Category Archives: Private Sector Credit Extension

Overall

Total credit extended to the private sector (PSCE) increased by N$71.6 million or 0.1% m/m in October, bringing the cumulative credit outstanding to N$102.95 billion. On a year-on-year basis, private sector credit extension increased by only 1.0% y/y in October, compared to 1.5% growth recorded in September. This represents the lowest level of annual growth on our records dating back to 2002 as issuance continues to slow. N$2.39 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$975.0 million and N$369.4 million, respectively.

Credit Extension to Individuals

Credit extended to individuals increased by 0.7% m/m and 4.2% y/y in October. 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 1.1% m/m and 11.0% y/y in October. Overdrafts grew by 1.1% m/m and 3.6% y/y indicating continued use of short-term credit by individuals. On the other hand, longer-term credit agreements like mortgages and instalment credit continued to slow. Mortgages declined by 0.8% m/m and increased by only 4.3% y/y as housing purchases continue to slow in value terms. Instalment credit grew by 0.1% m/m but was down 5.3% y/y as new vehicle sales continue to dwindle, declining 27.3% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.8% m/m and 2.2% y/y in October, following similar contractions in September. Except for the OLA category, all other segments contracted on a monthly basis. Mortgage loans to corporates declined by 0.8% m/m and 7.8% y/y. Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 1.5% m/m and 16.7% y/y in October the lowest level since early 2019. Overdrafts to corporates declined by 2.6% m/m but increased by 3.6% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved significantly in October, increasing by N$889.4 million to an average of N$3.10 billion during the month. According to the Bank of Namibia, the increase in liquidity is on the back of diamond sales, increased government expenditure and interest payment from the state during the period under review. Due to the increase in liquidity, The outstanding balance of repo’s fell from N$116.0 million to zero by month-end.

Reserves and Money Supply

Broad money supply rose by N$13.4 billion or 11.7% y/y in October, as per the BoN’s latest monetary statistics release. Foreign reserve balances increased by N$1.69 billion or 5.2% m/m to N$34.4 billion in September. The BoN attributes the rise in the official reserve stock to SACU inflows during the period under review.

Outlook

Private sector credit extension growth remains subdued at the end of October, slowing from 1.5% y/y to 1.0% y/y in October. Rolling 12-month issuance fell to N$1.04 billion and is down a rather staggering 82.3% from the N$5.89 billion figure as at October 2019. Although Namibian interest rates are at historical lows, so are business and consumer confidence. Economic activity, which was slow before the pandemic, has been hit hard by global lowdowns, and recovery may take years to materialise. As a result, credit uptake remains weak, as the base of growth, individual mortgages, continues to slow. Additionally, corporates continue to repay debt and de-lever their balance sheets. If these trends continue, we are likely to see private sector credit extension contract on an annual basis in the coming months.

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.

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.