Category Archives: Private Sector Credit Extension

Overall

Private sector credit extension (PSCE) increased by N$344.0 million or 0.38% m/m in January, bringing the cumulative credit outstanding at the end of 2017 to N$90.6 billion. On a y/y basis, private sector credit extension increased by 5.0% in January, slower when compared to the 5.2% y/y growth recorded in December. From a rolling 12-month basis, N$4.3 billion worth of credit was extended to the private sector, with individuals stacking up N$3.6 billion worth of debt while N$596 million was extended to corporates. Claims on non-resident private sector credit increased by N$119.3 million y/y.

Credit extension to households

 Credit extended to households increased by 7.2% y/y in January and on a m/m basis, household credit extension rose by 0.5% in January. The month on month increase in household debt can attributed to the increase in overdraft facilities of 3.8% or N$115.8 million in January, following a contraction of 1.4% in December. Installment credit remains depressed, contracting by 2.5% y/y and 0.4% m/m. Fewer consumer discretionary income is being directed towards installment credit, which is the largely used in financing vehicle purchases. Depresses consumer confidence and tighter credit controls imposed on vehicle financing have been the main driver of the decline in new vehicle sales. The Cumulative 12-month vehicle sales have declined by 17.8% y/y. The value of mortgage loans extended to individuals have by 7.7% y/y and 0.2% m/m.

Credit extension to corporates

Credit extension to corporates increased by 0.3% m/m in January, slower than the 0.8% m/m increase in December. Year on year credit extension to corporates grew 1.7% in January, one percent slower than the increase in growth from the 2.7% y/y in December. 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 January. Leasing transactions to corporations contracted further in January by 7.6% y/y following the 17.2% y/y decline in December. Overdraft facilities extended to corporates increased by 5.3% m/m and 4.8% y/y.

Banking Sector Liquidity

The overall liquidity position of commercial banks declined by N$1.2 million from N$3.1 billion in December to N$1.9 billion in January. The decrease in the liquidity position is attributed to periodic corporate tax payments made to Inland Revenue in January. BoN’s repo facility has been utilized consistently since mid-December and although average repos decreased from N$726 million in December to N$644 million for January, the use of the facility is an indication that commercial banks are facing challenges in terms of liquidity.

Reserves and money supply

Foreign reserves declined by N$1.3 billion, bringing down reserve levels to N$28.3 billion in January from N$29.7 billion in December. According to the Bank of Namibia the decline in reserves is attributed to the maturities of foreign currency denominated debt that matured in January.

Outlook

 Private sector credit extension growth had slowed markedly in 2017. PSCE continues to slow at the start of 2018 taking its cue from 2017 as a result of lower demand for credit and lower supply thereof.  The introduction of the new provisions a directed by IFRS9, with regards to the calculation of credit impairments is set to have a significant effect on the availability of credit this year. Stagnant interest rates have not provided consumers or business the much-desired relief, following only one rate cut in August last year. Moody’s decision on SA’s local and foreign currency rating is set for the end of March, with the SARB very likely to hold off any change in interest rates until that decision is made known. The positive change in leadership in SA, and the positives from last months budget provide for optimism that SA might stave off a ratings downgrade from Moody’s. SA surviving a credit ratings downgrade coupled with moderating inflation might well open the door for the SARB to cut rates and for the BoN to in follow in similar fashion.

Overall

Private sector credit extension (PSCE) increased by N$718.4 million or 0.8% m/m in December, bringing the cumulative credit outstanding at the end of 2017 to N$90.2 billion. On a y/y basis, private sector credit extension increased by 5.2% in December, increasing at a quicker rate than the 4.5% recorded in November. From a rolling 12-month basis, N$4.4 billion worth of credit was extended to the private sector, compared to the previous year, the rolling 12-month issuance is down 36.4% from the N$6.9 billion issuance observed at the end of December 2016. Of this cumulative issuance, individuals took up the lion’s share of credit, amassing N$3.3 billion worth of debt while N$957 million was extended to businesses. Claims on non-resident private sector credit increased by N$113.2 million y/y.

Credit extension to households

Credit extended to individuals increased by 6.7% y/y in December, lower than the 7.1% y/y recorded in November. On a m/m basis, household credit extension rose by 0.8% in December and is marginally slower than the increase of 0.9% registered in November. Installment credit, quite often used to purchase new vehicles, contracted by 3.9% y/y. Tighter credit controls imposed on vehicle financing has been the main driver of the decline in new vehicle sales. The value of mortgage loans extended to individuals increased by 1.0% m/m and 7.8% y/y. Overdraft facilities extended to households slowed in December, increasing by 3.6% y/y compared to 8.5% y/y in November.

Credit extension to corporates

Credit extension to corporates increased by 0.8% m/m in December, following a slow increase of 0.2% m/m in November. Year on year credit extension to corporates grew 2.7% in December, an improved increase in growth from the 1.3% y/y in November. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis remained depressed, contracting by 6.1% y/y in December. Leasing transactions to corporations declined further in December by 17.2% y/y. Overdraft facilities extended to corporates increased by 0.4% m/m and 4.2% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks declined by N$117 million from N$3.1 billion in November to N$3.0 billion in December. The decrease in the liquidity position is attributed to periodic corporate tax payments to Inland Revenue due at year end. Further deterioration in the overall liquidity position is observed over the month of January, overall liquidity standing at N$1.9 billion. The use of BoN’s repo facility further suggest that some banks are experiencing some stress in liquidity shortages.

