Category Archives: Private Sector Credit Extension

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.

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.