Category Archives: Private Sector Credit Extension

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.

Overall

Private sector credit extension (PSCE) declined by N$710.4 million or 0.6% m/m in June, the first month-on-month decline this year, bringing the cumulative credit outstanding to N$115.9 billion. On a year-on-year basis, PSCE grew by 9.9% y/y in June, compared to the 11.0% y/y growth recorded in May. The growth figure slowed from 3.9% to 2.8% y/y in June when adjusted for the large increases in claims on non-resident private sectors observed between January and March this year. On a 12-month cumulative basis N$10.4 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.21 billion, corporates increased their borrowings by N$2.32 billion and the non-resident private sectors took up N$6.92 billion.

Credit Extension to Individuals

Credit extended to individuals contracted by 0.2% m/m while year-on-year growth slowed to 2.0% y/y in June compared to the 2.4% y/y increase recorded in May. The decline in credit extended to individuals is primarily due to weaker demand for mortgage and overdraft credit by households during June. Mortgage loans to individuals contracted by 0.5% m/m but increased 1.5% y/y. This is the lowest year-on-year growth in mortgage loans observed since June 2019. Mortgage loan growth has been slowing since July 2020 on an annual basis, possibly indicating that the willingness of commercial banks to extend credit to individuals to buy, renovate or build new houses since the pandemic remains low. Overdraft facilities to individuals contracted by 2.1% m/m and 3.0% y/y. Other loans and advances (consisting of credit card debt, personal- and term loans) rose by 1.5% m/m and 5.8% y/y, continuing a steady rise since April 2021.

Credit Extension to Corporates

Credit extended to corporates grew by 5.3% y/y in June, slowing from the 7.4% y/y increase recorded in May. On a month-on-month basis, credit extension to corporates fell by 1.3% m/m. According to the Bank of Namibia (BoN), the decline in credit extended to corporates is mainly due to weaker demand for short-term credit facilities, specifically in the energy, mining, and commercial services sectors. Overdraft facilities to corporates contracted by 4.4% m/m and 9.4% y/y, the 8^th consecutive contraction on a year-on-year basis. Other loans and advances to corporates contracted by 3.1% m/m but increased 14.1% y/y, albeit from a low base. Instalment credit by corporates rose by 4.6% m/m and 18.1% y/y. While the year-on-year growth in instalment credit was achieved from a low base, the month-on-month increase was the largest since June 2019, with the amount outstanding starting to reach pre-pandemic levels. Mortgage loans to corporates rose by 1.2% m/m and 3.6% y/y.

Banking Sector Liquidity

The overall liquidity position of the commercial banks continues to rise. Commercial banks’ liquidity increased by N$1.31 billion to an average of N$5.10 billion in June. According to the BoN, the rise in the market cash position is partly attributable to an increase in diamond sales proceeds and investment liquidations by asset managers in preparation for tax payments. The repo balance rose marginally to N$488.0 million at the end of the month, after ending at N$438.9 million in May.

Reserves and Money Supply

Broad money supply (M2) rose by N$829.5 million or 5.4% y/y to N$128.4 billion, according to the BoN’s latest monetary statistics. The BoN ascribed the increase in M2 growth to a rise in net claims on central government by the depository corporations, as commercial banks increased their holdings of government securities. Foreign reserve balances rose by 4.7% m/m or N$2.07 billion to a total of N$46.0 billion. The BoN ascribed the rise in the foreign reserve stock to increased commercial bank foreign currency inflows and Rand seigniorage payments.

Outlook

While PSCE grew by 9.9% y/y in June, above the average for the year to date, it should be noted that it has been achieved from the unusually large increase in credit extensions to non-residents observed earlier this year. When the growth figure is normalised as noted above, year-on-year PSCE growth slows to a mere 2.8% and remains subdued when compared to pre-pandemic levels. Overall, credit uptake by both individuals and businesses remains relatively muted partly due to a lack in their ability to take up credit under the prevailing inflationary and monetary tightening environment. We expect PSCE growth to remain low while the BoN continues its monetary tightening stance in line with other central banks around the world. The BoN’s MPC is expected to raise the repo rate by 75 basis points at its next MPC meeting scheduled for 17 August 2022 in line with the rate hike by the SARB at its last MPC meeting held in July.