Category Archives: Private Sector Credit Extension

Overall

Total credit extended to the private sector increased by N$1.392 billion, or 1.9%, in September 2015, taking total credit outstanding to N$75.9 billion. On an annual basis PSCE growth slowed slightly from 15.8% in August to 15.7% in September. A total of N$10.3 billion worth of credit has been approved over the last 12 months with N$6.5 billion worth of credit being approved in 2015 thus far. Of this N$10.3 billion worth of credit issued during the last 12 months, approximately N$4.9 billion was taken up by businesses, while N$5.3 billion was taken up by individuals.

Credit extension to households

Credit extension to households expanded by 1.1% on a monthly basis and 13.5% on an annual basis in September. Credit extension to households is now growing at a more sedate pace than in the past and may slow further as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.

Household mortgage loans expanded by 0.99% month on month and 13.3% year on year and continue to make up the majority of credit extended to households or individuals. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.

Instalment credit, the second largest component of loans extended to individuals, grew at 15.7% year on year in September, slightly down from 16.4% in August, although well off the rapid growth we saw in the first half of the year. On a month on month basis instalment credit grew by 1.2%. The lackluster instalment credit growth can be attributed to tighter monetary policy as well as a possible slowdown in credit extension by banks due to less than ideal liquidity positions. We will monitor this figure closely in the coming months as a longer term slowdown in trend growth would confirm the apparent liquidity issues within the country and put pressure on consumers.

Credit extension to corporates

Credit extension to corporates grew by 3.0% on a month on month basis and 18.8% year-on-year In September, once again meaningfully higher than credit extended to households. This expansion was again primarily driven by exceptional growth in mortgage loans, up 29.6% year on year and 1.7% month on month. Instalment credit extended to corporates grew at a rate of 18.0% year on year and 1.1% month on month, while overdraft facilities grew by 14.3% year on year and decreased 1.4% on a month on month basis. Total credit issued to corporations has, in the past, made up less than 40% of total PSCE but has crossed this threshold, now making up 41.2% of the total figure. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.

Reserves and money supply

The stock of foreign reserves decreased further by the end of September 2015, as can be seen in the below figure. International reserves stood at N$12.8 billion at the end of September, down from N$14.1 billion at the end of August. August and September tends to see a decline in reserves due to the lack of significant inflows during this month. The Namibian reserve position remains a concern as the hard currency value (US$) of reserves continues to decline. The Rand has experienced a 16% decline versus the US Dollar thus far this year, a trend that is expected to continue in the long term. International reserves should appreciate in local currency terms due to the depreciation of the local currency but the fact that reserves are not is cause for concern.

Outlook

Private sector credit extension continues to grow at a rapid rate, adding approximately N$1 billion to the total outstanding private sector credit each month. While the rate of growth has been slowing slightly in recent months, the base off of which it is calculated has grown significantly. This signifies an economy expanding rapidly. A slowdown in the growth rate of credit extended to individuals since 2014 has been compensated for by the rapid growth of credit extended to corporates. The current rate hiking cycle as well as the inflated base should see future PSCE growth slow somewhat. Current banking sector liquidity conditions should put further pressure on credit extension growth as funding becomes more expensive. While not ideal, negatives to the slowdown in credit extension, especially to individuals, may be outweighed by longer term positives. A slowdown in credit extension growth should lead to a reduction in the amount of money flowing out of the country for consumptive purposes, boosting the international reserve position of Namibia. Higher interest rates should also lead to an increase in saving by individuals which is at low levels at present. A slowdown in credit extension to more natural rates (GDP growth) should be positive for the economy and prevent it from overheating.

Overall

Total credit extended to the private sector increased by N$1.03 billion, or 1.39%, in August 2015, taking total credit outstanding to N$75.12 billion. On an annual basis PSCE growth slowed slightly from 15.90% in July to 15.80% in August. A total of N$10.25 billion worth of credit has been approved over the last 12 months with N$5.73 billion worth of credit being approved in 2015 thus far. Of the N$10.25 billion worth of credit issued during the last 12 months, approximately N$5.80bn was taken up by businesses, while N$4.32bn was taken up by individuals.

Credit extension to households

Credit extension to households expanded by 0.76% on a monthly basis and 10.96% on an annual basis in August. Credit extension to households is now growing at a more sedate pace than in the past and may slow further as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.

Household mortgage loans expanded by 0.94% month on month and 13.10% year on year and continue to make up the majority of credit extended to households or individuals. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.

Installment credit, the second largest component of loans extended to individuals, grew at 2.44% year on year in August, slightly up from 2.18% in July, although well off the rapid growth we saw in the first half of the year. On a month on month basis installment credit grew by 1.82%. The lackluster installment credit growth can be attributed to tighter monetary policy as well as a possible slowdown in credit extension by banks due to less than ideal liquidity positions. We will monitor this figure closely in the coming months as a longer term slowdown in trend growth would confirm the apparent liquidity issues within the country and put pressure on consumers.

