Private sector credit in January increases by N$304.6 million
Private sector credit increased by N$304.6 million or 0.3% m/m in January bringing the cumulative credit outstanding to N$104 billion, according to latest Bank of Namibia figures.
The month of January saw borrowing of individuals increased by 7% y/y, compared to 7.2% recorded in December. On a monthly basis, household credit decreased by 4.4% while corporate borrowing grew by 7.5% in January, rising at a quicker rate than the 7.1% increase recorded in December.
The decline in household credit stems from individuals paying back overdrafts during the month under review while the increase in corporate credit comes from an increase in ‘other loans and advances’ and a 10% increase in overdraft facilities extended to corporates.
January’s private sector credit extension data shows that businesses continue to be dependent on short-term debt, particularly in the form of overdrafts and credit card debt.
According to analysts from IJG Research, the reliance of businesses on short-term debt is concerning, but not unexpected, given the fact that Namibia remains in an economic slump.
“While we do believe that there will be marginal economic growth in 2020, it will largely be due to base effects and not a significant improvement in economic conditions. Businesses and consumers are thus expected to continue to rely on short-term debt as a means of making ends meet for as long as economic conditions remain challenging,” IJG noted.
The Bank of Namibia last month decided to cut the repo rate by 25-basis points at its meeting and while this should provide some relief to heavily indebted consumers, IJG analysts don’t anticipate that further accommodative monetary policy will be effective in stimulating economic activity to the extent that it reverses the current low growth trend.
The overall liquidity position of commercial banks deteriorated further during January, declining by N$935 million to reach an average of N$47.7 million. According to the Bank of Namibia, this decline is a result of seasonal factors following a decrease in cash balances from the banking system over the festive season, as well as commercial banks’ accumulated long positions in liquid assets.
The low liquidity position has meant that commercial banks had to utilize the Bank of Namibia’s repo facility, with the balance of repo’s outstanding increasing from N$1.75 billion at the start of January to N$2.04 billion at the end of the month.