Households drive credit uptake in June

PHILLEPUS UUSIKU

Risk appetite among borrowers remains subdued, with credit extended to the private sector moderating to 2.7% year-on-year in June 2021 from 2.8% year-on-year in May 2021.

Credit growth continues to be driven mainly by households, with all subcategories recording positive growth.

The recent First National Bank (FNB) residential index report pointed out that the real estate industry suggests that properties have reduced in value by up to 20% depending on property value, with the higher-end asset class devaluing the greatest.

As such, home buying activity in the medium to higher end of the market has been largely characterised by repeat buyers, accounting for 74% of mortgage sales in the first quarter of 2021.

According to the Bank of Namibia (BoN) money and banking statistics, household annual credit growth remained flat at 4.0% year-on-year in June 2021 compared to 4.0% year-on-year in May 2021.

The biggest contributors were overdrafts, slowing to 5.0% year-on-year in June 2021 compared to 5.1% year-on-year in the prior month and mortgage loans, remaining flat at 4.9% year-on-year in June 2021. Instalment and leasing credit slowed to 1.0% year-on-year in June 2021 compared to 1.5% in the prior month, BoN pointed out.

According to Simonis Storm (SS), “we estimate that the average household in Namibia has about N$98 000 in debt. Using the average income for both males and females from the 2018 Labour Force Survey and assuming each household has both an employed male and female, each household currently has about 6 months’ salary in debt."

Businesses

Corporates continue to borrow cautiously. Lower demand from businesses in the financial services and construction sectors weighed on credit extended to corporates, BoN said.

Corporate credit growth slowed to 0.8% year-on-year in June 2021 compared to 1.2% year-on-year in May 2021. Moderated corporate borrowing was mainly attributed to overdrafts, which slowed sharply to 5.7% year-on-year in June 2021 compared to 10.2% year-on-year in May 2021. This drop was mainly caused by repayments by businesses in the fishing, agricultural and wholesale and retail sectors, BoN added.

On an annual basis, corporate mortgage advances recorded a positive reading for the second time this year, lifting marginally to 0.8% year-on-year compared to -2.6% year-on-year in May 2021, while Instalment and leasing credit contracting by 7.4% year-on-year in June 2021 compared to -10.5% year-on-year in May 2021.

Growth in overdraft credit for businesses and households combined, slowed to 5.6% year-on-year in June 2021 compared to 9.2% year-on-year in May 2021. Other loans and advances slowed to 0.5% year-on-year in June 2021 compared to 1.3% year-on-year in May 2021. Demand for instalment and leasing credit for households and businesses combined continues to be weak, this category contracted by 2.1% year-on-year in June 2021 compared to -2.9% year-on-year in May 2021.

Figures

The repo rate currently stands a 3.75% to make borrowing and boost economic activities. According to IJG, “we expect the BoN to leave the repo rate unchanged at the current historically low level until the end of the year, assuming that the inflation forecast for both Namibia and South Africa remains unchanged.

This should continue to assist over-indebted individuals and businesses, but as we have pointed out in the past, it will likely not lead to significant additional credit uptake unless the economic outlook improves meaningfully,” IJG said.

Overall, private sector credit extension (PSCE) rose by N$300.7 million or 0.29% month-month in June, bringing the cumulative credit outstanding to N$105.31 billion, IJG pointed out.

On a rolling 12-month basis, N$2.62 billion worth of credit was extended to the private sector. N$2.38 billion worth of credit has been extended to individuals over the past 12 months, while N$334.5 million was issued to corporates. The non-resident private sector decreased their borrowings by N$94.1 million, IJG said.