Credit extension outlook remains bleak

 

The poor activity in the domestic economy will impact private sector credit extension which according to a local brokerage firm will remain subdued for the remainder of the year.

 

According to Simonis Storm Securities, credit will be between 5% and 8% in 2019, which is well below the historic average of 11.0%.

 

“Our view is based on low economic growth, tighter borrowing appetite by the commercial banks, an already highly indebted consumer coupled with high unemployment that will put strain on PSCE growth,” says the firm.

 

Last week the Bank of Namibia (BoN) released money and banking statistics for December 2018 which show that PSCE increased by 6.7% on a yearly basis in December 2018 compared to a 5.1% growth recorded in the prior year.

 

Simonis Storm said the increase can be attributed to borrowing through other loans and advances, overdraft facilities and mortgage loans that increased by 14.5% year-on-year, 10.1% year-on-year and 6.5% year-on-year in December 2018 compared to 5.4%, 4.1% and 8.0%, respectively in the prior year.

 

According to the firm on a 12-month average for 2018, PSCE increased by 6.1% in line with expectation but lower compared to a 6.7% average growth in 2017.

 

The slower pace growth in 2018 can be ascribed to slower growth in mortgage loans of 7.2% and overdrafts of 4.8% compared to 8.2% and 11.1%, respectively in 2017.

 

Further, average instalment credit contracted by 5.8% in 2018 compared to a 0.8% contraction in 2017. The contraction in instalment credit complements the contraction of 9.9% observed in new vehicle sales in 2018.

 

“We expect PSCE to remain subdued between 5% - 8% in 2019, well below the historic average of 11.0%. Our view is based on low economic growth, tighter borrowing appetite by the commercial banks, an already highly indebted consumer coupled with high unemployment that will put strain on PSCE growth.”

 

Meanwhile credit as a percentage of household disposable income registered 83.3% in 2017, with the growth in disposable income increasing at a slower pace of 7.8% in 2017 compared to a 13.3% recorded in 2016.

 

With the 2018 numbers still to be released by mid-2019, Simonis Storm said, “We are of the view that it has worsened.”

 

Of interest to note is the slower growth in the money supply (M2) of 6.4% in December 2018 compared to 14.1% in the prior year.

 

This is reflected in the declining levels of other deposits of 1.2% y-o-y (+15.7% in December 2017) as well as the contraction in currency in circulation of 4.9% (+7.4% December 2017) during the period under review.

 

Less money in circulation will lead to lower spending and lower economic growth.