Credit extended to foreigners or non-residents in Namibia which includes both foreign firms and individuals has increased notably in recent months.
This is according to a Simonis Storms report on private sector credit extension for the month of October 2022.
This comes as credit uptake by the private sector slowed in October 2022, rising by 3.5% year on year in October 2022 compared to 4.1% year on year in September 2022.
The economists say it is dipping below the six-month moving average for the first time since March 2022.
“At the same time, foreign direct investment (FDI) has increased by 11.2% in the first half of 2022, supported by the reinvestment of profits and retained earnings mainly by mining companies,” the report pointed out.
Simonis Storm forecasts foreign direct investment (FDI) to increase consistently over the medium-term and together with a growing number of loans being extended to non-residents in Namibia.
“We believe that overall private sector investment could improve and support economic growth over the medium-term,” the reportsaid .
It further stated that local banks continue to increase their investment holdings at a faster pace than credit extension to their clients. This again confirms that banks have become more risk averse in the current economic environment while demand for credit remains relatively high despite the interest rate hiking cycle, the report said.
In addition, Simonis Storm said over the last five years investment holdings have increased by 13.2% on an annualised basis at First National Bank (FNB), 5.7% at Capricorn Group and 12.1% at Standard Bank.
“Compared to annualised growth in advances of 2.1% (FNB), 4.5% (Capricorn Group) and 2.8% (Standard Bank).”
However, the report said with the economic outlook having significantly improved for Namibia over the medium-term, it remains to be seen whether local banks invest less and supply the market with more credit to take advantage of growth opportunities and allow investments to expand economic activities.
Meanwhile, year to date credit growth averages 3.6% compared to our forecast of 3.1% and continues to trend above credit uptake levels in 2020 and 2021.
“This should be supportive of earnings for the local banks and the financial services sector in 2022.”
The report showed that credit uptake by corporates which makes up 39.1% of total private sector debt grew by 3.1% year on year in October 2022 compared to 5.9% year on year in September.
In a meantime, household credit uptake which accounts for 54.4% of total private sector debt increased by 3.7% year on year in October 2022.
“Credit uptake by foreigners which makes up 6.5% of total private sector debt increased by 1,571.5% y/y and 0.6% m/m in October 2022,” the report said.
According to Bank of Namibia (BoN) a deceleration in corporate credit extension was mainly driven by repayments on debt from businesses in the construction and services sector.
Simonis Storm said forecasts from various research institutions on economic growth for 2023 have increased to growth rates last seen in Namibia’s boom years, adding that risk aversion among some banks would need to turn in order to supply capital to growing sectors of the economy.
“With the approval and near finalisation of the Special Economic Zone (SEZ) Bill, we do expect increased demand from both local entrepreneurs and foreign investors. With credit extension being a leading indicator of investments which impacts economic growth, the slowdown in credit growth is concerning and would be a constraint on our growth forecasts for the medium-term.”