Short-term debt flickers red

Jo-Maré Duddy – Total overdraft, personal loans and credit card debt of individuals and businesses have skyrocketed by nearly 119% since 2015 – the last year the Namibian economy recorded significant positive growth.The latest figures released by the Bank of Namibia (BoN) show the private sector – businesses and individuals – owed commercial banks about N$38.58 billion in overdrafts, personal loans and credit card debt at the end of August this year. In August 2015, the corresponding amount was around N$17.64 billion.Compared to August 2019, the private sector’s overdrafts, personal loans and credit card debt increased by some N$2.35 billion or 6.5%.Other loans and advances extended to business rose 6.4% year-on-year to nearly N$16.3 billion, while overdrafts increased by 6.7% to nearly N$10.6 billion.Commenting on the latest data, Cirrus Securities said businesses continue digging into short-term debt facilities “in an effort to maintain cashflow and keep their doors open”.“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,” Cirrus said.IJG Securities said with economic activity remaining very low and banks being prudent in extending credit, most of the credit uptake in August has been short-term borrowings by corporates. “Continued reliance on short-term credit is a sign of businesses that are under financial pressure as short-term credit is not typically used to invest in capital projects,” IJG said.IndividualsIndividuals’ owed banks about N$11.7 billion in other loans and advances, as well as overdraft debt at the end of August – some N$1.1 billion or 10.5% more than a year ago.Other loans and advances increased by 12.4% to N$9.45 billion, while overdrafts rose by 3.2% to N$2.28 billion.“Households are also increasingly making use of short-term credit facilities,” Cirrus said.According to the analysts growth in other loans and advances has remained unusually elevated for 11 months now – with an annual growth rate over 20% since October 2019. Although net repayments have been made on a monthly basis since April this year, the monthly repayments have been very small, generally below 1%, Cirrus added.“The extreme reliance on short-term debt facilities is worrying, particularly given the duress household incomes have come under in the past six months,” Cirrus said.MortgagesMortgage loans to individuals grew by 4.4% or about N$1.7 billion year-on-year and totalled nearly N$40.96 billion at the end of August. This is the slowest growth in 26 months, according to Cirrus.“We maintain that very little of this growth is organic. Rather, given the prevailing economic conditions, we believe that much of the growth captured here is due to existing loans being restructured,” the analysts said.IJG agrees: “The uptake in mortgage loans by individuals is somewhat encouraging, although it could simply be that individuals are taking advantage of the low interest rate to borrow against their existing home loans as it is a relatively cheap source of funding.”Interest rates“Growth in credit extension remains very weak despite the low interest rate environment,” Cirrus commented. “This is less the result of weak demand, but rather of weak tangible demand and increased caution exercised by lenders. The latter is understandable, given that low administered rates do not accurately price the risk in the Namibian economy.”IJG said: “As expected, the various rate cuts by the BoN thus far this year have not led to a significant increase in uptake of credit.” The analysts attributes this to economic activity remaining very low and banks being prudent in extending credit.The BoN has lowered its repo by 275 basis points since February, bringing interest rates to historic lows.The repo has dropped from 6.5% at the beginning of 2020. The prime lending rate of commercial banks in the beginning of the year was 10.25%. It currently stands at 7.5%.Overall credit extended to the private sector (PSCE) increased marginally in August, with growth of 2.6% year-on-year compared to 2.3% year-on-year in July.“However, if credit extended to non-residents is included, overall PSCE growth comes in at 2.2% - below August’s inflation rate of 2.4%. Under this broader definition, credit extended increased by N$2.6 billion year-on-year and N$755.3 million month-on-month,” Cirrus said.Instalment creditThe persistent contraction in instalment credit and leasing continued in August. Year-on-year, this category grew by -11.6% for corporates. Total instalment and leasing debt amounted to about N$3.6 billion, N$475.9 million less than August 2019.The figure for individuals was nearly N$6.4 billion, a decrease of 6.2% or N$428.7 million compared a year ago.According to IJG, there are very few catalysts for economic growth at present.“As a result we do not expect to see a recovery in credit extension in the short term,” IJG said.

Short-term debt flickers red

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