Land Bank Annual l Repor ort FY201 016 Launch: 14 September 2016 - - PowerPoint PPT Presentation
Land Bank Annual l Repor ort FY201 016 Launch: 14 September 2016 CONTENT ENT 1. Opening Remarks by Programme Director, Mrs. Loyiso Ndlovu 2. Presentation by the CEO, Mr. TP Nchocho 3. Presentation by the CFO, Mr. Bennie van Rooy 4. Q &
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agricultural sector
independent non-executive Chairman
credit granting decisions
the Board
Services
Development Mandate Governance
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9.6% increase)
34% (2014: 12%)
(2015: 14.2%)
calendar year
Approximately R485 million of Forced Stock Sales Revenue deposited at year end A 8% increase in feed costs for the 2016 financial year (2015: 8%)
Tough operating environment characterised by low growth and drought
The General Economy of Agriculture Drought A significant factor
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Profitability is improving but Fixed Capital Formation is flat/declining
income and total farming debt respectively.
Source: BFAP
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Development finance strategy that is driven by Growth & Inclusivity Sector Growth Prospects: Realising the NDP Objectives Reshaping the future of South African Agriculture Strategic Objectives
Focus on sector growth & productivity Partnerships driven models
Particularly water, to enable expanded irrigation
Community leadership Long Term lease structures to attract capital investment
Land & Water & Environment & Agricultural Policy & Trade Policy
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to engage in a wide-ranging Organisational Review Process: Development Impact effectiveness Strengthening financial sustainability Modernisation of operations for better customer service
Management
Skills enhancement Modernisation of Risk Management Addressing the Capital Structure (Funding Profile) Revamping the Client Service Model Managing the Cost Structure prudently My sincere appreciation:
……. Custodians of Governance
……. Guidance and Support
……. Ever-growing Cooperation
Post the Org Review of last year, we continue to invest in enhancing the Bank
Institution Building Conclusion
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Group
Published basis Like-for-like basis Salient features Var % FY2016 FY2015 Var % FY2016 FY2015 Net interest margin
3.0%
3.0% Impairments (55.5%) R 74.2m R 166.7m (55.5%) R 74.2m R 166.7m Operating expenses 31.5% R 695.5m R 528.8m 0.8% R 532.8m R 528.8m Cost-to-income ratio 31.7% 73.9% 56.1% 0.9% 56.6% 56.1% Profit for the year (41.6%) R 182.0m R 311.5m 27.0% R 395.5m R 311.5m
(78.6%) R 94.0m R 239.6m 28.3% R 307.5m R 239.6m
22.3% R 88.0m R 71.9m 22.3% R 88.0m R 71.9m Cash 55.9% R 2.51bn R1.61bn 55.9% R 2.51bn R1.61bn Net loans and advances 4% R 36.4bn R 35.0bn 4% R 36.4bn R 35.0bn Impairment ratio 7.4% 7.3% 6.8% 7.4% 7.3% 6.8% Non-performing loans (9.3%) 8.8% 9.7% (9.3%) 8.8% 9.7% NPL coverage ratio 3.2% 77.2% 74.8% 3.2% 77.2% 74.8% Total assets 6.4% R 41.37bn R 38.87bn 2.7% R 41.37bn R 38.87bn
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Bank
Published basis Like-for-like basis Salient features Var % FY2016 FY2015 Var % FY2016 FY2015 Net interest margin
3.0%
3.0% Impairments (55.5%) R 74.2m R 166.7m (55.5%) R 74.2m R 166.7m Operating expenses 32.8% R 678.0m R 510.5m 0.9% R 515.2m R 510.5m Cost-to-income ratio 34.2% 73.7% 54.9% 2% 56.0% 54.9% Profit for the year (78.6%) R 94.0m R 439.6m 28.3% R 307.5m R 239.6m Total comprehensive income (82.9%) R 71.8m R420.5m 28.6% R 283.5m R 220.5m Cash 54.9% R 2.12bn R1.37bn 54.9% R 2.12bn R1.37bn Net loans and advances 4% R 36.4bn R 35.0bn 4% R 36.4bn R 35.0bn Impairment ratio 7.4% 7.3% 6.8% 7.4% 7.3% 6.8% Non-performing loans (9.3%) 8.8% 9.7% (9.3%) 8.8% 9.7% NPL coverage ratio 3.2% 77.2% 74.8% 3.2% 77.2% 74.8% Total assets 2.7% R 39.8bn R 38.76bn 2.7% R 39.8bn R 38.76bn Total CAR – Basel Standardised Approach (28.0%) 18.8% 26.1% (28.0%) 18.8% 26.1%
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A primary target of IFRS 9 is to introduce a more forward looking component into impairments calculation – in particular in the application of IRB parameters
