Category Archives: Private Sector Credit Extension

Private Sector Credit Extension

PSCE October 2014

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PSCE October 2014

Overall

Credit extended to the private sector increased by N$1,168.4m, or 1.78%, in October 2014, taking total credit outstanding to N$66.8bn. On an annual basis PSCE growth accelerated by 0.1 percentage points, to 16.4%. A net total of N$9.42bn worth of credit has been extended over the last year, the highest level of net issuance seen over a 12 month period to date, as high growth continues to be seen off an ever increasing base. Of this N$9.42bn, approximately N$4.63bn was issued to businesses, while N$4.69bn was taken up by individuals.

Credit extension to households

Credit extension to households expanded by 1.1% on a monthly basis and 13.2% on an annual basis in October. The growth in credit extension to households can be largely ascribed to prolonged and historically low interest rates in Namibia, allowing for the relatively cheap uptake of credit by interest sensitive households.

Leasing transactions and other claims were once again the only sub categories in household credit that showed negative growth month on month. The largest growth was seen in other loans and advances which expanded by 3.54%, followed by mortgage loans which rose 1.03% month on month. Mortgage credit is still by far the biggest component of credit extended to households, contributing 66%. Mortgage credit continues to grow on the back of low interest rates and a strong local economy.

Instalment credit makes up the second largest component of credit extended to households (16.4%). Installment credit is often used to purchase consumer goods and could be seen as a non-productive utilization of credit. If this number continues rising in a rising interest rate cycle it could put pressure on household financial health. However we do not see an interest rate hiking cycle being implemented as soon as we previously did amid prolonged weakness in South Africa, Europe, and slowing growth in China.

Credit extension to corporates

Credit extension to corporates grew by 21.37% year-on-year in October, up from 20.28% in September. On a monthly basis all the sub-categories grew except for other loans and advances which continues to fall. Leasing transactions grew by 12.2% but represents the smallest portion of the credit extended to corporations. Other claims grew by 10.85% for the month. Mortgage loans, the largest component of credit extended to corporations, grew by 2.56% for the month. Overall for the month credit extended to corporations rose 2.82%. The continued growth in PSCE is indicative of the strength of the Namibian economy even amid global divergence and South African weakness.

Money Supply and Reserves

Foreign reserves declined by 8.5% month on month to N$15.05bn in October after increasing by 19.7% month on month in September. For the year to date foreign reserves have declined 19.1% from N$18.61bn.

Annual M2 growth decreased to 5.0% in October, down from growth of 11.1% in September. Although growth in M2 slowed it can still be considered reasonable with only the transferable deposits component falling, although growing year on year from October 2013.

Looking forward we expect to see further strong credit growth. Real income growth is expected to remain elevated given the expansive economic conditions that are still prevalent within Namibia which will continue to reinforce demand for credit.

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PSCE, Government Debt, International Reserves – September

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Private sector credit extension growth remained unchanged in September, at an elevated level of 16.3 percent year on year. This growth was driven by strong uptake in credit to businesses, which expanded by 20.2 percent year on year, while credit extension to individuals saw lesser growth of 12.9 percent year on year. With regards to credit categories, outstanding mortgage loans grew by 12.1 percent, while instalment credit growth remained abnormally strong, at 18.6 percent. Following a year of abnormally high growth, the total level of outstanding private sector credit extension is now N$65.6 billion, N$9.24 billion more than a year ago.

PSCE_September

PSCE growth remains driven by instalment credit, a persistent thorn in the side of the Monetary Policy Committee of the Bank of Namibia. The reason behind this (very justified) concern is that many of the goods sold on instalment periods (such as vehicles, furniture and consumer electronics) are imported from outwith the country, which importation puts pressure on the country’s balance of payments. Nevertheless, instalment credit represents a relatively small, but growing, portion of total credit.

