Microfinance institutions are giving out more loans to the private sector compared to traditional banks, latest figures have revealed.
A report by Simonis Storm shows that credit extended to the private sector from microlenders has been outpacing credit uptake from commercial banks for most of the post-pandemic period.
“Microlending credit extension averaged 4.6% for the first three quarters of 2022 (reaching a high of 8.0% y/y in 1Q2022), whereas credit growth from commercial banks averaged 3.5% during the same time,” said Simonis Storm economist Theo Klein.
“This supports what we have been saying in recent months. From the demand side, there is appetite for loans – despite higher interest rates – however the supply side (i.e. banks) might not be as forthcoming.”
The economist noted that clients were net re-payers on their microloans during the pandemic.
“Note that microlending credit extension data from NAMFISA is not part of private sector credit extension data released by BoN. At the same time that microlending credit uptake has been growing at a faster pace, the number of clients at microlenders has been declining. The average loan amount per client increased from N$26,091 in 1Q2019 to N$31,336 per client in 3Q2022. Since 3Q2021, the number of term lenders (i.e. longer-term loans) has decreased whereas the number of payday lenders (i.e. high interest short term loans) increased,” he said.
Klein highlighted the financial strain that rising living costs have placed on household budgets and so raising the immediate need for cash.
“This took place while overdrafts at commercial banks were being repaid, supporting our point mentioned earlier about clients reaching their overdraft limits. In addition, this data to some extent also supports the view that commercial banks are fairly risk averse and so artificially limiting credit growth in the private sector,” he said.
The report also reveals that January typically experiences a pickup in overdraft debt, but more so for corporates than households, with annual overdraft growth in January 2023 being the weakest since 2016 for households and 2012 for corporates.
The company noted a seasonal effect on the growth of overdrafts and corporates have been net re-payers on overdrafts since November 2021 and households have been repaying their overdrafts since March 2022.
Klein added that lower demand for short-term financing could be as a result of most households reaching their limits on overdrafts as this debt instrument has recorded strong double-digit growth post the pandemic in 2020 and 2021.
As a result, households could have switched to alternative financial instruments for financing needs.
This comes as credit uptake by the private sector rose by a meagre 2.6% y/y in January 2023, supported mainly by households. Corporates were net re-payers on their debt in January 2023, especially firms in the wholesale and retail sector according to Bank of Namibia.
Simonis Storm notes that credit growth expanded by 4.7% y/y in December and rose 0.1% m/m to bring the annual figure to 2.6% y/y in January 2023.
Similarly, household credit uptake grew to 4.9% y/y in January 2023 (compared to 4.7% y/y in December 2022), whereas corporate debt declined by 0.6% y/y in January 2023 (compared to 3.5% y/y in December 2022).
Household debt now stands at N$65.1 billion (about 36% of GDP), corporate debt is at N$45.5 billion (about 25% of GDP) and non-resident debt is at N$7.5 billion (about 4% of GDP).
Other loans and advances (e.g. credit card debt, personal loans, etc.) were the main drivers of household debt in January 2023.
On the other hand, corporates were net re-payers on all debt instruments except instalment and leasing credit and other loans and advances.
Meanwhile, Simonis has observed that commercial banks’ investment holdings have increased faster than their loan advances.
The firm notes that of the N$69 billion government bond debt, commercial banks hold about N$7 billion (about 10% of all fixed rate and inflation linked bonds).
“One argument might be that yields on short-term bonds are higher than interest rates and so this encourages investments into short-term bonds rather than advancing loans. This is because banks typically invest in shorter-term bonds and not long-term bonds.”
