Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) increased by N$799.6 million or 0.76% m/m in September. PSCE grew by 2.74% y/y in September, up from August’s increase of 1.85% y/y. On a 12-month cumulative basis, N$2.82 billion worth of credit was extended to the private sector. This represents an 89.9% y/y increase from last September’s 12-month cumulative issuance figure. This increase is due to base effects and does not indicate meaningful, above-trend growth in PSCE. Instead, PSCE growth has remained relatively stable, recording around 2.2% y/y growth over the past few months after faltering for much of 2020, hence the intermittent large year-on-year increases. Individuals continue to take up the majority of this cumulative issuance.

Credit Extension to Individuals

Credit extended to individuals decreased by 0.18% m/m but increased by 3.71% y/y in September. On a month-on-month basis, only one sub-category of loans and advances increased, namely mortgage loans by 0.1% m/m. The other two subcategories of loans and advances; namely other loans & advances and overdraft, shrunk in September by 0.7% m/m and 3.2% m/m respectively. Instalment credit grew by 0.2% m/m. On a year-on-year basis all subcategories of loans & advances, and instalment credit registered increases in September. Specifically, mortgage loans increased by 4.3% y/y, other loans & advances increased by 2.3% y/y and overdrafts grew by 4.8% y/y. Instalment credit issued to individuals grew by 1.3% y/y in September, marking the sixth straight month of year-on-year increases in this category. Prior to this streak, instalment credit shrunk year-on-year for the previous 20 months (back to August 2019). Despite structurally making up only 10-12% of the total credit extended to individuals, this sustained up-tick in instalment credit is perhaps an indicator of improving consumer demand. But again, this is a minor increase in a minor category and overall growth of credit extended to individuals remains sluggish.     

Credit Extension to Corporates

Credit extended to corporates grew by 2.29% m/m and 1.81% y/y in September. Total corporate loans & advances grew by 2.0% y/y in September, driven by increases in mortgage loans as well as other loans & advances with both sub-categories recording growth of 2.8% y/y. Overdrafts decreased by 0.3% y/y and instalment credit grew by 0.2% y/y. The month-on-month increase in corporate credit extensions was particularly strong in September, with the 2.29% m/m increase representing the largest month-on-month increase in 2021. This is due partially to base effects as August saw one of 2021’s largest month-on-month decreases in credit extensions to corporates.

Banking Sector Liquidity

The overall liquidity position of Namibia’s commercial banks decreased in September, falling by N$398.3 million to an average of N$1.40 billion. The BoN attributes this to government borrowing activities resulting from a large September bond auction. Despite the decrease in liquidity, the total balance of repos outstanding decreased during September. The repo balance fell to N$907.7 million at the end of September after starting at N$1.27 billion.

Reserves and Money Supply

Broad Money Supply (M2) contracted by N$2.93 billion or 2.3% y/y in September, according to the BoN’s latest monetary statistics. The money supply also decreased by 0.1% m/m and now stands at N$122.9 billion compared to the N$123.1 billion at the end of August. The BoN made a significant revision to the international reserve balance for the month of August in the latest data. Previously the stock of international reserves was seen to decrease by 4.1 % m/m in August to N$40.9 billion. As per the latest data, the stock of international reserves for August instead increased to N$44.9 billion. Using this revised estimate, the BoN’s stock of international reserves rose by 2.1% m/m to N$45.9 billion in September. While the wording is unclear, the Bank of Namibia has attributed the increased level of international reserves (read – the August adjustment) to the IMF’s allocation of Special Drawing Rights (SDR) in August.  

Outlook

PSCE growth in September remained subdued and broadly in line with the 2021 trend. We expect the Bank of Namibia’s MPC to keep interest rates at their current level for the remainder of the year, but pressure is growing on the South African Reserve Bank to increase interest rates. This is because inflation is hovering around the 5.0% mark, and with inflation risks to the upside, the SARB may need to hike rates to keep inflation below their 6% y/y targeted upper-bound. The SARB’s MPC meets on 18 November with a rate hike looking more likely than at any other point in the year so far. Should the SARB raise rates, the BoN will surely follow. While this will likely have a negative impact on PSCE, there is argument to be made that because PSCE growth has been, and remains, so subdued that perhaps a rate hike won’t make all that much difference.  

Overall

Private sector credit (PSCE) decreased by N$94.3 million or 0.09% m/m in August. On a year-on-year basis, PSCE grew by 1.85% y/y in August, down from July’s increase of 2.72% y/y. On a month-on-month basis, financial corporations, individuals and the non-resident private sector all increased their borrowings. Corporates, on the other hand, decreased their borrowings by N$519.1 million or 1.20% m/m. Cumulative credit extended to the private sector over the last 12-months amounted to N$1.91 billion, down 17.0% from the N$2.23 billion issued by this time last year. Individuals have taken up the majority of this cumulative issuance. 

Credit Extension to Individuals

Credit extended to individuals increased by 0.66% m/m and 4.40% y/y in August. This is the largest year-on-year increase in 2021. This increase was driven strong growth mortgage loan growth of 4.6% y/y and 4.4% y/y growth in other loans & advances (credit card debt, personal- and term loans). Overdrafts grew by 9.1% y/y in August. All subcategories of loans and advances posted growth on a monthly basis with other loans and advances posting growth of 2.1% m/m, mortgage loans increasing by 0.4% m/m and overdrafts climbing by 0.2% m/m.

