By: Nghiinomenwa Erastus
According to the Bank of Namibia’s monetary and financial statistics, households acquired more than N$1,7 billion in debts to fund their consumption, invest or acquire properties in 2021.
The central bank says household debt increased from N$60,1 billion in January 2021 to N$61,8 billion in December 2021 (2,8% increase).
According to Simonis Storm analysis, this annual increase represents a daily increase of about N$4,6 million during 2021.
Of the N$4,6m, N$1,1m was borrowed as a mortgage to buy properties.
However, the data is not disaggregated further to indicate if the households are buying primary residences or second houses as investments or for speculative purposes.
The remaining was borrowed through the credit facility categorized as other loans and advances, which can be short term and theoretically fit the characteristic of borrowing for consumption even though they are also used to purchase assets.
By 2021, households had borrowed N$270,7 million through other loans and advances.
At the same time, the data shows that households have reduced their utilization of overdraft credit facilities in 2021, nor did they take up many instalments/leases to buy cars or equipment.
As a result, the household debt stock increased by 2,1%, compared to the N$60,5 billion recorded in December 2020.
The high annual borrowing from the households could be attributed to the low-interest-rate environment and the fact that local houses cost more than the yearly salaries of many working classes- as the average house price stands above a million.
However, the outlook from experts looks more burdensome to households as expectations and forecasts point to interest rate hikes that increase monthly payments on variable-rate loans.
In the corporate sector, the data shows that the businesses were quite hesitant to take up more debts for investment or operational matters- despite low-interest payment, grace period and banks were given the freedom to be over-exposed to a single sector.
Moreover, liquidity after the central bank availed some capital buffers to the banks.
Corporate debt decreased from N$44,9 billion in January 2021 to N$44,3 billion in December 2021 (1,3% contraction).
The biggest annual decline is in the usage of overdraft. By the end of December last year, corporate overdrafts decreased by N$1,5 billion compared to 2020.
Companies reduced their overdraft facility usage, but they have borrowed N$722,7 million in mortgage either to expand their facilities or perhaps build new ones.
Furthermore, the corporates have also used other loans and advanced facilities to get N$526,9 million from the banks by last year.
Simonis and Storm analysis highlighted repayments and lower demand in mortgage loans and overdrafts by businesses in the commercial services sector weighed most on corporate credit extension.
By the end of last year, the private sector (corporations and households) owed the banks N$106,4 billion, almost 69% of this in the hands of households, mainly extended to buy houses.
INTEREST HIKES
Simonis Storm analysis also revealed that the low-interest environment is about to end. In two weeks (16 February), the monetary policy committee could be forced to follow in the footsteps of South Africa and increase the cost of money.
The analysts from Simonis Storm indicated that they expect the Bank of Namibia to hike the repo rate by 125 basis points in 2022, increasing the repo rate from 3,75% to 5% and subsequently taking the prime interest rate from 7,50% to 8,75% by the end of 2022.
While in terms of demand credit (consumption or productive purpose), Simonis Storm expects it to remain subdued, this is due to solvency concerns amongst the private sector due to a low growth environment.
It is also driven by commercial banks growing more cautious and risk-averse in lending out to the public.
The analysts and economists supported their projections using the slow growth in short term credit extensions primarily used to buy vehicles.
According to their assessment, clients at various dealerships see their car loans rejected by the banks.
Another factor would be that banks will start to earn higher interest rates on shorter-term deposits and money market securities, increasing the risk trade-off between lending money to clients versus safely earning higher yields. Email: erastus@thevillager.com.na
