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According to the latest data from Simonis Storm, the slowdown in May marks the lowest growth rate since January 2022.
The tight liquidity in the market – following the cumulative repo rate hikes of 400 basis points since December 2021 – has resulted in corporates showing a decline in demand for credit, and while households face affordability concerns.
"Year-to-date, private sector credit extension averaged 2.7%, compared to 3.2% for the same period in the previous year. The slower growth in credit uptake was largely driven by the decline in demand for credit by corporates. Businesses were net repayers of mortgage loans (down by 4.5% year-on-year), overdrafts (down by 1.2% year-on-year), and other loans and advances (down by 7.5% year-on-year), while they remained net borrowers of installment and leasing credit (up by 14.1% year-on-year)," Angelique Bock, a researcher at Simonis Storm said.
She said the decline in corporate credit growth has been weighing on overall credit growth in the private sector.
Bock highlighted that credit extended to households, which constitutes 56% of the total credit in the private sector, grew by 0.4% month-on-month, resulting in 5.2% year-on-year growth in May 2023.
In the previous month, household credit grew by 5.0% year-on-year, which was initially anticipated to be the turning point in household credit uptake due to higher interest rates.
Bock noted that private sector credit extension growth has been on a steep decline since August 2022, as it takes time for interest rate hikes to have an impact on the real economy, given the lag in the monetary policy transmission mechanisms.
This comes as the Bank of Namibia (BoN) increased the repo rate by 50 basis points to 7.75% in June 2023, pushing the prime rate up to 11.5%.
Bock suggested that "additional hikes can be expected. We see affordability concerns rising as households face high living costs in addition to higher debt repayments."
Furthermore, she said affordability concerns may prompt banks to be more selective with their loan book.
Bock noted that discussions with various banks indicate a strong bankable project pipeline in the tourism, logistics, mining, and energy sectors, which is expected to support credit uptake by corporates in the second half of 2023 or the first half of 2024.
In terms of consumption spending, Bock stated that "real consumption spending has been decelerating since the second quarter of 2022, declining by 3.2% year-on-year in the first quarter of 2023."
On a quarterly basis, the report reveals that consumption spending grew by a meager 1.0% quarter-on-quarter in the first quarter of 2023, coming from a previous low base of -14.4% quarter-on-quarter in the fourth quarter of 2022.
However, in real terms, Bock said consumption spending has surpassed 2019 levels, indicating that households are buying higher quantities of goods and services post-pandemic.
Bock further pointed out that the wholesale and retail sector has been one of the best-performing industries since 2022.
"The wholesale and retail sector expanded by 5.7% year-on-year in the first quarter of 2023, following an annual growth of 6.2% year-on-year in 2022," said Bock.
According to Simonis Storm, factors such as special dividends paid by Namibia Breweries, improved foreign direct investment and elevated payouts from life insurance policies inject cash into the economy, which can support consumption spending going forward in 2023.
However, cash spending can have a negative impact on overdrafts, personal loans, or credit card debt instruments offered by banks.
"The total amount of money in circulation, including cash, checking accounts, saving accounts, and other types of deposits, slid from 9.9% year-on-year growth in April 2023 to 7.7% year-on-year growth in May 2023," said Bock.
She further highlighted that the deceleration primarily stems from a contraction in domestic loans (down by 0.8% year-on-year) and a slowing of net foreign assets (up by 36.2% year-on-year in May 2023 compared to an increase of 44.5% year-on-year in April 2023), specifically foreign currencies and investments held by depository corporations.