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New credit to private sector crashes again following aggressive repo rate hikes

New credit to private sector crashes again following aggressive repo rate hikes

Credit extended to the private sector resumed its downward trajectory when overall Private Sector Credit Extension (PSCE) decreased to 1.5% in May, down from 2.6% in April.

Released last week Friday, 30 June, the Bank of Namibia’s Money and Banking Statistics report for May 2023, paints a comprehensive picture of the dismall state of credit demand in the private sector.

The bank said the overall decline in PSCE growth is explained by higher net repayments by corporates in the services and manufacturing sector coupled by a decrease in demand in the review period.

The report shows that credit extended to businesses contracted further at the end of May by 3.4%. In April the contraction was still a relatively mild 0.8% but still within the pattern of an overall decline in credit demand by the private sector. The May report confirms the trend that became apparent since the central bank started hiking the repo rate aggressively in 2022.

The decline in credit to businesses is ascribed to repayments made on other loans and advances, as well as on overdrafts and mortgages.

Reflecting the strain suffered by households to stick to budgets, loans to households rose by 5.2% in May compared to a year earlier. Credit extended to private households in April 2023 set a similar pattern, having risen by 5.1% compared to last year.

“Demand for credit with respect to mortgage loans, personal loans and credit cards rose, contributing to this growth during the period under review,” the report states.

Overdraft credit followed the receding trend, contracting by 1.2% in May compared to a slightly bigger contraction of 1.8% in April.

The slack demand for credit was also visible in the category “Other Loans and Advances” which grew by a modest 1.6% in May compared to May 2022. This was substantially lower than the 6.9% growth recorded in April 2023, compared to April 2022.

The only positive note in this sea of depressed statistics stems from Installment Sales and Leasing Credit which rose by a hefty 8% in May, after rising 6.8% in April. “The rise mainly stemmed from an increase in demand from both the household and business sectors, more specifically car rental agencies,” stated the report.

Finally, mortgage credit remained sluggish rising only 0.9% in May compared to a year earlier. Mortgage demand in April was equally disappointing, growing by only 0.8% compared to April 2022.


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