Private sector credit extension growth remained unchanged in September, at an elevated level of 16.3 percent year on year. This growth was driven by strong uptake in credit to businesses, which expanded by 20.2 percent year on year, while credit extension to individuals saw lesser growth of 12.9 percent year on year. With regards to credit categories, outstanding mortgage loans grew by 12.1 percent, while instalment credit growth remained abnormally strong, at 18.6 percent. Following a year of abnormally high growth, the total level of outstanding private sector credit extension is now N$65.6 billion, N$9.24 billion more than a year ago.
PSCE growth remains driven by instalment credit, a persistent thorn in the side of the Monetary Policy Committee of the Bank of Namibia. The reason behind this (very justified) concern is that many of the goods sold on instalment periods (such as vehicles, furniture and consumer electronics) are imported from outwith the country, which importation puts pressure on the country’s balance of payments. Nevertheless, instalment credit represents a relatively small, but growing, portion of total credit.
On a rolling 12 month basis, net credit extension increased to a record N$9.24 billion, from the previous month’s record of N$9.11 billion. This major increase comes about on account of historically low interest rates until mid-2014, followed by two minor (25bp) increases thereafter. This, coupled with abnormally strong growth in the local economy, major fiscal expansion, (expected) declining unemployment and (likely) major increases in cash wages being paid in the construction sector (particularly), is likely to have resulted in major increases in disposable income in Namibia over the past 24 months. Given a low marginal propensity to save in the country, much of this increased income is spent, and often leveraged upon through the local commercial banks.
On the back of major increases in Government expenditure over the past year, as well as a concerted (and budgeted) effort to house smaller cash balances with the commercial and central banks, in September, Government’s deposits with these banks fell to the lowest level seen since December 2006.
Government’s domestic debt increased from N$20.25 billion to NS20.54 billion between September and October, largely on account of new issuance in the GC17, 18, 24, 25, 27, 30, 32, 35 and 40, some of which resulted from switches out of the GC15, due to mature next year. A total of N$221 million was switched out of the GC15 into longer dated instruments during the month.
Foreign reserve levels recovered through September, to N$16.5 billion, from N$13.7 billion the preceding month. This recovery bolsters the external position of the country somewhat, however was partially due to Rand depreciation. During the month, the Rand depreciated by 5.5 percent vs the US Dollar, which explains a portion of the increase.
