Category Archives: Private Sector Credit Extension

Private Sector Credit Extension

PSCE – September 2020

By | | ,
Comments Off on PSCE – September 2020

Overall

Total credit extended to the private sector (PSCE) decreased by N$106.9 million or 0.1% m/m in September, bringing the cumulative credit outstanding to N$102.88 billion. On a year-on-year basis private sector credit extension increased by only 1.5% y/y in September, compared to 2.2% growth recorded in August. This represents the lowest level of annual growth on our records dating back to 2002. N$2.80 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while corporates and the non-resident private sector decreased their borrowings by N$943.7 million and N$372.3 million, respectively.

Credit Extension to Individuals

Credit extended to individuals increased by 0.5% m/m and 5.0% y/y in September. The month-on-month growth has mostly been driven by an increase in ‘other loans and advances’ (or OLA, which is made up of credit card debt, personal and term loans) which grew by 1.4% m/m and 14.0% y/y in August, indicating continued reliance on short-term credit by individuals. Overdraft facilities extended to individuals increased by 0.7% m/m and 4.2% y/y. Instalment credit and leasing transactions remained steady m/m, but contracted by 5.2% y/y. The value of mortgage loans extended to individuals grew by 0.3% m/m and 4.8% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.8% m/m and 2.2% y/y in September, following the low growth of 1.8% m/m and 0.4% y/y in August. Bar overdrafts, all categories recorded declines on a month-on-month basis. Mortgage loans to corporates declined by 1.0% m/m and 8.9% y/y. Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 2.5% m/m and 15.6% y/y in September. Overdrafts to corporates remained steady m/m, but increased by 3.7% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks remained relatively unchanged, declining by only N$10.1 million to reach an average of N$2.22 billion. The Bank of Namibia states that this is due to two opposing effects of higher Government payments which were partially offset by an increase in South African Rand currency outflows during the month. The outstanding balance of repo’s fell from N$882.8 million at the start of September to N$116.0 million by month end.

Reserves and Money Supply

Broad money supply rose by N$12.7 billion or 11.2% y/y in September, as per the BoN’s latest monetary statistics release. Foreign reserve balances declined by N$2.01 billion or 2.2% m/m to N$32.7 billion in September. The BoN attributes the decrease to higher government foreign payments, as well as an increase in commercial bank outflows during the month.

Outlook

Private sector credit extension growth remains subdued at the end of September, slowing from 2.2% y/y to 1.5% y/y in September. Rolling 12-month issuance fell to N$1.48 billion and is down a rather staggering 75.1% from the N$5.95 billion figure as at September 2019.

The data clearly shows that while the various rate cuts by the BoN would have provided relief to those who are heavily indebted, it did not spur on additional credit uptake, as we predicted. The heightened uptake of short-term personal debt and overdrafts is a sign of a stretched consumer, many of whom will have been negatively impacted by the effect of the pandemic and resultant lockdowns. As economic activity is expected to remain depressed for quite some time, we do not expect to see a recovery in credit extension in the short term. Corporates continue to delever, indicating that they are not preparing to invest in capital expansion projects anytime soon, which makes sense given the current economic climate.

PSCE – August 2020

By | | ,
Comments Off on PSCE – August 2020

Overall

Total credit extended to the private sector (PSCE) increased by N$774.1 million or 0.76% m/m in August, bringing the cumulative credit outstanding to N$103.0 billion. On a year-on-year basis, private sector credit extension increased by 2.2% in August, somewhat quicker than the 1.9% growth recorded in July. On a rolling 12-month basis N$2.23 billion was extended to the private sector, with individuals taking up N$2.41 billion while N$188.9 million was extended to corporates. The non-resident private sector decreased borrowings by N$366.7 million.

Credit Extension to Individuals

Credit extended to individuals remained steady m/m, but increased by 4.3% y/y. The only category which recorded positive growth on a monthly basis was mortgage loans, which grew by 0.3% m/m and 4.4% y/y. Over the last twelve months N$1.73 billion worth of mortgage loans were extended to individuals, making up the majority of overall credit extended over the period. Instalment credit and leasing transactions (which have been combined as a category by the BoN) contracted by 0.4% m/m and 6.3% y/y, also reflected in the low demand for new vehicles. The other loans and advances category, comprising of shorter-term credit such as personal and card loans declined by 0.9% m/m, but rose by 12.4% y/y.

Credit Extension to Corporates

Credit extended to corporates grew by 1.8% m/m and 1.7% y/y in August, following the 1.5% m/m and 1.2% y/y contraction in July. The growth was mostly driven by increased demand of overdraft facilities by corporates, as the category recorded relatively strong growth of 6.5% m/m and 6.7% y/y. Mortgage loans extended to corporates contracted by 0.8% m/m and 6.3% y/y. The persistent contraction in installment credit continued in August, declining by 1.2% m/m and 11.6% y/y. Corporates continued to rely on short-term credit with the other loans and advances recording growth of 1.6% m/m and 5.3% y/y in August.

