Credit extension remains strong

According to Capricorn Investment Holdings? group economist, Rowland Brown the increase in PSC growth can be ascribed to growth from both business and individual credit extension.

?However, growth in extension to individuals has been exceptionally high, compared to extension to businesses that has been relatively low in 2012,? Brown said.

Overdraft lending to businesses continued to contract (by 2.8 per cent) in May, displaying continued health of local business?s balance sheets.

?In May, Namibia?s PSC growth fell from 13.2 per cent to 12.8 per cent. Over the same period, South Africa?s PSC growth jumped from 7.33 per cent to 8.31 per cent.

?Due to this, the spread between South Africa?s PSC growth and Namibia?s PSC growth narrowed from 5.87 per cent in April to 4.49 per cent in May,? he said.

Brown says that the significant levels of PSC growth in Namibia so far in 2012 illustrate a strengthening of demand for credit in the country, as expected given the 30 year low interest rates and a recovering economy.

South Africa experienced a contraction in PSC at the end of 2009 and the start of 2010. In this same period, Namibian PSC continued to grow at 9.5 per cent on average.

Business and Household Credit

Both business and individual credit extension growth were high in May, although credit extension growth to businesses was lower than in the previous month.

Credit growth to individuals increased from 13.0 per cent in April, to 13.1 per cent in May, while credit extension growth to businesses decreased from 13.6 to 12.2 per cent over the same period.

?This slight reduction in year on year growth is partly due to exceptionally high growth in business lending in 2011, and partly due to a contraction in overdraft lending of 2.8 per cent between April and May 2012,? Brown said.

Mortgage lending has contracted since August 2011, however the magnitude of such contractions has been declining over recent months.

Credit to companies increased from by N$1.9 billion between May 2011 and May 2012.

The majority of this increase in business credit extension was driven by increases in mortgage loans (which increased by N$1.1 billion over this one year period).

Individual credit extension increased by approximately N$3.5 billion between May 2011 and May 2012.

The main contributors to this growth, according to Brown came from increased mortgage lending, which increased by approximately N$2 billion over this year period.

Instalment credit too increased dramatically over this year period, by almost N$868 million.

Mortgage credit

Brown says that mortgage lending makes up the largest component of total loans advances.

Since May 2011, credit extension for mortgage loans has average 14.5 per cent. Growth in May 2012 however was slightly below this at 13.9 per cent.

Mortgage loans to businesses increased by 24.8 per cent, while extension to individuals was 11.3 per cent.

He is of the opinion that the current rate of growth remains extremely high compared to past years, and is largely driven by the significant reduction in the repo rate (and thus prime and mortgage lending rates) seen since January 2009.

Mortgage loans now total N$24.9 billion, of which a fairly paltry N$5.4 billion is business mortgages and N$19.5 billion is mortgage loans to individuals.

- MONEY AND CREDIT REPORT, CIH