Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) rose by N$342.9 million or 0.3% m/m in July, bringing the cumulative credit outstanding to N$116.2 billion. On a year-on-years basis, private sector credit grew by 10.6% y/y. Normalising for the large increases in claims on non-resident private sectors observed between January and March this year sees PSCE growth at 3.5% y/y. Cumulative credit extended to the private sector over the last 12-months amounted to N$11.1 billion, up 287.2% y/y over the same period last year (26.7% y/y on a normalised basis). Claims on non-resident private sectors have taken up the bulk of the issuance with debts over the past 12 months summing to N$6.97 billion or 63% of the total debt issuance, followed by corporates which took up N$2.84 billion (or 26%) and individuals at N$1.32 billion (12%).

Credit Extension to Individuals

Credit extended to individuals increased by 0.1% m/m and 2.2% y/y in July, due to an increased demand in mortgage credit and ‘other loans and advances’ according to the BoN. Mortgage loans to individuals rose by 0.4% m/m and 1.9% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) increased 1.0% m/m and 7.9% y/y. Annual growth in other loans and advances to individuals has steadily been ticking up since November last year, with July’s print the quickest since October 2020. Overdraft facilities however contracted by 7.8% m/m and 10.7% y/y, following a 2.1% m/m and 3.0% y/y contraction in June.

Credit Extension to Corporates

Credit extended to corporates contracted by 6.5% y/y in July, following the 5.2% y/y increase recorded in June. On a month-on-month basis, credit extension to corporates rose by 0.7% m/m. According to the BoN, the increase was due to a rise in demand for mortgage credit and other loans and advances from corporates in the mining-, health-, and services sectors. Mortgage loans contracted by 1.0% m/m but rose 4.6% y/y while other loans and advances rose by 0.01% m/m and 15.7% y/y. Instalment credit increased by 1.6% m/m and 14.9% y/y. Overdrafts rose by 4.1% m/m but fell 6.1% y/y, the ninth consecutive month that overdraft facilities to corporates recorded a decline on an annual basis.

Banking Sector Liquidity

The overall liquidity position of the commercial banks rose significantly in July, rising by N$1.4 billion to an average of N$6.5 billion, and ended the month at N$10.2 billion. According to the BoN, the increase is partly attributed to an increase in diamond sales proceeds and from investment liquidations by other non-banking financial corporations. The repo balance subsequently fell to N$293.0 million at the end of the month, after ending at N$488.0 million in June.

Reserves and Money Supply

The Bank of Namibia’s latest figures show Broad Money Supply rising significantly by N$6.5 billion or 11.0% y/y to N$134.9 billion in July. The increase in the M2 growth was ascribed to a rise in the net foreign assets of depository corporations, as well as growth in domestic claims on other sectors. Foreign reserves rose by 7.1% or N$3.3 billion, the quickest growth in 13 months, to N$49.2 billion. The BoN attributes the boost to the increase in commercial banks foreign currency and SACU receipts.

Outlook

Normalised PSCE growth has steadily been ticking up from the lows of 2021, but remains about half the rates seen prior to the pandemic. With economic activity expected to remain relatively muted over the short- to medium term, we do not expect to see drastic increases in PSCE growth soon. We do however expect to see additional rate hikes by both the SARB and the BoN over the coming months, as inflationary pressures remain high.

Ultra-accommodative interest rates over the past two years provided relief to indebted consumers, but did not stimulate credit uptake, as evidenced by the low PSCE growth figures since the start of the Covid-19 pandemic when the central bank aggressively cut rates. Even with another 75 – 100 bp worth of increases, local interest rates will still be accommodative by historical standards. We could possibly see commercial banks being more willing to extend credit in the rising interest rate environment as they experience margin expansion, provided that they do not expect non-performing loans to increase.

