December 2020 to date, real private sector credit extension has been negative, indicating that less credit has been extended to the private sector, saysstockbroker and wealth management company, Simonis Storm.
The last time annual real private sector credit extension has grown by 5%% or more was in 2015.
Simonis Storm stated that credit growth will have to improve in order to support improved economic growth rates going forward.
As for the 12 months that ended in March 2023, the banking sector has only extended N$4,3 billion to the private sector, and 80% of this was granted to households, according to statistics compiled by the Bank of Namibia.
In the annual extension of N$3,4 billion made by the banks to households, N$1,3 billion was given to households to buy or build houses, while the other N$1,8 billion was extended through other loans and advances.
For the 12 months period, the statistics show that businesses only borrowedN$846.1 million to invest in their businesses.
Almost every borrowing channel for businesses was negative by the end of March 2023, except for N$133 million extended through instalment leasing.
As for the households, between February and March 2023 the statistics show that borrowing was in the positive of N$107.2 million for the month, mostly for housing properties and other loans.
Despite private sector credit extension increasing to 3.9% y/y in March 2023, compared to 3.1% y/y in February 2022 as adjusted for inflation, real private sector credit extension paints a different picture, Simonis Storm pointed out.
The firm said since December 2020 to date, real private sector credit extension has been recording negative, indicating that less credit has been extended to the private sector.
This highlights that credit extension is growing at a slower pace than inflation and so the real value of credit is decreasing.
Simonis Storm explained that real credit growth can be negative due to low consumer demand for credit or if banks are unwilling to lend or experiencing difficulties to provide credit due to other factors.
“Some banks see demand for credit, but then their internal models have become very restrictive. Other banks do not see bankable projects and are unwilling to take on excessive risk, whilst other banks are keen to give loans but their head office in South Africa is not,” Simonis Storm said.
The firm said negative credit growth has consequences for economic growth as it could lead to a decrease in investment as businesses battle to obtain credit in this environment.
“Our economic recovery from the lockdown-induced recession has not been broad-based, with growth being focused in only a select few sectors,” Simonis Storm explained.
Only 42% of all the sectors in the domestic economy have recovered back to pre-pandemic levels.
The stockbroker and wealth management company is of the view that due to high inflation levels, high unemployment rates, rising interest rates, and economic uncertainty, banks may be less inclined to extend credit in a higher default-risk environment.
Average non-performing loan ratios across the locally listed banks have increased materially since 2019 even though decreased below the abnormal level, the same upward trend can also be observed in credit loss ratios.
The average loan-to-deposit ratio from all listed banks remain on a downward trend since 2015, indicative of deposit growth outpacing loan advances.
Simonis Storm indicated that the country’s economic recovery is in the early stages, and credit growth will have to improve in order to support improved economic growth rates going forward.
Furthermore, credit extension also has to be supported by other factors in order to support higher growth, but prolonged negative real credit growth can limit growth, the firm said.
It added that various factors would likely have to change, “whether it’s the mathematics behind internal models used to assess credit risk by banks or local businesses and entrepreneurs coming forth with better ideas that are bankable”. Email: email@example.com