Category: Financial Services

Analysis

Total credit extended to the private sector (households and businesses) increased to N$ 119,320.3 million for October 2023 from N$118,943.7 million recorded in September 2023. This translated into a 0.3% monthly increase. The monthly increase was influenced by an increase in credit extended to households as a result of an increased demand for loans and loans and advances mainly the overdrafts. However, monthly declines were observed across almost all credit subcategories for the business category except for the other loans and advances installment and leasing credit, which exhibited a monthly increase of 1.0%. Figure 1

On an annual basis, the Private Sector Credit Extension (PSCE) recorded a growth rate of 1.8%, down from the 1.6% growth rate recorded at the end of September 2023. The slight increase in the growth of PSCE emanated from an increase in overdraft credit mainly by the household sector during the review period. In contrast, total credit extended to the business sector continued to decline during the period under review. Figure 2

Figure 1: Annual % PSCE vs. Repo Rate & Interest Rate, (January 2019- October 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Households

In October 2023, the credit extended to households reached N$ 66,427.1 million, indicating a growth compared to the N$ 65,967.9 million recorded in September 2023, reflecting a monthly increase of 0.7%. The upswing was predominantly propelled by a 1.0% expansion in the loans and advances category. The surge in this category was attributed to notable increases in sub-categories such as overdraft, which escalated from 3.0% to 25.1%, while other loans and advances experienced a decline from 7.8% to 5.1%. Concurrently, mortgage loans observed a decrease from 3.2% to 3.0% (refer to Figures 2, 3, and 4). Furthermore, the installment and leasing category witnessed a decline from 6.4% to 3.4% (Figure 5)

Figure 2: Other loans and advances, (January 2021- October 2023)

Source: BON & HEI RESEARCH

Figure 3: Mortgage, (January 2021- October 2023)

Source: BON & HEI RESEARCH

Figure 4: Overdrafts (January 2021- October 2023)

Source: BON & HEI RESEARCH

Figure 5: Instalments and Leasing, (January 2021- October 2023)

Source: BON & HEI RESEARCH

Credit to Businesses

During the month of October 2023, a 1.4% contraction in credit extended to businesses, representing a milder decline compared to the 2.1 percent recorded in September 2023. This marks the seventh consecutive month of negative growth in credit to businesses. In actual numbers total credit extended to businesses amounted to N$ 45,182.5 million, reflecting a slight decrease from the previous month's figure of N$ 45,281.7 million. This reduction primarily stemmed from declines in both the loans and advances category (from 4.9% to 5.2% month-on-month) and the installment and leasing category (from 20.0% to 19.2% month-on-month), primarily influenced by reduced demand for credit in those categories, additionally corporate entities in the financial sector contributed to the negative growth through net repayments in mortgage and overdraft credit

Specifically, within the loans and advances category, there was a notable decrease of 1.7% in other loans and advances, while the sub-category of overdrafts experienced a modest increase of 0.8% month-on-month. (Refer to Figures 5, 6, 7& 8).

Figure 5: Overdrafts, (January 2021- October 2023)

Source: BON & HEI RESEARCH

Figure 6: Mortgage, (January 2021- October 2023)

Source: BON & HEI RESEARCH

Figure 7: Other loans and advances, (January 2021- October 2023)

Source: BON  & HEI RESEARCH

Figure 8: Instalments and Leasing, (January 2021- October 2023)

Source: BON & HEI RESEARCH

Banking Liquidity position

As of October 2023, there was a rise in the overall liquidity of the banking industry. Cash balances within the industry increased from N$7.4 billion in September 2023 to N$7.5 billion by the end of October 2023. This upward trend, reflecting a month-on-month growth of N$174.6 million, can be attributed to government bond payments during the specified period. Figure 9.

Figure 9: Banking Liquidity (January 2021- October 2023)

Source: BON & HEI RESEARCH

Foreign Reserves & Money Supply

The Bank of Namibia experienced a decrease in its international reserves, witnessing a decline from N$53.7 billion in September 2023 to N$51.3 billion in October 2023. This reduction is primarily linked to heightened outflows from commercial banks, driven by increased import expenses. However, on an annual basis, foreign reserves demonstrated a notable 20% increase, a positive trend attributed to enhanced foreign earnings from exports. Figure 10.

