Category Archives: Private Sector Credit Extension

Overall

Private sector credit (PSCE) increased by N$664.2 million or 0.60% m/m in February, bringing the cumulative credit outstanding to N$111.3 billion on a normalised basis (removing the interbank swaps the Bank of Namibia (BoN) accounts for in non-resident private sector claims). Year-on-year PSCE growth stood at 3.1% in February, compared to a 2.6% y/y growth rate recorded in January. The past 12 months saw N$3.33 billion worth of credit extended to the private sector, a 40.1% increase from the N$2.38 billion issued over the same period a year ago. The cumulative 12-month period saw individuals taking up N$3.13 billion worth of credit, while corporates took up only N$203.1 million. 

Credit Extension to Individuals

Credit extended to individuals increased by 0.3% m/m and 5.0% y/y, the quickest year-on-year growth since June 2020. All sub-categories registered growth on a month-on-month basis for a third consecutive month. Mortgage loans were the biggest driver of the month-on-month increase, posting growth of 0.2% m/m and 2.8% y/y. ‘Other loans and advances’ (which is made up of credit card debt and personal- and term loans) continues to post robust growth, growing by 0.5% m/m and 17.8% y/y in February. Overdraft facilities to individuals rose by 1.6% m/m but fell by 1.1% y/y.

Credit Extension to Corporates

Credit extended to corporates increased by 1.0% m/m and 0.4% y/y. The primary growth driver in February was overdraft facilities to corporates which rose by 2.4% m/m but fell by 3.0% y/y. Mortgage loans climbed by 0.9% m/m but are down by 5.1% y/y, marking a fifth consecutive month of contraction on an annual basis. Instalment credit grew by 1.8% m/m and 11.6% y/y. Other loans and advances remained steady month-on-month but increased remains up by 5.3% y/y.

Banking Sector Liquidity 

The overall liquidity position of the commercial banks strengthened considerably during February, rising by N$2.18 billion and ending the month at N$7.18 billion. The BoN ascribed the increase to pension fund liquidations, proceeds from diamond sales as well as increased government payments. The repo balance fell from N$419.0 million at the start of the month to zero at the end.

Money Supply and Reserves

According to the BoN’s latest monetary statistics, broad money supply (M2) rose by N$2.67 billion or 2.1% y/y in February. The central bank’s stock of international reserves rose by 2.7% m/m or N$1.25 billion to N$47.5 billion. The BoN noted that the increase was due to “revaluation adjustments” and commercial bank inflows during the month. 

Outlook

PSCE growth ticked up slightly on both a monthly and annual basis in February. The monthly growth was primarily driven by increased corporate credit uptake, particularly from overdraft facilities. Credit uptake by individuals recorded notable growth as well on the back of a N$91.8 million month-on-month increase in mortgage loans. While the uptick in the year-on-year growth rate is positive, it has been trending well below inflation since May 2020, meaning that we have not seen positive PSCE growth in real terms for two-and-a-half years now. 

As we have highlighted in last month’s report, credit uptake by corporates has been particularly lacklustre since June last year, with only short-term ‘other loans and advances’ and instalment credit exhibiting positive growth on an annual basis.

Private sector credit (PSCE) increased by N$121.2 million or 0.11% m/m in January, bringing the cumulative credit outstanding to N$110.7 billion on a normalised basis (removing the interbank swaps accounted in non-resident private sector claims). On a year-on-year basis, PSCE grew by 2.6%, compared to the 4.2% y/y growth recorded in December. Over the past 12 months, N$2.79 billion worth of credit was extended to the private sector, a 23.6% increase from the N$2.26 billion issued over the same period a year ago. Individuals took up N$3.06 billion worth of credit, while corporates decreased their borrowings by N$270.3 billion.

Credit Extension to Individuals

Credit extended to individuals rose by 0.6% m/m and 4.9% y/y in January. All sub-categories registered increases on a month-on-month basis, with the monthly growth again primarily driven by an increase in ‘Other loans and advances’ (which is made up of credit card debt and personal- and term loans). The sub-category grew by 1.8% m/m and 17.3%, the highest annual growth since June 2020. Overdraft facilities to individuals rose by 0.9% m/m but fell by 3.1% y/y. Mortgage loans posted 0.3% m/m growth for a third consecutive month, with year-on-year growth remaining steady at 2.8% y/y. Instalment credit grew by 0.2% m/m and 3.1% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.6% m/m and y/y, the first year-on-year contraction in this category since December 2021. Credit uptake by corporates has been very subdued over the past five months. Only overdraft facilities to corporates grew on a month-on-month basis. The sub-category grew by 4.6% m/m, but fell 9.0% y/y. Mortgage loans contracted on an annual basis for a fourth consecutive month, falling by 2.4% m/m and 4.7% y/y. Instalment credit fell by 1.3% m/m, but remains up by 12.7% y/y.

