Household credit uptake in June 2024 increased to 2.7% y/y, up from 2.2% y/y in the previous two consecutive months.
According to Simonis Storm, this represents the highest household credit growth in 2024, though it remains below 2023 levels.
“All categories within the household sector saw growth in June 2024, except for the overdraft category, where growth slowed. The overdraft category, which contributes only 4.0% to total household credit uptake, remains the least significant. Mortgage loans, which constitute a substantial 67.6% of household credit, increased to 1.9% y/y in June 2024, up from 1.5% y/y in May 2024. Other loans and advances, the second-largest category within household credit, rose to 0.8% y/y in June 2024, compared to 0.2% y/y in May 2024.
“Instalment and leasing credit also saw an increase, reaching 6.7% y/y in June 2024. Conversely, overdraft credit growth decelerated to 14.8% y/y in June 2024. On a quarterly basis, household credit growth stood at 2.4% in the second quarter, matching the figure from the first quarter of 2024 (Figure 6). Compared to previous years, the household sector is struggling to gain momentum, largely due to elevated interest rates. Additionally, claims by non-residents fell to 1.2% y/y in June 2024, down from 2.5% y/y in May 2024,” expressed Simonis Storm.
Financial conditions remain restrictive, as annual private sector credit extension growth continues to be subdued. In June 2024, credit extended to the private sector declined to 1.8% y/y, down from 3.2% y/y in May 2024 and 2.9% y/y in June 2023. This decline in June 2024 was primarily driven by repayments from corporate borrowers. The average private sector credit extension for the second quarter of 2024 was 2.2% y/y, which is higher than the 1.8% y/y recorded in the first quarter, but 0.1% lower than the second quarter of 2023. Additionally, the year-to-date average private sector credit extension for the first half of 2024 was 2.0%, the lowest on record in our two-decade-long data series. The current repo rate of 7.75% exceeds the June inflation rate of 4.6% y/y, resulting in a real repo rate of 3.2% in June 2024. This suggests that monetary policy is restrictive, which partly explains the sluggish credit extension to the private sector.
The corporate/business sector experienced growth of 0.5% y/y in June 2024, a significant slowdown from the 4.7% y/y recorded in May 2024, yet still above 2023 levels. This marks the second slowest credit growth uptake for corporates in 2024. The deceleration in June 2024 can be attributed to higher repayments in other loans and advances, as well as overdrafts, particularly within the commercial and services, fishing, manufacturing, and energy sectors, according to the Bank of Namibia (BoN). Other loans and advances, which constitute 40.6% of total credit uptake by corporates (Figure 3), saw growth of 13.9% y/y in June 2024, down from 17.7% y/y in May 2024. However, this still represents a significant increase compared to the same period last year. Overdrafts, accounting for 17.2% of corporate credit uptake, continue on a negative trajectory, with credit growth at -26.0% y/y in June 2024. Mortgage loan credit growth also remains negative.
Instalment and leasing credit uptake, which represents the smallest portion of corporate credit uptake, grew by 27.3% y/y in June 2024. According to the Bank of Namibia, this category continues to benefit from the car rental industry, driven by increased tourism activity. In June 2024, rental agencies purchased 54 new vehicles, reflecting this trend. On a quarterly basis, corporate credit growth stood at 1.9% in the second quarter, up from 0.9% in the first quarter. This growth was primarily driven by the instalment and leasing category, supported by demand from the automotive sector, as well as other loans and advances. The increased demand for other loans and advances is largely attributed to the mining and quarrying sector during the first two months of the second quarter.
As of the end of June 2024, liquidity in the banking industry averaged N$8.0 billion, down from N$8.6 billion recorded in May 2024, primarily due to corporate tax payments. Meanwhile, the stock of international reserves stood at N$57.6 billion in June 2024. The Bank of Namibia (BoN) attributed this increase in reserves to higher net inflows from commercial banks, supported by Customer Foreign Currency (CFC) placements and revaluation gains due to market price changes. These foreign reserves provide approximately 3.8 months of import cover, reflecting Namibia’s capacity to manage external financial obligations and maintain stability in foreign exchange operations.
Providing commentary analysis, Simonis Storm said that overall, overdraft lending remains on a negative trajectory, primarily driven by corporate repayments. The subdued growth in other loans and advances can similarly be attributed to the repayment activities within the corporate sector. In contrast, instalment and leasing credit continues on a positive trajectory, bolstered by the robust performance of the tourism sector. Mortgage lending remains constrained due to diminished demand from both corporate entities and households, a situation largely influenced by the prevailing high-interest-rate environment.
“When the repo rate exceeds the inflation rate, the cost of borrowing for businesses and households escalates. This results in higher interest rates on loans, mortgages, and other forms of credit, thereby dampening investment and consumption. Businesses may defer or cancel expansion plans due to the increased cost of financing, while households are likely to reduce significant expenditures and face higher monthly payment obligations. Consequently, the growth rate of private sector credit extension decelerates, as both borrowers and lenders adopt a more cautious stance—evident in the current credit growth trends in Namibia.
“As anticipated, the US Federal Reserve maintained its policy rate at 5.25-5.50% during its most recent meeting, which aligns with our expectations. We believe that the first-rate cut will occur in September this year, and the market is fully pricing in this development, with the potential for two to three additional rate cuts in 2024. Once the South African Reserve Bank (SARB) initiates its cutting cycle, it is anticipated that the Bank of Namibia (BoN) will follow suit. Such developments would provide relief to indebted sectors and are expected to bolster overall economic sentiment,” the company said.
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