Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit (PSCE) rose by N$300.7 million or 0.29% m/m in June, bringing the cumulative credit outstanding to N$105.31 billion. On a year-on-year basis, private sector credit grew by 2.55% in June, compared to the 2.66% y/y growth recorded in May. On a rolling 12-month basis, N$2.62 billion worth of credit was extended to the private sector. N$2.38 billion worth of credit has been extended to individuals over the past 12 months, while N$334.5 million was issued to corporates. The non-resident private sector decreased their borrowings by N$94.1 million.

Credit Extension to Individuals

Credit extended to individuals increased by 0.4% m/m and 4.04% y/y in June, growing at a slightly quicker pace than the 3.98% y/y increase recorded in May. The month-on-month growth has mostly been driven by an increase in Mortgage loans by individuals which rose by 0.3% m/m and 4.9% y/y. Instalment credit increased by 3.2% m/m and 1.0% y/y, the third consecutive month of increase on an annual basis. Overdraft facilities extended to individuals contracted by 0.9% m/m, but increased by 5.0% y/y. Other loans and advances (OLA) rose by 0.8% m/m and 2.3% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 0.4% m/m, following four consecutive months of declines. On an annual basis, growth in credit extension to corporates decelerated to 0.8 % y/y in June, compared to the 1.2% y/y growth registered in May. On a monthly basis, mortgage loans and other loans and advances (OLA) rose by 0.4% and 0.2% respectively. Overdraft facilities extended to corporates contracted by 4.6% m/m. On a year-on-year basis, OLA contracted 2.4%, while mortgage loans and overdrafts increased 0.8% and 5.7%, respectively.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during June, increasing by N$213.4 million to reach an average of N$554.3 million. The BoN attributed the diminishing liquidity position to net transfers by investment managers as well as several cross-border transfers during the period under review. The outstanding balance of repo’s subsequently rose to N$1.7 billion at the last week of the month.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply contracted by N$2.53 billion or 2.0% y/y in in June, compared to the 1.3% y/y decrease recorded in May. Foreign reserve balances increased by N$2.8 billion to N$41.8 billion in June. The BoN ascribed the increase in official reserve stock to the inflow of the AfDB loan and the IMF Rapid Financing Instrument (RFI) during the period under review.

Outlook

The N$300.7 million or 0.3% m/m expansion of PSCE growth in June is the first month-on-month increase since January 2021. The rolling 12-month private sector credit issuance increased 6.9% y/y, with individuals continuing to take up most (90.8%) of the credit extended over the past 12 months.

Mortgage loans by corporates recorded positive year-on-year growth for the first time in 15 months, while overdrafts decelerated to single digits for the first time in 8 months. IJG expects the BoN to leave the repo rate unchanged at the current historically low level until the end of the year, assuming that the inflation forecast for both Namibia and South Africa remains unchanged. This should continue to assist over-indebted individuals and businesses, but as we’ve pointed out in the past, will likely not lead to significant additional credit uptake unless the economic outlook improves meaningfully.