Household budgets tightened
Namibian households are sinking deeper into debt as the economic situation worsens.
The Namibian consumer is feeling the pinch, says IJG Securities, with an increase in household credit recorded in February.
According to the latest figures, there was an increase of 0.8% compared to January and that was mostly due to a spike in overdrafts and other loans.
“Overdrafts and other loans increased by 3.7% in February and the sharp increase in this category may be an indication of a very stretched consumer,” the investment firm says.
This viewpoint is supported by a lack of growth in home loans, which have in fact slowed by 9.2% year on year.
Recently, Namibian Sun reported that inflation was set to increase to double digits, mostly due to high property rent and the cost of utilities.
Households are reeling from an increase in food prices and the fear of another interest-rate hike. Therefore, the demand for new debt remains low, in particular the demand for vehicle financing.
Vehicle sales have declined by almost 22% from last year and other instalment sales have dropped by 0.2% compared to January.
The private sector also did not borrow much, with a mere 1.1% increase in credit when compared to January, totalling N$937.1 million. This brings the total credit outstanding to N$87.21 billion.
“This is a slight uptick in the annual growth rate which has increased to 9.0% from 8.5% in January. The increase was driven by increases in overdrafts and other loans. Over the last 12 months a net of N$7.23 billion worth of credit was extended, N$3.03 billion to corporates, N$4.24 billion to individuals, while the non-resident private sector decreased their borrowings by N$43.6 million,” IJG said.
Businesses not growing
Turning to corporates, the picture is not much different. Although credit extension accelerated to 9.1% year-on-year from 8.2% year-on-year in January, it was due to strong growth in overdrafts and other loans. Again, mortgage loans and instalment credit were muted, with property loans growing 0.3% month-on-month and a decline of 1.8% month-on-month in instalment credit.
“As with credit extended to individuals, the drop in instalment credit has been the most pronounced, and is now in negative territory on an annual basis. This means that, on average, corporates are repaying these loans, and is an indication that businesses are not expanding as they are not spending on equipment and vehicle fleets at the same rate as in the past,” the report states.
According to IJG Securities, the trend of slowing private-sector credit extension will continue. Disposable income has been reduced by higher interest rates and commercial banks are experiencing increasingly expensive funding as a result of “an increase in market rates due to excessive government borrowing”.
The firm is of the view that the biggest obstacle to private-sector credit growth will be rising interest rates.
The situation in South Africa has exacerbated the current economic pinch. Standard and Poor's has downgraded South Africa to junk status and Moody's has placed its rating of South Africa on review.
“A ratings downgrade in South Africa is likely to lead to a downgrade of the Namibian credit rating as well. This would mean that both countries would have increased borrowing costs, a weaker currency and possibly higher inflation. This would likely trigger a move by the South African Reserve Bank to increase rates, in which case Namibia would be forced to follow,” IJG Securities states.
STAFF REPORTER
According to the latest figures, there was an increase of 0.8% compared to January and that was mostly due to a spike in overdrafts and other loans.
“Overdrafts and other loans increased by 3.7% in February and the sharp increase in this category may be an indication of a very stretched consumer,” the investment firm says.
This viewpoint is supported by a lack of growth in home loans, which have in fact slowed by 9.2% year on year.
Recently, Namibian Sun reported that inflation was set to increase to double digits, mostly due to high property rent and the cost of utilities.
Households are reeling from an increase in food prices and the fear of another interest-rate hike. Therefore, the demand for new debt remains low, in particular the demand for vehicle financing.
Vehicle sales have declined by almost 22% from last year and other instalment sales have dropped by 0.2% compared to January.
The private sector also did not borrow much, with a mere 1.1% increase in credit when compared to January, totalling N$937.1 million. This brings the total credit outstanding to N$87.21 billion.
“This is a slight uptick in the annual growth rate which has increased to 9.0% from 8.5% in January. The increase was driven by increases in overdrafts and other loans. Over the last 12 months a net of N$7.23 billion worth of credit was extended, N$3.03 billion to corporates, N$4.24 billion to individuals, while the non-resident private sector decreased their borrowings by N$43.6 million,” IJG said.
Businesses not growing
Turning to corporates, the picture is not much different. Although credit extension accelerated to 9.1% year-on-year from 8.2% year-on-year in January, it was due to strong growth in overdrafts and other loans. Again, mortgage loans and instalment credit were muted, with property loans growing 0.3% month-on-month and a decline of 1.8% month-on-month in instalment credit.
“As with credit extended to individuals, the drop in instalment credit has been the most pronounced, and is now in negative territory on an annual basis. This means that, on average, corporates are repaying these loans, and is an indication that businesses are not expanding as they are not spending on equipment and vehicle fleets at the same rate as in the past,” the report states.
According to IJG Securities, the trend of slowing private-sector credit extension will continue. Disposable income has been reduced by higher interest rates and commercial banks are experiencing increasingly expensive funding as a result of “an increase in market rates due to excessive government borrowing”.
The firm is of the view that the biggest obstacle to private-sector credit growth will be rising interest rates.
The situation in South Africa has exacerbated the current economic pinch. Standard and Poor's has downgraded South Africa to junk status and Moody's has placed its rating of South Africa on review.
“A ratings downgrade in South Africa is likely to lead to a downgrade of the Namibian credit rating as well. This would mean that both countries would have increased borrowing costs, a weaker currency and possibly higher inflation. This would likely trigger a move by the South African Reserve Bank to increase rates, in which case Namibia would be forced to follow,” IJG Securities states.
STAFF REPORTER
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