Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) fell by N$214.2 million or 0.20% m/m in May, bringing the cumulative credit outstanding to N$105.0 billion. On a year-on-year basis, private sector credit grew by 2.66% in May, compared to the 2.74% y/y growth recorded in April. On a rolling 12-month basis, N$2.72 billion worth of credit was extended to the private sector. N$2.34 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while N$498.1 million was issued to corporates. The non-resident private sector decreased their borrowings by N$112.2 million.

Credit Extension to Individuals

Credit extended to individuals increased by 3.98% y/y in May, compared to the increase of 3.91% y/y recorded in April. On a monthly basis, household credit grew by 0.1%, following the increase of 0.6% m/m recorded in the previous month. Mortgage demand by individuals was unchanged on a monthly basis but rose 5.2% y/y. Instalment credit increased by 0.4% m/m and 1.5% y/y, the second consecutive month of increase on an annual basis, following twenty consecutive months of decline. Overdraft facilities extended to individuals increased 1.1% m/m, but increased by 5.1% y/y. Other loans and advances (OLA) rose by 0.2% m/m and 1.3% y/y, displaying a slightly faster rate of increase from the 0.8% y/y growth recorded in April.

Credit Extension to Corporates

Credit extension to corporates contracted for a fourth consecutive month declining by 1.2% m/m, following the 0.8% m/m contraction recorded in April. On an annual basis, growth in credit extension to corporates slowed to 1.2% y/y in May, compared to the 2.1% y/y growth registered in April. On a monthly basis, growth in mortgage loans, other loans and advances (OLA) and overdraft facilities extended to corporates were all stagnant. On a year-on-year basis, mortgage loans contracted 2.4%, while OLA and overdrafts increased 1.4% and 14.9% respectively.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated substantially during May, decreasing by N$2.7 billion to reach an average of N$340.8 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$1.1 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$1.6 billion or 1.3% y/y in May, compared to the 3.1% y/y increase recorded in April. Foreign reserve balances declined by N$2.2 billion to N$39.0 billion in May. The BoN ascribed the decrease to an increase in government payments as well as foreign currency repurchases by commercial banks.

Outlook

The N$214.2 million or 0.2% m/m contraction of PSCE growth in May is the third consecutive decline on a month-on-month basis, while the rolling 12-month private sector credit issuance increased 48.7% y/y from the low base of N$1.83 billion cumulative issuance as at the end of May 2020, with individuals continuing to take up most (85.8%) of the credit extended over the past 12 months.

Despite the historically low interest rates, economic activity remains subdued, with individuals unwilling or financially incapable of taking out loans to increase consumption, and corporates who lack confidence to invest in capital projects would rather use the opportunity to de-lever their balance sheets. With Namibia experiencing a third wave of Covid-19 infections, and with it, stricter lockdown measures which hampers economic activity, credit extension is unlikely to improve in the short-term.

Overall

Private sector credit (PSCE) fell by N$41.3 million or 0.04% m/m in April, bringing the cumulative credit outstanding to N$105.2 billion. On a year-on-year basis, private sector credit grew by 2.74% in April, compared to the 1.55% y/y growth recorded in March. On a rolling 12-month basis, N$2.81 billion worth of credit was extended to the private sector. N$2.30 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while N$880.0 million was issued to corporates. The non-resident private sector decreased their borrowings by N$369.0 million.

Credit Extension to Individuals

Credit extended to individuals increased by 3.91% y/y in April, compared to the increase of 2.57% y/y recorded in March. On a monthly basis, household credit grew by 0.6%, following the increase of 0.4% m/m recorded in March. Mortgage demand by individuals remained relatively strong, increasing by 0.6% m/m and 5.2% y/y. Instalment credit increased by 0.7% m/m, and by 0.5% y/y, making April the first month since July 2019 to record an uptick on a year-on-year basis. Overdraft facilities extended to individuals have increased by 1.8% m/m and 4.2% y/y. Other loans and advances (OLA) rose by 0.8% y/y and 0.2% m/m, displaying a decline in demand amongst individuals over the last 16 months, from the 65.6% y/y increase in January 2020.

Credit Extension to Corporates

Credit extension to corporates contracted for a third consecutive month, on a month-on-month basis, declining by 0.8% m/m, following the 1.1% m/m contraction recorded in March. On an annual basis, however, credit extension to corporates recorded low growth of 2.1% y/y in April, compared to the 1.2% y/y growth registered in March. Mortgage loans to corporates expanded by 0.4% m/m, other loans and advances (OLA) contracted 2.2% and overdrafts rose 0.9% m/m. On a year-on-year basis, mortgage loans contracted 2.0%, while OLA and overdrafts increased 1.3% and 13.5% respectively.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during April, increasing by N$376.0 million to reach an average of N$3.0 billion. According to the BoN, the improvement in the liquidity position was largely due to higher inflows of funds by pension funds in adherence to domestic asset requirements as well as proceeds from minerals sales during the period under review. The outstanding balance of repo’s stood at zero for thirteen out of the twenty business days in April and rose to N$591.3 million in the last week of the month.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$3.8 billion or 3.1% y/y in April, compared to the 9.4% y/y increase recorded in March. Foreign reserve balances rose by N$6.5 billion to N$41.2 billion in April. The BoN ascribed the rise in official reserve stock to inflows in the form of the IMF Rapid Financing Instrument (RFI), SACU receipts, as well as foreign currency purchases by the BoN during the period under review.

