Private sector credit extension in Namibia remained lackluster in April 2023, raising concerns about its impact on the overall economy, a new report has revealed.
The growth in credit extended to the private sector was 2.5% year-on-year, falling below the 6-month moving average, according to Simonis Storm Researcher Angelique Bock’s Private Sector Credit Extension report for April.
Bock said the trend indicates that if it persists, the credit extension for 2023 is likely to average below the forecasted 4.6%.
The slower growth in credit uptake was primarily driven by a decline in credit uptake by corporates, with businesses being net repayers of mortgage loans and overdrafts.
“Corporate credit growth has been weighing on overall credit growth in the private sector, with household credit growth contributing the most since mid-2022,” Bock said.
She said the results suggest that household credit growth has been a significant factor in sustaining the private sector credit extension.
However, credit extended to households, which constitutes more than half of the total private sector credit, also experienced a slowdown
The growth in household credit slowed to 0.2% month-on-month, resulting in 5.0% year-on-year growth in April 2023.
The researcher said the downward trend is expected to continue into 2023 as cumulative rate hikes and affordability concerns deter the demand for credit.
Bock explained, “the main drivers of credit extended to households were other loans and advances, mortgage loans, and installment and leasing.”
Meanwhile, households continued to be net repayers on overdrafts. Despite rising interest rates, vehicle sales showed an upward trend, with passenger vehicles being the primary driver.
Additionally, local mining companies’ commodity explorations and local transport companies’ increased market share of regional logistics services supported commercial vehicle sales.
The decline in property volumes traded since mid-2020 remained a concern.
Bock noted that corporate mortgages recorded declines, contributing to the decrease in properties being traded. However, households’ mortgage credit growth has supported property volumes being traded recently.
Notably, the Northern and Central areas of Namibia were the main drivers of the total volumes traded in the property sector.
Furthermore, house prices experienced declines in most areas of Namibia, except the coastal area.
“The rise in interest rates and subdued demand led to decreased house valuations, leaving many households in a negative wealth position. However, demand remained robust in the middle segment of the property market, driven by Angolan and foreign buyers interested in buying and renting properties,” Bock said.
Regarding the future outlook, Bock expressed that, “two out of five Monetary Policy Committee (MPC) members might be in favor of a 50bps repo rate hike at the next MPC meeting on 14 June 2023.”
She emphasized that a 25bps hike appears more likely, given the current financial position of the average Namibian household.
Bock also highlighted the need for an improvement in local bankable projects and expressed concerns about private sector credit extension trending lower due to the cumulative rate hikes.
However, Bock noted that there may be some improvement in corporate credit growth as local banks participate in commodity explorations and as activity improves in the tourism and transport sectors.
“Overall, the sluggish private sector credit extension raises concerns about the future economic growth of Namibia. The upcoming MPC meeting will play a crucial role in determining the repo rate and further actions to stimulate credit extension and promote financial stability in the country,” the researcher noted.
