No uptick in credit demand yet
By Africa Economics.
Private sector credit extension (PSCE) slowed to 2.0% y-o-y in December 2020 from 3.1% y-o-y in the month before, according to the Bank of Namibian’s (BoN) latest Money and Banking Statistics report.
Total credit extended to businesses declined by 1.2% y-o-y in December compared with an increase of 1.6% y-o-y in November. This was mainly due to an annual decrease in business mortgage loans, which was mitigated by an increase in business overdraft lending over the same period. On the other hand, the growth in credit extended to households ticked higher to 4.5%y-o-y in December from 4.3% y-o-y in the previous month. The improved growth was mainly thanks to increased residential mortgage lending on an annual basis.
Regarding external liquidity, the stock of foreign exchange (forex) reserves rose to N$31.8 billion at the end of December from N$30.5 billion recorded in the previous month. The central bank said the increase came on the back of net inflows of rand currency ( the Namibian dollar is pegged on par with the South African rand) from commercial banks. Looking at money supply, broad money supply (M2) growth decelerated to 9.0% y-o-y in December, up from 8.4% y-o-y in the previous month.
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 containment measures (albeit less harsh than in Q2) and weak economic stimulus measure.
It is probable that the coronavirus-related downturn will continue in H1 2021, as Namibia and some of its major trade and tourism partners are emerging from a second wave of Covid-19 infections at the start of 2021.
While Covid-19 inoculation programmes have kicked off in some developed countries, many African countries, including Namibia, are lagging behind. Namibia is expected to receive a relatively small emergency consignment (127, 200 doses of the Oxford-AstraZeneca vaccine) for healthcare workers later this month, but large-scale inoculations using the Pfizer vaccine will probably only commence at some point in Q2 2021.
Despite the expected rollout of vaccinations, the chances of another wave of infections in H2 due to the possible emergence of Covid-19 variants or an ineffective vaccine rollout present major downside risks to both economic growth and growth in the monetary and credit aggregates in 2021.