Outlook

Overall, PSCE growth remains subdued, decreasing by N$41.4 million or 0.04% m/m in April, resulting in a second consecutive month of negative growth. The rolling 12-month private sector credit issuance is down 15.5% from the N$3.32 billion cumulative issuances as at the end of April 2020, with individuals taking up most (81.8%) of the credit extended over the past 12 months.

We expect the Bank of Namibia to leave interest rates unchanged at their historically low levels at its April MPC meeting, which will continue to accommodate indebted consumers and corporates. However, the lack of confidence in the economy is evidenced by corporates exploiting the low rates to de-lever their balance sheets rather than using the opportunity to expand their financial positions. As a result, the contracted interest rates alone are unlikely to drive PSCE growth. The lacklustre PSCE statistics reflect the nation’s poor recent economic performance of late, as it reflects both lower consumption spending as well as lower investments by corporates, two vital components of GDP. With few drivers for economic growth, a recovery in credit extension is unlikely in the short term.

Overall

Private sector credit (PSCE) fell by N$337.6 million or 0.3% m/m in March, bringing the cumulative credit outstanding to N$105.3 billion. On a year-on-year basis, private sector credit grew by 1.55% in March, compared to the 1.76% y/y growth recorded in February. On a rolling 12-month basis, N$1.61 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up credit worth N$1.52 billion, while N$544.5 billion was issued to corporates. The non-resident private sector decreased its borrowings by N$455.5 million.

Credit Extension to Individuals

Credit extended to individuals increased by 2.57% y/y in March, on par with February’s increase of 2.58% y/y. On a monthly basis, household credit grew by 0.4% following the increase of 0.6% m/m recorded in February. Mortgage demand by individuals remained relatively strong, increasing by 0.5% m/m and 4.4% y/y. Instalment credit remained depressed, increasing by only 0.2% m/m, but contracting by 3.5% y/y. Overdraft facilities extended to individuals have increased by 0.9% m/m and 1.5% y/y.

Credit Extension to Corporates

Credit extension to corporates contracted for a second consecutive month, declining by 1.1% m/m, following the 0.6% m/m contraction recorded in February. On an annual basis, however, credit extension to corporates recorded low growth of 1.3% y/y in March, compared to the 1.6% y/y growth registered in February. All segments contracted on a monthly basis. Mortgage loans to corporates contracted by 0.1% m/m, other loans and advances (OLA) fell 0.4% and overdrafts declined 3.0% m/m. On a year-on-year basis, mortgage loans contracted 3.6%, while OLA and overdrafts increased 0.6% and 13.0% respectively.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during February, increasing by N$1.12 billion to reach an average of N$2.60 billion. According to the BoN, liquidity spikes are generally observed in March, as budget execution protocols are accelerated before the close of the fiscal year. Additional inflows of funds were observed at the end of March as pension funds repatriated assets to comply with domestic asset requirements, according to the BoN. The outstanding balance of repo’s varied quite a lot during the month, fluctuating between N$20.1 million and N$868.1 million, before falling to zero at month-end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$11.1 billion or 9.5% y/y in March. Foreign reserve balances rose by N$2.32 billion to N$34.7 billion in March. The BoN ascribed the increase to the net purchases of foreign currency by the central bank.

Outlook

Overall, PSCE growth remains subdued, decreasing by N$337.6 million in March, causing monthly growth to revert into negative territory for the first time since September 2020. The rolling 12-month private sector credit issuance is down 71.7% from the N$5.68 billion cumulative issuance as at the end of March 2020, with individuals taking up most (94.5%) of the credit extended over the past 12 months.

The low credit appetite reflects the lack of confidence in the Namibian economy, with businesses continuing to delever their balance sheets and banks being more prudent with lending out money. We expect interest rates to remain at their current, historically low, levels. This should continue to provide overindebted consumers and corporates with relief but is unlikely to drive PSCE growth. The dull PSCE statistics reflects the nation’s poor recent economic performance of late, as it reflects both lower consumption spending as well as lower investments by corporates, which are two vital components of GDP. There are very few catalysts for economic growth at present, and as a result we do not expect to see a recovery in credit extension in the short term.