Category Archives: Private Sector Credit Extension

Private sector credit (PSCE) rose by N$351.1 million or 0.32% in September, bringing the cumulative credit outstanding to N$109.5 billion after normalising for claims on non-resident private sectors consisting of interbank swaps. On a year-on-year normalised basis, private sector credit grew by 3.6% y/y in September, compared to the 4.1% y/y growth recorded in August. On a 12-month cumulative basis, N$4.27 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.70 billion while corporates borrowed N$2.57 billion.

Credit Extension to Individuals

Credit extended to individuals increased by 0.5% m/m and 2.8% y/y in September. Mortgage loans to individuals posted growth of 0.3% m/m and 1.9% y/y. Overdraft facilities to individuals grew by 1.3% m/m but contracted by 1.1% y/y. Other loans and advances (consisting of credit card, personal and term loans) rose by 1.5% m/m and 8.6% y/y. Instalment and leasing sales fell by 0.1% m/m and 1.0% y/y.

Credit Extension to Corporates

Credit extended to corporates grew by 0.7% m/m and 5.9% y/y in September, following the 8.3% y/y increase recorded in August.  According to the BoN, the decrease is attributable to reduced demand and debt reduction by corporates in the construction and services sector. Mortgage loans contracted by 1.4% m/m but rose 13.1% y/y while overdrafts rose 0.3% m/m but contracted by 2.5% y/y. Other loans and advances rose by 1.0% m/m and 16.6% y/y. Instalment credit increased by 0.8% m/m and 15.4% y/y. The growth in instalment credit is attributed to rising new vehicles sales.

Banking Sector Liquidity

The overall liquidity position of the commercial banks continued to drop from the elevated levels reached in June this year. September saw the banking liquidity position fall by N$1.08 billion to an average of N$3.04 billion before ending the month at N$2.78 billion. The BoN ascribed the decline to withdrawals by other financial corporations coupled with increased cross-border payments amidst a rise in import costs.

Reserves and Money Supply

Broad money supply (M2) rose by N$5.17 billion or 4.2% y/y to N$128.3 billion, according to the BoN’s latest monetary statistics. The BoN noted that the growth in M2 comes on the back of sustained growth in both net foreign assets and domestic claims of the depository corporations in the form of credit extended to the household sector. Foreign reserve balances rose by 2.1% m/m or N$982.22 million to a total of N$48.0 billion. The rise was attributed to revaluation gains and increased portfolio investment during the period.

Outlook

September’s PSCE growth somewhat slowed when compared to August. The lower growth in PSCE was attributable to lower demand and deleveraging by the corporate sector, more specifically corporates in the construction and services sectors, according to the BoN. PSCE growth is expected to remain tepid amidst elevated inflation and rising interest rates to tame inflation over the near term. As expected, the BoN hiked interest rates by another 75 basis points at its MPC meeting held on 26 October. Another hike in the neighbourhood of either 50 or 75 basis points is on the cards by year-end and will further stretch already indebted consumers and dent demand for new credit uptake in our view.

Overall

Private sector credit (PSCE) increased by N$505.3 million or 0.43% m/m in August, bringing the cumulative credit outstanding to N$116.7 billion. On a year-on-year basis, private credit sector credit grew by 11.2% y/y from a relatively low base a year ago. Normalising for the steep rise in claims on non-resident private sectors over the past 8 months which mainly relates to interbank swaps sees annual PSCE grow by only 4.4% y/y. We view this as a more accurate picture of credit extension and thus exclude the swap transactions from our analysis going forward. On a 12-month cumulative basis N$4.79 billion worth of credit was extended to the private sector. Corporates and individuals took up N$3.52 billion and N$1.26 billion respectively.

Credit Extension to Individuals

Credit extended to individuals grew by 0.5% m/m and 2.1% y/y to N$62.91 billion in August from N$61.65 billion a year ago. Overall, annual growth in credit extensions to individuals slowed in August when compared to the revised 2.2% y/y growth rate reported for July. The Bank of Namibia (BoN) attribute the decline to lower demand in all the credit categories but instalment and leasing sales. Mortgage loans to individuals rose by 0.3% m/m and 1.9% y/y. Overdraft facilities increased by 1.1% m/m, but contracted by 5.6% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) climbed by 1.1% m/m and 5.1% y/y. Instalment and leasing sales rose by 0.9% m/m and 1.2% y/y.

Credit Extension to Corporates

Credit extension to corporates grew by 0.3% m/m and 8.3% y/y in August, bringing the cumulative corporate credit outstanding to N$46.23 billion. Overall, annual growth in credit extensions to businesses accelerated in August when compared to the revised 6.4% y/y growth rate observed last month. The BoN ascribed the increase to rising demand for overdraft credit and other loans and advances by corporations in the mining and services sector. Overdraft facilities to corporates grew by 2.1% m/m and 0.1% y/y, following a 9-month consecutive year-over-year decline. Other loans and advances climbed by 0.8% m/m and 19.4% y/y. Mortgage Loans declined by 1.7% m/m but rose by 1.2% y/y. Instalment and leasing sales increased by 1.4% m/m while annual growth for this credit category remained steady at 14.9% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks saw a continued decline in August, dropping by N$6.35 billion to an average of N$6.21 billion, and ended the month at N$3.86 billion. The decline in the market cash positions is partly attributed to other financial corporations’ withdrawals, according to the BoN. The repo balance in contrast rose to N$529.7 million in August from N$293.0 at the end of July.

