Households dominate credit granted to private sector
Credit extended to households remains the biggest component of private sector credit extension (PSCE), accounting for 59% of total PSCE, after an increase by 6.4% to N$58.4 billion in May 2019, statistics availed by the Bank of Namibia show.
However, growth in credit extended to households has been increasing at a slower pace since 2016 and the 6.4% recorded in May remains below a 10.5% long term average. Indileni Nanghonga, Analyst at Simonis Storms Securities said the current slow growth indicates the lack of consumer confidence in the economy.
“Household borrowing is being dragged down by less borrowing through mortgage loans, instalment credit and overdraft facilities. However, borrowing through personal/commercial loans and credit cards rose by 23.9% in May 2019, indicating an incessant strain on the consumer. Other loans and advances (personal/commercial loans and credit cards) which usually accounts for 9% of household credit extension is currently registering 12.4%. Further increases in its size of household credit extension could soon become unsustainable,” Nanghonga noted.
Meanwhile, overall PSCE rose by 8.3% year-on-year to N$99.4 billion in May 2019, showing the highest growth rate over the last 26 months. The corporate sector (11.2% year-on-year) contributed largely to the rise in PSCE as demand for commercial property loans and other loans and advances extended to the retail sector, increased.
“Our view is that the current construction activities (flats and houses) in Windhoek have boosted the demand for commercial property loans. However, the rise in overdraft facilities can be attributed to corporates trying to meet their working capital requirements in this dire economic environment,” Nanghonga added.