Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit extension (PSCE) increased by N$180.2 million or 0.20% m/m in October, bringing the cumulative credit outstanding to N$89.0 billion. On a y/y basis, credit extended to the private sector rose by 5.2% in October, marginally slower than the growth of 5.24% recorded in September. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$4.39 billion worth of credit has been extended over the last 12 months. This is down 44% from the N$7.84 billion issuance in the prior 12-month period that ended October 2016. Of this cumulative issuance, individuals took up N$3.6 billion while N$850 million was issued to corporates. Claims on non-resident private sector credit decreased by N$55.22 million y/y.

Credit extension to households

Credit extended to individuals increased by 7.37% y/y in October, compared to the growth of 7.53% y/y in September. On a m/m basis household credit extension rose by 0.63%, a slower increase in growth than the increase of 1.63% m/m recorded in September. Household credit extension has been very much subdued during 2017, having last recorded double-digit growth in August 2016. Installment credit increased by 0.48% m/m and contracted by 2.0% y/y. This is aptly reflected in the dwindling sales of new vehicles as reported for the month of October. New vehicle sales decreased by 20.6% on a rolling 12-month basis and should serve as no surprise that installment credit used to finance new vehicle purchases is declining in tandem. The value of mortgage loans extended to individuals increased by 0.5% m/m and 8.1% y/y. Overdraft facilities extended to individuals grew by 0.6% m/m and 10.9% y/y. Other loans and advances recorded growth of 3.2% m/m and 5.0% y/y.

Credit extension to corporates

Credit extension to corporates contracted on a m/m basis, recording a decline in 0.5% in October albeit slower contraction than the 1.4% m/m contraction in September. Y/y credit extended to corporates rose 2.4% in October, unchanged from the rate registered in September. Instalment credit extended to corporates contracted by 0.6% m/m in September. Installment credit extended to corporates has been contracting since February 2017 and continued to do so in October, declining 6.8% y/y. Mortgage loans extended to corporates increased by 5.8% y/y and 2.4% m/m. Overdraft facilities extended to corporates decreased 6.4% m/m while rising 5.0% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks decreased from N$3.55 billion in September to N$2.85 billion in October. The decrease is attributed to cross border payments made during the month of October.

Reserves and money supply

Foreign reserves rose by N$138.2 million to N$31.6 billion at the end of October from N$31.4 billion in September. According to the Bank of Namibia the increase in the level of reserves stemmed from the inflows of Southern African Customs Union (SACU) receipts. Reserve balances going forward should further improve following the recent approval of a N$2 billion loan facility from the African Development Bank (AfDB) that has been earmarked for the agriculture and education sectors.

Outlook

With 2017 drawing to a close private sector credit extension has since the start of the year been on a downward trajectory. The slower rates of growth as recorded in the October figures points towards subdued demand for credit, especially from households. This speaks of an over-committed consumer that was further impacted by legislature changes earlier this year that tightened the affordability and qualifying criteria. Relief for consumers was expected through the possibility of easing monetary policy. This was backed by the first rate cut in five years of 25 basis points in July by the SARB and in August by BoN. At the time moderating inflation and the need to aid both struggling economies set the stage for what many expected would be the start of a rate cutting cycle.

Since then, South Africa has been downgraded by both Fitch and S&P while Namibia was not spared in its own respect by Moody’s and Fitch Ratings. Four MPC meetings later, hopes of further rate cuts were dispelled when both committees elected to keep rates unchanged. Credit ratings agency have longed warned of the implications of fiscal indiscipline and it has been clear of late that those weren’t mere warnings. Moody’s has placed South Africa on review and will make a decision in the three months. The risk in Moody’s downgrading South Africa’s local currency in February has the biggest implication in that it will result in South Africa losing its place in global bond indexes. Exclusion from these indices will result into large capital outflows that in turn will result in upside risks for inflation as well as a blow out of the rand. The SARB will most likely in that event rate hikes in an effort to stabilize the currency with Namibia having little room to do anything but adopt the same measures, thus putting further pressure on private sector credit extension.