Category Archives: Private Sector Credit Extension

Overall

Private sector credit extension (PSCE) decreased by N$216.7 million or 0.22% m/m in June, bringing the cumulative credit outstanding to N$100.24 billion. On a year-on-year basis, private sector credit extension increased by 7.4% in June, compared to growth of 8.0% in May. On a rolling 12-month basis, N$6.9 billion worth of credit was extended to the private sector, with individuals taking up N$4.0 billion while N$3.1 billion was extended to corporates, and the non-resident private sector has decreased their borrowings by N$232.8 million.

Credit Extension to Individuals

Growth in credit extension to individuals accelerated to 0.7% m/m and 7.3% y/y in June, compared to 0.4% m/m and 6.4% y/y growth recorded in May. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 1.4% m/m and 25.9% y/y in June. The rapid growth in short term debt uptake by individuals is very concerning as these loans bear high interest rates and have high default rates when compared to productive loans such as mortgages. Installment credit, which is quite often used to purchase new vehicles, contracted by 4.1% y/y. Mortgage loans to individuals grew by 0.6% m/m and 7.6% y/y, while overdraft facilities extended to individuals have increased by 0.1% m/m and 5.0% y/y.

Credit Extension to Corporates

Credit extension to corporates contracted by 1.4% m/m after increasing by 2.8% m/m in May. On an annual basis, however, credit extension to corporates increased by 8.4% y/y in June, compared to the 11.2% y/y growth registered in May. The month-on-month contraction is mostly caused by businesses paying back overdrafts. Overdraft facilities extended to corporates decreased by 4.0% m/m, but are still up 8.3% y/y. Mortgage loans to corporates increased by 0.4% m/m and 3.7% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.4% m/m and 7.5% y/y in June.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during June, increasing by N$648.0 million to reach an average of N$4.43 billion. According to the Bank of Namibia (BoN), the increase is attributable to the liquidation of funds, as companies were preparing for corporate tax payments during the period under review. 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 from N$398.1 million at the start of June to N$388.7 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$7.38 billion or 7.3% y/y in June, following a 11.7% y/y increase in May. Foreign reserve balances fell by N$691.0 million to N$33.4 billion in June from N$34.1 billion in May. The BoN attributes the decrease to net capital outflow of foreign currencies through commercial banks, coupled with net government payments during the month under review.

Outlook

From a 12-month rolling perspective, credit issuance is up 19.5% from the N$5.79 billion issuance observed at the end of June 2018, with corporates taking up 45.3% of the credit extended over the past 12 months. The credit extended to corporates on a cumulative 12-month basis has increased from N$1.51 billion in June 2018 to N$3.14 billion, while credit extended to individuals increased from N$3.47 billion in June 2018 to N$4.02 billion at the end of June 2019.

Corporates have repaid overdraft facilities during the month, resulting in a 3.0% decrease in total overdrafts. The repayment of overdrafts is a positive sign in our view as the extension of overdraft facilities was unlikely to drive meaningful expansion of productive capacity. We do however believe that the repayment is a short-term phenomenon as both individuals and corporates remain under pressure.

We expect the BoN to follow the SARB’s MPC decision to cut the Repo rate by 25 basis points at its August MPC meeting, which 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.

Overall

Total credit extended to the private sector (PSCE) increased by N$1.36 billion or 1.37% m/m in May, bringing the cumulative credit outstanding to N$100.45 billion. On a year-on-year basis, private sector credit extension grew by 8.03% in May, compared to 6.71% recorded in March. On a rolling 12-month basis N$7.46 billion worth of credit was extended. N$4.13 billion worth of credit has been extended to corporates and N$3.52 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$185.3 million, the third consecutive month in which this has happened.

Credit Extension to Individuals

Growth in credit extended to individuals slowed to 6.4% y/y in May, a noticeable decrease from the growth of 7.0% y/y recorded in April. However, the biggest driver of the increase in credit extended to individuals was a 6.9% y/y increase in mortgage loans, followed by other loans and advances increasing by 23.9%. Other loans and advances have increased to N$7.22 billion, growing at a much quicker pace than overdrafts. Overdraft facilities extended to individuals have increased by 0.5% m/m and 3.7% y/y.

Growth in credit extended to households slowed to 0.4% m/m from 0.6% m/m in April. The value of mortgage loans extended to individuals increased by 0.4% m/m and 6.9% y/y. While instalment credit extension remained depressed, contracting by 0.6% m/m and 5.9% y/y.

Credit Extension to Corporates

Credit extension to corporates increased by 2.8% m/m and 11.2% y/y in May. On a rolling 12-month basis, N$4.13 billion was extended to corporates as at the end of May compared to the N$2.86 billion as at the end of April.  The month-on-month increase was largely driven by mortgage loans extended to corporates which increased by 4.9% m/m and 6.1% y/y. The use of short-term facilities, particularly overdrafts, increased by 2.9% m/m and 11.1% y/y. Other loans and advances, which consists of credit card debt and short-term loans, extended to businesses increased by 3.4% m/m and 28.2% y/y.

