hedging 2 707 1 720 2 707 1 720 Sundry expense 4 668 11 306 - - Interest on swaps (2 404) 8 872 (2 404) 8 872 125 231 262 667 120 556 251 361 Interest on debentures 54 16 54 16 Interest on premiums written 851 2 613 - - ¹ Account administration fees under Bank relate to management fees paid to intermediaries in terms of service level Interest on trade receivables - - - - agreements relating to the Bank’s acquisition loan books. Net interest income (interest income less interest expense) 4 698 792 4 927 160 4 692 661 4 920 302 earned from, and impairments incurred on these books are included under note 25, note 26.1 and note 11.5 respectively. 2 The full amount of R357 million (FY2019: R340 million) relates to fee expenses of financial instruments not measured at fair value through profit or loss. *Amount restated refer to note 49 Group Bank Group Bank 2020 2019 2020 2019 2020 2019 2020 2019 28. Non-interest income R’000 R’000 R’000 R’000 26. Interest expense R’000 R’000 R’000 R’000 Fee and commission income 71 462 72 348 72 628 73 465 Commercial funding 3 776 239 3 553 606 3 776 239 3 553 606 Account administration fee income 64 546 71 286 64 546 71 286 Development and multilateral funding 158 208 118 618 158 208 118 618 Fund administration fees 6 916 1 062 6 916 1 062 Disaster relief funding 21 186 20 412 21 186 20 412 Administration fee from LBLIC - - 1 166 1 117 Other 92 021 131 647 90 206 129 728 Other 27 945 41 629 20 961 31 987 Total interest expense 4 047 654 3 824 283 4 045 839 3 822 364 Investment property rentals 17 978 17 575 17 978 17 575 Sundry income * 9 967 24 054 2 983 14 412 Group Bank 26.1 Interest expense incurred per class of funding 2020 2019 2020 2019 99 407 113 977 93 589 105 452 Financial liabilities at amortised cost R’000 R’000 R’000 R’000 Interest paid on commercial funding 3 776 239 3 553 606 3 776 239 3 553 606 * Included in the group sundry income is clearing reinsurance creditor against debtor (R15.4m). - Commercial paper 1 504 218 1 446 898 1 504 218 1 446 898 29. Operating profit from insurance activities Group - Deposits 76 950 64 664 76 950 64 664 2020 2019 - Facilities 34 790 21 034 34 790 21 034 - DMTN issuances 1 353 395 1 091 934 1 353 395 1 091 934 29.1 Net premium income R’000 R’000 Gross written premium 563 557 577 648 - Term loans - amortising 420 504 482 991 420 504 482 991 Long-term insurance contracts 5 404 5 891 - Term loans - bullet term 84 874 67 402 84 874 67 402 Short-term insurance contracts 558 153 571 757 - Step rate notes 301 508 378 683 301 508 378 683 Gross written premium 563 289 504 386 Interest paid on development and multilateral funding 158 208 118 618 158 208 118 618 Change in the unearned premium reserve (3 672) 61 844 - Term loans - amortising 158 208 118 618 158 208 118 618 Change in the unexpired risk reserve (1 464) 5 527 Interest paid on disaster relief funding 21 186 20 412 21 186 20 412 - Drought relief 21 186 20 412 21 186 20 412 Less: reinsurance premium 420 431 420 822 Other 92 021 131 647 90 206 129 728 Long-term insurance contracts 2 632 2 523 - Government guarantee fees 7 770 8 678 7 770 8 678 Short-term insurance contracts 417 799 418 299 - Arranging fees - effective interest rate method 65 741 64 661 65 741 64 661 Reinsurance premium written 421 081 377 528 - Penalty Interest on Breakage Costs 16 695 56 389 16 695 56 389 Change in the unearned premium reserve (3 282) 40 771 - Credit balances 1 815 1 919 - - 143 126 156 826 Total interest expense 4 047 654 3 824 283 4 045 839 3 822 364 106 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 107 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Group 29.2 Net movement in the unearned premium reserve 2020 2019 2020 2019 Published basis R’000 R’000 29.4 Other costs from insurance activities R’000 R’000 Premium income 5 135 (67 370) Movement in policyholders’ liability 6 661 4 245 Reinsurance premium paid (3 282) 40 771 Net commission and administration fees (39 158) (24 330) 1 853 (26 599) (32 497) (20 085) 29.3 Net insurance claims Group Bank 2020 2019 2020 2019 2020 Gross Reinsurance Net 30. Investment income and fees R’000 R’000 R’000 R’000 Long-term insurance contracts R’000 R’000 R’000 An analysis of revenue is as follows: Claims paid (4 925) 4 521 (404) Investment income from financial assets classified as at fair 100 983 111 092 318 781 22 377 Movement in notified claims (OCR) 6 105 (5 087) 1 018 value through profit or loss: Total long-term insurance contract benefits 1 180 (566) 614 Dividend income - Subsidiary - - 300 000 - Dividend income - other investments 28 647 33 999 12 818 17 143 Short-term insurance contracts Interest income 72 336 77 093 5 963 5 234 Claims & assessment fees paid 505 246 (355 666) 149 580 Investment management and performance fees (9 845) (6 447) (4 538) (1 078) Movement in IBNR (44 211) 30 983 (13 228) 91 138 104 645 314 243 21 299 Movement in outstanding claim provisions (21 064) 15 359 (5 705) Group Bank Total short-term insurance contract claims 439 971 (309 324) 130 647 2020 2019 2020 2019 31.1 Fair value (losses) gains R’000 R’000 R’000 R’000 Net insurance claims 441 151 (309 890) 131 261 Designated at fair value through profit or (loss) (2 384) 79 929 (2 384) 79 929 Strategic trading assets (723) (439) (723) (439) Gross Reinsurance Net Instruments in (Repos) (139) (220) (139) (220) 2019 R’000 R’000 R’000 Interest rate swap1 (1 522) 80 588 (1 522) 80 588 Long-term insurance contracts Claims paid 5 066 (2 649) 2 417 Investment income (140 084) 10 279 (19 330) 3 346 Movement in notified claims (OCR) (1 984) 1 062 (922) Realised gains 15 747 99 495 19 745 4 302 Total long-term insurance contract benefits 3 082 (1 587) 1 495 Unrealised fair value gains (losses) (155 831) (89 216) (39 075) (956) Short-term insurance contracts (142 468) 90 208 (21 714) 83 275 Claims & assessment fees paid 538 819 (364 211) 174 608 Movement in IBNR 47 002 (35 414) 11 588 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 Movement in outstanding claim provisions (18 310) (3 496) (21 806) 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 Total short-term insurance contract claims 567 511 (403 121) 164 390 applied. Group Bank Net insurance claims 570 593 (404 708) 165 885 2020 2019 2020 2019 31.2 Gains and losses on financial instruments R’000 R’000 R’000 R’000 Derecognition gains/(losses) on financial assets measured at 19 153 4 912 19 153 4 912 amortised cost 19 153 4 912 19 153 4 912 *Amount restated refer to note 49 108 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 109 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank Group Bank 2020 2019 2020 2019 2020 2019 2020 2019 32. Operating expenses R’000 R’000 R’000 R’000 34. Indirect taxation R’000 R’000 R’000 R’000 Depreciation - Owned assets 6 084 7 846 6 025 7 781 Depreciation - Leased assets 25 399 23 232 25 236 23 164 Value Added Tax ¹ 65 764 73 170 65 622 73 045 Amortisation - computer software 6 052 6 731 6 052 6 731 Audit fees - External 15 139 7 549 13 919 7 224 ¹ Value-added taxation comprises the portion that is irrecoverable as a result of the interest earned in the South African - Current 11 671 7 549 10 451 7 224 financial services sector. Group Bank - Prior year 3 468 - 3 468 - Audit fees - Internal 1 210 5 505 1 210 5 505 2020 2019 2020 2019 Directors' emoluments 16 225 21 170 11 574 16 799 35. Funds under administration R’000 R’000 R’000 R’000 - Executive 7 856 12 472 4 536 8 501 Asset - Non-executive 8 369 8 698 7 038 8 298 Cash balance held for the funds administered on behalf of the 276 402 582 394 276 402 582 394 Management fees 1 355 963 1 355 963 Department of Agriculture, Forestry and Fisheries (DAFF) Professional fees 33 527 31 304 29 888 27 582 Staff costs 397 924 405 687 384 192 393 635 Liabilities - Salaries and contributions 387 735 359 971 374 399 348 598 DAFF 276 402 582 394 276 402 582 394 - Staff related provisions and other 10 189 45 716 9 793 45 037 Other operating expenses 209 862 187 021 209 099 184 547 35.1 Funds administered on behalf of the - Computer and data costs 28 752 18 371 28 679 18 291 Department of Agriculture, Forestry and - Repairs and maintenance 3 864 5 724 3 856 5 712 Fisheries (DAFF) Agri-BEE fund 258 980 201 992 258 980 201 992 - Rates and taxes 9 229 9 209 9 229 9 209 DAFF administration fund - flood relief 37 35 37 35 - Travel and accommodation 8 008 11 764 7 582 10 965 MAFISA fund 13 387 12 551 13 387 12 551 - Corporate social investment 9 976 11 792 9 976 11 792 DAFF-Blended Finance 3 999 367 816 3 999 367 816 - Litigation and claims 67 970 21 091 67 970 21 091 276 403 582 394 276 403 582 394 - Other 2 82 063 109 070 81 807 107 487 712 777 697 008 688 550 673 931 *Amount restated refer to note 49 Group Bank 2 This includes sundry operating expenses such as security, legal fees, short term lease, cleaning and marketing amongst 35.2 Reconciliation of movement in funds under others. administration 2020 2019 2020 2019 Group Bank R’000 R’000 R’000 R’000 2020 2019 2020 2019 Agri-BEE 33. Non-trading and capital items R’000 R’000 R’000 R’000 Balance at the beginning of the year 201 992 150 605 201 992 150 605 Fair value gain on investment properties (note 14) (250) 650 (250) 650 Receipts 43 754 42 496 43 754 42 496 Foreign exchange gain / (loss)* (40 904) (28 275) (40 904) (28 275) Accrued interest 14 455 10 036 14 455 10 036 Impairment of other assets 8 8 8 8 Credit transfer (1 222) (1 145) (1 222) (1 145) Non-current assets held-for-sale fair value adjustment (note (11 899) (1 339) (11 899) (1 339) Balance at the end of the year 258 979 201 992 258 979 201 992 13.1) Loss on disposal of property and equipment (10) (22) (10) (22) 35.2.1 DAFF poverty fund Loss on write-off intangible assets (note 17 ) - - - - Balance at the beginning of the year 35 34 35 34 Profit on disposal of non-current assets held-for-sale 12 104 2 010 12 104 2 010 Accrued interest 2 1 2 1 (40 951) (26 968) (40 951) (26 968) Balance at the end of the year 37 35 37 35 *The foreign exchange loss was as a result of the guarantee issued by the Land Bank to an international bank in favour of one the Land Bank clients. The 2019 figure has been restated. For details refer to note 49 110 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 111 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 35.2.2 MAFISA fund Land for Redistribution and Agricultural Development (LRAD) grant The fund has been set up on behalf of the DRDLR. There were no transfers made during the current financial year Balance at the beginning of the year 12 551 11 769 12 551 11 769 (FY2019: Rnil). Accrued interest 836 782 836 782 Balance at the end of the year 13 387 12 551 13 387 12 551 DAFF development subsidy Land Bank received R100 million from the Department of Agriculture, Forestry and Fisheries on the 26th of March 2018. 35.2.3 LRAD grant The funds were meant to subsidise Development farmers on interest rates in order to enhance their financial sustainability. Balance at the beginning of the year - 9 663 - 9 663 In FY2018, the Land Bank utilised its own funds to grant loans to Development farmers at concessionary rates and Accrued interest - 370 - 370 recouped foregone interest income of R74.1 million. No funds were recouped in the current financial period. Debit Transfer - (10 033) - (10 033) DAFF Blended Finance Balance at the end of the year - - - - The Blended Finance fund has been set up on request of the DAFF to provide blended support to Black Commercial Producers in the agricultural, forestry and fisheries sectors in an attempt to accelerate agricultural development and 35.2.4 DAFF development subsidy 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 Balance at the beginning of the year - 26 009 - 26 009 loan applications from Black Commercial Producers, and all funds are received in an interest bearing account. The DAFF Accrued interest - 1 234 - 1 234 injected R148.1 million (FY2019:R374.6 million) which is used to support Black Commercial Producers either in the form of Transfer to Land Bank - (27 243) - (27 243) equity contributions or interest rate subsidy, technical support contributions. Balance at the end of the year - - - - Group Bank 35.2.5 DAFF Blended Finance 2020 2019 2020 2019 Balance at the beginning of the year 367 816 - 367 816 - 35.4 Emerging farmers` support facility & REM R’000 R’000 R’000 R’000 Receipts 148 061 374 639 148 061 374 639 wholesale finance facility Accrued interest 22 069 6 025 22 069 6 025 Asset Debit transfer (1 480) (12 848) (1 480) (12 848) Cash balance held for the support facilities 185 527 173 582 185 527 173 582 Disbursements (532 467) - (532 467) - Balance at the end of the year 3 999 367 816 3 999 367 816 Liabilities Emerging farmers support facility 183 733 171 898 183 733 171 898 35.3 Description of the funds under administration REM wholesale finance support facility 1 795 1 684 1 795 1 684 185 528 173 582 185 528 173 582 Agri-BEE fund Parliament approved a sector specific allocation for the Agri-BEE Fund that will allocate grants to promote the rural Group Bank community based empowerment groups. The bank acts as an agent on behalf of the DAFF in the administration of the 2020 2019 2020 2019 Fund. Disbursements amounted to Rnil (FY2019:Rnil). An injection of R43.8 million (FY2019:R42.5 million) from DAFF and Rnil (FY2019: Rnil) from clients own contributions was received during the current financial year. 35.4.1 Emerging farmers support facility R’000 R’000 R’000 R’000 DAFF poverty fund Balance at the beginning of the year 171 898 304 080 171 898 304 080 The fund has been set up by the DAFF to respond to any food crisis by means of procurement of agricultural implements Accrued interest 11 834 20 318 11 834 20 318 and starter packs. Transfer to Blended Finance - (152 500) - (152 500) Balance at the end of the year 183 732 171 898 183 732 171 898 MAFISA fund The MAFISA Fund has been set up on request of the DAFF to invest money in approved projects of the Department through on-lending to individuals. Monies received from the DAFF for the MAFISA Fund is invested in a separate bank Group Bank account on behalf of the DAFF. No on-lending has taken place during the period under review. There were no injections 2020 2019 2020 2019 during the current period under review (FY2019:Rnil) 35.4.2 REM wholesale finance support facility R’000 R’000 R’000 R’000 Balance at the beginning of the year 1 684 1 580 1 684 1 580 Accrued interest 111 104 111 104 Balance at the end of the year 1 795 1 684 1 795 1 684 112 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 113 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 35.5 Description of the emerging farmers support & REM wholesale finance support facility 36.2 Commission and cost on sale of properties Emerging farmers support facility Upon Land Bank realising that the appointment of a certain service provider was not in accordance with Land Bank The Land Bank received R208.0 million from the Department of Rural Development and Land Reform on the 17th processes, Land Bank approached the High Court seeking an order to declare such appointment as unlawful and invalid. of August 2011. The transfer received is a guarantee for identified deserving emerging farmers which require rescue Subsequent to the service provider being informed of the fact that their appointment may be irregular and unlawful, the packages. The identified farmers all have mortgage loans with the Land Bank and the Bank can only access the guarantee service provider issued two invoices, first in an amount of R201 thousand for the advertising and auction costs and the after complying with conditions as set by the Department of Rural Development and Land Reform. No transfers second in the amount of R3.2 million relating to the 10% commission which the service provider alleges Land Bank is liable (FY2019:R152.5million) to the Blended Finance support facility in the current financial period. 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 REM wholesale finance support facility by the service provider based on the reserve price of the total possible purchase price of the properties that they were The Land Bank received a total of R150 million from the Department of Rural Development and Land Reform between supposed to auction. The auction never took place and it remains uncertain whether or not the properties in question October 2011 and July 2016 under this facility. The funds are meant to subsidise interest payable to the Land Bank and would have yielded the expected purchase price as estimated by the service provider. Management is of the view that it is remunerate appointed intermediaries that identify and provide technical assistance to the Retail Emerging market farmers improbable that the envisaged claim by the service provider will be successful. 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 37. Contingent assets 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 (FY2019: Rnil). There we no Disbursements in the current period under review (FY2019: R9.8mil). Contingent assets in the current year R230.5m (2019:R28.4m). 36. Contingent liabilities Penalty fee: The contingent asset relates to an early withdrawal penalty fee charged on an investment that the Land Bank had made 36.1 LBLIC Tax 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 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. Boslved Investment The contingent asset relates to Bosveld Investment currently reflected in the AFS as nil value, as Land Bank believed there As part of the implementation of LBIC’s restructure during FY2014 LBIS group management approached the South was a Nil value to this investment on 31 March 2020. The bank was unable to get projected cash flows and the plant African Revenue Services (“SARS”) for a tax ruling to confirm that the tax privileges of the former LBIC, would still apply has been decommissioned since 2013. The due diligence requested by the Land Bank in 2019 has not made any reliable to the restructured Group, as in effect nothing has changed, i.e. all companies effectively remain 100% owned by the Land progress due to lack of information from the investee. The bank should be entitled to the guarantee of R270m less the Bank, albeit “indirectly”. 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. 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 38. Commitments Group Bank Income Tax, as unlike the former LBIC - these companies were not “direct” wholly owned subsidiaries of the Land Bank. 2020 2019 2020 2019 38.1 Loan commitments and guarantees R’000 R’000 R’000 R’000 LBIS group management then approached the Minister of Finance requesting approval for the removal of the LBIS holding Guarantees ¹ * 10 550 9 790 10 550 9 790 company, from the group structure. Loan commitments 4 552 431 5 062 053 4 552 431 5 062 053 The Minister of Finance granted approval for the request to remove the LBIS holding company on 14 May 2014, with 4 562 981 5 071 843 4 562 981 5 071 843 effect 1 April 2014. LBIS was deregistered on 30 August 2019. This approval allows that in terms of the new group structure both LBIC (ST Co) and LBLIC (LT Co) can apply for tax exemption in terms of section 10(1)(cA)(ii) of the ¹ The above guarantees are included in the clients’ approved facility limits and it is unknown when the guarantees will be Income Tax Act, 58 of 1962. presented for payment. Following the Ministerial approval, management is re-engaging SARS with the application for an tax exemption from 1 * In the prior year a Guarantee in favour of BMCE Bank was omitted in error. This has been accounted for in the current April 2012 - 31 March 2019 for both LBLIC and LBIC, and pre 1 April 2012 for LBLIC, to apply for tax exemption in terms year as a prior year error. Refer to note 49. 