Category Archives: Private Sector Credit Extension

Private Sector Credit Extension

PSCE – August 2020

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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

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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.

PSCE – June 2020

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Overall

Total credit extended to the private sector (PSCE) increased by N$408.0 million or 0.40% m/m in June, bringing the cumulative credit outstanding to N$102.69 billion. On a year-on-year basis, private sector credit increased by 2.5%y/y in June, compared to 1.8% y/y in May. Although a slight uptick from the previous month, this represents the second-lowest level of annual growth on our records dating back to 2002. On a rolling 12-month basis, N$2.457 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$4.402 billion, while corporates decreased their borrowings by N$1.598 billion and the non-resident private sector paid back N$346.92 million of total outstanding loans and advances.

Credit Extension to Individuals

Growth in credit extended to individuals ticked up to 8.1% y/y from the 5.2% y/y in May. On a monthly basis, household credit increased by 0.3%. The increase was underpinned by strong mortgage growth of 0.4% m/m and 7.8% y/y, which could be indicative of a slight revival in property transactions. Instalment credit and leasing transactions (which have now been combined as a category by the BoN), remained flat m/m and contracted by 5.8% y/y as vehicle sales remain low, contracting by 24.7% y/y on a 12-month cumulative basis.

Overdraft facilities extended to individuals have displayed a sharp jump, increasing by 3.7% m/m and 22.4% y/y, while other loans and advances (or OLA, which is made up of credit card debt, personal and term loans) fell by 2.1% m/m and 17.7% y/y. 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.

Credit Extension to Corporates

Credit extended to corporates grew by 0.8% m/m, but contracted by 3.6% y/y in June. This is the second consecutive month of year-on-year contraction, following the 1.7% y/y decline in May. This is quite a worrying trend, as corporate investments in the economy continue to slow as economic activity remains muted and corporates aim to decrease leverage where possible. Annual credit growth was negative for all corporate subcategories except for other loans and advances, which grew by 8.1% y/y. Overdraft facilities extended to corporates increased by 3.7% m/m but declined by 3.1% y/y. The contraction in instalment credit continued unabated in June, declining by 0.3% m/m and 12.9% y/y. Mortgage loans extended to corporates contracted by 2.7% m/m and 13.7% y/y.

Banking Sector Liquidity

The average liquidity position of commercial banks declined slightly in June, decreasing by N$232.1 million to an average of N$3.672 billion. However, towards the end of the month, the liquidity position dropped down to N$1.613 billion while repos outstanding picked up from zero to N$449.7 million. The BoN ascribed the lower liquidity position due to corporate tax payments.

Reserves and Money Supply

Broad money supply rose by N$15.85 billion or 14.7% y/y in June, as per the BoN’s latest monetary statistics release. Foreign reserve balances declined by 5.9% m/m or N$1.984 billion to N$31.76 billion in June. According to the BoN, the decline is due to government payments as a result of efforts to mitigate the effects of the COVID-19 pandemic coupled with the redemption of the JSE bond.

Outlook

Private sector credit extension remains subdued at the end of June, ticking up slightly to 2.5% y/y from 1.8% y/y in May. Rolling 12-month issuance has ticked up slightly to N$2.46 billion. However, cumulative 12-month private sector credit issuance is still down 63.1% from the N$6.65 billion figure as at June 2019. Most of the growth has been from mortgages to individuals where the 12-month cumulative issuance stands at N$2.93 billion, which may indicate some revival of activity in the Namibian property market. However, corporates have been reducing their debt over the last 12 months and have seen N$1.60 billion in repayments as businesses de-risk and deliver their operations. Despite Namibian interest rates now being at their lowest levels yet, and expectations are for possibly one more rate cut, this has not seemed to stimulated lending much. Economic activity remains muted and the outlook for the next two years remains extremely uncertain as the global effect of the pandemic and lockdowns still have to run their course. As a result, we do not expect to see a strong recovery in credit extension in the medium term.