Non-resident debt, both foreign individuals and firms exhibited an increase in credit uptake, registering a growth of 3.6% y/y in December 2023, a rise from 0.7% y/y in November 2023, research experts Simonis Storm have said.
According to Simonis Storm, this is in line with foreign direct investments recorded in 2023.
“Actors such as ongoing mining explorations, extension of mine operation lifespans, pilot green hydrogen projects, the resumption of production activities in mines, and investments in green hydrogen and other renewable energy projects can all be attributed to the positive trend in non-resident credit uptake,” Simonis Storm said.
In 2023, the private sector’s credit uptake in Namibia averaged 2.4%, a decrease from the 3.6% observed in 2022. This trend is further highlighted by the data from December 2023, which saw credit growth of 2.0% y/y, slightly lower than the 2.1% y/y recorded in November 2023, and lower than the 4.2% y/y in December 2022.
The credit uptake throughout 2023 was mainly driven by the household sector, which averaged a growth rate of 4.7% y/y. In contrast, the corporate sector (businesses) experienced a decline, averaging -0.7% y/y in the same period. This shift in borrowing patterns has led to an increase in the overall debt stock.
“Household debt escalated to N$66.8 billion in December 2023, up from N$64.7 billion in December 2022. Corporate debt also saw a marginal increase, reaching N$45.9 billion in December 2023, compared to N$45.8 billion in the previous year. Additionally, non-resident debt rose to N$7.9 billion from N$7.6 billion over the same period,” said the firm.
The deceleration of corporate credit growth in Namibia was evident in December 2023, registering at just 0.4%y/y, a slowdown from the 3.5% y/y growth seen in December 2022 and a slight decrease from the 0.7% y/y recorded in November 2023. The reason for this slowdown is primarily driven by reduced demand and increased repayments by corporates in sectors such as mining, services, wholesale and retail trade, and agriculture.
“A detailed look into the various corporate credit categories reveals a continued negative growth in mortgage loans, other loans and advances, and overdrafts during December 2023. On a brighter note, the instalment and leasing category within corporate credit exhibited strong performance, recording a 21.6% y/y growth.”
Household credit extension, while remaining a pivotal component in the growth of Private Sector Credit Extension (PSCE), witnessed a deceleration to 3.0% y/y in December 2023, down from 3.2% y/y in November 2023 and 4.7% y/y in December 2022. This rate represents the slowest credit growth uptake observed throughout the year 2023. The tempered growth is primarily due to a subdued demand in the other loans and advances category, which only saw a marginal increase of 0.2% y/y in December 2023. However, household overdraft credit uptake in December 2023 reached 14.7% y/y, one of the highest levels recorded in the year.
As of December 2023, the liquidity position of Namibia’s banking industry showed signs of improvement. The industry’s cash balances increased to N$7.7 billion, up from N$5.9 billion in November 2023. This increase can be attributed to factors including diamond sales and corporate tax payments. Additionally, the central bank’s international reserves experienced an 8.4% m/m increase, primarily due to higher inflows into commercial banks, largely as a result of diamond sales and customer foreign currency placements (CFCs), as reported by the Bank of Namibia (BoN).
South African link
The Bank of Namibia’s Monetary Policy Committee (MPC) opted to maintain the repo rate at a steady 7.75%, consequently keeping the prime lending rate at 11.5% in its last meeting. The South African Reserve Bank (SARB) had their first meeting of the year on the 25th of January and, elected to keep its repo rate at 8.25% and the prime rate at 11.75%.
“Based on our analysis of current monetary policy trends, we anticipate that Bank of Namibia will likely implement its initial rate reduction in the latter half of 2024 and start seeing an improvement in private sector credit extension for the 2024. This anticipated policy adjustment is expected to positively influence private sector credit extension throughout the year,” Simonis Storm said.
In South Africa, the Private Sector Credit Extension (PSCE) experienced a growth of 0.9% m/m at the end of the fourth quarter, translating to a 4.9% annual increase, surpassing the previous year’s 3.8%. This growth, driven by the corporate sector, exceeded Bloomberg’s consensus expectations of a 4.1% y/y increase. In particular, corporate credit uptake, accounting for over half of the total PSCE, increased by 1.5% m/m and 5.5% y/y, compared to the 0.4% m/m and 3.1% y/y seen in November. This growth in corporate credit uptake, particularly in the unsecured general loans and advances segment, indicates a robust credit market in South Africa, contrasting with the more conservative approach observed in Namibia. Furthermore, in South Africa, mortgage advances, constituting a further 23% of corporate credit, rose by 0.6% m/m (3.9% y/y) in December.
The latest BER building survey for Q4.23 showed continued positive sentiment in the non-residential sector, underpinned by improved overall profitability. However, despite these positive signs, business confidence remains subdued, impacted by factors such as load shedding, logistical challenges, and high-interest rates, similar to the trends observed in Namibia. In the household sector, South Africa saw a deceleration in annual credit demand growth in December, falling to 4.3% y/y.
“This slowdown mirrors the trend in Namibia, where household credit demand also showed signs of weakening, as high living costs and elevated unemployment rates continue to constrain consumers in both countries. While both Namibia and South Africa are experiencing unique economic and financial dynamics, the comparison reveals parallel challenges and trends, particularly in the context of subdued business confidence and the impact of external economic pressures. This comparative analysis provides a broader perspective on the regional economic climate, which is essential for understanding the potential future trajectory of monetary policies and credit markets in both countries.”