PSCE – May 2018

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.

PSCE – April 2018

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.

PSCE – March 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.