Overall
Private sector credit extension (PSCE) increased by N$180.2 million or 0.20% m/m in October, bringing the cumulative credit outstanding to N$89.0 billion. On a y/y basis, credit extended to the private sector rose by 5.2% in October, marginally slower than the growth of 5.24% recorded in September. Growth in total credit extended to the private sector continued to fall on a rolling 12-month basis as N$4.39 billion worth of credit has been extended over the last 12 months. This is down 44% from the N$7.84 billion issuance in the prior 12-month period that ended October 2016. Of this cumulative issuance, individuals took up N$3.6 billion while N$850 million was issued to corporates. Claims on non-resident private sector credit decreased by N$55.22 million y/y.
Credit extension to households
Credit extended to individuals increased by 7.37% y/y in October, compared to the growth of 7.53% y/y in September. On a m/m basis household credit extension rose by 0.63%, a slower increase in growth than the increase of 1.63% m/m recorded in September. Household credit extension has been very much subdued during 2017, having last recorded double-digit growth in August 2016. Installment credit increased by 0.48% m/m and contracted by 2.0% y/y. This is aptly reflected in the dwindling sales of new vehicles as reported for the month of October. New vehicle sales decreased by 20.6% on a rolling 12-month basis and should serve as no surprise that installment credit used to finance new vehicle purchases is declining in tandem. The value of mortgage loans extended to individuals increased by 0.5% m/m and 8.1% y/y. Overdraft facilities extended to individuals grew by 0.6% m/m and 10.9% y/y. Other loans and advances recorded growth of 3.2% m/m and 5.0% y/y.
Credit extension to corporates
Credit extension to corporates contracted on a m/m basis, recording a decline in 0.5% in October albeit slower contraction than the 1.4% m/m contraction in September. Y/y credit extended to corporates rose 2.4% in October, unchanged from the rate registered in September. Instalment credit extended to corporates contracted by 0.6% m/m in September. Installment credit extended to corporates has been contracting since February 2017 and continued to do so in October, declining 6.8% y/y. Mortgage loans extended to corporates increased by 5.8% y/y and 2.4% m/m. Overdraft facilities extended to corporates decreased 6.4% m/m while rising 5.0% y/y.
Banking Sector Liquidity
The average monthly liquidity position of commercial banks decreased from N$3.55 billion in September to N$2.85 billion in October. The decrease is attributed to cross border payments made during the month of October.
Reserves and money supply
Foreign reserves rose by N$138.2 million to N$31.6 billion at the end of October from N$31.4 billion in September. According to the Bank of Namibia the increase in the level of reserves stemmed from the inflows of Southern African Customs Union (SACU) receipts. Reserve balances going forward should further improve following the recent approval of a N$2 billion loan facility from the African Development Bank (AfDB) that has been earmarked for the agriculture and education sectors.
Outlook
With 2017 drawing to a close private sector credit extension has since the start of the year been on a downward trajectory. The slower rates of growth as recorded in the October figures points towards subdued demand for credit, especially from households. This speaks of an over-committed consumer that was further impacted by legislature changes earlier this year that tightened the affordability and qualifying criteria. Relief for consumers was expected through the possibility of easing monetary policy. This was backed by the first rate cut in five years of 25 basis points in July by the SARB and in August by BoN. At the time moderating inflation and the need to aid both struggling economies set the stage for what many expected would be the start of a rate cutting cycle.
Since then, South Africa has been downgraded by both Fitch and S&P while Namibia was not spared in its own respect by Moody’s and Fitch Ratings. Four MPC meetings later, hopes of further rate cuts were dispelled when both committees elected to keep rates unchanged. Credit ratings agency have longed warned of the implications of fiscal indiscipline and it has been clear of late that those weren’t mere warnings. Moody’s has placed South Africa on review and will make a decision in the three months. The risk in Moody’s downgrading South Africa’s local currency in February has the biggest implication in that it will result in South Africa losing its place in global bond indexes. Exclusion from these indices will result into large capital outflows that in turn will result in upside risks for inflation as well as a blow out of the rand. The SARB will most likely in that event rate hikes in an effort to stabilize the currency with Namibia having little room to do anything but adopt the same measures, thus putting further pressure on private sector credit extension.