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Credit extension slows as banks’ liquidity declines

06/11/2017
by Kelvin Chiringa
Business

Growth in private sector credit extension (PSCE) slowed at the end of September 2017 to 5.4 percent, as reflected in the lower demand for credit by both the household and corporate sectors during the review period, the central bank has reported.

“The subdued growth in domestic demand for credit as reflected in PSCE continued and is mainly attributed to the general sluggish demand for credit from both the household and corporate sectors in 2017. The annual growth in total PSCE slowed to 5.4 percent at the end of September 2017, from 6.2 percent at the end of the previous month,” the bank says.

The slower growth in PSCE was evident in all the credit categories with the exception of other loans and advances, which rose slightly.

Total PSCE in nominal terms stood at N$88.3 billion at the end of September 2017, compared to N$88.0 billion at the end of the previous month.

On an inflationary adjusted basis, growth in PSCE contracted to 0.2 percent in September 2017, compared to a growth of 0.8 percent a month ago.

Growth in total credit extended to businesses slowed after corporations reduced their uptake of short-term debt at the end of September 2017.

The credit extended to businesses slowed to 3.9 percent at the end of September 2017, decreasing by 0.6 percentage point, compared to the preceding month.

Businesses in various economic sectors maintained their low uptake of overdraft credit hence contributing to the decline in credit extended to the corporate sector, the bank reports.

The annual growth in credit extended to individuals slowed to 6. 4 percent, 1.1 percentage points lower than the growth recorded in August 2017.

The bank says, “The slower growth in total credit extended to the household sector, although reflected in most credit categories, it was predominantly in the category instalment credit due to repayments made during the period under review.”

The annual growth in overdraft credit slowed significantly at the end of September 2017.

The bank says overdraft credit extended to the private sector decelerated to 10.3 percent at the end of September 2017, compared to 16.9 percent at the end of August 2017.

“The significant reduction in the growth of overdraft credit was mostly reflected in the lower uptake of short-term credit facilities by some corporations during the period under review. Growth in overdraft credit extended to corporates decelerated to 9.9 percent at the end of September 2017, from a growth of 18.2 percent at the end of the preceding month,” reports the BoN.

The annual growth in other loans and advances (i.e. personal/commercial loans and credit cards) edged up at the end of September 2017.

Growth in other loans and advances, which represents about 11.2 percent of total credit to the private sector, stood at 9.9 percent at the end of September 2017, 0.1 percentage point higher than the growth in the previous month.

The slight increase primarily stemmed from the rise in demand for commercial loans from the corporate sector, says the bank.

Instalment credit contracted by 3.5 percent in September 2017, when compared to a contraction of 3. 0 percent at the end of August 2017. The contraction was as a result of repayments made by both the household and corporate sectors.

Mortgage credit, which makes up more than 50 percent of total PSCE, moderated to 7.5 percent at the end of September 2017, when compared to 7.7 percent at the end of the preceding month. This moderation in the growth of mortgage credit was seen in the declining demand for commercial property loans by the corporate sector during the review period.

Meanwhile Broad money supply (M2) rose at the end of the review period to 9.2 percent at the end of September 2017, compared to the lower growth of 6.3 percent at the end of the preceding month.

The annual growth in M2 rose at the end of September 2017.

The 12-month growth in M2 rose to 9.2 percent at the end of September 2017, from 6.3 percent at the end of August 2017. The rise in the growth of M2 was driven by a significant spike in the net foreign assets of the depository corporations, particularly that of the central bank. The increase in NFA of the central bank was as result of the proceeds of the AfDB loan during the period under review.

The overall liquidity of commercial banks declined at the end of September 2017. The overall liquidity position declined to N$3.5 billion at the end of September 2017, from N$3.9 billion at the end of August 2017. The decrease in the overall liquidity position was as a result of cross border payments done during the month under review.

The overall inflation rose slightly during September 2017 standing at 5.6 percent, increasing by 0.2 percentage point when compared to the preceding month.

The main drivers of the annual inflation rate during the month under review were housing, water, electricity, gas and other fuels, education, hotels, cafes and restaurants, as well as health, alcoholic beverages and tobacco.