Total debt stock among households increased by N$125.94 million month-on-month and by N$1.3 billion year-on-year in August 2024, although overall growth remains subdued, a report by Simonis Storm reveals
The research experts further note in the report that mortgage loans declined by 1.1% y/y, reversing the 3.1% y/y growth observed in August 2023, primarily due to the impact of the previous high-interest rate environment.
“This decline highlights continued caution in long-term borrowing among households,” Simonis Storm says.
In contrast, other loans and advances grew by only 1.5% y/y, a sharp decline from the 14.9% y/y increase recorded in the previous year, indicating more conservative borrowing behaviour.
However, overdrafts surged by 10.2% y/y—a significant improvement from the 3.5% y/y decline noted in August 2023—suggesting an increased demand for short-term credit among households, likely driven by immediate financial needs amid persistent inflationary pressures.
Instalment and leasing credit expanded by 6.7% y/y, surpassing the 6.1% y/y growth seen last year, which points to a resilient demand for financing vehicles and other durable goods. On the other hand, claims by non-residents saw a marked decline, contracting by 14.5% y/y compared to a 1.8% y/y increase in August 2023. The total debt stock held by non-residents stood at N$6.5 billion by the end of August 2024, reflecting a contraction in external borrowing or a repayment of existing liabilities.
As of the end of August 2024, liquidity in the banking sector averaged N$5.7 billion, down from N$6.4 billion in July 2024. The Bank of Namibia (BoN) reported that this reduction in liquidity levels was mainly driven by substantial cross-border payments and lower government spending compared to the previous month. Such constrained liquidity could potentially limit the banking sector’s ability to extend credit, thereby impacting broader economic activity.
The stock of foreign reserves stood at N$59.3 billion by the end of August 2024, marking a month-on-month decrease of 2.5%. According to BoN, this decline was primarily due to customer foreign currency withdrawals, which put pressure on the reserve levels. Despite this reduction, the reserves still provide approximately 4.0 months of import cover, underscoring Namibia’s capability to manage external financial obligations effectively and maintain foreign exchange stability.
In terms of sectoral performance, the financial services sector’s real GDP growth rebounded strongly in the second quarter of 2024, registering a substantial 30.0% y/y increase—a sharp turnaround from the -4.6% y/y contraction observed in 2023. This remarkable growth follows a 5.2% y/y increase recorded in Q1 2024, reflecting an exceptional improvement in the sector’s overall performance. The banking services subsector, in particular, played a pivotal role, posting an 11.2% increase in real value added during Q2 2024, compared to a modest 1.5% increase in the same quarter of 2023. This surge underscores the resilience and recovery of the banking industry, supported by improving consumer confidence and more favourable credit conditions.
“The current repo rate in Namibia stands at 7.50%, with the prime lending rate at 11.25%. Although these rates remain elevated, the recent reduction offers some relief to Namibian households and businesses by easing borrowing costs. In comparison, South Africa’s repo rate is currently 8.00%, while the prime lending rate stands at 11.50%. Despite these adjustments, we anticipate that private sector credit extension growth will remain modest in the near term due to the lag effect of interest rate changes, as it typically takes time for the full impact to permeate the broader economy. The Bank of Namibia’s Monetary Policy Committee (MPC) will convene for its next meeting on the 23rd of October 2024. Looking ahead, we project inflation to stabilize at approximately 4.7% y/y by the end of 2024. Furthermore, we expect an additional 25 basis point rate cut at the December MPC meeting, bringing the year-end repo rate to 7.25%.
“The central bank is likely to adopt a cautious stance, closely monitoring the effects of this monetary easing before considering further policy adjustments. Similarly, the South African Reserve Bank (SARB) is scheduled to hold its next MPC meeting on the 21st of November 2024. Given the current economic conditions in South Africa, we also anticipate a 25 basis point rate cut at that meeting. This gradual approach to rate cuts is intended to support both corporate and household sectors while ensuring that inflation remains under control, fostering a more favourable credit environment,” commented Simonis Storm.