Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) increased by N$644.5 million or 0.64% m/m in September, bringing the cumulative credit outstanding to N$101.4 billion. PSCE grew at a marginally faster rate of 6.2% y/y in September compared to 6.1% y/y in August. On a rolling 12-month basis N$5.95 billion worth of credit was extended to the private sector, down 10.2% y/y. Individuals took up N$3.80 billion while N$2.36 billion was extended to corporates, and the non-resident private sector decreased their borrowings by N$201.9 million.

Credit Extension to Individuals

Credit extended to individuals increased by 6.8% y/y in September, almost unchanged from the 6.7% y/y growth recorded in August. Mortgage loans extended to individuals increased by 0.4% m/m and 6.7% y/y. Installment credit continued to contract, by 0.7% m/m and 6.0% y/y. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 2.3% m/m and 23.1% y/y in September. Household demand for overdraft facilities remained relatively strong in September, increasing by 1.8% m/m and 11.0% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 1.0% m/m and 6.2% y/y. On a rolling 12-month basis N$2.36 billion was extended to corporates as at the end of September, an increase of 44.1% 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 grew by 2.4% m/m and 5.1% y/y, while other loans and advances to corporates increased by 1.1% m/m and 16.0% y/y. The increase in these categories indicates that businesses are still relying on overdrafts and credit card debt to keep the lights on. Mortgage loans by corporates increased by 1.0% m/m and 4.9% y/y, while installment credit increased by 1.4% m/m, but contracted by 6.2% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks declined by N$670.0 million in September to reach an average of N$2.99 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 the review period.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$1.34 billion or 8.4% y/y in September, following an 8.0% y/y increase in August. Foreign reserve balances fell by N$1.16 billion to N$32.3 billion in September from N$33.4 billion in August. According to the BoN, the decrease was mostly due to an increase in net foreign capital outflows during the period under review.

Outlook

Private sector credit extension continues to languish, increasing by 6.2% y/y during September. It has been 35 months since PSCE last recorded double digit growth. As expected, the 25-basis point rate cut in August has not resulted in higher demand for credit, as consumers are already overindebted and growth opportunities for businesses are few due to a lack of demand. 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.

Private sector credit extension (PSCE) increased by N$429.3 million or 0.43% m/m in August, bringing the cumulative credit outstanding to N$100.8 billion. On a year-on-year basis, private sector credit extension increased by 6.1% in August, a slowdown from the 7.4% recorded in July. On a rolling 12-month basis, N$5.8 billion worth of credit was extended to the private sector, with individuals taking up N$3.7 billion while N$2.3 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$211.9 million.

Credit Extension to Individuals

Growth in credit extension to individuals increased to 0.5% m/m and 6.7% y/y compared to 0.5% m/m and 7.4% y/y growth recorded in July. Mortgage loans to individuals grew by 0.7% m/m and 6.8% y/y, and still showing some resiliency to the economic slowdown.

Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 1.6% m/m and 21.6% y/y in August, while overdraft facilities extended to individuals have increased by 9.0% y/y the highest since November 2017, indicating that the uptake of short-term debt by households continues unabated. The increase in the uptake of short-term debt remains of concern as there is little appetite for more productive loans and consumers remain subject to higher interest terms. Installment credit, which consists largely of vehicle financing, contracted by 1.4% m/m and 5.4% y/y, as result of the continued decline new vehicle sales.

Credit Extension to Corporates

Credit extension to corporates increased to 0.2% m/m compared to the 0.6% m/m contraction recorded in July. On an annual basis, however, credit extension to corporates slowed down to 6.0% y/y in August, compared to the 8.3% y/y growth registered in July. Overdraft facilities extended to corporates contracted further by 3.0% m/m but rose 4.9% y/y. Mortgage loans to corporates contracted by 0.2% m/m but increased 5.0% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remains depressed, contracting by 0.3% m/m and 8.5% y/y in August.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved in August, increasing by N$409.1 million to reach an average of N$3.66 billion. The higher liquidity resulted in a decrease in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s decreasing by N$5 million to N$386.5 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$8.32 billion or 8.0% y/y in August, following a 6.6% y/y increase in July. Foreign reserve balances rose by N$1.75 billion to N$33.4 billion in August from N$35.2 billion in July.

