Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) rose by N$351.3 million or 0.3% m/m in May, the slowest month-on-month increase so far in 2022, bringing the cumulative credit outstanding to N$116.6 billion. On a year-on-year basis, private sector credit grew by 11.0% y/y in May, compared to the 10.5% y/y growth recorded in April. Normalising for the large increases in claims on non-resident private sectors recorded between January and March, sees PSCE growth at 3.9% y/y in May. On a 12-month cumulative basis N$11.6 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.48 billion, corporates increased their borrowings by N$3.21 billion and the non-resident private sectors took up N$6.86 billion.

Credit Extension to Individuals

Credit extended to individuals increased by 0.3% m/m and 2.4% y/y in May. Mortgage loans to individuals posted growth of 0.2% m/m and 2.4% y/y. Overdraft facilities to individuals grew by 0.4% m/m but contracted by 1.7% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 0.8% m/m and 5.2% y/y.

Credit Extension to Corporates

Credit extended to corporates grew by 7.4% y/y in May, following the 5.9% y/y increase recorded in April. On a month-on-month basis, credit extension to corporates rose 0.2% m/m in May. The growth was primarily driven by an increase in ‘other loans and advances’ of 4.5% m/m and 18.2% y/y. Instalment credit by corporates rose by 1.4% m/m and 16.6% y/y, albeit from a low base. Mortgage loans contracted by 1.2% m/m but rose 3.6% y/y, while overdrafts fell by 4.9% m/m and 5.2% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks rose significantly in May, rising by N$778.3 million to an average of N$3.79 billion. The BoN partly ascribed the increase to an increase in diamond sales proceeds during the month. The repo balance fell to N$438.9 million at the end of the month, after ending April at N$1.97 billion.

Reserves and Money Supply

Broad money supply (M2) rose by N$5.8 billion or 4.8% y/y to N$127.6 billion, according to the BoN’s latest monetary statistics. Foreign reserve balances rose by 2.0% m/m or N$879.2 million to a total of N$43.9 billion. The rise was attributed to revaluation gains in the form of foreign currency investments during the period.

Outlook

Although May’s PSCE growth figure was the slowest on a month-on-month basis so far this year, it was the fifth consecutive month Namibian PSCE grew. As noted earlier in this report, normalising for the large increases in claims on non-resident private sectors recorded between January and March, sees PSCE growth at 3.9% y/y in May. Overall credit demand, and the willingness of commercial banks to extend credit thus remain low. Corporate credit growth continues to be driven by up the uptake of short-term credit, whereas the growth in credit to individuals was largely driven by the uptake of mortgage loans over the last 12 months.

Overall

Private sector credit (PSCE) increased by N$1.78 billion or 1.6% m/m in April, bringing the cumulative credit outstanding to N$116.2 billion. On a year-on-year basis, private credit sector credit grew by 10.5% y/y, compared to the 8.7% y/y growth recorded in March. While this was another relatively large monthly increase, this month’s increase was primarily driven by an increase in corporate credit demand versus the prior three months’ increases which were driven by increases in claims on non-resident private sectors. Normalising for the increases in claims on non-resident private sectors the past three months sees annual PSCE growth at 3.4% y/y. On a 12-month cumulative basis N$11.0 billion worth of credit was extended to the private sector. The non-resident private sector has taken up the bulk of this issuance with debts over the past 12 months summing to N$7.05 billion, while corporates have taken up N$2.58 billion and individuals have taken up N$1.37 billion. 

Credit Extension to Individuals

Credit extended to individuals increased by 0.5% m/m and 2.2% y/y in April. Mortgage loans to individuals rose by 0.6% m/m and 2.3% y/y. Overdraft facilities increased by 1.8% m/m, but contracted by 1.0% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 0.4% m/m and 4.1% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 3.1% m/m, following two months of declines. Growth in credit extension to corporates accelerated to 5.9% y/y in April, compared to 1.9% y/y growth registered in March. The increase was largely driven by a 6.4% m/m increase in ‘other loans and advances’. The Bank of Namibia (BoN) ascribed the increase to increased demand by corporates in the transport-, commercial property- and agricultural services sectors. Overdraft facilities to corporates rose by 1.9% m/m, but fell 4.4% y/y. Instalment credit by corporates fell by 0.6% m/m, although still recorded growth of 14.2% y/y.

