# Moody’s downgrades Land Bank to junk

- Link: https://dearsouthafrica.co.za/2020/01/22/moodys-downgrades-land-bank-to-junk/
- Published: 2020-01-22T12:19:16+02:00
- Author: dearSA

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The Land Bank has become the first big state-owned company in SA to be relegated
to junk status by Moody’s rating agency. The New York-based agency, which is the
last remaining among the big three to rate SA as investment grade economy, said 
given government’s fiscal challenges, it expected less financial support for the
Land Bank from the state.

The agency downgraded Land Bank’s long-term issuer ratings to Ba1 from Baa3. This
is a notch below investment grade. It’s also a notch below SA’s sovereign rating,
which the agency affirmed at Baa3 with a negative outlook in November, and also 
below Transnet and Eskom, who continue to enjoy a Baa3 rating from Moody’s, despite
the latter’s debt and solvency woes. Land Bank’s short-term issuer ratings were 
downgraded to “Not Prime” from P-3.

“The ratings downgrade reflects Moody’s assessment that ongoing fiscal challenges
suggest that the South African government will be more selective in dispersing financial
support to state-owned enterprises, including to Land Bank,” said Moody’s in a statement.
The agency also revised Land Bank’s outlook to negative for the same reason. The
agency said it assumes a high likelihood of government support for Land Bank, given
that it’s a state-owned bank.

Moody’s flagged the pending downgrade of the Bank in November, saying that its assets
quality, rise in non-performing loans and its capital adequacy levels presented 
a cocktail of challenges, making its profile riskier than the general global banking
sector.

Land Bank recorded a 3.6% increase in its non-performing loans – loans that are 
in default or where clients have not made payments in time and are at risk of defaulting–
to 17.9% in the 2019 financial year. But Moody’s was more concerned about the increase
in stage 3 or impaired loans, which grew to 8.8% from 6.7% in 2018. The Bank said
slow economic growth and droughts contributed to some farmers struggling to repay
the Bank while its R662m exposure to Tongaat Hulett exacerbated losses.

On Tuesday, Moody’s said the increased credit risks elevated Land Bank’s solvency
pressures. In the 2019 financial year, the Bank reported a capital adequacy ratio
of 16.4%, slightly above the 15% mandated by bank’s solvency laws and Moody’s remarked
that this only provided “a modest” cushion. Moody’s also flagged corporate governance
concerns as a factor that worked against Land Bank.

“While the rating agency acknowledges initiatives taken by Land Bank to strengthen
governance in light of generally heightened attention to South African state-owned
enterprises, the prolonged period of uncertainty in relation to appointing a permanent
CEO who will ensure sustained oversight of the bank’s operations and strategic direction
is a cause for concern. For Land Bank, corporate governance remains a key credit
consideration,” said Moody’s in a statement.

The Bank has not been with a permanent CEO since December 2018, when Tshokolo Nchocho
moved to the IDC, and Konehali Gugushe, who had been acting since May 2019 r[esigned earlier this month](https://www.fin24.com/Companies/Financial-Services/land-bank-acting-ceo-resigns-20200115).

[Article](https://m.fin24.com/Companies/Financial-Services/moodys-downgrades-land-bank-to-junk-20200121)
by News 24