Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) increased by just N$3.2 million in February, bringing the cumulative credit outstanding to N$105.6 billion. On a year-on-year basis, private sector credit grew by 1.76% in February, compared to 1.50% y/y in January. On a rolling 12-month basis, N$1.82 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$687.4 billion was issued to corporates. The non-resident private sector decreased its borrowings by N$382.9 million.

Credit Extension to Individuals

Credit extended to individuals increased by 2.6% y/y in February, on par with January’s increase of 2.5% y/y. On a monthly basis, household credit grew by 0.5% following the decrease of 0.7% m/m recorded in January. The value of mortgage loans extended to individuals grew by 0.8% m/m and 4.5% y/y. Instalment credit remained depressed, increasing by 0.1% m/m, but contracting by 4.1% y/y. Overdraft facilities extended to individuals have increased by 0.3% m/m, but dipped back into negative territory, contracting by 0.3% y/y.

Credit Extension to Corporates

Credit extension to corporates contracted by 0.6% m/m after increasing by 1.3% m/m in January. On an annual basis, however, credit extension to corporates increased by 1.6% y/y in February, compared to the 1.0% y/y growth registered in January. Except for the Other Loans and Advances category (or OLA, which is made up of credit card debt, personal and term loans), all other segments contracted on a monthly basis. OLA to corporates grew by 1.9% m/m and 1.4% y/y. The Bank of Namibia (BoN) attributed the increase to increased uptake by corporations in the mining, retail and manufacturing sectors. Overdraft facilities extended to corporates declined by 2.5% m/m, but rose 12.0% y/y. Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 1.1% m/m and 9.1% y/y in February. Mortgage loans to corporates decreased by 2.1% m/m and declined by 3.3% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during February, increasing by N$727.0 million to reach an average of N$1.50 billion. According to the BoN, the increase was largely due to proceeds from mineral sales during the month.  The outstanding balance of repo’s fell from N$845.7 million to zero by month-end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$11.4 billion or 10.0% y/y in February. Foreign reserve balances fell by N$2.02 billion to N$32.4 billion in February. The BoN ascribed the decline to the net purchases of South African Rand by commercial banks.

Outlook

Overall, PSCE growth remained extremely muted in February, increasing by only N$3.2 million during the month. Cumulative 12-month private sector credit issuance is down 68.3% from the N$5.76 billion as at the end of February 2020, with individuals taking up most (83.3%) of the credit extended over the past 12 months.

Economic activity remains very low and a lack of demand means that growth opportunities for businesses remain extremely slim. The subdued uptake of credit (or in some cases deleveraging) by businesses, shows that businesses are currently not investing in capital projects, despite the historically low interest rates in the country. While economic growth is expected to pick up marginally this year, economic activity will most likely remain below 2019 levels. Therefore, we do not expect to see a significant recovery in credit extension in the short to medium term.

Overall

Private sector credit (PSCE) increased by N$224.1 million or 0.2% m/m in January, bringing the cumulative credit outstanding to N$105.6 billion. On a year-on-year basis, private sector credit grew by 1.50% y/y in January, on par with December’s increase of 1.58% y/y. Cumulative credit extended to the private sector over the last 12-months amounted to N$1.56 billion. Of this cumulative issuance, individuals took up N$1.4 billion worth of debt while N$428.8 million was extended to businesses. The non-resident private sector decreased its borrowings by N$312.9 million.

Credit Extension to Individuals

Credit extended to individuals fell by 0.7% m/m, but rose 2.5% y/y in January, growing at almost half the pace than the 4.5% y/y increase recorded in December. All categories recorded a contraction on a monthly basis. Individuals paid back overdrafts during the month, resulting in a 1.7% m/m decrease in this category, but rose 2.3% y/y. Instalment credit declined by 1.3% m/m, while mortgage loans extended to individuals contracted by 0.5% m/m.

Credit Extension to Corporates

Credit extended to corporates grew by 1.0% y/y in January, after contracting by 1.2% y/y in December. On a month-on-month basis, credit extension to corporates rose 1.3% in January. The month-on-month growth in corporate credit was primarily driven by increased uptake in overdraft facilities which registered growth of 3.7% m/m and 14.2% y/y. The Bank of Namibia indicated that this was mostly due to increased demand for short-term credit facilities to finance their working capital requirements during the month. Demand for instalment credit by corporates remained low, increasing by 1.5% m/m, but contracting 12.8% y/y. Mortgage loans to corporates, grew by 2.7% m/m, but contracted by 3.2% y/y, the lowest annual contraction rate in nine months.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated further during January, declining by N$474.3 million to reach an average of N$775.1 million. According to the Bank of Namibia, the decline is due to periodic corporate tax payments to the government. Commercial banks continued to utilize the BoN’s repo facility in January, with the balance of repo’s outstanding falling from N$1.04 billion at the start of January to N$845.7 million at the end of the month.

