Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) fell by N$815.2 million or 0.73% m/m in May, bringing the cumulative credit outstanding to N$110.8 billion on a normalised basis (removing the interbank swaps the Bank of Namibia (BoN) accounts for in non-resident private sector claims). Annual PSCE growth slowed to 1.53% in May from 2.57% in April. N$1.67 billion worth of credit was extended to the private sector over the past twelve months, 59.0% less than the N$4.08 billion issued over the same period a year ago. Individuals took up N$3.23 billion worth of credit over this period, while corporates deleveraged by N$1.56 billion. 

Credit Extension to Individuals

Credit extended to individuals rose by 0.4% m/m and 5.16% y/y. As was the case in April, all sub-categories, bar overdrafts, posted growth on a year-on-year basis. Mortgage loans attributed to most of the credit uptake by individuals during the month, with the sub-category recording growth of 0.2% m/m and 2.8% y/y. Instalment credit extended to individuals increased by 1.6% m/m and 4.4% y/y in May. ‘Other loans and advances’, which is made up of credit card debt and personal- and term loans, grew by 0.5% m/m and 17.5% y/y, while overdraft facilities to individuals increased by 0.3% m/m but fell 1.3% y/y. 

Credit Extension to Corporates

The month-on-month PSCE contraction was primarily due to corporates deleveraging their balance sheets. Credit extension to corporates fell by 2.4% m/m and 3.4% y/y as all sub-categories, bar instalment credit, fell on both a month-on-month and year-on-year basis. ‘Other loans and advances’ declined by 3.7% m/m and 7.5% y/y. Overdraft facilities to corporates contracted by 4.2% m/m and 1.2% y/y, while mortgage loans fell by 0.8% m/m and 4.5% y/y. Instalment credit to corporates rose by 2.1% m/m and 14.1% y/y.

Banking Sector Liquidity 

The overall liquidity position of the commercial banks remained strong during May, declining by N$150.9 million to an average of N$10.9 billion. According to the Bank of Namibia (BoN) the small decline was due to corporates gearing up for corporate tax payments and partial outflows of funds received from the Heineken-Namibia Breweries transactions. The repo balance was unsurprisingly near zero for most of the month. 

Money Supply and Reserves

According to the BoN’s latest monetary statistics, broad money supply (M2) rose by N$9.83 billion or 7.7% y/y in May. The stock of international reserves fell by 4.0% m/m or N$2.07 billion to N$49.7 billion, translating to 5.2 months of import cover. The BoN ascribed the decline to net commercial bank outflows due to “portfolio investment and import payments”.

Outlook

The annual PSCE growth rate slowed to the lowest level since December 2021 in May. As mentioned earlier in the report, the growth slowdown, and month-on-month contraction, was primarily due to corporates continuing to delever their balance sheets, amid rising interest rates. Credit extension to individuals is stronger, by comparison, but continues to trend well below inflation. While central bank rhetoric in both Namibia and South Africa remains hawkish, we do not anticipate overall PSCE growth to pick up materially in the short- to medium term.

Overall

Private sector credit (PSCE) increased by N$314.9 million or 0.28% m/m in April, bringing the cumulative credit outstanding to N$111.6 billion on a normalised basis (removing the interbank swaps the Bank of Namibia (BoN) accounts for in non-resident private sector claims). On a year-on-year basis, PSCE grew by 2.56% in April, compared to a 3.9% y/y growth rate in March. Over the past 12 months, N$2.79 billion worth of credit was extended to the private sector, 21.6% less than the N$3.55 billion issued over the same period a year ago. Individuals took up N$3.15 billion worth of credit over this period, while corporates deleveraged by N$361.0 million.

Credit Extension to Individuals

Credit extended to individuals rose by 0.2% m/m and 5.0% y/y. All four sub-categories, bar overdrafts, logged growth on a year-on-year basis. ‘Other loans and advances’ attributed to most of the annual credit uptake by individuals. The sub-category, consisting of credit card debt and personal- and term loans, increased by 0.3% m/m and 2.8% y/y in April. Mortgage loans came in second followed by Instalment credit. Mortgage loans to individuals increased by 0.2% m/m and 17.9% y/y in April, while instalment credit extended to individuals rose 2.8% y/y, despite dropping by 0.1% m/m. Overdraft facilities to individuals was the only sub-category that posted a decline on a year-on-year basis, recording a contraction of 0.3% m/m and 1.3% y/y in April.

Credit Extension to Corporates

Credit extension to corporates rose by 0.4% m/m but fell 0.8% y/y after mortgage loan- and overdraft credit uptake by corporates slid over the preceding 12-month period ending in April. Mortgage loans and overdraft facilities to corporates declined by 4.9% y/y and 1.9% y/y, respectively, despite growing by 0.4% m/m and by 0.9% m/m, individually in April. Other loans and advances rose by 0.3% m/m and 0.4% y/y. Instalment credit to corporates came in slightly lower in April than in March but continue to bounce back strong on a year-on-year basis after instalment credit up by corporates grew by 13.4% y/y in May from a low base a year earlier.

