Category: Financial Services

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.

Analysis

Credit extended to the private sector (individuals and businesses) increased to N$ 109,737 million from N$ 109,298 million recorded in July 2022. This translated into a slight monthly increase of 0.4%. The increase continues to be at the backdrop of an upturn in demand for credit by businesses for overdrafts and other loans and advances, while growth for households declined significantly as the cost of living continues to rise. See figure 1 below.

On an annual basis, total credit extended to the private sector increased by 4.5% in August up from 1.7% recorded in August 2021. This was mainly derived from growth recorded for overdrafts and other loans and advances for businesses by 0.1% and 19.4%, respectively. This is an indication that confidence is returning albeit at a slow pace. According to the Bank of Namibia, businesses in the mining and service sectors have become the main contributors to businesses’ credit growth due to the high demand for overdrafts which has drastically increased, recovering from negative territory. However, the demand for credit for households recorded no growth during the period under review. This clearly indicates that households lack the confidence to take up credit. See Figures 2 & 3.

Figure 1: Annual % growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2020- August 2022)

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

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

Outlook

The continuous improvements in domestic economic activity especially in the mining and services sectors could drive up the demand for credit in the short to medium term. We project a minimal growth in the Private Sector Credit Extension for the remaining months of 2022. Notwithstanding this, the anticipated monetary policy tightening by the central bank could also threaten businesses and individuals confidence to take up credit.

Analysis

Total credit extended to the private sector (individuals and businesses) amounted to N$ 109,323 million for July 2022 from N$ 108,963 million recorded in June 2022. This translated into a slight increase of 0.3%. The increase was against the backdrop of an upturn in demand for credit by businesses for the category of other loans and advances and the mortgages category for households augmented an increase in the standard of living. See figure 1 below.

On an annual basis, total credit extended to the private sector increased by 3.9% up from 3.4% recorded in July 2021. An increase in the annual growth rate was mainly derived from growth recorded for other loans and advances for businesses and the uptake for mortgage credit for both households and businesses by 15.7% and 7.9%, respectively. This is an indication that confidence is returning albeit at a slow pace. According to the Bank of Namibia, businesses in the transport, mining, health, and service sectors have become the main contributors to businesses’ credit growth due to the high demand for other loans and advances and it has been on an upward trajectory since the beginning of the year. However, the demand for overdrafts for both households and businesses recorded no growth since January 2022. This speaks to the overall affordability of credit and tightening of overall general spending. See Figures 2 & 3.

Figure 1: Annual % growth rates on Total Credit Extended to the Private Sector vs. Repo Rate & Interest Rate, (January 2019- July 2022)

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

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

Outlook

Looking forward we expect credit growth to continue on a slow upward trend for the rest of the year 2022. This could be driven by improved credit scores for households especially mortgages as a result of an increase in housing benefits by 11% for government employees. However, the current interest rate hike cycle further possess a risk to the demand for credit as this further constrains consumers and business spending patterns. 

Analysis

Total credit extended to the private sector (individuals and businesses) declined to N$ 108, 963 from N$ 109, 737 recorded in May 2022, which translates into a decline of 0.7%. The decline was driven by a drop in credit extended to businesses for the category of other loans and advances and the mortgages category for households. Additionally, the drop could also be attributed to a rise in the repo rate in June 2022 which resulted in a decrease in demand for credit for households and businesses. See figure 1 below. An increase in the repo rate has a negative impact on the demand for credit. 

On an annual basis, total credit extended to the private sector increased by 3.3% up from 2.2% recorded in June 2021. An increase in the annual growth rate was mainly derived from growth recorded for installment and leasing for businesses and the uptake for other loans and advances for both households and businesses by 5.8% and 14.1% respectively. This is an indication that confidence is returning albeit at a slow pace. According to the Bank of Namibia, businesses in the energy, commercial, and mining sectors have become the main contributors to businesses’ credit growth due to the high demand for other loans and advances as it has been on an upward trajectory since June 2021. However, the demand for overdrafts for both households and businesses has declined significantly since the beginning of the year which speaks to the overall affordability and tightening of general spending. See Figures 3 & 4.

Figure 1: Annual % growth rates on Total Credit Extended to the Private Sector vs. Repo Rate, (January 2019- June 2022)

Figure 2: Individuals vs. Businesses Instalment and Leasing, Annual % Changes, (June 2021-June 2022)

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

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

Outlook

The current interest rate hike cycle means that the Bank of Namibia will increase the repo rate at its next MPC meeting. This could mean a further tightening of household and business credit. We expect a sluggish recovery in credit extension in the short to medium term.