Debt by non-residents – both foreign individuals and foreign firms – increased from about N$377 million in December 2021 to N$7.6 billion in December 2022 (up 1,927% y/y), a credit report by research firm Simonis Storm reveals.
This coincides with a significant rise in foreign direct investment that has been recorded for the first half of 2022.
“Increased mining exploration activity, investments in expanding the life of mines and establish new projects, investments in gas projects, investments in pilot green hydrogen projects and renewable energy projects are among the drivers of this significant increase in credit uptake by non-residents,” economist Theo Klein says in the report.
The report further notes that during December 2022, other loans and advances was the biggest contributor to credit uptake by both corporates (up 9.6% y/y) and households (up 15.7% y/y).
Overdrafts had a net repayment by households, decreasing by 0.4% y/y in December 2022, whereas overdrafts rose by a meagre 1.1% y/y for corporates. Instalment and leasing credit increased by 13.8% y/y for corporates and 2.7% y/y for households. Lastly, mortgages decreased by 3.8% y/y for corporates and rose 2.8% y/y for households. For 2022 as a whole, the main drivers of credit uptake by households were other loans and advances and instalment and leasing credit, whereas instalment and leasing credit and mortgages were the main drivers of corporate credit uptake.
Credit uptake by the private sector averaged 3.6% in 2022, compared to our forecast of 3.4%. This follows the latest data point of 4.2% y/y credit growth in December 2022, compared to 3.7% y/y in November 2022.
“Credit growth in 2022 exceeded the annual average credit growth in the last two years and was mainly supported by credit uptake by corporates which averaged 4.6% in 2022, compared to 2.9% for households . This in turn has led to an increase in debt stock, where household debt is recorded at N$64.7 billion in December 2022, corporate debt (N$45.8 billion) and non-resident debt (N$7.6 billion). Corporate credit growth in December 2022 was mainly supported by higher demand for short-term credit facilities by firms in the energy and services sectors according to Bank of Namibia (BoN),” Klein said.
Holistically, the financial services sector contracted by 4.7% y/y in 3Q2022, after expanding by high double digits of 17.7% y/y and 16.2% y/y in 1Q2022 and 2Q2022 respectively. The contraction in the third quarter of 2022 was mainly due to the insurance sector, according to the Namibian Statistics Agency (NSA).
“According to data from NAMFISA, the number of medical aid members have increased during 2022 due to a rise of members in the employment group category (indicative of additional jobs being created to some extent) and that the number of insurance policy cancellations are slowing down. With elevated interest rates and improved growth in overall business activity (as evidenced by a decline in business insolvency data from the Master of the High Court), we do expect earnings for the local listed banks to improve in 2023 and so contribute to positive momentum for the financial services industry,” Klein added.
He went on to say that Simonis Storm expects one last 25bps repo rate hike by BoN, taking it from 6.75% to 7.00% and then for interest rates to remain unchanged at elevated levels until the second half of 2024 when we expect the first rate cut.
“2022 has shown us that demand for credit remained resilient in an environment of higher inflation and interest rates. With improved economic growth rates and job creation that has taken place, we are expecting credit growth to continue on an upward trend throughput 2023. Indeed, we forecast credit uptake to average 4.7% in 2023, compared to 3.6% in 2022. Risk aversion among local commercial banks remain a risk to our outlook.
“In a country that does not have a savings culture, Namibia needs much investment spend financed by credit in order to stimulate economic activity and development. If sentiment amongst banks improve and if they are convinced that higher economic growth rates can be sustained in the medium-term, we could see more loan applications being accepted and so support higher credit and economic growth,” concluded Klein.