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 FSB 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. Management is of the view that it is improbable that this approval will not be granted and consultations with SARS are ongoing. 114 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 115 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Group Bank 39.2 Transactions with related parties other than key management personnel 2020 2019 2020 2019 38.2 Debentures/ stock purchased R’000 R’000 R’000 R’000 39.2.1 Amounts received from related parties during the year 2020 2019 Repo’s i) Land Bank Life Insurance Company (SOC) Limited - Subsidiary R’000 R’000 - R186 (Nominal value: R10 million) 10 305 11 057 10 305 11 057 Policy administration fees received by Land Bank 233 223 - R2030 (Nominal value: R10 million) - 9 219 - 9 219 Portion of non-executive directors emoluments paid by LBLIC 80 80 - LBK28 (Nominal value: R10 million) 9 190 9 981 9 190 9 981 Property and equipment transferred (from)/ to LBLIC (at NAV) 25 18 Market Making 338 321 - R186 (Nominal value: R5 million) 5 153 - 5 153 - 24 648 30 257 24 648 30 257 LBLIC is a 100% owned subsidiary of the Land Bank. An annual administration and management fee is paid by LBLIC to Land Bank for support services such as finance, human resources, compliance and information technology. The amount for the year was R233k (FY2019: R223k) 38.3 Lease commitments ii) Land Bank Insurance Company (SOC) Limited - Subsidiary The Group has entered into various lease agreements with third parties in respect of equipment and premises for its day- Policy administration fees received by Land Bank 933 894 to-day operations. The lease periods on equipment range from three to five years and one to five years on buildings. Portion of non-executive directors emoluments paid by Land Bank 320 320 Property and equipment transferred to LBIC (at NAV) 108 22 As at 31 March the Group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 1 361 1 236 Operating lease commitments - Group as lessee The Group adopted IFRS 16 Leases and therefore what was previously disclosed as operating lease commitments - lessee Capital contribution from Land Bank now forms part of liabilities in the Statement of Financial Position. Please refer to note 16.2 for the maturity analysis of - Cash 100 000 25 000 lease liabilities. Group Bank LBIC is a 100% owned subsidiary of the Land Bank. An annual administration and management fee is paid by LBIC to Land 2020 2019 2020 2019 Bank for support services such as finance, human resources, compliance and information technology. The amount for the R’000 R’000 R’000 R’000 year was R933k (FY2019: R894k) Operating lease commitments - Group as lessor Receivable within one year 2 612 5 082 2 612 5 082 iii) National Treasury - Stakeholder Receivable between one to five years 1 208 3 109 1 208 3 109 With effect from 14 July 2008, the administrative powers over the Bank were transferred from the Ministry of the 3 820 8 191 3 820 8 191 Department of Agriculture to the Ministry of Finance and, in accordance with The Land Bank Act, 2002, has the following role and responsibilities: 39. Related party transactions 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; 39.1 Relationships between parents, subsidiaries and associates and (b) May from time to time issue policy directives to the Board not inconsistent with this Act. The ultimate controlling party of the Land Bank is the Government of the Republic of South Africa, represented by National Treasury. The Minister in terms of paragraph 9(1) - The following represents the significant subsidiaries of the Bank: Ownership Interest 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. 2020 2019 Transactions during the year Land Bank Life Insurance Company (SOC) Limited (LBLIC) 100% 100% No financial support in the form of cash injections was received during the current and previous financial year. Land Bank Insurance Company (SOC) Limited (LBIC) 100% 100% Land Bank Insurance Services (SOC) Limited (LBIS) ¹ 100% 100% Government Support - Financial Guarantees As at 31 March 2020, the Land Bank held a total of R9.6 billion guarantees which can be broken down as follows: ¹ In May 2014, the Minister of Finance approved that the former holding company (LBIS) be dissolved and that the two insurance companies (LBIC and LBLIC) be held directly by Land Bank. LBIS was deregistered in 30 August 2019. - R1.5 billion sustainability guarantee (issued during May 2017) - R8.0 billion funding guarantees, of which R5.0 billion has been drawn (R3.7 billion on balance sheet and R1.3 billion in support of the World Bank’s R90 million which to date has not been utilised), with R2.8 billion repaid. - R0.1 billion historic “consolidation of debt” guarantee. 116 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 117 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 An annual fee of 0.3% per annum is payable to National Treasury on the guarantees granted (refer to note 25). 2020 2019 iv) Other related parties 39.2.3 Amounts owed to related parties Note R’000 R’000 The Bank obtains funding from institutions, of which the most significant nominal values are disclosed below: 2020 2019 DAFF 35.1 276 403 582 394 Funding received R’000 R’000 Micro-Agricultural Finance Institution 13 387 12 551 Agricultural Broad Based Black Economic Empowerment 258 980 201 992 Corporation for Public Deposits 992 500 1 312 500 DAFF Development Subsidy 37 35 Industrial Development Corporation 587 679 618 631 DAFF Flood Relief 3 999 367 816 National Housing Finance 120 000 80 000 Emerging Farmers’ Support Facility & REM Wholesale Finance Facility 35.4 185 528 173 583 Petro SA 957 371 957 371 461 931 755 977 Post Bank 1 030 000 460 000 i) Funds under administration Public Investment Corporation 7 870 000 9 695 000 DAFF 35.1 276 402 582 394 Magalies Water 7 322 276 402 582 394 Trans-Caledon Tunnel Authority 100 000 322 000 Cash balances held for funds administered 276 402 582 394 South African Special Risks Insurance Association 100 000 11 657 550 13 552 824 ii) Micro-Agricultural Finance Institution (MAFISA) Other government related parties: African Development Bank 681 818 772 727 The Bank was appointed as administrator of the state owned scheme, known as MAFISA by the DAFF. The Bank maintains separate accounting records for MAFISA which reflected the following balances at the reporting date. 12 339 368 14 325 551 2020 2019 The funding from related parties are all short-term financial instruments which are repayable within a year. The funding R’000 R’000 consists mainly of promissory notes and bonds. These transactions were made on terms equivalent to those that prevail in Bank balances of the MAFISA fund 35.2.2 13 387 12 551 arm’s length transactions. MAFISA fund balance 13 387 12 551 39.2.2 Amounts owed by/(to) related parties 2020 2019 iii) Agricultural Broad Based Black Economic Empowerment (Agri-BEE) i) Subsidiaries R’000 R’000 The Bank was appointed as administrator of the Agri-BEE funds in September 2006 in which monies, appropriated by parliament, was paid for the implementation of Agri-BEE. An injection of R40.2 million (FY2018:R38.2 million) from DAFF Land Bank Life Insurance Company (SOC) Limited (LBLIC) - 81 110 and Rnil (FY2018: Rnil) from clients own contributions was received during the current financial year. Land Bank Insurance Company (SOC) Limited (LBIC) 6 683 30 242 iv) Emerging Farmers’ Support Facility & REM Wholesale Finance Facility 2020 2019 The intercompany account is held as a trading account between LBIC, LBLIC and it’s holding company, Land Bank. In terms R’000 R’000 of the shareholders’ agreement the loan is unsecured and has been sub-ordinated by Land Bank. Settlement will take iv) Emerging Farmers’ Support Facility & REM Wholesale Finance Facility 35.4.1 185 528 173 582 place in cash. A decision was taken by the executive of the holding company that no interest would be charged on the 185 528 173 582 outstanding loan balance during the current and prior financial periods under review. Cash balance held for the support facilities 185 528 173 582 v) Blended Finance Facility * 2020 2019 R’000 R’000 Blended Finance Facility   3 999 367 816 Cash balance held for the support facilities 3 999 367 816 Total amount owed to related parties 651 457 1 297 375 Total cash balance held for the support facilities 479 316 1 136 343 118 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 119 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 * During quarter 4 of the 2020 financial year Landbank experienced significant liquidity challenges. In a bid to prevent a 40. Risk management default the Land Bank utilised third party funds from the Department of Agriculture, Forestry and Fisheries of R630 million. These fund were fully restored during June 2020. 40.1 Credit risk 39.2.4 Transactions between subsidiaries Definition Credit risk refers to a loss suffered by a party whereby the counterparty fails to meet its financial obligations to the party An administration fee of R13.3 million (FY2019: R12.6 million) was charged to LBIC, the short-term company, for services under the contract. Credit risk may also arise if there is an increasing risk of default by the counterparty throughout the rendered by LBLIC. duration of the contract. 2020 2019 The definition of credit risk includes: R’000 R’000 a) Credit evaluation risk: Risk related to the decreased credit worthiness (based on recent financial performance) of Amounts owed to LBLIC by LBIC 13 556 15 742 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. There was no ECL at the statement of financial position date and no bad debt expense in the year (FY2019: Rnil) relating to this intercompany transaction. b) Credit concentration risk: Risk related to any single exposure or group of exposures large enough to cause credit losses which threaten the Bank’s capital adequacy or ability to maintain its core operations. It is the risk that a common factor 2020 2019 within a risk type or across risk types fails or an event occurs which causes credit losses. Revenue transactions for the year ended 31 March R’000 R’000 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 Total subsidiary salary costs (including executive director) 14 587 15 798 obligations. Service fees charged to LBIC for salaries (12 091) (11 445) d) Counterparty risk: Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its LBLIC salaries 2 496 4 353 contractual obligations. Counterparty risk is a risk to both parties and should be considered when evaluating a contract. In most financial contracts, counterparty risk is also known as default risk. Total subsidiary contributions to medical aid fund 513 464 Service fees charged to LBIC for medical aid (410) (371) 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 LBLIC medical aid 103 93 segment. Total subsidiary contributions to retirement fund 1 030 1 029 Policy and responsibility The key components of the current general credit policy are the following: Service fees charged to LBIC for Group Life Insurance (824) (823) LBLIC retirement fund 206 206 - 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; Remuneration recharge to LBIC (13 325) (12 639) - 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; 2020 2019 - For the vast majority of the products, credit is granted on the basis of insight into the customer’s circumstances and of 39.2.5 Transactions with key management personnel R’000 R’000 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 Short-term employee benefits 778 43 850 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 Other long-term benefits 5 534 practice for financial enterprises. Termination benefits 1 024 508 Credit risk management process The credit risk management process has four stages. The stage can be summarised as follows: Key management personnel comprises of the Group’s executive management (including executive directors) and non- executive directors. - 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. Other transactions - Credit assessment entails validation of submitted documentation from origination, risk rating and pricing, viability and There were no other transactions with key management personnel during the period under review. 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. 120 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 121 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 - Portfolio Monitoring entails ongoing monitoring and evaluation, including base line studies, to ensure social impact LBIC has a stop loss insurance treaty on the crop business with internationally AA- rated reinsurance companies. and financial expectations have been met, board representation, business development support by designated teams For foreign reinsurers on the crop portfolio, LBIC retains 40% of ceded written premium as deposit premium on the (agricultural, financial etc.). 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 Risk classification company is issued with an updated bank guarantee through domestic AA rated bank for outstanding balances each The Bank monitors the repayment record of its customers on an ongoing basis to ensure that any deterioration in quarter. 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. Group Bank 40.2 Credit exposure 2020 2019 2020 2019 The main objectives of risk classification are to rank the Bank’s customer base according to risk so as to estimate the The Group’s maximum credit exposure at 31 March 2020 probability of default (PD) of each customer. The risk classifications used in the day-to-day credit process are based on R’000 R’000 R’000 R’000 was as follows: 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 Asset class with asset credit risk exposure 45 946 973 50 814 372 44 381 029 48 870 556 customer. The Bank adheres to the principle that all classifications should reflect the customer’s current situation to the Loans 41 560 074 43 225 160 41 560 074 43 225 160 greatest extent possible. Cash at bank 722 711 3 213 121 585 008 3 202 568 Credit risk - insurance activities Trade and other receivables (excluding prepaid expenses) 1 230 561 821 787 713 689 343 983 LBLIC is exposed to credit risk through its investment portfolios. To counteract this risk, investment portfolios are Short-term insurance assets 169 906 254 017 managed in terms of investment mandates that are aligned to Insurance companies’ investment strategy. Investment Long-term insurance assets 11 786 7 909 mandates provide guidelines in terms of the average credit quality of financial instruments in the portfolio as well as limits Repurchase agreements 19 495 30 257 19 495 30 257 on concentration risk. Strategic trading assets 5 153 - 5 153 - The insurance companies are also exposed to credit risk in respect of their working capital assets from balances owed by Hedging derivatives 79 064 80 587 79 064 80 587 counterparties. The following are some of the main credit risk management actions: Strategic trading assets Investments * 2 148 223 3 181 534 1 418 546 1 988 001 - In terms of long-term insurance policies issued before August 2006, the Land Bank guarantees the payment of the Asset class without asset credit risk exposure 212 211 299 660 211 790 299 077 premium; Intangibles 8 044 13 548 8 044 13 548 - Long-term insurance policies issued after August 2006, policyholder debtors outstanding for more than 60 days are not accounted for in premiums. If premium income is not paid within 60 days, the policy lapses if the client does not approve Prepaid expenses 7 091 7 579 7 091 7 579 the premium to be added to the loan facility; Investment property 15 000 15 250 15 000 15 250 - For Group credit life business from 1 July 2016, the intermediary pays the premium net of brokerage and admin fees Right of Use of Leased 47 993 68 093 47 735 67 672 after 45 days; Assets - Short-term crop insurance is sold either as a cash or credit policy in the current financial period. Cash premiums need to Non-current assets held-for-sale 105 112 163 036 105 112 163 036 be settled within 45 days. Credit policies are settled at the end of the season. Policy premiums outstanding after 45 days are then submitted to the attorneys, unless a new agreement is reached with the policyholder; Property and equipment 28 971 32 154 28 808 31 992 - On the reinsurance agreement in the prior reporting period, LBIC received the quota share bordereaux from the insurer 45 day after quarter end, which were then settled 30 days later. Outstanding settlements are then referred for Total assets per statement of financial position 46 159 184 51 114 032 44 592 819 49 169 633 legal opinion. Add off balance sheet items exposed to credit risk - As reinsurers, LBIC receives quota share bordereaux from the insurer 45 days after quarter end, which are then settled Guarantees issued 10 550 9 790 10 550 9 790 30 days later; and - Short-term asset insurance policy premiums are paid to the lead underwriter within 45 days on a co-insurance Loan commitments 4 552 431 5 062 053 4 552 431 5 062 053 agreement. Policies are cancelled if premiums are not received in the 45 day period. Operating lease commitments - group as lessor 3 821 8 191 3 821 8 191 50 725 986 56 194 066 49 159 621 54 249 667 Reinsurance credit risk LBLIC and LBIC makes use of reinsurance to: Maximum credit exposure - selected items 50 513 775 55 894 406 48 947 831 53 950 590 - Access underwriting expertise; - Enable it to underwrite risks greater than its own risk appetite; and Credit exposure is calculated on the basis of selected items on and off the balance sheet (guarantees and loan - Protect its mortality/ risk book against catastrophes. commitments). 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 Collateral terms and conditions which regulates the relationship between the Group and reinsurers. Credit risk in respect of Refer to note 11.7 for collateral held against the loans and advances. reinsurance is further managed by placing the Group’s reinsurance only with companies that have high credit ratings. * Included in the Group investments is an amount of R1.09 billion (FY2019: R831.1 million) which relates to investments 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 under asset management which do not have credit exposure (Bank: R154.9 million; FY2019: R210.9 million). 