Overall
Total credit extended to the private sector increased by N$1.392 billion, or 1.9%, in September 2015, taking total credit outstanding to N$75.9 billion. On an annual basis PSCE growth slowed slightly from 15.8% in August to 15.7% in September. A total of N$10.3 billion worth of credit has been approved over the last 12 months with N$6.5 billion worth of credit being approved in 2015 thus far. Of this N$10.3 billion worth of credit issued during the last 12 months, approximately N$4.9 billion was taken up by businesses, while N$5.3 billion was taken up by individuals.
Credit extension to households
Credit extension to households expanded by 1.1% on a monthly basis and 13.5% on an annual basis in September. Credit extension to households is now growing at a more sedate pace than in the past and may slow further as interest rate hikes change consumer trends. It is worth remembering however that the transmission mechanism between rate hikes and PSCE contractions is relatively slow, particularly when interest rate increases are small.
Household mortgage loans expanded by 0.99% month on month and 13.3% year on year and continue to make up the majority of credit extended to households or individuals. On a year on year basis the rate at which individuals are taking up mortgage loans has been increasing from below the average rate of private sector credit extension to households to well above it. On a year on year basis mortgage loan issuance is thus driving credit extension to individuals.
Instalment credit, the second largest component of loans extended to individuals, grew at 15.7% year on year in September, slightly down from 16.4% in August, although well off the rapid growth we saw in the first half of the year. On a month on month basis instalment credit grew by 1.2%. The lackluster instalment credit growth can be attributed to tighter monetary policy as well as a possible slowdown in credit extension by banks due to less than ideal liquidity positions. We will monitor this figure closely in the coming months as a longer term slowdown in trend growth would confirm the apparent liquidity issues within the country and put pressure on consumers.
Credit extension to corporates
Credit extension to corporates grew by 3.0% on a month on month basis and 18.8% year-on-year In September, once again meaningfully higher than credit extended to households. This expansion was again primarily driven by exceptional growth in mortgage loans, up 29.6% year on year and 1.7% month on month. Instalment credit extended to corporates grew at a rate of 18.0% year on year and 1.1% month on month, while overdraft facilities grew by 14.3% year on year and decreased 1.4% on a month on month basis. Total credit issued to corporations has, in the past, made up less than 40% of total PSCE but has crossed this threshold, now making up 41.2% of the total figure. Although corporate credit has been growing at a far quicker rate than credit extended to individuals, the relatively low base from which this growth stems means that the majority of private sector credit still sits with the individual.
Reserves and money supply
The stock of foreign reserves decreased further by the end of September 2015, as can be seen in the below figure. International reserves stood at N$12.8 billion at the end of September, down from N$14.1 billion at the end of August. August and September tends to see a decline in reserves due to the lack of significant inflows during this month. The Namibian reserve position remains a concern as the hard currency value (US$) of reserves continues to decline. The Rand has experienced a 16% decline versus the US Dollar thus far this year, a trend that is expected to continue in the long term. International reserves should appreciate in local currency terms due to the depreciation of the local currency but the fact that reserves are not is cause for concern.
Outlook
Private sector credit extension continues to grow at a rapid rate, adding approximately N$1 billion to the total outstanding private sector credit each month. While the rate of growth has been slowing slightly in recent months, the base off of which it is calculated has grown significantly. This signifies an economy expanding rapidly. A slowdown in the growth rate of credit extended to individuals since 2014 has been compensated for by the rapid growth of credit extended to corporates. The current rate hiking cycle as well as the inflated base should see future PSCE growth slow somewhat. Current banking sector liquidity conditions should put further pressure on credit extension growth as funding becomes more expensive. While not ideal, negatives to the slowdown in credit extension, especially to individuals, may be outweighed by longer term positives. A slowdown in credit extension growth should lead to a reduction in the amount of money flowing out of the country for consumptive purposes, boosting the international reserve position of Namibia. Higher interest rates should also lead to an increase in saving by individuals which is at low levels at present. A slowdown in credit extension to more natural rates (GDP growth) should be positive for the economy and prevent it from overheating.