CHAMWE KAIRA
Business lending showed further signs of strain in May as other loans and advances to businesses recorded a third consecutive month of annual decline, reinforcing concerns that weakness in corporate credit is becoming structural rather than temporary, according to analysis by Almandro Jansen of Simonis Storm Securities.
Business other loans and advances contracted by 2.4% year-on-year in May, worsening from a 1% decline in April after growing by 3.3% in March.
Although the loan book increased by N$237.3 million during the month to N$20.2 billion, Jansen noted that the annual decline partly reflects a high base from a year ago.
However, the four-month trend increasingly points to structural weakness, particularly in the commercial and services sectors.
Overall business credit growth slowed to 4.4% in May from 5.5% in April, a deceleration of 110 basis points that returned the annual growth rate to its March level.
The total corporate loan book declined by N$31.5 million to N$52.3 billion, reversing April’s N$542.7 million increase.
Jansen said the slowdown should not be interpreted as a fresh deterioration in overall credit conditions but rather as the expected unwinding of seasonal overdraft borrowing that had boosted lending in April.
Business overdraft credit growth slowed sharply to 6.0% from April’s 12.9%. The overdraft book contracted by N$631.7 million to N$10.2 billion, giving back most of April’s N$687.5 million increase.
According to Jansen, this confirms that April’s spike reflected a concentrated fiscal year-end rebuilding of mining sector working capital rather than the beginning of a sustained lending trend.
While working capital borrowing softened, business investment lending continued to strengthen.
Business installment and leasing credit accelerated to 31.7% in May from 27.7% in April, the strongest growth rate recorded in the series.
The instalment credit book expanded by N$223 million to N$8.6 billion, signalling a strengthening capital investment cycle.
Jansen said May’s figures represent an orderly normalisation following April’s temporary overdraft surge, while investment-related borrowing continues to strengthen.
Nevertheless, he cautioned that the sustained deterioration in business, other loans and advances remains the key concern.
The weakness now appears increasingly structural rather than cyclical and will be closely monitored as higher borrowing costs begin filtering through the economy.
The Bank of Namibia raised the repo rate by 25 basis points in June, lifting the prime lending rate to 10.25%.
Jansen expects the higher interest rate environment could reinforce the pullback in business borrowing during the third quarter.
Meanwhile, monetary conditions continued to tighten.
Broad money supply (M2) growth accelerated to 12.1% in May from 10.5% in April, the fastest pace since July 2020.
The M2 stock reached N$180.5 billion, representing annual growth of N$19.5 billion despite declining by N$550.9 million on a monthly basis because of base effects.
The expansion was driven mainly by domestic claims, which grew 17.0% year-on-year, while the drag from net foreign assets continued to ease.
Net foreign assets remained under pressure, contracting by 4.2% year-on-year compared with a 6.6% decline in April, marking the eighth consecutive month of negative annual growth.
However, Jansen cautioned that the improved annual rate largely reflected base effects rather than stronger external balances.
In absolute terms, net foreign assets fell by N$2.9 billion during May to N$80.9 billion, reversing part of April’s N$11.1 billion recovery.
Official international reserves also declined by 5.8% during the month to N$55.4 billion, mainly because of net rand outflows.
Despite the decline, reserves remained sufficient to cover 3.5 months of imports and stood at 9.5 times currency in circulation, down from 10.5 times in April, leaving the central bank with adequate buffers to defend the currency peg.
On the fiscal side, domestic claims continued to reflect rising government financing requirements.
Net claims on government surged by 68.7% year-on-year, up from 63.6% in April, with government borrowing reaching N$54.8 billion after increasing by N$2.4 billion during the month.
Jansen said the renewed acceleration in government borrowing, following a brief moderation between March and April, suggests financing needs are becoming structural rather than seasonal, increasing the risk of fiscal-driven inflationary pressures.