Banking Sector Liquidity 

The overall liquidity position of Namibia’s commercial banks fell by N$585.1 million to an average of N$5.25 billion in January and ended the month at N$5.92 billion. Despite the strong liquidity position, some banks made use of the repo facility, with the balance coming in at N$380.0 million. The Bank of Namibia (BoN) noted that the decline is in line with historic trends of corporate tax payments and the “holiday season”, with declines usually observed in January to mid-March before accelerated government spending aids increases just before the end of the fiscal year.

Money Supply and Reserves

Broad Money Supply (M2) rose by N$1.24 billion or 1.0% y/y in January, according to the BoN’s latest monetary statistics. The money supply decreased by 0.2% m/m and now stands at N$129.7 billion. The stock of international reserves fell by 3.5% m/m to N$46.3 billion in January. The BoN attributed the decline to net commercial bank outflows during the month. 

Outlook

PSCE growth is off to a subdued start in 2023, with the year-on-year growth figure of 2.6% the slowest since March last year. The slow growth is largely due to low credit uptake by corporates, which has generally been lacklustre since June last year, and it is now starting to reflect in the year-on-year growth figures. This indicates that corporates are not borrowing money to invest in fixed capital projects to expand their operations, an indication of low business confidence.

In January and throughout the past year, individuals have shown a more encouraging uptake of credit compared to corporates, with growth being driven by both short-term ‘other loans and advances’ as well as mortgage loans.

Credit Extension to Individuals

Credit extended to individuals rose by 0.7% m/m and 4.8% y/y in December. The month-on-month growth was mainly driven by ‘Other loans and advances’, made up of credit card debt, personal- and term loans, which grew by 1.9% m/m and 15.7% y/y. The annual growth rate of this line item has been ticking up for four consecutive months, with the December growth rate being the highest since June 2020. Overdraft facilities to individuals grew by 1.9% m/m but fell 0.4% y/y, while mortgage loans rose by 0.3% m/m and 2.8% y/y. Instalment credit grew by 0.6% m/m and 2.7% y/y.

Credit Extension to Corporates

Credit extended to corporates fell by 0.2% m/m during the month. On an annual basis, corporate credit grew by 3.5% y/y in 2022, following contractions in both 2020 and 2021. Mortgage loans fell by 0.3% m/m and 3.8% y/y, declining on an annual basis for the third consecutive month. Overdraft facilities to corporates fell by 3.6% m/m but grew by 1.1% y/y. Other loans and advances rose by 1.8% m/m and 9.6% y/y, while instalment credit increased by 0.6% m/m and 13.8% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks strengthened further in December, rising by N$1.40 billion to an average of N$5.84 billion. The BoN ascribed the increase to a rise in diamond sales coupled with portfolio rebalancing. The strong liquidity position meant that the repo balance stood at zero at the end of the month.

Money Supply and Reserves

According to the BoN’s latest monetary statistics, Broad Money Supply (M2) rose by N$898.4 million in December to N$130.0 billion, remaining steady from last year. The stock of international reserves increased by 10.6% y/y to N$48.0 billion in December. The BoN attributed the large increase to the inflow of the AfDB loan during the month, as well as diamond sale proceeds and increased net commercial bank inflows.

Outlook

Overall, PSCE growth rebounded in 2022, following two years of very subdued growth. The normalised 12-month issuance of N$4.10 billion is nearly three times higher than the issuance of 2021, and one-and-a-half times higher than that of 2020. Corporate credit issuance was encouragingly positive in 2022, after two years of corporates delevering their balance sheets. The 12 months also saw individuals taking up N$1.66 billion more than they did in 2021.

There is widespread consensus that we are near the peak of the interest rate hiking cycle, as central banks around the world have been moderating their rate hikes in the last two months. While the current hiking cycle has been more rapid than those witnessed in recent years, domestic interest rates are still accommodative by historical standards. At present, the market is pricing in a final 25bp hike by the SARB at its next MPC meeting.