Credit uptake by foreigners which makes up 6.5% of total private sector debt increased by 1,571.5% y/y and 0.6% m/m in October 2022, a report by Simonis Storm Securities reveals.
The report notes that credit uptake by corporates which makes up 39.1% of total private sector debt grew by 3.1% y/y in October 2022 (compared to 5.9% y/y in the prior month), whereas household credit uptake which accounts for 54.4% of total private sector debt increased by 3.7% y/y in October 2022 (compared to 2.8% y/y in the prior month).
Specifically, a deceleration in corporate credit extension was mainly driven by repayments on debt from businesses in the construction and services sector according to Bank of Namibia (BoN).
“Credit extended to foreigners or non-residents in Namibia – which includes both foreign firms and individuals – has increased notably in recent months. At the same time, foreign direct investment (FDI) has increased by 11.2% in the first half of 2022, supported by the reinvestment of profits and retained earnings mainly by mining companies. We do forecast FDI to increase consistently over the medium-term and together with a growing number of loans being extended to non-residents in Namibia, we believe that overall private sector investment could improve and support economic growth over the medium-term,” Simonis Storm economist, Theo Klein notes in the report.
Essentially, credit uptake by the private sector slowed in October 2022, rising by 3.5% y/y in October 2022 compared to 4.1% y/y in September 2022, dipping below the 6-month moving average for the first time since March 2022. Year to date, credit growth averages 3.6% compared to our forecast of 3.1% and continues to trend above credit uptake levels in 2020 and 2021, which should be supportive of earnings for the local banks and the financial services sector in 2022.
The only debt instruments that supported credit growth in October 2022 include household mortgages and both household and corporate instalment credit. Households and corporates have been net repayors on overdraft debt for most of 2022.
“Local banks continue to increase their investment holdings at a faster pace than credit extension to their clients. This once again confirms that banks have become more risk averse in the current economic environment while demand for credit remains relatively high despite the interest rate hiking cycle. Over the last 5-years, investment holdings have increased by 13.2% on an annualised basis at FNB, 5.7% (Capricorn Group) and 12.1% (Standard Bank) compared to annualised growth in advances of 2.1% (FNB), 4.5% (Capricorn Group) and 2.8% (Standard Bank),” Klein say adding that with the economic outlook having significantly improved for Namibia over the medium-term, it remains to be seen whether local banks invest less and supply the market with more credit to take advantage of growth opportunities and allow investments to expand economic activities.
Namibia’s improved outlook is evidenced by the economy expanding 6.1% in the first half of 2022 and the expectation that this momentum will carry over into 2023. Already forecasts from various research institutions on economic growth for 2023 have increased to growth rates last seen in Namibia’s boom years.
“Risk aversion among some banks would need to turn in order to supply capital to growing sectors of the economy. With the approval and near finalisation of the Special Economic Zone (SEZ) Bill, we do expect increased demand from both local entrepreneurs and foreign investors. With credit extension being a leading indicator of investments which impacts economic growth, the slowdown in credit growth is concerning and would be a constraint on our growth forecasts for the medium-term,” further notes Klein.