More and more Namibians are expected to feel the pain of the forecasted 100bps hike in the repo rate before the end of 2022.
Economic research firm Simonis Storm said the Bank of Namibia hike will drive up average mortgage and vehicle loan rates from 9.5% and 10.5%, to 10.5% and 11.5% respectively by 4Q2022.
“This would place indebted households and corporates in a worse financial position given that mortgages constitute the largest component of total household and corporate debt. Corporates battling to keep their doors open with the use of overdrafts would find it more challenging to do so as rates continue to rise,” Simonis Storm economist Theo Klein said.
He warned that should house prices continue to decline, borrowing capacities should deteriorate further, which would lead to less consumption spending.
“This coupled with rising interest rates could weigh on economic activity as consumption spending is about 70% of GDP. House prices increased by 14.6% on average per annum between 2010 and 2015, whereas mortgage loan growth averaged 13.5% per annum during the same period. As property assets increased in value, net worth and spending to income levels rose which in turn increased borrowing capacities. Post 2015, house prices have increased by 1.9% on average per annum and mortgage loan growth averaged 6.3% per annum during the same period.”
This comes as credit extended to the private sector in May increased by 4.5% y/y, compared to 3.8% y/y in April.
“This is the fastest pace in credit growth since March 2020.YTD, credit growth has averaged 3.2% – above our forecast of 2.9% for 2022 – and has improved above levels seen in 2021 during the same period,” Klein said.
Net household debt for the period increased by 2.4% y/y in May and remains on a declining trend since the start of 2022.
Klein noted that this was mainly supported by a 5.2% increase in other loans and advances and a 2.4% increase in mortgages.
Overdrafts, which went down 1.7% y/y, and a marginal 0.1% growth in installment and leasing credit weighed on household debt in May 2022. Net corporate debt increased by 7.4% y/y in May, approaching its pre-pandemic long run average (14.0%) at a faster pace than households (long run average for households is 11.4%).”
The rise in corporate credit in May according to the Bank of Namibia figures, was mainly from an increase in short-term asset backed credit facilities and other loans and advances from businesses in the commercial and retail services sector, as well as the commercial rental property sector.
“Corporate overdrafts decreased by 5.2% in May 2022 due to repayments from businesses in the energy, mining, transport and government services sectors.”
Economic analysts have predicted that the Bank of Namibia will announce two more rate hikes before year end.