Reserves and Money Supply

Broad money supply rose by N$11.7 billion or 10.2% y/y in January, as per the BoN’s latest monetary statistics release. Foreign reserve balances increased notably in January, up 8.3% m/m or N$2.63 billion to a total of N$34.4 billion. The BoN ascribed the increase to SACU receipts during the month.

Outlook

Overall, PSCE growth remains extremely subdued and was very much in line with the growth seen in December on a year-on-year basis, increasing by 1.5%. Rolling 12-month issuance is down 77.0% y/y to N$1.56 billion as at the end of January, with individuals taking up most (92.6%) of the credit extended over the past 12 months.

We expect the Bank of Namibia’s MPC to keep interest rates at its current level for the most part of the year, with the South African FRA curve pricing in the possibility of a 25 bp hike towards the end of the year. Although inflation and other market conditions will likely inform the MPC’s decision. Further rate cuts are likely to have very little, if any, impact on PSCE growth, as rates are already at historically low levels. Significant PSCE growth is likely to only return once economic conditions improve meaningfully.

Overall

Private sector credit (PSCE) increased by N$277.2 million or 0.3% m/m in December, bringing the cumulative credit outstanding to N$105.4 billion. On a year-on-year basis, private sector credit increased by 1.6% in December, compared to 2.7% in November. On a rolling 12-month basis, N$1.64 billion worth of credit was extended to the private sector. Compared to the previous year, the rolling 12-month issuance is down 75.5% from the N$6.71 billion issuance observed by the end of December 2019. Of this cumulative issuance, individuals took up N$2.60 billion, while corporates reduced their borrowings by N$546.0 million and the non-resident private sector repaid N$414.7 million of their borrowings.

Credit Extension to Individuals

Credit extended to individuals increased by 0.5% m/m and 4.5% y/y in December, growing at a slightly quicker pace than the 4.2% y/y increase recorded in November. The month-on-month growth mostly stemmed from instalment credit which grew by 1.4% m/m. Instalment credit, however, remains down on an annual basis, falling by 2.6% y/y in December, although at a slower rate than in the prior 11 months. The value of mortgage loans extended to individuals rose by 0.5% m/m and 5.2% y/y. Overdrafts to individuals fell by 0.2% m/m, but increased by 8.6% m/m, following the strong increase of 5.6% m/m and 9.1% y/y in November.

Credit Extension to Corporates

Credit extended to corporates grew by 0.2% m/m after increasing by 2.4% m/m in November. On an annual basis, credit extended to corporates contracted by 1.2% y/y. Overdrafts to corporates showed the strongest monthly increase, registering growth of 1.0% m/m and 12.6% y/y. Demand for instalment credit by corporates remained low, increasing by 0.3% m/m, but contracting by 15.8% y/y. Mortgage loans to corporates, which has been contracting on an annual basis since April 2020, remained depressed, contracting by 0.1% m/m and 8.7% y/y in December.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated significantly during December, declining by N$1.09 billion to reach an average of N$1.25 billion. The Bank of Namibia ascribed the decline to periodic corporate tax payments to the government during December. The relatively low liquidity position has prompted commercial banks to utilize the BoN’s repo facility, with the balance of repo’s outstanding increasing from N$0 at the start of December to N$1.04 billion at the end of the month.

Reserves and Money Supply

Broad money supply rose by N$12.2 billion or 7.4% y/y in December, as per the BoN’s latest monetary statistics release. Foreign reserve balances rose by N$1.23 billion or 4.0% m/m to N$31.75 billion in December. According to the BoN, the increase is due to net inflows of rand currency from commercial banks during the month.

Outlook

Overall, private sector credit growth remained depressed in 2020, slowing from the roughly 6% y/y growth observed at the beginning of the year to the 1-2% range at the end of the year. The slowdown in growth was especially evident from May onwards, as corporates started repaying their debt. What is also evident from the data is that mortgage demand by individuals was relatively strong compared to corporate demand for mortgages, with the average annual growth rate for individuals registered at 5.4% compared to the average corporate growth rate of -4.9% in this category. Corporate demand for instalment and leasing credit contracted sharply during the year, indicating that corporates are hanging on to their existing fleet and machinery. This is to be expected in the current economic climate where the is little reason for businesses to expand their current operations as no significant improvement in economic growth is expected.