Credit extension to corporates

Credit extension to corporates grew by 2.18% on a month on month basis and 23.07% year-on-year In August, once again meaningfully higher than credit extended to households. This expansion was again primarily driven by exceptional growth in mortgage loans, up 29.21% year on year and 3.09% month on month. Installment credit extended to corporates grew at a rate of 42.38% year on year and 1.51% month on month, while overdraft facilities grew by 15.17% year on year and 3.40% on a month on month basis. Total credit issued to corporations has, in the past, made up less than 40% of total PSCE but has crossed this threshold, now making up 41.2% of the total figure. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.

Reserves and money supply

The stock of foreign reserves decreased slightly by the end of August 2015, as can be seen in the below figure. International reserves stood at N$14.07 billion at the end of August, down from N$14.3 billion at the end of July. August tends to see a slight decline in reserves due to the lack of significant inflows during this month. The Namibian reserve position remains a concern as the hard currency value (US$) of reserves continues to decline. The Rand has experienced a 15% decline versus the US Dollar thus far this year, a trend that is expected to continue in the long term. International reserves should appreciate in local currency terms due to the depreciation of the local currency but the fact that reserves are not is cause for concern.

Outlook

Private sector credit extension continues to grow at a rapid rate, adding approximately N$1 billion to the total outstanding private sector credit each month. While the rate of growth has been slowing slightly in recent months, the base off of which it is calculated has grown significantly. This signifies an economy expanding rapidly. A slowdown in the growth rate of credit extended to individuals since 2014 has been compensated for by the rapid growth of credit extended to corporates. The current rate hiking cycle as well as the inflated base should see future PSCE growth slow somewhat. Current banking sector liquidity conditions should put further pressure on credit extension growth as funding becomes more expensive. While not ideal, negatives to the slowdown in credit extension, especially to individuals, may be outweighed by longer term positives. A slowdown in credit extension growth should lead to a reduction in the amount of money flowing out of the country for consumptive purposes, boosting the international reserve position of Namibia. Higher interest rates should also lead to an increase in saving by individuals which is at low levels at present. A slowdown in credit extension to more natural rates (closer to GDP growth) should be positive for the economy and prevent it from overheating.

Total credit extended to the private sector increased by N$1.0 billion, or 1.4%, in July 2015, taking total credit outstanding to N$74.1 billion. On an annual basis PSCE growth picked up from 14.8% in June to 15.9% in July, returning to longer term trend levels. A total of N$10.2 billion worth of credit has been approved over the last 12 months with N$4.7 billion worth of credit being approved in 2015 thus far. Of this N$10.2 billion worth of credit issued during the last 12 months, approximately N$5.6bn was taken up by businesses, while N$4.5bn was taken up by individuals.

Credit extension to households expanded by 1.5% on a monthly basis and 11.4% on an annual basis in July. Credit extension to households is now growing at a more constant pace than in the past and may start to slow as interest rate hikes start to change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.

Household mortgage loans expanded by 1.5% month on month and 13.4% year on year and continue to make up the majority of credit extended to households or individuals. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals at present.

Year on year installment credit growth dropped to 2.2% in June after posting figures of 17.9% in April and May. In July installment credit growth was once again down at 2.2% year on year reinforcing June’s reading. Thus there has been a noticeable slowdown in the uptake of installment leases by individuals which may be attributed to tighter monetary policy by the Bank of Namibia, but needs to be confirmed by future growth rates.

Credit extension to corporates grew by 1.4% on a month on month basis and 22.8% year-on-year In July, meaningfully higher than the growth of credit extended to households as has been the trend for the last few years. This expansion was primarily driven by huge growth in mortgage loans, up 28.4% year on year, followed by other claims instalment credit growth of 41.7%. The rapid uptake of credit by businesses can, at least partly, be attributed to the rapid expansion of the local economy thus far as well attractive prospects going forward.

Reserves and money supply

The stock of foreign reserves decreased slightly by the end of July 2015. International reserves stood at N$14.3 billion at the end of July, down from N$14.8 billion at the end of June. The decrease from June to July, although slight, was unexpected due to the position generally benefiting from SACU and tax receipts in July.

Outlook

The extended period of rapid credit extension seems to be slowing around the fringes. This is to be expected as individuals and businesses adjust their expectations of future interest rates due to tightening monetary policy. Total credit extended as well as credit extension growth has been buoyed by strong wealth effects as a result of prolonged and abnormally high growth within Namibia. A slowdown in credit extension to longer term sustainable levels would be a positive development considering the current economic climate. However, the decline in reserves over the past few years is cause for concern.