Private sector borrowing slows
Although Private Sector Credit Extension (PSCE) has slowed down month-on-month to stand at 13.8% in August from 14.8% in July, as credits extended to individuals have remained elevated.
As shown in the latest Bank of Namibia (BoN) monetary policy, PSCE slowed at the end of August by 13.8% from 14.8% at the end of July, translating into a continuous drop. However, the PSCE growth figures in November 2012 stood at 18.5%, which were some of the highest in six years.
BoN governor, Ipumbu Shiimi, has this year consistently raised his concern about the high growth in credit extension to individuals, especially in instalment credits.
Instalment credits, together with mortgage credits, are the largest part of the household credit; when combined, both drive the growth of credit to households.
The PSCE might have decreased month-on-month but credit extended to the private sector increased quarter-on-quarter, driven by a strong appetite from both corporate and household sectors.
According to quarterly bulletin notes, total PSCEs stood at N$55b at the end of the second quarter of 2013, representing a quarterly growth of 3.4%. This growth was higher than the 2.4% recorded at the end of the preceding quarter and a bit lower than the 3.5% recorded at the end of the corresponding quarter of 2012. The growth in private sector credit extended was supported by the rise in demand for credit by businesses and individuals during the review quarter.
The private sector increased its borrowing by increasing balances on its credit facilities, in view of the prevailing accommodative monetary policy.
On quarterly and annual bases, credit to businesses increased mainly driven by demand for overdraft, as well as other loans and advances. Growth of credit extended to businesses rose to 2.9% compared to 2.3% at the end of the preceding quarter.
The growth in business credit, to a large extent, reflected growth in the ‘overdraft’ whose growth influenced the growth in total credit to businesses.
On the other hand, BoN’s September financial stability report shows corporate debt stock has increased by some N$4.8b while the domestic corporate debt has grown by eight percent, as the foreign corporate debts increase by some 26.9%.
The increase in foreign debts can be attributed to new borrowing and the ongoing Namibian dollar weakness against major currencies. This has seen the Namibian dollar depreciate by 23% against the US dollar over the past 12 months.
In the first quarter of this year, the corporate foreign borrowing included increases in short-term loans by resident banks and long-term loans acquired by companies, mainly in the mining, and to a lesser extent, the fishing sector.
At the end of the second quarter of 2013, foreign debt made up 59% of total corporate debts.
Regarding the economic growth in Namibia, Shiimi notes it is expected to slow before year-end compared to 2012, with the output in the mining sector increasing while the agricultural sector remains embattled with the current drought. The construction activities remain fairly strong while the manufacturing sector witnesses mixed signals.
Although the tourism and transport activities have experienced a slowdown year, to date, the tertiary sector activities remain positive with regards to wholesale and retail trades.