Over the last twelve months the use of short-term facilities has increases greatly, pointing to stressed cash flow among corporate borrowers. While a symptom of the lacklustre economic climate, there is a limit to how long businesses can rely on such facilities in the absence of improved economic conditions. The spike in use of short-term facilities is concerning given that expectations are for poor economic conditions to persist in the short-to medium-term.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$361.5 million to an average of N$3.79 billion during May from the N$4.15 billion in April. According to the Bank of Namibia (BoN), the decline in liquidity balances stemmed mainly from increased demand for BoN bills during the period under review. There was an increase in the use of BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$290.9 million at the start of May to N$ N$398.1 million by the end.

Reserves and Money Supply

Broad money supply rose by N$11.6 billion or 11.7% y/y in May following a 10.2% y/y increase in April, as per the BoN’s latest monetary statistics release. Foreign reserve balance contracted by 0.1% m/m down by N$33.7 million to N$34.1 billion. The BoN stated that the decreased is largely due to net capital outflows of foreign currencies through commercial banks, coupled with net government payments during the month under review.

Outlook

From a 12-month rolling perspective, credit issuance is up 48.0% from the N$5.04 billion issuance observed at the end of May 2018, with corporates taking up 55.3% of the credit extended over the past 12 months. The credit extended to corporates on a cumulative 12-month basis has increased from N$509 million in May 2018 to N$4.13 billion. While credit extended to individuals has been rather stagnant, down 9% on a rolling 12-month basis to N$3.52 billion.

However, PSCE growth in May stemmed from the use of short-term debt as the other loans and advances category grew by 12.4% y/y for corporates and 23.9% y/y for individuals. Due to the nature of debt used, this further questions the utilisation of the credit extended and the probability that such debt is not being used to fund capital expenditures or for long-term productive use.

Overall

Total credit extended to the private sector (PSCE) increased by N$1.11 billion or 1.14% m/m in April, bringing the cumulative credit outstanding to N$99.1 billion. On a year-on-year basis, private sector credit extension grew by 6.71% in April, compared to 5.79% recorded in March. On a rolling 12-month basis, N$6.22 billion worth of credit was extended. N$2.86 billion worth of credit has been extended to corporates and N$3.80 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$199.1 million.

Credit Extension to Individuals

Credit extended to individuals increased by 7.0% y/y in April, an acceleration from the 6.3% y/y growth recorded in March. Most of the growth stems from an increase in shorter-dated debt, with overdraft facilities to individuals increasing by 0.9% m/m and 6.3% y/y. Other loans and advances recorded growth of 2.0% m/m and 21.2% y/y, while installment credit remained depressed, contracting by 1.2% m/m and 5.7% y/y. Mortgage loans to individuals grew by 0.4% m/m and 7.1% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 2.1% m/m and 7.7% y/y in April. On a rolling 12-month basis, N$2.86 billion was extended to corporates as at the end of April compared to N$2.05 billion as at the end of March. The month-on-month increase was mostly driven by corporates making use of short-term credit facilities, in particular overdrafts, which increased by 4.7% m/m and 9.0% y/y. Other loans and advances, which consists of credit card debt, personal and term loans, extended to businesses increased by 4.7% m/m and 26.2% y/y. Mortgage loans extended to corporates contracted by 0.8% m/m, but increased by a low 0.1% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$31.4 million to an average of N$4.15 billion during April from N$4.11 billion in March. According to the Bank of Namibia (BoN), the increase is attributable to SACU receipts, coupled with increased mineral proceeds during the period under review. The improved liquidity resulted in a further decrease in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s decreasing from N$479.3 million at the start of April to N$385.7 million by month end.

Reserves and Money Supply

Broad money supply rose by N$9.91 billion or 10.2% y/y in April following a 6.9% y/y increase in March, as per the BoN’s latest money statistics release. Foreign reserve balances rose by 4.9% m/m to an all-time-high of N$34.2 billion in April. The BoN stated that the increase is largely due to the increase in the SACU receipts.

Outlook

Private sector credit extension growth remained depressed at the end of April, increasing by 6.7% y/y. From a 12-month rolling perspective, credit issuance is up 13.1% from the N$5.51 billion issuance observed at the end of April 2018, with individuals taking up most (61.0%) of the credit extended over the past 12 months. Most of the growth in PSCE for April stemmed from shorter-dated debt. Our expectation is for private sector credit extension to remain under pressure as both consumer and business confidence remains low.

We expect the BoN to follow the SARB’s MPC decision to leave the Repo rate unchanged at its next MPC meeting later this month. Interest rates, however, remain accommodative and further rate cuts are unlikely to result in a meaningful increase in the uptake of credit.