PSCE – September 2018

Overall

Private sector credit extension (PSCE) rose by N$524.4 million or 0.6% m/m, compared to the N$1.375 billion or 1.5% m/m increase recorded in August. PSCE growth ticked up marginally to 7.3% y/y in September from 7.1% y/y in August. Cumulative credit outstanding currently amounts to N$95.3 billion. Similar to what transpired in August, the monthly increase in PSCE for September was driven by corporates rather than households. On an annual basis PSCE growth was largely driven by household demand for credit. Growth in credit extended to households however, did slow marginally to 8.0% y/y in September compared to 8.1% y/y in August. Credit extended to corporates increased by 4.5% y/y in September following a 3.6% y/y rise in August. On a rolling 12-month basis N$6.49 billion worth of credit was extended to the private sector with N$4.15 billion being taken up by households. Corporations took up N$1.64 billion worth of credit while claims on non-residents totaled N$705.8 million.

Credit extension to individuals

Credit extended to individuals increased by 8.0% y/y in September, almost unchanged from the 8.1% y/y growth recorded in August. Mortgage loans extended to individual increased by 9.5% y/y in September compared to the 10.0% y/y increase recorded in August.  Other loans and advances grew by 18.0% y/y and 1.6% m/m in September. Growth in installment credit remained in negative territory, contracting by 4.6% y/y and 0.2% m/m in September. Household demand for overdraft facilities remained subdued in September, increasing by 0.8% y/y and unchanged on a month-on-month basis.

Credit extension to corporates

Credit extension to corporates grew by 4.5% y/y and 0.8% m/m in September. On a rolling 12-month basis N$1.64 billion was extended to corporates as at the end of September compared to N$1.34 billion as at the end of August. The uptick in the general demand for credit by corporates does provide for some optimism, possibly showing signs of increased business confidence. However, the biggest driver of the increase in credit extended to corporates was a 22.4% y/y increase in loans and other advances, followed by overdraft facilities increasing by 3.6% y/y. The continued contractions in installment credit and leasing transactions of 8.0% y/y and 1.6% y/y respectively, is a sign of declining capital investment. When viewed in conjunction with in the increased use of short-term credit such as overdraft facilities, this points to businesses borrowing to manage cash flows rather than expanding operations.

 

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$303.1 million to an average of N$4.8 billion during September from N$4.5 billion in August. Bank of Namibia attributed the strong liquidity in September to an increase in Diamond sales. Furthermore, commercial banks made less use of BoN’s repo facility, with the outstanding balance of repo’s decreasing from N$386 million at the start of September to N$147 million by month end. The balance of BoN bills remained unchanged at N$1.7 billion as at the end of September.

 

Reserves and money supply

Foreign reserve balances increased by N$321 million to N$32.52 billion in September from N$32.20 billion in August. BoN attributes the increase in reserves to inflows from foreign currency deposits by the commercial banks. A portion of the foreign currency deposits are attributable to diamonds sales which also led to the increased liquidity position as noted above.

Outlook

PSCE accelerated moderately for a second consecutive month, reaching a 16-month high growth rate of 7.3% y/y. Much of the rise in PSCE was household driven over the last year. One would expect for the increase in household demand to translate into an increase in business credit to meet that demand. However, corporates have scaled down in their uptake of mortgage financing and installment credit, which finances capital projects. This becomes concerning when viewed in conjunction with loans, advances and overdrafts that have been on the rise and does point to businesses operating under difficult financial conditions. October and November PSCE releases may record increases in short-term credit extended to corporates, as businesses prepare for the seasonal uptick in retail spending expected over the last two months of the year.

Key monetary policy decisions are scheduled between now and December that will have an impact on PSCE growth in the near-term. The SARB Monetary Policy Committee (MPC) will meet in November to re-evaluate interest rates, with present expectations of a 25bp hike in rates. A SARB rate hike will put SA’s repo rate on par with that of Namibia. BoN’s MPC, scheduled to meet in December, would be likely to seriously consider maintaining the 25bp interest rate spread over South Africa which would see a similar rate hike in Namibia. At present, South African money market rates are marginally higher than those in Namibia, and if BoN keeps its repo rate on par with that of SA, it may lead to an outflow of capital from Namibia. A rate hike by BoN would mitigate the risk of capital outflows and protect foreign reserve levels, but will make debt service costs more expensive for an already indebted consumer.

