Money is still tight
The latest report on credit extended to the private sector indicates not only a cash-strapped consumer but also one that has reached the end of its credit-worthiness.
Credit and loans to the private sector contracted in March indicating the effect of lower creditworthiness of individuals and tighter lending conditions coupled with bank sector liquidity. This is according to the monthly report on private sector credit extension released by IJG Securities.
Total credit extended to the private sector increased by N$34.4 million or 0.04% in March, bringing the cumulative credit outstanding to N$87.25 billion, the report states. Since July 2011, this is the slowest monthly growth in credit extension and on a year-on-year basis, a meagre growth on 8.5% was recorded, the slowest rate over the past five years.
“On a rolling 12-month basis, N$6.85 billion worth of credit was extended, down significantly from the highs of 2015. Over the last 12 months, N$2.8 billion worth of credit was extended to corporates, N$4.1 billion to individuals, while the non-resident private sector decreased their borrowings by N$27.7 million.
Credit extension to individuals slowed markedly in March, increasing only by 0.2% month-on-month and expanding by 8.8% year-on-year.
There was a slight growth in mortgage loans, recording an expansion of 0.6% versus 0.3% in February while on an annual basis, mortgage loans continued to slow, growing only by 9%. “Overdrafts extended to individuals spiked last month, recording growth of 3.7%, compared to a contraction of 0.7% in March,” the investment firm said, but added that instalment credit continued to slow on a monthly basis recording a negative growth of 0.7% and growing almost 4%, year on year. This indicates an increase in debt to income ratios over the last two years.
Companies are not doing much better. Credit extended to corporates contracted by 0.3% month-on-month and only grew 8.4% year-on-year in March, while overdrafts continued to grow.
Companies are also not buying on short-term loans. “Instalment credit extended to corporates contracted by 0.6% month-on-month, the sixth consecutive monthly contraction, while also contracting by 0.5% year-on-year,” IJG reported.
Mortgage loans extended to corporates grew by 0.9% m/m and 6.8% y/y. Mortgage loans extended to corporates have recorded single digit growth figures for the last 7 months, a significant slowdown from the 20% plus growth rates seen pre-March 2016. In March, these loans grew by 0.9% on a monthly basis, and recording growth of 6.8% on a year-on-year basis.
Commercial banks are not doing much better either.
IJG reports that, “The overall liquidity position of commercial banks deteriorated to an average of N$1.37 billion during March, a decrease of N$738 million compared to the preceding month. The figure above illustrates the challenges faced by the banking sector. Low liquidity and the high cost of funding have squeezed interest margins for banks, leading to less aggressive credit extension strategies than in the past. We would expect the established banks to be selective when extending loans to the private sector and employ less aggressive strategies to increase the size of their loan books.”
Furthermore, funds continue to flow out of Namibia and the investment firm reports that foreign reserves decreased by N$134.3 million or 0.6% to N$22.58 billion at the end of March.
“According to the Bank of Namibia the decline in the level of reserves for the month under review stemmed from a decrease in net purchases of the rand by commercial banks. The US dollar value of reserves has declined to below the 2013 average despite large inflows in the form of the second Eurobond as well as asset swap agreements. Thus in hard currency terms, merchandise trade imbalances continue to result in a natural flow of funds out of Namibia.”
The outlook for private sector credit extension remains grim without much hope for growth. IJG reports that the recent downgrade of South Africa to junk status increased the risk of interest rate hikes just when the outlook was turning decidedly positive.
“While the rand and Namibian dollar have not depreciated as rapidly as might have been expected, and thus the inflation outlook in South Africa remains largely intact at present, the general search for yield and fund flows into emerging markets in all likelihood masked the effects of the downgrade to some extent and future currency depreciation is likely. As the South African Reserve Bank is an inflation-targeting bank, an unexpected increase in inflation due to currency weakness could trigger interest rate hikes which will have to be matched by Bank of Namibia, putting further pressure on credit extension.”
STAFF REPORTER
Total credit extended to the private sector increased by N$34.4 million or 0.04% in March, bringing the cumulative credit outstanding to N$87.25 billion, the report states. Since July 2011, this is the slowest monthly growth in credit extension and on a year-on-year basis, a meagre growth on 8.5% was recorded, the slowest rate over the past five years.
“On a rolling 12-month basis, N$6.85 billion worth of credit was extended, down significantly from the highs of 2015. Over the last 12 months, N$2.8 billion worth of credit was extended to corporates, N$4.1 billion to individuals, while the non-resident private sector decreased their borrowings by N$27.7 million.
Credit extension to individuals slowed markedly in March, increasing only by 0.2% month-on-month and expanding by 8.8% year-on-year.
There was a slight growth in mortgage loans, recording an expansion of 0.6% versus 0.3% in February while on an annual basis, mortgage loans continued to slow, growing only by 9%. “Overdrafts extended to individuals spiked last month, recording growth of 3.7%, compared to a contraction of 0.7% in March,” the investment firm said, but added that instalment credit continued to slow on a monthly basis recording a negative growth of 0.7% and growing almost 4%, year on year. This indicates an increase in debt to income ratios over the last two years.
Companies are not doing much better. Credit extended to corporates contracted by 0.3% month-on-month and only grew 8.4% year-on-year in March, while overdrafts continued to grow.
Companies are also not buying on short-term loans. “Instalment credit extended to corporates contracted by 0.6% month-on-month, the sixth consecutive monthly contraction, while also contracting by 0.5% year-on-year,” IJG reported.
Mortgage loans extended to corporates grew by 0.9% m/m and 6.8% y/y. Mortgage loans extended to corporates have recorded single digit growth figures for the last 7 months, a significant slowdown from the 20% plus growth rates seen pre-March 2016. In March, these loans grew by 0.9% on a monthly basis, and recording growth of 6.8% on a year-on-year basis.
Commercial banks are not doing much better either.
IJG reports that, “The overall liquidity position of commercial banks deteriorated to an average of N$1.37 billion during March, a decrease of N$738 million compared to the preceding month. The figure above illustrates the challenges faced by the banking sector. Low liquidity and the high cost of funding have squeezed interest margins for banks, leading to less aggressive credit extension strategies than in the past. We would expect the established banks to be selective when extending loans to the private sector and employ less aggressive strategies to increase the size of their loan books.”
Furthermore, funds continue to flow out of Namibia and the investment firm reports that foreign reserves decreased by N$134.3 million or 0.6% to N$22.58 billion at the end of March.
“According to the Bank of Namibia the decline in the level of reserves for the month under review stemmed from a decrease in net purchases of the rand by commercial banks. The US dollar value of reserves has declined to below the 2013 average despite large inflows in the form of the second Eurobond as well as asset swap agreements. Thus in hard currency terms, merchandise trade imbalances continue to result in a natural flow of funds out of Namibia.”
The outlook for private sector credit extension remains grim without much hope for growth. IJG reports that the recent downgrade of South Africa to junk status increased the risk of interest rate hikes just when the outlook was turning decidedly positive.
“While the rand and Namibian dollar have not depreciated as rapidly as might have been expected, and thus the inflation outlook in South Africa remains largely intact at present, the general search for yield and fund flows into emerging markets in all likelihood masked the effects of the downgrade to some extent and future currency depreciation is likely. As the South African Reserve Bank is an inflation-targeting bank, an unexpected increase in inflation due to currency weakness could trigger interest rate hikes which will have to be matched by Bank of Namibia, putting further pressure on credit extension.”
STAFF REPORTER
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