Overall
Total credit extended to the private sector increased by N$387.7 million or 0.44% m/m in July, bringing the cumulative credit outstanding to N$87.9 billion. On a year on year basis, credit extended grew by 6.82% in July, compared to a revised 7.21% recorded in June. Growth in total private sector credit extension continues to fall in 2017, on a rolling 12-month basis N$5.6 billion worth of credit was extended. N$1.71 billion in credit has been extended to corporates and N$3.97 billion to individuals on a 12-month cumulative basis, while the non-resident private sector has decreased their borrowings by N$31.15 million.
Credit extension to households
Growth in credit extension to individuals ticked up slightly to 8.35% y/y and 0.5% m/m, compared to 8.27% y/y growth recorded in June. Installment credit rose by 0.24% m/m while year on year growth marginally rose 0.4%. The decline in new vehicle sales of 12.8% year on year is reflected in the subdued growth in installment credit, with new vehicle sales making up a large portion thereof. Furthermore, the contraction in new vehicle sales are attributable to a slowing economy and the amendments to the Credit Agreement Act. These amendments now obligate shorter repayment periods, the abolishment of balloon payment options and zero deposit financing. Growth in mortgage loans showed relative improvement in July, recording growth of 0.6% m/m and 8.7% y/y. Overdraft facilities extended to individuals slowed by 0.2% m/m but rose by 18% y/y, the highest it has been since December 2014. Other loans and advances recorded growth of 1.2% m/m and 16.5% y/y.
Credit extension to corporates
Credit extension to corporates rose 0.4% m/m in July from contracting 1.6% in June. Year on year credit extension rose 5.0%, falling from year on year growth of 5.6% in June. Installment credit extended to corporates grew 0.8% m/m, rising for the first time following nine consecutive months of contraction. Year on year installment credit extended to corporates has contracted by 4.1%. Mortgage loans extended to corporates in July showed improvement, rising 3.2% m/m and 7.0% y/y. Mortgage loans extension growth to corporates has been slowing down since the start of the year with. Growth in overdraft facilities extended to corporates contracted 2.6% on a m/m basis and rose 17.6% y/y.
Banking Sector Liquidity
The average monthly liquidity position of commercial banks closed at N$2.97 billion in July after averaging above N$3.1 billion during May and June. This would suggest that this was the start of the flow of funds received from the AfDB loan to entities owed as was assured by the Ministry of Finance. With all invoices set to have been settled by the end of August. The overall liquidity position still looks positive and bodes well for commercial banks having increased levels of loanable funds available. However, it remains to be seen exactly how commercial banks will put into effect imminent changes to IFRS9. These changes could have potentially significant bearing towards how banks, going forwards grant credit facilities, the term and effective cost thereof to be carried by the consumer.
Reserves and money supply
Foreign reserves rose by N$5.163 billion to N$33.6 billion at the end of July from N$28.5 billion in June. According to the Bank of Namibia the increase in the level of reserves emanated mainly due to the repatriation of funds by financial institutions, the African Development Bank (AfDB) loan inflow and the repayments by the National Bank of Angola.
Outlook
Private sector credit extension remains very subdued continuing to slowdown as the year progresses. The South African Reserve Bank (SARB) cut its repo rate by 25 basis points in July, this however did little to avoid an unexpected slowdown in South Africa’s private sector growth that moderated to 5.71% in July from 6.16% in June. Bank of Namibia (BoN) followed suit in effecting a rate cut of 25 basis points as well, citing the need to support an ailing economy and maintaining the currency peg between the Namibian Dollar and the SA Rand. The improvement in foreign currency reserves does bode well in achieving the its goal of maintaining the peg. Further rate cuts are expecting at MPC meeting in August and September for the SARB and BoN respectively. Should that hold to be true, we might see an increase in private credit extension, since a single reduction of 25 basis points was going to do little to spur on demand for credit. The current slowdown in private credit extension is testament to an already stressed consumer. A scenario that speaks of low consumer and business confidence. A consumer that is already overburdened and may soon face further tightening of credit qualifying criterion, should our expectations of the effects of IFRS9 come to fruition.