Weak economy drives low credit uptake
Growth in credit extended to businesses rose to 1.8%, while households edged lower at 3.7% at the end of July 2021.
PHILLEPUS UUSIKU
Private Sector Credit extension (PSCE) generally remains subdued due to the persistent low domestic economic activities and as such borrower’s appetite for credit remains low. The repo rate currently stands at its historic low of 3.75% to make borrowing attractive in order to boost economic activities.
According to the Bank of Namibia (BoN) money and banking statistics for July 2021, PSCE growth rose to 2.9% in July 2021 compared from 2.7% in June 2021. The upsurge in PSCE growth is explained by an increase in demand for credit by businesses particularly in the short-term lending space.
Growth in credit extended to businesses rose to 1.8% in July 2021, compared to 0.8% in the preceding month.
According to Simonis Storm (SS), “local banks have resorted to driving growth in non-interest revenue (NIR) streams, given the low interest rate environment that is expected to persist. Amongst these initiatives will be new product developments in the transactional banking and digital (FinTech) product offering space. Consumers can therefore also expect higher banking fees and charges as a result. This is a natural response given that households and businesses remain cautious in their spending and investment decisions. Insights from local banks indicate that clients are paying off debts and reducing their debt exposures.”
“Gross Fixed Capital Formation (GFCF) in the private sector declined by 8.6% annually in 2020. We expect private GFCF to continue on a downward trend, given low business confidence and uncertainty regarding future business prospects,” SS added.
“We calculate household and corporate debt to Gross Domestic Product (GDP) at 46.2% and 32.6% respectively,” SS said.
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On an annual basis, growth in overdraft credit increased to 8.7% at the end of July 2021 from 5.6% at the end of June 2021. The rise was driven by increased demand from both households and corporates specifically businesses in the fishing and financial services sectors during the period under review.
The 12-month growth in other loans and advances edged up to 1.9% at the end of July 2021 from growth of 0.5% at the end of June 2021. The increase was mainly due to an increasing demand from businesses in the services and construction sectors during the period under review, the central bank pointed out.
Instalment and leasing sales credit registered a negative growth of 1.5% at the end of July 2021, relative to a contraction of 2.1% in the preceding month. The low growth in instalment and leasing sales credit is consistent with low domestic economic activity as borrowers’ appetite for asset backed credit is generally low.
The annual growth in mortgage credit edged lower at 2.8% at the end of July 2021 from 3.9% at the end of June 2021. The slower growth in mortgage credit was reflected by a lower demand from the household sector coupled with repayments from the corporate sector during the period under review, BoN [email protected]
Private Sector Credit extension (PSCE) generally remains subdued due to the persistent low domestic economic activities and as such borrower’s appetite for credit remains low. The repo rate currently stands at its historic low of 3.75% to make borrowing attractive in order to boost economic activities.
According to the Bank of Namibia (BoN) money and banking statistics for July 2021, PSCE growth rose to 2.9% in July 2021 compared from 2.7% in June 2021. The upsurge in PSCE growth is explained by an increase in demand for credit by businesses particularly in the short-term lending space.
Growth in credit extended to businesses rose to 1.8% in July 2021, compared to 0.8% in the preceding month.
According to Simonis Storm (SS), “local banks have resorted to driving growth in non-interest revenue (NIR) streams, given the low interest rate environment that is expected to persist. Amongst these initiatives will be new product developments in the transactional banking and digital (FinTech) product offering space. Consumers can therefore also expect higher banking fees and charges as a result. This is a natural response given that households and businesses remain cautious in their spending and investment decisions. Insights from local banks indicate that clients are paying off debts and reducing their debt exposures.”
“Gross Fixed Capital Formation (GFCF) in the private sector declined by 8.6% annually in 2020. We expect private GFCF to continue on a downward trend, given low business confidence and uncertainty regarding future business prospects,” SS added.
“We calculate household and corporate debt to Gross Domestic Product (GDP) at 46.2% and 32.6% respectively,” SS said.
Categories
On an annual basis, growth in overdraft credit increased to 8.7% at the end of July 2021 from 5.6% at the end of June 2021. The rise was driven by increased demand from both households and corporates specifically businesses in the fishing and financial services sectors during the period under review.
The 12-month growth in other loans and advances edged up to 1.9% at the end of July 2021 from growth of 0.5% at the end of June 2021. The increase was mainly due to an increasing demand from businesses in the services and construction sectors during the period under review, the central bank pointed out.
Instalment and leasing sales credit registered a negative growth of 1.5% at the end of July 2021, relative to a contraction of 2.1% in the preceding month. The low growth in instalment and leasing sales credit is consistent with low domestic economic activity as borrowers’ appetite for asset backed credit is generally low.
The annual growth in mortgage credit edged lower at 2.8% at the end of July 2021 from 3.9% at the end of June 2021. The slower growth in mortgage credit was reflected by a lower demand from the household sector coupled with repayments from the corporate sector during the period under review, BoN [email protected]
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