Overall

Private sector credit extension (PSCE) declined by N$710.4 million or 0.6% m/m in June, the first month-on-month decline this year, bringing the cumulative credit outstanding to N$115.9 billion. On a year-on-year basis, PSCE grew by 9.9% y/y in June, compared to the 11.0% y/y growth recorded in May. The growth figure slowed from 3.9% to 2.8% y/y in June when adjusted for the large increases in claims on non-resident private sectors observed between January and March this year. On a 12-month cumulative basis N$10.4 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.21 billion, corporates increased their borrowings by N$2.32 billion and the non-resident private sectors took up N$6.92 billion.

Credit Extension to Individuals

Credit extended to individuals contracted by 0.2% m/m while year-on-year growth slowed to 2.0% y/y in June compared to the 2.4% y/y increase recorded in May. The decline in credit extended to individuals is primarily due to weaker demand for mortgage and overdraft credit by households during June. Mortgage loans to individuals contracted by 0.5% m/m but increased 1.5% y/y. This is the lowest year-on-year growth in mortgage loans observed since June 2019. Mortgage loan growth has been slowing since July 2020 on an annual basis, possibly indicating that the willingness of commercial banks to extend credit to individuals to buy, renovate or build new houses since the pandemic remains low. Overdraft facilities to individuals contracted by 2.1% m/m and 3.0% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 1.5% m/m and 5.8% y/y, continuing a steady rise since April 2021.

Credit Extension to Corporates

Credit extended to corporates grew by 5.3% y/y in June, slowing from the 7.4% y/y increase recorded in May. On a month-on-month basis, credit extension to corporates fell by 1.3% m/m. According to the Bank of Namibia (BoN), the decline in credit extended to corporates is mainly due to weaker demand for short-term credit facilities, specifically in the energy, mining, and commercial services sectors. Overdraft facilities to corporates contracted by 4.4% m/m and 9.4% y/y, the 8^th consecutive contraction on a year-on-year basis. Other loans and advances to corporates contracted by 3.1% m/m but increased 14.1% y/y, albeit from a low base. Instalment credit by corporates rose by 4.6% m/m and 18.1% y/y. While the year-on-year growth in instalment credit was achieved from a low base, the month-on-month increase was the largest since June 2019, with the amount outstanding starting to reach pre-pandemic levels. Mortgage loans to corporates rose by 1.2% m/m and 3.6% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks continues to rise. Commercial banks’ liquidity increased by N$1.31 billion to an average of N$5.10 billion in June. According to the BoN, the rise in the market cash position is partly attributable to an increase in diamond sales proceeds and investment liquidations by asset managers in preparation for tax payments. The repo balance rose marginally to N$488.0 million at the end of the month, after ending at N$438.9 million in May.

Reserves and Money Supply

Broad money supply (M2) rose by N$829.5 million or 5.4% y/y to N$128.4 billion, according to the BoN’s latest monetary statistics. The BoN ascribed the increase in M2 growth to a rise in net claims on central government by the depository corporations, as commercial banks increased their holdings of government securities. Foreign reserve balances rose by 4.7% m/m or N$2.07 billion to a total of N$46.0 billion. The BoN ascribed the rise in the foreign reserve stock to increased commercial bank foreign currency inflows and Rand seigniorage payments.

Outlook

While PSCE grew by 9.9% y/y in June, above the average for the year to date, it should be noted that it has been achieved from the unusually large increase in credit extensions to non-residents observed earlier this year. When the growth figure is normalised as noted above, year-on-year PSCE growth slows to a mere 2.8% and remains subdued when compared to pre-pandemic levels. Overall, credit uptake by both individuals and businesses remains relatively muted partly due to a lack in their ability to take up credit under the prevailing inflationary and monetary tightening environment. We expect PSCE growth to remain low while the BoN continues its monetary tightening stance in line with other central banks around the world. The BoN’s MPC is expected to raise the repo rate by 75 basis points at its next MPC meeting scheduled for 17 August 2022 in line with the rate hike by the SARB at its last MPC meeting held in July.

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.