Category Archives: Private Sector Credit Extension

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.

Overall

Total credit extended to the private sector increased by N$287.3 million or 0.32% m/m in September, bringing the cumulative credit outstanding to N$88.8 billion. On a y/y basis, credit extended to the private sector rose by 5.24% in September, compared to growth of 6.35% in August. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$4.42 billion worth of credit has been extended over the last 12 months, down from N$8.42 billion in the prior 12-month period. N$1.38 billion of this cumulative issuance was issued to corporates and N$3.13 billion to individuals, while claims on non-resident private sector credit decreased by N$89.33 million y/y.

Credit extension to households

 Credit extended to individuals increased slightly from 6.38% y/y in August to 6.45% y/y in September. This follows a significant slowdown in credit extension to individuals that grew at an average of 8.7% y/y for the first six months of the year. Credit extended to individuals increased by 0.59% m/m in September. Installment credit contracted by 0.93% m/m and 0.6% y/y. The effects of the amendments to the Credit Agreement Act continue to be felt 6 months after implementation. Subdued vehicle sales volumes serve as testament to the contraction in installment credit, which is largely used as means of vehicle financing. The value of mortgage loans extended to individuals increased by 0.9% m/m and 6.4% y/y. Overdraft facilities extended to individuals recorded no change m/m while increasing by 11.6% y/y. Other loans and advances recorded growth of 0.9% m/m and 17.3% y/y.

Credit extension to corporates

Credit extension to corporates printed flat m/m in September, compared to the 2.1% rise registered in August. Y/y credit extension rose 3.9%, down from the 6.0% growth recorded in August. Installment credit extended to corporates contracted by 0.6% in September. Y/y installment credit extended to corporates has contracted by 7.4%. Mortgage loans extended to corporates increased by 10.9% y/y and contracted by 0.4% m/m. Overdraft facilities extended to corporates rose 0.1% m/m and 9.9% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks decreased slightly to N$3.55 billion in September from N$3.91 billion in August. The decrease is attributed to cross border payments made during the month of September.

Reserves and money supply

Foreign reserves rose by N$842.02 million to N$31.4 billion at the end of September from N$30.62 billion in August. According to the Bank of Namibia the increase in the level of reserves stemmed from the repayment of debt by the Banco Nacional de Angola as well as exchange rate effects. This is a welcome sight following that government has confirmed settling of all outstanding invoices, which was most likely done through the AfDB loan facility.

Outlook

Private sector credit extension continues its downward trend with persistent subdued growth. Expectations of easing monetary policy was blown out the water, when the South African Reserve Bank (SARB) kept rates unchanged at its September MPC meeting. The more defining moment was when finance minister, Malusi Gigaba, presented the midterm budget framework to parliament sighting revenue shortfalls and the subtle hint of abandonment of fiscal discipline. This reaffirmed fears that South Africa might be see its local currency downgraded as early as December. This could in turn result in the country falling out of global bond indexes. The exclusion from these indices will trigger huge bond selloffs that will impact the rand negatively. If these events materialize and inflation ticks upward outside of the SARB’s 6% target monetary policy is likely to enter a hiking cycle which will place further pressure on consumers.

The Bank of Namibia (BoN), as a result of its mandate to maintain the currency peg with the South African rand, will then follow with the same monetary stance. Following the tabling of Namibia’s own midterm budget review yesterday, local risk in expenditure overruns characterize the state of Namibian finances. Expected increases in domestic debt that will result in debt to GDP exceeding 44% are anticipated. Debt to GDP is forecasted to moderate over the MTEF period although guidance in prior budgets pointing to this have not led to this materializing. Credit ratings agencies will not look favourably on further fiscal slippage.

Overall

Total credit extended to the private sector increased by N$623.4 million or 0.71% m/m in August, bringing the cumulative credit outstanding to N$88.5 billion. On a year on year basis, credit extended to the private sector rose by 6.35% in August, compared to growth of 6.82% in July. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$5.2 billion worth of credit has been extended over the last 12 months, down from N$8.1 billion in the prior 12-month period. N$2.08 billion of this cumulative issuance was issued to corporates and N$3.08 billion to individuals, while claims on non-resident private sector credit increased by N$120.50 million.

Credit extension to households

Credit extended to individuals slowed down dramatically in August, growing by only 6.38% y/y compared to 8.35% in July, while registering a contraction of 0.48% m/m. Which is also the biggest decrease in credit extension on a month-on-month basis, since a 1.57% contraction in January 2010. Installment credit contracted by 0.03% m/m and 2.0% y/y. Given that vehicle purchases are largely financed through installment credit, the subdued level of growth in vehicle sales further highlights waning consumer confidence and serves as testament to the decelerated growth in installment credit. The effects of the amendments to the Credit Agreement Act are still being felt 5 months after implementation. The value of mortgage loans extended to individuals contracted 0.9% m/m while increasing 6.5% y/y. Overdraft facilities extended to individuals slowed by 2.1% m/m and registered an increase of 13.2% y/y. Other loans and advances recorded growth of 2.6% m/m and 18% y/y.

Credit extension to corporates

Credit extension to corporates increased 2.1% m/m in August compared to the 0.4% rise registered in July. Year on year credit extension rose 6.0%, up from the 5.0% growth recorded in July. Instalment credit extended to corporates was unchanged for August. Year on year installment credit extended to corporates has contracted by 4.6%. Mortgage loans extended to corporates increased by 11.8% y/y and 4.6% m/m. Overdraft facilities extended to corporates rose 1.2% m/m and 18.2% y/y.

Banking Sector Liquidity

The average monthly liquidity position of commercial banks improved to N$3.9 billion in August after averaging above N$2.9 billion during July. The overall liquidity position has improved markedly with the last 3 months averaging an overall position of over N$3 billion. This follows government confirming the settlement of all outstanding invoices by the end of August.

Reserves and money supply

Foreign reserves contracted by N$3.05 billion to N$30.6 billion at the end of August from N$33.6 billion in July. According to the Bank of Namibia the decrease in the level of reserves emanated from net commercial purchases of foreign currency and exchange rate valuation. In addition to government payments, considering that government has likely settled all outstanding invoices through drawing down on the loan facility afforded by the African Development Bank (AfDB).

Outlook

Private sector credit extension continues its downward trend with persistent subdued growth. A bit of reprieve was expected when the South African Reserve Bank (SARB) sat for its September MPC meeting, with many anticipating a rate cut. However, to the markets surprise, this was not to be as the SARB kept rates unchanged, citing long-term risks to the inflation, which is currently within the SARB’s target band at 4.6%. The Bank of Namibia, as a result of its mandate to maintain the currency peg with the South African rand, is set to follow suit and leave rates unchanged as well. Further rate cuts were expected to ease the pressures faced by the consumer, this ever so evident in the contraction on all spheres of lending on a m/m basis for individuals.