Category Archives: Private Sector Credit Extension

Private Sector Credit Extension

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.

PSCE – May 2020

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Overall

Total credit extended to the private sector (PSCE) declined by N$129.9 million or 0.13% m/m in May, bringing the cumulative credit outstanding to N$102.29 billion. On a year-on-year basis, private sector credit increased by 1.8% in May, compared to 3.4% in April. This is the lowest annual growth rate on our records dating back to 2002. On a rolling 12-month basis, N$1.83 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$2.92 billion, while corporates decreased their borrowings by N$748.1 million, and the non-resident private sector paid back N$342.3 million of their borrowings.

Credit Extension to Individuals

Growth in credit extended to individuals slowed to 5.2% y/y in May from the 5.7% y/y growth recorded in April.  On a monthly basis household credit increased by 0.1%. Mortgage loans extended to individuals increased by 0.3% m/m and 5.0% y/y. Installment credit, often used to finance vehicle purchases contracted by 0.7% m/m and 7.0% y/y. Overdraft facilities extended to individuals have increased by 0.2% m/m and 10.0% y/y. Other loans and advances (or OLA, which is made up of credit card debt, personal and term loans) fell by 0.1% m/m, but grew by 20.0% y/y in May.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.3% m/m and 1.7% y/y in May. This is the first contraction in corporate credit extension on an annual basis since December 2005. The Bank of Namibia (BoN) attributes this contraction to repayments made by corporates as some businesses restructured their credit exposure, coupled with write-offs during the period. This was expected as economic activity remained muted during the month as a result of the lockdown. Overdraft facilities extended to corporates fell by 1.2% m/m and 8.1% y/y. The persistent contraction in installment credit continued in May, declining by 1.4% m/m and 9.1% y/y. Mortgage loans extended to corporates grew by 0.4% m/m, but contracted 3.7% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during May, increasing by N$572.4 million to reach an average N$3.90 billion. The balance of repo’s outstanding fell from N$147.4 million at the start of May to zero at the end of the month. The BoN ascribed the improved liquidity position to higher government expenditure in the form of the emergency income grant, the settlement of outstanding invoices for services rendered and the acceleration of VAT refunds.

Reserves and Money Supply

Broad money supply rose by N$4.50 billion or 11.4% y/y in May, as per the BoN’s latest monetary statistics release. Foreign reserve balances declined by 5.1% m/m to N$33.7 billion in May. According to the BoN, the decline is due to government payments as well as revaluation effects after the Namibian dollar strengthened against the US Dollar during the period.

Outlook

Private sector credit extension remained depresses at the end of May, increasing by only 1.8%, with annualised growth slowing for a fourth consecutive month. Cumulative 12-month private sector credit issuance is down 75.5% from the N$7.46 billion figure as at May 2019. Rolling 12-month issuance of N$1.83 billion is now at levels last seen in 2005.

Despite Namibian interest rates now being at their lowest levels yet, we do not expect either consumers or corporates to rush to commercial banks to take up large sums of debt any time soon. Economic activity remains very low and a lack of demand means that growth opportunities for businesses remain extremely slim. Businesses that do make use of credit will likely mostly do so to keep their doors open, instead of investing in capital projects. Banks will furthermore remain cautious in extending loans as their risk appetite will be low given the current economic environment.

PSCE – April 2020

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Overall

Private sector credit (PSCE) declined by N$1.23 billion or 1.19% m/m in April, bringing the cumulative credit outstanding to N$102.42 billion. On a year-on-year basis, private sector credit increased by 3.4% in April, compared to 5.8% in March. While this is still positive growth, it is the lowest annual growth rate on our records dating back to 2002. On a rolling 12-month basis, N$3.32 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up the lion’s share of credit, amassing N$3.15 billion worth of debt while N$485 million was extended to businesses. The non-resident private sector decreased their borrowings by N$312 million.

Credit Extension to Individuals

Credit extended to individuals increased by 5.7% y/y in April, compared to 7.2% y/y recorded in March. On a monthly basis, household credit decreased by 0.7% following the increase of 0.4% recorded in March. This decline was mostly a result from individuals paying back overdrafts during the month, resulting in a 16.0% m/m decrease in this category. Other loans and advances (or OLA, which is made up of credit card debt, personal and term loans) grew by 4.3% m/m and 22.3% y/y in April. Installment credit contracted by 3.3% m/m and 6.9% y/y. The value of mortgage loans extended to individuals declined by 0.1% m/m, but increased by 5.2% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted for a third straight month, declining by 1.5% m/m in April. On a year-on-year basis credit extension to corporates grew by a mere 1.1%, compared to the 4.6% y/y growth registered in March. The monthly decline can mostly be attributed to repayments of ‘other loans and advances’ by corporates which decreased by 3.0% m/m, but grew by 10.6% y/y. Overdraft facilities extended to corporates increased by 0.2% m/m, but fell 4.3% y/y. The persistent contraction in installment credit continued in April, declining by 1.4% m/m and 7.1% y/y. Leasing transactions to corporations declined by 2.7 m/m and 21.5% y/y. Mortgage loans extended to corporates contracted by 1.3% m/m. The Bank of Namibia (BoN) attributes this category’s decline to repayments made by businesses in the tourism and real estate sectors. This makes sense given that these sectors were harshly impacted by the lockdowns, and would not have taken up new mortgage loans to expand their businesses.

Banking Sector Liquidity 

The overall liquidity position of commercial banks improved substantially during April, increasing by N$3.08 billion to reach an average of N$3.33 billion. The balance of repo’s outstanding fell from N$1.52 billion at the start of April to N$147.4 million at the end of the month. The BoN ascribed the spike in the liquidity level to fiscal operations after the government redeemed the GC20 bond, as well as several payments made by the government such as the COVID-19 stimulus package and VAT refunds.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$4.35 billion or 13.0% y/y in April. Foreign reserve balances rose by N$2.57 billion to N$35.5 billion in April. According to the BoN, this increase due to SACU receipts of N$5.2 billion that were received during the month coupled with exchange rate revaluations due to the Namibian dollar against major currencies.

Outlook

Private sector credit extension continued to languish, increasing by 3.5% m/m during April. It has been 42 months since PSCE last recorded double digit growth. Rolling 12-month private sector credit issuance is down 46.6% from the N$6.23 billion figure as at April 2019. Rolling 12-month private sector credit issuance of N$3.32 billion is now at levels last seen in 2010. 

Instead of taking on additional long-term credit, many businesses would have applied for payment holidays on their existing credit facilities, as the government imposed lockdowns wiped out their revenues. It is for this same reason that commercial banks would have been extra prudent in extending credit during April as the risk of default would have increased because the general economic malaise. We believe that the BoN will follow the SARB decision in cutting the repo rate by 50 basis points at its June meeting. While this should provide some relief to indebted consumers and businesses, it is unlikely that it will increase the risk appetite of the banks and we therefore stick to the view that we don’t anticipate that the more accommodative monetary policy will be effective in stimulating economic activity to the extent that it eliminates the impact of the external shock to the economy.

Going forward we expect that a portion of credit extension will be distressed borrowing by businesses and consumers as economic conditions are expected to remain dire. We don’t foresee businesses in general making use of credit to invest in large capital projects any time soon.