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Credit appetite improves but remains poor

Credit appetite improves but remains poor

Despite cutting interest rates to record lows, payment holidays for borrowers, liquidity relief measures, and loan schemes to encourage credit extension, the sharp contraction in economic growth amid the ongoing global COVID-19 pandemic continues to sap domestic credit demand.

This is according to Eloise du Plessis, head of research at PSG Namibia, responding to the private sector credit extension growth, which ticked higher in November 2020, but remains modest by historical standards.

The Bank of Namibia reported that Namibia’s this growth ticked higher to 2.7% year on year in November from only 2% recorded in the previous month.

The Bank stated that the growth in total credit extended to businesses recovered to 0.7% y-o-y in November from -0.8 in October last year, due to an increase in demand for short term credit facilities by businesses in the wholesale retail trade industry as well as the agricultural sector. This while growth in credit extended to households slowed slightly to 4.1% y-o-y in November from 4.2% in the previous month.

Du Plessis said that the recent trend in monetary and credit aggregates supports the expectation that economic growth remained weak in the fourth quarter of 2020 amid continued COVID-19 containment measures (albeit less harsh than in the second quarter) and weak economic stimulus measures.

“It is probable that the coronavirus related downturn will continue in the first half of 2021 as Namibia and some of its major trade and tourism partners are in the midst of a second wave of COVID-19 infections at the start of 2021,” she said.

Du Plessis explained while COVID-19 vaccines are starting to be rolled out in some countries and Namibia could possibly start its own vaccination programme in the second quarter (via its participation in the Covax facility), the impact of vaccines on the pandemic will not be immediate due to the time involved to distribute the vaccines and the fact that the programmes will initially target frontline health workers and vulnerable groups only.

“The possibility of further waves of infections in second half of 2021 is a major downside risk to both economic growth and growth in the monetary and credit aggregates in 2021,” De Plessis added.


 

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Donald Matthys

Donald Matthys has been part of the media fraternity since 2015. He has been working at the Namibia Economist for the past three years mainly covering business, tourism and agriculture. Donald occasionally refers to himself as a theatre maker and has staged two theatre plays so far. Follow him on twitter at @zuleitmatthys