Business confidence remains in tortoise mode
Credit extended to businesses remained in negative territory with growth of -2.2% year-on-year (-N$975.0 million), and -0.8% month-on-month (-N$353.2 million).
PHILLEPUS UUSIKU
Although interest rates are at historical lows, business and consumer confidence remain extremely weak.
Since interest rates is the cost of borrowing, it was expected that businesses will have more borrowing appetite to boost their activities as it has become attractive to access credit.
Economic activity, which was slow before the pandemic, has been hit hard by global lockdowns, and recovery may take years to materialise. As a result, corporates continue to repay debt and de-lever their balance sheets.
According to IJG Research, credit extended to businesses contracted by 0.8% month-on-month and 2.2% year-on-year in October, following similar contractions in September.
Except for the other loans and advances (OLA) category, all other segments contracted on a monthly basis. Mortgage loans to corporates declined by 0.8% month-on-month and 7.8% year-on-year.
Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 1.5% month-on-month and 16.7% year-on-year in October the lowest level since early 2019.
Overdrafts to corporates declined by 2.6% month-on-month but increased by 3.6% year-on-year, IJG pointed out.
Cirrus Capital Securities (CCS) notes that short-term debt facilities continue to be utilised by businesses, although at a lower rate, with growth in overdrafts and OLA of 3.7% and 3.4%, respectively.
Strong reliance on these facilities in the current environment is understandable yet worrying, as the initial supply shock and latent demand shock mean the operating environment will remain suppressed, CCS said.
INDIVIDUALS
Credit extended to individuals moved down in October to 4.2% from 5.2% in September. This was due to a slowdown in lending growth across all lines, especially mortgages which decreased by 0.5 percentage points to 4.3%.
Moreover, there was a significant slowdown in lending growth in short-term credit facilities which have been a primary motivator for growth over the year as households continue to face troubling times.
Overdrafts increased by 3.6% (N$80.4 million), down 0.6 percentage points from the previous month, and other loans and advances grew by 11.0%, or N$961 million, IJG pointed out.
Growth in other loans and advances has remained elevated with double-digit growth. However, net repayments have been made on a monthly basis since April this year, although this trend has stopped over the past two consecutive months.
Over the month other loans and advances grew by 1.1%. The extreme reliance on short-term debt facilities is worrying, particularly given the duress household incomes have come under this year, IJG added.
Mortgage loan extension growth slowed to 4.3%. This category it is the primary driver of growth in credit extension as it accounts for 69.3% of total extensions.
“However, we maintain that very little of this growth is organic”, IJG said.
OVERALL
Total credit extended to the private sector (PSCE) increased by N$71.6 million or 0.1% month-on-month in October, bringing the cumulative credit outstanding to N$102.95 billion.
On a year-on-year basis, private sector credit extension increased by only 1.0% year-on-year in October, compared to 1.5% growth recorded in September, IJG pointed out.
This represents the lowest level of annual growth on our records dating back to 2002 as issuance continues to slow.
N$2.39 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while corporates and the non-resident private sector decreased their borrowings by N$975 million and N$369.4 million, respectively.
“If these trends continue, we are likely to see private sector credit extension contract on an annual basis in the coming months”, IJG said.
LIQUIDITY,INTEREST RATES
The overall liquidity position of commercial banks improved significantly in October, increasing by N$889.4 million to an average of N$3.10 billion during the month. The increase in liquidity came about as a result of increased government expenditure and interest payment from the state during the period under review.
Due to the increase in liquidity, the outstanding balance of repo’s fell from N$116.0 million to zero by month-end, IJG pointed.
The South African Reserve Bank’s Monetary Policy Committee announced that there would be no change to the repo rate. Namibia thus maintains its 25bps spread over South Africa, with the repo in Namibia being 3.75%.
“We maintain that a spread should be maintained for the foreseeable future as any deviation to the upside motivates financial flows into Namibia, especially at higher spread levels, and may help bolster our reserve position”, IJG said.– [email protected]
Although interest rates are at historical lows, business and consumer confidence remain extremely weak.
