Nominal Gross Domestic Product (GDP) in the first half of 2023reached N$115.9 billion and real GDP N$76.9 billion, the highest it has ever been.
Nominal GDP grew by 14.1% y/y in 2Q2023 and when adjusting for inflation, it grew by 3.7% y/y, driven by higher mining activity.
“However, companies in the mining sectors are net repayors of their loans. Going forward, there are concerns that slowed private sector credit extension growth figures will affect economic growth, but it can also be that local companies are sourcing their funds from investors and not commercial banks,” Simonis Storm said while commenting on GDP figures.
In essence, total credit in 3Q2023 was N$357.1 billion, 0.09% higher than credit in 2Q2023, translating to 4% more credit given to the private sector than in 3Q2022. However, when we compare this to previous quarters in 2023, growth in credit is exceptionally low.
Credit extended to the private sector slackened to the lowest rate this quarter, increasing by a meagre 1.6% y/y in September, compared to 2.6% y/y and 2.2% y/y in July and August 2023. This brings the average credit extension in 3Q2023 to 2.1% y/y, lower than the 4.2% average in the same quarter last year. According to Bank of Namibia (BoN), the low growth is due to low credit appetite from the private sector together with higher net repayments.
Businesses (down 2.1% y/y) are net repayors of their debt for the 6th consecutive month in September 2023, while households (up 4.3% y/y) and foreigners (up 1.6% y/y) credit growth slowed but remain borrowers in the same month.
According to BoN, the sluggish growth can primarily be attributed to a subdued demand environment, associated with net credit repayments executed by businesses within the services, wholesale and retail trade, commercial real estate, mining, manufacturing, and fishing sectors.
Household credit expansion has decelerated to its most sluggish pace since December 2022, attributed to a reduced demand, particularly within the segments of overdraft credit and other loans and advances.
Mortgage credit maintained a steady 1.2% y/y growth, supported by the household sector despite increased corporate repayments. Household mortgages increased by 3.2% y/y while business mortgages decreased by 4.9% y/y in September 2023.
In September 2023, overdraft credit growth contracted by 0.4% y/y, down from 0.3% y/y in August. This decline was driven by reduced demand and higher corporate repayments, particularly in the mining, manufacturing, and wholesale/retail sectors.
Overdraft demand from households (up 3.0% y/y) slowed from its peak 6.1% y/y in July while businesses (down 1.2% y/y) were net repayors of their overdrafts.
“Conversely, instalment sales and leasing credit increased to 11.6% y/y in September, driven by higher demand for new vehicles from both businesses and households, with strong support from the car-rental industry. Indeed, businesses instalment and leasing credit (up 20.0% y/y) has reached its highest annual growth rate while households (up 6.4% y/y) also increased slightly,” Simonis Storm said.
Real consumption spending growth has ventured into negative terrain for the first time in nine consecutive quarters, mirroring the impact of a more stringent monetary policy stance. Data sourced from NAMFISA reveals a significant 7.6% y/y contraction in medical aid funds during the first quarter of 2023, with a notable occurrence of liquidations among these funds attributed to an upsurge in claims. This serves as compelling evidence of consumers relinquishing their medical aid coverage in response to prevailing financial constraints.
“Given modest growth figures observed within the commercial banking sector, an upswing in credit demand at microlenders is anticipated, driven by financial constraints and a more rigorous loan approval process by banks due to economic uncertainties. Paradoxically, this is not the prevailing scenario. During the 1Q2023, microlender credit extension registered a substantial annual contraction of 10.3% y/y, exceeding the more gradual decline of 7.8% y/y witnessed in the 4Q2022.
“Credit extended by microlenders now accounts for 5.6% of the total outstanding credit, representing a significant portion amounting to 11.6% of the Gross Domestic Product (GDP) in the 1Q2023. This data underscores a counterintuitive trend in the credit landscape, despite subdued commercial bank lending, microlender credit extension is experiencing a substantial contraction,” said the firm adding: “The deepening decline in real private sector credit extension in September is concerning, indicating a real reduction in borrowing. Deleveraging by businesses and households, prioritizing debt repayment over new debt for investment or consumption, can dampen aggregate demand and tighten credit availability. Factors like the high interest rates, rising inflation, and economic uncertainty likely contribute to this negative trend.”