By Rowland Brown
Figures just released by the Bank of Namibia show that private sector credit extension (PSCE) increased by 14.8 percent year on year in March, down from 15.7 percent the preceding month. As such, outstanding loans to the private sector now stand at N$61.3 billion, up N$7.9 billion when compared to a year ago. However, while this growth is notable, the growth in credit extension to individuals, particularly in the form of installment sales, is what is most interesting in the latest set of statistics.
Installment credit captures credit extended for the purchase of goods bought on installment, such as furniture, consumer electronics, and most importantly, vehicles. And over the past year, this form of credit has grown remarkably, largely on account of the current accommodation monetary policy position in the country. Historically low interest rates have increased the demand for credit from the populous, a fair amount of which goes to fund consumer goods, most of which are captured in the aforementioned category of PSCE.
The latest figures show that PSCE in the form of installment sales to individuals (i.e. not companies) has increased by a whopping 18.2 percent in the last year, the largest growth seen in 18 months. As such, outstanding installment credit to households now stands slightly below N$6 billion, following a N$920 million increase in this form of credit over the last year. This is potentially alarming, as not only is this strong growth coming off an ever increasing base, but we are also likely to be on the cusp of an interest rate hiking cycle in the region, which would make this outstanding debt increasingly expensive for the consumer.
Moreover, many of the consumer goods purchased with installment credit are imported, as we do not manufacture much in the way of consumer electronics or consumer vehicles in Namibia. Potentially concerning is the fact that the country’s reserves, which are used to fund many of these foreign purchases, started the year relatively low, and tend to see a downward trend through the year. Going forward, this trend could be accelerated based on these high levels of installment credit growth, and the imports likely to have resulted, or to result, from such. On this, it is interesting to note that January 2013 to January 2014, reserve fell by approximately N$1 billion, a very similar number to the new uptake in installment credit March 2013 to March 2014.
Given the increase in installment credit, alongside the general positive state of the local economy, household debt figures and the local reserve position, it is somewhat surprising that the Bank of Namibia has yet to increase interest rates in the country.