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Private sector credit extension driven by strong business demand

2018-10-03  Staff Reporter

Private sector credit extension driven by strong business demand

WINDHOEK - The most recent statistical data from the Bank of Namibia (BoN) for August 2018 that covers, amongst others, the extension of credit to the private sector (PSCE) shows that total credit extended to the private sector rose by 1.5 percent from N$93,409 million in July to N$94,783 million in August 2018. 

Local economist, Klaus Schade, a Research Associate at the Economic Association of Namibia, notes that this is the strongest month-on-month increase in almost three years. “In November 2015 PSCE increased by 1.9 percent compared to October 2017. In absolute terms, PSCE grew by N$1,375 million in August compared to July after an increase by N$293 million in July compared to June,” said Schade in his commentary on these latest figures.  

According to Schade the overall increase in credit extension was driven by businesses. “After a decline in credit extended to businesses by N$159 million in July compared to June, demand by businesses increased strongly by N$886 million or by 2.4 percent in August compared to July. It is the strongest month-on-month growth since November 2015 (2.6 percent). 

“The overall stronger increase of credit extended to businesses than credit extended to individuals is good news, since credit to individuals is often used for consumption that does not yield an economic return. However, it remains to be seen, whether the demand for credit by businesses can maintain the momentum, since the economy is still facing headwinds in terms of rising fuel prices, depreciation of the currency and lower commodity prices (with the exception of oil),” Schade explained.  Meanwhile, the BoN figures also indicate that credit extended to individuals grew by N$452 million in August, which was slightly below the growth in July by N$473 million. On a month-on-month basis credit extension slowed down from 0.9 percent in July to 0.8 percent in August.  

PSCE to businesses increased by 4.3 percent since the beginning of the year and to individuals by 3.5 percent. Schade noted that both these rates exceed growth experienced in August 2017 of 3.7 percent and 2.6 percent for businesses and individuals respectively.  

Also, credit extended to individuals accounted for 58.6 percent of total credit extended to the private sector compared to 40.1 percent extended to businesses.  

Mortgages absorbed 52.1 percent of total credit extended, which is below the average so far this year. “Mortgages were driven by individual demand that increased by 1.1 percent month-on-month to N$37.9 billion, while demand by businesses dropped minimally by 0.01 percent to N$11.5 billion. Mortgages extended to individuals rose by 4.6 percent since beginning of the year, which is above the growth rate experienced over the first eight months of 2017 (2.4 percent). In contrast, mortgages extended to businesses grew by 9.7 percent until August 2017, but by only 2.2 percent until August 2018. 
“On a year-on-year basis (August 2018 compared to August 2017), the value of mortgages increased by 7.2 percent, which is the second lowest growth rate for the last eight years. In August 2010 mortgages rose by just 4.9 percent, while in July 2018 they increased by 6.7 percent.” 

2018-10-03  Staff Reporter

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