 

PSCE – August 2018

Overall

Private sector credit extension (PSCE) recorded it biggest monthly increase since November 2015, rising by N$1.37 billion or 1.5% m/m in August. Cumulative credit outstanding currently amounts to N$94.8 billion. PSCE growth accelerated to 7.1% y/y in August from 6.3% y/y in July. On an annual basis the growth in PSCE was driven largely by credit extended to households which increased at a quicker rate of 8.1% y/y in August compared to 6.7% y/y in July. Credit extended to corporates grew marginally quicker at 3.6% y/y in August versus the 3.4% y/y in July. On a rolling 12-month basis N$6.3 billion worth of credit was extended to the private sector with N$4.2 billion being taken up by individuals. Corporations took up only N$1.3 billion worth of credit while claims on non-residents totaled N$748 million.

Credit extension to individuals

Household appetite for credit remains high judging by credit extended to individuals over the past 12 months. Credit extended to individuals increased by 8.1% y/y in August, a sharp acceleration from the 6.7% y/y growth recorded in July. Base effects saw mortgage loans extended to individual grow by 10% y/y in August compared to the 7.7% y/y increase recorded in July, resulting in the overall acceleration mentioned above. Individuals once again made very little use of overdraft facilities in August, with this increasing by 0.8% y/y following a 1.7% y/y contraction recorded in July. Household appetite for instalment credit remains subdued as reflected in the contractions of 5.6% y/y and 0.6% m/m in August. Other loans and advances grew by 17.2% y/y and 3.5% m/m in August.

Credit extension to corporates

Credit extension to corporates grew by 3.6% y/y and 2.4% m/m. On a rolling 12-month basis N$1.3 billion was extended to corporates as at the end of August compared to N$1.2 billion as at the end of July. Instalment credit extended to corporates contracted by 7.5% y/y but increased marginally by 0.5% m/m in August. Leasing transactions to corporations also contracted in August, by 3.6% y/y and 3.1% m/m. The contraction in instalment credit and lease transactions points towards declining corporate investments of a capital nature. However, the uptick in loans and overdrafts of 22.1% y/y and 1.5% y/y, respectively, could suggest that businesses are lending simply to stay afloat.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$229.7 million to an average of N$4.5 billion during August from N$4.7 billion in July. The overall liquidity position continued to boast a healthy average monthly balance of above N$4 billion since June. The excess liquidity seems to have found some parking space with Bank of Namibia (BoN) attributing the decrease in overall liquidity to an uptick in the purchases of BoN bills over the month of August. At the same time commercial banks have continued to utilize BoN’s repo facility, with the balance of repo’s outstanding increasing from N$341 million at the start of August to N$386 million as at the end of August.

Reserves and money supply

Foreign reserve balances decreased by N$345 million to N$32.2 billion in August from N$32.5 billion in July. BoN had previously noted that the July balance of foreign reserves was N$30.8 billion, citing errors to March reserve figures. This has since been corrected along with the balances of the preceding three months. The N$345 million decline in reserves, however, BoN attributes to government disbursements over the month under review.

Outlook

Credit extension to individuals continues to outpace extension to corporates by most measures. However, the monthly uptick in PSCE registered in August was largely due to credit extension to corporates, which was almost double credit extension to individuals. The outlook for PSCE growth, for the time being, is rested on interest rate expectations with the SARB MPC keeping policy rates unchanged in September, with expectations for BoN’s MPC to follow suit. Rising oil prices and a weaker rand has seen a rampant increase to fuel pump prices, which will feed into the SARB’s inflation forecast. These factors will weigh on future interest rate decisions which in turn influences the rate of PSCE growth. Interest rates remain broadly accommodative at present but risks remain to the upside.

