Household credit grew by 5.4% year on year in March 2023, the fastest pace in growth since May 2020, buoyed by loans and advances, latest data shows.
According to the data from the Bank of Namibia, the surge was attributed to an 18.2% increase in loans and advances, a 3.2% y/y increase in mortgage loans, a 2.5% y/y increase in instalments and leasing credit, and a 0.8% y/y increase in overdrafts, also making it the first-time household overdrafts have expanded since February 2020.
The private sector also saw growth in credit extension to 3.9% y/y in March from 3.1% y/y in February, meaning that the annual credit growth is 3.2% y/y which is very close to the 4.6% growth prediction indicated by Simonis Storm’s Economic Outlook 2023 report.
However, analysts still warn that less credit is being extended to the private sector and that the value of credit is growing at a slower rate than inflation, therefore decreasing the real value of credit.
“Adjusting for inflation, real private sector credit extension paints a different picture. Since December 2020 to date, real private sector credit extension has been negative, indicating that less credit has been extended to the private sector. In other words, the nominal value of credit is growing at a slower pace than inflation and so the real value of credit is decreasing,” said Theo Klein from Simonis Storms.
Klein further stated that the negative growth could be attributed to a number of factors such as low demand for credit, and difficulties extending credit.
He further explained that some banks do see demand but are unable to extend credit because of restrictive models, they are unwilling to take the risk, or their head offices in South Africa do not approve of the extension.
“Negative credit growth has consequences for economic growth as it could lead to a decrease in investment as businesses battle to obtain credit in this environment. Our economic recovery from the lockdown-induced recession has not been broad-based, with growth being focused on only a select few sectors. Only 42% of all the sectors in our economy have recovered back to pre-pandemic levels, for example. This could partly explain why some banks do not see bankable or financially viable projects at the moment,” said Klein.
In terms of credit uptake by corporates, BON reports that credit growth was driven by businesses in the manufacturing and wholesale and retail sectors.
“Credit uptake by corporates posted its best monthly annual growth rate for the year thus far in March 2023, increasing by 1.8% y/y. Credit uptake was mainly supported by instalment and leasing credit, up by 12.8% y/y, and other loans and advances, up by 7.1% y/y, with the rest of the debt instruments all contracting,” explained Klein.
Klein further notes that factors such as high inflation levels, high unemployment rates, rising interest rates, and economic uncertainty are some of the reasons why banks are reluctant to extend credit.
“Average non-performing loan ratios across the locally listed banks have increased materially since 2019; the same can also be said of credit loss ratios. Also, the average loan-to-deposit ratio from all listed banks remains on a downward trend since 2015 indicative of deposit growth outpacing loan advances,” said Klein.
In light of these developments, Klein predicts that at the next Monetary Policy Committee, the Bank of Namibia will hike the repo rate by 25bps, increasing the repo rate from 7.25% to 7.50%, and it should remain unchanged until the end of the year.
