SIMONIS Storm Securities expects another 75bps hike in the repo rate before the end of 2022, which would lift the prime rate from 8.00% to 8.75%.
In its recent meeting, the Monetary Policy Committee of the Bank of Namibia (BoN) raised its repo rate by 25 basis points from 4.00% to 4.25%. This equalizes the Namibian and South African repo rates.
The repo rate determines the rate at which commercial banks borrow money from the central bank and has a ripple effect on the cost of borrowing for consumers.
The MPC cited that this decision is appropriate to safeguard the one-to-one link between the Namibia Dollar and the South African Rand while meeting the country’s international financial obligations.
Rising interest rates will likely weigh on demand for credit, given that we are in an inflationary environment as well, economist at the securities firm, Theo Klein said.
“It seems business confidence remains low as credit growth has not materially improved despite interest rates being below long run levels. Household budgets continue to be challenged by rising debt repayments in the face of rising fuel and food prices,” Klein said.
Credit extended to the private sector grew by 2.1% y/y in March (compared to 2.8% y/y in February) moving below its 6-month moving average of 2.3%. Net household debt increased by 2.3% y/y in March, whereas net corporate debt increased by 1.9% y/y in March.
“Corporate credit growth was dragged lower by repayments and lower demand by businesses in the health, fishing and commercial property sectors according to Bank of Namibia (BoN),” added Klein.
Klein further stated that household and corporate debt stock as a percentage of GDP is recorded at 45% and 33% respectively according to preliminary National Accounts.
“Households face a challenging environment as rising expenses and costs add to budgetary pressures. From the demand side, we see healthy levels of demand for credit from the small and medium sized enterprises (SMEs), however banks remain wary and perceive high risk in the SME space. From the supply side, despite interest rates rising, certain banks have become more risk averse, owing to mediocre economic growth, an inflationary environment and perceived debt sustainability risks. We forecast private sector credit extension to average 2.9% in 2022 (compared to 2.4% in 2021),” explained Klein.
Less investment has been accompanied by a steady decline in credit being extended to the private sector. Net investment has been declining in both public and private sectors, with government net investment having decreased by 5.9% on an annualised basis since 2016.
“However, quite a number of projects have been announced in recent weeks that can provide growth to net investments in 2022. TransNamib has secured a loan of N$2.6 billion to upgrade the national railway network. AfriTin has secured funding to expand its tin operations in Uis by 67% over the next 5 years. In addition, numerous renewable energy projects are being carried out across the country,” concluded Klein.