Calculation of impairments IAS 39: Incurred loss approach IFRS 9: Three stage approach; (lifetime) expected loss Backward looking perspective:
impairment exists
a detailed impairment [IAS 39.58]
between the asset's carrying/ outstanding amount and the present value of estimated cash flows discounted at the financial asset's original effective interest rate [IAS 39.63] Use of Basel II risk measures:
expected loss to incurred loss Forward looking perspective:
Assets measured at amortised costs, if there is no explicit expectation of loss
Assets that fulfil both of the two criteria – More than insignificant deterioration in credit quality – Reasonable possibility that the contractual cash flows may not be fully recoverable Use of Basel II risk measures:
1 Assets in stage 2 are assessed collectively while assets in stage 3 are assessed individually 2 The assessment of the transfer of assets to stage 2 or 3 will generally be based on the probability of default
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The new impairment rules require to calculate lifetime expected credit losses (lt-EL) in case the credit quality decreased significantly
Stage 1 - Performing
considered if loss event expected in the next 12 months
gross carrying amount (i.e. without adjustment for expected credit losses) Stage 2 – Under-performing
financial assets remains the same as for category 1
recognised in P&L Stage 3 – Non-performing
still recognised in P&L
credit impaired, interest revenue is calculated based on the amortised cost (i.e. the gross carrying amount adjusted for the loss allowance)
Significant deterioration in credit quality Only assets originally included in category 1, provided criteria above no longer met Objective evidence for impairment (based on non-performance criteria) Initial stage (normally)
Stage migrations Stage description
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Profi fit t for the ye year: Published for Like-for-like basis
350 300 250 200 150 100 50
Intergroup dividends Published basis
94.0 162.7 50.8
Organisational review
307.5
IFRS 9: FV designation to amortised cost
R million
Like-for-like basis
+227%
450 400 350 300 250 200 150 100 50 239.6
IFRS 9: FV designation to amortised cost
439.6
Published basis Intergroup dividends Organisational review Like-for-like basis
R million
Profit for the year Var % FY2016 FY2015 Published basis (78.6%) 94.0 439.6 Intergroup dividend +100%
Organisational review +100% 162.7
+100% 50.8
28.3% 307.5 239.6
FY2016 FY2015
The Bank’s performance during FY2016 was impacted by two significant events:
Therefore a “like-for-like” comparison is required to fully appreciate the results achieved in FY2016
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51.4 92.4 307.5 239.6 50 100 150 200 250 300 350 400 Indirect tax & other
Opex
Other income 13.2 NIR/E
Impairments NII FY2015 Discontinued
5.5 R million FY2016 28.3%
Profit for the year (like for like) Var % FY2016 FY2015 Net interest income 4.8% 1,111.3 1,059.9
14.1% 3,543.7 3,106.7
(18.8%) (2,432.4) (2,046.8) Net impairment charges 55.5% (74.2) (166.7) Operating expenses (0.9%) (515.2) (510.5) Profit for the year 28.3% 307.5 239.6 Net interest Margin
3.0% Cost-to-income ratio 2% 56.0% 54.9%
Profit for the year – FY2016
Net interest income
gross loan book
funding costs
Impairments
largely as NPL’s decreased from 9.7% to 8.8% Operating expenses
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Published basis (R’000) Statement of Financial Position Var % FY2016 FY2015 Cash and cash equivalents 54.9% 2,120.6 1,369.4 Net Loans and Advances 3.8% 36,353.4 35,032.5 Investments (1.9%) 557.8 568.6 Assets of disposal group classified as held-for-sale 5.4% 149.6 141.9 Other assets (4.1%) 618.1 644.5 Total assets 5.4% 39,799.5 37,756.9 Capital and reserves 1.4% 5,058.8 4,987.0 Liabilities 6.0% 34,740.7 32,769.9
7.5% 33,156.0 30,847.1
5.2% 204.8 194.6
5.2% 868.1 824.8
(43.3%) 511.8 903.4 Total equity and liabilities 5.4% 39,799.5 37,756.9
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: IAS 39
