Justicia Shipena
Total private sector debt stands at N$119.1 billion, says Simonis Storm Securities in its
April private sector credit extension report published on Thursday.
This debt, which is 57.8% of the the country’s gross domestic product (GDP), includes
both households and companies, with the latter accounting for 38.6% and non-residents
firms accounting for 6.3%.
Simonis Storm said credit to the private sector remains lacklustre as it is likely to
average its forecast of 4.6% in April 2023 if the trend persists.
“Private sector credit extension grew by a meagre net 2,5% year on year in April
2023year on year in April 2023, compared to 3.9% year on year in March and dipped
below the 6-month moving average,” the firm pointed out.
According to the report, slower growth in credit uptake was mostly driven by the decline
in credit uptake by companies which declined by 0.8% year on year.
Businesses were net repayors of mortgage loans, down by 4.9% y/y, and overdrafts
down by 1.9% y/y), while they remained net borrowers of other loans and advances
which are up by 0.4% y/y. Instalment and leasing went up by 13.4% y/y, the report
stated.
In addition, corporate credit growth has been weighing on overall credit growth in the
private sector, with household credit growth contributing the most since mid-2022.
The Simonis Storm economists added that credit extended to households which makes
up more than half of the total credit in the private sector slowed to 0.2% month in
month which translates to 5.0% year on year growth in April 2023.
In March, household credit grew by 5.4% year on year and could be the turning point,
with a downward trend likely going forward into 2023 as the 350 bps cumulative rate
hikes take effect and so deter demand for credit and affordability concerns rise.
The report stated that the main drivers of credit extended to households was the
increase in other loans and advances with an increase of 17.9% year on year, mortgage
loans increased with 2.8% year on year and instalment and leasing increased with 2.8%
year on year.
"Households were net repayors on their overdrafts which is down by 1.3% y/y. In fact,
households have been net repayors on overdrafts since March 2022."
Simonis Storm said vehicle sales continue to trend upwards despite rising interest rates
and some banks seeing car loans as a high risk.
It added that household instalment and leasing credit growth averaged a meagre 1.9% in
the last 12 months, compared to 14.2% for corporates.
However, the report said passenger vehicles remain the main driver of vehicle sales,
indicating that cash sales are still fairly dominant in the automotive industry.
"Commodity explorations by local mining companies and local transport companies
increasing their market share of regional logistics services are supporting commercial
vehicle sales at the same time."
According to data from First National Bank, property volumes traded still remain on a
downward trend since mid-2020, and the first quarter of 2023 remains below levels
recorded in the first quarter of 2022.
The report further noted a decrease in properties being traded corresponds to corporate
mortgages which recorded declines, averaging -1.0% in the last 12 months as corporates
are net repayers on existing mortgage debt.
"We therefore are of the view that households are mainly supporting property volumes
being traded in recent months as households mortgage credit growth has averaged 2.4%
in the last 12-months," Simonis Storm said.
Moreover, the report stated that properties in the Northern and Central areas of
Namibia are the main drivers of total volumes traded in the property sector.
According to Simonis Storm, since the start of the year, national average house prices
have been declining during the first quarter of 2023, with all areas of Namibia recording
property price declines except the coastal area.
"With the rise in interest rates and subdued demand, house valuations have decreased
in recent years and so numerous Namibian households remain in a negative wealth
position where they owe more on their mortgage than what their house is worth."
It stated that demand is fairly robust in the middle segment of the property market, with
renewed buying interest from Angolans and foreigners wanting to buy and rent
properties.
The supply of new properties remains a concern and could be supportive of rising house
prices in the medium-term.
"Certainly, housing shortages in Luderitz and Oranjemund have led to some house
prices more than tripling in recent months, whereas an increase of lower cost housing in
Okahandja, Otjiwarongo and the Northern parts of Namibia have weighed down on
house prices."
In addition, the economist noted a simultaneous increase in the supply of serviced erven
and a growing number of individuals migrating to the coast have supported house prices
there.
Simonis Storm concluded that two out of five Monetary Policy Committee (MPC)
members might be in favour of a 50 bps repo rate hike at the next MPC meeting on 14
June 2023, with two of the remaining three most likely favouring a 25 bps repo rate
hike.
"Then there remains one MPC member that has the deciding vote and we believe this
member might be swayed to a 25 bps hike and maintain a more conservative stance," it
said.
Hence, it is of the view that a 25 bps hike looks very likely and would be the responsible
thing to do given the current financial position of the average Namibian household.
This the firm said will take the repo rate to 7.50% and we then expect no further hikes
for 2023 given the current information at hand.
"Without seeing an improvement in the number of local bankable projects, we do expect
private sector credit extension to trend lower as the cumulative 350 bps repo rate hikes
since last year take effect."