Private sector credit extension growth increased by 6.11% y/y during August. From a 12-month rolling perspective, credit issuance down by 10.6% from the N$6.42 billion issuance observed over the preceding twelve-month period, with individuals taking up most (64.3%) of the credit extended.

The increase in the uptake of short-term debt and overdraft facilities by households to fund consumption needs, demonstrates the pressure consumers are under. This is of concern as consumers continue to live above their means. According to Bank of Namibia Financial Stability Report, the level of household indebtedness rose and stands at 95.5% in 2018 compared to 2017. Furthermore, demand is expected to be remain subdued as key sectors recorded declining growth rates. Our expectation is for private sector credit extension to remain under pressure as both consumer and business confidence remains low.

BoN took the decision to cut the Repo rate by 25 basis points at its August MPC meeting, this has brought heavily indebted consumers and corporates some relief. However, interest rates remain accommodative by historical standards and further rate cuts are unlikely to result in a meaningful increase in the uptake of credit.

Private sector credit extension (PSCE) increased by N$86.3 million or 0.09% m/m in July, bringing the cumulative credit outstanding to N$100.32 billion. On a year-on-year basis, private sector credit extension saw a steady increased of 7.4% in July, as seen in the preceding month. On a rolling 12-month basis N$6.9 billion worth of credit was extended to the private sector, with individuals taking up N$4.1 billion while N$3.1 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$210.7 million.

Growth in credit extension to individuals increased by 0.5% m/m and 7.4% y/y in July, compared to 0.7% m/m and 6.5% y/y growth recorded in June. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 0.6% m/m and 27.3% y/y in July. The increase in the uptake of short-term debt remains of concern as household demand continues to rise when compared to the use of more productive loans such as mortgages. Short term debt is characterized by high interest rates and high default rates compared to mortgage loans. Installment credit, often used to finance vehicles contracted by 0.3% m/m and 4.1% y/y. Mortgage loans to individuals grew by 0.7% m/m and 7.3% y/y, while overdraft facilities extended to individuals have increased by 1.0% m/m and 8.7% y/y.

Credit extension to corporates further contracted by 0.6% m/m following the 1.4% m/m contraction recorded in June. On an annual basis, however, credit extension to corporates increased by 8.3% y/y in July, compared to the 8.9% y/y growth registered in June. Overdraft facilities extended to corporates decreased by 0.8% m/m, but are still up 9.3% y/y. The year-on-year increase was caused by business in the fisheries and housing sector taking on overdrafts facilities. Mortgage loans to corporates contracted by 0.5% m/m but increased by 5.2% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.7% m/m and 7.7% y/y in July.

The overall liquidity position of commercial banks declined by N$1.2 billion to reach an average of N$3.25 billion. The Bank of Namibia (BoN) attributes the decline in liquidity balances to outflows as a result of payments of corporate taxes during the period under review. The decreased liquidity resulted in an increase in the use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$388.7 million at the start of July to N$391.5 million by month end.

As per the BoN’s latest money statistics release, broad money supply rose by N$6.74 billion or 6.6% y/y in July, following a 7.3% y/y increase in June. Foreign reserve balances rose by N$1.75 billion to N$35.2 billion in July from N$33.4 billion in June. According to BoN this was largely due to SACU payments received during the month under review.

Private sector credit extension growth increased as at the end of July by 7.40% y/y. From a 12-month rolling perspective, credit issuance is up 25.6% from the N$5.5 billion issuance observed at the end of July 2018, with individuals taking up most (58.6%) of the credit extended over the past 12 months. Most of the growth in PSCE for July stemmed from other financial corporations and mortgages extended to individuals.

Corporates increased their demand for overdraft facilities on a year-year basis. The uptake of overdrafts is an indication of lack of liquidity in the fisheries and construction industries to finance working capital in the short-term. Our expectation is for private sector credit extension to remain under pressure as both consumer and business confidence remains low.

As we expected the BoN took the decision to cut the Repo rate by 25 basis points at its August MPC meeting. This should bring heavily indebted consumers and corporates some relief. However, interest rates remain accommodative by historical standards and further rate cuts are unlikely to result in a meaningful increase in the uptake of credit.