Category Archives: Private Sector Credit Extension

Overall

Private sector credit extension (PSCE) increased by N$271.1 million or 0.3% m/m in April, bringing cumulative credit outstanding to N$92.6 billion. On a year-on-year basis, private sector credit extension increased by 6.0% in April, on par with the 5.9% increase recorded in March. On a rolling 12-month basis N$5.3 billion worth of credit was extended to the private sector, with individuals taking up N$3.5 billion while N$920 million was extended to corporates. Claims on non-resident private sector credit increased by 0.8% m/m and 196.0% y/y.

Credit extension to households

Credit extended to individuals increased by 6.9% y/y in April and remained flat from the 7.0% y/y growth recorded in March. On a month-on-month basis household credit extension rose by 0.5% in April which is marginally faster than the 0.2% registered in March. Installment credit remained depressed, contracting by 3.3% y/y and 0.8% m/m. The value of mortgage loans extended to individuals increased by 0.6% m/m and 8.0% y/y. Demand for overdraft facilities continued to slow down on an annual basis, increasing by 1.1% y/y in April compared to 2.4% y/y in March. Overdraft facilities recorded a contraction in credit outstanding of 0.3% m/m in April.

Credit extension to corporates

Credit extension to corporates remained flat month-on-month in April after contracting by 0.3 m/m in March. Year-on-year credit extension to corporates increased by 2.6% in April, slightly faster than the 2.1% y/y recorded in the two previous months. Mortgage loans to corporates increased by 1.9% m/m and 7.9% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 7.9% y/y in April. Overdraft facilities extended to corporates contracted by 2.0% m/m, but increased by 2.4% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$190 million to an average of N$3.2 billion during April. According to Bank of Namibia, government payments and mineral sales proceeds of about N$1.0 billion contributed to the improved liquidity position during the month. Commercial banks continue making use of BoN’s repo facility, and although average repos have moderated from N$344.5 million during March to N$197.1 million in April.

Reserves and money supply

The stock of foreign reserves increased by N$3.9 billion to N$30.7 billion in April. This increase mainly stemmed from inflows of SACU receipts, commercial bank sales of foreign currency, increased rand seignorage receipts as well as the depreciation of the Namibian dollar against all the major foreign currencies during the period under review, according to the Bank of Namibia.

Outlook

Private sector credit extension growth remained depressed at the end of April. Although the country’s foreign reserve position strengthened during the month, our expectation is that Bank of Namibia will leave rates unchanged at its MPC meeting next week, thereby not providing consumers and businesses with any further relief, although current rates remain relatively accommodative by historic standards.

The SARB’s MPC meeting last month unanimously decided to keep interest rates unchanged, stating that risks and uncertainties that could possibly affect the inflation rate have shifted to the upside. The rand was initially supported by the election of President Cyril Ramaphosa in February, but has since weakened in line with its emerging-market peers as rising treasury yields boosted the demand for US dollar assets. The weaker currency may push inflation higher, decreasing the likelihood that SARB will cut interest rates again in 2018.

Overall

Private sector credit extension (PSCE) increased by N$724.8 million or 0.8% m/m in March, bringing the cumulative credit outstanding to N$92.4 billion. On a year-on-year basis, private sector credit extension increased by 5.9% in March, increasing at a slightly quicker rate than the 5.1% recorded in February. From a rolling 12-month basis, N$5.1 billion worth of credit was extended to the private sector, compare to the previous year, the rolling 12-month issuance is down 25.4% from the N$6.8 billion observed at the end of March 2017. Of this cumulative issuance, individuals took up credit worth N$3.5 billion while N$757.9 million was issued to corporates. Claims on non-resident private sectors increased by an immense N$827.3 million, or 190.3%, y/y.

Credit extension to households

Credit extended to individuals increased by 7.0% y/y in March, on par with the year-on-year growth recorded in February. On a monthly basis, household credit extension rose by 0.2% in March which is lower than the increase of 0.6% registered in February. Installment credit extended to households contracted by 2.7% y/y. This contraction is in tandem with diminishing new vehicle sales reported for March since installment credit is largely used to finance vehicle purchases. The value of mortgage loans extended to individuals increased by 0.5% m/m and 8.1% y/y. Demand for overdraft facilities has been slowing since January on an annual basis, increasing by 2.4% y/y in March compared to 3.4% y/y in February. Overdraft facilities recorded a contraction in credit outstanding of 1.7% m/m in in March.

