Overall
Total credit extended to the private sector increased by N$241.8 million or 0.29%, in April, taking total credit outstanding to N$83.9 billion. On an annual basis PSCE growth increased by 12.4% in April compared to 13.0% in March. A total of N$9.3 billion worth of credit has been approved over the last 12 months with N$1.8 billion worth of credit being approved in 2016 thus far. Of this N$9.3 billion worth of credit issued during the last 12 months, approximately N$3.8 billion was taken up by businesses, while N$4.9 billion was taken up by individuals.
Credit extension to households
Credit extension to households expanded by 0.6% on a monthly basis and 11.8% on an annual basis in April. Credit extension to households has continued to slow as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small. We do expect to see further rate hikes going forward and this should lead to a continuation of the slowdown of credit extension to households and possibly contractions on a monthly basis.
During the month household mortgage loans expanded by 0.6% month on month and 12.1% year on year, down from 0.7% month on month and up from 11.5% year on year and continue to make up the majority of credit extended to households. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing, from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.
Instalment credit, the second largest component of loans extended to individuals, grew at 12.6% year on year in April, up from 12.1% in March, although well off the long term average growth for this component of PSCE. On a month on month basis instalment credit grew by 0.1%, down from 0.4% in March. The lackluster instalment credit growth on a yearly basis can be attributed to tighter monetary policy as well as a slowdown in credit extension by credit providers due to less than ideal liquidity conditions.
PSCE – April 2016
Credit extension to corporates
Credit extension to corporates registered a much lower but positive growth of 0.1% from 0.2% on a month-on-month basis and an annual growth of 12.9% year-on-year in April, down from 15.2% in March. Credit extended to corporates during April was again primarily driven by exceptional growth in mortgage loans, up 15% year on year and 0.3% month on month. Instalment credit extended to corporates grew at a rate of 3.9% year on year and declined 0.6% on a month on month basis, while overdraft facilities grew by 7.4% year on year and 3.3% on a month on month basis. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.
Reserves and money supply
Foreign reserves decreased slightly during April. The decrease primarily came as a result of net government payments. International reserves stood at N$24.661 billion at the end of April, down from N$24.910 billion in March.
Outlook
Private sector credit extension has slowed considerably on a year to date basis as a result of the current interest rate hiking cycle. Should we see further rate hikes in the SA market due to above target inflation and a volatile and depreciating Rand, we will see further rate hikes from the Bank of Namibia as well. This will put further pressure on the consumer which will in turn affect corporates. Further impacting the current economic climate is the drought experienced in the central region. Water restrictions may limit business activities and deter further investment, all of which has a negative impact on credit extension. We thus expect PSCE to continue to slow down, possibly topping out in the not too distant future.