Martin Endjala
Although the country’s economic recovery is in its early stages, credit growth will have to improve in order to support improved economic growth rates going forward.
According to Economist Theo Klein, a myriad of other factors also needs to change in order to support higher growth, but prolonged negative real credit growth can limit growth.
“Various factors would likely also have to change, whether it’s the mathematics behind internal models used to assess credit risk by banks or local businesses and entrepreneurs coming forth with better ideas that are bankable,” he said.
Klein does not foresee higher interest rates as a deterrence to credit demand. He does, however, expect the Bank of Namibia to hike its repo rate by 25bps at their next Monetary Policy Committee meeting on 14 June 2023.
This will take the repo rate from 7.25 percent to 7.50 percent. He anticipates that the repo rate will remain unchanged until year-end.
Additionally, due to high inflation levels, high unemployment rates, rising interest rates and economic uncertainty, banks are said to be less inclined to extend credit in a higher default-risk environment.
Average non-performing loan ratios across the locally listed banks have increased materially since 2019, the same can also be said of credit loss ratios. Also, the average loan-to-deposit ratio from all listed banks remains on a downward trend since 2015 (Figure 13), indicative of deposit growth outpacing loan advances.
Meanwhile, Private Sector Credit Extension has increased by 3.9 percent in March 2023, compared to 3.1 percent in February. For the first quarter of 2023, annual credit growth averaged 3.2 percent, compared to 2.5 percent.
To-date credit growth averages 3.2 percent and shows signs of improvement following a weak start to the new year when January recorded a meagre 2.6% annual growth in credit.
According to Simonis Storm’s Economic Outlook 2023 report, it is further forecasted credit growth to average 4.6 percent in 2023.
Since December 2020 to date, real private sector credit extension has been negative, indicating that less credit has been extended to the private sector. In other words, the nominal value of credit is growing at a slower pace than inflation and so the real value of credit is decreasing.
Real credit growth is negatively impacted due to low consumer demand for credit and banks not unwillingness to lend or experiencing difficulties to provide credit due to other factors.
“Some banks see demand for credit, but then their internal models have become very restrictive. Other banks do not see bankable projects and are unwilling to take on excessive risk, whilst other banks are keen to give loans but their head office in South Africa is not. These factors partly explain our low credit growth data points”, explained Klein.
Furthermore, Negative credit growth has consequences for economic growth as it could lead to a decrease in investment as businesses battle to obtain credit in this environment.
Namibia’s economic recovery from the lockdown-induced recession has not been broad-based, with growth being focused on only a select few sectors.
Where only 42 percent of all the sectors in the country’s economy have recovered back to pre-pandemic levels for example. This could partly explain why some banks do not see bankable or financially viable projects at the moment.
On a lighter note, household credit grew by 5.4 percent since March 2023, compared to 5.0 percent in February 2023. This was the fastest pace in household credit growth since May 2020).
The household credit uptake was mainly supported by growth in other loans and advances by 18.2 percent and mortgage loans stood at 3.2 percent, while instalment and leasing credit uptake stood at 2.5 percent and overdrafts at 0.8 percent.
Where Household overdrafts recorded a monthly annual expansion for the first time since February 2022.
Credit uptake by corporates posted its best monthly annual growth rate for the year thus far, increasing by 1.8 percent compared to 0.4 percent in February and -0.6 percent in January 2023.
Credit uptake was mainly supported by instalment and leasing credit and other loans and advances with the rest of the debt instruments all contracting the overall credit growth which was driven by businesses.