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. 122 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 123 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 41. Credit risk continued 2019 Gross loan book exposure by agricultural sector Agricultural Corporate Banking and Commercial Development and Total Stage 1: Stage 2: Stage 3: 2020 Sector Structured Investments Business Banking Performing Under- Non- Agricultural Corporate Banking and Commercial Development and Total Stage 1: Stage 2: Stage 3: Direct Total Direct Indirect Total performing performing Sector Structured Investments Business Banking Performing Under- Non- R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Direct Total Direct Indirect Total performing performing Agri-Business 453 229 453 229 38 494 1 434 226 1 472 719 1 925 949 1 325 797 410 182 189 971 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Agro- - - - 366 421 366 421 366 421 332 795 20 389 13 237 Agri-Business 449 030 449 030 69 938 700 814 770 752 1 219 782 708 487 340 466 170 829 processing Agro- - - - 504 202 504 202 504 202 415 440 10 763 77 998 Citrus 642 672 642 672 82 395 443 723 526 118 1 168 789 1 091 052 62 912 14 824 processing Cotton - - 1 681 76 338 78 020 78 020 65 637 4 349 8 034 Citrus 337 443 337 443 84 093 497 541 581 634 919 076 794 739 75 119 49 219 Dairy - - 331 403 275 185 606 588 606 588 509 724 7 481 89 383 Cotton - - 1 505 291 181 292 686 292 686 213 518 39 234 39 934 Deciduous 388 766 388 766 184 292 168 407 352 699 741 466 671 445 11 512 58 508 Dairy - - 301 836 455 359 757 195 757 195 368 614 59 523 329 058 fruit Deciduous 369 591 369 591 174 958 187 011 361 968 731 559 637 207 32 639 61 712 Equipment - - - 81 937 81 937 81 937 73 068 556 8 312 fruit Feedlot 42 634 42 634 27 457 - 27 457 70 091 55 018 14 192 881 Equipment - - - 64 336 64 336 64 336 54 689 2 914 6 733 Financial 1 018 761 1 018 761 563 306 535 460 1 098 766 2 117 527 1 915 268 153 668 48 592 Feedlot 43 184 43 184 24 628 - 24 628 67 811 55 439 - 12 372 Services Financial 1 049 197 1 049 197 599 108 1 327 744 1 926 852 2 976 049 2 614 387 77 949 283 714 Fishing - - - - - - - - - Services Flowers - - 4 665 - 4 665 4 665 4 665 - - Fishing - - - - - - - - - Fodder - - 84 268 332 170 416 438 416 438 344 134 30 550 41 754 Flowers - - 4 431 - 4 431 4 431 4 431 - - Game - - 194 675 48 925 243 600 243 600 172 281 13 458 57 860 Fodder - - 86 634 157 891 244 525 244 525 172 876 11 697 59 951 Grain 5 895 684 5 895 684 1 102 966 19 297 928 20 400 894 26 296 579 22 003 847 1 715 103 2 572 718 Game - - 190 823 29 223 220 046 220 046 131 517 - 88 528 Inputs - - - 140 471 140 471 140 471 140 471 - - Grain 5 438 209 5 438 209 1 339 164 17 356 469 18 695 633 24 133 842 16 065 892 2 998 618 5 069 336 Inputs 26 712 26 712 80 92 477 92 557 119 269 96 984 22 285 - Inputs - - - 54 390 54 390 54 390 33 290 3 369 17 731 supplier Inputs 26 694 26 694 67 66 723 66 790 93 484 34 287 3 158 56 040 Irrigations - - - - - - - - - supplier scheme Irrigations - - - 253 253 253 253 253 253 225 895 404 26 954 Livestock 58 728 58 728 2 621 775 878 413 3 500 188 3 558 915 2 878 770 181 200 498 945 scheme Logistics - - - 214 183 214 183 214 183 211 362 2 821 - 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 Nuts 133 552 133 552 154 013 293 385 447 399 580 951 507 145 - 73 806 Logistics - - - 272 065 272 065 272 065 272 065 - - Ostriches 4 408 4 408 54 034 - 54 034 58 442 35 027 16 850 6 565 Nuts 216 551 216 551 155 434 81 184 236 618 453 169 403 422 13 164 36 583 Other - - 7 382 309 603 316 984 316 984 257 841 44 883 19 172 Ostriches 4 408 4 408 54 357 - 54 357 58 765 28 145 5 387 25 233 Pork - - 26 312 - 26 312 26 312 16 878 255 9 179 Other 370 996 370 996 6 785 636 724 643 509 1 014 504 740 726 243 534 30 244 Poultry 321 715 321 715 306 430 161 611 468 041 789 755 695 110 109 94 537 Pork 39 614 39 614 22 872 - 22 872 62 486 42 147 8 700 11 639 Subtropical - - 51 484 78 237 129 722 129 722 85 329 1 265 43 128 Poultry 402 343 402 343 229 643 182 807 412 450 814 793 737 948 871 75 975 Fruit Subtropical - - 32 784 104 113 136 897 136 897 96 847 9 447 30 604 Sugarcane 662 000 662 000 369 279 260 008 629 288 1 291 288 513 667 663 137 114 483 Fruit Table grapes - - 111 167 58 255 169 422 169 422 166 884 700 1 838 Sugarcane 633 486 633 486 269 337 267 346 536 684 1 170 170 961 764 128 532 79 874 Tea 24 906 24 906 27 801 - 27 801 52 707 27 162 - 25 545 Table grapes - - 239 586 187 212 426 798 426 798 345 633 8 592 72 573 Timber 618 485 618 485 68 706 439 242 507 947 1 126 433 1 091 180 - 35 253 Tea - - 28 204 - 28 204 28 204 24 017 - 4 187 Tobacco - - 4 858 790 915 795 773 795 773 379 592 269 967 146 214 Timber 504 196 504 196 70 487 415 463 485 950 990 145 950 275 8 632 31 239 Vegetables - - 394 653 311 031 705 684 705 684 516 313 56 303 133 068 Tobacco - - 4 725 147 191 151 916 151 916 77 190 34 312 40 413 Wine 280 231 280 231 298 576 399 629 698 205 978 435 927 682 4 558 46 196 Vegetables - - 369 962 567 111 937 072 937 072 641 891 113 210 181 971 Wine 192 214 192 214 327 333 509 239 836 572 1 028 786 953 571 14 412 60 804 Total 10 572 483 10 572 483 7 112 152 27 488 180 34 600 332 45 172 816 37 112 128 3 708 685 4 352 003 Total 10 296 671 10 296 671 7 461 223 27 384 229 34 845 452 45 142 123 32 414 454 4 546 832 8 180 838 124 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 125 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 42. Credit risk continued 42.2 Credit risk continued Credit risk concentration by credit rating (rated externally) 42.1 Credit exposure by geographic/regional distribution The table below provides an analysis of the ratings attached to the Group’s exposure to instruments subject to credit risk: Loan Performance Bonds Cash, deposits and Collective Invest- Net working Total 2020 Corporate Commercial LDFU Total Total Stage 1: Stage 2: Stage 3: similar securities ment Schemes capital assets Banking and Development Preforming Under-per- Non-per- 2020 R’000 R’000 R’000 R’000 R’000 Structured and Business forming forming AAA 220 699 516 008 - - 736 707 Investments Banking AA+ 125 125 92 417 130 781 - 348 323 Province R’000 R’000 R’000 R’000 % R’000 R’000 R’000 AA 151 349 6 439 - - 157 788 Eastern Cape 1 083 222 1 401 725 - 2 484 947 5% 2 254 149 46 343 184 455 AA- 309 7 249 - - 7 558 Free State 74 233 4 981 475 - 5 055 707 11% 3 624 458 560 839 870 410 A+ 98 - - - 98 Gauteng 5 436 563 6 832 642 62 109 12 331 314 27% 7 222 971 769 984 4 276 252 A - - - - - KwaZulu-Natal 136 574 1 018 336 - 1 154 910 3% 853 235 163 621 188 054 A- 404 - - - 404 Mpumalanga - 1 903 956 - 1 903 956 4% 1 276 797 404 051 223 109 BBB+ - - - - - Northern Cape 1 094 972 6 857 870 - 7 952 842 18% 7 227 894 317 005 407 942 BBB - - - - - Limpopo 1 136 717 4 448 465 - 5 585 182 12% 3 445 759 1 423 909 715 514 BBB- - - - - - North West 765 754 3 945 719 - 4 711 473 10% 2 803 743 770 271 1 137 459 BB+ - - - - - Western Cape 568 636 3 455 264 - 4 023 900 9% 3 705 448 140 809 177 643 BB - 248 859 - - 248 859 Gross loan book 10 296 671 34 845 452 62 109 45 204 233 100% 32 414 454 4 546 832 8 180 838 Other * - 41 536 119 - - 41 536 119 Not rated ** 1 617 2 074 387 - 719 546 2 795 550 Loan Performance Total 499 601 44 481 478 130 781 719 546 45 831 406 2019 Corporate Commercial LDFU Total Total Stage 1: Stage 2: Stage 3: Banking and Development Preforming Under-per- Non-per- 2019 Structured and Business forming forming Investments Banking AAA 817 400 238 979 - - 1 056 379 Province R’000 R’000 R’000 R’000 % R’000 R’000 R’000 AA+ 96 311 97 646 - - 193 957 Eastern Cape 922 439 1 089 965 - 2 012 404 4% 1 863 355 27 379 121 670 AA 217 714 246 377 - - 464 091 Free State 68 369 7 005 900 - 7 074 269 16% 5 142 063 600 450 1 331 756 AA- 23 743 3 029 - - 26 772 Gauteng 5 619 332 5 540 723 67 857 11 227 911 25% 9 928 880 752 138 479 038 A+ - 1 733 - - 1 733 KwaZulu-Natal 552 523 1 552 617 - 2 105 141 5% 1 079 401 567 729 458 011 A 409 - - - 409 Mpumalanga - 1 869 771 - 1 869 771 4% 1 120 122 476 392 273 257 A- 1 822 927 - - 2 749 Northern Cape 380 260 6 077 253 - 6 457 513 14% 5 950 075 275 544 231 895 BBB+ - 166 000 - - 166 000 Limpopo - 3 278 304 - 3 278 304 7% 2 798 313 164 337 315 653 BBB - - - - - North West 970 046 5 440 325 - 6 410 371 14% 4 680 149 733 121 997 100 BBB- - - - - - Western Cape 2 059 514 2 745 474 - 4 804 988 11% 4 549 770 111 595 143 623 BB+ 30 257 2 101 992 - - 2 132 249 Gross loan book 10 572 483 34 600 333 67 857 45 240 672 100% 37 112 128 3 708 685 4 352 003 BB - - - - - Other * - 43 225 160 - - 43 225 160 Not rated ** 9 832 428 591 586 286 - 1 024 709 Total 1 197 488 46 510 434 586 286 - 48 294 208 Refer to notes 4, 7 and 8 for Bond movements * This includes the Corporate Banking and Structured Investments, Commercial Development and Business Banking and LDFU loans. These clients 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. ** These assets do not have a formal rating and mainly relate to premium debtors. 126 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 127 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 42.3 Credit exposure by line of business - loan book 42.5 Credit risk management practices in relation to the recognition and measurement of expected credit 2020 2019 losses Gross loan book R’000 % Total R’000 % Total Having early adopted IFRS 9 - Financial Instruments with effect 1 April 2015, the Group applies a three-stage approach to Continuing operations the measuring expected credit loss (ECL) on debt instruments accounted for at amortised cost. Assets migrate through Corporate Banking and Structured Investments 10 296 671 23% 10 572 483 23% the following three stages based on the change in credit quality since initial recognition: Commercial Development and Business 34 845 452 77% 34 600 332 76% Banking 1. Stage 1: 12-months ECL Total gross loan book from continuing opera- 45 142 123 45 172 816 For exposures where there has not been a significant increase in credit risk since initial recognition and that there are not tions credit impaired upon origination, the portion of the lifetime ECL associate with the probability of default events occurring Less: Expected Credit Loss (ECL) (3 582 049) (1 947 656) within the next 12 months recognised. Carrying amount of loans from continuing 41 560 074 43 225 160 operations 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 Discontinued operations credit impaired, a lifetime ECL is recognised. LDFU 62 109 0% 67 857 0% Total gross loan book from discontinued 62 109 67 857 3. Stage 3: Lifetime ECL - credit impaired operations If the loan’s credit risk increases to the point where it is considered credit-impaired, interest revenue is calculated based Less: Expected Credit Loss (ECL) (62 109) (61 598) Carrying amount of loans from discontinued - 6 259 on the loan’s amortised cost (that is, the gross carrying amount less the loss allowance). Lifetime ECLs are recognised, as in Stage 2. operations Balance per annual financial statements - total 41 560 074 100% 43 231 419 100% carrying amount Methods, inputs, assumptions and estimation techniques used to measure expected credit losses Methods used to Method Inputs Assumptions Estimation techniques Balance as per the following notes: 12. & 24 determine 12-month and lifetime Expected loss methods PD, LGD Current PDs are the output PDs: migration matrices The Bank’s Commercial Development and Business Banking division, which provides loans to agricultural cooperatives and expected credit losses based on PD, LGD and and EAD of the calibrated rating for multi-year migration agribusiness companies, continues to account for the bulk of the Bank’s overall credit exposure. The LDFU loans constitute EAD; expected credit over the model; PDs in subsequent effects, term structure less than 1 percent (FY2019: 1 percent) of total loans and the LDFU operations have been classified as discontinued. losses are discounted to lifetime of years are determined based analysis for seasoning effect, the reporting date using the loan. on migration, seasoning and macro-economic overlay for 42.4 Credit exposure by maturity - Gross loan book the effective interest cyclicality effects. cyclicality. Based on the maturity of the loans as disclosed in note 11. and 12., the credit exposure (excluding insolvent loan balances) by maturi- rate. ty is as follows: The current LGD is the LGD: LGD model calibrated 2020 2019 output of the LGD model; with own data history. R’000 % R’000 % analyses showed that the Short-term 15 056 501 33% 14 739 294 33% subsequent LGDs are the EAD: CCF modelling with Medium-term 5 936 487 13% 6 761 331 15% same as the first year’s LGD. own data, inclusion of Long-term 24 125 180 53% 23 672 191 52% repayment schedules. 45 118 168 100% 45 172 816 100% Lifetime is the contractual In terms of the exposure profile by maturity, the Land Bank’s exposure concentrates on the long-term - i.e. loans extended for tenor of the loan; no periods of five years and longer. The exposure as at 31 March 2020 is R24.1 billion (FY2019: R23.7 billion). prepayments assumed. 128 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 129 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Whether a credit risk According to the Stage Informa- While each loan is firstly Stage classification is fact Low credit risk has increased significant- 2 definition; different tion on considered on its own, the fi- based using current flags and Although some financial assets within the Bank’s portfolio might meet the definition of low credit risk, the Bank opted not ly since initial recogni- Land Bank specific single loan nal classification is performed information available in the to apply this in application of its impairment methodology as given the nature of the Bank’s business it is deemed not to be tion identifiers including the level, such as on a client-level, i.e. the worst Land Bank’s data base. prudent not to consider whether a significant increase in credit risk exits. minimum 30 days past Loans man- stage of all loans is assumed Macro-economic factors due criteria have been agement risk to be the correct stage for all Maximum stage across all IFRS 9 introduced the use of macro-economic factors when calculating ECL. To the extent that is relevant and practical selected for the identifi- indicators, loans of the same client. loans per client rule applies. the Group has used macro-economic factors in the ECL methodology. Such factors include but are not limited to the cation of SICR. arrears World Food Index as well as the Volume of Imports of Goods and Services, and requires an evaluation of both the current information, and forecast direction of the economic cycle. Incorporating forward looking information increases the level of judgement Early Warning Indica- etc. as to how changes in these macro-economic factors will affect ECL. The methodology, assumptions and macro-indices, tors (a combination of including any forecasts of future economic conditions are reviewed regularly. macroeconomic factors For information on financial assets’ credit risk exposure, including significant credit risk concentrations please see note 40.1 (SA Maize Volatility Index - SAVI, Agricul- Defaults and write offs: expected credit losses tural GDP, Interna- Land Bank defines a default as unwillingness to pay and/ or past due > 90 days. tional Food Index, and In order to determine whether financial assets are credit-impaired Land Bank considers: business rules) have been implemented for - 90 days past due on a material debt obligation; the monitoring and - Credit obligation put on non-accrual status, i.e. Interest is suspended; classification of SICR. - Any bad debt write off, or account specific provisions; Whether a financial as- According to default Informa- While each loan is firstly Stage classification is fact - Sale of credit obligation at a material economic loss; set is a credit-impaired definition; in general, tion on considered on its own, the based using current flags and - Distressed restructuring of credit obligations; financial asset unlikeliness to pay as single loan final classification is per- information available in the - Obligor’s bankruptcy or similar protection such as business rescue. well as >90 days past level, such as formed on a client-level, i.e. Land Bank’s data base. Write off policy due are the criteria con- Loans man- if one loan is considered to The Group defines bad debt as an irrecoverable debt or uncollectible debt, where all the recovery processes and or steps sidered; these criteria agement risk be credit-impaired (stage 3) Maximum stage across all are exhausted and the client or counter parties do not have any means whatsoever to repay the debt that is due and are interpreted in terms indicators, then all loans of the same loans per client rule applies. payable and there are no reasonable prospects of success. of Land Bank’s identifier arrears clients are considered to be e.g. for specific cases of information, so as well. As a development bank, the Land Bank will endeavour to ensure continuity of agricultural production, and the Group shall unlikeliness to pay. etc. 