Category Archives: Private Sector Credit Extension

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.

Overall

Total credit extended to the private sector (PSCE) decreased by N$4.3 million from a revised N$97.984 billion cumulative credit outstanding in February to N$97.979 billion in March. This is the first time since June 2017 that we have seen a month-on-month contraction in credit extension. On a year-on-year basis, private sector credit extension grew by 5.79% in March, compared to 6.93% recorded in February. N$2.05 billion worth of credit has been extended to corporates and N$3.42 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$112.9 million.

Credit Extension to Individuals

Growth in credit extension to individuals moderated to 0.1% m/m and 6.3% y/y, compared to 7.0% y/y growth recorded in February. Installment credit remained depressed, contracting by 0.6% m/m and 5.2% y/y. Individuals started to repay their overdrafts, resulting in a decline of 1.4% m/m, but increase of 5.0% y/y. Growth in mortgage loans remained at a similar rate as in February, increasing by 0.4% m/m and 7.2% y/y. Other loans and advances recorded growth of 2.9% m/m and 20.4% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.2% m/m in March after increasing by 1.0% m/m in February. On an annual basis credit extension to corporates increased by 5.5% y/y in March. The month-on-month contraction is mostly caused by businesses paying back overdrafts. Overdraft facilities extended to corporates decreased by 7.5% m/m, but increased by 2.0% y/y. Mortgage loans to corporates contracted by 1.8% m/m, but increased 2.9% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.6% m/m and 9.1% y/y in March.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved during March, increasing by N$1.74 billion to reach an average of N$4.11 billion. According to the Bank of Namibia (BoN), the increase is attributable to increased mineral sales proceeds as well as higher government expenditure which, it says, is customary towards the end of a fiscal year. The higher 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$645.7 million at the start of March to N$479.3 million by month end.

Reserves and Money Supply

As per the BoN’s latest money statistics release, broad money supply rose by N$6.74 billion or 6.9% y/y in March following a 10.5% y/y increase in February. Foreign reserve balances rose by 3.0% m/m to N$32.6 billion in March. The BoN stated the increase is solely due to the depreciation of the Namibian dollar against the US dollar. The Namibian dollar depreciated by 3.0% against the US dollar during March reaching N$14.50/US$ at the end of the month. The rand (and subsequently the Namibian dollar) has been relatively volatile since May 2018 as a result of rising interest rates in the US, political uncertainty in South Africa caused by the upcoming election, and continuous bailouts of SOE’s by the South African government.

Outlook

Private sector credit extension remained depressed at the end of March, increasing by only 5.8%, with annualised growth slowing for a fourth consecutive month. From a 12-month rolling perspective, credit issuance is down 0.3% from the N$5.37 billion issuance observed at the end of March 2018, with individuals taking up most (63.9%) of the credit extended over the past 12 months.

Both individuals and corporates have started repaying overdraft facilities during the month, resulting in a 6.0% decrease in total overdrafts. As we have stated in the past, short-term borrowing satisfies short-term needs and as such, the repayment of overdrafts is a positive sign in our view as extension of overdraft facilities was unlikely to drive meaningful expansion of productive capacity.

Overall

Total credit extended to the private sector (PSCE) increased by N$606.7 million or 0.63% m/m in February, bringing the cumulative credit outstanding to N$97.7 billion. On a year-on-year basis, private sector credit extension increased by 6.59% in February, compared to 7.16% in January. From a rolling 12-month basis, N$6.04 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up credit worth N$3.46 billion, while N$1.99 billion was issued to corporates. Claims on non-resident private sectors totaled N$587.4 million, on a 12-month cumulative basis.

Credit Extension to Individuals

Credit extended to individuals increased by 6.4% y/y in February, growing at a slightly slower pace than the 6.7% y/y increase recorded in January. On a monthly basis, household credit grew by 0.4% following an increase of 0.3% m/m recorded in January. Household demand for overdraft facilities was once again strong in February, increasing by 2.2% m/m and 4.7% y/y, compared to the 2.3% m/m and 2.7% y/y increase seen in January. The value of mortgage loans extended to individuals increased by 0.3% m/m and 7.3% y/y. Installment credit remained depressed, increasing by 1.1% m/m, but contracting by 5.4% y/y.

Credit Extension to Corporates

Credit extension to corporates ticked up slightly month-on-month, increasing by 1.0% following a 0.1% increase in January. Year-on-year credit extension to corporates increased by 5.4% in February, increasing at a slower rate than the 6.3% y/y recorded in January. The increase in overall loans to corporates was mostly driven by corporates’ continued use of short-term credit facilities, in particular overdrafts, which increased by 3.7% m/m and 13.1% y/y. Other loans and advances, which consists of credit card debt, personal and term loans, extended to businesses increased by 26.8% y/y, but contracted by 0.2% m/m. Mortgage loans extended to corporates increased by a low 1.2% y/y, but decreased by 0.7% m/m.

Banking Sector Liquidity

The overall liquidity position of commercial banks improved significantly during February, increasing by N$2.10 billion to reach an average of N$2.38 billion. Bank of Namibia credits this improvement in liquidity to higher government spending as well as higher mineral proceeds during the period. 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$2.29 billion at the start of February to N$645.7 million by month end.

Reserves and Money Supply

Broad money supply rose by N$9.97 billion or 10.5% y/y in February following a 7.6% y/y increase in January, as per the BoN’s latest money statistics release. Foreign reserve balances rose by 3.1% m/m to N$31.6 billion in February. The BoN stated that the increase was mostly due to increased net capital inflows by commercial banks, coupled with exchange rate revaluations.

Outlook

Overall PSCE growth in February moderated for a third consecutive month on a year-on-year basis, increasing by 6.6%. From a 12-month rolling perspective, credit issuance is up 36.6% from the N$4.42 billion issuance observed at the end of February 2018, with individuals taking up most (57.3%) of the credit extended over the past 12 months.

As has been the case for the past few months, most of the growth in PSCE for February has stemmed from shorter-dated debt, which is unlikely to drive meaningful expansion of productive capacity. Instalment credit extended to corporates, remained depressed, contracting by 9.3% y/y in February. The persistent contraction in instalment credit to corporates (since February 2017) is a further indication that businesses are financing fewer and fewer capital goods and as such, are not expanding operations.