Overall
Private sector credit extension (PSCE) increased by N$1.1 billion or 1.2% m/m in February, bringing the cumulative credit outstanding to N$91.6 billion. On an annual basis, private sector credit extension increased by 5.1% in February, a slight uptick when compared to the 5.0% y/y growth recorded in January. On a rolling 12-month basis, N$4.4 billion worth of credit was extended to the private sector, with individuals stacking up N$3.5 billion worth of debt while N$767.6 million was extended to corporates. The claims on non-resident private sector increased by N$139.4 million y/y.
Credit extension to households
Credit extension to households expanded by 0.6% on a monthly basis and 7.0% on an annual basis in February. The slight monthly increase in household debt was a result of a 0.8% m/m or N$272.8 million increase in mortgage loans extended. This follows the 0.2% increase in mortgage loans in January. Year on year the value of mortgage loans extended increased by 8.2%, well in excess of the overall rate of growth in PSCE. The increase in overdraft facilities slowed down to 0.3% m/m, following the 3.8% m/m increase in January. Installment credit, which is often used to finance new vehicle purchases, remains depressed, contracting by 2.8% y/y and 0.4% m/m. Cumulative new vehicle sales continued its downward trend in February, with the reduction in government spending having a direct effect on the demand for new vehicles.
Credit extension to corporates
Credit extension to corporates grew by 2.0% m/m in February after increasing by 0.3% m/m in January. On an annual basis credit extension to corporates accelerated to 2.1% y/y from 1.7% y/y in January. This was due to growth in the “other claims” category, which increased 6.8% m/m and y/y. Mortgage loans to corporates increased by 0.5% m/m and 6.4% y/y. Overdraft facilities extended to corporates increased by 2.2% on both a monthly and yearly basis. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 0.2% m/m and 6.4% y/y in February. Credit extended to corporates in February explains approximately 92% of the change in credit extended to corporates on a year on year basis.
Banking Sector Liquidity
The overall liquidity position of commercial banks deteriorated to an average of N$1.85 billion during February, a decrease of N$59.3 million compared to the preceding month. The decrease in the overall liquidity position culminated from cross border trade-related outflows and corporate tax payments during the review period according to the Bank of Namibia. Commercial banks continue to utilize BoN’s repo facility, and although average repos have decreased slightly from N$644 million in January to N$603 million in February, the use of the facility suggest that some banks are experiencing mild liquidity stress.
Reserves and money supply
Foreign reserves decreased by N$1.5 billion to N$26.8 billion in February, the lowest level since May last year. According to the Bank of Namibia, the decline in the level of reserves was due to net commercial bank purchases of foreign currency, net government purchases and maturities of foreign currency investments held with the central bank during the period under review.
Outlook
Private sector credit extension continued its slow start in the second month of 2018, with the growth during the month mainly driven by the increased demand for credit by the corporate sector while that of the household sector declined. This month, South Africa survived a credit ratings downgrade from Moody’s, and saw inflation figures remaining well within SARB’s target band. This gave the bank room to cut rates by 25 basis points, with the possibility of further cuts as the year progresses, and BoN is expected to follow suit. This will bring relief to both consumers and the corporate sector, and will make it more attractive for businesses to acquire the debt finance needed to expand and invest in capital projects, and in turn hire more people.