Another year, another increase in private credit

The IJG credit report shows that credit extended to the private sector increased by a moderate N$118.9 million or 0.2% in February 2013 to N$52.7 billion. On an annual basis, private sector credit increased by 17.0%, with total credit outstanding N$7.663 billion more, than a year ago. The moderate month on month growth was due to lower demand for credit from the business sector, while the demand for credit by individuals increased.
The report indicates that the split between business and household credit in total debt outstanding is 38.3% to 61.7%. The pace of overdrafts growth has decelerated significantly after the strongest month on month increase in January, down N$435.9 million after businesses reduced their exposure to short-term lending despite the favourable interest rate environment. The annual growth in overdraft credit moderated to 19.4% at the end of February 2013 from 24.8% at the end of the preceding month. The annual growth in other loans and advances, which represents about 12.0% of total credit to the private sector, slowed moderately to 16.1% at the end of February 2013, from 17.5% at the end of the previous month. The growth is, however, higher, when compared to 12.8% in February last year.
The evident slower growth observed in other loans and advances was attributed to both household and corporate sectors. Mortgage loans increased N$283 million, which contributed 26% to the monthly gain and rose 16.0% on a year on year basis. Credit extended to businesses decreased by  N$298 million or 1.5% during the month and was mainly led by overdrafts. On an annual basis, however, business credit increased N$3.7 billion or 22.9%.
On the corporate side, the Bank of Namibia specifically highlighted the repayment of overdrafts by companies in the energy and retail industries. Credit extended to individuals increased N$403 million or 1.3% during the month, also led by overdrafts which increased N$42 million or 2.3% month on month and is up 26.8% on a year on year basis.  According to the Bank of Namibia non-performing loans started to tick up in 2012 although it still remained well below pre-crisis levels. Non-performing loans are led by mortgages, followed by overdrafts, other loans and advances and instalment credit in the fourth place.
Foreign reserves decreased month-on-month, by 6.6% and 22.3% on a yearly basis to N$16.3 billion at the end of February 2013. The decrease in the reserve holdings is attributed to the commercial banks’ purchases of rand and sales of foreign exchange currencies. The M2 Broad Money Supply annual growth slowed to 10.5% in February 2013, when compared to 13.7% in January. It is, however, higher when compared to 9.4% at the end of February last year. The reduction in domestic claims was the main contributor to the subdued growth in M2 at the end of February 2013. The lower growth in domestic claims was due to a decline in claims on other sectors as a result of a reduction in credit extended to businesses. Short and long term deposit holdings of most institutional sectors also trended downwards contributing negatively to the growth in M2.