Acceleration in private sector credit is nearing stall speed
The not-insignificant increase in mortgage credit extended by the commercial banks was not sufficient to have an impact on the overall new credit mix. While annual mortgage credit for October 2017 increase by 0.7 percentage points compared to September, growth in total private sector credit still decelerated by another 0.2 percentage points.
In September 2017, annual growth in private sector credit only measured 5.4% compared to September last year. This figure reflects the very subdued demand for new credit from both the corporate sector and private households. For October, the same measurement came down further, registering a dismal 5.2% growth.
The long-term average for Namibian Private Sector Credit Extension, is around 13.4%. This is a monthly reading compared to the same month a year ago. Current levels of new credit indicate that credit demand has decreased by a factor of 2.5 compared to the average of earlier years. It is indicative of a severe lack of business confidence, and an overwhelming level of indebtedness of private households. In short, families are leveraged to the hilt, and the only demand is for overdraft facilities, i.e. short-term funding while the entire economy is treading water. But even the growth in demand for overdraft facilities is stalling fast.
At the end of October, the nominal value of all private sector credit came to only N$88.5 billion.
The mortgage credit increase from 7.5% in September to 8.2% in October, is the first sign in many month of higher demand for credit for capital investments, but it can also be due to refinancing on existing properties and must first be corroborated by building plans completed before a turning point can be identified. At this point, it is not.
In its monthly overview of banking statistics, the Bank of Namibia said the rise in mortgage credit was seen for both businesses and households, but the contribution from businesses was bigger, in line with commercial property developments in the coastal market. Over the medium term, however, the growth in mortgage credit showed a moderate downward trend since July 2016 after the introduction of the mandatory Loan to Value ratio for all mortgage deals.
Overall credit growth to the corporate sector took a further blow in October, decreasing by 0.2 percentage points from 2.4% in September to 2.2% in October. The decrease was driven mostly be a lack of demand for short-term financing which almost halved registering only 5% in October. Similarly, the category Other Loans & Advance decreased on a monthly basis from 3% to only 1.6%.
Although the demand for short-term credit is slightly higher for private households, the growth in overall credit to individuals decreased by 0.1 percentage point on a monthly basis to 7.4% in October. According to the Bank of Namibia, this corresponds to the continued decrease in vehicle sales for October.
Overdraft credit which makes up 12.6 of total new private sector credit also started reflecting conditions in the broader economy, decreasing by 3.7 percentage points to a growth rate of only 6.6% for October, compared to October last year. This metric is now also in dangerous territory.
Compared month to month, the Bank of Namibia stated “On a nominal basis, overdraft credit extended to businesses stood at N$8.1 billion at the end of October 2017, lower than the N$8.7 billion in the previous month.”