Notwithstanding global developments, local government fiscal shortages bear further risk to the outlook for PSCE. Local news media has reported that the Ministry of Finance (MoF) has engaged in consultations to discuss proposed increases to tax rates for individuals and various taxes affecting businesses. With individuals accounting for almost 70% of the credit issued from a 12-month cumulative perspective, any increase in tax impacts the ability of credit uptake by an already stretched consumer. This would mean less demand for consumer credit, and less disposable income to service debt. This will further supress consumer spending that in turn affects capital investment by local business, which at present is already heavily suppressed. An increase in corporate taxes (dividend withholding tax) further disincentivises credit uptake by corporates which could delay expansion of operations which further dampens the outlook for PSCE going forward.

PSCE – July 2018

Overall

Private sector credit extension (PSCE) increased by N$292.8 million or 0.3% m/m in July. Cumulative credit outstanding currently amounts to N$93.4 billion. PSCE growth slowed to 6.3% y/y in July from 6.4% y/y in June. This slowdown was driven by slower growth in credit extended to corporates at 3.4% y/y versus 4.2% in June. Credit extension to individuals grew at 6.7% y/y versus 6.4% in June. On a rolling 12-month basis N$5.5 billion worth of credit was extended to the private sector. Individuals took up N$3.5 billion, corporates took up only N$1.2 billion, and claims on non-resident private sectors accounted for N$824 million.

Credit extension to individuals

Credit extended to individuals increased by 6.7% y/y in July, a further uptick in the pace of credit extension from the 6.4% y/y growth recorded in June. Credit extension to individuals increased by 0.9% m/m in July following growth of 0.8% in June. Installment credit extension continued to contract, by 5.1% y/y and 0.1% m/m in July. Credit extended through overdraft facilities contracted by 1.7% y/y and 2.5% m/m as individuals paid down on these facilities. Other loans and advances grew by 16.2% y/y and 2.9% m/m in July.

 

Credit extension to corporates

Credit extension to corporates grew by 3.4% y/y and contracted by 0.4% m/m. On a rolling 12-month basis N$1.2 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. In real terms corporations are reducing their exposure to credit although this may not be so on an individual business basis in some industries. Installment credit extended to corporates contracted by 8.0% y/y and 0.5% m/m in July. Leasing transactions to corporations contracted by 2.8% y/y but grew by 0.1% m/m. Overdraft facilities extended to corporates grew by 1.6% y/y but contracted by 1.7% m/m. There has been a net decrease in overdraft facilities utilized by corporates of 4.1% over the last four months while there has been an increased use of other loans and advances. Other loans and advances to corporates grew by 19.5% y/y and 3.9% m/m in July.

Banking Sector Liquidity

The overall liquidity position of commercial banks decreased by N$198.6 million to an average of N$4.5 billion during July. Once again the Bank of Namibia credited strong liquidity during the month to proceeds from diamond sales. Liquidity within the Namibian market has been strong for a number of quarters. Despite this the repo facility saw increased use during the month of July.

Reserves and money supply

Foreign reserve balances increased by N$1.2 billion to N$30.8 billion in July. The reserve position has strengthened since the recent lows in March this year. SACU revenues, the repatriation of Namibia dollars from Angola, and currency weakness all contributed to this improvement. The imminent receipt of funds from the African Development Bank should see further improvement in August, supported by yet further currency weakness. It should be noted that a drop in local demand for foreign goods has also contributed through a reduced trade deficit.

 

Outlook

Private sector credit extension continues to languish with credit extended to corporates failing to match, let alone beat, annual inflation for most of the year, while the average monthly credit extended to individuals this year remains well below last year’s average values (note that 2017 was a recession year). One would expect credit extension to corporates to lag a recovery in credit extended to households as demand leads investment into new business. The lack of acceleration in credit extension to individuals is thus likely to result in further lackluster credit extension to corporates for some time to come. Government is one source of demand which could provide some relief to struggling companies although this is also unlikely due to the continuation of the mild fiscal consolidation stance and uncertain government revenues.