!Gawaxab concerned about weak credit uptake

Borrowing to investment in productive activities is crucial in stimulating the domestic economy. The governor of the Bank of Namibia Johannes !Gawaxab is concerned about weak credit uptake by both households and businesses.

Therefore, !Gawaxab urged banking institutions to continue to lend responsibly to critical sectors of the economy to sustain economy recovery, which has been observed over the last eight months.

"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.”

The governor shared this sentiments in a recent engagement with the banking industry.

The governor also stated that the pleas of businesses struggling to stay afloat are not falling on deaf ears. The Bank of Namibia has retained the relief measures instituted since the pandemic's outbreak, such as forbearance in regulatory requirements to provide relief to banking institutions dealing with impaired loans and to support financial lending to the real economy. Furthermore, other liquidity relief measures, such as the release of the capital conservation buffer and the postponement of the concentration risk limit, are intended to ensure that financial institutions respond effectively and prudently to the challenges businesses and households face.

Over the next few weeks, !Gawaxab will continue to engage in bilateral discussions with industry to address these issues. "Our fortunes and Namibia's prosperity are dependent on how we come together as a financial sector, businesses, and policymakers to reverse recent economic hardships, restore business confidence, and revive ailing businesses. By so doing, we can create jobs and put our economy on a more stable footing. I have no doubt that we can stem the tide and turn our fortunes around," he said.

Figures

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%, while the prime lending rate stands at 9.25%.

While businesses have been reluctant to incur long-term debt obligations amid the pandemic, the household sector has also been less willing to take on credit due to lower household incomes, largely due to job losses, caused by the pandemic. Private credit extension grew by 3.3% on average in the first seven months of 2022 and is expected to grow by 5.0% in 2022 as a whole. Overall, growth in credit extension to the private sector has remained in the single digits since November 2016 and longer than ever before in the post-independence history of Namibia.

According to the Bank of Namibia latest money and banking statistics, private sector credit extension growth (PSCE) stood at 4.0% at the end of July 2022 compared to the 3.4% at the end of June 2022. The rise in PSCE growth is explained by an increase in demand for credit by both households and corporates specifically corporates in the transport, mining, health and services sectors.

Growth in credit extended to businesses rose to 6.5% at the end of July 2022, relative to a growth rate of 5.3% in June 2022.

Loans extended to households rose by 2.1% year-on-year at the end of July 2022, compared to a growth rate of 2.0% reported at the end of the preceding [email protected]