Credit Extension to Corporates

Credit extended to corporates contracted by 1.20% m/m and 1.23% y/y in August, as businesses continued to delever their balance sheets. This is the first year-on-year decrease in corporate credit extensions in 2021. The decline is largely due to overdrafts to corporates decreasing by 5.1% m/m and 3.1% y/y. Other loans & advances shrunk by 1.7% m/m and 1.0% y/y. Instalment credit grew marginally by 1.5% m/m but contracted by 2.6% y/y, the 19^th consecutive month of contraction on an annual basis. Corporate mortgages increased by 2.1% m/m and 0.4% y/y.

Banking Sector Liquidity

The overall liquidity position of Namibia’s commercial banks increased significantly in August, rising by roughly N$1.24 billion to an average of N$1.80 billion in August. As a result of the improved liquidity, the balance of repo’s outstanding decreased. The repo balance at the start of August was N$1.02 billion, by the end of the month it stood at N$734.6 million.

Reserves and Money Supply

Broad Money Supply contracted by N$1.38 billion or 1.1% y/y in August, according to the BoN’s latest monetary statistics. The money supply did however increase month-on-month and now stands at N$123.1 billion compared to N$121.5 billion at the end of July. The BoN’s stock of international reserves decreased by 4.1% m/m to N$40.9 at the end of August. The central bank attributes this decrease to both increased government payments and commercial bank purchases of foreign currency for import payments in August.

Outlook

Overall, PSCE growth remained subdued and in line with what has been seen so far in 2021. As stated, rolling 12-month issuance is down 17.0% y/y to N$1.91 billion, but more tellingly that same figure is down 67.1% compared to August 2019.  

Even if, interest rates remain steady for the remainder of 2021, as expected, this is unlikely to meaningfully increase the growth rate of PSCE. Despite growth in the economy in Q2 2021, consumers are likely to remain cautious and prioritise saving over consumption. The data bears this out as year-on-year increases in credit extensions to individuals in 2021 are similar to those seen in 2020. Meaningful PSCE growth is therefore likely to return only once macroeconomic conditions improve meaningfully and both consumers and businesses can spend more freely.

Overall

Private sector credit (PSCE) decreased by N$318.7 million or 0.30% m/m in July. This decrease brings the total cumulative credit outstanding to N$105.0 billion. On a year-on-year basis, private sector credit increased by 2.72%. Over the past 12 months, N$2.78 billion in credit was extended to the private sector. Cumulative 12-month issuance is therefore up 47% from the N$1.89 billion issued by this time in 2020. Individuals have taken up the bulk of this issuance with debts over the past 12 months summing to N$2.18 billion or 78% of the total debt issuance.

Credit Extension to Individuals

Credit extension to individuals increased by 3.69% y/y, but fell by 0.05% m/m in July. This month-on-month decrease was driven by 1.0% m/m and 0.4% m/m contractions in other loans and advances (credit card debt, personal- and term loans) and instalment credit, respectively, offsetting a 0.2% m/m increase in mortgage loans. However, instalment credit expanded by 0.6% y/y in July. Mortgage loans extended to individuals increased by 4.4% y/y, slightly slower than the 4.9% y/y increase recorded in June. Individual overdrafts rose by 8.7% y/y, but by only 0.1% m/m. This comes after overdrafts fell 0.9% m/m in June.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.52% m/m while increasing by 1.78% y/y in July. This year-on-year increase in corporate credit extensions is in keeping with the trend in 2021, with only low single digit increases recorded thus far. Corporate overdrafts rose by 0.4% m/m and 8.7% y/y in July. Instalment credit increased by a more moderate 0.7% m/m and 0.6% y/y. Mortgage loans decreased by 1.7% m/m but rose by 4.4% y/y this July. This month-on-month decrease is unsurprising as new corporate mortgage loan issuance has been sporadic throughout 2021, with only January, April and June seeing month-on-month increases, while February, March and now July have seen month-on-month decreases in issuance.

Banking Sector Liquidity

The overall liquidity position of Namibia’s commercial banks was near enough unchanged in July, rising by only N$555,000 to an average of N$552.8 million. July saw a marked decrease in the balance of repo’s outstanding – as the starting balance outstanding of N$1.65 billion was cut to N$1.02 billion by the end of the month.

Reserves and Money Supply

The Bank of Namibia’s (BoN) latest figures show Broad Money Supply contracting by N$2.28 billion or 1.8% y/y in July after registering successive year-on-year contractions in May and June. As of the end of July, money supply stands at N$121.5 billion. The central bank’s stock of international reserves rose by 2.1% m/m to N$42.6 billion at the end of July. The BoN attributes the boost to the inflow of SACU receipts during the period.

Outlook

After large increases in credit extension to the private sector in the second half of 2020, with total outstanding private sector debt rising from N$102.2 billion in June 2020 to N$105.4 billion in December, PSCE growth in 2021 has been more subdued.  Total PSCE has hovered between N$105.6 billion and N$105.0 billion this year. The marginal 0.30% m/m decrease in July came off the back of a 0.29% increase the previous month. Without making too many bold inferences from the data it suffices to say that macro-economic conditions remain uncertain in Namibia. 

We expect the BoN to mirror South Africa and hold interest rates steady for the remainder of 2021 to aid overindebted consumers and to attempt to stimulate the economy. Namibian individuals continue to take on the most debt in this low-interest rate environment. Until larger businesses are in a financial position, and develop an appetite, to take on more debt it is unlikely that low interest rates and moderate increases in private sector credit extension will have a major positive impact on the macro economy.