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 issue 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: 130 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 131 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 i) The estate is insolvent and will be administered in accordance with Section 34 of the Administration of Estates Act 66 Stage 1 ¹ Stage 2 ² Stage 3 ² Total of 1965; or 2020 Note R’000 R’000 R’000 R’000 ii) If there is 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 Gross loans as reported for 2020 11.3 32 414 453 4 546 831 8 180 839 45 142 123 - 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 Stage migration - improvements 351 206 (104 867) (246 339) - Any circumstance which in the opinion of the Chief Executive Office, Chief Financial Officer and/or Executive Manager - Stage 2 to 1 263 577 (263 577) - Legal Services prohibits the recovery of the debt (authorisation in line with the DOP); or - Stage 3 to 1 87 629 - (87 629) - Any circumstance which is in the public interest or may be required as a result of amendments or enactments of - Stage 3 to 2 - 158 710 (158 710) legislation. From time to time the Group has financial assets that are written off but may still be subject to enforcement activity. Stage migration - deterioration (7 325 539) 2 273 521 5 052 018 Such financial assets are written off when the aforementioned criteria has been met. Any recoveries due to enforcement - Stage 1 to 2 (3 148 111) 3 148 111 - activities are treated as bad debt recoveries in the year which such recoveries are made. This amounted to R15 million - Stage 1 to 3 (4 177 428) - 4 177 428 (FY2019: R9.1 million) refer to 11.6. - Stage 2 to 3 - (874 590) 874 590 Modification Net stage migration (6 974 333) 2 168 654 4 805 679 The gross carrying amount of loans modified and the related gains/(losses) recognised where no derecognition took place: Expected credit losses as reported for 2020 11.3 (311 591) (170 749) (3 091 387) (3 573 726) Gross loans Gain/(loss) Change in modified on modifica- expected Stage migration - improvements 4 743 149 277 (154 020) tion credit loss - Stage 2 to 1 4 149 (4 149) - due to mod- - Stage 3 to 1 594 - (594) ification - Stage 3 to 2 - 153 426 (153 426) FY2020 FY2020 FY2020 R’000 R’000 R’000 Stage migration - deterioration (1 480 398) (272 739) 1 753 137 Stage 1 1 070 502 (19 023) (376) - Stage 1 to 2 (87 741) 87 741 - Stage 2 59 930 (245) (109) - Stage 1 to 3 (1 392 657) - 1 392 657 Stage 3 41 462 115 (25) - Stage 2 to 3 - (360 480) 360 480 Total 1 171 894 (19 153) (510) Net stage migration (1 475 655) (123 462) 1 599 117 Gross loans Gain/(loss) Change in modified on modifica- expected ¹ 12 month expected credit losses tion credit loss ² Life time expected credit losses due to mod- Stage 1 ¹ Stage 2 ² Stage 3 ² Total ification 2019 Note R’000 R’000 R’000 R’000 FY2019 FY2019 FY2019 R’000 R’000 R’000 Gross loans as reported for 2019 11.3 37 112 128 3 708 685 4 352 003 45 172 816 Stage 1 26 588 (1 442) (30) Stage 2 84 542 (3 470) (205) Stage migration - improvements 504 236 (225 157) (279 079) Stage 3 626 - - - Stage 2 to 1 290 308 (290 308) - Total 111 756 (4 912) (235) - Stage 3 to 1 213 928 - (213 928) - Stage 3 to 2 - 65 151 (65 151) Stage migration (Gross loans and relating expected credit losses) Stage migration - deterioration (4 055 159) 2 523 823 1 531 336 - Stage 1 to 2 (2 806 740) 2 806 740 - - Stage 1 to 3 (1 248 419) - 1 248 419 - Stage 2 to 3 - (282 917) 282 917 132 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 133 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Net stage migration (3 550 923) 2 298 666 1 252 257 Monitoring the liquidity position The Asset and Liability Management Committee (ALCO) monitors the group’s liquidity and maturity mismatches. ALCO reviews the quality of funding and ensures that the sources of funding are adequately diversified. It is the Bank’s policy to Expected credit losses as reported for 2019 11.3 (341 016) (125 461) (1 474 989) (1 941 466) maintain an adequate liquidity buffer to meet its cash flow requirements. Stage migration - improvements 2 791 36 760 (39 551) The Bank manages its liquidity requirements by the issuance of call bonds, Land Bank bills, Land Bank debentures and - Stage 2 to 1 1 561 (1 561) - promissory notes. Loans, undrawn facilities and committed overdraft facilities are also available to the bank should the - Stage 3 to 1 1 230 - (1 230) need for additional funding arise. - Stage 3 to 2 - 38 321 (38 321) Liquidity risk is managed by matching the liabilities with assets that have similar maturity profiles. Expected cash flows are Stage migration - deterioration (161 070) 23 322 137 748 taken into account when reviewing the investment strategy annually for the allocation of financial instruments. - Stage 1 to 2 (47 304) 47 304 - The Bank’s Liquidity risk is managed by maintaining a pool of unencumbered assets and additional liquidity as calculated by - Stage 1 to 3 (113 766) - 113 766 a behavioural model for credit, market and operational risk. The Bank voluntary adopted certain liquidity and funding risk - Stage 2 to 3 - (23 982) 23 982 management principles from the Basel accord with Board approved deviations (to cater for the Bank’s unique business model of being a single-shareholder, non-deposit taking institution that cannot offer transactional products) to report Net stage migration (158 279) 60 082 98 197 Liquidity Coverage Ratio (LCR) and Net Stable Funding Ration (NSFR). ¹ 12 month expected credit losses Insurance activities ² Life time expected credit losses 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 42.6 Liquidity risk 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. Definition Liquidity risk relates to the Bank’s possible inability to meet its payment obligations when they fall due. This may be caused Liquidity risk is managed by matching the liabilities with assets that have similar maturity profiles. by the Bank’s possible inability to liquidate assets and/or to obtain funding to meet its liquidity needs. LBIC invested its surplus cash in a portfolio of short-term interest bearing assets in the current reporting period. The The Group is exposed to liquidity risk via its: board decided to adopt a conservative investment strategy for the company considering the volatility of crop business. - Ability to borrow from the market, at market related interest rates; - Ability to attract wholesale funders at favourable interest rates; (i) Asset Liability matching risk - Liquid assets ratios are not adequate for prudential requirements; Asset Liability Matching (ALM) risk is the risk that the company’s assets are not adequately matched to back the company’s - Ability to raise long term funding to match long term assets; insurance contract liabilities and financial liabilities. - Lack of standby lines of credit. The main factor effecting the ALM risk is the investment performance of financial assets backing the underlying insurance To manage liquidity risk, the Bank has a treasury policy that takes into account limits to manage its liquidity. A borrowing contract and financial liabilities. and funding plan and a liquidity contingency plan will be maintained taking into account the structure of the Group’s balance sheet as well as its dynamics within the South African agricultural market. The investment policy allocates assets backing policyholder’s liabilities to cash and bonds. The bonds have varying Control and management maturities, but are all immediately tradeable on the bond market. The policyholders’ liability was calculated using the The following control measures are in place: discounted mean term of the liability in the current year. In the prior year, the liability was calculated using the prevailing average medium and long term government bond rates less fund manager fees. The risk is that the rate earned on the - The Bank monitors the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) measurements as investments does not match the rate use to calculate the liabilities. There is a notional allocation of assets to liabilities, with underpinned by the internationally accepted Basel Accord on monthly basis. sufficient surplus assets to cover any ALM mismatch. - A liquidity committee (a sub-committee of ALCO) meets on a monthly basis to determine the required liquidity levels for the following three months. The remaining financial liabilities, most notably the intercompany loan, are backed by a mixture of cash, bonds and equity. - Active and detailed monitoring of clients cash flow requirements. - The Bank reviews its treasury policies in line with market best practices on an annual basis. Liquidity Coverage Ratio - Actively attracting new investors and funding sources. The LCR aims to ensure that banks maintain adequate levels of unencumbered high quality assets (numerator) against net - Increased investor limits and appetite. cash outflows (denominator) over a 30 day significant stress period. - A Domestic Medium Term Note (DMTN) programme. - Active management of maturities. 134 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 135 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 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. - The Bank has historically enjoyed a 100% roll-over rate from PIC and CPD debt investments and this behaviour is expected to continue. For this reason, the Bank excludes contractual maturities from these institutions from the 30 day maturity profile. - Acknowledge a deviation from the regulation in terms of assumptions made regarding roll-over rates with investors to assess the likelihood of roll-over. The Bank will always apply the minimum roll-over rate (between historic roll-overs 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. Group Bank 2020 2019 2020 2019 The tables below summarise the maturity analysis for financial R’000 R’000 R’000 R’000 liabilities: Financial liabilities Trade and other payables 1 334 646 481 254 824 776 72 645 Lease liabilities 50 609 70 518 50 335 70 089 Short-term insurance liabilities 237 227 329 860 Long-term policyholders’ liabilities 44 341 47 124 Funding and liabilities at amortised cost 41 283 820 44 257 919 41 283 820 44 257 919 Total financial liabilities 42 950 643 45 186 675 42 158 931 44 400 653 136 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 43. Maturity analysis for financial assets and liabilities Maturity analysis is presented on undiscounted cash flows as per IFRS 7.42E. < 3 months 3 - 6 months 6 - 9 months 9 - 12 months 1 - 5 years > 5 years Open ended Total 2020 Notes R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Financial Assets Cash and cash equivalents 4 - - - - 722 711 722 711 Trade and other receivables 5 638 413 211 844 991 69 693 37 509 340 120 1 261 607 Short-term insurance assets 6 169 906 - - - - - - 169 906 Repurchase agreements 7 - - - - - - 19 495 19 495 Investments 8 686 473 56 384 - - 4 877 103 1 409 341 2 157 178 Strategic trading assets 9 - - - - - - 5 153 5 153 Derivatives assets 10 - - - - - - 79 064 79 064 Loans and advances 11 248 326 15 113 847 946 258 3 582 068 10 548 321 12 899 791 - 43 338 611 Long term insurance assets 3 707 - - 6 401 1 678 - - 11 786 Total assets 1 746 825 15 382 075 947 249 3 658 162 10 554 913 12 900 403 2 575 884 47 765 512 Financial Liabilities Trade and other payables 19 1 131 876 85 662 51 412 65 538 158 - - 1 334 646 Short-term insurance liabilities 6 237 227 - - - - - - 237 227 Long-term policyholders’ liabilities 20 (750) - - 30 483 14 608 - - 44 341 Funding liabilities 21 8 534 516 7 396 468 3 364 051 3 585 441 24 760 037 4 801 951 - 52 442 465 Lease liabilities 16.2 7 151 7 180 7 193 7 231 27 120 - - 55 875 Total Financial Liabilities 9 910 020 7 489 310 3 422 656 3 688 693 24 801 924 4 801 951 - 54 114 553 < 3 months 3 - 6 months 6 - 9 months 9 - 12 months 1 - 5 years > 5 years Open ended Total 2019 Notes R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Financial Assets Cash and cash equivalents 4 95 560 96 034 18 942 56 639 22 842 97 2 923 007 3 213 121 Trade and other receivables 5 661 230 9 225 37 597 42 031 149 628 78 506 829 366 Short-term insurance assets 6 254 017 - - - - - 254 017 Repurchase agreements 7 - - - - - - 30 257 30 257 Investments 8 80 541 12 733 2 040 82 959 157 734 231 273 2 614 254 3 181 534 Derivatives assets 10 - - - - - - 80 587 80 587 Loans and advances 11 263 711 408 458 370 606 314 509 27 521 732 15 816 880 - 44 695 897 Long term insurance assets 20,5 2 802 211 259 493 2 177 2 057 - 7 999 Total assets 1 357 861 526 661 429 444 496 631 27 704 634 16 050 935 5 726 611 52 292 777 Financial Liabilities Trade and other payables 19 210 337 188 860 12 518 22 911 4 647 - 41 981 481 254 Short-term insurance liabilities 6 329 860 329 860 Long-term policyholders’ liabilities 20 2 468 2 467 1 765 1 326 21 720 17 378 47 124 Funding liabilities 21 9 282 622 5 585 931 6 029 336 4 931 774 42 517 763 8 799 531 77 146 957 Lease liabilities 16.2 7 844 7 871 7 616 7 137 55 780 86 248 Total Financial Liabilities 9 833 131 5 785 129 6 051 235 4 963 148 42 599 909 8 816 909 41 981 78 091 443 138 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 139 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 43.1 Market risk 43.2 Interest rate risk Definition When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest Market risk is defined as the risk of loss due to adverse movements in interest rates, credit spreads and in the prices of rates applicable to assets and liabilities can be adjusted in such a manner that the bank benefits from the expected interest equities, currency and commodities. 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 2020 was 89.62%floating (FY2019: In other words, values of financial instruments may change resulting in both potential gains and losses as a result of: 88.8% floating). - Changes in interest rates (fair value and cash flow interest rate risk); and Interest rate risk monitoring - Changes in market prices (price risk). 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 For the Group, market risk mainly emanates from interest rate risk arising from its lending portfolio as well as wholesale rate views as the official forecast of interest rates. Sensitivity analysis is performed by the Risk Management department funding. The Group’s asset and liability management of the balance sheet is exposed to market risk via interest rate where the interest rate risk mismatch limit (fixed vs floating) is set. movements. This impacts the Bank’s profitability and net interest margin earned. In other words, the Bank’s main market risk exposure sits in its banking book, as it does not have an active trading book where market risk is assumed. Fixed/ floating rate funding When interest rates are expected to change, the ratio of the interest rate mismatch between fixed and floating interest A Treasury policy as well as a Hedging policy takes into account interest rate movement and various limits have been rates applicable to assets and liabilities can be adjusted in such a manner that the bank benefits from the expected interest established to effectively manage market risk of the Group. 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 2020 was 89.62%floating (FY2019: Objective of market risk monitoring 88.8% floating). The objective of market risk monitoring is to prevent or restrict the impact that adverse movements in market rates or prices, such as interest rates, foreign exchange rates, equity prices, credit spreads and/or commodity prices would have on Interest rate risk policy the Group. The Bank reviews its interest rate risk policy in line with market practices on an annual basis. Market risk - Insurance activities Sensitivity analysis For assets backing policyholders’ liabilities, the risk to the company is that the investment returns earned are below the Sensitivity analysis has been determined based on the exposure to interest rates for derivatives and other financial liabilities actuary’s assumptions. For shareholder’s assets, the risk is that capital is not preserved and that investment returns earned and assets at the statement of financial position date. A 100 basis point increase or decrease is used when reporting are below expectations. The company manages market risk through the following: interest rate risk and represents management’s assessment of a reasonably possible change in interest rates on the Group’s net interest income. 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 The effect of a reasonable possible change in interest rates, as explained above, and all other variables held constant, the of liabilities and the risks to which the assets and liabilities of the company are exposed. Assets backing policyholders’ Bank’s profit would be as follows using data as at 31 March 2020: 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; 31 March 2020 31 March 2019 - Appointment of investment managers and establishing investment mandates with each investment manager. Investment Net interest Effect on Net inter- Effect on mandates set out investment guidelines which cover limitations on exposures to volatile assets, the use of derivatives; Bank income equity est income equity limits on asset concentration and limits on exposure to particular types of assets such as unlisted equities and property Incremental change in yield R’000 R’000 R’000 R’000 and hedge funds; - Monitoring of the performance of investment managers against “appropriate benchmarks” as well as compliance with mandates; and Expected NII  723 600 - 1 402 570 - - Ensuring proper governance in the investment process. Potential movement: 100 Basis point up 782 810  59 206 1 572 271 169 701 Potential movement: 100 Basis point down  664 400 (59 206) 1 232 869 (169 701) ii) Appointment of an independent investment advisor. The responsibilities of the investment advisor are set out below: - Monitor implementation of investment strategies; and An interest rate sensitivity analysis was performed by applying a parallel shift of 100 basis points up and down on interest - Monthly monitoring of and reporting on investment performance. 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 investment advisor provides quarterly feedback on the performance of investment managers to the Investment and the financial year. Actuarial Committee who in turns provides quarterly feedback to the LBLIC Board. 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. 140 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 141 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 The Land Bank implemented an interest rate swaps program in the 2017/18 financial year with the implementation of 43.3 Currency risk the program being conducted on an increasing scale over a time period of five years, as per the Bank’s Interest Rate Risk Management Policy. The interest rate risk swaps program involves hedging the basis risk that emanates from the mismatch The group is exposed to the risk of fluctuations in foreign currencies, as a result of future transactions and investments in between the Bank’s JIBAR-linked funding liabilities and its prime-linked assets. The underlying nominal values of the Bank’s foreign companies. The group makes use of forward exchange contracts to manage this risk. swaps remain 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 LBLIC is exposed to currency risk resulting in the fluctuation in the value of foreign financial instruments because of the effect of the hedging on the Bank’s interest rate risk sensitivity is expected to become more pronounced. 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 Details of the Bank’s hedging program can be found in note 10. 