By Moyagabo Maake, Business Day Live
Picture: REUTERS/SIPHIWE SIBEKO on BDLive
SHAREHOLDERS are mostly not concerned about a cumulative debt of R125bn farmers owe banks, with large institutional shareholders expressing faith in the level of provisions made against possible defaults as the worst drought in 20 years drags on.
The FirstRand group’s latest financial results show it had R28.6bn in agricultural exposure last June, which comprises 3.75% of its gross lending book. Barclays Africa was owed R8.87bn in the same period — 2.31% of its South African retail banking advances.
Bloomberg quoted Avior Capital Markets analyst Harry Botha, who calculated the R125bn, saying Standard Bank and Nedbank had 2% and 1% exposure respectively.
One bank has not made additional provisions for the drought.
Ernst Janovsky, head of agribusiness at Barclays Africa subsidiary Absa, recently told Business Day that the bank had not done so, but that this might change.
But Patrice Rassou, head of equities at Barclays Africa shareholder Sanlam Investments, said the bank had reduced its exposure to agriculture, especially in the insurance division.
"As for loans, it depends on the value of the collateral that they have," Mr Rassou said. "It would be an issue if a large farm would get into distress, but the banks have general provisions in place already. It’s difficult to tell in advance which bank may suffer from a default.
"Those relying on grain imports for cattle will suffer, but exporters of say, fruit, will be smiling. So it’s not clear what sits on the books of the banks."
Remgro CEO Jannie Durand, whose firm is one of FirstRand’s largest shareholders, is comfortable with its exposure level.
"The board of FirstRand is the decision-maker … and we have full faith in them," said Mr Durand.
The Pembani Group, which recently took over Shanduka’s interest in Standard Bank’s Tutuwa empowerment consortium, said it did not comment on investee companies. Coronation Fund Managers, a large shareholder in Nedbank, also declined to comment.
Farmers are holding onto their farms despite the drought, but Charles Rubidge, area principal for the Northern Cape region at Pam Golding Properties, expected "stressed" sales after the drought because they used lines of credit to absorb costs and feed livestock.
Mr Rubidge said farmers were at their credit limits, which would result in them being unable to service this debt or purchase livestock to increase production levels.
"At present, many of the farms which had been put on the market have been withdrawn, or the owners have asked that we not market the properties until it has rained."