Corporates could be the ray of light to the economy- analysts
The increasing appetite for debt by corporates could be the ray of light to the localeconomy if it is used for growth stimulation according to analysts from Simonis Storms Securities.
The firm said this following Bank of Namibia’s latest credit reports which show that credit extended through corporates increased by 4.3% in May 2018 on the back of an increase in mortgage loans of 10.2%. In addition, debt through Private Sector Credit Extension (PSCE) stood at N$91.5 billion in May 2018.
According to BoN Private Sector Credit Extension increased at a slower pace of 5.5% year-on-year (y-o-y) in May 2018 halting a four months upward trend.
Simonis Storms analyst, Indileni Nanghonga said the slow growth rate can be ascribed to a continuous contraction in instalment credit (-5.5% y-o-y) coupled with slow growth in mortgage loans and overdrafts of 7.5% y-o-y and 3.5% y-o-y, respectively.
“On a monthly basis, we observed slow growth in mortgage loans of 0.2% compared to 0.9% in the prior month. Instalment credit contracted by 5.5% compared to a 5.1% contraction in the prior month,” Nanghonga added.
Additionally, households extended their borrowing through unsecured lending which increased by 12.6% y-o-y, while secured lending continued its downward trajectory. Lending through overdraft facilities extended through households increased by 3% m-o-m in May compared to a 0.3% contraction in the prior month.
Furthermore, government debt database for June released by Bank of Namibia shows that domestic debt increased by 16.8% y-o-y in June compared to a 27.8% recorded in the prior year. Total domestic debt stood at N$50 billion at the end of June which is double the levels seen in 2015.
“The slowdown can be attributed to a slow growth rate in longer than 12 months securities which increased by 7.3% compared to 26.3% recorded in the prior year. Despite the slow growth in longer dated maturities, borrowing through treasury bills and inflation linked bonds increased drastically by 29.3% y-o-y and 29% y-o-y, respectively. This is evident in the low appetite for long term maturities and high demand for short term maturities in the bond auctions,” Nanghonga said.