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 Interest rate risk - Insurance activities in the statement of financial position: 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 United South fixed income securities, although the short-term money market instruments are also effected, albeit to a lesser extent. States African Rand The company holds a variety of government and corporate bonds with varying maturities, which carry fixed and floating Dollar R’000 interest rates. Exposure to interest rate risk is monitored through various methods including scenario and stress testing Group US$’000 which calculates the market exposure based on interest rate movements (of -50/100 Basis Points and +50/100 Basis 31 March 2020 Points). Equities - unit trusts (USD base currency) 7 863 116 214 Balanced funds 1 480 21 871 Sensitivity analysis on interest bearing assets Commodities - metals 320 4 733 The market exposure that was calculated at 31 March was as follows: Cash on deposit at call (494) (7 304) Impact on the statement Foreign currency exposure 9 169 135 514 of profit or loss and other comprehensive income Exchange rates (ZAR:USD): 31 March 31 March Closing rate - 31 March 2020 17,56 0,06 2020 2019 Average rate 14,78 0,07 LBLIC R’000 R’000 Incremental change in yield United South 100 Basis Points decrease 3 845 10 386 States African Rand 50 Basis Points decrease 1 923 4 681 Dollar R’000 50 Basis Points increase (1 923) (4 454) Group US$’000 100 Basis Points increase (3 845) (9 374) 31 March 2019 Equities - USD base currency unit trusts 9 863 129 107 LBIC Balanced funds 2 765 36 197 Incremental change in yield Commodities - metals 362 4 733 100 Basis Points decrease 43 150 Cash, deposits and similar securities (100) (1 313) 50 Basis Points decrease 22 75 Foreign currency exposure 12 889 168 723 50 Basis Points increase (22) (75) 100 Basis Points increase (43) (150) Closing rate - 31 March 2019 14,30 0,07 Average rate 13,09 0,08 A portion of the assets backing policyholders’ liabilities are held in bonds and the balance is held in cash and cash equivalents. Sensitivity analysis - currency risk The foreign currency exposure that was calculated at 31 March was as follows: 142 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 143 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Impact on the statement Mortality risk of profit or loss and other Mortality risk is the risk to the Group that mortality experience in future is worse than provided for in premium rates. comprehensive income Higher than expected mortality will give rise to losses and will necessitate an increase in valuation assumptions. 31 March 31 March This risk is mitigated by the following factors: LBLIC 2020 2019 Incremental change in yield * R’000 R’000 - Adequate reinsurance arrangements to limit exposure per individual and manage concentration of risks; USD - Adequate pricing and reserving; 10% decrease (13 551) (16 872) - Specific testing for HIV/ AIDS is carried out in cases where applications for risk cover exceed a set limit; and 5% decrease (6 776) (8 436) - Annual reviews of mortality and morbidity experience are conducted by the statutory actuary to ensure that corrective 5% increase 6 776 8 436 action is taken where necessary. 10% increase 13 551 16 872 Persistency risk Expected credit loss Persistency risk (lapse risk) relates to policies being terminated before their final due dates as a result of an increased Sensitivity analysis 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 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 de- The Group’s reserving policy is based on actual experience, adjusted for expected future changes in experience, to ensure fault - LGD) at the statement of financial position date. A 5% increase or decrease in the LGD is used when reporting that adequate provision is made for lapses. impairment risk and represents management’s assessment of a reasonably possible change in impairment expenses on the Group’s profit. Expense risk Before expenses are incurred, they are checked for budget availability. For the exceptional expenses, the company has a Based on the effect of a reasonable possible change in interest rates, and all other variables held constant, the Bank’s profit certain approval process. This is monitored in monthly reporting by comparing actual and budgeted expenses. would be as follows using data as at 31 March: Reinsurance risk Interest income Net im- Loans and Effect on LBLIC has reinsurance cover to reduce risks proportionally, as well as to limit exposure per event in order to limit the pairment advances equity impact per event on the current year’s earnings. charges, claims and The cover is placed on the local reinsurance market. The core components of the reinsurance program comprise: recoveries - Individual excess of loss which limits exposure per policyholder to R1 million, prior to the effect of the 50% quota share treaty; and Rate analysis R’000 R’000 R’000 R’000 - Individual quota share which provides protection of 50% of the risk per policy, to the maximum of R1 million. 31 March 2020 As at 31 March 2020 : Base 4 692 661 1 807 700 41 560 074 The LBLIC Board approves the reinsurance renewal process on an annual basis. The reinsurance program is in place with a Potential movement: -5% 4 701 838 1 365 000 42 011 951 451 877 local reinsurer which has a credit rating of AA-. Potential movement: 5% 4 683 484 2 254 447 41 104 150 (455 924) Claims risk The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent 31 March 2019 claims are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating As at 31 March 2019 : Base 4 920 302 1 188 033 43 225 160 controls that are designed to contain and monitor claims risks. Potential movement: -5% 4 926 385 921 953 43 497 323 272 163 Potential movement: 5% 4 914 219 1 462 017 42 945 093 (280 067) 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 43.4 Insurance risk 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 2020 LBLIC believes that its 43.4.1 Insurance risk - long-term IBNR liability for claims is adequate. There were no outstanding claims. LBLIC provides mortgage and credit life insurance for persons who take out loans with the Land Bank. Until 2008, LBLIC Sensitivity analysis only had one product in issue which was a non profit decreasing term assurance that paid the outstanding amount of a The objective of the sensitivity analysis is to demonstrate the effect on the policyholders’ liability for changes in key Land Bank mortgage loan at death. Since then, LBLIC in conjunction with its actuaries, has developed and issued a num- assumptions underlying the valuation of liabilities. ber of new generation mortgage and credit life products. The sensitivity analysis illustrates the effect of a change in a particular assumption on the value of the policyholders’ liability as at 31 March 2020, but this cannot generally be used to determine how future earnings or profitability will be affected. 144 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 145 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 The percentage change in the assumptions chosen for the sensitivity analysis is to illustrate the change in value given the 43.4.2 Insurance risk - short-term change in assumption and does not represent the possible range of worst or best case experience expected. LBIC provides indemnity for crops, motor vehicles and property, as well as liability cover. LBIC manages insurance risks For a given change in one assumption, all other assumptions are left unchanged. No allowance has been made for any pos- through its underwriting strategy and reinsurance arrangements. sible 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 LBIC provides indemnity for crops while still on the field, against hail, drought, fire and excessive rain fall. Cover ceases as there are no surrender values under any policies. Lapses and other terminations will therefore result in an actuarial surplus soon as harvesting has taken place, or when certain date limits have been reached. Motor cover insures risks associated at each future valuation). 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. 2020 Value Change Policyholders’ liability - Individual Life R’000 R’000 % Engineering cover insures risks associated with the possession and use of machinery or equipment in the form of irrigation Base value 30 874 systems on farms. Liability cover insures risks relating to the incurring of a liability other than relating to a risk covered Investment return -1% 31 453 579 1,90% more specifically under another insurance contract. Mortality +10% 31 442 568 1,80% Insurance risk arises from: Expenses +1% 31 432 558 1,80% - Fluctuations in the timing, frequency and severity of claims and claim settlements relative to expectations; +10% 34 023 3 149 10,20% - Inaccurate pricing of risks when underwritten; - Inadequate reinsurance protection; 2020* Value 1 Change - Inadequate reserving; and Policyholders’ liability - Group Life R’000 R’000 % - Fraudulent claims. Base value - Investment return +1% from 7.3% to 8.3% - - The risks under any one insurance contract are the frequency with which the insured event occurs and the uncertainty of -1% from 7.3% to 6.3% - - the amount of the resulting claims. The principal risks the insurance companies face are that the actual claims and benefit Mortality +10% 1.1 x mortality - - 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 -10% 0.9 x mortality - - claims data are reviewed annually by external actuarial consultants. External assessors assist with quantifying the value of claims reported. * The results at group are all zero mainly because of negative reserves coming through in the correct year. This is a results of inflow being significantly higher than outflow. With the SAP 104 methodology, we do not recognise negative liabilities, these are By the very nature of an insurance contract, this risk is random and therefore unpredictable. Changing risk parameters and made zero. 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 2019 Value Change year from the estimate established. Policyholders’ liability - Individual Life R’000 R’000 % (i) Pricing risk Base value 39 649 Both LBLIC and LBIC bases their pricing policy on the theory of probability, with consideration to historical claims data. Investment return 1% from 8.3% to 9.3% 38 611 (1 039) (2,62%) Acquisition and administration costs, as well as reinsurance costs are included in the pricing considerations as well as a -1% from 8.3% to 7.3% 40 785 1 135 2,86% profit loading for the cost of capital. Mortality 10% 1.1 x mortality 41 274 1 625 4,10% -10% 0.9 x mortality 37 984 (1 665) (4,20%) Underwriting limits are set for the underwriting manager and brokers. Underwriting performance is monitored Expenses 5% from 80% to 84% 40 526 877 2,21% continuously and the pricing is adjusted accordingly. Risk factors considered as part of the review include factors such as -5% from 80% to 76% 38 771 (878) (2,21%) the type of asset covered and the related commodity price, past loss experiences and risk measures taken by the insured. The net claims ratio for LBIC, which are important in monitoring insurance risk are summarised below: 2019 Value Change Policyholders’ liability - Group Life R’000 R’000 % Loss history 2020 2019 Base value Investment return 1% from 7.3% to 8.3% - - - LBIC: Net insurance benefits and claims on short-term business expressed as a % of net earned 93.08% 107% -1% from 7.3% to 6.3% - - - premiums Mortality 10% 1.1 x mortality - - - Factors that aggravate insurance risk include a lack of risk diversification in terms of type and amount of risk, geographical -10% 0.9 x mortality - - - 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. 146 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 147 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Sensitivity analysis Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2020, both LBLIC and LBIC believe that their liabilities for claims are adequate. The objective of the sensitivity analysis is to demonstrate the effect on the underwriting result the change is in key assumptions. (iii) Reinsurance risk LBLIC and LBIC have third party reinsurance cover to reduce risks from single events or accumulations of risks that could The sensitivity analysis illustrates the effect or change in a particular assumption on the underwriting result, but cannot have a significant impact on the current year’s earnings and capital. 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 This cover is placed on the international reinsurance market. The core components of the reinsurance programme range of best or worse case experience expected. comprise of: For a given change in once assumption, all other assumptions are left unchanged. No allowance has been made for possible Long-term insurance contracts management action in response to a particular change. - Individual excess of loss which limits exposure to R1 million per client, prior to the quota share treaty; and - Individual quota share which provides protection to 50% of the retained portion after excess of loss. Loss Ratio Value Change Underwriting result R’000 R’000 % Short-term insurance contracts Reported results (49 294) - Individual quota share cover on crop, which provides protection to limit losses to 30% per event; Premium +10% (47 445) 1 849 (4%) - Individual quota share cover on agri-assets, which provides protection to limit losses to 40% of 100% on the 70% co- -10% (51 143) (1 849) 4% insurance agreement per risk; and Claims +5% 98% (55 827) (6 532) 13% - Stop loss cover for losses over 105% to 250% of the total crop exposure. -5% 88% (42 762) 6 532 (13%) The LBLIC and LBIC Boards approve the reinsurance renewal process on an annual basis. The major portion of the Expenses +15% (52 243) (2 948) 6% reinsurance programme is in place with foreign reinsurers which have a credit rating of no less than A+ for Life Insurance -15% (46,346) 2 948 (6%) and AA- for short-term insurance. (iv) Concentration risk 2019 Loss Ratio Value Change LBLIC Underwriting result R’000 R’000 % Investment portfolio concentration risk Reported results (54 913) The allocation of investment portfolio as at 31 March was as follows: Premium +10% (53 257) 1 656 (3%) -10% (56 568) (1 656) 3% 2020 2019 Claims +5% 107% (63 132) (8 220) 15.% Asset classes R’000 % R’000 % -5% 97% (46 693) 8 220 (15%) Equities - local 299 311 27 % 439 510 33 % Expenses +15% (57 892) (2 979) 5% Resources 141 126 47 % 110 711 25% -15% 51 934 2 979 (5%) Financials 97 616 33 % 136 334 31% Industrials 60 568 20 % 192 465 44% (ii) Claims risk Commodities - local (2 321) -0 % 15 450 1% The risk that the Group may pay out fraudulent claims is mitigated by trained client service staff to ensure that fraudulent Bonds - local 429 953 38 % 447 050 33 % claims are identified and investigated thoroughly. The legitimacy of claims is verified by internal, financial and operating Fixed interest 279 806 65 % 346 659 78 % controls that are designed to contain and monitor claims risks. Floating rate 148 181 34 % 44 134 10 % It is also the risk that a change in value caused by the ultimate costs for full contractual obligations which varies from those Inflation linked 1 966 0% 56 257 13 % assumed when these obligations were estimated. Estimated claims are monitored periodically and updated based on Other - 0% - 0% the latest information if needed. The Group utilises independent assessors who appraise and confirm claims as well as Cash, deposits and similar securities - local 256 514 23 % 268 381 20 % quantification by the underwriting manager channel. Furthermore, an actuarial valuation of outstanding claims and IBNR is Investment policy - property (local) 4 101 0% 12 138 1% done by an independent actuary annually. Foreign assets 130 781 12 % 163 991 12 % Total LBLIC 1 118 338 100 % 1 346 520 100 % Reserves are maintained at levels that are aligned to statutory requirements. As at 31 March 2020, both LBLIC and LBIC believe that their liabilities for claims are adequate. 16.24% of the portfolio was held in RSA Central Government bonds as at 31 March 2020 (2019 : 16.8%) 2.99% of the portfolio was held in an Investec Money Markey Fund as at 31 March 2020 (2019 : 6.6%) (iii) Reinsurance risk 6.73% of the portfolio was held in an Investec Global Equity Fund as at 31 March 2020 (2019 : 4.87%) 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. 148 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 149 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 LBIC 2020 2019 Investment portfolio concentration risk Number Value Average Number Value Average The allocation of investment portfolio as at 31 March was as follows: Portfolio R’000 R’000 R’000 R’000 2020 2019 R’000 % R’000 % 20 - 29 22 5 429 523 14 4 594 328 Bonds - local 4 980 8% 133 062 68 % 30 - 39 109 66 783 2 074 102 53 587 525 Fixed interest 2 538 51 % 46 728 35 % 40 - 49 261 97 820 970 283 114 786 406 Floating rate 2 339 47 % 78 654 59 % 50 - 59 513 150 333 1 285 575 163 000 283 Inflation linked 103 2% 7 681 6% 60 - 69 532 146 537 1 226 586 157 711 269 Cash, deposits and similar securities - local 56 389 92 % 63 981 32 % 70+ 149 33 146 887 914 278 025 304 NCD’s 56 384 100 % 62 887 98 % 1 586 500 048 315 2 474 771 703 312 Other 6 0% 1 093 2% Short-term insurance concentration risk - LBIC Total LBIC 61 369 100 % 197 043 100 % Within the insurance business, concentrations of risk may arise where a particular event or series of events could impact The NCD’s are split about equally amongst the five main banks. heavily upon the short-term company’s resources. The company operates on both crop and agri-asset insurance business. Investment manager performance, portfolio and manager allocations are monitored and reported to the company management and Investment and Actuarial Board on a regular basis by the company’s investment consultants. Upper and Gross written premium by business lower bounds are assigned to each asset class and are reviewed annually, with the investment policy. All classes were within 2020 2019 bounds as at 31 March 2020. Portfolio R’000 R’000 Short-term insurance (crop) 563 209 504 386 LBIC 2020 Short-term insurance (assets) 80 - Lower Upper 563 289 504 386 Asset classes bound bound Equities - local 0% 35 % Bonds - local 0% 20 % Short-term crop insurance gross written premium by class of business Bonds - inflation linked 0% 20 % 2020 2019 Cash, deposits and similar securities - local 25 % 95 % Gross Written Net Gross Net Written Foreign assets 0% 10 % Premium Written Written Premium Premium Premium Portfolio R’000 R’000 R’000 R’000 LBLIC 2019 Winter hail 32 410 18 241 53 133 32 544 Lower Upper Multi-peril winter 1 787 342 1 875 399 Asset classes bound bound Fruit & Nuts 52 380 9 167 46 543 8 145 Equities - local 30 % 50 % Hail Summer 466 933 110 313 385 166 101 106 Bonds - local 15 % 35 % Multi-peril summer 9 699 2 291 17 669 4 638 Cash, deposits and similar securities - local 10 % 30 % Total 563 209 140 354 504 386 146 831 Foreign assets 5% 25 % Insurance concentration risk Multi peril is limited to 15% of the total crop portfolio. 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. 