Banks have warned that perceptions created by the debate on land expropriation could do unnecessary harm to the economy, and urged people to tone down the alarmist rhetoric. While the sector had tabled concerns about the possible effects of expropriation of land without compensation on its billions worth of land-backed credit, it did not believe that government would implement the controversial land policy in a way that would harm the financial sector.
This after statements by the Land Bank this week raised questions about whether the institution would survive should commercial farms owing the bank money be affected by the expropriation policy.
But the bank said it had no reason to believe government would go this route.
If farms pledged as collateral to the Land Bank were expropriated, the institution said in a statement in response to The Citizen’s enquiries, there would be an immediate deterioration of collateral values which would necessitate a bailout.
“While we are aware of the potential impacts to lenders this could have, we are comforted by the repeated commitment from both government and the ruling party that this process won’t manifest in a smash and grab scenario,” the bank added.
“We have no reason to doubt that this matter will be handled in a responsible manner, with due consideration of both the impact on the economy and to society.”
Similarly, The Banking Association South Africa (Basa) argued that public discourse about the hot-button issue posed a more immediate danger than the sector believed expropriation could.
“We have said before that the banks have about R133 billion of agricultural credit, where land is used as collateral, so there is potential that it would impact negatively on the financial sector and the economy,” said Cass Coovadia, the body’s managing director of the board.
“I must say, however, that I do believe the land issue will eventually be settled in a pragmatic way.
“We can’t see government doing things in a way that will impact badly on the banking sector.
“At the moment it’s all about messaging, the way that government and people talk about this creates certain perceptions and perception drives business and that is a critical issue for us in terms of investment and growth.
“We should be careful of creating any negative issue related to investment and growth.”
Earlier this week, Land Bank chair Arthur Moloto, speaking at the institution’s release of its annual report, called for the rights of creditors to be respected, adding that should land used as collateral be taken away this would raise certain questions and unintended consequences.
Speaking to The Citizen yesterday, the bank said if its business was affected by the implementation strategy, its bilateral loan agreements contained an “expropriation event of default” clause.
“This is a standard clause in any bilateral agreement between a commercial bank and any client,” a spokesperson for the bank said yesterday. “This clause provides the right to the commercial bank to accelerate payment of their loan granted. Land Bank has bilateral loans amounting to R9 billion containing the clause. Should lenders activate this clause, the bank will have to raise R9 billion to repay the lenders.
“The bank supports all efforts to advance an effective land reform programme, that will achieve transformation.”