Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit (PSCE) increased by N$1.24 billion or 1.2% m/m in December, bringing the cumulative credit outstanding at the end of 2019 to N$103.7 billion. On a year-on-year basis, private sector credit increased by 6.9% in December, increasing at a quicker rate than the 5.9% recorded in November. From a rolling 12-month basis, N$6.7 billion worth of credit was extended to the private sector, compared to the previous year, the rolling 12-month issuance is down 1.4% from the N$6.8 billion issuance observed by the end of December 2018. Of this cumulative issuance, individuals took up the lion’s share of credit, amassing N$4.1 billion worth of debt while N$2.8 billion was extended to businesses. The non-resident private sector decreased their borrowings by N$170 million.

Credit Extension to Individuals

Credit extended to individuals increased by 7.2% y/y in December, compared to 6.6% y/y recorded in November. On a monthly basis, household credit increased by 1.2%, double the pace of the 0.6% growth registered in November. Most of this growth stemmed from an increase in ‘Other loans and advances’ of 5.8% m/m and 32.0% y/y in December. This relatively quick pace can likely be explained by consumers making use of credit cards and payday loans to purchase gifts and pay for travel expenses over the holiday period. Installment credit continued to contract, by 0.1% m/m and 6.0% y/y. Mortgage loans extended to individuals grew by 0.7% m/m and 5.9% y/y, compared to 0.2% m/m and 5.7% y/y in November.

Credit Extension to Corporates

Credit extension to corporates grew by 1.1% m/m and 7.1% y/y in December, following a slow increase of 0.4% m/m and 5.7% in November. On a rolling 12-month basis N$2.76 billion was extended to corporates in 2019, an increase of 17.3% y/y from the N$2.35 billion that was extended to corporates in 2018.  Installment credit extended to corporates, which has been contracting on an annual basis since February 2017 remained depressed, contracting by 0.9% m/m and 4.1% y/y in December. Leasing transactions to corporations grew by 1.1 m/m, but declined by 31.7% y/y. Overdraft facilities extended to corporates increased by 3.0% m/m and 1.9% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated significantly during December, declining by N$858.3 million to reach an average of N$982.7 million. Bank of Namibia attributed the decline in liquidity to corporate tax payments during December as well as a high uptake of treasury bills and other liquid assets by commercial banks. The relatively low liquidity position has prompted commercial banks to utilize the BoN’s repo facility, with the balance of repo’s outstanding increasing from N$284.7 million at the start of December to N$1.75 billion at the end of the month.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$11.0 billion or 10.5% y/y in December, following a 10.6% y/y increase in November. Foreign reserve balances fell by 3.0% m/m to N$28.8 billion in December. The BoN again stated that the decline was due to the net purchases of South African Rands by commercial banks for import payments coupled with increasing government foreign payments during the month under review.

Outlook

Private sector credit growth figures for 2019 remained largely in the same 6-7% y/y range as in 2018. The rolling 12-month issuance of N$6.7 billion is however down 1.4% from the N$6.8 billion issuance recorded at the end of 2018.

The SARB’s MPC surprised markets with a unanimous decision to cut the repo rate by 25-basis points to 6.25% at its meeting in January. We expect the BoN’s MPC to follow the SARB’s decision at its next meeting later in February, as Namibian inflation figures are trending at very low levels and economic growth is stagnating. Policy changes (and policy certainty) to attract foreign investment will at this moment likely be more effective to revive economic activity than more accommodative monetary policy, although a 25-basis point rate cut should provide some relief to heavily indebted consumers.