Figure 10: Foreign Reserves (October 2022- October 2023)

Source: BON & HEI RESEARCH

Figure 11: Broad Money Supply Growth % (October 2022- October 2023)

Source: BON, NSA & HEI RESEARCH

Outlook

Namibia experienced subdued growth in Private Sector Credit Extension (PSCE) during the month of October 2023. The annual growth rate persisted at modest levels, reflecting a trend where businesses remained focused and hesitant in taking more loans to reduce their debt burdens. This implies that corporations are showing a reluctance to borrow amid the existing economic conditions characterized by high interest rates and weakened consumer confidence.
Despite the prevailing economic challenges, credit extension to individuals has demonstrated notable resilience. Looking ahead to 2024, we anticipate a gradual and sustained upward trend in credit extension for individuals. This expectation is grounded in the forthcoming improvements in tax brackets in 2024, which are set to enhance credit scores and subsequently stimulate increased demand for credit. As these positive adjustments in tax policies take effect, we foresee a positive impact on individuals' financial profiles, fostering a climate conducive to higher credit utilization. However, despite these favorable developments, our perspective maintains that the overall growth in Private Sector Credit Extension (PSCE) will persist in a subdued state, primarily influenced by the business category in the short term.

Analysis

Between August and September 2023, credit extended to households and businesses in the private sector decreased by N$345.1 million. In real terms, total credit extended to the private sector decreased from N$119,288.8 million in August 2023 to N$118,943.7 million in September 2023. This decline was observed across all credit categories except for installment sales and leasing credit, which exhibited a modest increase of 11.6% during the period under review.

On an annual basis, the Private Sector Credit Extension (PSCE) recorded a growth rate of 1.6% a decline from the 2.2% growth rate recorded at the end of August 2023. This decline could be attributed to low demand for credit and the net repayment of credit by businesses, particularly in the services, wholesale, retail trade, commercial real estate, mining, manufacturing, and fishing sectors, as reported by the Bank of Namibia (see Figure 1). Moreover, business credit contracted by 2.1% year-on-year, while household credit experienced a decline of 4.3% year-on-year.

Figure 1: Annual % PSCE vs. Repo Rate & Interest Rate, (January 2019- September 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Households

The credit extended to households stood at N$65,967.9 million in September 2023 from N$66,433 million in August 2023. This signified a weakening trend, primarily driven by sub-categories such as other loans and advances, which decreased from 14.9% to 7.8% month-on-month. In comparison, mortgage credit remained subdued at 3.2% month-on-month (refer to Figures 2 and 3). Consequently, most credit facilities available to households experienced declines, including overdraft credit, which decreased from 3.5% to 3.0%. However, there was a slight increase in installments and leasing credit, albeit modest, rising from 6.1% to 6.4% during the specified period (refer to Figures 4 and 5).

Figure 2: Other loans and advances, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 3: Mortgage, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 4: Overdrafts (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 5: Instalments and Leasing, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Businesses

During the month under review (September 2023), total credit extended to businesses amounted to N$ 45,281 million, reflecting a marginal improvement from the August figure of N$ 45,188 million. This slight uptick was primarily driven by a surge in demand for installment and leasing credit, which increased from 17.8% to 20.0% month-on-month. This growth was spurred by heightened demand in the car rental industry, supported by activities within the tourism sector. On the other hand, overdraft credit experienced a decline, decreasing from 0.4% to -1.2% month-on-month, along with a contraction in mortgage loans, dropping from 5.3% to -4.9% month-on-month. Meanwhile, other loans and advances remained stable at -5.5%, as illustrated in Figures 6, 7, and 8 (refer to Figure 9).

Figure 6: Overdrafts, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 7: Mortgage, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 8: Other loans and advances, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 9: Instalments and Leasing, (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Commercial Bank Liquidity Position

The aggregate liquidity status of the banking industry saw a decline to N$7.3 billion in September 2023, in comparison to the N$8.8 billion reported in August 2023, marking a month-on-month reduction of N$1.5 billion (see Figure 10). The Bank of Namibia (BoN) attributed this decline to factors such as reduced government expenditure, decreased diamond sales, and an increase in funds placed in the BoN Bill.

