Economists forecast distressed borrowing from businesses and consumers
Economists expect that a portion of credit extension will be distressed by borrowing from businesses and consumers, as economic conditions are expected to remain dire.
Private sector credit declined by N$1.23 billion or 1.19% in April 2020, and Economists from IJG Research doubt that businesses in general will be making use of credit to invest in large capital projects any time soon.
The Bank of Namibia released data for the month of April, showing that the 1.19% decline in private sector credit brought the cumulative credit outstanding to N$102.42 billion.
Credit extended to individuals increased by 5.7% in April, compared to 7.2% recorded in March, mainly as individuals were paying back overdrafts during the month under review. This while corporate credit contracted for a third straight month, declining by 1.5% in April due to repayments of ‘other loans and advances’ by corporates.
Rolling 12-month private sector credit issuance is down 46.6% from the N$6.23 billion figure as at April 2019. Rolling 12-month private sector credit issuance of N$3.32 billion is now at levels last seen in 2010.
IJG Researchers noted that instead of taking on additional long-term credit, many businesses would have applied for payment holidays on their existing credit facilities, as the government imposed lockdowns wiped out their revenues.
“It is for this same reason that commercial banks would have been extra prudent in extending credit during April as the risk of default would have increased because the general economic malaise,” IJG said.
The firm believes that the Bank of Namibia will follow the South African Reserve Bank’s decision in cutting the repo rate by 50 basis points at its June meeting.
“While this should provide some relief to indebted consumers and businesses, it is unlikely that it will increase the risk appetite of the banks and we therefore stick to the view that we don’t anticipate that the more accommodative monetary policy will be effective in stimulating economic activity to the extent that it eliminates the impact of the external shock to the economy,” IJG stated.
Caption: A chart showing the issuance growth in private sector credit over the recent years. (Source: IJG Research).
