Category Archives: Private Sector Credit Extension

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.

Overall

Total credit extended to the private sector (PSCE) increased by N$180.1 million or 0.19% in January, bringing cumulative credit outstanding to N$97.1 billion. On a year-on-year basis, credit extended grew by 7.16% in January, compared to 7.37% in December. Cumulative credit extended to the private sector over the last 12-months amounted to N$6.48 billion. Individuals took up N$3.58 billion worth of credit over the last 12-month, corporates took up N$2.31 billion, and claims on the non-resident private sector accounted for N$598.1 million.

Credit Extension to Individuals

Credit extended to individuals increased by 0.3% m/m and 6.7% y/y in January, versus 0.7% m/m and 6.9% y/y in December. Mortgage loans extended to individuals increased by 7.7% y/y in January, in line with the increase seen in December. Other loans and advances (which is made up of credit card debt, personal and term loans) grew by 0.6% m/m and 18.3% y/y in January. Installment credit, which is quite often used to purchase new vehicles, contracted by 6.8% y/y. Household demand for overdraft facilities was quite strong in January, increasing by 2.3% m/m and 2.7% y/y, compared to the 1.8% m/m and 4.2% y/y increase seen in December.

Credit Extension to Corporates

Credit extension to corporates increased by 6.3% y/y in January, moderating slightly from the 6.5% y/y increase recorded in December. On a month-on-month basis, credit extension to corporates rose 0.1% after decreasing by 0.3% in December. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis remained depressed, contracting by 8.8% y/y in January. Leasing transactions to corporates declined further in January by 20.0% y/y. Overdraft facilities extended to corporates rose by 4.5% m/m and 11.4% y/y. Mortgage loans to corporates rose by 2.5% y/y, while other loans and advances increased by 28.1% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks fell by a hefty N$2.6 billion to reach an average of N$262.1 million during January from N$2.8 billion in December. According to the Bank of Namibia (BoN), the decline is attributable to corporate tax payments made at the end of December, as well as the usual slow spending from the Government during January each year. There has been an increase in use of the BoN’s repo facility by commercial banks, with the outstanding balance of repo’s increasing from N$1.29 billion at the start of January to N$2.29 billion by month end. The use of the facility is a further sign that some banks are facing challenges in terms of liquidity.

Reserves and Money Supply

As per the BoN’s latest money statistics release, board money supply rose by N$7.3 billion or 7.6% y/y in January, but decreased by N$622.4 million or 0.6% m/m. Foreign reserve balances fell by N$228.6 million to N$30.7 billion in January, representing a 0.7% m/m contraction in reserves. The BoN stated that the decrease in reserves was due to net purchases of the South African rand by commercial banks for investment purposes abroad and import payments.

Outlook

Although growth in PSCE moderated for a second consecutive month, the 7.16% y/y increase was still a faster rate of increase than in most months in 2018. Rolling 12-month private sector credit issuance is up 50.5% from the N$4.31 billion issuance observed at the end of January 2018, with individuals taking up most (55.2%) of the credit extended over the past 12 months.

As a result of the recessionary environment Namibia finds itself in, short-term and unsecured loans continue to grow at a quicker rate than that of mortgage and installment credit, as is evident by the 3.9% m/m increase in overdrafts during the month. Short-term borrowing satisfies short-term needs, and the subdued uptake of productive credit by corporations is a clear indication that business confidence remains depressed. The uptake of short-term credit is unlikely to drive meaningful expansion of productive capacity.

Overall

Private sector credit extension (PSCE) rose by N$751 million or 0.8% m/m in November, compared to the N$585 million or 0.6% m/m increase recorded in October. Year-on-Year, PSCE grew by almost 8.0% in November compared to 7.8% y/y in October. November has also been the fourth consecutive month in which PSCE growth has kept rising on a year-on-year basis. Cumulative private sector credit outstanding as at the end of November amounted to N$96.645 billion. On an annual basis, households were taking up much of the credit extended to the private sector in 2018, accounting for almost two-thirds of the uptake. However, that wide disproportion between credit extended to households and corporations began to narrow in August. On a rolling 12-month basis N$7.126 billion worth of credit was extended to the private sector with N$3.26 billion being taken up by households. Corporations very nearly equaled that which was extended to households by taking up N$3.21 billion worth of the credit over the last 12-months, while claims on non-residents totaled N$663.2 million.

