Namibia's credit growth hits lowest level since 2004

September 01, 2023

Namibia’s annual credit growth averaged 2.7% in July this year, the slowest since 2004, official figures show.

According to Simonis Storm's latest report, credit extended to the private sector during the month stood at N$119.2 billion, with 55% held by households, 38% by businesses, and 6% by foreigners.

According to the private sector credit extension report, businesses experienced a decrease of 1.2% year-on-year (y/y) in their debt for the fourth consecutive month.

This comes as households saw an increase of 5.5% y/y, and foreigners recorded a 2.1% y/y rise in their borrowing activities in the same period.

The Bank of Namibia noted a slowdown in credit demand from businesses across various sectors, including mining, wholesale and retail trade, financial, and services.

"The latest statistics follow a meagre 0.035% month-on-month (m/m) increase in private sector credit extension in July 2023, a stark 0.092 percentage points lower than the year-to-date (YTD) monthly growth average of 0.128%. This translates to an annual growth rate of 2.6% year-on-year (y/y) in July 2023," the report noted.

Delving into a longer-term perspective, Simonis Storm said private sector credit extension has experienced an annualised decline of -9.8% over the last two decades, a clear illustration of the subdued growth in credit.

"While some of this may be attributed to a low base effect in July 2003, it may also indicate a waning appetite for credit within the country. A closer look at the average YTD growth rate reveals a consistent trend," noted the research.

In YTD terms, Simonis Storm reveals that businesses were net repayers of their loans, reducing their credit intake by an average of 0.6%.

Meanwhile, households (up by 5.2%) and foreigners (up by 32.21%) continued their trend of being net borrowers.

"The situation for businesses is particularly stark, as they remain net repayers of their mortgage loans for the 11th consecutive month in July 2023, with a recent negative growth rate of -5.1% y/y recorded in July," reveals the firm.

Similarly, other loans and advances by businesses have consistently posted negative growth rates since May 2023, with a decline of 6.6% y/y in July 2023.

"These two credit categories carry significant weight, constituting 66% of the total credit uptake by businesses. However, within this challenging context, corporate overdraft credit (up by 6.8% y/y) and instalment and leasing credit (up by 16.6% y/y) have shown steady growth since September 2021."

In contrast, household credit uptake has been driven by various factors, including mortgage loans (up by 2.9% y/y), other loans and advances (up by 15.9% y/y), overdraft credit (up by 6.1% y/y, following three consecutive months of contractions), and instalment and leasing credit (up by 6.1% y/y).

Real private sector credit extension growth has consistently remained in negative territory since December 2020, with the nominal value of credit extended to the private sector growing at a slower pace than inflation.

In July 2023, real private credit extended to businesses decreased by 5.7% y/y, which is higher compared to its lowest growth point of -9.7% y/y in May 2023.

Conversely, real household credit growth rebounded into positive territory after 21 months of consistent negative real credit growth.

Simonis Storm said this suggests the sensitivity of both businesses and households to monetary policy changes.

"In July 2023, Namibia's foreign currency reserves reached a record high of N$54.1 billion, up from N$52.9 billion. This increase justifies the recent decision by the Bank of Namibia to keep the repo rate and prime rate unchanged at 7.75% and 11.5% in August 2023, respectively," the report added.

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Last modified on Saturday, 02 September 2023 15:29

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