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Private sector credit extension increased for 13 consecutive months

2018-09-04  Staff Reporter

Private sector credit extension increased for 13 consecutive months

WINDHOEK - The Bank of Namibia (BoN) recently released selected statistical data for July 2018 that indicates that accumulated private sector credit extension (PSCE) to businesses and individuals now amounts to over N$93 billion. 

BoN’s most recent figures indicate that overall credit extension grew by 0.3 percent compared to June 2018 or by N$292.8 million, which makes it 13 consecutive months of increased credit extension after a drop by 0.5 percent in June 2017 compared to May 2017. This is also the strongest monthly growth in PSCE so far this year.

“The slow growth compared to previous years of credit extension to the private sector reflects the subdued sentiments, in particular in the business sector, and indicates that the economy is still facing headwinds. This is particularly true for the construction sector that does not receive much of a boost from the private sector as the slow, month-on-month increase in mortgages suggests,” commented Klaus Schade, research associate at the Economic Association of Namibia.  

Schade noted that the overall increase in credit extension was driven by growth in credit extended to individuals, which increased in July 2018 to an accumulated total of more than N$55 billion. This represents an increase of 0.9 percent compared to June 2018 after a slight decline of 0.1 percent in June compared to May 2018. 

He added that credit extension to individuals rose by 6.7 percent on an annual basis compared to July 2017, which is weaker than the annual growth of credit extension during the months of January to May 2018. 

“It also remains below the double-digit growth during almost all months between January 2011 and August 2016. Annual growth in credit extended to individuals peaked at over 15 percent during the first few months in 2014,” Schade stated.   In contrast, credit extension to businesses dropped by 0.4 percent compared to June 2018 and the accumulated total amounted to N$37 billion. 

However, credit extended to businesses has seen contractions in three of the seven months this year, but remains overall at 2.2 percent above the level at the end of 2017. Annual growth in credit extension to businesses dropped from 4.2 percent in June 2018 (compared to June 2017) to 3.4 percent in July 2018 compared to July 2017. Although this is the second strongest annual growth rate since September 2017, it remains substantially below growth rates experienced since January 2006. 
During the decade of January 2006 to October 2016, credit extension to businesses grew by double-digit figures peaking at 23.9 percent in January and March 2007. 

Credit extended to individuals accounted for 59 percent of total credit extended to the private sector compared to 39.7 percent extended to businesses. Mortgages accounted for 52.4 percent of credit extended while the bulk of mortgages are taken up by individuals, N$37 billion, compared to N$11 billion by businesses in July 2018. 

“While mortgages to individuals increased by 1.0 percent compared to June 2018, mortgages to businesses declined by 1.9 percent over the same period. Mortgages’ share of PSCE has remained fairly stable over time even during the construction boom,” Schade noted. 

2018-09-04  Staff Reporter

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