Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) increased by N$2.44 billion or 2.2% m/m in February, bringing the cumulative credit outstanding to N$113.1 billion. On a year-on-year basis, private sector credit grew by 7.1% y/y in February, quicker than the already relatively high 4.8% y/y growth recorded in January. As was the case in January, the growth was primarily driven by a substantial increase of N$2.3 billion in claims on non-resident private sectors. On a 12-month cumulative basis N$7.47 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.74 billion, corporates increased their borrowings by N$1.18 billion and the non-resident private sectors took up N$4.56 billion. 

Credit Extension to Individuals

Credit extended to individuals increased by 0.2% m/m and 2.9% y/y in February. As was the case in January, most of the increase was driven by an increase in mortgage loans of 0.2% m/m and 2.9% y/y. Overdraft facilities to individuals fell by 0.5% m/m but rose 1.2% y/y, following the strong growth recorded in January. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 0.1% m/m and 4.0% y/y during the month.

Credit Extension to Corporates

Credit extended to corporates remained steady in February, following the 3.5% m/m increase recorded in January. On a year-on-year basis, credit extended to corporates grew by 2.7% y/y, the quickest increase since October last year. Overdraft facilities to corporates erased some of the large increase recorded in January, falling by 3.9% m/m and 4.1% y/y. Mortgage loans increased by 1.5% m/m and 5.1% y/y, while instalment credit by corporates rose by 2.8% m/m and 7.8% y/y, albeit from a low base.

Banking Sector Liquidity 

The overall liquidity position of the commercial banks deteriorated slightly during February, falling by N$179.0 million to an average of N$2.68 billion. The BoN ascribed the decline to “funds movement in search of better yields”. The repo balance fell to N$862.6 million at the end of the month after ending January at N$1.53 billion.

Reserves and Money Supply

According to the BoN’s latest monetary statistics, Broad Money Supply (M2) rose by N$2.00 billion or 1.6% y/y to N$127.2 billion. Foreign reserve balances fell by 0.6% m/m or N$271.0 million to a total of N$43.0 billion. The decline was contributed to net commercial bank outflows, which in turn was attributed to an increase in the import bill (specifically in the category of mineral fuels and oils) during the period. We believe that the high fuel prices will continue to put pressure on the foreign reserve position going forward.

Outlook

PSCE posted strong growth for a second consecutive month, with the increase again being driven by a large increase in claims on non-resident private sectors. The BoN ascribed these increases to a loan uptake by one of the commercial banks from its parent company in South Africa. Normalising for these two large increases, sees PSCE growth at 2.5% y/y in January and 2.6% y/y in February, bringing the growth rate roughly in line with the average rate witnessed in 2021. 

We expect the BoN to follow the SARB in hiking the repo rate by 25bps at its April MPC meeting, followed by an additional 3-4 hikes throughout the rest of the year, as inflationary pressure is expected to pick up. Still, even with 25 bp increases at every remaining meeting, interest rates should remain relatively accommodative by historical standards.

Overall

Private sector credit (PSCE) increased by N$4.22 billion or 4.0% m/m in January, the largest month-on-month percentage increased since 2003, bringing the cumulative credit outstanding to N$110.6 billion. On a year-on-year basis, private sector credit grew by 4.8% y/y in January, substantially quicker than the 1.0% growth recorded in December. Cumulative credit extended to the private sector over the last 12 months amounted to N$5.04 billion. N$1.9 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while N$917.9 million was extended to corporates. Claims on non-resident private sectors increased by an immense N$2.4 billion during the month, which drove most of the increase in the overall PSCE figure.

Credit Extension to Individuals

Credit extended to individuals increased by 0.4% m/m and 3.2% y/y in January. Most of the increase was driven by an increase in mortgage loans of 0.3% m/m and 3.4% y/y. Overdraft facilities to individuals also displayed relatively strong growth of 3.7% m/m and 2.0% y/y during the month. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 0.4% m/m and 4.0% y/y.

Credit Extension to Corporates

Credit extended to corporates grew by 2.1% y/y in January, following a contraction of 0.1% y/y in December. On a month-on-month basis credit extension to corporates rose 3.5% in January. The month-on-month growth was primarily driven by increased uptake in overdraft facilities which registered growth of 16.1% m/m, but fell 2.7% y/y. Demand for instalment credit by corporates remain low, falling by 0.4% m/m, but increasing 3.6% y/y. Mortgage loans to corporates fell by 1.6% m/m, but rose 1.4% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks deteriorated significantly during January, falling by N$2.00 billion to an average of N$2.85 billion. The BoN ascribed the decline to corporate tax payments at the start of 2022. The decline meant that the repo balance increased from zero at the end of December to N$1.53 billion at the end of the month.

