Credit extended during the month of July to the private sector currently stands at N$119.2 billion, with 55% owned by families, 38% by businesses, and 6% held by foreigners, the Simonis Storm’s Securities’ latest report stated.
This comes as private sector credit extension expanded by a paltry 0.035% month on month in July 2023, 0.092 percentage points lower than the year-to-date monthly growth average of 0.128%.
This amounts to an annual credit growth rate of 2.6% in July 2023.
Year to year annual credit growth averaged 2.7%, the second lowest on record since 2004, and 0.1 percentage point higher than the lowest year to far average in 2021 of 2.6%.
“Businesses experienced a decrease of 1.2% year-on-year (y/y)as net repayors of their debt for the 4th consecutive month in July 2023, while households increased by 5.5% y/y and foreigners recorded a 2.1% y/ rise as net borrowers for the same month,” said Simonis Storm.
Simonis Stormsaid private sector credit extension has declined at a pace of -9.8% on an annual basis during the previous two decades, illustrating the restrained expansion in credit.
This decreased rate, Simonis Storm said, might be related to a low base effect in July 2003, but it could also be owing to the country’s weak credit appetite.
According to the Bank of Namibia (BoN), loan demand from enterprises in the mining, wholesale and retail commerce, finance, and services sectors has declined.
The average year-to-date growth rate, on the other hand, follows a similar pattern to the annual.
“Year-to-date, businesses were net repayors of their loans, decreasing their credit uptake on average by 0.6%, while households increased by 5.2% and foreigners by 32.21% continued their trend of being net borrowers,” the reportstated .
According to the data, companies were net repayors of their mortgage loans for the 11th consecutive month in July 2023, with the most recent negative increase of -5.1% year on year in July.
Furthermore, other loans and advances made by firms followed a similar pattern, with constant negative growth rates since May 2023, declining by 6.6% year on year in July 2023.
“These two credit categories carry the majority weight in the basket, consisting of 66% of total credit uptake by businesses. Although businesses are net repayors of overall debt, the remaining 34% of businesses’ debt basket is expanding.”
Simultaneously, Simonis Storm found that corporate overdraft credit, which climbed 6.8% year on year, and instalment and leasing credit, which increased 16.6% year on year, have both been constantly expanding since September 2021.
Based on the data, mortgage loans, other loans and advances, overdraft credit, and leasing credit drove household credit intake after three consecutive months of contractions.
Meanwhile, since December 2020, actual private sector credit extension growth has been constantly negative.
“The nominal value of credit extended to the private sector is growing at a slower pace than inflation. Real private credit extended to businesses in July 2023 decreased by 5.7% y/y, higher compared to its lowest growth point of -9.7% y/y in May 2023,” stated the report.
At the same time, the report indicated that after 21 months of sustained negative real credit growth, real household credit growth has returned to positive territory. Simonis Storm said this demonstrates the vulnerability of credit-holding firms and consumers to changes in monetary policy.
Simonis Storm said Namibia’s foreign currency reserves would reach a record high of N$54.1 billion in July 2023, up from N$52.9 billion.
In addition, the financial researchers say this rise validates the BoN’s recent decision to hold the repo rate and prime rate constant in August at 7.75% and 11.5%, respectively.
“Based on this decision, it is likely that lending to businesses will remain stagnant for the rest of the year due to these high rates. Namibia’s economic growth could be at risk due to limited lending to businesses as high interest rates make it less appealing for investors to borrow money.”
Furthermore, the Simonis Storm reported that banks have expressed interest in sponsoring projects in order to increase lending to businesses and help economic growth.
The firm stated that, on the other hand, the decision to leave rates steady might suggest a stable monetary environment, which could contribute to increased loan uptake. However, given the present low private sector credit extension growth trends, static lending appears more plausible.
The BoN’s next monetary policy meeting is slated on October 25, 2023, and Simonis Storm anticipates the central bank to hold rates steady or raise them by 25 basis points.
If the BoN opts for the former, Simonis Storm believes it will indicate the end of the raising cycle, implying rate stability and possibly increasing loan usage by both enterprises and families.