13.6 21.0 26.5 33.0 36.4 36.9 1.7 1.4 1.4 1.4 2.1 5.5% 3.7% 3.2% 4.9% 11.0% 4.4% 2.9% 2.3% 3.1% 6.5% 5 10 15 20 25 30 35 40 45 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 6.4% FY2011 3.9% FY2012 FY2013 1.1 FY2014 FY2015 FY2016 Non-performing Performing NPL ratio Impairment ratio R billion
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: IFRS 9
78.1% 8.8% 13.1%
Stage 1: Performing loans Stage 3: Non-performing loans Stage 2: Under-performing loans
9.7% 9.0% 81.3%
Loan book – FY2016 Loan book – FY2015
7.5% 84.8% 7.7%
Loan book – FY2014
In order to standardise its non-performing loan definition and enhance the appropriateness of its impairment calculations, the Bank adopted IFRS 9 – Financial Instruments with effect from 1 April 2015. The impact of it was as follows: Classification and measurement of financial instruments – the Bank revoked its previous designation of fair value through profit and loss relating to certain funding liabilities which are now carried at amortised cost, thereby eliminating an element of market-related volatility from the Bank’s earnings; and Impairment of financial assets – the Bank’s non-performing loan definition was realigned to conform to the requirements of IFRS 9 and therefore brought in line with general banking practices based on a 90-day past due principle. Furthermore, the Bank’s financial assets impairment models changed from an IAS 39 “incurred loss” model to an “expected credit loss model” under IFRS 9 to ensure that provision for doubtful debts is appropriate. I.t.o. IFRS 9, the Bank now classifies its loans in three distinct stages: Stage 1: Performing loans (typically loans that are current, or overdue for less than 30 days) Stage 2: Under-performing loans (typically loans that are past due for more than 30 days); and Stage 3: Non-performing loans (typically loans that are past due for more than 90 days). Under IAS 39 the comparative non-performing loans would have been 5.5% (FY2015: 3.72%).
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: Coverage
0.8 1.7 1.1 2.0 1.7 0.4 1 2 3 4 0% 20% 40% 60% 80% 100% FY2016 77.2% FY2015 74.8% FY2014 57.3% Coverage Portfolio impairments Specific impairments 28.9 30.7 30.5 3.4 3.4 2.6 2.6 6.8% 7.3% 4.4% 5 10 15 20 25 30 35 40 0% 1% 2% 3% 4% 5% 6% 7% 8% FY2016 5.1 FY2015 3.7 FY2014 Impairment ratio Stage 1: Performing Stage 2: Under-performing Stage 3: Non-performing 49.6% 29.5% 29.9% 77.2% 74.8% 57.3% 0% 10% 20% 30% 40% 50% 60% 70% 80% FY2016 FY2015 FY2014 Coverage - IFRS 9 Coverage - IAS 39
Loan Book and Impairment ratio Loan Book Impairments and “Coverage”
With the adoption of IFRS 9, the Bank’s “Impairment ratio” and “NPL coverage ratio” has been significantly improved:
Under IAS 39 the comparative positions would have been:
R billion R billion
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: CAR, LCR, NSFR
During the year under review the Bank introduced of a number of the Basel Accord’s capital and liquidity risk management practices. This includes:
The rationale for the makeover of the Bank’s capital and liquidity risk management practises was that these measures were dated and incentivised wrong behaviour. The benefits to the Bank by adopting these risk management principles are as follows:
agencies;
liquidity demands than the Bank’s existing metrics;
focus on promoting good risk management practices from a credit and liquidity management perspective;
than short term gains; and
accepted as international best practise in risk management
18.8% 26.1% 0% 5% 10% 15% 20% 25% 30%
FY2016 RWA
Profit 0.5% Guarantee
FY2015 11.8% 11.3% 13.1% 0% 5% 10% 15% 20% 25% 30%
FY2016 18.8% 1.2% 6.3% FY2015 26.1% 1.2%
Target CAR Total CET 1 Capital Tier 2 Capital Guarantee
Total Capital adequacy ratio
Despite a year-on-year decline of 28%, the Bank’s Total CAR is very healthy at 18.8% and well above the Bank’s internal target of 15%. It should be noted that the decline is not as a result of deteriorating capital and reserves base, but rather as a result of an increase in the Bank’s RWAs as well as a reduction in the available guarantees, of which R2.7bn was utilised during the year.
