September household overdrafts beaten by celebratory August

Latest hike led by businesses

08 November 2018 | Economics

NDAMA NAKASHOLE

The higher growth in overdraft credit in August was due to an increase in the uptake of overdrafts by the household sector.

However, latest money and banking statistics from the Bank of Namibia (BoN) show that the annual growth in total overdraft credit during the month of September was due to higher demand for overdraft credit by the business sector during the month of September.

In Namibia, August is known to be one of the most celebratory months, with some of the country’s biggest events taking place that month - from weddings to the Olufuko cultural festival and the Ongwediva Trade Fair.

During a recent media conference at the central bank, BoN governor Ipumbu Shiimi called on Namibians to stop borrowing for consumption and rather borrow for productive purposes such as business loans over personal loans.

Earlier data from the central bank showed that growth in overdraft credit grew to reach 1.3% at the end of August, boosted by household demand.

In September, however, although growth in overdraft credit grew, the demand was not led by households but by the business sector.

In fact, credit extended to the household sector slowed at the end of September 2018.

Last week’s statistics from the central bank show that growth in household credit slowed to 6.9% from 7.5% reported at the end of August.

The reduced growth in credit extended to the household sector was underpinned by lower uptake of mortgage credit, coupled with continued contractions in instalment credit during September.

This is unlike August, when growth in credit extended to the household sector boomed on the back of the major credit categories including overdrafts. The exception was instalment sales, which contracted during that period.

While Private Sector Credit Extension (PSCE) rose at the end of August compared to the month before, the annual growth in PSCE did not rise during the month of September.

In fact, the annual growth in PSCE stood at 6.6% at the end of September 2018, maintaining the same rate as in August 2018.

Business credit boom

As if the nation was listening to the call by the central bank to prioritise business credit over individual credit, growth in total credit extended to businesses continued an upward trend during September 2018.

Not only did business overdrafts in September top overdrafts, but the annual growth in credit extended to businesses stood at 6% the end of September 2018, compared to 5.2% at the end of the preceding month.

The increased growth was driven by an increased demand for commercial property mortgages coupled with an increased demand for overdraft credit and other loans and advances credit.

The reasons for September’s business credit boost were different from those of August, when commercial and term loans extended to the agricultural sector accounted for most of the business credit growth.

Other latest numbers

Other details on credit and contained in the latest central bank report is that annual growth in other loans and advances (such as personal and commercial loans and credit cards) increased slightly during September 2018. The annual growth in other loans and advances increased by 0.6 percentage point to reach 20.1% at the end of September 2018. The higher growth was reflected in the increased demand for this credit category by both the household and corporate sectors, although most notably the corporate sector

Instalment sales continued to decline during the period under review. Annual growth in instalment sales contracted to 6.2% at the end of September 2018. Although recording an improved contraction of 0.2 percentage point growth, instalment sales remained weak, in line with a decline number of vehicles sold.

The annual growth in mortgage credit extended to the private sector remained relatively the same at the end of September 2018 compared to August 2018. On an annual basis, growth in mortgage credit remained at 7.2% at the end of September 2018, similar to August 2018. The steady growth was supported by mortgage loans extended to the business sector, specifically for the purposes of commercial property developments.