Figure 10: Banking Liquidity (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Foreign Reserves & Money Supply

The Bank of Namibia saw a reduction in its stock of international reserves, which decreased from N$55.6 billion in August 2023 to N$53.8 billion in September 2023. This decline could be attributed to outflows from commercial banks and government payments, as illustrated in Figure 11. Due to these developments, the growth rate in broad money supply experienced a notable decrease, falling from 9.6% in August 2023 to 7.9% in September 2023, as shown in Figure 12.

Figure 11: Foreign Reserves (March 2020- September 2023)

Source: BON, NSA & HEI RESEARCH

Figure 12: Broad Money Supply Growth % (January 2021- September 2023)

Source: BON, NSA & HEI RESEARCH

Outlook

The prevalence of homeownership facilitated by mortgages among households, along with the adoption of Installment and Leasing credit options by both households and businesses, often serves as an indicator of economic confidence and individual financial stability. Within Namibia's credit landscape, a subdued trend is distinct, evident in the restrained growth of various credit options such as overdrafts and other loans and advances available to households and businesses, coupled with constraints in liquidity.

Our analysis suggests that the trajectory of credit allocation to households and businesses is likely to face continued limitations in the near-to-intermediate future. Additionally, there is evidence of evolving preferences among households and businesses regarding the types of credit facilities they prefer, with a growing inclination towards installment and leasing options. It's worth noting that, with the central bank keeping the interest rates unchanged, consumers might experience some relief, particularly as they adjust to the effects of previous interest rate hikes.

Analysis

Credit extended to households and businesses in the private sector marginally increased by N$59 million between July and August 2023. In monetary terms, total credit extended to the private sector grew from N$119,229.8 million in July 2023 to N$119,288.8 million in August 2023, due to the slight increase in demand for mortgages for households by 3.1% as well as installments and leasing credit by businesses by 17.7%.

On an annual basis, the Private Sector Credit Extension (PSCE) decelerated at 2.7%, from a 3.9% growth rate recorded at the end of July 2023 as debt obligations hinder consumers from taking up more credit facilities. (Figure 1). Furthermore, business credit contracted by 2.0% y/y, while household credit stood at 5.4% y/y.

Figure 1: Annual % PSCE vs. Repo Rate & Interest Rate, (January 2019- August 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Households

The subdued growth in credit extended to households was driven by the sub-categories of; mortgage loans (from -2.9% to 3.1% m/m), while installment and leasing remained unchanged at 6.1% m/m (Figures 2&3). Additionally, there were declines in most credit facilities available to households, leading to minor overall growth. This was primarily attributed to a decrease in the uptake of weak overdraft credit, falling from 6.1% to 3.5%, and a decline in other loans and advances from 15.9% to 14.9% during the specified period (Refer to Figures 4 and 5)

Figure 2: Mortgage, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 3: Instalments and Leasing, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 4:, Overdrafts (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 5: Other loans and advances, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Businesses

The tightening in credit extended to businesses was driven by debt by businesses specifically in the services, wholesale and retail, commercial real estate, fishing as well as the transport sectors in the form of overdraft credit (from 6.8% to -0.4%), other loans and advances (from –6.6% to -5.5% m/m), and mortgage credit (from -5.1 to -4.4m/m) as illustrated in figure 5, 6 and 7. Furthermore, the demand for installments and leasing slightly improved from 16.6% to 17.7% m/m (Figure 8).

Figure 5: Overdrafts, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 6: Other loans and advances, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 7: Mortgage, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 8: Instalments and Leasing, (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Commercial Bank Liquidity Position

The overall liquidity position of the banking industry averaged N$8.9 billion in August 2023, depicting a month-on-month increase of N$26.1 million when compared to July 2023 (Figure 9). According to the Bank of Namibia (BoN), the increase was due to the rise in government payments as well as diamond sale proceeds.