Since interest rates is the cost of borrowing, it was expected that businesses will have more borrowing appetite to boost their activities as it has become attractive to access credit.
Economic activity, which was slow before the pandemic, has been hit hard by global lockdowns, and recovery may take years to materialise. As a result, corporates continue to repay debt and de-lever their balance sheets.
According to IJG Research, credit extended to businesses contracted by 0.8% month-on-month and 2.2% year-on-year in October, following similar contractions in September.
Except for the other loans and advances (OLA) category, all other segments contracted on a monthly basis. Mortgage loans to corporates declined by 0.8% month-on-month and 7.8% year-on-year.
Instalment credit extended to corporates, which has been contracting since February 2017 on an annual basis, remained depressed, contracting by 1.5% month-on-month and 16.7% year-on-year in October the lowest level since early 2019.
Overdrafts to corporates declined by 2.6% month-on-month but increased by 3.6% year-on-year, IJG pointed out.
Cirrus Capital Securities (CCS) notes that short-term debt facilities continue to be utilised by businesses, although at a lower rate, with growth in overdrafts and OLA of 3.7% and 3.4%, respectively.
Strong reliance on these facilities in the current environment is understandable yet worrying, as the initial supply shock and latent demand shock mean the operating environment will remain suppressed, CCS said.
INDIVIDUALS
Credit extended to individuals moved down in October to 4.2% from 5.2% in September. This was due to a slowdown in lending growth across all lines, especially mortgages which decreased by 0.5 percentage points to 4.3%.
Moreover, there was a significant slowdown in lending growth in short-term credit facilities which have been a primary motivator for growth over the year as households continue to face troubling times.
Overdrafts increased by 3.6% (N$80.4 million), down 0.6 percentage points from the previous month, and other loans and advances grew by 11.0%, or N$961 million, IJG pointed out.
Growth in other loans and advances has remained elevated with double-digit growth. However, net repayments have been made on a monthly basis since April this year, although this trend has stopped over the past two consecutive months.
Over the month other loans and advances grew by 1.1%. The extreme reliance on short-term debt facilities is worrying, particularly given the duress household incomes have come under this year, IJG added.
Mortgage loan extension growth slowed to 4.3%. This category it is the primary driver of growth in credit extension as it accounts for 69.3% of total extensions.
“However, we maintain that very little of this growth is organic”, IJG said.
OVERALL
Total credit extended to the private sector (PSCE) increased by N$71.6 million or 0.1% month-on-month in October, bringing the cumulative credit outstanding to N$102.95 billion.
On a year-on-year basis, private sector credit extension increased by only 1.0% year-on-year in October, compared to 1.5% growth recorded in September, IJG pointed out.
This represents the lowest level of annual growth on our records dating back to 2002 as issuance continues to slow.
N$2.39 billion worth of credit has been extended to individuals on a 12-month cumulative basis, while corporates and the non-resident private sector decreased their borrowings by N$975 million and N$369.4 million, respectively.
“If these trends continue, we are likely to see private sector credit extension contract on an annual basis in the coming months”, IJG said.
LIQUIDITY,INTEREST RATES
The overall liquidity position of commercial banks improved significantly in October, increasing by N$889.4 million to an average of N$3.10 billion during the month. The increase in liquidity came about as a result of increased government expenditure and interest payment from the state during the period under review.
Due to the increase in liquidity, the outstanding balance of repo’s fell from N$116.0 million to zero by month-end, IJG pointed.
The South African Reserve Bank’s Monetary Policy Committee announced that there would be no change to the repo rate. Namibia thus maintains its 25bps spread over South Africa, with the repo in Namibia being 3.75%.
“We maintain that a spread should be maintained for the foreseeable future as any deviation to the upside motivates financial flows into Namibia, especially at higher spread levels, and may help bolster our reserve position”, IJG said.– [email protected]
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