Private Sector Credit Extension Shows Steady Expansion In May 2023

By:Justicia Shipena
Private sector credit extension saw a moderate increase in May 2023.
This is in accordance with the most recent private sector credit extension report released by financial research firm Simonis Stormon Tuesday .
This comes as financial conditions are tightening following the 400 bps cumulative repo rate hikes between December 2021 and June 2023.
In May 2023, the increase of private sector credit extension during the time under review dropped to 1.5% on an annual basis, which Simonis Storm indicated was the lowest growth rate since January 2022.
This is compared to the 2.6% year on year growth in April 2023.
“The latest data point is half the six-month moving average of 3.0%,” the reportstated.
Private sector credit extension year-to-date averaged 2.7%, down from 3.2% in 2022 over the same period.
According to Simonis Storm, the slower growth in loan uptake was primarily caused by a 3.4% year-over-year reduction in corporate demand for credit.
Businesses were net repaid home loans at a rate that was down 4.5% year over year at the same time that overdrafts were down 1.2%.
“Other loans and advances went down by 7.5% y/y, while they remained net borrowers of instalment and leasing credit went up by 14.1% y/y.”
Simonis Storm pointed out that the expansion of corporate credit has been dragging on the expansion of private sector lending as a whole.
Thus, it was noted that credit granted to households, which accounts for 56% of all credit in the private sector, increased by 0.4% month over month, translating to 5.2% y/y growth in May 2023.
The financial research firm initially believed that the 5.0% increase in household credit in April would signal a turning point in the adoption of household credit as a result of increased interest rates.
Additionally, from August 2022, the growth of private sector credit extension has been sharply declining.
This is due to the report’s assertion that given the lag in the mechanisms for transmitting monetary policy, it takes time for interest rate increases to have an effect on the real economy.
The Bank of Namibia raised the repo rate by 50 basis points to 7.75% in June 2023, bringing the prime rate to 11.5%. Further increases are to be anticipated, according to Simonis Storm.
“We see affordability concerns rising as households face high living costs in addition to higher debt repayments. Affordability concerns in turn could incentivise banks to be more selective with their loan book,” the firm said.
A robust pipeline of bankable projects in the tourist, logistics, mining, and energy sectors is mentioned in the report’s addition, which should help corporate credit uptake in the second half of 2023 and the first half of 2024.
Real consumption spending, which fell by 3.2% year over year in the first quarter of 2023, has been slowing down since the second quarter of 2022, according to the research firm.
On a quarterly basis, consumer spending increased by a pitiful 1.0% quarter over quarter in the first quarter of 2023, up from a low base of -14.4% quarter over quarter in the fourth quarter of 2022.
“In real terms consumption spending has surpassed 2019 levels and indicates that households are buying higher quantities of goods and services post pandemic,”the firm noted.
Since 2022, the wholesale and retail industry has been one of the top five performing sectors, according to Simonis Storm.
After growing by 6.2% annually in 2022, the wholesale and retail industry increased by 5.7% year over year in the first quarter of this year.
The firm also observed that Namibia Breweries’ special dividend payments, increased foreign direct investment, and higher payouts from life insurance plans all contribute to the economy’s infusion of cash, which can bolster consumption spending moving ahead in 2023.
However, the firm in its report revealed that using cash can affect bank-offered overdraft, personal loan, or credit card debt instruments.
According to this, the total amount of money in circulation declined from an annual growth rate of 9.9% in April 2023 to a rate of 7.7% in May 2023.
The deceleration stemmed primarily from a contraction in domestic loans decreased by 0.8% y/y and slowing of net foreign assets went up by 36.2% y/y in May 2023.