Figure 9: Banking Liquidity (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

Foreign Reserves & Money Supply

The Bank of Namibia’s stock of international reserves increased to N$55.6 billion in August 2023 from N$54.2 billion recorded in July 2023. The growth was attributed to the increase in commercial bank inflows, placements of Customer Foreign Currency (CFC), and gains from revaluation (Figure 10). Subsequently, growth in broad money supply significantly increased to 9.6 % in August 2023, from the 3.2% experienced in July 2023 (Figure 11).

Figure 10: Foreign Reserves (March 2020- August 2023)

Source: BON, NSA & HEI RESEARCH

Figure 11: Broad Money Supply Growth % (January 2021- August 2023)

Source: BON, NSA & HEI RESEARCH

HEI Sentiments and Outlook

The persistent weak demand for credit, particularly in business sectors such as overdrafts, mortgages, and other loans and advances, could suggest hesitancy among businesses to pursue credit due to a perceived lack of profitable investment opportunities. This hesitancy stems from a lack of confidence in their ability to generate future cash flows that would justify borrowing.

Conversely, the increasing trend in installments and leasing indicates a different scenario. Businesses opting for these financing options might be displaying greater confidence in their future revenue streams, indicating a willingness to invest in assets. This uptick reflects a belief in the profitability of such investments.

Similarly, the positive trend in credit demand from households, specifically in the mortgages and installment and leasing categories, mirrors consumer confidence in their financial future. The readiness of households to commit to long-term debt obligations underscores their positive outlook on income stability.

Considering these factors, we anticipate the Private Sector Credit Extension, particularly in the business category, to remain weak in the short to medium term. This projection is grounded in the cautious approach exhibited by both businesses and households, emphasizing the importance of economic stability and confidence in shaping credit market dynamics.

Analysis

In July 2023, there was a modest increase in credit extended to households and businesses in the private sector, amounting to N$42.2 million. This growth pushed the total credit extended to the private sector from N$119,187.6 million in June 2023 to N$119,229.8 million in July 2023. The uptick in credit demand was primarily attributed to a 10.1% increase in installment sales and leasing credit, along with a 6.1% rise in overdraft credit, coming from both business and household segments. The surge in credit demand was primarily driven by the car rental sector's substantial vehicle purchases in July. The increase in vehicle procurement by the car rental industry could be a direct response to the upswing in tourism-related activities and significant shifts in household expenditure patterns.

On an annual basis, the Private Sector Credit Extension (PSCE) has decelerated to 2.6% from the 3.9% growth rate recorded in July 2022. This slowdown could be a result of households and businesses factoring in the delayed effects of monetary policy changes aimed at controlling inflation. Additionally, business credit has declined by 1.2% year-on-year, while household credit has increased by 5.5% year-on-year. Figure 1.

Figure 1: Annual % PSCE vs. Repo Rate & Interest Rate, (January 2022- July 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Households

The annual sluggish growth in credit extension was primarily influenced by household sub-categories. Overdrafts, for instance, showed a significant shift from -1.4% to 6.1% month-on-month, and installments and leasing, increased from 4.2% to 6.1% month-on-month (See Figures 2 and 3). Additionally, the category for other loans and advances increased by 15.9%, while mortgage credit experienced a slight decline, dropping from 3.3% to 2.9% during the period under review (See Figures 4 and 5).

Figure 2: Overdraft, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 3: Instalments and Leasing, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 4: Other loans and advances, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 5: Mortgage, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Credit to Businesses

The contraction in credit extended to businesses was driven by repayments from the mining, wholesale and retail, fishing, and financial services made in the form of other loans and advances (from -4.2% to -6.6% m/m) and mortgage credit (from -5.9% to -5.1% m/m) as illustrated in figure 6 and  7. Uptake in overdraft facilities from businesses declined from 9.4% to 6.8% m/m (Figure 8), however, it is worth noting that there was an upsurge in installments and leasing facilities from 15.7% to 16.6% m/m (Figure 9).

