Category Archives: Private Sector Credit Extension

Overall

Total credit extended to the private sector (PSCE) decreased by N$130.5 million or 0.13% m/m in March, bringing the cumulative credit outstanding to N$103.6 billion. This is the second consecutive month that we have seen a month-on-month contraction in credit extension. On a year-on-year basis, private sector credit extension grew by 5.79% in March, compared to 5.87% in February. N$2.23 billion worth of credit has been extended to corporates and N$3.73 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$204.0 million.

Credit Extension to Individuals

Credit extended to individuals increased by 0.4% m/m and 7.2% y/y in March, versus 0.5% m/m and 6.7% y/y in December. Installment credit remained depressed, contracting by 0.4% m/m and 4.8% y/y. Individuals repaid their overdrafts during the month, resulting in a decline of 1.0% m/m, but an increase of 14.4% y/y. The value of mortgage loans extended to individuals grew by 0.6% m/m and 5.9% y/y. Other loans and advances (or OLA, which is made up of credit card debt, personal and term loans) grew by 0.5% m/m and 27.2% y/y in March. We expected the OLA category to be higher considering that a large number of consumers were ‘panic buying’ staple products (such toilet paper) ahead of the lockdown.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.7% m/m in March after contracting by 1.2% m/m in February. On an annual basis credit extension to corporates increased by 4.6% y/y in March. The month-on-month contraction is mostly caused by businesses paying back overdrafts. Overdraft facilities extended to corporates decreased by 3.9% m/m and 1.1% y/y. Mortgage loans to corporates increased by a moderate 0.2% m/m and 0.3% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.8% m/m and 7.5% y/y in March.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$71.3 million to reach an average of N$254.5 million. Commercial banks continued to utilise the BoN’s repo facility, as the overall liquidity position remained low. The balance of repo’s outstanding increased from N$1.01 billion at the start of March to N$1.61 billion at the end of the month. The BoN ascribes the low liquidity position to the commercial banks buying liquid assets such as treasury bills, as opposed to keeping cash in the current weak domestic economic environment. It is worth noting that the liquidity position improved substantially in April.

Reserves and Money Supply

Broad money supply rose by N$9.23 billion or 5.9% y/y in March, as per the BoN’s latest monetary statistics release. Foreign reserve balances rose by 2.5% m/m to N$32.97 billion in March. According to the BoN, the increase was supported by a favourable exchange rate during the period.

Outlook

Private sector credit extension remained depressed at the end of March, increasing by only 5.8% y/y, with annualised growth slowing for a second consecutive month. From a rolling 12-month perspective, credit issuance is up 5.9% from the N$5.36 billion issuance observed at the end of March 2019, with individuals taking up most (70.3%) of the credit extended over the past 12 months.

While this hasn’t been the case in March, when the lockdown started, we expect both consumers and businesses to have increased their uptake of short-term debt in April to cover costs while economic activity, and subsequently some individual’s incomes and company revenues, ground to a halt. The second surprise 100 basis point repo rate cut in April should provide these financially stressed businesses and consumers with some relief, but we don’t expect it to push PSCE growth as banks will remain very weary of who they are providing loans to given the current economic situation.

Overall

Private sector credit (PSCE) decreased by N$264.0 million or 0.25% m/m in February, bringing the cumulative credit outstanding to N$103.8 billion. On a year-on-year basis, private sector credit extension increased by 5.87% in February, compared to 6.96% y/y in January. On a rolling 12-month basis, N$5.76 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up credit worth N$3.73 billion, while N$2.23 billion was issued to corporates. The non-resident private sector decreased their borrowings by N$204.0 million.

Credit Extension to Individuals

Credit extended to individuals increased by 6.7% y/y in February, growing at a slightly slower pace than the 7.0% y/y increase recorded in January. On a monthly basis, household credit grew by 0.5% following the decrease of 4.4% m/m recorded in January. Household demand for overdraft facilities was relatively strong in February, increasing by 2.7% m/m and 11.4% y/y, compared to the 18.1% m/m decline and 9.2% y/y increase seen in January. The value of mortgage loans extended to individuals fell by 0.1% m/m, but rose 5.7% y/y. Installment credit remained depressed, increasing by 0.9% m/m, but contracting by 5.1% y/y. 

Credit Extension to Corporates

Credit extension to corporates contracted by 1.2% m/m after increasing by 7.3% m/m in January. On an annual basis, however, credit extension to corporates increased by 5.4% y/y in February, compared to the 7.5% y/y growth registered in January. The Bank of Namibia (BoN) attributed the monthly contraction to repayments made by corporates, especially those operating in the services, construction and fishing sectors. Overdraft facilities extended to corporates declined by 0.5% m/m and 3.9% y/y. Mortgage loans to corporates decreased by 1.9% m/m, but rose 1.4% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 5.1% m/m and 7.2% y/y in February. Leasing transactions to corporates fell by 4.9% m/m and 7.2% y/y.

