2018 real GDP growth of 3.5% will have minimal impact on deposits and private sector credit – BMI forecast
Credit growth will accelerate in Namibia over 2018 relative to 2017 as the economy picks up steam, according to a Fitch Group company, Business Monitor International (BMI) Research.
BMI this week in their Industry Forecast said however, slowing deposit growth and the fact that the recovery in real Gross Domestic Product will be driven by the agriculture and mining sectors that do not typically rely on bank funding, mean that the firm believes that lending growth will still remain below the recent average.
“Credit growth in the Namibian banking sector will remain below the average rate from the previous decade in 2018 while deposit growth is likely to slow relative to 2017 as interest rates fall,” the research firm added.
According to BMI, the loan-to-deposit ratio remains near 1.00 suggesting little capacity for additional lending on the existing deposit base and although banks have alternative avenues through which they could finance credit growth, BMI said “We do not believe that credit demand will be strong enough to warrant tapping these sources.”
BMI is forecasting credit growth of 7% year on year in 2018, up only marginally from an estimated 5% in 2017 while they expect deposit growth to come in at 8%, down from an estimated 10% in 2017.
“We expect deposit growth will slow in 2018 relative to 2017 largely due to our expectation that deposit rates will fall in line with an expected 25 basis point reduction to the benchmark interest rate. Furthermore, we believe that inflation, which came in at 5.2% in December 2017, has bottomed and that it is likely to rise to average 5.5% in 2018, meaning that savings rates will fall even more in real terms than in nominal terms, discouraging saving in the form of deposits,” BMI added.
In terms of economic growth though, BMI in their forecast said it will accelerate to 3.5% in 2018, up from an estimated contraction of 0.6% in 2017, but this growth will be driven by the mining and agriculture sectors, which have not historically relied on funding from the domestic banking sector for expansion.
“Indeed, despite together making up around 12% of output in 2016, the two sectors accounted for less than 6% of outstanding credit as of September 2017. The increase in economic activity is likely to be accompanied by some increase in demand for credit, hence our expectation that lending growth will accelerate more rapidly in 2018 than it did in 2017. However, we doubt that it will reach anywhere near the 14 .4% annual,” BMI said.