State to guarantee farm loans

The Land Bank's new financing model would see government step in to guarantee loans to aspiring commercial and cash-strapped farmers for the first time. The Land Bank is attempting to make a comeback after losses due to mismanagement, corruption and theft chewed deep into the coffers of the bank.

Land Bank CEO Phakamani Hadebe impressed earlier in 2009 with improved results and a R2bn balance sheet.

He told Fin24.com on Thursday that the bank's new financing model would result in poor farmers paying lower interest rates than before.

"The need to lend to this sector at prime plus 2% [to compensate for high risk], now falls away."

Hadebe conceded that the planned government guarantees in terms of the revised mandate, plus a further R1bn cash injection into the bank announced in the mini budget, could result in higher costs to government and ultimately to taxpayers.

In terms of the restructuring and revised mandate, which should be announced in the coming weeks, the bank would continue to lend to both the commercial and emerging farmer sectors. A new structure would be set up under the auspices of the agriculture, forestry and fisheries departments to provide collateral for cash-strapped farmers.

Efficient Group senior economist Dawie Roodt said the Land Bank differed from other parastatals in its constitutional requirement to focus on rural development and farmer support.

"Profits could still suffer, because many commercial farmers are challenging the interest rates they paid to the bank," he said.

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