150 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 151 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Short-term asset insurance gross written premium by class of business Impact on the statement 2020 2019 of profit or loss and other Portfolio R’000 R’000 comprehensive income 31 March 31 March Motor 24 - 2020 2019 Non-motor 56 - Sensitivity analysis on equity instruments R’000 R’000 80 - Incremental change in price Excluding the impact of derivatives Short-term crop insurance gross written premium by geographical segment 10% decrease (29 931) (45 515) 2020 2019 5% decrease (14 966) (22 788) R’000 R’000 5% increase 14 966 22 833 Mpumalanga 124 478 90 925 10% increase 29 931 45 696 Gauteng 9 625 7 799 KwaZulu-Natal 89 120 73 676 Including the impact of derivatives Eastern Cape 34 864 44 217 10% decrease (29 699) (19 190) Free State 210 436 181 562 5% decrease (14 850) (9 564) Limpopo 28 727 38 256 5% increase 14 850 9 637 North West 25 883 21 312 10% increase 29 699 19 200 Northern Cape 34 542 41 131 Western Cape 5 534 5 507 43.6 Investment strategy 563 209 504 386 LBIC 43.5 Equity price risk The Investment Policy was updated and approved in May 2019. The Company has taken a risk based approach to setting The equity risk exposures arise from the medical aid fund assets and the LBLIC investment portfolio. Equity price risk is investment strategy. The Company investable assets will be notionally tiered into three buckets representing different the risk that the fair values of equities decrease as a result of changes in the levels of equity indices and the value of individ- levels of market risk. The notional allocation to these buckets will be reviewed at least annually. Each bucket will make use ual stocks. of a strategic asset allocation appropriate for the risk profile it represents. Bucket Matching assets Definition The effect on equity (as a result of a change in the fair value of equity instruments held-for-trading in the category financial Short Cash & Bonds Current liabilities minus cash needed for assets through profit or loss at 31 March) due to a reasonably possible change in equity indices, with all other variables held operations as defined in the Cash Manage- constant, is as follows: ment Policy Statement. Group Bank Medium Cash & Bonds Additional capital needed to augment the Change in Effect on Change in Effect on short-term bucket should the business equity price equity equity price equity meets short-term objectives. % R’000 % R’000 Long Exposure to growth assets such as equities Balance of assets to be invested long-term 2020 targeting a long-term real return unless there as the business was not likely to draw on Individual stocks and indices 10 56 534 10 15 214 are liabilities requiring a specific matching these assets. assets. 2019 The following notional asset allocations have been chosen to represent each bucket. The allocations recognise that the Individual stocks and indices 10 79 493 10 21 086 Company is in start-up phase and do not necessarily represent the asset allocations once it is in full operation. Given that the bulk of investments are held for 6 to 9 months, with a maximum of 12 months, and the lack of appetite for any losses The effect on equity has been calculated using the equity balances at year end. the full portfolio should be considered short term until the business builds up more surplus capital. As such all assets are considered to fall into the short-term bucket. Price risk - LBLIC LBLIC is subject to market price risk resulting from daily changes in the fair value of market prices of the instruments with- in 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 manage- ment and hedging purposes. The company does not invest policyholders’ funds in equity. 152 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 153 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Local Local Nomi- Local Inflation Local Cash Foreign Expected Bucket Matching assets Definition Equity nal Bonds Linked Bonds long-term Short Cash & Bonds Current Liabilities plus Solvency Capital real return Requirement (SCR) minus cash needed for Short term 0% 40 % 0% 60 % 0% 5% operations as defined in the Cash manage- Medium term 0% 50 % 20 % 30 % 0% 5% ment Policy Statement. Long term 35 % 20 % 10 % 25 % 10 % 6% Medium Cash & Bonds Additional capital needed to augment the short-term bucket should the business To measure the overall investment objective for all investable assets, the buckets will be consolidated into a single strategic meets its short-term objectives. asset allocation strategy. To manage the risk of deviation from the benchmark asset allocation, a tactical asset allocation Long Exposure to growth assets such as equities Balance of assets to be invested long-term range will be set for each asset class to allow some deviation from the strategic asset allocation. This will also allow manag- targeting a long-term real return unless there as the business was not likely to draw on ers to add value by making asset allocation decisions. Asset managers will be allowed to deviate outside the tactical limits. are liabilities requiring a specific matching these assets. In such an event the reasons for this will be communicated to the Investment Consultant and Investment Committee. assets. The table below this shows the Company’s strategic and tactical asset allocation limits for the short-term insurance busi- The above allocations were consolidated to produce a target real return for the Company assets. ness. The Company will firstly aim to match its assets and liabilities and with the excess assets target an appropriate real return. Long-term Lower Bound Upper Benchmark Index With this in mind, the Company has selected the following investment objective: Target Bound Local equity 35 % 0% 35 % JSE Capped SWIX A real return, after investment fees and gross of tax of 4.0% per annum measured over rolling 3 year periods. For the Local Nominal Bonds 20 % 0% 20 % All Bond Index (ALBI) purpose of calculating the real return in the primary objective, inflation will be taken as the published Consumer Price Local Inflation Linked Bonds 10 % 0% 20 % Inflation Linked Bond Index Inflation (CPI) rate. (ILBI) Local cash 25 % 25 % 95 % STeFI Composite Investment strategy Foreign Multi-Assert Class 10 % 0% 10 % 60% MSCI World + 40% The Company has taken a risk based approach to setting investment strategy. The Company investable assets will be Citigroup Gov Bonds 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 Fund benchmarks represents. The assets of the fund are short term in nature and the fund therefore only invests in cash and short-term bonds. The The following notional asset allocations have been chosen to represent each bucket. The table below shows the asset fund benchmark is a long term return objective of CPI + 1.0% net of fees. allocation for each bucket and its real return expectation. Fund performance Local equity Local bonds Local cash Foreign Expected The investment was made during the 2018 FYE and generated an annual equivalent of 8.35% as return. In the March 2020 long-term year end, the investment reflected 4,4% return with a net disinvestment of R140m being made throughout the financial real return year. This performance was below the target of CPI + 1.0% which was around 5.0%. Short term 0% 40 % 60 % 0% 1.6% Medium term 0% 60 % 40 % 0% 1.9% LBLIC Long term 45 % 22 % 15 % 18 % 4.7% The Investment Policy was updated and approved on 21 February 2018. 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- To measure the overall investment objective for all investable assets, the buckets will be consolidated into a single term) as follows: strategic asset allocation strategy. To manage the risk of deviation from the benchmark asset allocation, a tactical asset allocation range will be set for each asset class to allow some deviation from the strategic asset allocation. This will also allow managers to add value by making asset allocation decisions. Asset managers will be allowed to deviate outside the tactical limits. In such an event the reasons for this will be communicated to the Investment Consultant and Investment Committee. The table below shows the Company’s strategic and tactical asset allocation limits for the long-term insurance business. 154 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 155 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Long-term Lower Bound Upper Benchmark Index Capital Adequacy Requirements (CAR) - the Land Bank Target Bound The Bank has adopted a Basel-like Total Capital Adequacy Ratio (TCAR) with Board approved deviations from the Local equity 40 % 30 % 50 % JSE Capped SWIX 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%. Local bonds 25 % 15 % 35 % All Bond Index (ALBI) The Basel Accord requires that banks meet three minimum capital adequacy ratios, in order to ensure that banks have an Local cash 20 % 10 % 30 % STeFI Composite acceptable mix between high quality, expensive capital and lower quality, less expensive capital, these are: Foreign multi-asset class 15 % 5% 25 % 60% MSCI World + 40% Citigroup Gov Bonds - Common Equity Tier 1 (CET1) minimum = CET1 / total Risk Weighted Assets (RWA); - Tier 1 minimum = (CET1 + Additional Tier 1 (AT1)) / total RWA; and The fund has a yearly CPI + 4% performance objective (FY2019: CPI+4%). - Total minimum = (CET1 + AT1 + Tier 2) / total RWA. The fund returned a negative performance at an average rate of 3.9% for the 12 months to end March 2020 which is far off the CPI + 4% target (net of fees). The only deviation from the Banking Regulations with regards to total CAR is: 44. Capital management - Land Bank only has Government as shareholder and is not allowed to issue shares in the market to raise capital. The primary source of capital used by the Group is shareholder’s equity funds. The amount of capital required is directly Therefore should the government guarantee be excluded from capital the only other resource of capital would be linked to risks arising from insurance business underwritten, as well as the Group’s credit and operational risk. Accordingly retained earnings. The Land Bank’s funding covenants all include the unutilised portion of government guarantees (those of risk management is an important component of effective capital management. capital/ sustainability nature) as a source of capital supply. Capital management objectives and approach Risk-weightings are risk sensitive, in other words, riskier assets receive higher weightings and the Basel Capital Accord The Group has established the following capital management objectives and approach to managing the risks that affect its allows for basic and advanced approaches to determine RWA dependent on the sophistication of a bank. capital position: The Land Bank (Bank) capital adequacy was estimated based on the following approaches: - To allocate capital efficiently and support the development of business by ensuring that returns on capital employed - Credit risk: The Standardised Approach; meet the requirements of its capital providers and of its shareholder; - Equity risk in the banking book: The Simple Risk-weight Approach; - To align the profile of assets and liabilities taking account of risks inherent in the business; - Market risk: Standardised approach; and - To maintain financial strength to support new business growth and to satisfy the requirements of the policyholders and - Credit and operational risk have been identified as the major risk types affecting the Land Bank. stakeholder; It is the intention of the Land Bank to move towards more sophisticated approaches, such as the Foundation Internal - To maintain healthy capital ratios in order to support its business objectives; and Ratings Based (F-IRB) approach for credit risk measurement. In this regard has the Bank already commenced with the - To support the credit rating of the Bank. development of Internal Ratings Based models. The Group’s capital management policy for its insurance and non-insurance business is to hold sufficient capital to cover The Land Bank is an SOE and therefore does not have the ability to issue share capital. For this reason the bank includes statutory requirements. Government Guarantees which are not ring-fenced for funding purposes as Tier 1 Capital. The following main strategies were applied to achieve capital management objectives: To further strengthen capital management, the Bank adopted the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). - 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. 156 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 157 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Bank 45. Fair value hierarchy of financial instruments Capital adequacy 2020 2019 2020 2019 Total capital adequacy 9,3% 14.3% 45.1 Carrying amount and fair value of financial Carrying amount Fair value Carrying Fair value instruments amount 2020 2019 Group R’000 R’000 R’000 R’000 Capital supply R’000 R’000 Financial assets Ordinary shareholders’ equity 4 397 655 4 397 655 Fair value through profit or loss Retained earnings (2 036 047) (321 598) Repurchase agreements 19 495 19 495 30 257 30 257 Accumulated other comprehensive income (608 139) 93 467 Investments 2 148 223 2 148 223 3 181 534 3 181 534 Property revaluation reserve 138 472 137 350 Strategic trading assets 5 153 5 153 - - Other reserves (746 611) (43 883) Derivatives assets 79 064 79 064 80 587 80 587 Common Equity Tier 1 (CET1) Capital: Instruments and reserves 1 753 469 4 169 524 Insurance assets 181 692 181 692 261 926 261 926 Loans and receivables Common Equity Tier 1 Capital: Regulatory adjustments (287 757) (17 490) Cash and cash equivalents 722 711 722 711 3 213 121 3 213 121 Distributable reserves relating to the discontinued operation (3 869) (3 942) Trade and other receivables 1 237 652 1 237 652 829 366 829 366 Threshold deductions (investments in subsidiaries) (275 844) Loans and advances 41 560 074 41 560 074 43 225 160 43 225 160 Intangible assets (8 044) (13 548) Total financial assets 45 954 064 45 954 064 50 821 951 50 821 951 Total available Common Equity Tier 1 capital 1 465 712 4 152 034 Financial liabilities Financial liabilities at amortised cost Total available Tier 2 capital 515 024 476 313 Trade and other payables 1 334 646 1 334 646 481 254 481 254 General allowance for credit impairment 515 024 476 313 Funding 41 283 820 41 283 820 44 257 919 44 257 919 Total available capital 1 980 736 4 628 347 Policyholders’ liabilities 281 568 281 568 376 984 376 984 Total financial liabilities 42 900 034 42 900 034 45 116 157 45 116 157 National Treasury guarantee * 2 410 000 2 710 000 Capital demand Risk weighted assets Credit risk 42 626 489 45 471 195 Counterparty risk 299 457 138 878 Operational risk 2 319 891 2 470 865 Equity risk 912 729 1 591 719 Market risk 48 642 38 273 Other assets risk 677 718 909 007 Threshold items 435 389 875 075 Total 47 320 315 51 495 012 * Refer to the Note 39.2 on related parties. 158 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 159 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 2020 2019 45.2 Determination of fair value and fair value hierarchy Carrying amount Fair value Carrying Fair value amount Financial assets and liabilities measured at fair value in the balance sheet are categorised in its entirety into the following Bank R’000 R’000 R’000 R’000 three levels of the fair value hierarchy based on the basis of the lowest level input that is significant to the fair value Financial assets measurement in its entirety: Fair value through profit or loss Level 1: fair value measured using quoted prices (unadjusted) in active markets for identical financial assets or liabilities; Repurchase agreements 19 495 19 495 30 257 30 257 Investments 1 418 546 1 418 546 1 988 001 1 988 001 Level 2: fair value measured using inputs other than quoted prices included within Level 1 that are observable for the Strategic trading assets 5 153 5 153 - - financial asset or liability, either directly or indirectly; and Derivatives assets 79 064 79 064 80 587 80 587 Loans and receivables Level 3: fair value measured using inputs for the financial asset or liability that are not based on observable market data. Cash and cash equivalents 585 008 585 008 3 202 568 3 202 568 Trade and other receivables 720 780 720 780 351 562 351 562 During the year, the Group had no significant transfers between instruments in Level 1, Level 2 or Level 3. Loans and advances 41 560 074 41 560 074 43 225 160 43 225 160 Level 1 Level 2 Level 3 Total Total financial assets 44 388 120 44 388 120 48 878 135 48 878 135 2020 R’000 R’000 R’000 R’000 Financial assets Financial liabilities Bank Financial liabilities at amortised cost Repurchase agreements - 19 495 - 19 495 Trade and other payables 824 776 824 776 72 645 72 645 Strategic trading assets - 5 153 - 5 153 Funding 41 283 820 41 283 820 44 257 919 44 257 919 Derivatives assets - 79 064 - 79 064 Total financial liabilities 42 108 596 42 108 596 44 330 564 44 330 564 Cash and cash equivalents - 585 008 - 585 008 Trade and other receivables - - 720 780 720 780 Methods used to determine fair values for the Group The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged Loans and advances - - 41 560 074 41 560 074 in a current transaction between willing parties, other than in a forced or liquidation sale. Equities 111 362 - - 111 362 Real estate - - - - The following assumptions and methods were used to estimate the fair values: Commodities 6 030 - - 6 030 Those held at fair value are fair valued with reference prices quoted in the market that are readily available. Included in this Bonds 40 719 - - 40 719 classification are equities, debt instruments and cash. Cash deposits and similar securities - 14 738 - 14 738 Foreign equities 37 486 - - 37 486 Cash and cash equivalents, trade receivables, trade payables, and other current liabilities approximate their carrying Investment in listed shares 117 983 - - 117 983 amounts largely due to the short-term maturities of these instruments. Unlisted investments - - 640 198 640 198 Swaps, are valued using inputs obtained from independent sources. The inputs are loaded into market accepted valuation models, a derivative valuation tool that is customised to the South African environment and developed by an independent LBLIC & LBIC third party. Equities 299 311 - - 299 311 Commodities (2 321) - - (2 321) Equity investments that are held neither for trading nor for contingent consideration are valued at their fair value using Bonds 434 933 - - 434 933 independent valuators. Collective investment schemes - 130 780 - 130 780 Cash deposits and similar securities - 312 903 - 312 903 Loans and advances are reviewed for observed and verified changes in credit risk and the credit spread is adjusted at Investment policy - 4 101 - 4 101 subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. Insurance assets - - 181 692 181 692 Cash and cash equivalents - 137 703 - 137 703 Trade and other receivables - - 516 872 516 872 Total financial assets 1 045 503 1 288 945 43 619 616 45 954 064 160 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 161 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 Level 1 Level 2 Level 3 Total 2019 R’000 R’000 R’000 R’000 Repurchase agreements - 30 257 - 30 257 Strategic trading assets - - - - Derivatives assets - 80 587 - 80 587 Cash and cash equivalents - 3 202 568 - 3 202 568 Trade and other receivables - - 351 562 351 562 Loans and advances - - 43 225 160 43 225 160 Equities 141 242 - - 141 242 Real estate 26 267 - - 26 267 Commodities 5 076 - - 5 076 Bonds 44 217 - - 44 217 Cash deposits and similar securities - 5 008 - 5 008 Foreign equities 38 273 - - 38 273 Investment in listed shares 127 685 - - 127 685 Unlisted investments - - 1 250 203 1 250 203 LBLIC & LBIC Equities 439 510 - - 439 510 Commodities 15 450 - - 15 450 Bonds 297 053 - - 297 053 Collective investment schemes - 447 050 - 447 050 Cash deposits and similar securities - 332 362 - 332 362 Investment policy - 12 138 - 12 138 Insurance assets - - 