Banking Sector Liquidity 

The overall liquidity position of commercial banks improved somewhat during February, increasing by N$278.2 million to reach an average of N$325.9 million. Commercial banks continued to utilize the BoN’s repo facility, as the overall liquidity position remained low. The balance of repo’s outstanding decreased from N$2.04 billion at the start of February to N$974.1 million at the end of the month.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply fell by N$816.1 million in February. Foreign reserve balances increased by N$1.21 billion to N$32.7 billion in February. According to the BoN, the increase mainly as a result of exchange rate fluctuations coupled with lower government payments during the month.

Outlook

Overall PSCE growth moderated for the first time in four months on a year-on-year basis, increasing by 5.87%. Rolling 12-month private sector credit issuance is down 10.0% from the N$6.39 billion issuance observed at the end of February 2019, with individuals taking up most (64.7%) of the credit extended over the past 12 months.

The above data precedes the economic impact of the coronavirus pandemic which we expect to have a detrimental impact on PSCE going forward. While the BoN’s MPC’s unexpected ‘early’ repo rate cut in March is likely to provide relief to heavily indebted consumers, 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.

Given the 21-day lockdown of the two most economically significant regions announced by the Namibian government, we expect both consumers and businesses to increase their uptake of short-term debt going forward as a means of making ends meet, as most economic activity (and subsequently income) grinds to a halt while expenditure will still need to be covered.

Overall

Private sector credit (PSCE) increased by N$304.6 million or 0.3% m/m in January, bringing the cumulative credit outstanding to N$104.0 billion. On a year-on-year basis, private sector credit grew by 7.0% y/y in January, on par with December’s increase of 6.9% y/y. Cumulative credit extended to the private sector over the last 12-months amounted to N$6.77 billion. Of this cumulative issuance, individuals took up N$3.9 billion worth of debt while N$3.1 billion was extended to businesses. The non-resident private sector decreased their borrowings by N$200.6 million.

Credit Extension to Individuals

Credit extended to individuals increased by 7.0% y/y in January, compared to 7.2% y/y recorded in December. On a monthly basis, household credit decreased by 4.4%. This relatively large decline seems to be due to individuals paying back overdrafts during the month, resulting in an 18.1% m/m decrease in this category. There has been a corresponding jump in the overdrafts and other loans and advances categories for businesses which suggests a reclassification between individuals and businesses. The ‘Other loans and advances’ to individuals category recorded a decline of 13.3% m/m, while the same category for corporates jumped by 17.8% during the month. Installment credit increased by 2.5% m/m, while mortgage loans extended to individuals decreased by 2.7% m/m.

Credit Extension to Corporates

Credit extension to corporates grew by 7.5% y/y in January, rising at a quicker rate than the 7.1% y/y increase recorded in December. On a month-on-month basis, credit extension to corporates rose 7.3% in January, the highest monthly increase since January 2007. Most of this stemmed from a substantial 17.8% m/m increase in ‘other loans and advances’ and a 10.0% m/m increase in overdraft facilities extended to corporates, which is likely due to a reclassification as noted above. Mortgage loans to corporates also saw a sizeable increase of 8.9% m/m. Leasing transactions to corporations increased by 51.0% m/m, although this is from a low base.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated further during January, declining by N$935.0 million to reach an average of N$47.7 million. According to the Bank of Namibia, the decline is a result of seasonal factors following a decrease in cash balances from the banking system over the festive season, as well as commercial banks’ accumulated long positions in liquid assets. The low liquidity position has meant that commercial banks had to utilize the BoN’s repo facility, with the balance of repo’s outstanding increasing from N$1.75 billion at the start of January to N$2.04 billion at the end of the month.

Reserves and Money Supply

Broad money supply rose by N$11.0 billion or 10.6% y/y in January, as per the BoN’s latest monetary statistics release. Foreign reserve balances rose by 7.3% m/m to N$31.0 billion in January. The BoN attributed the increase to the inflow of SACU receipts during the period.

Outlook

Overall PSCE growth in January was very much in line with the growth seen in December on a year-on-year basis, increasing by 7.0%. Rolling 12-month private sector credit issuance is up 1.2% to N$6.8 billion as at the end of January 2019, with individuals taking up most (56.9%) of the credit extended over the past 12 months.

The BoN’s MPC unsurprisingly followed the SARB’s MPC decision to cut the repo rate by 25-basis points at its meeting in February. While this should provide some relief to heavily indebted consumers, we don’t anticipate that further accommodative monetary policy will be effective in stimulating economic activity to the extent that it reverses the current low growth trend.

January’s PSCE data shows that businesses continue to be dependent on short-term debt, particularly in the form of overdrafts and credit card debt. Businesses’ reliance on short-term debt is concerning, but not unexpected, given the fact that Namibia remains in an economic slump. While we do believe that there will be marginal economic growth in 2020, it will largely be due to base effects and not a significant improvement in economic conditions. Businesses and consumers are thus expected to continue to rely on short-term debt as a means of making ends meet for as long as economic conditions remain challenging.