Category Archives: Private Sector Credit Extension

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.

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.