Reserves and money supply

Foreign reserves shot up by N$1.1 billion, increasing reserve levels to N$29.7 billion in December from N$28.5 billion in November. According to the Bank of Namibia the increase in reserves emanated from SACU inflows as well as the second tranche of the AfDB loan.

Outlook

Private sector credit extension growth hit freefall during 2017, slowing with every passing month. Households credit growth has been outpacing corporates, accumulating 76% of the credit issued to the private sector in 2017. The skewed uptake in debt between individuals and corporates points to low consumer and business confidence. The meek uptake of credit from a business perspective is more concerning in that it displays a lack of desire from businesses to expand and invest in capital projects, in turn also hiring less people. The outlook for PSCE is largely dependent on the interest rate landscape in South Africa, with BoN expected to follow any rate moves enacted by the SARB.

December’s political developments have been positively received by the market, providing renewed optimism for SA politics going forward. The market’s satisfaction with Cyril Ramaphosa as new ANC party president, was followed by a resurgence of foreign investment into SA equities. This should provide more support for the rand that has strengthened since the ANC’s elective congress in December. Coupled with inflation that has moderated to 4.7% in December and is well within the SARB’s target band of between 3% – 6%, does support the case for monetary easing in 2018. The immediate risk to this scenario however, is that of the imminent credit rating review decision from Moody’s. If SA is successful in averting a downgrade decision, monetary policy will very likely be expected to lighten the cost of debt for heavily indebted consumers through more accommodative policy rates. With BoN set to follow in similar fashion.

Overall

Private sector credit extension (PSCE) increased by N$584.5 million or 0.7% m/m in November, bringing the cumulative credit outstanding to N$89.4 billion. On a y/y basis, private sector credit extension increased by 4.5% in November, slowing from the 5.1% growth recorded in October. From a rolling 12-month basis, total credit extended to the private sector has been trending downward with N$3.82 billion worth of credit extended over the last 12 months. Compared to last year, the rolling 12-month issuance is down 48% from the N$7.39 billion issuance observed at the end of November 2016. Of this cumulative issuance, individuals took up credit worth N$3.4 billion while N$468.1 million was issued to corporates. Claims on non-resident private sector credit decreased by N$92.1 million y/y.

Credit extension to households

 Credit extended to individuals increased by 6.9% y/y in November, lower than the 7.3% y/y recorded in October. On a m/m basis, household credit extension rose by 0.7% in November and is slightly higher than the increase of 0.6% registered in October. Household credit extension growth has been waning for much of 2017, with annual growth dropping below 7% now for the first time since December 2010. Installment credit contracted by 2.2% y/y. This contraction is in tandem with diminishing new vehicle sales reported for November, since installment credit is largely used to finance vehicle purchases. The value of mortgage loans extended to individuals increased by 0.8% m/m and 7.8% y/y. Demand for overdraft facilities has been slowing since July this year and increased by 8.5% y/y in November compared to 10.9% y/y in October. Other loans and advances recorded growth of 1.3% m/m and 6.5% y/y.

Credit extension to corporates

Credit extension to corporates increased marginally by 0.2% m/m in November, following a contraction in credit extended of 0.5% in October. Year on year credit extension to corporates grew 1.3% in November, slower than the 2.4% in October. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, continued to wither, contracting by 7.2% y/y in November. Mortgage loans extended to corporates contracted by 0.1% m/m while increasing by 8.6% y/y. Overdraft facilities extended to corporates increased slightly by 0.9% m/m and 2.5% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks improved by N$330 million from N$2.85 billion in October to N$3.18 billion in November. The increase in the liquidity position is attributed to increased mineral sales proceeds and maturing Bank of Namibia (BoN) bills during November.

Reserves and money supply

Foreign reserves decreased by N$3.1 billion to N$28.5 billion at the end of November from N$31.6 billion in October. According to the Bank of Namibia the decline in reserves stemmed from the foreign currency fluctuations and net commercial banks purchases of foreign currency in November.

Outlook

 Private sector credit extension for 2017, with the omission of December data, will be characterized by growth that has receded since the start of the year and provided no signs to the contrary. Weakened consumer and business confidence in the wake of a weak economy points has resulted in a low demand for credit, which has been further exacerbated by tighter credit regulations. Improved commercial bank liquidity indicates that the supply side for credit has boasted healthy loanable balances although banks have been more selective in credit issuance too. Of the total credit extended to the private sector over the last 12 months, individuals helped themselves to around 90% of the pie. Corporates had a trying year, especially those that endured slow payment from government for work done.

Inflation slowed throughout the year, providing optimism for easing monetary policy which was rewarded with only one rate cut of 25 basis points. Disappointing mid-year budget reviews in SA and Namibia which highlighted expenditure over-runs, divergence from fiscal consolidation measures and revenue shortfalls prompted downgrades from ratings agencies. The year closed with both the SARB and BoN keeping rates unchanged going into 2018. The political landscape in South Africa did provide markets with relative calm in the election of Cyril Ramaphosa as ANC president. Since this shift in power within the ruling party the rand has strengthened relative to the US dollar, though the immediate test lies in Moody’s imminent review decision on South Africa’s credit rating in February. The risk herein, should SA be downgraded, is that we could see a rate hiking cycle take effect.