Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) increased by N$700.0 million or 0.66% m/m in October, bringing the cumulative credit outstanding to N$106.4 billion. On a year-on-year basis, private sector credit increased by 2.69% in October, down slightly from growth of 2.74 % y/y in September. On a 12-month cumulative basis N$2.79 billion worth of credit was extended to the private sector. Individuals continue to take up the majority of this cumulative issuance. After two months of consecutive month-on-month declines in total claims on the private sector, in July and August, total claims have now risen month-on-month in both September and October. Over the long–term the outlook is less encouraging. From the start of 2015 until December 2019, PSCE grew by an average of 9.41% y/y. Since the start of 2020 average year-on-year growth has fallen to 2.75% y/y, despite several interest rate cuts last year. A positive reversion in this trend seems unlikely in the short-term.

Credit Extension to Individuals

Credit extended to individuals decreased by 0.11% m/m but increased by 2.78% y/y in October. On a month-on-month basis, ‘other loans and advances’ (consisting of credit card debt, personal- and term loans) increased by 1.7% m/m. The other two subcategories of loans & advances, namely mortgage loans and overdraft, shrunk by 0.2% m/m and 2.2% m/m in October. Instalment credit shrunk by 0.8% m/m. On a year-on-year basis all subcategories of loans & advances registered increases in October. Mortgage loans increased by 3.2% y/y, other loans and advances grew by 2.6% y/y and overdrafts grew by 1.2% y/y. Overall growth of credit extended to individuals remains sluggish. In the four years prior to 2020, total credit extensions to individuals grew at an average of 8.1% y/y. Since 2020 that figure has fallen to 4.6% y/y.

Credit Extension to Corporates

Credit extended to corporates grew by 1.78% m/m and 3.00% y/y in October. Total corporate loans & advances grew by 1.7% m/m. Specifically, mortgage loans grew by 2.3% m/m, other loans and advances grew by 1.3% m/m and overdrafts grew by 1.6% m/m. Instalment credit grew by 2.4% m/m. The trend is broadly similar on year-on-year basis. Total corporate loans & advances grew by 2.8% y/y in October, with all sub-categories recording increases. This is also the first time in 2021 that there have been two successive month-on-month increases in credit extensions to corporates, although the growth is subdued.

Banking Sector Liquidity

The overall liquidity position of Namibia’s commercial banks increased in October, rising by N$832.9 million to an average of N$2.23 billion. The BoN attributes the increase to cash inflows from diamond sales, coupon payments and increased government expenditure. Accordingly, the total balance of repos outstanding decreased in October. The repo balance fell to N$200.9 million at the end of the month after ending September at N$907.7 million.

Reserves and Money Supply

Broad Money Supply (M2) increased by N$5.70 billion or 1.0% y/y in October, according to BoN’s latest monetary statistics. The money supply increased by 4.6% m/m, increasing to N$128.8 billion after ending September at N$123.1 billion. The broad money supply for September was revised upwards marginally by approximately N$215.5 million. The BoN’s stock of international reserves rose by 4.4% m/m to N$47.9 billion in October.

Outlook

PSCE growth in October remained subdued, in line with the sluggish trend in growth that has now persisted for the best part of two years. The South African Reserve Bank’s (SARB) monetary policy committee (MPC) raised the South African Repo Rate for the first time in almost three years during its last meeting on 18 November. The rate hike came off the back of elevated inflation that threatened to rise beyond 6.0% y/y, the upper-bound of the SARB’s inflation target. While the rate hike may ease inflation concerns it will not stimulate growth in the private sector credit markets. Despite this hike, Namibia’s repo rate is now equal to the that of South Africa’s, so there is no immediate need for the BoN’s MPC to hike, however we expect them to follow suit at the 15 December meeting. Regardless, there are plenty of external forces conspiring to supress growth in private sector credit extensions and not all that many working to stimulate it. Weak growth is likely to continue in the short to medium-term.

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.