Private sector credit extension (PSCE) increased by N$344.0 million or 0.38% m/m in January, bringing the cumulative credit outstanding at the end of 2017 to N$90.6 billion. On a y/y basis, private sector credit extension increased by 5.0% in January, slower when compared to the 5.2% y/y growth recorded in December. From a rolling 12-month basis, N$4.3 billion worth of credit was extended to the private sector, with individuals stacking up N$3.6 billion worth of debt while N$596 million was extended to corporates. Claims on non-resident private sector credit increased by N$119.3 million y/y.
Credit extension to households
Credit extended to households increased by 7.2% y/y in January and on a m/m basis, household credit extension rose by 0.5% in January. The month on month increase in household debt can attributed to the increase in overdraft facilities of 3.8% or N$115.8 million in January, following a contraction of 1.4% in December. Installment credit remains depressed, contracting by 2.5% y/y and 0.4% m/m. Fewer consumer discretionary income is being directed towards installment credit, which is the largely used in financing vehicle purchases. Depresses consumer confidence and tighter credit controls imposed on vehicle financing have been the main driver of the decline in new vehicle sales. The Cumulative 12-month vehicle sales have declined by 17.8% y/y. The value of mortgage loans extended to individuals have by 7.7% y/y and 0.2% m/m.
Credit extension to corporates
Credit extension to corporates increased by 0.3% m/m in January, slower than the 0.8% m/m increase in December. Year on year credit extension to corporates grew 1.7% in January, one percent slower than the increase in growth from the 2.7% y/y in December. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis remained depressed, contracting by 7.9% y/y in January. Leasing transactions to corporations contracted further in January by 7.6% y/y following the 17.2% y/y decline in December. Overdraft facilities extended to corporates increased by 5.3% m/m and 4.8% y/y.
Banking Sector Liquidity
The overall liquidity position of commercial banks declined by N$1.2 million from N$3.1 billion in December to N$1.9 billion in January. The decrease in the liquidity position is attributed to periodic corporate tax payments made to Inland Revenue in January. BoN’s repo facility has been utilized consistently since mid-December and although average repos decreased from N$726 million in December to N$644 million for January, the use of the facility is an indication that commercial banks are facing challenges in terms of liquidity.
Reserves and money supply
Foreign reserves declined by N$1.3 billion, bringing down reserve levels to N$28.3 billion in January from N$29.7 billion in December. According to the Bank of Namibia the decline in reserves is attributed to the maturities of foreign currency denominated debt that matured in January.
Private sector credit extension growth had slowed markedly in 2017. PSCE continues to slow at the start of 2018 taking its cue from 2017 as a result of lower demand for credit and lower supply thereof. The introduction of the new provisions a directed by IFRS9, with regards to the calculation of credit impairments is set to have a significant effect on the availability of credit this year. Stagnant interest rates have not provided consumers or business the much-desired relief, following only one rate cut in August last year. Moody’s decision on SA’s local and foreign currency rating is set for the end of March, with the SARB very likely to hold off any change in interest rates until that decision is made known. The positive change in leadership in SA, and the positives from last months budget provide for optimism that SA might stave off a ratings downgrade from Moody’s. SA surviving a credit ratings downgrade coupled with moderating inflation might well open the door for the SARB to cut rates and for the BoN to in follow in similar fashion.