Banking Sector Liquidity 

The overall liquidity position of the commercial banks fluctuated markedly in April, with the average position increasing by N$437.2 million to N$3.00 billion, while the daily position on the 29^th was down N$1.21 billion from the N$3.70 billion recorded at the end of March. According to the BoN, the change was due to increased demand at the bond auctions held during the month. The repo balance rose to N$1.97 billion at the end of the month after ending March at N$936.8 million.

Reserves and Money Supply

The BoN’s latest figures show broad money supply (M2) increased by N$1.76 billion or 1.4% y/y to N$126.4 billion. The central bank’s stock of international reserves rose by 5.6% m/m or N$2.27 billion to N$43.0 billion. The BoN noted that the increase was due to SACU revenue inflows and the depreciation of the Namibian dollar.

Outlook

As mentioned earlier in the report, the relatively strong PSCE growth in April was largely driven by an increase in corporate credit demand, specifically in the ‘other loans and advances’ category. While an increase in corporate credit demand is generally positive, the specific category that drove this increase in April is made up of shorter term debt. Short-term debt is generally used to cover short-term cash needs, and not to expand operations, thus meaning that the increase in corporate demand in April is not necessarily an indication of investment in fixed capital, but may be into working capital.

On a 12-month cumulative basis, private sector credit issuance increased by a rather substantial 292.1% y/y to N$11.0 billion. 64.1% of this increase was however due to the large increases recorded in claims on non-resident private sectors in the first three months of the year, which the BoN previously attributed to a loan uptake by one of the commercial banks from its parent company in South Africa. 

Private sector credit (PSCE) rose by N$1.35 billion or 1.2% m/m in March, bringing the cumulative credit outstanding to N$114.4 billion. On a year-on-years basis, private sector credit grew by 8.7% y/y, compared to the 7.1% y/y growth recorded in February. The growth was however again largely driven by a substantial increase in claims on non-resident private sectors. Normalising for this sees March PSCE growth at -0.9% m/m and 1.7% y/y. On a 12-month cumulative basis N$9.17 billion worth of credit was extended to the private sector. N$1.40 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while corporates took up N$835 million. The non-resident private sector increased their borrowings by N$6.94 billion.

Credit Extension to Individuals

Credit extended to individuals fell by 0.2% m/m, but rose 2.3% y/y in March. On a monthly basis, only the instalment credit subcategory posted growth, increasing marginally by 0.2% m/m and 1.5% y/y. Mortgage loans to individuals contracted by 0.2% m/m but rose 2.2% y/y, while overdraft facilities fell by 1.3% m/m and 1.0% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) declined by 0.2% m/m, but rose 4.0% y/y.

Credit Extension to Corporates

Credit demand by corporates remained subdued, with credit extended to corporates declining by 1.8% m/m. On a year-on-year basis, credit extended to corporates slowed to 1.9% y/y. Mortgage loans increased by 1.3% m/m and 6.6% y/y. Instalment credit by corporates rose by 2.0% m/m and 11.2% y/y, although the growth rate is from a low base. Overdraft facilities to corporates continued to fall, declining by 4.3% m/m, although still posted a year-on-year growth of 1.3% y/y. The Bank of Namibia (BoN) ascribed the monthly decline to repayments by businesses operating in the energy, fishing and health services sectors.

Banking Sector Liquidity

The overall liquidity position of the commercial banks deteriorated during March, falling by N$104.5 million to an average of N$2.57 billion. The BoN noted that the rise is customary during March as government offices winds up expenditure before the close of the fiscal year, coupled with an increase of some investment proceeds. The repo balance rose to N$936.8 million at the end of the month after ending February at N$862.6 million.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply (M2) N$1.73 billion or 1.4% y/y to N$129.1 billion. Foreign reserve balances fell by 5.3% m/m or N$2.27 billion to N$40.8 billion. The decline was ascribed to foreign government payments coupled with net commercial bank outflows due to an increase in the import bill.

Outlook

While PSCE growth appeared strong again in March, the increase was again primarily driven by a large increase in claims on non-resident private sectors. The BoN had previously attributed these substantial increases to a loan uptake by one of the commercial banks from its parent company in South Africa. Normalising for this large increase sees PSCE remaining subdued at 1.7% y/y in March, down from a normalised increase of 2.6% y/y in February.

Corporate credit demand remains particularly low, with only two of the last six months recording increases on a month-on-month basis. A lack of corporate credit appetite indicates low business confidence and that businesses are not taking up credit to expand their operations.

As expected, the BoN hiked the repo rate by 25bps at its April MPC meeting. Our expectation remains that we will see 3-4 additional 25 bp hikes throughout the rest of the year.