261 926 261 926 Cash and cash equivalents - 10 553 - 10 553 Trade and other receivables - - 477 804 477 804 Total financial assets 1 134 773 4 120 523 45 566 655 50 821 951 162 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 45.3 Reconciliation of recurring fair value measurements categorised within level 3 of the fair value hierarchy Southern Cross Capespan Capital (Pty) Acorn Agri (Pty) Ltd Afrifresh Group (Pty) Mouton Cavalier Ideafruit (Pty) Riverside Afgri Grain Bosveld ETG Total Investment Holdings Ltd Ltd Holdings (Pty) Group of Ltd Holdings (Pty) Silo Company (Pty) Ltd Ltd Companies Ltd Pty Ltd (Pty) Ltd Unquoted equity shares R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 As at 31 March 2018 170 281 1 498 119 699 - 140 186 48 975 84 485 - - - - 565 124 Purchases 124 000 94 383 499 378 41 109 758 870 Re-measurement recognised in OCI 4 394 (1 393) (5 291) 15 704 2 252 8 368 - - 25 874 (38 984) 10 924 Dividends - - - - - - - - - Disposal (84 715) - - - - - - - (84 715) As at 31 March 2019 89 960 105 114 408 - 155 890 51 227 92 853 124 000 94 383 525 252 2 125 1 250 203 Purchases 160 000 160 000 Re-measurement recognised in OCI (14 960) (105) (42 208) (80 000) (4 592) (7 127) (8 955) (19 000) 617 (525 252) (2 125) (703 706) Dividends - Disposal (66 298) (66 298) As at 31 March 2020 75 000 - 72 200 80 000 85 000 44 100 83 898 105 000 95 000 - - 640 198 Non-current Investment Property and Total assets held-for- property equipment sale Property R’000 R’000 R’000 R’000 As at 31 March 2018 10 085 174 590 24 500 209 175 Purchases - - - - Fair value adjustment for recognised in the statement of profit or loss - - - Re-measurement recognised (1 339) 650 (150) (839) Disposal (5 700) (5 700) Reclassification (to)/from other category of property 159 990 (159 990) - - As at 31 March 2019 163 036 15 250 24 350 202 636 Purchases - - - - Fair value adjustment for recognised in the statement of profit or loss - - - - Re-measurement recognised (11 899) (250) 50 (12 099) Disposal (46 025) - - (46 025) Reclassification (to)/from other category of property - - As at 31 March 2020 105 112 15 000 24 400 144 512 164 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 165 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 45.4 Description of significant unobservable inputs to level 3 valuations Asset Valuation Significant unobservable inputs Sensitivity of the input to the fair technique value As at 31 March 2020 Property and equipment Net income Vacancy rate range: 5% - 10% Capitalisation rate: capital- Income/expense ratio 26.3% - +1%: R21 887 483 Unquoted equity Valuation technique Significant unobservable Sensitivity of the input to the fair isation range: 29.4% ‘-1%: R25 995 156 inputs value method Capitalisation rates 11.5% - range: 12% Capespan Capital (Pty) Ltd Land bank sold its investment at Capespan Capital (Pty) Ltd for R14. The investment there- fore carried at no value in the annual financial statements. Investment property Net income Vacancy rate range: 3.5% - 4% Capitalisation rate: capital- Income/expense ratio 20.1% - +1%: R14 532 500 Acorn Agri (Pty) Ltd NAV. Investment holding NAV valuation: Adjust -0.5%: R68 760 136 isation range: 30.5% ‘-1%: R17 436 205 company, value derived range between: 0.5% Up +0.5%: R75 733 104 method Capitalisation rates 10.5% - from the investment and 0.5% Down range: 12.5% activities (BS approach). Properties in possession Compara- Natural grazing land R3 750 - Market value per ha. of land: Mouton Holdings (Pty) Ltd The Land Bank accepted an offer for the purchase of Mouton Holdings (Pty) Ltd shares for ble sales per ha.: R11 000 + R1000 p/ha.: R11 668 640 R85 million. The investment therefore carried at this value in the annual financial statements. method Irrigated pasture land R0 - R45 - R1000 p/ha.: R8 514 094 Southern Cross Investment The Land Bank received and an offer for the purchase of Southern Cross Investment Hold- per ha.: 000 Holdings (Pty) Ltd ings (Pty) Ltd shares for R75 million. The investment therefore carried at this value in the annual financial statements. Farm yard land per ha.: R0 - R8000 Cavalier Group of Companies DCF. Operating entity, DCF valuation: Discount Discount rate: (Pty) Ltd value derived from op- rates range between -0.5%: R47 623 184 Wasteland per ha.: R0 erating activities of the 14.8% and 15.8% +0.5%: R40 981 757 Crop Land R0 - R 20 business (IS approach). 000 Ideafruit (Pty) Ltd * The valuation for Ideafruit (Pty) Ltd could not be completed as at 31 March 2020 due to Drylands R0 - R 20 unavailability of financial projections and latest audited financial statements. Land Bank has 000 therefore taken a decision to use the acquisition price of the investment. This resulted in the Industrial land per ha.: R3 carrying value of R83.9 million (FY2019: R92.9million) for the Bank. Construction price for R7 000 - Riverside Holdings (Pty) Ltd DCF. Operating entity, DCF valuation: Discount Discount rate: dwellings per m2: R12 000 value derived from op- rates range between -0.5%: R110 495 385 Construction price for R2 250 - erating activities of the 18.5% and 19.5% +0.5%: R101 521 870 other structures per m2: R2 330 business (IS approach). Afgri Grain Silico Company Pty DCF. Operating entity, DCF valuation: Discount Discount rate: Ltd value derived from op- rates range between -0.3%: R115 057 807 erating activities of the 12.3% and 12.9% +0.3%: R76 826 194 business (IS approach). * The valuation for Ideafruit (Pty) Ltd could not be completed as at 31 March 2020 as investee management had not finalised their financial projections and latest financial statements. The Land Bank has reviewed the management accounts for the investee, which reflected moderate to strong year-on-year growth for the past financial year. Land Bank has taken decision to retain the prior year investment value after assessing the management accounts, resulting in an investment value of R92.9 million (FY2019: R92.9.0 million) for the Bank. 166 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 167 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 As at 31 March 2019 Asset Valuation Significant unobservable inputs Sensitivity of the input to the fair technique value Unquoted equity Valuation technique Significant unobservable Sensitivity of the input to the fair Property and equipment Net income Vacancy rate range: 3% - 10% Capitalisation rate: inputs value capital- Income/expense ratio +1%: R21 995 073 Capespan Capital (Pty) Ltd NAV. Joint venture com- Audited Financial N/A isation range: 20.2% - ‘-1%: R26 122 727 pany, value derived from Statements method Capitalisation rates 28.3% investment activities (BS range: 11.5% - approach). 12% Acorn Agri (Pty) Ltd NAV. Investment holding Audited Financial N/A Investment property Net income Vacancy rate range: 3.5% - 4% Capitalisation rate: company, value derived Statements capital- Income/expense ratio +1%: R14 861 668 from the investment isation range: 18.4% - ‘-1%: R17 823 818 activities (BS approach). method Capitalisation rates 28.3% Mouton Holdings (Pty) Ltd DCF. Operating entity, DCF valuation: Discount Discount rate: range: 10.5% - value derived from op- rates range between +1%: R141 570 000 12.5% erating activities of the 18.3% and 20.3% -1%: R172 460 000 Properties in possession Compara- Natural grazing land R4 000 - Market value per ha. of land: business (IS approach). ble sales per ha.: R10 000 + R1000 p/ha.: R17 714 190 Southern Cross Investment DCF. Operating entity, DCF valuation: Discount Discount rate: method Irrigated pasture land R43 225 - - R1000 p/ha.: R13 522 324 Holdings (Pty) Ltd value derived from op- rates range between +1%: R84 763 200 per ha.: R46 550 erating activities of the 17.5% and 23.5% -1%: R97 314 000 Farm yard land per ha.: R0 - business (IS approach). R7000 Cavalier Group of Companies DCF. Operating entity, DCF valuation: Discount Discount rate: Wasteland per ha.: R0 (Pty) Ltd value derived from op- rates range between +1%: R55 798 000 Crop Land R0 - R 20 erating activities of the 19.0% and 20.0% -1%: R66 210 000 000 business (IS approach). Drylands R22 100 - Ideafruit (Pty) Ltd DCF. Operating entity, DCF valuation: Discount Discount rate: R 23 800 value derived from op- rate was 20.9% +1%: R76 622 573 Industrial land per ha.: R2 erating activities of the -1%: R101 910 483 Construction price for R7 000 - business (IS approach). dwellings per m2: R9 060 Riverside Holdings (Pty) Ltd No valuation was done. No valuation was done. No valuation was done. Acquired at Construction price for R2 150 - Acquired at Fair Value Acquired at Fair Value Fair Value during the current year. other structures per m2: R2 423 during the current year. during the current year. Afgri Grain Silo Company Pty Ltd No valuation was done. No valuation was done. No valuation was done. Acquired at 45.5 Description of level 2 valuation techniques Acquired at Fair Value Acquired at Fair Value Fair Value during the current year. during the current year. during the current year. Level 2 investments are valued using a valuation technique based on assumptions that are supported by prices from ETG Group (including stake DCF. Operating entity, DCF valuation: Discount Discount rate: observable current market transactions: Bosveld) value derived from op- rate was 14.3% -1%: +R554 907 erating activities of the - Repurchase transactions: Market value of the underlying bonds. business (IS approach). - 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. 168 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 169 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 46. Fruitless and wasteful expenditure (F&WE) *During FY2020 R330 million was invested in an unlisted entity, without prior approval from the Minister of Finance as required per section 23 (2) of the Land and Agricultural Development Bank Act, 2002 The F&WE relates to isolated incidences where penalties and interest were levied on late payments of utility accounts. ** In 2010 Land Bank embarked on an initiative to grow its loan book by acquiring the assets from existing market players Group Bank within the agricultural finance sector. To that effect, Land Bank concluded sale agreements and service level agreements 46.1 Reconciliation of amounts transferred to receiv- 2020 2019 2020 2019 with some of these players in the market, collectively referred to as Service Level Agreement Partners (SLAs). In terms ables for recovery R’000 R’000 R’000 R’000 of these agreements the SLAs will originate and sell the book to Land Bank subject to meeting prescribed conditions (sale agreement), as well as manage the book on behalf of Land Bank (service level agreement). The service level agreements Opening balance - 29 - 29 had a fixed tenure upon expiration of which Land Bank and the SLAs are required to renegotiate the new terms. Add: F&WE for the current year transferred to receivables - - - The SLA Agreement provides that a year prior to the termination of the SLA Agreement, the parties must issue a notice Expenditure recovered in the current year 16 613 48 16 613 48 for the renegotiation to commence the renegotiation process which would lead to the parties electing to either terminate F&WE relating to prior year discovered in the current year 50 000 - 50 000 - the service level agreement or agreeing to new terms and conditions of the service level agreement or continuing with the Expenditure approved and derecognised by the Board - (48) - (48) existing terms and conditions of the service level agreement. Less: amounts recovered in current year - - - - Less: amounts written off - (29) - (29) In terms of the service level agreements the renegotiation process must be concluded within a specified time, failing which Closing balance 66 613 - 66 613 - the service level agreement will automatically be renewed for a period of 2 (two) years on the same terms and conditions. Group Restate Bank Restated As it became clear during the renegotiation process that the renegotiations would not be concluded before the renego- Group Bank tiation period stipulated in the service level agreement, Land Bank, in agreement with the SLA Partners extended the 2020 2019 2020 2019 renegotiation periods, which consequently extended the service level agreements on the same terms and conditions. The extension of the renegotiation process and consequently of the service level agreements were concluded without prior 46.2 Analysis of current F&WE R’000 R’000 R’000 R’000 approval of National Treasury as required in terms of National Treasury SCM Instruction Note 3 of 2016/17 Admin fees Current matters paid relating to such extensions from FY 2016 to FY 2019 amounted to R454 million, with R310 million incurred in FY - Penalties and interest* 16 613 50 000 16 613 50 000 2020. As per statement of profit or loss and other comprehensive 16 613 50 000 16 613 50 000 income 2020 47.2 Analysis of current irregular expenditure R’000 *The 2020 fruitless and wasteful expenditure relates to an early withdrawal penalty fee charged of R16.5 million on an Incident investment that the Land Bank had made with one of the banks during the year and Jackets for R103 thousand received In May 2019, Land Bank procured the services of a temporary employee from an audit firm to fill the vacancy 1 596 late from a supplier for an event. A process is underway to recover the penalty fee. This fee has been disclosed as a for the head of Internal Audit. Investigations have revealed that not all procurement processes were correctly contingent asset, please refer to note 37. followed in the filling of this vacancy. The 2019 fruitless and wasteful expenditure relates mainly to a breakage fee of R50 million on unutilised funds that the Service level agreements were extended without prior approval of National Treasury as required in terms of 310 513 Land Bank had raised with a related party as well as traffic fines and interest on late payments. 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 2020 2019 procured or services rendered.. R’000 R’000 F&WE relating to prior year discovered in the current year: - 50 000 312 109 47. Irregular expenditure Group Bank 2019 2020 2019 2020 2019 Incident R’000 47.1 Reconciliation of irregular expenditure* R’000 R’000 R’000 R’000 Expenditure incurred for legal services without following the SCM process or obtaining approval. The transaction, 140 conditions or events have not resulted in the Bank suffering any loss, value for money was derived from the use of Opening balance 456 948 2 677 456 527 2 256 the goods procured or services rendered. Expenditure deemed as irregular relating to prior year** - 454 271 - 454 271 Service level agreements were extended without prior approval of National Treasury as required in terms of 454 271 Expenditure deemed as irregular relating to current year 312 109 140 312 109 140 National Treasury SCM Instruction Note 3 of 2016/17. The transaction, conditions or Expenditure recovered in the current year - - - events have not resulted in the Bank suffering any loss, value for money was derived from the use of the goods Expenditure approved and derecognised by the Board - (140) - (140) procured or services rendered. Closing Balance 769 057 456 948 768 636 456 527 454 411 170 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 171 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 48. Events after the balance sheet date 11. On the 18th of August 2020, Standard Chartered Bank (“SCB”) served a court application on Land Bank to recover certain debt owing by Land Bank. The following events occurred post year end: Land Bank worked with its advisers and opposed the application. 1. The liquidity position of the Land Bank deteriorated completely towards the end of April 2020. This came on the back of the Bank’s downgrade by Moody’s in January 2020 and again in March 2020 (this downgrade was to recalibrate against On 2 December 2020 in the High Court of South Africa, Gauteng Division, Pretoria, the Honourable Justice Janse van the sovereign). This together with the deteriorating performance by the Bank as reflected in the loan financial covenants Nieuwenhuizen, granted an order against the Land Bank, the salient terms of the judgment can be summarised as follows: made it challenging to raise funding to meet maturing debt. As a result the Bank defaulted on some of its maturing funding liabilities, triggering cross defaults on both listed and unlisted debt. As a result the Bank ended up in a de-facto stand still 1. Land Bank is required to make payment to SCB of the amount owing plus interest. on capital and interest payments on maturing debt. Several SENS announcements were issued by the Bank in this regard. 2. However, this court order and such payment is suspended for 17 months, until 30 April 2022, unless certain designated Legal and corporate advisors were appointed by the Bank to support its efforts in remediating the situation. milestones are not achieved, in which event the court order will become immediately enforceable. The Land Bank together with its advisors, and supported by the shareholder are engaging with its funders to obtain a long 49. Comparative figures term sustainable solution for the bank addressing the following areas: - Emergency liquidity funding Correction of prior year periods - A liability solution - debt restructure During the year the Landbank recorded the following prior period errors. - Equity solution - Review of the Banks repurposing strategy and operating model Profert This is expected to result a in financially stable and performing organisation. In the prior year financial statements the Landbank carried a receivable amount from Profert (Pty) Ltd of R286 million. Profert (Pty) Ltd was put into business rescue on the 17 March 2017. There was no improvement in the financial position This process is expected to be completed by the end of September 2020. of Profert by the 31 March 2018 and this loan ought to have been classified as at stage 3 and fully impaired due to the low probability of recoverability of the loan amount at that time. The impact of this error is that the impairment amount for 2. Third party funds utilised as referred to in note 19 were fully restored in June 2020. the 2018 financial year is understated by R286 million. Debtors Loan Guarantee 3. The Shareholder through the budget review on 24 June 2020 appropriated R3bn capital injection into the Land Bank, During the restructure of the Profert (Pty) Ltd loan, the Land Bank issued a $13.1 million guarantee to an international this amount was received in September 2020. bank who were the other significant creditor to Profert. The triggering clause in the agreement was that if Profert was 4. The Bank runs a hedging programme (refer to note 10). During May 2020 one of the commercial banks cancelled a liquidated or entered into business rescue, Land Bank will be liable for the debt. Profert entered into business rescue on swap trading account that the Land Bank had with them citing the default status of the Bank. This reduced the hedged the 17 March 2017. In the statement of financial position as at 31st March 2018 Land Bank needed to raise a provision for portfolio from R17 billion to R13 billion. The Land Bank will resume with the hedging programme once the default position this guarantee. As a result the impact of this error is that on the financial statements for the year ended 31 March 2018 has been cured. Land Bank needed to raise a provision and an expense of R166m and increased it by R48m in 2019 to take into account the interest accrued and the forex valuation. 