Borrowing for productive investments crucial
In boosting economic growth
Private sector credit extension (PSCE) growth stood at 4.6% at the end of August 2022 compared to the 3.9% at the end of July 2022.
Credit uptake by the private sector to invest in strategic productive sectors of the economy is crucial in boosting economic growth. According to Simonis Storm, despite perceived risk aversion amongst banks, it remains concerning that the data seems to suggest that most credit extensions are being used to finance consumption expenditure instead of financing productive investments.
“This could however change as we move closer to 2026, a crucial time where green hydrogen and oil projects are expected to show more tangible development,” Simonis Storm said.
The Bank of Namibia governor Johannes !Gawaxab recently pledge with commercial banks continue to lend responsibly to critical sectors of the economy to sustain the economic recovery.
“We are not out of the woods yet, and our economy desperately needs appropriate stimulus, which can take the form of credit extension for productive purposes to fuel the economy,” he said.
Private sector credit extension (PSCE) growth stood at 4.6% at the end of August 2022 compared to the 3.9 percent at the end of July 2022. The rise in PSCE growth is explained by an increase in demand for credit by the corporate sector more specifically corporates in the mining and services sectors, the central bank said.
Growth in credit extended to businesses rose to 8.2% at the end of August 2022, relative to a growth rate of 6.4% in July 2022.
In addition, growth in credit extended to households edged lower at 2.0% year-on-year at the end of August 2022, compared to a growth rate of 2.2% reported at the end of the preceding month.
Interest rates
The rate at which commercial banks borrow from the central bank increased by 175 basis points thus far in 2022. The repo rate currently stands at 5.50% and the prime lending rate at 9.25%. The South African Reserve Bank (SARB) recently announced a 75 basis points increase in the repo rate from 5.50% from 6.25%. The prime lending rate in South Africa stands at 9.75%. The interest rate spread in South Africa is 3.5% and 3.75% in Namibia.
Simonis Storm expect a 75 basis points increase in the repo rate at the next monetary policy announcement. That will lead to an increase in the repo rate from 5.50% to 6.25% and a rise in the prime lending rate from 9.25% to 10%.
“Economic growth rates during 2022 in South Africa have been coming in lower than Namibia, facing flooding at key ports, theft and vandalism of railway infrastructure for scrap metal sales and severe loadshedding have all contributed to this. Yet, credit growth in South Africa has persistently come in higher than credit growth rates in Namibia. It could be due to better economic prospects in South Africa, demand for credit is higher than in Namibia or that banks are more risk averse in Namibia,”Simonis Storm [email protected]
“This could however change as we move closer to 2026, a crucial time where green hydrogen and oil projects are expected to show more tangible development,” Simonis Storm said.
The Bank of Namibia governor Johannes !Gawaxab recently pledge with commercial banks continue to lend responsibly to critical sectors of the economy to sustain the economic recovery.
“We are not out of the woods yet, and our economy desperately needs appropriate stimulus, which can take the form of credit extension for productive purposes to fuel the economy,” he said.
Private sector credit extension (PSCE) growth stood at 4.6% at the end of August 2022 compared to the 3.9 percent at the end of July 2022. The rise in PSCE growth is explained by an increase in demand for credit by the corporate sector more specifically corporates in the mining and services sectors, the central bank said.
Growth in credit extended to businesses rose to 8.2% at the end of August 2022, relative to a growth rate of 6.4% in July 2022.
In addition, growth in credit extended to households edged lower at 2.0% year-on-year at the end of August 2022, compared to a growth rate of 2.2% reported at the end of the preceding month.
Interest rates
The rate at which commercial banks borrow from the central bank increased by 175 basis points thus far in 2022. The repo rate currently stands at 5.50% and the prime lending rate at 9.25%. The South African Reserve Bank (SARB) recently announced a 75 basis points increase in the repo rate from 5.50% from 6.25%. The prime lending rate in South Africa stands at 9.75%. The interest rate spread in South Africa is 3.5% and 3.75% in Namibia.
Simonis Storm expect a 75 basis points increase in the repo rate at the next monetary policy announcement. That will lead to an increase in the repo rate from 5.50% to 6.25% and a rise in the prime lending rate from 9.25% to 10%.
“Economic growth rates during 2022 in South Africa have been coming in lower than Namibia, facing flooding at key ports, theft and vandalism of railway infrastructure for scrap metal sales and severe loadshedding have all contributed to this. Yet, credit growth in South Africa has persistently come in higher than credit growth rates in Namibia. It could be due to better economic prospects in South Africa, demand for credit is higher than in Namibia or that banks are more risk averse in Namibia,”Simonis Storm [email protected]
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