By: Nghiinomenwa Erastus
Two emerging trends from commercial banks statistics are showing that they are reducing their risk uptake by lending less and shifting money into financial assets.
While businesses and households shy away from productive borrowing, opting short term overdrafts despite low rates.
Observed Simonis Storm on their analysis of the money and banking statistics released by the central bank this week.
Simonis Storm indicated that apart from First National Banks, “we see an increasing trend in investment security holdings by the local listed banks.
Besides Standard Bank, they have also observed “a steady decline in the loan to deposit ratios across the local listed banks”.
According to Simonis Storm researchers, these two trends can signal that banks have become risk-averse and unwilling to lend.
“However, we do know that certain banks are eager to lend to their clients despite lower profit margins, but clients are not forthcoming,” the report revealed.
The risk-averse trend shows that financiers deem businesses and households to be riskier now given the macroeconomic environment, opting to channel funds into government securities.
The loan to deposit ratio indicates the portion of the deposited money channelled to loans by specific banks limited by the regulatory reserve benchmarks.
The ratio is expressed in percentage- when it is increasing it indicates that a specific bank is extending more credit to the economy as it receives deposits.
The opposite can be interpreted in two ways that the banks are being a bit more risk-averse and sitting with more cash or could be there is no appetite for loans in the economy.
The banks either sit with more liquid assets and earn nothing or channel it to other income-generating avenues.
Simonis Storm’s analysis and banking statistics are showing a decrease in the loan to deposit ratio.
Theoretically, the observations can be considered counterproductive if there is demand for credit in the economy, especially when the monetary policy committee keeps lowering the repo rates to enable access to credit in the economy.
The statistics are however showing a low appetite especially for long-term borrowing which is considered more impactful and productive.
For Standard Bank, the Simonis Storm analysis show that they have increased their investment in securities (bonds, treasury bills, and others) for 2020, above N$4 billion compared to 2019.
The same is observed for Capricorn Group which owns Bank Windhoek, their investment in securities has increase toward N$6 billion compared to 2019 levels when it was around N$5 billion.
The monetary policy committee kept the rate at what the commercial banks borrow from the central banks at 3,75% for the next two months, saying is ideal to stimulate activities.
“The MPC is of the view that the rate remains appropriate to support domestic economic activity that is still being weighed down by the Covid-19 pandemic,” the central bank said in their last meetings.
LIVING ON OVERDRAFT
An observation on money and banking statistics shows that both households and businesses are living on overdraft to meet their short-term financial commitment
Despite it, theoretically considered to be of short-term borrowing or emergencies only- it was widely used as a funding mechanism especially by the business community by the end of July 2021.
Bank of Namibia said overdrafts and other loans and advances were most noticeably observed from corporates in the mining, fishing, and financial services sectors.
In a 12 months period, ending in July 2021, businesses have borrowed through overdraft than any other borrowing platforms available to commercial banks.
Annually, overdraft has grown by N$864,6 million by the end of July 2021.
Borrowing through commercial mortgage has declined both monthly (N$215, 3 million) and annually (by N$296,1 million).
One notable improvement in business borrowing for June and July 2021 is the installment and leasing funding mechanism, which is partially used to acquire equipment.
For June and July 2021, this category has recorded positive extension, N$106, 2 million, and N$25,3 million, the central bank statistics show.
Compared to negative growth in May 2021 and its struggle in the early months.
Simonis Storms highlighted that although interest rates are low and now would be a good time to borrow.
“Businesses have been hesitant to take out loans in an environment still defined by pandemic uncertainty,” the research team stated.
The demand for decent dwellings and individuals’ purchasing power has made the demand for residential loans consistent and an available investment platform for banks (conditional on individual ability to repay).
For the three months of May, June, and July 2021, the household residential loan portfolio has been quite unstable but positive.
Using monthly differences, for May 2021, banks have only approved/funded households’ residential loans worth N$9,3 million.
In June 2021 then approval/funding shoot up to N$146,3 million then in July 2021, it cooled to N$82,7 million.
The Villager does not, however, have access to the number of applications received by banks and their value.
The other lending facilities (other loans and overdraft) extended to households have also been positive on annual basis by the end of July 2021, except some up and down on monthly basis.
In comparison to businesses, households have a bit of an appetite for credit.
Overall credit extended to the private sector marginally increased to 2,7% year on year in July 2021 from 2,6% in June 2021.
It was driven mainly by overdrafts from both households and corporates.
Using the annual 2020 GDP figures recently released, Simonis Storm’s calculation shows that household and corporate debt to GDP is at 46,2% and 32,6%, respectively.