Slow credit growth shows a bleeding economy

 

The slow growth in credit handed over to private business clearly shows that the economy is still facing difficulties, the Economic Association of Namibia has said in its latest analyses.

 

Making their observations, the EAN submitted, “This is particularly true for the construction sector that does not receive much of a boost from the private sector as the slow, month-on-month increase in mortgages suggests.”

Credit extension to businesses dropped by 0.4% compared to June 2018 and amounted to N$37,092.7 million.

This category of credit has seen contractions in three of the seven months this year but remains overall 2.2% above the level at the end of 2017.

Total credit extended to businesses and individuals amounted to N$93,409.2 million in July 2018.

This is a marginal growth of just 0.3% as compared to that of June 2018 which was at N$292.8 million.

In contrast, credit extension to individuals rose by 6.7% on an annual basis compared to July 2017, which is weaker than the annual growth of credit extension from January to May 2018.

It also remains below the double-digit growth during almost all months between January 2011 and August 2016. The annual increase in credit extended to individuals peaked at over 15% during the first few months in 2014.

On a yearly basis, increase in credit extension to businesses dropped from 4.2% in June 2018 (compared to June 2017) to 3.4% in July 2018 compared to July 2017.

Although it is the second most robust annual growth rate since September 2017, it remains substantially below growth rates experienced since January 2006.

During the decade of January 2006 to October 2016, credit extension to businesses grew by double-digit figures peaking at 23.9% in January and March 2007.

Calculations are that credit extended to individuals accounted for 59% of total credit extended to the private sector compared to 39.7% extended to businesses.

During 2006, credit extended to individuals made up two-thirds of total credit extension to the private sector, but the share has declined since then.

Mortgages accounted for 52.4% of credit extended.

The bulk of mortgages are taken up by individuals (N$37,502.5 million) compared to N$11,482.8 million by businesses in July 2018.

While mortgages to individuals increased by 1.0% compared to June 2018, mortgages to businesses declined by 1.9% over the same period.

Mortgages’ share of PSCE has remained relatively stable over time even during the construction boom.