Private sector credit uptake in gear one

PHILLEPUS UUSIKUCredit extended to the private sector lifted marginally to 2.7% year-on-year in September compared to 2.0% year-on-year in August 2021, according to the Bank of Namibia (BoN) money and banking statistics.Household annual credit growth increased by 3.7% year-on-year in September 2021, compared to 4.4% year-on-year in August 2021. The biggest contributors were overdrafts, moderating to 4.8% year-on-year in September 2021 compared to 9.1% year-on-year in the prior month and mortgage loans, slowing to 4.3% year-on-year in September 2021 compared to 4.6% year-on-year in the prior month. Corporate credit growth marginally lifted to 1.8% year-on-year in September 2021, compared to 1.2% year-on-year in August 2021. Modest growth in corporate borrowing was mainly attributed to mortgages and other loans and advances, both increasing by 2.8% year-on-year in September 2021 compared to 0.4% year-on-year and -1.0% year-on-year in August 2021 respectively. Higher demand for mortgages and other loans and advances stemmed mainly from businesses in the mining, services, construction and commercial services sectors, the central bank said.EquityAccording to Simonis Storm (SS), “we noticed that the outstanding mortgage loans are higher in value than the collateral or security provided on these loans.”In other words, some households could be paying off loans that are worth more than their houses. In this situation, households are in a negative equity position, given that their assets are less than their liabilities, leading to weaker household balance sheets for households where a house is their major or sole asset.This is primarily due to two factors, declining house price valuations in a low growth environment and weak property market, and collateral haircuts imposed by policy, SS added.Over the last five years, household mortgage debt has increased by 0.6% on an annualised basis or N$2.5 billion each year. There is some relief in the form of lower monthly interest repayments since the pandemic outbreak, however, with the expectation that Bank of Namibia (BoN) will start hiking its repo rate next year, this relief could fade away soon. “We expect BoN to hike its repo rate by between 50 and 75 basis points during 2022, giving rise to general interest rates charged on loans by commercial banks. This will likely worsen the negative equity position of households, as the debt servicing costs increase on their undervalued assets,” SS said.

Private sector credit uptake in gear one

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Republikein 2025-05-26

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Private sector credit uptake in gear one

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