Private sector credit (PSCE) rose by N$351.1 million or 0.32% in September, bringing the cumulative credit outstanding to N$109.5 billion after normalising for claims on non-resident private sectors consisting of interbank swaps. On a year-on-year normalised basis, private sector credit grew by 3.6% y/y in September, compared to the 4.1% y/y growth recorded in August. On a 12-month cumulative basis, N$4.27 billion worth of credit was extended to the private sector. Of this cumulative issuance, individuals took up N$1.70 billion while corporates borrowed N$2.57 billion.
Credit Extension to Individuals
Credit extended to individuals increased by 0.5% m/m and 2.8% y/y in September. Mortgage loans to individuals posted growth of 0.3% m/m and 1.9% y/y. Overdraft facilities to individuals grew by 1.3% m/m but contracted by 1.1% y/y. Other loans and advances (consisting of credit card, personal and term loans) rose by 1.5% m/m and 8.6% y/y. Instalment and leasing sales fell by 0.1% m/m and 1.0% y/y.
Credit Extension to Corporates
Credit extended to corporates grew by 0.7% m/m and 5.9% y/y in September, following the 8.3% y/y increase recorded in August. According to the BoN, the decrease is attributable to reduced demand and debt reduction by corporates in the construction and services sector. Mortgage loans contracted by 1.4% m/m but rose 13.1% y/y while overdrafts rose 0.3% m/m but contracted by 2.5% y/y. Other loans and advances rose by 1.0% m/m and 16.6% y/y. Instalment credit increased by 0.8% m/m and 15.4% y/y. The growth in instalment credit is attributed to rising new vehicles sales.
Banking Sector Liquidity
The overall liquidity position of the commercial banks continued to drop from the elevated levels reached in June this year. September saw the banking liquidity position fall by N$1.08 billion to an average of N$3.04 billion before ending the month at N$2.78 billion. The BoN ascribed the decline to withdrawals by other financial corporations coupled with increased cross-border payments amidst a rise in import costs.
Reserves and Money Supply
Broad money supply (M2) rose by N$5.17 billion or 4.2% y/y to N$128.3 billion, according to the BoN’s latest monetary statistics. The BoN noted that the growth in M2 comes on the back of sustained growth in both net foreign assets and domestic claims of the depository corporations in the form of credit extended to the household sector. Foreign reserve balances rose by 2.1% m/m or N$982.22 million to a total of N$48.0 billion. The rise was attributed to revaluation gains and increased portfolio investment during the period.
Outlook
September’s PSCE growth somewhat slowed when compared to August. The lower growth in PSCE was attributable to lower demand and deleveraging by the corporate sector, more specifically corporates in the construction and services sectors, according to the BoN. PSCE growth is expected to remain tepid amidst elevated inflation and rising interest rates to tame inflation over the near term. As expected, the BoN hiked interest rates by another 75 basis points at its MPC meeting held on 26 October. Another hike in the neighbourhood of either 50 or 75 basis points is on the cards by year-end and will further stretch already indebted consumers and dent demand for new credit uptake in our view.