Local banks more ‘cautious’ when giving credit
Net investment has been declining since 2016
Private sector credit extension (PSCE) growth slowed to 2.1% (N$1.35 billion) at the end of March 2022, from 2.8% at the end of February 2022.
Local commercial banks are more cautious when giving credit to the private sector given the current economic environment, analysts say.
In addition, rising interest rates, which is the cost of borrowing money, has an influence on economic agent’s willingness to borrow. These developments have an impact on the level of investment in the economy.
Last month the central bank increased the repo rate by 25 basis points (bps) from 4.0% to 4.25%. This led to the prime lending rate increasing from 7.75% to 8.0%. Local analysts expect the central bank to increase the repo rate further during the course of the year.
According to the Bank of Namibia (BoN) money and banking statistics, private sector credit extension (PSCE) growth slowed to 2.1% (N$1.35 billion) at the end of March 2022, from 2.8% at the end of February 2022.
The decline in credit uptake is explained by a lower demand and repayments by businesses specifically corporates in the fishing and health services sectors as well as commercial property space. Growth in PSCE remains subdued in line with the current economic state as well as low borrower’s appetite for credit and a rising cost of living, the central bank said.
Commenting on the statistics, Simonis Storm (SS) see healthy levels of demand for credit from the small and medium enterprises (SMEs), however banks remain wary and perceive high risk in the SME space. From the supply side, despite interest rates rising, certain banks have become more risk averse, owing to mediocre economic growth, an inflationary environment and perceived debt sustainability risks. “We forecast private sector credit extension to average 2.9% in 2022,” SS said.
Risk averse economic agents are those that are reluctant to take risk.
Moreover, IJG Securities said: “A lack of corporate credit appetite indicates low business confidence and that businesses are not taking up credit to expand their operations.”
“Our expectation remains that we will see three to four additional 25 basis points (bps) hikes throughout the rest of the year.”
Simonis expect another 75 basis points (bps) hike in the repo rate before the end of 2022, which would lift the prime rate from 8.00% to 8.75%. The third monetary policy announcement for 2022 is expected to take place on 15 June 2022.
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Growth in overdraft credit moved into a deeper contraction to stand at 4.6% at the end of March 2022 from a less steep contraction of 3.2% at the end of the preceding month. The contraction was driven by lower than usual demand as well as repayments from corporates specifically businesses in the energy, fishing and health services sectors during the period under review, BoN said.
In addition, the annual growth in other loans and advances slowed to 2.3% in March 2022 from 4.3% at the end of February 2022. The decline was mainly due to lower demand from corporates specifically corporates in the commercial property rental space and agricultural services sectors during the period under review, the central bank added.
Moreover, during March 2022, instalment credit and leasing credit registered a growth of 4.9%, relative to a growth of 3.8% in the preceding month. The increase mainly stemmed from corporates in the commercial services sector and is consistent with the recovery in new vehicle sales to a level above 1000 for the month of March 2022, Bon said.
Lastly, growth in mortgage credit moderated to 3.2% at the end of March 2022 from 3.4% at the end of February 2022. The decline in mortgage credit growth was reflected by a decrease in demand from businesses in the services sector as well as the commercial property and rental space during the period under review, BoN pointed out.
Investment
The decline in credit uptake by the private sector has serious implications on investment in the economy.
“Net investment has been declining in both public and private sectors, with government net investment having decreased by 5.9% on an annualised basis since 2016,” SS said.
“However, quite a number of projects have been announced in recent weeks that can provide growth to net investments in 2022. TransNamib has secured a loan of N$2.6 billion to upgrade the national railway network. AfriTin has secured funding to expand its tin operations in Uis by 67% over the next five years. In addition, numerous renewable energy projects are being carried out across the country,” SS said.
