Windhoek
A higher interest rate environment, coupled with government’s commitment to encourage debt sustainability, have been cited as key factors that contributed to total Namibian debt slowing in February 2016.
The latest Bank of Namibia’s (BoN) monthly statistics show that total Namibian debt, including domestic, foreign, government, corporate and household debt grew by a slower pace of 14.3 percent year-on-year (y-o-y) to N$119.0 billion in February, compared to a debt level of N$118.6 billion recorded at the end of January 2016.
However, total debt grew by 0.4 percent on a monthly basis compared to a 0.0 percent growth recorded in the prior month.
“We view this slow growth pace as indicative of the pass-through effects of a higher interest rate environment that has culminated in lower appetite for credit, as well as the government’s move towards debt sustainability,” reads a credit report by Simonis Storm Securities.
The report points out that household debt, which is the biggest contributor to total debt, grew at a slower pace of 10.8 percent y-o-y to N$46.2 billion, while the month-on-month (m-o-m) growth reached its new record low of 0.4 percent since May 2015.
“We believe that consumers are heading into a state of economic distress as interest rates are expected to increase further on the back of rising inflation, which has negatively impacted the spending behaviour of average households. BON specifically hiked interest rate by 25bps to 6.75 percent in February 2016 after its last rate hike of the same magnitude in June 2015,” reads the report.
Corporate debt also grew by a slower pace of 15.0 percent (y-o-y) and by 0.7 percent (m-o-m) to N$33.3 bllion at the end February 2016. Furthermore, government debt grew at a slower pace of 17.9 percent (y-o-y), but recorded almost no growth at 0.1 percent (m-o-m) to N$39.5 billion at the end of February 2016.
Furthermore, private sector credit extension (PSCE) grew at a slower pace of 12.6 percent y-o-y to N$79.5 billion at the end of February 2016, which is a new record low since May 2012. Meanwhile, m-o-m it grew by 0.5 percent compared to a 0.9 percent the prior year. “The slow growth in PSCE can be attributed to an annual slow growth in most sub-categories,” said Simonis Storm.
Annually, loans and advances grew by 11.9 percent, while growth in overdraft facilities slowed to 5.3 percent, while instalment credit extended to both household and corporates grew by 10.7 percent, compared to 23.9 percent, 17.8 percent and 18.8 percent in the prior year.
Monthly, mortgage loans grew by 0.8 percent, loans and advances by 2.5 percent and installment credit advanced by 0.3 percent compared to 0.1 percent, 0.7 percent and -0.3 percent the prior month. In contrast, borrowing through overdraft facilities contracted by 2.9 percent m-o-m compared to a 6.0 percent recorded in January 2016.
“Given the high expectation for increases in interest rates, we anticipate a downward trend in the appetite for debt instruments by both businesses and households. The observed slow growth in overall PSCE raises policy concerns inasfar as economic growth prospects for 2016 are concerned.
“It suggests little investment in business activities and consumer spending as consumer confidence is expected to be hampered by a weakening Rand and rising inflation,” warned the Simon Storm report.