The total amount of money, comprised of cash, checking accounts, saving accounts and other types of deposits, in circulation in the domestic economy actually decreased from 9.9% year-on-year (y/y) growth in April 2023, to 7.7% y/y growth in May 2023. According to a Private Sector Credit Extension report for May 2023 compiled by Simonis Storm (SS), this deceleration originated primarily from a contraction in domestic loans (down 0.8% y/y) and the slowing of net foreign assets, specifically foreign currencies and investments, held by depository corporations.
Namibia’s net foreign assets increased by 36.2% y/y in May 2023 compared to an increase of 44.5% y/y in April 2023.
“Financial conditions are tightening following the 400bps cumulative repo rate hikes since December 2021. Private sector credit extension growth slowed to 1.5% y/y in May 2023 (compared to 2.6% y/y in April 2023) – its lowest growth rate since January 2022. The latest data point is half the six-month moving average of 3.0%. Year to date, private sector credit extension averaged 2.7%, compared to 3.2% in the previous year for the same period,” the SS report states.
The report added that slower growth in credit uptake was largely driven by the decline in demand for credit by corporates, which was down 3.4% y/y. SS also noted that businesses were net repayers of mortgage loans, down 4.5% y/y, overdrafts, which were down by 1.2% y/y, and other loans and advances that decreased 7.5% y/y.
Meanwhile, businesses remained net borrowers of instalment and leasing credit, up 14.1% y/y. SS pointed out that corporate credit growth has been weighing on overall credit growth in the private sector.
Moreover, SS further noted that credit extended to households, which accounts for 56% of total credit in the private sector, grew by 0.4% month-on-month (m/m), which translates to 5.2% y/y growth in May 2023.
The report reads: “In the prior month, household credit grew by 5.0% y/y, which we initially anticipated would be the turning point in household credit uptake due to higher interest rates.
Private sector credit extension growth has been on a steep decline since August 2022 as it takes time for interest rate hikes to have an impact on the real economy given the lag in the monetary policy transmission mechanisms. Bank of Namibia (BoN) increased the repo rate by 50bps to 7.75% in June 2023, pushing the prime rate up to 11.5% and additional hikes can be expected. We see affordability concerns rising as households face high living costs in addition to higher debt repayments.”
The SS report mentioned affordability concerns, which the stock brokerage stated could incentivise banks to be more selective with their loan books.
As such, SS’ discussions with banks alluded to a strong bankable project pipeline in the tourism, logistics, mining, and energy sectors which they expect to support credit uptake by corporates in the second half of 2023 or the first half of
2024.
Meanwhile, SS remarked that real consumption spending has been decelerating since the second quarter of 2022, declining by 3.2% y/y in the first quarter of 2023.
“On a quarterly basis, consumption spending grew by a meagre 1.0% q/q in 1Q of 2023, coming from a previous low base of -14.4% q/q in 4Q of 2022. In real terms (i.e. keeping prices constant), consumption spending has surpassed 2019 levels and indicates that households are buying higher quantities of goods and services post pandemic. We have seen the wholesale and retail sector being one of the five best performing industries since 2022. The wholesale and retail sector expanded by 5.7% y/y in 1Q of 2023, following an annual growth of 6.2% y/y in 2022,” SS stated.
Moreover, SS observed that special dividends paid by Namibia Breweries, improved foreign direct investment and elevated payouts from life insurance policies all inject cash into the economy, which can support consumption spending going forward in 2023. “However, cash spending can weigh on overdraft, personal loan or credit card debt instruments offered by banks,” SS cautioned.