Banking Sector Liquidity

The commercial banks overall liquidity position strengthened further during April, rising by N$2.92 billion to an average of N$11.1 billion which is a record high. The Bank of Namibia (BoN) ascribed the increase to improved diamond sales, combined with Heineken’s acquisition of Namibia Breweries. The strong liquidity position resulted in the repo balance pulling back down to zero at the end of April from N$458.4 million at the start of the month.

Money Supply and Reserves

The BoN’s latest monetary statistics show that broad money supply (M2) rose by N$2.32 billion or 1.8% y/y in April. The stock of international reserves increased by 6.7% m/m or N$3.26 billion to N$51.8 billion – the highest level to date and translates to 5.4 months of import cover. The BoN attributed the increase to higher SACU receipts, diamond sales proceeds and FDI inflows in the manufacturing sector arising from the sale of Namibia Breweries Limited to Heineken as well as revaluation gains.

Outlook

Annual PSCE growth slowed in April to the slowest level in 14 months, which was in line with expectations considering the base effect mentioned in IJG’s March PSCE report. The cumulative credit issuance for the past 12 months reached N$2.79 billion in April, marking the lowest level this year.

Corporate credit uptake remains weak in comparison to credit uptake by individuals. This suggests that corporates are more reluctant to borrow under the current conditions, where both economic activity and interest rates are unfavourable for stimulating credit demand for businesses.

Looking ahead, we expect credit uptake to remain modest, as we see little support for increased demand. Considering the marginal impact of May’s base effect, we anticipate that annual PSCE growth figure will remain stable around 2.5% in May. Furthermore, we anticipate a significant boost in foreign reserves due to the sharp depreciation of the Namibian dollar against the US dollar in May. This improvement in the foreign reserve position may provide an opportunity for the BoN to stay on a less aggressive rate hike cycle compared to its counterpart in South Africa, as it seeks to maintain price stability.

Overall

Private sector credit (PSCE) fell by N$67.1 million or 0.06% m/m in March, bringing the cumulative credit outstanding to N$111.2 billion on a normalised basis (removing the interbank swaps the Bank of Namibia (BoN) accounts for in non-resident private sector claims). On a year-on-year basis, PSCE grew by 3.9% in March, compared to a 3.1% growth rate in February. The impact of base effects plays a role in the quicker annual rate, as PSCE fell by nearly 1.0% in March 2022. N$4.21 billion worth of credit was extended to the private sector over the past 12 months. Individuals took up N$3.36 billion worth of credit, while corporates took up N$846.1 million. 

Credit Extension to Individuals

Credit extended to individuals rose by 0.2% m/m and 5.4% y/y. All sub-categories, bar instalment credit, recorded growth on a month-on-month basis. Mortgage loans were again the biggest contributor of the month-on-month increase, registering growth of 0.1% m/m and 3.2% y/y. ‘Other loans and advances’ (consisting of credit card debt and personal- and term loans) continues to post strong growth, increasing by 0.4% m/m and 18.2% y/y in March, the quickest annual growth rate for this sub-category since March 2020. Overdraft facilities to individuals grew by 0.6% m/m and 0.8% y/y, while instalment credit fell marginally by 0.1% m/m but rose 2.5% y/y. 

Credit Extension to Corporates

Corporate credit extension fell by 0.4% m/m but rose 1.9% y/y. In contrast to credit extended to individuals, instalment credit to corporates was the only sub-category which posted monthly growth in March, growing by 3.2% m/m and 12.8% y/y, ahead of inflation, but from a low base. Mortgage loans declined by 0.2% m/m and 4.5% y/y. Other loans and advances contracted by 0.2% m/m but rose 7.1% y/y. Overdraft facilities to corporates fell by 2.3% m/m and 0.9% y/y. 

Banking Sector Liquidity 

The overall liquidity position of the commercial banks strengthened further during March, rising by N$718.4 million to an average of N$8.15 billion. According to the Bank of Namibia (BoN), the increase is due to improved diamond sales, coupled with government payments which were high due to the fiscal year end. Despite the strong liquidity position, the repo balance rose from zero at the start of the month to N$458.4 million at month end.

Money Supply and Reserves

The BoN’s latest monetary statistics show that broad money supply (M2) rose by N$2.32 billion or 1.8% y/y in March. The stock of international reserves climbed by 2.1% m/m or N$980.0 million to N$48.5 billion, translating to 5.1 months of import cover. The BoN attributed the increase to Customer Foreign Currency (CFC) placements.

Outlook

The cumulative credit outstanding fell in March as debt repayments by corporates outpaced credit uptake by individuals. As mentioned earlier in the report, the quicker year-on-year PSCE growth rate is mainly due to base effects, following a nearly 1.0% m/m drop in credit outstanding in March 2022. The subsequent increase in April 2022 of 1.6% m/m should result in a slower annual increase in April 2023 (closer to 2.5% y/y), all else equal.

Corporate credit uptake remains low, with only short-term ‘other loans and advances’ and instalment credit exhibiting positive growth on an annual basis, with the latter primarily from a low base. Credit uptake by individuals is faring better, by comparison, although the annual growth is primarily driven by short-term credit uptake in the form of credit card debt, and personal- and term loans.

Overall PSCE growth continues to trend well below inflation. We do not expect this to change in the short-term, given that inflation remains sticky after March’s print came in at 7.2% y/y and continues to trend above our forecasts.