Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit (PSCE) rose by N$587.0 million or 0.5% m/m in November, bringing the cumulative credit outstanding to N$110.2 billion after normalising for interbank swaps accounted in non-resident private sector claims. Year-on-year, private sector credit grew by 3.2% in November, marginally quicker than the 3.0% y/y growth recorded in October. On a 12-month cumulative basis, N$3.46 billion worth of credit was extended to the private sector. Of the cumulative issuance, corporates borrowed N$1.37 billion and individuals took up N$2.52 billion.

Credit Extension to Individuals

Credit extended to individuals rose by 0.8% m/m and 4.1% y/y in November. Annual growth in all of the credit lines to individuals bar overdraft facilities picked up in November. Overdraft facilities to individuals contracted by 1.5% m/m and 1.9% y/y. Annual growth in this line item has been trending in the negative territory since March 2022. Mortgage loans to individuals recorded growth of 0.3% m/m and 2.2% y/y, albeit marginally slower than in October. Other loans and advances (consisting of credit card, personal, and term loans) grew by 3.5% m/m and 13.8% y/y, naturally picking up pace as the holiday season approached. Instalment credit annual growth also picked up pace as credit extended in this category rose by 0.8% m/m and 3.8% y/y.

Credit Extension to Corporates

Credit extended to corporates rose by 0.1% m/m and 3.1% y/y in November. The Bank of Namibia (BoN) ascribed the growth to higher demand for short term credit facilities by corporates in the fishing, energy and manufacturing sector during the period under review. The BoN further noted that the improved growth was tempered as a result of deleveraging by corporates in the services and manufacturing sectors. Mortgage loans increased by 0.3% m/m but fell 3.8% y/y. Overdrafts rose by 3.2% m/m but declined 1.0% y/y. Installment credit posted growth of 0.8% m/m and 11.0% y/y while other loans and advances to corporates contracted by 2.1% m/m but grew by 10.7% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks improved in November, growing by N$1.30 billion to an average of N$4.44 billion and ended the month at N$4.70 billion. The BoN attributed the improved liquidity position to inflows from rising diamond sales.

Money Supply and Reserves

Broad money supply (M2) contracted by N$842.3 million or 0.6% y/y to N$129.1 billion. The BoN ascribed the contraction to declining ‘other deposits’ coupled with lower growth in currency outside depository corporations during the review period. Foreign reserve balances fell by 2.3% m/m or N$1.04 billion to N$43.7 billion in November, which according to the BoN, was largely due to the redemption of the ZAR-denominated NAM01 bond during the review period.

Outlook

November saw the annual PSCE growth marginally higher compared to October. The BoN attributed the slightly higher growth in PSCE to increased demand for credit by the household sector and corporations in the fishing, energy, and manufacturing sectors as noted earlier. We expect PSCE growth to remain restrained over the short term and into 2023 due to rising borrowing costs and tepid economic activity dampening demand for new credit. We also see little on the supply side that would ignite demand for credit over this period.

Overall

Private sector credit (PSCE) rose by N$104.5 million or 0.1% m/m in October, bringing the cumulative credit outstanding to N$109.6 billion after normalising for interbank swaps accounted in non-resident private sector claims. Year-on-year, private sector credit grew by 3.0% in October, marginally slower than the 3.6% y/y growth recorded in September. On a 12-month cumulative basis, N$3.21 billion worth of credit was extended to the private sector. Of the cumulative issuance, corporates borrowed N$1.37 billion and individuals took up N$2.29 billion.

Credit Extension to Individuals

Credit extended to individuals increased by 0.8% m/m and 3.7% y/y in October. Annual growth in all of the credit lines to individuals picked up in October. Mortgage loans to individuals posted growth of 0.4% m/m and 2.6% y/y. Other loans and advances (consisting of credit card, personal, and term loans) grew by 3.0% m/m and 10.3% y/y, and instalment credit rose by 0.9% m/m and 2.6% y/y. Overdraft facilities to individuals contracted by 1.3% m/m and 0.3% y/y.

Credit Extension to Corporates

Credit extended to corporates contracted by 0.9% m/m but rose by 3.1% y/y in October. The Bank of Namibia (BoN) ascribes the decline to lower credit demand and deleveraging by corporates in the construction and services sectors. All of the credit lines to corporates, bar other loans and advances, saw a deceleration in annual growth in October. Mortgage loans grew by 0.1% m/m but declined 3.3% y/y. Installment credit posted growth of 1.7% m/m and 14.6% y/y. Overdrafts declined by 2.3% m/m and 6.2% y/y. Other loans and advances to corporates contracted by 1.5% m/m but rose 13.2% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks improved in October, rising by N$616.7 million to an average of N$3.33 billion before ending the month at N$3.4 billion. The BoN attributed the improved liquidity position to inflows from government bonds, specifically the redemption of GI22 and interest payments on other bonds.

Money Supply and Reserves

Broad money supply (M2) contracted by N$1.85 billion or 1.8% y/y to N$126.4 billion. According to the BoN, the contraction came on the back of a decline in net foreign assets of the depository corporations as a result of rising government foreign payments, combined with commercial bank outflows for import payments and lower growth in domestic claims. Foreign reserve balances fell by 6.7% m/m or N$3.20 billion to N$44.8 billion in October. The BoN ascribed the decline largely to government payments and commercial bank outflows during the period under review.

Outlook

Annual PSCE growth slowed for the second consecutive month in October. The BoN once again attributed the lower growth in PSCE to lower credit demand and repayments by the corporate sector, specifically corporates operating in the construction and services sectors.

The BoN’s MPC hiked interest rates by 50 basis points in November, bringing the prime lending rate to 10.5% and just 25bps below the highest lending rate of the past decade. The rapidly rising borrowing costs, coupled with the muted economic activity means that PSCE growth will possibly remain subdued in the short-term. On the supply side, we see little change from the current status quo over the near term.