Category Archives: Private Sector Credit Extension

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.

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.

Overall

Private sector credit extension (PSCE) increased by N$345.0 million or 0.37% m/m in June, bringing the cumulative credit outstanding to N$93.1 billion. On a year-on-year basis, private sector credit extension increased by 6.4% in June, compared to growth of 5.5% in May. On a rolling 12-month basis N$5.6 billion worth of credit was extended to the private sector, with individuals taking up N$3.3 billion while N$1.5 billion was extended to corporates. Claims on non-resident private sector credit contracted by 0.9% m/m and increased by 186.6% y/y.

Credit extension to individuals

Credit extended to individuals increased by 6.4% y/y in June, marginally faster than the 6.1% y/y growth recorded in May. Month-on-month, credit extension to individuals increased by 0.8% in June following a 0.3% contraction registered in May. Installment credit extension remained depressed, contracting by 4.8% y/y and 1.4%% m/m. Demand for overdraft facilities continued to decrease on an annual basis, with overdraft facilities increasing by a slight 0.6% y/y in June compared to 1.7% y/y in May. Overdraft facilities recorded a contraction in credit outstanding of 1.1% m/m in June.

Credit extension to corporates

Credit extension to corporates contracted by a slight 0.2% m/m after increasing by 0.9% m/m in May. On an annual basis, however, credit extension to corporates increased by 4.2% y/y in June, 1.4 percentage points higher than the 2.8% y/y growth registered in May. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 6.7% y/y in June. Leasing transactions to corporations contracted by 3.6% y/y in June following the 5.0% y/y decline in May. Overdraft facilities extended to corporates decreased by 1.4% m/m, but increased by 0.6% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$937 million to an average of N$4.9 billion during June. Bank of Namibia credits this improvement in liquidity to proceeds from diamond sales coupled with companies hoarding liquidity in preparations for customary corporate tax payments. The increased liquidity position meant that repo facilities amounting to N$176 million were utilised only briefly at the end of June.

Reserves and money supply

Foreign reserve balances increased by N$1.5 billion to N$29.6 billion in June. This increase was due to payments received from Banco Nacional de Angola, interest received on investments, Rand seigniorage and exchange rate fluctuations, according to the Bank of Namibia.

Outlook

Growth in private sector credit extension has been ticking up for most of the first half of the year, but still remains far from the double-digit growth rates last seen in 2016. According to BoN’s data, the overall liquidity position of Namibian commercial banks averaged the highest levels since August 2014. Despite this, banks are selective regarding extending more credit into an economy currently in a recession. Thus, credit supply is dampened by selective issuance justified by stretched balance sheets and high debt to income levels. Demand for credit has been affected by stricter borrowing requirements set by BoN during the last two years. Furthermore, overall market expectations currently are for interest rates to remain stable for the rest of the year. Due to the abovementioned reasons, our expectation is for private sector credit extension to remain under pressure for the rest of the year.