No significant increase in uptake of credit despite various repo rate cuts
While there was a cumulative 2.75% reduction in the repo rate since the beginning of 2020, there has been no significant increase in uptake of credit.
This is according to the latest private sector credit extension report by the Bank of Namibia which shows that there was an increase of 0.76% (N$774.1 million) in credit extended to the private sector by in August.
Despite this increase, experts opine that with the economic activity remaining very low and banks being prudent in extending credit, most of the credit uptake in August has been short-term borrowings by corporates.
Credit extended to corporates grew by 1.8% monthly and 1.7% yearly in August, following the 1.5% monthly and 1.2% yearly contraction in July, this while credit extended to individuals remained steady at around 0.3% monthly, but increased by 4.3% yearly.
IJG Research in their analysis noted that continued reliance on short-term credit is a sign of businesses that are under financial pressure as short-term credit is not typically used to invest in capital projects.
“The uptake in mortgage loans by individuals is somewhat encouraging, although it could simply be that individuals are taking advantage of the low interest rate to borrow against their existing home loans as it is a relatively cheap source of funding,” IJG said.
As there are very few catalysts for economic growth at present, IJG does not expect to see a recovery in credit extension in the short term.