Figure 6: Other loans and advances, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 7: Mortgage, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 8: Overdrafts, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 9: Instalments and Leasing, (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Commercial Bank Liquidity Position

The overall liquidity position of the banking industry averaged N$8.6 billion in July 2023, depicting a month-on-month decrease of N$1.3 billion (Figure 10). According to the Bank of Namibia (BoN), the decline was due to corporate tax payments.

Figure 10: Banking Liquidity (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Foreign Reserves & Money Supply

The Bank of Namibia’s stock of international reserves increased from about N$52.9 billion in June to around N$54.1 billion in July 2023 as SACU inflows, diamond sales, and Customer Foreign Currency (CFC) placements were the main drivers for growth (Figure 11).  However, the growth in money supply stood at 3.2% in July 2023, from the 6.0% experienced in June 2023.  The monthly low growth in the money supply could be attributed to a tightening of monetary conditions, characterized by the Bank of Namibia's decision to raise the interest rate by 50 basis points. This measure was taken to combat inflation effectively and uphold the stability of the currency peg (Figure 12).

Figure 11: Foreign Reserves (March 2020- July 2023)

Source: BON, NSA & HEI RESEARCH

Figure 12: Broad Money Supply Growth % (January 2021- July 2023)

Source: BON, NSA & HEI RESEARCH

Outlook

Given the current economic climate, we expect the growth trajectory of Private Sector Credit Extension to persist, albeit at a more gradual pace in the short to medium term. This cautious outlook aligns with the need to navigate the evolving financial landscape prudently.

Analysis

Credit provision to individuals and businesses in the private sector increased by N$875,000 between May and June 2023. This equated to a monthly growth of 1.4%. In actual dollars, total credit provided to the private sector grew from N$118,312 million in May 2023 to N$119,187 million in June 2023, due to high growth in mortgage loans and installment credit as well as personal loans and credit cards which sustained the momentum by the household category. (Figure 1). Additionally, the month under review recorded higher demand for overdraft loans spanning from the high demand from corporations in the services and manufacturing sectors.

On an annual basis, total credit extended to the private sector increased by 2.9%, for June 2023. The yearly growth for the Private Sector Credit Extension (PSCE) was driven by an increase in credit demand by the business category, mainly by the sub-category of overdrafts increasing from a decline of 9.43% to 9.4% respectively. Furthermore, mortgages and overdrafts by the business category recorded significant declines during the period under review. Notwithstanding this, the category of other loans and advances for households improved significantly year-on-year recording a growth of 15.9% from 5.18% which was recorded in June 2022. (Figures 2& 3). Additionally, between June 2022 and June 2023, households borrowed a cumulative amount of approximately N$837,068 million, while businesses acquired credit amounting to around N$596,092 million. These continue to highlight the dominance of the demand for credit by households in Namibia's private sector credit extension environment.

 Figure 1: Annual % ∆ growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2022- June 2023)

Source: BON, NSA & HEI RESEARCH

Figure 2: The % ∆ in Credit Extended to Businesses per category Year on Year

(June 2022- June 2023)

Source: BON & HEI RESEARCH

Figure 3: The % ∆ of Credit Extended to Individuals per category Year on Year,

(June 2022-June 2023)

Source: BON & HEI RESEARCH

Outlook

We anticipate a recovery in credit extension to businesses and households in the short to medium term, primarily driven by the easing of inflation, which is likely to result in a pause in the upward adjustment of interest rates.

Analysis

Credit provision to individuals and businesses in the private sector declined by N$798,093 between May and April 2023. This equated to a monthly decline of 0.7%. In actual dollars, total credit provided to the private sector fell from N$119,110 million in April 2023 to N$118,312 million, due to low demand for other loans, and advances by the business category. (Figure 1). Nonetheless, the month under review recorded higher net repayments by corporations in the services and manufacturing sectors respectively. This implies that borrowers could either be reducing their overall debt levels or becoming more cautious about taking on new credit which could be a sign of increased financial discipline or a conservative approach to managing debt.

