Private sector credit extension (PSCE) increased by N$345.0 million or 0.37% m/m in June, bringing the cumulative credit outstanding to N$93.1 billion. On a year-on-year basis, private sector credit extension increased by 6.4% in June, compared to growth of 5.5% in May. On a rolling 12-month basis N$5.6 billion worth of credit was extended to the private sector, with individuals taking up N$3.3 billion while N$1.5 billion was extended to corporates. Claims on non-resident private sector credit contracted by 0.9% m/m and increased by 186.6% y/y.
Credit extension to individuals
Credit extended to individuals increased by 6.4% y/y in June, marginally faster than the 6.1% y/y growth recorded in May. Month-on-month, credit extension to individuals increased by 0.8% in June following a 0.3% contraction registered in May. Installment credit extension remained depressed, contracting by 4.8% y/y and 1.4%% m/m. Demand for overdraft facilities continued to decrease on an annual basis, with overdraft facilities increasing by a slight 0.6% y/y in June compared to 1.7% y/y in May. Overdraft facilities recorded a contraction in credit outstanding of 1.1% m/m in June.
Credit extension to corporates
Credit extension to corporates contracted by a slight 0.2% m/m after increasing by 0.9% m/m in May. On an annual basis, however, credit extension to corporates increased by 4.2% y/y in June, 1.4 percentage points higher than the 2.8% y/y growth registered in May. Installment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 6.7% y/y in June. Leasing transactions to corporations contracted by 3.6% y/y in June following the 5.0% y/y decline in May. Overdraft facilities extended to corporates decreased by 1.4% m/m, but increased by 0.6% y/y.
Banking Sector Liquidity
The overall liquidity position of commercial banks increased by N$937 million to an average of N$4.9 billion during June. Bank of Namibia credits this improvement in liquidity to proceeds from diamond sales coupled with companies hoarding liquidity in preparations for customary corporate tax payments. The increased liquidity position meant that repo facilities amounting to N$176 million were utilised only briefly at the end of June.
Reserves and money supply
Foreign reserve balances increased by N$1.5 billion to N$29.6 billion in June. This increase was due to payments received from Banco Nacional de Angola, interest received on investments, Rand seigniorage and exchange rate fluctuations, according to the Bank of Namibia.
Growth in private sector credit extension has been ticking up for most of the first half of the year, but still remains far from the double-digit growth rates last seen in 2016. According to BoN’s data, the overall liquidity position of Namibian commercial banks averaged the highest levels since August 2014. Despite this, banks are selective regarding extending more credit into an economy currently in a recession. Thus, credit supply is dampened by selective issuance justified by stretched balance sheets and high debt to income levels. Demand for credit has been affected by stricter borrowing requirements set by BoN during the last two years. Furthermore, overall market expectations currently are for interest rates to remain stable for the rest of the year. Due to the abovementioned reasons, our expectation is for private sector credit extension to remain under pressure for the rest of the year.