Banking Sector Liquidity

The overall liquidity position of commercial banks declined by N$341.1 million in August to reach an average of N$2.23 billion. The Bank of Namibia attributed the decline to an increase in net ZAR outflows as well as investments into government debt instruments. The outstanding balance of repo’s increase from N$429.8 million at the start of August to N$899.8 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$12.6 billion or 11.3% y/y in August. Foreign reserve balances fell by N$2.01 billion or 5.7% m/m to N$33.4 billion in August. According to the BoN, the decline in foreign reserves was mainly due to net Rand purchases by commercial banks as well as increased foreign payments by the government during the month.

Outlook

As expected, the various rate cuts by the BoN thus far this year have not led to a significant increase in uptake of credit. With economic activity remaining very low and banks being prudent in extending credit, most of the credit uptake in August has been short-term borrowings by corporates. Continued reliance on short-term credit is a sign of businesses that are under financial pressure as short-term credit is not typically used to invest in capital projects. The uptake in mortgage loans by individuals is somewhat encouraging, although it could simply be that individuals are taking advantage of the low interest rate to borrow against their existing home loans as it is a relatively cheap source of funding. 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.

PSCE – July 2020

By | | , ,
Comments Off on PSCE – July 2020

Overall

Total credit extended to the private sector (PSCE) decreased by N$476.2 million or 0.46% m/m in July, bringing the cumulative credit outstanding to N$102.24 billion. On a year-on-year basis, private sector credit increased by 1.9% y/y in July, compared to 2.3% y/y in June. This represents the second-lowest level of annual growth on our records dating back to 2002. On a rolling 12-month basis, N$1.919 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$2.755 billion, while corporates decreased their borrowings by N$485.6 million. The non-resident private sector paid back N$350.25 million of total outstanding loans and advances.

Credit Extension to Individuals

Credit extended to individuals showed slowed slightly in July, increasing by and 0.3% m/m and 4.9% y/y. The decrease was largely due to a month-on-month drop in overdrafts outstanding, which declined by 3.4% m/m and grew by only 4.6% y/y. Instalment credit continues to slow, showing zero growth in July and declining by 7.3% y/y or N$502 million. This is largely due to low vehicle sales, which have contracted by 24.8% y/y on a 12-month cumulative basis. Mortgage loans continued to show resilience and were up 0.6% m/m and 5.0% y/y. This translates to a 12-month cumulative issuance of N$1.958 billion over the last twelve months underpinning overall credit extension. However, the other loans and advances category, comprising of shorter-term credit such as personal and card loans, was a major driver of growth increasing by 14.4% y/y adding N$1.119 billion to the total 12-month cumulative issuance.

Credit Extension to Corporates

Credit extended to corporates continued to slow in nearly all the categories as corporates continue to delever, delivering the third month of year-on-year contraction. Total credit extended to corporates decreased by 1.5% m/m and 1.1% y/y, bringing the cumulative 12-month decrease in credit extended to corporates to N$485.6 million. Although showing a growth of 1.5% m/m, mortgage loans were still down by 5.9% y/y. Instalment credit contracted by 1.5% m/m and 10.6% y/y while overdrafts were down by 2.3% m/m and 2.7%y/y. Other loans and advances was the only subcategory which increased on an annual basis, growing by 6.7% y/y and declining by 3.1% m/m.

Banking Sector Liquidity

The average liquidity position of commercial banks declined sharply in July, decreasing by N$1.105 billion to an average of N$2.567 billion. According to the Bank of Namibia, this was primarily due to seasonal corporate tax payments. The value of repurchase transactions increased towards the end of the month but dropped to N$87.5 million by month-end.

Reserves and Money Supply

Broad money supply rose by N$15.06 billion or 13.9% y/y in July, as per the BoN’s latest monetary statistics release. Foreign reserve balances increased notably in July, up 11.5% m/m or N$3.641 billion to a total of N$35.40 billion. According to the BoN, the rise was primarily due to SACU receipts and the third tranche of the AfDB loan disbursed to the Namibian Government during the period under review. Seeing as the Namibian dollar also strengthened relative to the USD from an average of N$17.31 in June to N$16.81 in July, the US dollar value of our reserves increased by 15.0% to US$2.109 billion.

Outlook

Private sector credit extension growth remains subdued at the end of July, down slightly to 1.9% y/y from 2.3% y/y in June. Rolling 12-month issuance has declined to N$1.92 billion, down 72.3% from the N$6.91 billion figure as at July 2019. Lending to individuals has been relatively robust, given the circumstances, showing some growth in the mortgage segment. However, the sharp increase in other loans and advances should be viewed with caution, as this likely indicates that most consumers remain very stretched. On the other hand, the decline is most evident in the corporate sector as economic activity remains muted and businesses remain very cautious during the uncertainty surrounding the pandemic. Current expectations are for interest rates to remain at the current low levels for at least the next 12 months, however low-interest are not enough to spur on lending at the moment and corporates are decreasing their long term debt. Overall, there are very few catalysts for growth at the moment and while uncertainty looms investment will continue to suffer. As a result we not expect to see a recovery in credit extension in the medium term.