Overall
Private sector credit extension (PSCE) increased by N$292.8 million or 0.3% m/m in July. Cumulative credit outstanding currently amounts to N$93.4 billion. PSCE growth slowed to 6.3% y/y in July from 6.4% y/y in June. This slowdown was driven by slower growth in credit extended to corporates at 3.4% y/y versus 4.2% in June. Credit extension to individuals grew at 6.7% y/y versus 6.4% in June. On a rolling 12-month basis N$5.5 billion worth of credit was extended to the private sector. Individuals took up N$3.5 billion, corporates took up only N$1.2 billion, and claims on non-resident private sectors accounted for N$824 million.
Credit extension to individuals
Credit extended to individuals increased by 6.7% y/y in July, a further uptick in the pace of credit extension from the 6.4% y/y growth recorded in June. Credit extension to individuals increased by 0.9% m/m in July following growth of 0.8% in June. Installment credit extension continued to contract, by 5.1% y/y and 0.1% m/m in July. Credit extended through overdraft facilities contracted by 1.7% y/y and 2.5% m/m as individuals paid down on these facilities. Other loans and advances grew by 16.2% y/y and 2.9% m/m in July.
Credit extension to corporates
Credit extension to corporates grew by 3.4% y/y and contracted by 0.4% m/m. On a rolling 12-month basis N$1.2 billion was extended to corporates, a far cry from the highs of over N$5.3 billion recorded for the 12 months ending in February 2015. In real terms corporations are reducing their exposure to credit although this may not be so on an individual business basis in some industries. Installment credit extended to corporates contracted by 8.0% y/y and 0.5% m/m in July. Leasing transactions to corporations contracted by 2.8% y/y but grew by 0.1% m/m. Overdraft facilities extended to corporates grew by 1.6% y/y but contracted by 1.7% m/m. There has been a net decrease in overdraft facilities utilized by corporates of 4.1% over the last four months while there has been an increased use of other loans and advances. Other loans and advances to corporates grew by 19.5% y/y and 3.9% m/m in July.
Banking Sector Liquidity
The overall liquidity position of commercial banks decreased by N$198.6 million to an average of N$4.5 billion during July. Once again the Bank of Namibia credited strong liquidity during the month to proceeds from diamond sales. Liquidity within the Namibian market has been strong for a number of quarters. Despite this the repo facility saw increased use during the month of July.
Reserves and money supply
Foreign reserve balances increased by N$1.2 billion to N$30.8 billion in July. The reserve position has strengthened since the recent lows in March this year. SACU revenues, the repatriation of Namibia dollars from Angola, and currency weakness all contributed to this improvement. The imminent receipt of funds from the African Development Bank should see further improvement in August, supported by yet further currency weakness. It should be noted that a drop in local demand for foreign goods has also contributed through a reduced trade deficit.
Outlook
Private sector credit extension continues to languish with credit extended to corporates failing to match, let alone beat, annual inflation for most of the year, while the average monthly credit extended to individuals this year remains well below last year’s average values (note that 2017 was a recession year). One would expect credit extension to corporates to lag a recovery in credit extended to households as demand leads investment into new business. The lack of acceleration in credit extension to individuals is thus likely to result in further lackluster credit extension to corporates for some time to come. Government is one source of demand which could provide some relief to struggling companies although this is also unlikely due to the continuation of the mild fiscal consolidation stance and uncertain government revenues.