5. The property George was sold for R7.75 million. Interest accrued on the debt increasing the outstanding amount to $15.01million at 31 March 2020. Profert paid $750 thousand, reducing the amount owing by the Land Bank to $14.25 million. 6. During the restructure of the Profert (Pty) Ltd loan, the Land Bank issued a $13.9 million guarantee to an international bank who were the other significant creditor to Profert. The triggering clause in the agreement was that if Profert was Breakage fee liquidated or entered into business rescue, Land Bank will be liable for the debt. Profert entered into business rescue on On the 24th April 2016 Landbank secured a Facility of R5 billion with a related party for development farming finance. the 17 March 2017.The counter party called on the guarantee issued by the Land Bank in their favour during the workout One of the terms of this agreement was that if the facility was not fully utilised within a period of 24 months after con- and restructure of the Profert loan asset. The amount called upon is the interest and capital of USD 5.2 million accrued on cluding the agreement, Landbank will be liable to 1% of the unutilised funds. On the 24th April 2018 the full R5 billion had the underlying debt. still not been utilised and R50 million became payable to the related party. This obligation was not recognised on the 24th April 2018. This omission means that the provisions and expenses for the year ended 31 March 2019 are understated by 7.The impact of Covid-19 on the Land Bank has been assessed, and the Land Bank has concluded that Covid-19 will have R50 million. a minimal impact on the business of the Land Bank because the loan book of the bank is highly concentrated in grain. Economic studies of various agricultural sectors have estimated that the impact of Covid-19 will be minimal on the grain Expected Credit Loss Provision sector, however tobacco will be greatly affected. The Land Bank has a low exposure to the tobacco sector. The 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 8. The Afrifresh investment valued at R 80 million was settled in July 2020. 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 9. The Bank sold the Mouton Holdings shares as well as Southern Cross shares at an offer price of R85 million and R75 partly to align to the Bank’s direct loan book definition and also because this reflected a better presentation of the Bank’s million respectively. 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 10. Land Bank has taken a decision to insource management of the loan book from two SLA partners. This will result in a corrections have been applied retrospectively with the exception of the staging classification which book totalling R17.8 billion being transferred to the direct book of Land Bank and managed as such. 172 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 173 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 has been treated as a change in estimate and changed prospectively. The impact is R76m increase in interest in suspense Previously Correction Restated (IIS) due to the increase in non performing loans (NPL) by R396m. Reported of error The following line items have been corrected in FY2019: 2019 2019 2019 Statement of financial position Other comprehensive income R’000 R’000 R’000 - ‘’Investments’’ - ‘’Loan and advances ’’ Items that will be reclassified into profit or loss - ‘’ Equity’’ Net losses on financial assets designated at fair value through other comprehensive income - ‘’ Provisions’’ Cash flow hedges: gains / (release) on cash flow hedging instruments (279) - (279) Statement of profit or loss and other comprehensive income (8 106) - (8 106) - ‘’Interest Income’’ Items that will not be reclassified subsequently to profit or loss - ‘’Net impairment charges, claims and recoveries’’ Actuarial (Loss) / Gain on the post-retirement obligation (8 012) - (8 012) - ‘’Operating expenses’’ Revaluation of land and buildings 874 - 874 - ‘’Non-trading and capital items’’ Total other comprehensive income (15 523) - (15 523) Previously Correction Restated Statement of profit or loss and other comprehensive income Reported of error Total comprehensive income for the year 165 695 (1 067 720) (902 025) Group 2019 2019 2019 Continuing operations Notes R’000 R’000 R’000 Statement of financial position Previously Correction Restated Previously Correction Restated Net interest income 1 206 038 (103 161) 1 102 877 Reported of error Reported of error Interest income 25 5 030 321 (103 161) 4 927 160 Group 2019 2019 2019 2018 2018 2018 Interest expense 26 (3 824 283) - (3 824 283) Assets Notes R’000 R’000 R’000 R’000 R’000 R’000 Net impairment charges, claims and recoveries 11.6 (324 655) (863 378) (1 188 033) Cash and cash equivalents 4 3 213 121 - 3 213 121 2 421 069 - 2 421 069 Total income from lending activities 881 383 (966 539) (85 156) Trade and other receivables 5 829 366 - 829 366 320 171 - 320 171 Non-interest expense 27 (262 667) - (262 667) Short-term insurance assets 6 254 017 - 254 017 282 382 - 282 382 Non-interest income 28 113 977 - 113 977 Repurchase agreements 7 30 257 - 30 257 15 706 - 15 706 Operating income from banking activities 732 693 (966 539) (233 846) Investments 8 3 181 534 - 3 181 534 2 619 887 - 2 619 887 Net insurance premium income 29.1 156 826 - 156 826 Derivatives Assets 10 80 587 - 80 587 8 106 - 8 106 Net insurance claims 29.3 (165 886) - (165 886) Loans and advances 11 44 465 456 (1 240 296) 43 225 160 43 418 462 (268 843) 43 149 619 Other costs from insurance activities 29.4 (20 085) - (20 085) Assets of discontinued operation classi- 12 6 259 - 6 259 147 328 - 147 328 fied as held-for-sale Investment income and fees 30 104 645 - 104 645 Long term insurance assets 20.5 7 909 - 7 909 10 753 - 10 753 Interest on post-retirement obligation 23 (22 533) - (22 533) Non-current assets held-for-sale 13 163 036 - 163 036 10 085 - 10 085 Interest on lease liability 16.2 (6 703) - (6 703) Investment property 14 15 250 - 15 250 174 590 - 174 590 Gains and losses on financial instruments - (4 912) (4 912) Property, plant and equipment 15 32 154 - 32 154 38 202 - 38 202 Fair value (losses) gains 31 90 208 - 90 208 Right of Use of Leased Assets 16 68 093 - 68 093 - - - Operating income 869 165 (971 451) (102 286) Intangible assets 17 13 548 - 13 548 20 279 - 20 279 Operating expenses 32 (628 341) (68 667) (697 008) - - Net operating income 240 824 (1 040 118) (799 294) Total assets 52 360 587 (1 240 296) 51 120 291 49 487 020 (268 843) 49 218 177 Non-trading and capital items 33 634 (27 602) (26 968) - Net profit / (Loss)before indirect taxation 241 458 (1 067 720) (826 262) Indirect taxation 34 (73 170) - (73 170) Net profit / (loss) from continuing operations 168 288 (1 067 720) (899 432) Net profit / (loss) from discontinued operations 24 12 930 - 12 930 Profit / (Loss) for the year 181 218 (1 067 720) (886 502) 174 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 175 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 Previously Correction Restated Previously Correction Restated Bank Previously Correction Restated Reported of error Reported of error Reported of error Equity and liabilities 2019 2019 2019 2018 2018 2018 2019 2019 2019 Equity Notes R’000 R’000 R’000 R’000 R’000 R’000 Continuing operations Notes R’000 R’000 R’000 Distributable reserves 18 6 720 931 (1 487 602) 5 233 329 6 547 725 (419 878) 6 127 847 Net interest income 1 201 101 (103 163) 1 097 938 Other reserves 18 93 467 - 93 467 100 978 - 100 978 Interest income 25 5 023 465 (103 163) 4 920 302 6 814 398 (1 487 602) 5 326 796 6 648 703 (419 878) 6 228 825 Interest expense 26 (3 822 364) - (3 822 364) Net impairment charges, claims and recoveries 11.6 (324 655) (863 378) (1 188 033) Liabilities Total income from lending activities 876 446 - (90 095) Trade and other payables 19 499 079 (17 825) 481 254 355 404 (15 403) 340 001 Non-interest expense 27 (251 361) - (251 361) Short-term insurance liabilities 6 329 860 - 329 860 398 859 - 398 859 Non-interest income 28 105 452 - 105 452 Long-term policyholders’ liabilities 20 47 124 - 47 124 55 939 - 55 939 Operating income from banking activities 730 537 (966 541) (236 004) Funding liabilities 21 44 257 919 - 44 257 919 41 576 302 - 41 576 302 Net insurance premium income 29.1 - - - Lease liabilities 16.2 70 518 - 70 518 - - - Net insurance claims 29.3 - - - Provisions 22 40 373 265 131 305 504 82 632 166 439 249 071 Other costs from insurance activities 29.4 - - - Post-retirement obligation 23 301 316 - 301 316 369 181 - 369 181 Investment income and fees 30 21 299 - 21 299 Total equity and liabilities 52 360 587 (1 240 296) 51 120 291 49 487 020 (268 843) 49 218 177 Interest on post-retirement obligation 23 (22 533) - (22 533) Interest on lease liability 16.2 (6 686) - (6 686) Statement of profit or loss and other comprehensive income Gains and losses on financial instruments - (4 912) (4 912) Fair value (losses) gains 31 83 275 - 83 275 Operating income 805 892 (971 453) (165 561) Operating expenses 32 (602 845) (71 089) (673 934) Net operating income 203 047 (1 042 542) (839 495) Non-trading and capital items 33 634 (27 603) (26 969) Net profit / (Loss)before indirect taxation 203 681 (1 070 145) (866 464) Indirect taxation 34 (73 045) - (73 045) Net profit / (loss) from continuing operations 130 636 (1 070 145) (939 509) Net profit / (loss) from discontinued operations 24 12 930 - 12 930 Profit / (Loss) for the year 143 566 (1 070 145) (926 579) Other comprehensive income Items that will be reclassified into profit or loss Net losses on financial assets designated at fair value through other comprehensive income (279) - (279) Cash flow hedges: gains / (release) on cash flow hedging instruments (8 106) - (8 106) Items that will not be reclassified subsequently to profit or loss Actuarial (Loss) / Gain on the post-retirement obligation (8 012) - (8 012) Revaluation of land and buildings 874 - 874 Total other comprehensive income (15 523) - (15 523) Total comprehensive income for the year 128 043 (1 070 145) (942 102) 176 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 177 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 Statement of financial position Bank Previously Correction Restated Previously Correction Restated Reported of error Reported of error 2019 2019 2019 2018 2018 2018 Assets Notes R’000 R’000 R’000 R’000 R’000 R’000 Cash and cash equivalents 4 3 202 568 - 3 202 568 2 362 130 - 2 362 130 Trade and other receivables 5 351 562 - 351 562 131 302 - 131 302 Short-term insurance assets 6 - - - - - - Repurchase agreements 7 30 257 - 30 257 15 706 - 15 706 Investments 8 1 988 001 - 1 988 001 1 406 650 - 1 406 650 Strategic trading assets 9 - - - - - - Derivatives Assets 10 80 587 - 80 587 8 106 - 8 106 Loans and advances 11 44 465 456 (1 240 296) 43 225 160 43 418 462 (268 843) 43 149 619 Assets of discontinued operation classi- 12 6 259 - 6 259 147 328 - 147 328 fied as held-for-sale Long term insurance assets 20.5 - - - - - - Non-current assets held-for-sale 13 163 036 - 163 036 10 085 - 10 085 Investment property 14 15 250 - 15 250 174 590 - 174 590 Property, plant and equipment 15 31 992 - 31 992 37 996 - 37 996 Right of Use of Leased Assets 16 67 672 - 67 672 - - - Intangible assets 17 13 548 - 13 548 20 279 - 20 279 Total assets 50 416 188 (1 240 296) 49 175 892 47 732 634 (268 843) 47 463 791 Equity and liabilities Equity Distributable reserves 18 5 581 484 (1 505 427) 4 076 057 5 445 930 (435 282) 5 010 648 Other reserves 18 93 467 - 93 467 100 978 - 100 978 5 674 951 (1 505 427) 4 169 524 5 546 908 (435 282) 5 111 626 Liabilities Trade and other payables 19 72 645 - 72 645 160 715 - 160 715 Short-term insurance liabilities 6 - - - - - - Long-term policyholders’ liabilities 20 - - - - - - Funding liabilities 21 44 257 919 - 44 257 919 41 576 302 - 41 576 302 Lease liabilities 16.2 70 089 - 70 089 - - - Provisions 22 39 268 265 131 304 399 79 528 166 439 245 967 Post-retirement obligation 23 301 316 - 301 316 369 181 - 369 181 Total equity and liabilities 50 416 188 (1 240 296) 49 175 892 47 732 634 (268 843) 47 463 791 178 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 50. 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 2020 (R 000) Board AGM Audit & Risk Credit Risk HR SEC Adhoc Meetings Guaranteed Package Performance Bonuses Other Benefits4, Fees & 2020 Total Finance Expenses 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 Coetzee 3 308 10 - 31 - 47 48 19 - - 1 464 ME Makgatho 366 10 136 - 160 - - 64 - - 4 740 ME Makgobo 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 - - - - - - - - 842 - 7 849 Chief Financial Officer & Acting Chief Executive Officer Konehali Gugushe6 - - - - - - - - 2 754 - 49 2 803 Chief Risk Officer & Acting Chief Executive Officer Ayanda Kanana7 - - - - - - - - 308 - 8 316 Chief Executive Officer Khensani Mukhari8 - - - - - - - - 564 - 4 568 Chief Financial Officer 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 180 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 181 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 Table 2: Remuneration of Land Bank Insurance Services non-executive directors and executive directors for 2020 (R 000) Board AGM Audit & Risk Investment & Actuarial Ahoc Meetings Guaranteed Package Performance Bonuses Other Benefits3, Fees & 2020 Total Expenses Non-Executive Directors Ms D Motau 71 9 51 30 9 - - - 170 Ms T Ngobo 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 Scharneck 2 70 - 20 30 - - - 2 122 Mr S Masuku 156 - 115 11 - - - 1 283 Subtotal 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 1 Resigned - 30 April 2020 2 Resigned - 30 September 2019 3 Other benefits include vitality benefits 182 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 183 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 Table 3: Remuneration - Land Bank non-executive directors and executive directors for FY2019 (R’000) Board AGM Audit & Risk Credit Risk HR SEC Ahoc Meetings Guaranteed Performance Other Benefits5, 2019 Total Finance Package Bonuses Fees & Expenses Non-Executive Directors Arthur Moloto 831 8 - - 260 91 61 36 - - - 1 287 Dudu Hlatshwayo 274 8 - - 214 61 76 35 - - 6 674 Njabulo Zwane1 53 - 44 - - 15 15 - - - - 127 Sue Lund2 292 8 107 93 - - - 44 - - 6 550 Nomagugu Mtetwa3 273 8 197 61 - - - 45 - - 2 586 Thembekile Ngcobo 311 8 - 61 - 123 109 62 - - 4 678 Davina Motau 311 8 - - 308 - - 45 - - 8 680 Sandra Coetzee4 311 8 - 61 - 76 61 45 - - 2 564 Mathane Makgatho 311 8 121 - 229 - - 28 - - 5 702 Matome Makgobo 258 8 - 46 202 - - 44 - - 63 621 Steven Cornelius 258 8 77 16 94 61 - 53 - - 13 580 Subtotal 3 483 80 546 338 1 307 427 322 437 - - 109 7 049 Executive Directors TP Nchocho6 - - - - - - - - 3 141 1 092 83 4 316 Chief Executive Officer Bennie van Rooy7 - - - - - - - - 3 489 668 28 4 185 Chief Financial Officer & Acting Chief Executive Officer Total Land Bank 3 483 80 546 338 1 307 427 322 437 6 630 1 760 220 15 550 1 Paid to Transnet Foundation until Q4 which 50% was paid to Ms Lund in terms of her employer policy on non-executive directorship 2 Retired - 31 May 2018 3 Resigned - 30 August 2019 4 Resigned - 30 April 2020 5 Other benefits include vitality benefits 6 Resigned - 07 December 2018 7 Resigned - 30 June 2019 184 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 185 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 Table 4: Remuneration - Land Bank Insurance Services non-executive directors and executive directors for FY2019 (R’000) Board AGM Audit & Risk Investment & Ahoc Meetings Guaranteed Package Performance Bonuses Other Benefits4, Fees & 2019 Total Actuarial Expenses Non-Executive Directors Davina Motau 68 8 58 40 35 - - - 209 Thembekile Ngcobo 68 8 - - 27 - - - 103 Njabulo Zwane1 - - - - - - - - - Dudu Hlatshwayo 496 8 - - 36 - - - 540 Sandra Coetzee2 68 - - - 9 - - - 77 Mathane Makgatho 55 8 24 39 36 - - - 162 Mark Scharneck 3 136 8 30 49 9 - - 4 236 Sakhile Masuku 150 8 100 9 9 - - 2 278 Matome Makgoba - 8 - - 18 - - - 26 Steven Cornelius - 8 - - 9 - - - 17 Subtotal 1 041 64 212 137 188 - - 6 1 648 Executive Director Adam Rakgalakane - - - - - 3 176 767 28 3 971 Managing Director Total LBIS 1 041 64 212 137 188 3 176 767 34 5 619 1 Retired - 31 May 2018 2 Resigned - 30 April 2020 3 Resigned - 30 September 2019 4 Other benefits include vitality benefits 186 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 187 NOTES TO THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS NOTES FOR THE YEAR ENDED 31 MARCH 2020 Table 5: Remuneration - Land Bank executive officers in FY2020 (R’000) Title Guaranteed Bonus Cell phone Other Total Package Allowances benefits1 Ms ETM Dlamini 2 834 - 24 3 2 861 Executive Manager: Human Capital Ms L Ndlovu 1 124 - 10 2 1 136 Executive Manager: Commercial Development and Business Banking Mr SCE Soundy2 2 898 - 24 5 2 927 Executive Manager: Strategy and Communications Mr F Stiglingh 2 883 - 24 4 2 911 Executive Manager: Portfolio Management Services Mr SN Sebueng 2 281 - 24 - 2 305 Executive Manager: Legal Dr LL Magingxa 2 623 - 24 4 2 651 Executive Manager: Agricultural Economics & Advisory Mrs U Magwentshu 2 700 - 24 2 724 Executive Manager: Corporate Banking and Structured Investments Total 17 343 - 154 18 17 515 1 Other benefits include vitality benefits 2 Acting Chief Executive Officer from 15.01.2020 till 29.02.2020 Title Basic Salary Bonus Cell phone Other Total Allowances benefits¹ Ms ETM Dlamini 2 729 520 24 3 3 276 Executive Manager: Human Capital Ms L Ndlovu 2 594 430 24 - 3 048 Executive Manager: Commercial Development and Business Banking Mr SCE Soundy 2 797 502 24 4 3 327 Executive Manager: Strategy and Communications Mr GJM Conway2 748 - 8 1 757 Executive Manager: Corporate Banking and Structured Investments Ms K Gugushe 2 915 576 24 3 3 518 Chief Risk Officer Mr F Stiglingh 2 777 519 24 4 3 324 Executive Manager: Portfolio Management Services Mr SN Sebueng 2 200 452 24 - 2 676 Executive Manager: Legal Dr LL Magingxa 2 500 - 24 4 2 528 Executive Manager: Agricultural Economics & Advisory Mrs U Magwentshu3 225 - 2 - 227 Executive Manager: Corporate Banking and Structured Investments Total 19 485 2 999 178 19 22 681 1 Other benefits include vitality benefits 2 Resigned as at 13 July 2018 3 Appointed as at 01 March 2019 188 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ANNUAL FINANCIAL STATEMENTS FY2020 LAND BANK GROUP 189 NOTES 190 LAND BANK GROUP ANNUAL FINANCIAL STATEMENTS FY2020 ISBN: 978-0-621-48637-7