Reserves and Money Supply

The BoN’s latest figures show broad money supply (M2) increased by N$4.97 billion or 4.0% y/y to N$128.0 billion but slowed on an annual basis compared to the 11% y/y growth rate recorded in July. According to the BoN, the decrease in M2 growth was due to a decline in both the net foreign assets and domestic claims of the depository corporations. The drop was further attributed to a decline in transferable deposits coupled with a contraction in other deposits over the review period. The BoN’s official reserve stock contracted by 4.6% m/m or N$2.24 billion to N$47.0 billion. The BoN ascribed the decline in the international reserves stock to increased foreign currency outflows for import payments during the review period.

Outlook

Despite seeing PSCE growing at its fastest rate since the pandemic on a normalised basis, growth remains well below the levels observed prior to the pandemic. We expect PSCE growth to remain subdued over the short to medium term while the central bank maintains a restrictive monetary policy and continues to raise interest rates to fight rising inflation. We expect the BoN to hike interest rates by a further 75 basis points at its next MPC meeting scheduled for 26 October to stay at pace with the interest rate hikes by the SARB. The SARB hiked its repo lending rate by 75 basis points last month. While we should see commercial banks become more willing to extend credit in the rising interest rate environment, as they experience margin expansion, demand for credit would not necessarily follow suit. The private sector has endured a lot of financial hardship over the past couple of years and there are probably fewer households and entities with the ability to take up new credit from Banks despite debt remaining relatively inexpensive by historic standards. The private sector may also be unwilling to commit to long-term expensive debt under the current lackluster economic circumstances. Therefore, we expect demand for credit to remain low while the supply of credit is set to improve.

Overall

Private sector credit (PSCE) rose by N$342.9 million or 0.3% m/m in July, bringing the cumulative credit outstanding to N$116.2 billion. On a year-on-years basis, private sector credit grew by 10.6% y/y. Normalising for the large increases in claims on non-resident private sectors observed between January and March this year sees PSCE growth at 3.5% y/y. Cumulative credit extended to the private sector over the last 12-months amounted to N$11.1 billion, up 287.2% y/y over the same period last year (26.7% y/y on a normalised basis). Claims on non-resident private sectors have taken up the bulk of the issuance with debts over the past 12 months summing to N$6.97 billion or 63% of the total debt issuance, followed by corporates which took up N$2.84 billion (or 26%) and individuals at N$1.32 billion (12%).

Credit Extension to Individuals

Credit extended to individuals increased by 0.1% m/m and 2.2% y/y in July, due to an increased demand in mortgage credit and ‘other loans and advances’ according to the BoN. Mortgage loans to individuals rose by 0.4% m/m and 1.9% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) increased 1.0% m/m and 7.9% y/y. Annual growth in other loans and advances to individuals has steadily been ticking up since November last year, with July’s print the quickest since October 2020. Overdraft facilities however contracted by 7.8% m/m and 10.7% y/y, following a 2.1% m/m and 3.0% y/y contraction in June.

Credit Extension to Corporates

Credit extended to corporates contracted by 6.5% y/y in July, following the 5.2% y/y increase recorded in June. On a month-on-month basis, credit extension to corporates rose by 0.7% m/m. According to the BoN, the increase was due to a rise in demand for mortgage credit and other loans and advances from corporates in the mining-, health-, and services sectors. Mortgage loans contracted by 1.0% m/m but rose 4.6% y/y while other loans and advances rose by 0.01% m/m and 15.7% y/y. Instalment credit increased by 1.6% m/m and 14.9% y/y. Overdrafts rose by 4.1% m/m but fell 6.1% y/y, the ninth consecutive month that overdraft facilities to corporates recorded a decline on an annual basis.

Banking Sector Liquidity

The overall liquidity position of the commercial banks rose significantly in July, rising by N$1.4 billion to an average of N$6.5 billion, and ended the month at N$10.2 billion. According to the BoN, the increase is partly attributed to an increase in diamond sales proceeds and from investment liquidations by other non-banking financial corporations. The repo balance subsequently fell to N$293.0 million at the end of the month, after ending at N$488.0 million in June.

Reserves and Money Supply

The Bank of Namibia’s latest figures show Broad Money Supply rising significantly by N$6.5 billion or 11.0% y/y to N$134.9 billion in July. The increase in the M2 growth was ascribed to a rise in the net foreign assets of depository corporations, as well as growth in domestic claims on other sectors. Foreign reserves rose by 7.1% or N$3.3 billion, the quickest growth in 13 months, to N$49.2 billion. The BoN attributes the boost to the increase in commercial banks foreign currency and SACU receipts.

Outlook

Normalised PSCE growth has steadily been ticking up from the lows of 2021, but remains about half the rates seen prior to the pandemic. With economic activity expected to remain relatively muted over the short- to medium term, we do not expect to see drastic increases in PSCE growth soon. We do however expect to see additional rate hikes by both the SARB and the BoN over the coming months, as inflationary pressures remain high.

Ultra-accommodative interest rates over the past two years provided relief to indebted consumers, but did not stimulate credit uptake, as evidenced by the low PSCE growth figures since the start of the Covid-19 pandemic when the central bank aggressively cut rates. Even with another 75 – 100 bp worth of increases, local interest rates will still be accommodative by historical standards. We could possibly see commercial banks being more willing to extend credit in the rising interest rate environment as they experience margin expansion, provided that they do not expect non-performing loans to increase.