On an annual basis, the Private Sector Credit Extension (PSCE) recorded a decline of 1.5%, from a 4.5% growth rate recorded at the end of May 2022. The yearly subdued growth in the growth of Private Sector Credit Extension (PSCE) was driven by low credit demand by the business category, mainly by the sub-category of other loans and advances declining from 18.2% to -7.5% respectively. Additionally, mortgages and overdrafts by the business category also recorded significant declines during the period under review. Notwithstanding this, the category of other loans and advances for households improved significantly year-on-year recording a growth of 17.5% from 5.2% which was recorded in May 2022. (Figures 2& 3). Additionally, between May 2022 and May 2023, households borrowed a cumulative amount of approximately N$833,854 million, while businesses acquired credit amounting to around N$596,803 million. These continue to highlight the dominance of the demand for credit by households in Namibia's private sector credit extension environment.

 Figure 1: Annual % ∆ growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2022- May 2023)

Source: BON, NSA & HEI RESEARCH

Figure 2: The % ∆ in Credit Extended to Businesses per category Year on Year,(May 2022-May 2023)

Source: BON & HEI RESEARCH

Figure 3: The % ∆ of Credit Extended to Individuals per category Year on Year, (May 2022-May 2023)

Source: BON & HEI RESEARCH

Outlook

Looking at the current economic climate, with a tightening monetary policy stance and persistent inflation rates, we believe that businesses will remain hesitant in taking up credit this could be due to the availability of other financing facilities, while household credit demand could continue on a moderate upward trend due to a constraint funding environment. We anticipate modest growth in the Private Sector Credit Extension (PSCE) in the short to medium term.

Analysis

Credit provision to individuals and businesses in the private sector increased by N$ 323, 000 between April 2023 and March 2023. This translated into a monthly increment of 0.27 percent. In actual figures total credit extended to the private sector increased to N$ 119,104 million for April 2023 compared to N$ 118.781 million that was recorded in March 2023. The monthly slight increase was mainly driven by overdrafts and the installment and leasing for the business category. (figure 1).

On an annual basis, the Private Sector Credit Extension (PSCE) recorded a decline of 2.6%, a decline from the 3.8% recorded at the end of April 2022. The decline in PSCE growth is explained by a decrease in demand by both the household and corporate sectors coupled with higher net repayments resulting in the decline in other loans and advances for both the business and household categories and overdrafts by the households. (figures 2 and 3). Between April 2022 and April 2023, households borrowed a cumulative amount of about N$830,424 million and businesses took credit worth about N$ 598,256 million. This reflects that household credit continues to dominate Namibia’s private sector credit extension.   

Figure 1: Annual % ∆ growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2022- April 2023)

Source: BON, NSA & HEI RESEARCH

Figure 2: The % ∆ in Credit Extended to Businesses per category Year on Year (April 2022-April 2023)

Source: BON & HEI RESEARCH

Figure 3: The % ∆ in Credit Extended to Individuals per category Year on Year, (April 2022-April 2023)

Source: BON & HEI RESEARCH

Outlook During the period under review, households credit uptake especially for the category of other loans and advances continued to outpace corporate credit uptake. This implies that corporates are more hesitant to borrow in the current economic climate, in which the overall economic conditions, inflation rates, and the availability of alternative financing options, and interest rates are unfavorable for stimulating the demand for credit for businesses. We anticipate modest growth in the Private Sector Credit Extension (PSCE) in the short to medium term.

Analysis

Credit provision to individuals and businesses in the private sector increased by N$ 693, 000 between February 2023 and January 2023. This translated into a monthly increment of 0.59 percent. In actual figures total credit extended to the private sector increased to N$ 118.878 million for February 2023 compared to N$ 118.186 million that was recorded in January 2023. The monthly slight increase was mainly driven by overdrafts and the installment and leasing for the business category. (figure 1).

On an annual basis, the Private Sector Credit Extension (PSCE) recorded a growth of 3.2% an increase from 2.7% recorded at the end of February 2022. This was mainly driven by an increase in other loans and advances for both the business and household categories and overdrafts by the households. (figures 2 and 3). During the period under review, households borrowed a cumulative amount of about N$ 823,707.77 and businesses took credit worth about N$ 597,180.20 between February 2022 and February 2023. This reflects that household credit dominates Namibia’s private sector credit extension.   

