Credit extension dries up
Fewer Individual and business loans were issued in April.
Cirrus Securities has released information derived from private sector credit extension (PSCE) figures for April 2020, painting a bleak picture of the Namibian business landscape. Cirrus is one of a handful of active Namibian stockbrokers trading on the Namibia Stock Exchange (NSX), with expertise in equity and debt trading. Their data features columns highlighted in red that dominate the tabled results from mortgage extension and other individual loans, to business credit and other advances.
Growth in the extension of credit to individuals and businesses slowed in April, to 5.7% and 1,1% respectively. “Credit extension to individuals experienced month-on-month growth of -0.7%. This is the 19th occurrence of a contraction in month-on-month credit extended to individuals in our time series, dating back to April 2002,” reads the Cirrus statement.
Business credit recorded its lowest observable growth since December 2005 and April 2020 was the first monthly contraction since March 2015. Moreover, on a monthly basis, net repayments were experienced in terms of mortgage loans, other loans and advances, instalment credit and leasing transactions.
Countering the gloom is a drop in interest rates and a boost in liquidity; the latter improved significantly in April to N$3,2 billion from N$131 million during the prior month. Cirrus Securities said government made several payments in April such as the Covid-19 stimulus package and VAT refunds, contributing to the observed spike in liquidity levels. Moreover, the increase was associated with a N$5.6 billion SACU receipt received, according to Cirrus Securities.
The problem is that less and less of that excess money is being put to use in the economy. The slowdown in extensions to business is not unanticipated, according to Cirrus, as supply side effects will dampen extension growth due to risk management. Given the weak balance sheets of businesses, having dealt with four years of zero to no economic growth, a dampened outlook for the economy in 2020 and increasing non-performing loans, banks will continually extend credit more stringently to creditors, they say. Moreover, banks will continue to amend their asset management strategies and participate more in government debt auctions, as the spread between administered and market determined rates are at historic lows, says Cirrus.
The Namibian Monetary Policy Committee is set to meet on 17 June 2020 and a cut of 50 bps can be rationalised due to low inflation, a weak economic outlook and a strong reserve position, according to Cirrus. However, the impact of accommodative monetary stances on the economy is dwindling significantly and further reductions in the repo rate will not improve the economic situation, the stockbroker added.
Growth in the extension of credit to individuals and businesses slowed in April, to 5.7% and 1,1% respectively. “Credit extension to individuals experienced month-on-month growth of -0.7%. This is the 19th occurrence of a contraction in month-on-month credit extended to individuals in our time series, dating back to April 2002,” reads the Cirrus statement.
Business credit recorded its lowest observable growth since December 2005 and April 2020 was the first monthly contraction since March 2015. Moreover, on a monthly basis, net repayments were experienced in terms of mortgage loans, other loans and advances, instalment credit and leasing transactions.
Countering the gloom is a drop in interest rates and a boost in liquidity; the latter improved significantly in April to N$3,2 billion from N$131 million during the prior month. Cirrus Securities said government made several payments in April such as the Covid-19 stimulus package and VAT refunds, contributing to the observed spike in liquidity levels. Moreover, the increase was associated with a N$5.6 billion SACU receipt received, according to Cirrus Securities.
The problem is that less and less of that excess money is being put to use in the economy. The slowdown in extensions to business is not unanticipated, according to Cirrus, as supply side effects will dampen extension growth due to risk management. Given the weak balance sheets of businesses, having dealt with four years of zero to no economic growth, a dampened outlook for the economy in 2020 and increasing non-performing loans, banks will continually extend credit more stringently to creditors, they say. Moreover, banks will continue to amend their asset management strategies and participate more in government debt auctions, as the spread between administered and market determined rates are at historic lows, says Cirrus.
The Namibian Monetary Policy Committee is set to meet on 17 June 2020 and a cut of 50 bps can be rationalised due to low inflation, a weak economic outlook and a strong reserve position, according to Cirrus. However, the impact of accommodative monetary stances on the economy is dwindling significantly and further reductions in the repo rate will not improve the economic situation, the stockbroker added.
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