PSCE_Categories_September

On a rolling 12 month basis, net credit extension increased to a record N$9.24 billion, from the previous month’s record of N$9.11 billion. This major increase comes about on account of historically low interest rates until mid-2014, followed by two minor (25bp) increases thereafter. This, coupled with abnormally strong growth in the local economy, major fiscal expansion, (expected) declining unemployment and (likely) major increases in cash wages being paid in the construction sector (particularly), is likely to have resulted in major increases in disposable income in Namibia over the past 24 months. Given a low marginal propensity to save in the country, much of this increased income is spent, and often leveraged upon through the local commercial banks.

PSCE_Net_Issuance_September

On the back of major increases in Government expenditure over the past year, as well as a concerted (and budgeted) effort to house smaller cash balances with the commercial and central banks, in September, Government’s deposits with these banks fell to the lowest level seen since December 2006.

Central_Government_Deposits_September

Government’s domestic debt increased from N$20.25 billion to NS20.54 billion between September and October, largely on account of new issuance in the GC17, 18, 24, 25, 27, 30, 32, 35 and 40, some of which resulted from switches out of the GC15, due to mature next year. A total of N$221 million was switched out of the GC15 into longer dated instruments during the month.

Government_Debt_October

Foreign reserve levels recovered through September, to N$16.5 billion, from N$13.7 billion the preceding month. This recovery bolsters the external position of the country somewhat, however was partially due to Rand depreciation. During the month, the Rand depreciated by 5.5 percent vs the US Dollar, which explains a portion of the increase.

Foreign_Reserves_September

PSCE August 2014

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Overall

Credit extended to the private sector increased by N$944.3m, or 1.48%, in August 2014, taking total credit outstanding to N$64.9 billion. On an annual basis PSCE growth picked up by 0.8 percentage points, to 16.3%. As such, a net total of N$9.70 billion worth of credit has been extended over the last year. This is the highest level of net issuance seen over a 12 month period in the history of the country, as high growth continues to be seen off an ever increasing base. Of this N$9.70bn, approximately N$4.03bn was issued to businesses, while N$5.57bn was taken up by individuals.

Credit extension to households

Credit extension to households expanded by 1.2% on a monthly basis and 14.2% on an annual basis in August, a slightly slower rate of growth than was seen in the preceding month. The growth in credit extension to households can be largely ascribed to prolonged and historically low interest rates in Namibia, allowing for the relatively cheap uptake of credit by interest sensitive households.

With the exception of leasing transactions and other claims all the sub categories in household credit grew on a month on month basis. The largest growth was seen in overdrafts which expanded by 2.75%, followed by instalment credit which rose 1.57% month on month. Mortgage credit is still by far the biggest component of credit extended to households contributing N$2.8 billion of the N$4.9 billion increase seen for the year and N$300 million on a month on month basis. This is largely due to households taking advantage of the low borrowing costs currently in play.

Instalment credit makes up the second largest component of credit extended to households (16.3%) and is also the second quickest growing component as stated above. Installment credit is often used to purchase consumer goods and could be seen as a non-productive utilization of credit. If this number continues rising in a rising interest rate cycle it could put pressure on household financial health.

Credit extension to corporates

Credit extension to corporates grew by 19.7% year-on-year in August, up from 17.2% in July. On a monthly basis all the sub-categories grew except for other loans and advances which fell slightly. Leasing transactions grew by the biggest percentage (7.7%) but represents only 0.9% of the credit extended to corporations. Overdrafts grew by 3.4% for the month after declining in the previous month. Mortgage loans, the largest component of credit extended to corporations, grew by 2.4% for the month. Overall for the month credit extended to corporations rose 1.9%.

Money Supply and Reserves 

Foreign reserves declined by 7.0% month on month in August after declining by 7.2% month on month for July. This is quite a significant drop from the high of January, from N$18.6 billion in January to N$13.7 billion in August.

Annual M2 growth decreased to 8.4% in August, down from growth of 10.3% in July. Although growth in M2 slowed it can still be considered reasonable with only the transferable deposits component falling slightly.

Looking forward we expect to see further strong credit growth despite an anticipation of rate hikes towards the end of the year. Real income growth is expected to remain elevated given the expansive economic conditions that are still prevalent within Namibia which will continue to reinforce demand for credit.

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