WINDHOEK – According to stockbroking firm IJG Securities, private sector credit extension in Namibia during November 2013 expanded by 13.3 percent on an annual basis, and 2.6 percent on a monthly basis. While this growth remains strong, IJG says it is a decline when compared to the previous month, both in terms of monthly and quarterly growth.
“The primary reason for the growth slowdown, however, is base effects following abnormally high corporate credit growth of 30.2 percent in November 2012. As such, the nominal monthly growth in credit for November 2013 was N$1.5 billion, whereas the growth for October 2013 was just N$0.99 billion. The strong growth showing in November was underpinned by strong expansion in both the corporate and household segments of the market, however the reasons for the strong demand from the two segments remain divided,” read a statement from IJG.
The firm also noted that credit extension to households expanded by 14.7 percent on an annual basis, and 1.7 percent on a monthly basis in November, which is a marginal decline in growth when compared to the preceding month. However, the firm noted that current growth remains well above the long-term average level. Said IJG: “The ongoing strong growth in credit extension to households can be largely ascribed to prolonged and historically low interest rates in Namibia, allowing for the relatively cheap uptake of credit by interest sensitive households.”
IJG mentioned that over the past year, the majority of the credit extended to households (N$2.6 billion out of a total of N$4.6 billion) was in the form of mortgage loans, which expanded by 12.4 percent, largely reflecting strong house price increases in Windhoek and at the coast. As a result of such house price increases predominantly over the past decade (November 2003 – November 2013), the share of mortgage loans to total loans extended to individuals has increased from 52 percent to 66 percent.
As well as mortgage loan growth, the other main category of credit extension driving growth in household credit is that of installment sales, which expanded by 15.2 percent in November, year-on-year. Installment sales credit includes credit extended for the purchase of vehicles, electronics and other consumer goods bought with installment contract payments. “Broadly speaking, installment credit extension to households is perceived to be ‘non- productive’, used to purchase consumer goods, most of which are imported in the case of Namibia, placing pressure on the country’s balance of payments and reserves,” remarked IJG.
In the meantime, credit extension to corporates grew by 11.1 percent in November, year-on-year, and 4.4 percent month-on-month. IJG attributes the slight slowdown in growth (year-on-year) to base effects, following abnormally high growth in credit extension to corporates in November 2012, of 30.2 percent.
“Unlike credit extension to households, high growth in credit extended to corporates is unlikely to be as a result of low interest rates, as corporates in Namibia tend to be less sensitive to interest rate changes than households. Thus, the current strong credit extension to corporates is likely to be driven by a positive business climate in Namibia, resulting in increased demand for credit for expansion purposes, rather than recurrent expenses,” noted IJG.
Over the past year, the majority of the growth in credit extension to households has been made up of “other claims”, which expanded by 83 percent, or N$1.3 billion, over the period. Other claims are made up of credit extension not captured in mortgage, installment and overdraft loans and generally reflects individually negotiated loans for expansion purposes within corporations in the country.
While “other claims” expanded by over 80 percent year-on-year, overdrafts to corporates in Namibia contracted by 4.4 percent over the period, further highlighting a strong business climate as local institutions are more able to fund recurrent expenditure out of cash flow, rather than short-term overdraft debt.
By Staff Reporter