Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit (PSCE) increased by N$586.8 million or 0.58% m/m in November, bringing the cumulative credit outstanding to N$102.5 billion. On a year-on-year basis, private sector credit increased by 5.92% in November, somewhat slower than the 6.14% growth rate recorded in October. On a rolling 12-month basis, N$5.7 billion worth of credit was extended to the private sector, with individuals taking up N$3.7 billion while N$2.2 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$205.0 million.

Credit Extension to Individuals

Credit extended to individuals increased by 6.6% y/y in November, almost unchanged from the 6.7% y/y growth recorded in October. On a monthly basis household credit increased by 0.6%, once again a similar pace to the 0.5% growth registered in October. Mortgage loans extended to individuals grew by 0.2% m/m and 5.7% y/y, compared to 0.6% m/m and 6.5% y/y in October. Household appetite for instalment credit remains subdued as reflected in the contractions of 0.4% m/m and 5.8% y/y in November. Other loans and advances grew at a relatively quick pace of 4.3% m/m and 27.3% y/y during the month, indicating that consumers remain stretched as they are taking on more credit card debt, personal, and term loans.

Credit Extension to Corporates

Credit extension to corporates grew by 0.4% m/m and 5.7% y/y in November, compared to the growth of 0.3% m/m and 6.0% y/y recorded in October. On a rolling 12-month basis N$2.2 billion was extended to corporates, a far cry from the highs of over N$5.3 billion recorded for the 12 months ending in February 2015. Installment credit extended to corporates printed flat m/m, but contracted by 4.1% y/y in November. Leasing transactions to corporations declined by 2.4% m/m and 34.2% y/y. Overdraft facilities extended to corporates contracted by 2.6% m/m and 5.8% y/y, making it the first contraction on an annual basis since June 2018. Whether corporates will continue to pay back overdraft facilities going forward remains to be seen, although it seems unlikely as economic conditions remain challenging. Mortgage loans extended to corporates grew by 0.5% m/m and 5.9% y/y, while other loans and advances grew by 2.9% m/m and 15.8% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated during November, declining by N$925.3 million to reach an average of N$1.84 billion. Bank of Namibia attributed the decline in liquidity to higher issuance of BoN bills and the issuance of a new Treasury Bill, coupled with cross border payments made during November.

Reserves and Money Supply

Broad money supply rose by 9.3% y/y in November, following a 6.7% y/y increase in October, as per the BoN’s latest money statistics release. Foreign reserve balances fell by 8.4% m/m to N$29.8 billion in November. The BoN 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

Overall PSCE growth in November moderated for a third consecutive month on a year-on-year basis, increasing by 5.9%. Rolling 12-month private sector credit issuance is down 21.0% from the N$7.2 billion issuance observed at the end of November 2018, with individuals taking up most (65.2%) of the credit extended over the past 12 months.

Low economic activity and a lack of demand means that growth opportunities for businesses remain limited. Consumer confidence will first need to improve before corporate demand for credit will increase. Increased consumer demand results in more business production that must satisfy this demand, thus incentivising businesses to borrow in order to fund capital and expansionary projects. Until such a time that consumer confidence increase, we do not expect to see any significant growth in PSCE. It is unlikely that monetary policy will drive PSCE growth in the coming year, as interest rates are not far off historically low levels.

Overall

Private sector credit (PSCE) increased by N$510.1 million or 0.5% m/m in October, bringing the cumulative credit outstanding to N$101.9 billion. PSCE grew at a slower pace of 6.14% y/y in October compared to 6.24% y/y in September. On a rolling 12-month basis N$5.89 billion worth of credit was extended to the private sector, down 16.0% y/y. Individuals took up N$3.79 billion while N$2.30 billion was extended to corporates, and the non-resident private sector decreased their borrowings by N$193.7 million.

Credit Extension to Individuals

Credit extended to individuals increased by 6.7% y/y in October, a slight slowdown from the 6.8% y/y growth recorded in September. Mortgage loans extended to individuals increased by 0.6% m/m and 6.5% y/y. Installment credit continued to contract, by 0.1% m/m and 6.1% y/y. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 2.0% m/m and 24.2% y/y in October. Household demand for overdraft facilities declined in October, contracting by 2.0% m/m, although rising by 8.6% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 0.3% m/m and 6.0% y/y. On a rolling 12-month basis N$2.30 billion was extended to corporates as at the end of October, a decrease of 9.1% y/y. Although the uptick in the general demand for credit by corporates over the last year seems positive, the biggest driver of the increase in credit extended to corporates was shorter-term debt. Overdraft facilities extended to corporates decreased by 0.6% m/m but rose 5.4% y/y, while other loans and advances to corporates increased by 1.3% m/m and 12.3% y/y. The increase in these categories indicates that businesses continue to rely on other short-term debt to keep the lights on. Mortgage loans by corporates contracted by 0.7% m/m but rose 5.8% y/y, while installment credit increased by 0.5% m/m, but contracted by 5.2% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks declined by N$227.3 million in October to reach an average of N$2.77 billion. The Bank of Namibia attributed the decline in liquidity to lower domestic Government spending mainly due to lower economic activity coupled with higher foreign currency outflows as a result of import payments during October 2019.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$7.16 billion or 6.7% y/y in October, following an 8.3% y/y increase in September. Foreign reserve balances rose by N$203.6 million to N$32.47 billion in October from N$32.27 billion in September. According to the BoN, the increase was mostly due to an inflow of SACU receipts as well as lower government payments during the period under review.

Outlook

Private sector credit extension continues to languish, increasing by 6.14% y/y during October compared to the 6.24% y/y growth rate recorded in September. It has been 36 months since PSCE last recorded double digit growth on an annual basis. As expected, the 25-basis point rate cut in August has not resulted in higher demand for credit as consumers are already over-indebted. With low economic activity and lack of demand, growth opportunities for businesses remain limited.

As mentioned earlier, corporates continue to rely on short-term debt to keep the lights on instead of taking on longer-term credit to invest in capital projects to expand operations. We do not expect conditions to improve in the short- to medium-term.