The overall liquidity position of the banking industry increased in March 2022. The industry’s cash balances averaged N$3.3 billion in March 2022, depicting an increase of N$656.7 million from the previous month. The rise is customary during March as government offices winds up expenditure before the close of the fiscal year, coupled with an increase of some investment proceeds, BoN said. [email protected]
In addition, rising interest rates, which is the cost of borrowing money, has an influence on economic agent’s willingness to borrow. These developments have an impact on the level of investment in the economy.
Last month the central bank increased the repo rate by 25 basis points (bps) from 4.0% to 4.25%. This led to the prime lending rate increasing from 7.75% to 8.0%. Local analysts expect the central bank to increase the repo rate further during the course of the year.
According to the Bank of Namibia (BoN) money and banking statistics, private sector credit extension (PSCE) growth slowed to 2.1% (N$1.35 billion) at the end of March 2022, from 2.8% at the end of February 2022.
The decline in credit uptake is explained by a lower demand and repayments by businesses specifically corporates in the fishing and health services sectors as well as commercial property space. Growth in PSCE remains subdued in line with the current economic state as well as low borrower’s appetite for credit and a rising cost of living, the central bank said.
Commenting on the statistics, Simonis Storm (SS) see healthy levels of demand for credit from the small and medium enterprises (SMEs), however banks remain wary and perceive high risk in the SME space. From the supply side, despite interest rates rising, certain banks have become more risk averse, owing to mediocre economic growth, an inflationary environment and perceived debt sustainability risks. “We forecast private sector credit extension to average 2.9% in 2022,” SS said.
Risk averse economic agents are those that are reluctant to take risk.
Moreover, IJG Securities said: “A lack of corporate credit appetite indicates low business confidence and that businesses are not taking up credit to expand their operations.”
“Our expectation remains that we will see three to four additional 25 basis points (bps) hikes throughout the rest of the year.”
Simonis expect another 75 basis points (bps) hike in the repo rate before the end of 2022, which would lift the prime rate from 8.00% to 8.75%. The third monetary policy announcement for 2022 is expected to take place on 15 June 2022.
Categories
Growth in overdraft credit moved into a deeper contraction to stand at 4.6% at the end of March 2022 from a less steep contraction of 3.2% at the end of the preceding month. The contraction was driven by lower than usual demand as well as repayments from corporates specifically businesses in the energy, fishing and health services sectors during the period under review, BoN said.
In addition, the annual growth in other loans and advances slowed to 2.3% in March 2022 from 4.3% at the end of February 2022. The decline was mainly due to lower demand from corporates specifically corporates in the commercial property rental space and agricultural services sectors during the period under review, the central bank added.
Moreover, during March 2022, instalment credit and leasing credit registered a growth of 4.9%, relative to a growth of 3.8% in the preceding month. The increase mainly stemmed from corporates in the commercial services sector and is consistent with the recovery in new vehicle sales to a level above 1000 for the month of March 2022, Bon said.
Lastly, growth in mortgage credit moderated to 3.2% at the end of March 2022 from 3.4% at the end of February 2022. The decline in mortgage credit growth was reflected by a decrease in demand from businesses in the services sector as well as the commercial property and rental space during the period under review, BoN pointed out.
Investment
The decline in credit uptake by the private sector has serious implications on investment in the economy.
“Net investment has been declining in both public and private sectors, with government net investment having decreased by 5.9% on an annualised basis since 2016,” SS said.
“However, quite a number of projects have been announced in recent weeks that can provide growth to net investments in 2022. TransNamib has secured a loan of N$2.6 billion to upgrade the national railway network. AfriTin has secured funding to expand its tin operations in Uis by 67% over the next five years. In addition, numerous renewable energy projects are being carried out across the country,” SS said.
The overall liquidity position of the banking industry increased in March 2022. The industry’s cash balances averaged N$3.3 billion in March 2022, depicting an increase of N$656.7 million from the previous month. The rise is customary during March as government offices winds up expenditure before the close of the fiscal year, coupled with an increase of some investment proceeds, BoN said. [email protected]
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