Reserves and Money Supply

Broad money supply (M2) rose by N$2.03 billion or 1.6% y/y to N$128.4 billion, according to the BoN’s latest monetary statistics. Foreign reserve balances fell by 1.3% m/m or N$576.8 million to a total of N$43.3 billion. The contraction was contributed to increased government payments, increased commercial bank purchases of foreign currencies as well as exchange rate revaluations during the period.

Outlook

PSCE started the year off strong with a 4.0% m/m increase. It should however be noted that a significant portion of the increase has been driven by an increased uptake of overdraft facilities, particularly by corporates. Overdraft facilities are typically used to address short-term funding requirements, and not to fund long-term capital investment projects. The N$2.4 billion increase in claims on non-resident private sectors is however encouraging.

As expected, the BoN decided to raise rates by 25 basis points at its February MPC meeting. Inflationary pressure is expected to pick up in the coming months due to the rising oil price and the second-round effects. We continue to forecast both the South African and Namibian central banks to increase rates between 75- and 125-basis points during the year.

Overall

Private sector credit (PSCE) declined by N$305.1 million or 0.29% m/m in December, bringing the cumulative credit outstanding to N$106.4 billion. PSCE increased by just 1.0% y/y in 2021, following an already slow increase of 1.6% y/y in 2020, and the slowest increase on our records dating back to 2004. On a 12-month cumulative basis N$1.05 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.27 billion, while corporates reduced their borrowings by N$48.5 million and the non-resident private sector repaid N$173.3 million of their borrowings.

Credit Extension to Individuals

Credit extended to individuals remained steady in December. On a year-on-year basis, credit extended to individuals rose by 2.1% in December, although the growth has been slowing for four consecutive months. Overdraft facilities to individuals increased by 0.4% m/m, but declined 3.3% y/y in December. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 0.2% and 2.8% y/y. Growth in mortgage loans to individuals has been slowing since April, declining by 0.3% m/m but increasing by 2.6% y/y. 

Credit Extension to Corporates

On both a monthly and annual basis credit extended to corporates contracted for a second consecutive month, decreasing by 0.58% m/m and 0.11% y/y, as corporates continued to de-lever their balance sheets in 2021. Overdrafts declined by 5.5% m/m and 13.1% y/y. Mortgage loans to corporates fell by 0.3% m/m, but rose by 5.8% y/y. Instalment credit growth remained subdued, decreasing by 1.8% m/m, but increasing by 5.6% y/y, although it is from a very low base. Other loans and advances rose by 2.5% m/m and 3.1% y/y in December.

Banking Sector Liquidity

The overall liquidity position of the commercial banks strengthened during December, rising by N$1.01 billion to an average of N$4.86 billion. The BoN ascribed the increase to seasonal movements driven by corporates, in preparation for their annual tax payments. The strong liquidity position meant that the repo balance stood at zero at the end of the month after ending November at N$393.7 million.

Reserves and Money Supply

According to the BoN’s latest monetary statistics, Broad Money Supply (M2) rose by N$5.30 billion or 4.2% y/y in December to N$129.9 billion. The stock of international reserves increased by 6.9% m/m to N$43.9 billion in December. The increase was attributed to increased foreign asset swaps during the month, according to the BoN. 

Outlook

Overall, PSCE growth remained very subdued in 2021, with half of the months recording a contraction on a month-on-month basis. The 12-month issuance of N$1.05 billion is 35.7% lower than the issuance of 2020. Historically-low interest rates continued to provide overindebted consumers and businesses relief in the form of lower interest payments, but did not stimulate lending as consumer and business confidence remained low. 

We expect the BoN to raise rates by 25 basis points at its February MPC meeting, following the SARB’s decision to do so in January. The interest rate buffer between the two central banks that has been in place for most of 2020 and 2021 has been closed, after the BoN decided to not raise rates in December. Namibia’s reserve level remains strong, and we therefore do not expect the BoN to raise rates higher than SA’s in the short-term. Inflationary pressure is gradually picking up in both South Africa and Namibia and as a result we expect both central banks to increase rates between 75- and 125-basis points during the year.