Category Archives: Private Sector Credit Extension

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.

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.