Credit extension to individuals

Credit extended to individuals increased by 6.1% y/y in November, moderating from the 7.0% y/y increase recorded in October. The year-on-year slowdown in household credit extension was due to moderating growth in mortgages, overdrafts, installment credit and other claims. Mortgage loans increased by 6.9% compared to 8.0% a year ago, while overdrafts increased by just 0.9% versus 8.5% in the prior year. Installment credit contracted by 6.8%, worse than the 2.6% contraction registered during the corresponding period in 2017. On a monthly basis, household credit growth printed flat following a modest increase of 0.7% m/m recorded in October. Mortgage credit contracted by 0.3% m/m along with a 0.9% contraction in installment credit. Other loans and advances increased by 2.1% m/m followed by a 0.4% m/m increase in overdrafts. Leasing transactions increased the most in the household’s category, 14% m/m, although significantly slower than the 70.3% m/m growth registered in October.

Credit extension to corporates

Credit extension to corporates increased by 8.9% y/y compared to October’s 7.1% y/y increase. The November increase in corporate credit has been the highest since March 2017 and the fifth consecutive month in which corporate credit has been increasing at a faster pace on a year-on-year basis. Shorter-term credit facilities continue to be driving the increase in corporate credit extension. Other loans and advances increased by 28.2% y/y and overdrafts increased by 18.5% y/y. Mortgage loans to businesses increased by 5.6% y/y in November, slowing from the 8.5% y/y increased recorded the corresponding period in 2017. On a monthly basis credit extended to businesses was the main reason for the overall increase in PSCE. Corporates made use of overdraft facilities in November, increasing overdraft loans by 8.9% m/m, followed by corporate mortgage lending which increased by 4.9% m/m.

Banking Sector Liquidity

The overall liquidity position of commercial banks declined by N$1.1 billion to reach an average of N$2.3 billion during November from N$3.4 billion in October. Bank of Namibia attributes the decline in liquidity to foreign currency outflows as a result of trade-related payments.

Reserves and money supply

As per BoN latest money statistics release, broad money supply increased by N$7.24 billion or 7.4% y/y in November but decreasing 1.7% m/m by N$1.87 billion. Foreign reserve balances declined by N$1.56 billion to N$29.5 billion in November from N$31.1 billion in October, representing a 5.0% m/m fall in reserves. BoN attributes the decline in reserves to net capital outflows from commercial banks to fund foreign currency purchases, in addition to an interest payment for the US$500 million Eurobond. A stronger Namibian dollar versus the US dollar during the period under review further contributed to the decline in foreign reserves.

Outlook

Overall PSCE growth in November maintained its upward momentum on a year-on-year basis for a fourth consecutive month, increasing by 7.96% y/y. The highest rate of growth in the last 18 months. The year 2018, with the omission of pending December PSCE data, has seen very little deleveraging from both consumers and businesses. In the midst of recessionary economic growth short-term and unsecured loans have grown at a quicker rate than that of mortgage and instalment credit. From a 12-month rolling perspective household demand for credit underpinned growth in PSCE and only until recently have businesses started borrowing more. The increase in corporate credit, however, has been more profound in short-term borrowings.

The Bank of Namibia (BoN) has been accommodative in terms of monetary policy by keeping the repo rate steady at 6.75% since cutting by 25bps in August 2017. How long BoN manages to keep interest rates steady will depend largely on developments in South Africa. The SARB will closely monitor inflation, which ticked up to 5.2% y/y and is expected to moderate on the back of falling oil prices and moderating transport inflation. Furthermore, the SA economy broke out of a recession and the outlook for possible rate hikes is now pushed towards the latter part of 2019. Domestically, BoN will be weary of worsening economic conditions, projecting weaker growth in its December Economic Update. BoN expects the Namibia economy to contract by 0.2% in 2018 followed by growth of 1.5% in 2019, a downward revision from its 1.9% estimation in July 2018 and more than half of the 3.1% it estimated in December 2017.