Research firm, Simonis storm has said that due to due to uncertainty around interest rates, clients are hesitant to sign loan agreements and are waiting to see where interest rates are headed before taking on debt to start their projects.
Subsequently therefore, the firm expects potential pipeline of projects to boost credit uptake by the private sector only from the first half of 2024 onwards as the firm believes Namibia is near the end of the rate hiking cycle and might see the last repo rate hike in October 2023.
“While some banks rightfully argue that Namibia only has so many people and businesses to extend loans to, at some point much needed investment in the country will have to take place. The economy’s capital stock and investments across various industries have been growing at a slower pace than the depreciation of capital.
“This can be detrimental for medium- to long-term economic growth given the high correlation (0.7) between economic growth and credit extension. Low credit uptake by the private sector does therefore seem concerning for short-term economic growth. However, some banks have indicated that they have a strong pipeline of bankable projects in the tourism, mining, transport and energy sectors,” explained the firm in a report released last week.
In sharing further, the firm said that according to engagements with stakeholders at various private banks, demand for vehicle loans have decreased due to higher interest payments (dropping by about 7% y/y for some local banks).
Local dealerships have indicated that many vehicles are purchased with cash and by rental companies in the effort to prepare for higher tourist demand.
“Similarly, since monetary policy became restrictive, building plans received, declined on average by 17.0% y/y across the months of March to June 2023. This implies that higher interest rates have led to individuals delaying building activity. We therefore expect further downward pressure on construction activity in the near future. Additions or alterations dominate the building plans that are being approved in recent months, but these projects are typically smaller in scale and require smaller loans to complete,” said the firm.
Growth in credit extended to the private sector in June 2023 was mainly driven by increased demand for credit by households (up 5.3% y/y), while corporates were net repayors of their debt for the 3rd consecutive month (down 0.1% y/y). Businesses were net repayors of mortgage loans (down 5.9% y/y), and other loans and advances (down 4.2% y/y) by corporates in the services and health sector according to Bank of Namibia (BoN).
At the same time, businesses remained net borrowers of instalment and leasing credit (up 15.7% y/y) and overdrafts (up 9.4% y/y). Growth in overdrafts and instalment and leasing credit was driven by businesses in the services, manufacturing and construction sector. Credit extended to households – which makes up 55% of the total credit in the private sector – was driven by other loans and advances (up 15.9% y/y), instalment and leasing credit (up 4.2% y/y) and mortgage loans (up 3.3% y/y). Personal loans and the use of credit cards carried the momentum for household credit in June 2023. Interestingly, households were net repayors of overdrafts (down 4.2% y/y), a persistent trend since mid-2022.