Credit extension to corporates

Credit extension to corporates contracted by 0.3% m/m in March after increasing by 2.0% m/m in February. On an annual basis credit extension to corporates increased 2.1% y/y in March, similar to the rate recorded in February. Mortgage loans to corporates remained flat month-on-month, but increased 5.5% y/y. Overdraft facilities extended to corporates increased by 2.5% m/m and 5.8% y/y. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.9% m/m and 6.7% y/y in March.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased to an average of N$3.1 billion during March, an increase of N$1.2 billion compared to the preceding month. Government payments and mineral sales proceeds of about N$1.0 billion contributed to the improved liquidity position during March 2018, according to the Bank of Namibia. Commercial banks continue to utilize BoN’s repo facility, and although average repos have decreased considerably from N$603.4 million during February to N$344.5 million during March, the use of the facility suggests that some banks are facing challenges in terms of liquidity.

Reserves and money supply

The stock of foreign reserves decreased by N$94.0 million to N$26.8 billion in March, the lowest level since May last year.

Outlook

Growth in private sector credit extension remained static at the end of March. The Bank of Namibia announced in March that it would not follow the SARB’s action to cut rates by 25 basis points, as the international reserve position has deteriorated over the last few months. We feel that should the reserve position stabilise, the Bank of Namibia would ideally like to cut rates to provide some stimulus to the economy.

Overall

Private sector credit extension (PSCE) increased by N$1.1 billion or 1.2% m/m in February, bringing the cumulative credit outstanding to N$91.6 billion. On an annual basis, private sector credit extension increased by 5.1% in February, a slight uptick when compared to the 5.0% y/y growth recorded in January. On a rolling 12-month basis, N$4.4 billion worth of credit was extended to the private sector, with individuals stacking up N$3.5 billion worth of debt while N$767.6 million was extended to corporates. The claims on non-resident private sector increased by N$139.4 million y/y.

Credit extension to households

Credit extension to households expanded by 0.6% on a monthly basis and 7.0% on an annual basis in February.  The slight monthly increase in household debt was a result of a 0.8% m/m or N$272.8 million increase in mortgage loans extended. This follows the 0.2% increase in mortgage loans in January. Year on year the value of mortgage loans extended increased by 8.2%, well in excess of the overall rate of growth in PSCE. The increase in overdraft facilities slowed down to 0.3% m/m, following the 3.8% m/m increase in January. Installment credit, which is often used to finance new vehicle purchases, remains depressed, contracting by 2.8% y/y and 0.4% m/m. Cumulative new vehicle sales continued its downward trend in February, with the reduction in government spending having a direct effect on the demand for new vehicles.

Credit extension to corporates

Credit extension to corporates grew by 2.0% m/m in February after increasing by 0.3% m/m in January. On an annual basis credit extension to corporates accelerated to 2.1% y/y from 1.7% y/y in January. This was due to growth in the “other claims” category, which increased 6.8% m/m and y/y. Mortgage loans to corporates increased by 0.5% m/m and 6.4% y/y. Overdraft facilities extended to corporates increased by 2.2% on both a monthly and yearly basis. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.2% m/m and 6.4% y/y in February. Credit extended to corporates in February explains approximately 92% of the change in credit extended to corporates on a year on year basis.

Banking Sector Liquidity

The overall liquidity position of commercial banks deteriorated to an average of N$1.85 billion during February, a decrease of N$59.3 million compared to the preceding month. The decrease in the overall liquidity position culminated from cross border trade-related outflows and corporate tax payments during the review period according to the Bank of Namibia. Commercial banks continue to utilize BoN’s repo facility, and although average repos have decreased slightly from N$644 million in January to N$603 million in February, the use of the facility suggest that some banks are experiencing mild liquidity stress.

Reserves and money supply

Foreign reserves decreased by N$1.5 billion to N$26.8 billion in February, the lowest level since May last year. According to the Bank of Namibia, the decline in the level of reserves was due to net commercial bank purchases of foreign currency, net government purchases and maturities of foreign currency investments held with the central bank during the period under review.

Outlook

Private sector credit extension continued its slow start in the second month of 2018, with the growth during the month mainly driven by the increased demand for credit by the corporate sector while that of the household sector declined. This month, South Africa survived a credit ratings downgrade from Moody’s, and saw inflation figures remaining well within SARB’s target band. This gave the bank room to cut rates by 25 basis points, with the possibility of further cuts as the year progresses, and BoN is expected to follow suit. This will bring relief to both consumers and the corporate sector, and will make it more attractive for businesses to acquire the debt finance needed to expand and invest in capital projects, and in turn hire more people.