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: CAR, LCR. NSFR
Net stable funding ratio
81.3% 79.0% 72.0% 80.0% 0% 20% 40% 60% 80% 100% 100% 80% 60% 40% 20% 0% +2.9% +9.7% FY2017/Q1 FY2016 FY2015
Cash
1,500 500 2,500 2,000 1,000
+54.9% FY2016 2,121 FY2015 1,369 FY2015 1,228 FY2013 1,677 FY2012 1,787
Liquidity Cover Ratio
78% 55% 29% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% +42.2% +89.7% FY2017/Q1 FY2016 FY2015 LCR Target LCR
The Bank’s cash resources increase by 54.9% year-on- year resulting a very healthy liquidity position. The introduction of the Basel III LCR and NSFR has strengthened the Bank’s liquidity management
Bank has managed to achieve and even outperform internal targets set in this regard.
R 000
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: Funding model
Land Bank’s funding model is twofold to ensure delivery on the Bank’s mandate Characteristics
basis Typical investors
Typical instruments
Application of funding
Commercial Funding Development Funding
Characteristics
Typical investors
Typical instruments
Application of Funding
Existing sources of funding
Pipeline funding
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37.7% 55.0% 52.3% 56.6% 62.4% 50.3% 47.4% 7.8% 7.8% 18.6% 20.8% 80.9% 56.5% 42.6% 45.6% 41.1% 29.7% 31.1% 31.8% 11.2% 0% 20% 40% 60% 80% 100% FY2014 FY2013 2.3% FY2012 2.1% FY2011 2.3% FY2010 5.8% FY2009 FY2016 FY2015 Institutional investors Banks PIC & CPD
Diversification of investor base
Funding profile – Remaining Term FY2016 % of Total FY2015 % of Total 0 – 3 months 14,807.9 44.7% 10,725.5 34.8% 3 – 6 months 773.6 2.3% 4,513.7 14.6% 6 – 9 months 2,014.6 6.1% 2,912.8 9.4% 9 – 12 months 1,693.1 5.1% 4,311.8 14.0% Total maturities < 12 months 19,289.1 58.2% 1 22,463.8 72.8% 1 1 – 5 years 9,238.0 28.1% 7,795.6 25.3% > 5 years 4,538.9 13.7% 587.9 1.9% Total – Continuing operations 33,156.1 100% 30,847.1 100% Discontinued operations 868.1 824.8 Total 34,024.2 31,671.8
1 Comparative position based on Original Term to Maturity is 59.0% (FY2015: 69.0%)
30.0% 10.0% 5.0% 5.0% 50.0% 3 years 5 years 7 years 10 years < 1 year
Funding Profile Medium Term target
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21.4 26.2 32.1 35.5 1.7 2.0 2.3 2.5 36.5 15.3 13.7 14.2 16.1 5 10 15 20 25 30 35 40 FY2010 1.0 FY2011 FY2008 FY2009 FY2016 FY2015 FY2014 FY2013 FY2012 Development Commercial 31.6 32.7 6.2 6.3 5 10 15 20 25 30 35 40 FY2015 FY2016 CDB CB
There has been no material change in the make up of the Bank’s Loan Book year-on-year with approx. 83.9% of the Bank’s loan assets allocated to Corporate Banking. The Bank broadly defines “Development” as loans to HPDI’s, commercial/ corporate operations where “Black Ownership” is > 50%, and/ or BBBEE Level 4 or better contributors. At present the “Development Book” is a small component of the Bank’s total loan book, approx. R2.5bn of R39bn. Included in the “Development Book” is approx. R500m which extended through the Bank’s CDB WFF product, i.e. intermediary support model which has very low levels of NPL’s.
R billion R billion