Expropriation could cause widespread bankruptcy - banker

Johannesburg - Expropriation of land without compensation could create a systemic risk for the entire South African banking and financing industry, warned Ian Matthews, head of business development at investment banking firm Bravura.

If a loan or bond agreement is defaulted upon as a result of expropriation, it is unclear what the recourse for the lender will be and how an institution will recoup its money.

According to Wandile Sihlobo, head of agribusiness research at the Agricultural Business Chamber (Agbiz), total farm debt stands at R160bn. Two thirds of this is owed to commercial banks, one third to the Land Bank and a small percentage was borrowed from other private institutions and agricultural cooperatives.

FirstRand and Barclays Africa Group have the largest proportion of agricultural loans, at 3.6% and 3.4% of their total lending book respectively. Standard Bank's portion is 2% and Nedbank has 1%, according to data from Bravura.

'Systemic risk in the banking and agriculture'

The investment firm cautions that expropriations and the subsequent debt defaults could cause widespread bankruptcy and “an ensuing economic crisis which could result in a systemic risk in the banking and agricultural sectors”.

“Government may well have to step in to prop up the banks and other financial market role players under those circumstances.”

This week, the National Assembly agreed to the principle of land expropriation without compensation. Parliament’s constitutional review committee will report on proposed changes to section 25 of the Constitution, guaranteeing property rights, by the end of August.

This follows the ANC's adoption of the expropriation policy at its December 2017 conference with the caveat that it shouldn’t affect food security or other sectors of the economy, including the financial sector.

Sihlobo questioned how the ruling party could achieve this, given the high levels of debt owed to commercial banks.

“You can’t achieve both of them at the same time.”

Not just a farming issue

Sihlobo expressed concerned that if the expropriation policy is adopted, it will be viewed as a general undermining of investment, which will lead to a decline in agricultural output.

He pointed to the Agribusiness Confidence Index compiled by Agbiz, which went over the 50 point mark in mid- 2017 as the country started to recover from the drought.

Sihlobo said they received negative responses from agricultural businesses after the ANC conference in December, on the sub-index related to policy uncertainty.

The 2017 fourth-quarter Agribusiness Confidence Index is scheduled to be published next week.

“There’s a good correlation between growth in the sector and confidence,” Sihlobo said.

He also warned against seeing the expropriation policy as a farming issue, saying it could affect all sectors, including urban land.  

Nearly 24 years into democracy, the majority of agricultural land remains in white hands and government faces increased pressure to act on this. 

According to the government’s  land audit results released in February, 72% of agricultural land is owned by white South Africans, 15% by coloured people, 5% by Indians, and 4% by black Africans.

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