Overall
Credit extended to the private sector increased by N$1,093.9m, or 1.6%, in December 2014, taking total credit outstanding to N$69.4bn. On an annual basis PSCE growth accelerated to 16.5%, a slight uptick from November. A net total of N$9.82bn worth of credit has been extended during 2014, the highest level of net issuance seen over a 12 month period to date, as high growth continues to be seen off an ever increasing base. Of this N$9.82bn, approximately N$4.85bn was issued to businesses, while N$4.89bn was taken up by individuals.
Credit extension to households
Credit extension to households expanded by 1.8% on a monthly basis and 13.3% on an annual basis in December. The growth in credit extension to households can be largely ascribed to prolonged and historically low interest rates in Namibia, allowing for the relatively cheap uptake of credit by interest sensitive households. While interest rates have now started to increase, the transmission mechanism is relatively slow, particularly when interest rate increases are small, as have been the recent hikes.
Mortgage credit is still by far the biggest component of credit extended to households, contributing 39.2% to the total PSCE outstanding, and 65.5% of credit extended to households. N$2.90bn worth of mortgage credit was issued during 2014, expanding by 12.0% year-on-year and continues to grow on the back of low interest rates and a strong local economy.
Installment credit makes up the second largest component of credit extended to households (16.6%) but is the fastest growing component with a year on year growth rate of 18.8% compared to the 13.3% growth seen in total credit extended to households. This points to a nation that is becoming more comfortable with the use of debt for private consumption. Installment credit is often used to purchase consumer goods and could be seen as a non-productive utilization of credit, and much of this is spent on imported goods.
Credit extension to corporates
Credit extension to corporates grew by 21.4%year-on-year in December, meaningfully higher than the growth of credit extended to households. Mortgage loans, the largest component of credit extended to corporations, grew by 22.5% or N$1.48bn during 2014. Overdraft facilities, the second largest component, grew by 21.6% and now amounts to 25.0% of the total credit extended to corporations. The continued growth in PSCE is indicative of the strength of the Namibian economy even amid global divergence and despite South African economic weakness.
Outlook
Looking forward we expect to see further strong credit growth. Real income growth is expected to remain elevated given the expansive economic conditions that are still prevalent within Namibia which will continue to reinforce demand for credit as Namibian’s leverage off increased income.