Figure 1: Annual % ∆ growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2021- January 2023)

Source: BON, NSA & HEI RESEARCH

Figure 2: The % ∆ in Credit Extended to Businesses per category Year on Year (February 2022-February 2023)

Source: BON & HEI RESEARCH

Figure 3: The % ∆ in Credit Extended to Individuals per category Year on Year (February 2022-February 2023)

Source: BON & HEI RESEARCH

Outlook

Despite a recovery in domestic economic growth, credit demand is still on a slow recovery path. Inflationary pressures, coupled with rising interest rates continue to put households in an unfavorable position. With the continuous monetary policy heightening cycle. The recent increase in the prime lending rate has a direct implication on the households’ debt-servicing cost and the performance of the entire private sector extension. This puts additional strain on already vulnerable households, as such their ability to service both interest and capital repayments has weakened, which is substantiated by the growth in household debt in Namibia. However, there are some encouraging signs for the credit demand horizon, particularly for businesses in the diamond mining industry, as well as those involved in oil discoveries and green hydrogen projects. We anticipate moderate growth in credit extension to the private sector over the short to medium term.

Analysis

Credit extended to the private sector slightly increased to N$ 118.186 million for January 2023 from N$ 118.179 million that was recorded in December 2022. This translated into an increase of N$ 21 million. The slight monthly improvement was driven by an increase in the demand for loans and advances taken by households. According to the Bank of Namibia, the low demand and net repayments by corporates in the services, wholesale, and retail trade sectors negatively influenced credit appetite during the period under review. (Figure 1).

Private Sector Credit Extension (PSCE) year-on-year growth remained steady at 2.6 percent at the end of January 2023, unchanged from the level it was in January 2022. On a monthly basis, credit extended to the private sector declined by 2.4 percent in relation to December 2022. The decline was attributed to low demand for business overdrafts, which contracted by 9.0 percent. However, the demand for loans and advances by the households category recorded a growth of 17.3 percent during the month under review. (Figures 2 and 3).

Figure 1: Annual % ∆ growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2021- January 2023)

Figure 2: The % ∆ in Credit Extended to Businesses per category Year on Year (January 2022-January 2023)

Figure 3: The % ∆ in Credit Extended to Individuals per category Year on Year, (January 2022-January 2023)

Outlook

Although interest rates and inflation are on the rise, we expect the demand for credit to remain strong throughout 2023. The positive outlook for economic growth, particularly in the diamond mining industry, may result in an increased need for credit among businesses operating in this sector. In the short-to-medium term, we anticipate a higher acceptance rate for loan applications. On the other hand, the escalating costs of fuel and food, combined with the projected increase in interest rates, will continue to put a strain on household finances. This could lead to more households seeking loans to cope with the high cost of living.

Analysis

Credit extended to the private sector (individuals and businesses) increased to N$ 117,802 million from N$ 117,219 million recorded in October 2022. This translated into a slight monthly increase of 0.5%. The slight monthly increment was driven by the demand for overdrafts by businesses and other loans and advances by households. The demand for credit by businesses continues to be subdued due to the lower demand and repayments in other loans advances and overdrafts. (Figure 1)

On an annual basis, total credit extended to the private sector increased by 3.7% in November up from 2.1% recorded in November 2021. The annual growth rate was mainly driven by growth recorded for other loans and advances for businesses and households by 10.7% and 13.8%, respectively. This is an indication that businesses and households turned to other loans and advances as a line of credit instead of their usual line of credit. The corporate sector remained anxious about piling more debt amid rising interest rates at the back of the uncertain economic environment. According to the Bank of Namibia, the low demand for credit by the business sector corporate sector compliments the growth in the household sector during the period under review. (Figures 2 & 3).

Figure 1: Annual % growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2029- November 2022)

Figure 2: Annual % changes for Credit Extended to Businesses per category, (November 2021-November 2022)

Figure 3: Annual % changes for Credit Extended to Individuals per category, (November 2021-November 2022)

Outlook

We expect slow growth in the Private Sector Credit Extension over the short to medium term. Households and businesses remain uncertain about the cost of borrowing and thus cautious in making credit decisions.