Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit extension (PSCE) increased by N$143.5 million or 0.15% m/m in May, bringing the cumulative credit outstanding to N$92.8 billion. On a year-on-year basis, private sector credit extension increased by 5.5% in May, slower than the 6.0% increase recorded in April. On a rolling 12-month basis N$4.8 billion worth of credit was extended to the private sector, with individuals taking up N$3.1 billion while N$1 billion was extended to corporates. Claims on non-resident private sector credit contracted by 0.9% m/m and increased by 130.0% y/y.

Credit extension to households

Over that past twelve months, households have taken up N$3.1 billion worth of credit, accounting for 64% of the twelve-month cumulative credit issued as at May 2018. From a year-on-year basis, credit extended to individuals increased by 6.1% May slowing from the 6.9% y/y growth recorded in April. Month-on-month, household credit extension contracted by 0.3% in May following a 0.5% m/m increase registered in March. The slight decline in appetite for household credit in general is largely attributable to growth in mortgage loans slowing to 6.7% y/y and contracting by 0.8% m/m. Installment credit which started contracting on a year-on-year basis in August 2017, remains further depressed in May, contracting by 3.9% y/y and 0.5% m/m. Use of overdraft facilities increased by 1.7% y/y in May following a 1.1% y/y increase recorded in April, while registering a 3.0% m/m increase.

Credit extension to corporates

Credit extended to corporates ticked up slightly month-on-month, increasing by 0.9% in May following a 0.3% contraction two months ago and printing flat in April. Year-on-year credit extension to corporates increased by 6.3% in May, increasing quicker than the 4.5% y/y recorded in April. The increase in overall loans to corporates was buoyed by a 10.2% y/y increase in mortgage loans to corporates, 3.7% y/y increase in other loans and advances, as well as overdraft facilities growing by 3.1% y/y. Installment credit extended to corporates, remained depressed, contracting by 7.9% y/y in May. This persistent contraction in installment credit to corporates (since February 2017) further suggests that businesses are financing fewer and fewer capital goods, and as such are not expanding operations which is testament of the current recessionary environment.

Banking Sector Liquidity

The overall liquidity position of commercial banks increased by N$732 million to an average of N$4.0 billion during May. Bank of Namibia credits this improvement in liquidity to maturities of treasury bills towards the end of May. The increased liquidity position further reduced the value of repo facilities utilized by commercial banks. The value of repo’s moderated from N$144 million in April to N$92 million during the first half of May with the banks not making use of the facility for the rest of the month.

Reserves and money supply

Foreign reserve balances decreased by N$2.5 billion to N$28.2 billion in May. This decrease was largely a result of commercial banks taking advantage of favorable investment conditions abroad, according to the Bank of Namibia.

Outlook

Private sector credit extension growth remained depressed at the end of May, struggling for the past ten months to reach growth of 7% y/y and above. It has been 19 months since PSCE last recorded double digit growth. The inflation outlook has deteriorated somewhat over the last few months due to dollar strength and an increase in oil prices. As a result, the SARB will be mindful of the risks posed to their inflation outlook, increasing the likelihood of rate hikes going forward. Overall market expectations at present are for interest rates to remain stable for the rest of the year, with a small sample of participants expecting at least one 25bps hike towards the end of 2018. BoN left rates unchanged following the SARB’s decision to keep its rate at 6.5%. BoN will further be satisfied with maintaining the 25bps buffer between its repo rate and that of SA following a N$2.5 billion decrease in foreign reserves.