Household credit extension remains a key driver in the growth of Private Sector Credit Extension, exhibiting a moderate increase of 4.2% y/y in October 2023.
According to Simonis Storm, this is an escalation from the 2.8% y/y growth seen in October 2022, albeit a slight decrease from the 4.3% y/y recorded in September 2023.
“The observed decline in household credit extension during this period can largely be attributed to a decreased demand across various categories, including other loans and advances, mortgage credit, and instalment sales and leasing. However, household overdraft credit saw a significant surge, growing by 25.1% y/y in October 2023, marking a substantial rebound from the -0.3% y/y recorded in the corresponding period last year. Notably, this positive trajectory in household credit extension has occurred against the backdrop of elevated inflation and interest rates,” Simonis Storm said.
In October 2023, Private Sector Credit Extension (PSCE) in Namibia modestly increased to 1.8% y/y a slight improvement from the 1.6% y/y observed in September 2023. However, this represents a decline when compared to the 3.5% y/y growth in October 2022. This relatively low growth rate, which is the second lowest recorded in 2023 and falls beneath the 2% mark, indicates a subdued credit market. The total credit extended to the private sector reached N$119.3 billion at the end of October 2023. This modest uptick in PSCE can be largely attributed to the household sector, which notably experienced an increase in overdraft facilities extended to individuals. Conversely, credit extension to corporate entities continued its downward trajectory.
In October 2023, overdraft credit increased primarily due to high demand from the household sector while overdraft lending to corporate sector remained in contraction territory. Other loans and advances also contracted by 0.4% y/y in October 2023, driven by diminished demand from the business sector. In contrast, mortgage credit growth experienced a downturn in October 2023, registering a growth rate of 1.0% y/y, a decrease from the 1.2% y/y recorded in September 2023.
“This sluggish expansion in the mortgage credit segment is primarily due to net repayments made by the corporate sector. On a positive note, instalment sales and leasing credit continue to exhibit a continuous upward trajectory, with an annual growth rate of 9.4% y/y in October 2023 (Figure 4). Instalment and leasing credit experienced a deceleration on a m/m basis, falling from the 11.6% growth observed in September 2023. This slowdown is largely attributed to a reduction in leasing facilities provided to corporations within the retail industry,” further said Simonis Storm.
Corporate credit uptake has remained in a negative trend for the seventh consecutive month, contracting by 1.4% y/y. This represents a slight improvement compared to the 2.1% y/y contraction recorded in September 2023. From an economic growth standpoint, this persistent negative trend is concerning. The robust extension of credit to the corporate sector is usually critical for driving overall economic growth.
On the other hand, the inflation rate in October 2023 surpassed expectations, registering at 6.0% y/y. This increase in inflation is consistent with our forecasts and can primarily be linked to the escalating fuel prices that Namibia is currently facing. Although the food and non-alcoholic beverages category has been a major driver of headline inflation, in October 2023, the transport category emerged as the predominant contributor. By the end of October 2023, the liquidity position of the banking industry showed an improvement, with the industry’s cash balances rising to N$7.5 billion, up from N$7.4 billion recorded in September 2023. This increase is due to government bond payments made during October 2023. Concurrently, there was a 4.4% m/m decline in the central bank’s international reserves, falling to N$51.4 billion in October 2023 from N$53.8 billion in September 2023. This decrease is mainly attributed to increased commercial bank outflows, driven by higher import bills.
“The final meeting of the year for the Monetary Policy Committee (MPC) of the Bank of Namibia (BoN) is scheduled for December 6, 2023. Ahead of this meeting, it is anticipated that the repo rate will be held steady at 7.75%, with the prime rate also remaining unchanged at 11.5%. This expectation is in line with the decision of the South African Reserve Bank (SARB) to keep the repo rate at 8.25% during its latest meeting on November 23, 2023.
“While maintaining the current rate may not significantly alleviate the interest rate burden for businesses, households, and consumer disposable income, it does avoid further financial tightening that a rate increase would entail. This stability in interest rates provides a measure of relief and steadiness in the financial landscape,” concluded Simonis Storm.