28. The Land Bank Balance Sheet and the Transmission of Shocks to the Agricultural Sector

How are adverse loan supply shocks and credit risk transmitted to the agricultural sector via the Land Bank balance sheet? We find that adverse loan supply shocks and credit risk shocks as proxied by positive shocks to non-performing loans exert downward pressure on the agricultural sector credit growth, output growth, investment growth and employment growth. In addition, evidence shows that credit extended by the Land Bank will have to increase at double-digit rates so as to support the accelerated land reform policy. In addition, this will increase its balance sheet to more than the current 1 per cent as a share of the banking sector. Thus, the scale of funding dedicated and available to land reform and agricultural development through the Land Bank as a vehicle for development finance must double overtime. This has to be accompanied by the implementation and enforcement of a rigorous financial and prudential regulatory environment to make sure that the risks faced by the bank are well managed. Furthermore, this will make sure that the new business model to support the accelerated land reform policy, rural development and agricultural revolution is sustainable in the long run.