Total credit extended to the private sector increased by N$1.0 billion, or 1.4%, in July 2015, taking total credit outstanding to N$74.1 billion. On an annual basis PSCE growth picked up from 14.8% in June to 15.9% in July, returning to longer term trend levels. A total of N$10.2 billion worth of credit has been approved over the last 12 months with N$4.7 billion worth of credit being approved in 2015 thus far. Of this N$10.2 billion worth of credit issued during the last 12 months, approximately N$5.6bn was taken up by businesses, while N$4.5bn was taken up by individuals.
Credit extension to households expanded by 1.5% on a monthly basis and 11.4% on an annual basis in July. Credit extension to households is now growing at a more constant pace than in the past and may start to slow as interest rate hikes start to change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.
Household mortgage loans expanded by 1.5% month on month and 13.4% year on year and continue to make up the majority of credit extended to households or individuals. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals at present.
Year on year installment credit growth dropped to 2.2% in June after posting figures of 17.9% in April and May. In July installment credit growth was once again down at 2.2% year on year reinforcing June’s reading. Thus there has been a noticeable slowdown in the uptake of installment leases by individuals which may be attributed to tighter monetary policy by the Bank of Namibia, but needs to be confirmed by future growth rates.
Credit extension to corporates grew by 1.4% on a month on month basis and 22.8% year-on-year In July, meaningfully higher than the growth of credit extended to households as has been the trend for the last few years. This expansion was primarily driven by huge growth in mortgage loans, up 28.4% year on year, followed by other claims instalment credit growth of 41.7%. The rapid uptake of credit by businesses can, at least partly, be attributed to the rapid expansion of the local economy thus far as well attractive prospects going forward.
Reserves and money supply
The stock of foreign reserves decreased slightly by the end of July 2015. International reserves stood at N$14.3 billion at the end of July, down from N$14.8 billion at the end of June. The decrease from June to July, although slight, was unexpected due to the position generally benefiting from SACU and tax receipts in July.
Outlook
The extended period of rapid credit extension seems to be slowing around the fringes. This is to be expected as individuals and businesses adjust their expectations of future interest rates due to tightening monetary policy. Total credit extended as well as credit extension growth has been buoyed by strong wealth effects as a result of prolonged and abnormally high growth within Namibia. A slowdown in credit extension to longer term sustainable levels would be a positive development considering the current economic climate. However, the decline in reserves over the past few years is cause for concern.
